The Maximum Wage

Much of our efforts as a society have been focused on ad hoc solutions that address the symptoms of problems. The minimum wage, for example, is very ad hoc. Push it too far and it becomes the legislation of wishful thinking. Granted our societies do not appear to be crumbling under the weight of our minimum wage laws, perhaps it is time to look to the other end of the spectrum to find a more elegant approach. If only to balance things out, why not check out the maximum wage?

A maximum wage seems pointless. Why should we care what the top earners are making, so long as the bottom is taken care of? What relevance do far away rich people have on the life of the little guy? Quite a lot, actually. Turns out that what the wealthy are up to is entirely your business. What follows are three reasons you should care and support efforts to create a maximum wage.

 

A Maximum Wage Discourages Bad Behavior

 

 

If you are a professional such as a doctor, who spent close to a decade in school mastering your profession, you may be perturbed at the idea of a maximum wage. Why would you work so hard only to have your earnings capped? Well, they won’t be capped so long as you stick to practicing medicine.

 

Here is a list of some renowned and highly paid doctors. Yes, that is a hideous click-bait website, but what stands out when you read that list? What stood out for me was how few of those doctors are actually practicing medicine. Of those that do, their net-worths come to about 8 figures, which is within the limits of the wage cap I’d propose.

 

A wage cap of, let’s say, $1 million annually is well beyond the concerns of most skilled professionals. That type of income is simply out of reach unless you are employing a certain type of leverage. You do not get there unless you possess a monopoly of some kind. Looking at the list of rich doctors again, those top earning professionals fell into a couple categories. First were entrepreneurs on a grand scale. Following these were those who possessed excellent brand management. These were the famous plastic surgeons, sports surgeons and . . . Dr. Phil. More important than their (usually) immense skill, was their name recognition.

 

A brand, to be clear, is a monopoly. Billion dollar businesses, likewise. Both of these business strategies brook no competition. They also add relatively little. A brand adds nothing of substance to the economy and flourishes purely by virtue of perception. A business that awards its owner in billions, has become so large that it has long passed the initial impetus needed to get a good idea off the ground. At this point it operates purely by being too big for newcomers to emulate. The initial impetus was of great benefit to society (a fair case against the Socialists), what followed however, was an expansion that only speaks to the initial success of the business. It expands into areas that others would be well equipped to occupy.

 

If we want choice in the economy, monopolies are an obstacle. If we want genuine value, brands skirt this requirement. It is next to impossible to earn greater than a certain amount of money without resorting to one of these strategies. Capping an income above that amount would provide a fine deterrent to this bad behavior.

 

A Maximum Wage Makes Everyone Wealthier

 

 

Wealth is nothing other than relative purchasing power. It follows that having people around of vastly superior wealth would make one poorer.

 

For example, if we consider the entrepreneurs mentioned above, they benefit purely from their past success. If a company wishes to purchase a drug and profit from it, they must outbid their competitor. If they pay more, they must charge more. If there are wealthy customers with the means to pay, they can charge all the more.

 

From the very top of society to the very bottom, this dynamic takes place. Large companies outbid smaller companies. Wealthy people outbid poorer people. The wealthier others are, the wealthier you must be. Assuming the pool of goods and services remain the same, your wealth is defined by the wealth of others.

 

So, the trick is to limit exorbitant wealth without shrinking the pool of goods and services. A well-implemented maximum wage does this by cutting off incomes above the level where mere mortals cannot hope to add additional value. Accomplish this, and everyone who was already below this level has an immediate increase in purchasing power. Those above this level are only harmed by being prevented from doing the things they should not have been doing in the first place (monopolizing and branding).

 

A Maximum Wage Protects the Political Process

 

 

While democracy is a form of government that needs a replacement, it is undoubtedly true that we would benefit from a better form of it. In the last several years in the United States, Liberals have been decrying the Citizens United Supreme Court decision that allowed corporations to invest money in political propaganda. Politics, as it turns out, are highly influenced by money.

 

 

While a maximum wage would not directly target the concerns surrounding Citizens United (a maximum wage applies to individuals), it holds enormous potential in limiting the size of companies. As mentioned earlier, a maximum wage discourages monopolies. There is simply less incentive to grow your organization beyond a certain point if it won’t afford you additional income. Furthermore, it directly affects the use of individual wealth in influencing politics.

 

 

Moving beyond democracies, in a Meritocratic society, voting would be conducted by demonstrably qualified individuals. This would limit the influence of paid-for political advertisements (economists would not be watching television to get an idea of who should be the next Secretary of the Treasury). Nevertheless, a maximum income would limit the incentive for political corruption. If societies greatest experts were in charge, they would, necessarily, have all the skills to enter into the top of their professions, skill-wise. If a maximum wage capped income above the level where technical skill no longer mattered (monopolies and branding again), the leaders of the country would already be at or near the top.

 

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Nowadays we have a revolving door between large firms and public service. When Dick Cheney went from Secretary of Defense to CEO of Halliburton, he was well compensated for the move. It is not important to determine whether Mr. Cheney’s decisions as Secretary of Defense were motivated by promises of joining Halliburton. It is enough to note that the incentive was there. A maximum wage would drastically reduce that incentive. Cheney’s estimated earnings from Halliburton come to about $34 million in 5 years. This is well above what he could have made in government. It is also well above what the maximum wage we are proposing would allow for.

 

So, there you are. Three solid reasons to champion a maximum wage. Three solid reasons to be concerned about the rich. Hopefully, this helped some people get over a mental hurdle. The mental hurdle that says you cannot criticize the rich.

 

 

Other people’s wealth is your business. Do not listen to those who tell you to mind your own business when talking about someone else’s income. The capitalistic urge is a good thing in many people. It is commendable to seek to create and add value to society. When it comes to compensation, however, there are serious implications. We ought to be concerned when someone’s wealth or their means of acquiring it results in monopolies which makes us poorer, disrupts the political process or seeds our society with tasteless brands. These things are everyone’s business.

 

Jason Calhoughney writing for the Apollo Institute of Reason AIR Review©

 

2 thoughts on “The Maximum Wage

  • January 21, 2017 at 10:02 am
    Permalink

    What about having maximum earnings related to minimum? For example, suggestion that in any company the highest salary could be only 20 times the lowest? Or some other ratio? So if the leaders would want more they would have to raise the minimum wage also and the differences in income wouldn’t be overtly dramatic.

    Reply
    • January 21, 2017 at 3:39 pm
      Permalink

      That is one way people have proposed to engineer this. I like how it removes the debate on whether a company can “afford” a minimum wage hike. You can either afford it or you take a pay cut, yourself. Was this what Jeremy Corbyn proposed?

      A potential problem with this particular method is that companies could get around this by subcontracting, but these are details to be confronted and dealt with. I don’t think they invalidate the idea outright. What sort of laws could minimize this effect? Can we handle the consequences of those laws? Feel free to share and write about what sort of measures could be taken to resolve the details.

      Another approach that has been tried is the progressive income tax. The U.S. still has a progressive income tax, but the rates have changed so that the effects are minimal. It used to be that income above a certain amount was taxed as much as 90%. This is another indirect approach to implementing a maximum wage. Rather than instating a direct wage cap, the government simply instituted a system of diminishing returns.

      I’d be interested in seeing what different countries work out. Different places could have varying results from different methods and the best performers could inform the rest.

      Reply

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