What are the consequences of salary caps?

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No2statism replied on Tue, Sep 11 2012 8:01 AM

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It's simply price fixing, so the miseswiki on price fixing should have a detailed list of the consequences.

The nazi state imposed salary caps, although I believe congress stopped that from being part of the American New Deal, although they may have put caps in for goods.

Also, I believe that price fixing is as bad as taxing/spending because the price fixing costs tax money to enforce and of course, the price fixing itself also distorts the market.

Finally, some say a max wages should "compliment" the minimum wage, but the govt can't centrally plan wages to make it so that everything would work in peace and harmony.

Edit:  I should note that if the Democrats really want closer to equal distribution of wealth, then theyre really showing how economically illiterate they are bu advocating for more regulations and a higher top marginal income tax rate... they arent going to get anywhere close to their goal doing that.  That said, I don't know why they haven't called for a federal residential real estate tax if they really want to take make it so the rich have less and so that there is more money to be redistributed to the poor... a federal real estate tax with a large exemption and a high marginal rate is really the only positive action left that would possibly reduce inequalities in wealth.

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Wheylous replied on Tue, Sep 11 2012 10:45 AM

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Salary is how we control execs. If they allocate resources well, they get a bigger salary. If worse, a lower salary. Cap the salary and they stop getting this real market signal. If the "true" salary of an exec ought to be $9mil but it's capped at $1 mil and next year he does really poorly and his "true" salary is $2 mil but he is still capped at $1mil, he has not felt a financial opportunity cost.

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Clayton replied on Tue, Sep 11 2012 10:53 AM

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a) The Democrats actually have a point. The "salary" commanded by most, if not all, corporate executives is largely a consequence of privileges handed out by the State. The corporatocracy is different in form but not in substance from the aristocracy. It is a system of entitlement and privilege. But note that the obvious solution is to eradicate the source of the problem (privilege) rather than trying to patch up a broken system with income caps.

b) As already noted, income caps are like any price-fixing mechanism. In this case, their purpose is to prevent the breakdown of a system that creates such immense privileges for people who are obviously unproductive; left to their own devices, these individuals would soon enough be kings of the world. Since this would be an obvious indicator to the public that there is privilege run amok in the corporatocracy, income caps are a way to keep the problem from being so obvious as to be undeniable. Income caps are not necessary as long as it's possible to pretend that the corporatocracy is a market system.

Clayton -

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Awiz90 replied on Tue, Sep 11 2012 11:21 AM

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Also, if you cap their salary at 1 million, you remove every incentive for an entrepreneur to grow their business any larger than what can bring them their maximum salary. Why should they employ 20 more people and work 4 hours a day longer for no extra income if they already have reached maximum? There would be a massive amount of unemployment as a result of this.