tax parable disciples stoke fire: #ows edition

This morning, I woke to read a post on Facebook. I debated responding, for I typically don’t like getting into disagreements about politics or religion on Facebook. These people are my friends, family and colleagues, and I don’t wish to alienate them.

However, the longer I digested it, the more upset my stomach grew. It’s clear the wealthy still do not understand the plight of the poor. Below, I’ve posted the “Bar Stool Economics” analogy I read on Facebook, and following, is my response.

The fights down at Occupy Wall Street and other Occupations around the world are not about “getting our fair share” or “beating up on the wealthy.” They aren’t only about taxes. They’re about holding big banks and businesses responsible for decades of abuse of honest, hard-working people.

Let’s not just assign numbers to people. Let’s look at both the haves and the have nots as real human beings. Then, maybe the change we desperately need will emerge.

BAR STOOL ECONOMICS

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100 and if they paid their bill the way we pay our taxes, it would go something
like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.)

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” So drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free…but what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’. They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now paid $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before…and the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

“I only got a dollar out of the $20,”declared the sixth man. He pointed to the tenth man,” but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man who was now paying nothing, along with the first four. “I only saved a dollar, too. It’s unfair that he got ten times more than I!”

“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got
only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first five men in unison. “We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmospheres somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia

For those who understand, no explanation is needed…
For those who do not understand, no explanation is possible.

THIS WAS MY RESPONSE:

If only everyone would go out drinking together, we could all figure it out.

My guess, though, is the tenth man would never be caught dead at the same bar as the first man, since the tenth man put the first man there by gambling away the first man’s money in hedge funds and bad mortgages.

The second man is a woman, for it should be clear: not all poor or rich people are men. This woman lost her job in 2008 because she worked for the tenth man’s company and they had to downsize. It’s been four years since she’s held a salaried job, and she’s got two sons going to college. She doesn’t know how she’s going to pay outstanding medical bills after her husband died of kidney failure in 2009.

The third man is pushing seventy, unable to retire because his retirement money was tied up in the stock market, so he works at Wal-Mart to make ends meet.

The fourth man is just getting back on his feet after a couple years of unemployment. He temps in a corporate office but loathes his job and the people with whom he works because he watches them scheming to make more money off the pain and suffering of others.

Perhaps, the reason they’re all ganging up on the tenth man isn’t because he “gets all the breaks,” but rather it’s because the tenth man put them there in the first place and wants them to stay there while he continues to profit from poor people’s misfortune.

But maybe I’m over-complicating it.

I, as the esteemed doctor Kamerschen* says, will probably never understand.

* Upon further research, I discovered (after I posted this on Facebook) David R. Kamerschen, Ph.D. didn’t even compose this parable. It’s been clogging email boxes for almost ten years in different forms with spammers attributing it to various economics experts, including Thomas Davies, a Professor of Accounting at the University of South Dakota. While Professor Davies did share this with his graduate students, he did not write the analogy, and he maintains he shared it only to get students to “think outside the box” regarding tax laws.

As with many viral memes, this is inaccurate, overblown and downright destructive. If you see this parable, please debunk the misnomers within, or at least let people know David R. Kamerschen and Professor Thomas Davies did not pen it.

PS – If you’d like to hear an economist debunk this analogy in more detail, Professor Richard Wolff summarizes the problems in the parable with this video.

if it doesn’t feel right, we shouldn’t be doing it

This is an interesting article written by the editor of Newsweek International, Fareed Zakaria. He follows capitalism in the 20th Century all the way to present day and breaks down how it seems to keep getting worse, but some things are actually getting better because we learn from our mistakes. There needs to be a fundamental shift in ourselves as human beings that ends the madness that we’re currently experiencing (and re-experiencing). Those who do not learn from history…yadda, yadda, yadda…

“…there needs to be a deeper fix within all of us, a simple gut check. If it doesn’t feel right, we shouldn’t be doing it. That’s not going to restore growth or mend globalization or save capitalism, but it might be a small start to sanity.”

– Fareed Zakaria | Editor, Newsweek International

A great side experience that came out of this article is that Newsweek chose to use the work of a Brooklyn collage artist, Mark Wagner, who’s website is www.smokeinmydreams.com. He uses the dollar bill as his primary subject/medium when creating his work.

He is intense and amazing. He also is on the board of Booklyn Artists Alliance, an organization in Greenpoint, Brooklyn dedicated to the art of making books and printing. More on them here at www.booklyn.org

skeletons on the horizon

In 1999, I told a friend that the bottom would fall out of the New York housing market eventually. The friend laughed and said it would never happen because rich people have always moved to New York, and they will continue to do so, buying up or renting properties. When my friend laughed at me, almost ten years ago, I said, “Just you wait. Something that is beyond our imagination will happen, and the New York real estate market will drop.”

Since I moved to New York in 1993, I have not paid more than $850/month in rent. I’ve paid as low as $600/month, and one time I even lived in this city for free (four months on the Bedford L train stop in an illegal basement studio with cockroaches the size of my thumb). And in those 15 years, real estate has gone up, up, up. I’ve never owned a car, apartment or house. A long time ago, I resolved that I probably would never own any of those three possessions while residing in New York City, unless I struck it rich.

