Bar Stool Economics:

I have no idea where this came from. It was contained in a mail from an old friend and I do not think he knows either!

Sometimes I am rendered speechless by these things. This is one of those times and no further comment is called for.

‘And now for a bit of an economics lesson about the income or wealth gap:’

Suppose that every day, ten men go out for a beer and the bill for all ten comes to $100.
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 $1.00
The sixth would pay $3.00
The seventh would pay $7.00
The eighth would pay $12.00
The ninth would pay $18.00
The tenth man (the richest) would pay $59.00

So that’s what they decided to do. The men drank in the bar every day and seemed quite happy with 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 $20.00. “Drinks for the ten men now cost just $80.00

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 their “fair share?” They realized that $ 20.00 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 percentage they had been using, 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 pay $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, 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 four 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!

(As France is learning)

And that, boys and girls, 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 atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

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



Fat Tails:

It has been bought to my attention that I have not incorporated comments by readers of previous posts, that is indeed a sorry state of affairs since some of them are trite and very relevant.

I received the following in response to my post about  Professor Lomberg and his take on Climate change.

I’m a geologist with 50 years of experience in field work – mainly exploration and development of metal deposits and high-temperature (volcanic-derived) geothermal resources. I know hundreds of other geologists. All of us are very familiar with Mother Nature — who has taught us a few billion years of earth history. I don’t know any experienced geologist who believes the hijacked science propagated by IPCC. More carbon dioxide in the air will mean richer crops and stronger forests. Sea level and atmospheric temperatures will continue to cycle as they always have.

I have included this blast now because it is relevant to my rant that once more concerns bent statistics or funny numbers that are used by proponents to advance or discredit other people’s ideas. I have in mind a lesson I learned in theoretical statistics many years ago that uses a bell curve to plot the frequency of certain events like floods, or, in this case lets use snow events, such as experienced in New England and Atlantic Canada this past winter.

During the rampage of hysterical reporting on the events it was mentioned that the snowfall represented a one hundred year event that was  now occurring after less that eighty years, a bad omen that was a result of climate change. 

Trouble with this prognosis is that it has simply no basis in fact. In measuring the likelihood of events such these there are occasions when the curve is bent or stretched to reflect an unusual occurrence. These are called Fat Tails   by scientists and mathematicians because they are unexplainable in the normal course of events or the bell curve.

This does NOT mean that the unusual suddenly becomes the norm. This giant leap of faith can only be justified for the purpose of advancing an agenda in this case to stoke the fear associated with climate change.

We have seen the same thing with Hurricane predictions that have always proved to be wrong. The ocean is warmer therefore there will be more storms Bla Bla. It may well be that the oceans are warmer but the link to storms simply does not exist.

The New England and Atlantic Snow Events were caused by giant “Nor-Easters’ such as described in the wonderful tale of “The Perfect Storm”  They have been happening with regularity ever since the time of the Pilgrims and other early settlers,  and I am sure will continue off and on forever into the future.

 Apparently the  sooth sayers of the  crooked number world believe that they can discredit Mark Twain’s belief that everybody complaines about the weather but do nothing about it, at least in the sense, that would have everyone else believe.  

B Corporations:

The speed of change does not seem to be letting up. We now have a new class of corporation ‘the B Corporation’  that represents a genre of capitalism whose mission includes an attack on social and environmental problems, accountability and transparency,  in addition to the old profit for shareholders  shtick. It seems to be catching on all over North America even in Delaware the epicenter of Corporate America.

The rules, oh yes there are still rules, for these hybrids are made and administered by B Lab a nonprofit  organization that has the power to certify these benefit corporations.  They also must undergo annual audits to make sure they stay on the straight and narrow.

The goal is to use business as a man made force for good in other ways than solely for the formation and preservation of capital. For instance employees are paid a percentage over the local living wage and the business must be run on a sustainable basis. Ben & Jerry’s and Patagonia are examples, also Green Mountain Power in Vermont that qualifies because it is a subsidiary of a renewable power source company.

Looking behind the rhetoric and hoopla this looks to me rather like deja vue and reminds me of the early days of organics and other feel good stuff. Most times it will prove that when the smoke clears these vehicles are a thinly disguised excuse to charge the customer more for the same product or service and to split the proceeds between the shareholder and the employee. The challenge is how to lay it on the customer to come through with the money. This is where the overworked words like sustainable, green, organic, fair trade, and transparency  are rolled out. 

More interesting is that the efficacy is left  to a judge and jury in the form of the B Lab rather like the seal of good housekeeping was back when people actually stayed home long enough to keep house. I also notice that the founders of B Lab all come with a lot of money and so can afford the luxury of being wrong once in a while.

There are lots of things wrong with the corporate world as it exists.  I am not different when I rant against the likes of Walmart, but I have a choice that being not to patronize those I do not like. No so unfortunately for the oligopolies that exist across the corporate world, that I am on about all the time.

