Today I am Going to Fly

Some men are born posthumously. ~Nietzsche

Maximum Wages?

Posted by penuruloki on October 20, 2009

I’m not the only one with an eclectic posting habit. Tobold, posting on his MMO blog site, brought up the topic of fair distribution of profits, citing a Wall Street Journal article drawing attention to the compensation that bankers have been receiving in the wake of the banking crisis. The problem with the article isn’t his contention (that banker compensation seems more generous than other professionals receive), it’s with his conclusion:

But what really makes many people angry is that while bankers get so much more money than other employees, a lot of other people actually lost a lot of money to the banks. If you bought bank shares in early 2007, you probably lost most if not all of your investment. And then many banks got propped up with taxpayer money. That all looks like paying somebody else to play in a casino for you, with him keeping a good part of the winnings if he wins, and you still having to pay him a lot if he loses.

So while there is a lot to be said against the state dictating how much people should earn, I do think that both minimum wages and maximum wages have some justification as long as they aren’t too restrictive, and are just designed to prevent the worst cases of excess.

This kind of proposition always starts with “the worst cases of excess,” but if you give people a hammer, they start seeing nails. Pretty soon wage caps abound in an attempt to even out pay scales, and the winners and losers become determined by political contest rather than being linked to actual production. Once you decide that appropriate pay level is a political question, every future move down that road is a matter of degree. No, the limited government controls on compensation is a good thing, and not the problem at issue here.

Guess what? In that quote above, Tobold even catches the real problem. Let’s zoom in on that quote a little [emphasis mine]:

And then many banks got propped up with taxpayer money. That all looks like paying somebody else to play in a casino for you, with him keeping a good part of the winnings if he wins, and you still having to pay him a lot if he loses.

The problem is that people have already confounded economics with politics. If the banks had been allowed to fail, the bankers would have been out on the street competing with each other for lower compensation, just like everyone who wasn’t saved by a bailout. The “excessive” compensation is a result of past political meddling, not an excuse for more. People should be reflecting on the damage already done by the government throwing its weight around in the business sphere, not looking for more easy answers from politicians.

I realize it’s easy for me to talk tough about letting those companies fail, since it isn’t my house or my job, but guess what? I know more people that lost their home anyway than I know people who benefited from all the stimulus and bailout money. Anecdotal sure, but there’s a reason why bad businesses have to fail. If you prop them up, then bad business practices continue, market corrections are not made, your economy suffers, and it drags down everyone without the connections to get preferential treatment. If the figures on the WSJ page offend you, blame the politicians for spending your money to prop up that segment. Don’t encourage them to make things worse.

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