My dad and I have a long standing argument on what exactly would happen if we had a progressive tax system pitched so steeply it was essentially a salary cap.
I argue the moral position that you have no right to have $3 billion at your disposal while there are people who can’t afford to feed their children. He argues the moral position that a person has the right to their earnings. Our country is predicated on free enterprise and by limiting how much a person can make you restrict the invisible hand of capitalism.
Honestly though, it seems like the invisible hand of capitalism has slowly been throttling our country, particularly in the area of executive compensation. I was reading an article today on similarities between the Enron debacle and Merrill Lynch. Both of them were done with knowledge aforethought by executives to protect their compensation.
The same trends are present in the predatory lending practices and over-leveraging of companies that is currently pulling our economy down. The people doing it weren’t simply confused and thought that these people were going to be able to pay their mortgages or that their companies were going to be able to meet their inflated worth. They expected to make huge amounts of money and took steps to make it happen.
I know some people who are starting work in financial services. I had a friend who worked 12+ hour days six days a week at an unpaid internship. Did she love money management so much that she wanted to do that? No, she liked the field, but would have been more than happy to just do it 40 hours a week. She was investing in a future where she might earn a million dollars a year, and that she is sacrificing her youth to get there will affect how attached she is to making it happen.
I was reading Cialdini’s Influence yesterday discuss how taking an economics class will short-circuit your sense of reciprocity.
Recessions frequently follow periods of expanded growth. The economy takes off for a bit, gets a bit over extended and then ratchets back. This recession is different from past recessions in that though the economy overall did see the expected expansion, middle class buying power actually fell. The group that saw the benefits of this expansion was the top 20% who experienced 9% growth.
The invisible hand of capitalism gives to each according to his worth in the market. Robert Skidelsky in “The Moral Vulnerability of Markets” points out that this theoretically means the average CEO is approximately 50,000% more productive than the average worker.
So, you not only need to believe that a person has the moral right to a huge portion of the available wealth, you also need to believe that this system is working in the face of an increasingly convincing argument that when faced with a choice between the public good and stacks of money, most people are going to choose the cash.
So I say tax the hell out of them. I’m sure that out of the tens of thousands of aspiring young investors we can find at least a couple to work for a paltry $500,000 a year.