I am also reminded that it has been old type corporations such as Microsoft,Apple and a host of others that have created through the digital revolution more wealth than in the entire history of civilization. They are by no means perfect and have been used frequently to shield bandits from their just rewards, but they are rather like democracy, a lousy form of government until it is compared to everything else. 


Readers who have seen my bio will know that I am an economist, not a very good one, that according to some of my friends, may not be such a bad thing.

Economists have, for the most part, earned their reputation as those whose prophecy  is one of never-ending gloom and doom. Nothing it seems is ever right; largely, I suspect, because we have been taught to expect too much from too little effort. 

I am not here to defend or praise economists, but rather to point out that once in a great while there appears from the mists of confusion and diatribe  a point of view that is eminently sensible and worthy of examination. Such a world view can be found with Bjorn Lomberg, adjunct professor at the Copenhagen Business School and director of the Copenhagen Consensus Center. 

Professor Lomberg is not a climate change denier but he does have doubts about the all or nothing approach exhibited by the radical environmental movement, and their two degree celsius above pre-industrial  levels, as a typing point for the future of the world. In his view, global warming is by no means our main environmental threat. 

To his credit this view is not new, as he campaigned against the Kyoto Accord now seen as a disaster by just about all concerned. What he recommends in its place are moderate short-term solutions to carbon emissions (carbon taxes and an end to fossil fuel subsidies) and large  R& D expenditures for longer term environmental solutions (innovation) and other important world problems.

It is at the  Copenhagen Consensus Centre sponsored by the Danish Government and non other than the esteemed  London Economist, that economic modeling seeks to bring into focus priorities and costs  for advancing global welfare, that of course includes the environment.

As a so so  economist, I must bow to the knobs of the science and economic modeling and assume that they can devise plans to spend $2.5-trillion in aid money over the next thirty years in the best possible way.  What interests me much more is the development of a middle ground by enlightened intellectuals that has, at least, chance of succeeding.

It seems to me that at the present we have two intransigent sides drawn up for all out battle that neither side can win. On the one hand we have the global warmers who scare the hell out of everyone who will listen with tales of apocalypse now, or very soon, if we do not dramatically reduce carbon emissions.  We must also transfer huge amounts to the less fortunate who will have to forgo the carbon economy thus dramatically lowering our standard of living

On the other side we have the politicos who represent a constituency that is equally scared of loosing their livelihood over something they can do nothing about. A better world for your children does not mean very much if it going to involve abject poverty for one or two generations.

A similar dichotomy is playing out in California, the her-to-for centre of environmental activism. A drought supposedly caused by climate change (evidence is scarce) has upset the apple-cart to the point where everybody has a solution provided it does not affect them. The farmers say the economy will collapse if they are not allowed to continue in their profligate ways by draining the aquifer, while others recommend enormous carbon emitting desalinization plants. All of this reminds me of the farce of Al Gore (“An Inconvenient Truth”) promoting his ideas along with the sale of his book from the deck of a huge diesel bus.

If the drought continues (who knows) Californians will have to find a middle ground, just as every one else will have to in other matters of the environment. The best chance of achieving this is through the leadership of champions such as Professor Lomberg.


Anti Rant:

Are you ready for an anti rant? In case you may wonder just what this might be, I will give you a clue. It is something, an event or happening, that you all psyched  to rant about, when lo and behold events turn on their head, and the outcome is all good, leaving nothing to rant about.

I experienced such an anti rant this week with a computer, a subject that I only talk about with great trepidation since I am known in the family as the digital dummy ; for good cause.

I am in the midst of writing a new book, my second, that is very different from my first, that gave rise to the naming of this blog “The Accidental Gold Miner” 

 The new  endeavor, is a historical novel based upon the great silver rush in South East British Columbia, that took place starting in the eighteen eighties, after the completion of the transcontinental railway in 1885, and ended with the advent of the First World War in 1914. What makes this special for me is that the events took place very close to where I live in the mountains, and many of my characters are based on real people who lived here.

Trying to keep track of many characters involved in plots and sub plots is a challenge, that has caused me, on several occasions. to get lost in the story. When this happens I can forget to save and book mark the manuscript; not a good thing.

Just recently one such episode caused me to lose 70 pages about a lady I had fallen in love with. I have no idea what happened and do not know where in cyberspace  this lovely lady ended up.

Having been rightfully chastised by one of my daughters for such sloppy behavior, I determined to get an external hard drive to automatically back up my efforts in case I drift off once more. 

When the neat little package arrived with USB cord (Surprise) I followed instructions (another surprise) and began installation. Before too long the dreaded pop-up appeared to let me know that this application could not be run on my computer, despite the instructions that told me that it was compatible. 

Now this got me going and ready for a monumental rant.  This time apparently my rant was not to be for upon examination of the extremely fine print I found and connected with technical support.  For a digital dummy these words can be similar to those other three feared words Some assembly required.  Not so this time.

A young lady, likely no older than  one of my granddaughters, assured me it would work, and that given a little of my time she could get me to nirvana. And that she did; after a great deal of effort on her part

She took me places on my computer I did not even know existed and hung in there as I plodded along trying to follow instructions while holding a remote phone. Places like disk utility, system preferences and best of all the time machine.  WOW! 