Now, in the wakes of the mortgage and economic crises, it has happened. The bubble burst, but I’m still broke. During a time in which the market is dipping its hardest in 60 years, I still don’t have any money. On the upside, the best part about not having any money in an economic downturn is that your life doesn’t really change that much. Others, I’ve seen, are not as lucky. My mother, who dreams of retiring early and moving to New York City to be near her two children and new grandson, now cannot fathom leaving her home in Illinois because she cannot retire due to the damage done to her retirement fund. Even Europeans are shying away from the new real estate, for the economic downturn hits them, too, in this global economy.

The condominiums being built in Williamsburg, Brooklyn, where I’ve held residency for ten years, have all but halted construction. As I sped along in a car on the BQE New Year’s Day, I looked at the lattice of would be condos and wondered what will happen to all of these buildings barley born. Do financiers have the money to finish the projects? What is happening to all the store fronts recently closed or going out of business? Will this city return to the shell it once was in the late 80’s and early 90’s, overrun by crack dens and squatters doped up on heroin? Hey, crack is cheap, and now that we’ve destabilized Afghanistan, smack is more plentiful that ever. It seems conditions might be perfect for a resurgence of the 80’s. If kids start killing kids for their Air Jordans, it’s over.

I trust this scenario isn’t probable, but a recent article in the New York Times and a report by the Associated Press indicate otherwise.

Much debate grows over the focus of how to create new jobs. President-elect Obama seems to be considering a new New Deal, which will provide jobs in construction in repair of interstate highways and bridges. This would be a good proposal, if the thousands of people being laid off were all in the construction business. However the fact is that unemployment in professional services outnumbered that of construction by almost 20,000 people in November of 2008.

We need to turn our focus to generating jobs in technology and other corporate infrastructure to get a large majority of the workforce off the unemployment line. “The Office” replaced “The Honeymooners” as a comedic reflection of the American lifestyle because there are fewer blue collar workers than there were 60 years ago. There are fewer farmers, too. Technology has taken over, and people who once would move to a different state to work construction on roads and bridges are not as prevalent.

President-elect Obama mentioned a “Technology Czar” (it seems as though we have czars for everything these days) as a possible addition to his administration, and I think this is a great idea. The only thing that seems to not be slowing is technology. More computer games, more social networking websites and more intensive business technologies are paving the way for a new perspective on what is important and how we can generate jobs to stimulate the economy. Plus, any new jobs that might be created in construction will take upwards of two years to even implement, so the only reason to work toward creating these jobs is to “promise” that the future will have more jobs. This will drive up stocks as it did with the promise of offshore drilling, which will take 10 years to implement. Building bridges and interstate highways are not an immediate fix to the current problem.

I’m hoping that the skeletons of metal and mortar rising in downtown Manhattan, Harlem and Williamsburg get completed. I never thought I’d say that, but I feel that when they’re completed, it’ll signify that our economy is on the upturn. I hope that the half-finished houses and empty lots across the country get filled up, for the farmland razed to make way for the pre-fabricated houses isn’t returning to farmland any time soon. I hope that we can generate technology based jobs, so the stock market and banks can see the unemployment rate dip down again, which will then give the capital to potential home owners who might purchase homes or condos. Then domestic construction jobs will return.

In the mean time, I’m hoping I sell a screenplay or win the lottery. If I can do that in the next year or so, I might be able to purchase some real estate. Quite frankly, if that happened, I wouldn’t purchase one of those glass monstrosities. I’m looking for a pre-war, classic New York apartment in a co-op building because the condo laws in New York City stink.

______________

As a side note to all of this mumbo jumbo, I saw Danny Hoch’s TAKING OVER at The Public Theater just before the New Year. It’s a thoughtful and angry meditation (if mediation can be angry) on the gentrification of Williamsburg. My white guilt rose into my throat, and I came out of the show wondering if I were part of the problem. After all, I am a transplanted Illinoisan living in a neighborhood that was once filled with Hasidic Jews, Italians, Puerto Ricans, Poles and African Americans. When I first moved here, I raved about how I lived in the most diversified neighborhood ever. These days, most of the people getting off at my subway stop are of the Caucasian persuasion, and I am one of the few tenants on my street who still has a Puerto Rican landlord.

Finally, after much soul-searching (thanks Danny), I realized something: I’m an artist, and artists have been coming to New York City for over a century to make it in the Big Apple. If you can make it here, you can make it anywhere, right? Artists have also been at the forefront of the gentrification problem. I lived in Hell’s Kitchen before it was Clinton. I dwelled in Alphabet City when smack addicts would shoot up in the hallway of my apartment building and avenues A, B, C and D stood for “Aware, Beware, Caution and Death.” And, I had huge art parties in my loft in Williamsburg before many artists lived on my block. What I finally realized is the Hasidics, Italians, Puerto Ricans, Poles and African Americans all came to New York City from somewhere else, too. If I weren’t still broke after all these years, I’d feel a little more guilty for my part in the gentrification process; but for now, I’ll thank my lucky stars that my rent is still affordable, I have my health, and know that when I “make it here,” I’ll purchase that perfect apartment.