I’ve been talking to Matt about our economics situation. He is quite a bit better informed on the issue and the subject of macroeconomics in general than I am.

He put up a post of his actions as dictator of the United States for a day.

Both of us have issues with the distribution of wealth being unequal. Whereas I say take away the ungodly piles of money (who needs to be paid a billion dollars?) to reduce incentives to be greedy, he, reasonably, asks what happens to that money when not concentrated in the hands of a few people.

To some extent there would simply be less money since much of our problem is a whole lot of the money we theoretically have currently is fictitious. Bankers created it by managing to sell things at far beyond their actual value. Coming to terms with the reality of how much actual value there is in things is an adjustment that has to be felt somewhere.

I think my favorite of his suggestions has to do with an increase in shareholder rights. It would help dilute the concentration of power in the hands of a few so that even if they were inclined to let their greed to get them to do something shady, they can’t.

He also discusses the extent to which the government should do things like bail out Bear Stearns — “privatize profits and publicize losses.” He argues that so long as there’s money to be made someone will come to take their place.

My position is less certain for the same reason that I’m more of a proponent of public policy changes to affect corporate behavior. We are very likely headed into a recession not because of the mortgages or even because of the over leveraging. There has certainly been an over extension beyond real value, but what will make the readjustment painful is the speed at which it is likely to happen.

The reason economists discuss consumer confidence is business is about making things to be consumed. If people are insecure about needing stuff then businesses get insecure about having bunches of stuff on their shelves. If businesses order less stuff then manufacturing needs less people to make stuff and eventually start laying people off. This cycle slows the economy down in a variety of ways.

Note that this starts only tangentially related to actual money. The economy isn’t simply individual workers fighting for their piece of the pie. Particularly in the financial markets, bad behavior doesn’t just risk the livelihoods of the people making bad decisions, as we are seeing right now it can put middle class families on the street without a job.

The public has a right to control how corporations are run, not only because corporations only exist because we decided as a society to make them pseudo-people, but because the system is now intertwined to an extent that their actions affect everyone.

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.