I got so excited when after three attempts it all worked that I pulled an anti rant and spoke to her supervisor to commend her for her efforts on my behalf. I sincerely hope she got a raise.

In the meantime I am reminded of the saying (I forgot who by) that life is not about battles but of  hard-earned little victories. Amen to that.


Ranting Numbers:

This week a rant about numbers and  number crunchers.

What got me fired up was an interview on the box of a Senior Fellow at the Howe Institute (a conservative think tank) on the apparently shocking lack of saving by the millennial  crowd and other inter-generational stereotypes for their elongated retirement years, now expected, because of longevity expectations. The senior fellow, and he was a senior in true sense of the word, in short order, completely debunked the argument by pointing out that the conclusions were based upon biased statistical assumptions that used, as a norm,  income earned in the last five years of a working life (the highest in a working life) and upon a one time statistical anomaly for increased life expectancy. Once corrected for these unfortunate slips, a big problem became a very small one and certainly not worthy of all the fuss.

Setting aside the efficacy of the arguments on both sides of the issue this goes to show how figures can be used to drive an issue in the public domain.  Mark Twain was right when he supposedly said “figures don’t lie but liars do figure” (for their own ends)

The Retirement Industry in all of its facets, is enormous and the government policy implications are even bigger. Just think about it. We have government promising to lend us back our own money until we die, so we can live in increased circumstances, and we have armies of extremely well paid sales people telling what to do with the supposed largess to make sure we have enough to live like royalty.  

Very much the same kind of thing occurs with the furor over the so-called income inequality. Once statistical anomalies are removed, namely housing that drives wealth number, we find the great middle has hardly changed at all and a so-called problem becomes a relatively  small matter.  For the top and the bottom of the wealth scale, it has ever been thus  and it may well be argued that something should be done. Unfortunately experience tells us otherwise, that taxation for social does not work.

Finally my ongoing prattle about fear and numbers used to drive paranoia. Here the problem is that common sense tells us that the numbers (Terrorist threats of all kinds) and being greatly exaggerated in order to centralize power in the hands of the elite. Why Not? A population that lives in fear  is a lot more compliant than one that has the audacity to question edicts from on high. Here the problem is the secrecy that surrounds the great wheels of power and makes it all possible. This is why the Edward Snowdon revelations are  so significant, because they draw back the curtain and allow us to glimpse inside the center of power that is dependent upon churning out numbers that by any count cannot be justified as being realistic.

Common to all of this is the reluctance of the media to question the efficacy of the numbers that are assumed to drive ratings. Maybe now we have social media this will change, but so far the temptation to manipulate seems to be well in front of rationality.

Carbon Begone:

This week I have been fascinated to watch the struggles of the managers of the endowment  funds of  Oxford University and other various learned bodies to deal with the matter of disinvestment of shares in companies that deal in Carbon and it’s related forms such as petroleum products.

Apparently counsel for these  huge investment trusts (the Harvard Endowment Fund is one of he largest in the world) believe that by selling their shares in the likes of Exxon and Shell they are making a statement, that hence forth all matters related to the use of carbon are bad, in the sense that Carbon promotes Global warming.

My rant has nothing to do with the efficacy of climate change, or the reasons for a matter that has been going on for twelve thousand years. Much safer to leave this to others more qualified. What concerns me is the way forward and how we choose to deal with this thorny issue. As opposed to theoretics  this is a matter that will affect just about everybody on the face of the earth and sooner rather than later.

Whatever we decide, assuming it is ‘we’ turning our back and ignoring the problem is not the answer. In the grand scheme of things the Exxon’s and the Shell’s are not going away any time soon because we need them. Likewise it would be unrealistic to expect these Goliath’s  to promote policy that will destroy a business model that has served them well, for so long (the leopard and his spots argument)

As a libertarian I am not in favor of taxes, carbon or otherwise. Experience has shown that taxation to promote social or causes unrelated to the expense of governing do not work.  However well-intentioned (Warren Buffet excluded) it is human nature to avoid taxes and to let others do the lifting. Besides taxation is grossly inefficient  and only  serves to promote more government and more inefficiency.

What is needed is leadership that will change the way we view the problem. Instead of a threat why not a challenge? Instead of a tax why not an incentive? and above all else why not innovation?

The history of the Industrialized world tells us that we ignore innovation at our peril.  It took less that fifty years to covert the world to steam and a lot less that this to convert  from coal to oil. Then came the turbine or jet engine in less than twenty years, Once the dogs of invention are let loose change driven by human intervention will occur.

I suspect and hope  we maybe  on the cusp of such refreshing change. The fuel cell and the Tesla  Battery are but a glimpse of what will surely follow if we give it a chance.

It is not necessary to throw money at the problem as had been done with wind energy to effect political correctness. A lot less money spent by clever people will produce much better results. Edison did not invent the light bulb because of a tax on candles, although I am sure it was tried. He did it because he was intensely curious and there was an acute need for a new source of light.