Maximum Wage (not a tax bracket)

Discussion in 'Business & Economics' started by Success_Machine, Apr 1, 2011.

  1. EmptyForceOfChi Banned Banned

    I think the Rothschild's would send the goons after you if you tried to pass a bill like this. hung from the gallows.

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  3. Pandaemoni Valued Senior Member

    Why use calories as the benchmark...why not educational costs. The CEO's MBA cost him about $100K or more, whereas the janitor's high school diploma (if he has one) cost him nothing. Why not consider salary a return on educational investment? You do realize that the human brain burns more calories than any other organ, right? It's 2% of our mass, and requires on average 20% of our calories.

    In reality salaries are roughly set by supply and demand, if you put an artificial cap on salaries, it will create a market distortion and I don't see that your plan really accounts for that.

    It is pure BS...and it's also something that no one who understands economics believes. You are laboring under the the wrong theory of value. People get the salaries they do because of supply and demand, not because of the intrinsic value they add to the business. Marginal revenue has a role in setting wages and prices, but total revenue doesn't except in the long term and revenue is only one component of the calculus.

    The problem is essentially the "value of diamonds," which Adam Smith first discussed. Diamonds are pretty, and have a few industrial uses, but gem quality diamonds are used solely as decoration. Water on the other hand is very low cost, but has many uses and is vital to life on a daily basis. So for a very long time economists puzzled over the question of why gem-quality diamonds have such a high price (notwithstanding their low intrinsic value), industrial grade diamonds are far expensive and water is dirt cheap (despite its very high intrinsic value).

    The answer is complex (actually any good introductory microecon book will explain it...but I lack the ability to draw graphs here), but it boils down to the fact that the price of gemstones is very close to its actual intrinsic value, whereas the price of water is no where near its intrinsic value. When a consumer buys a diamond, they get a little economic surplus fro the purchase, but not much. When we buy water, we get a great deal of surplus. The components of supply and demand in the two markets serve to explain why this would be.

    In this case, CEO's are the diamonds. They add value (and the expected value of what they add is greater than the salaries they negotiate), but the expected value of what a company gets form them is usually not much greater than the salary package, relatively speaking. Lower level worker on the other hand are the water, the amount the company pays for them is relatively low compared to the value they add.

    In that regard it might seem sensible to say that the wage/intrinsic value measure should be the same for all employees....but that would be to say "let's stop using supply and demand as a basis for pricing." It sounds good, but it has in fact been tried. If you set a price ceiling on things, what you get is an excess of demand over supply. More companies will want high quality CEOs than there are high quality CEOs. CEOs would, naturally request that maximum salary they can get, but then once they hit your cap, look for jobs that don't require as many hours, that offer them access to corporate jets, fancy offices, prestige, political access and a myriad other perks.

    Actually, a large number of the truly high profile ones would probably say "Can we set up our headquarters in London/Toronto/Tokyo/etc.?" They tend to be world travelers anyway, so living abroad away from your silly laws would be worth it.

    How would it do that? You talked above about limiting the money investors can pull out of a company (which you would have to do, or else CEO's would be paid in stock options and salary, as most already are). If there is cash in the business, and all they can do is reinvest it in that business/*, then that money is economically lost to the investors...they can never get that money out unless you change your rule to allow it (simply saying they will get it when they sell their shares is wrong...if I am buying their shares, I will only pay that excess if *I* can get that money, and if I can only get it by selling the shares to the next guy, then that is an "economic bubble" that relies on the next idiot to make the same mistake I just did.)

    /* Though how does that work? Say it's the year 2005 and I manufacture VCRs. If I plow all my money back into that business, then I might as well simply go and throw that money into the sea for all the good "reinvesting" will do me.

    Your rule would simply trap capital in the business that originally created the value...even though investing that amount in other businesses will eventually be economically superior to reinvesting it in the original business. That is always the case, because all businesses will eventually vanish, one way or another.

    I have said before, and say here again, market based economics are full of holes and are a terrible way to structure an economy...the problem is that unless policymakers are omniscient, altruistic and always benevolent, then market economics will always trump command economics. Your plan is too ham fisted to be workable, and a less ham fisted approach that incorporated your basic plan of limiting executive pay would require millions (if not billions or more) subtle adjustments to personalize it for each business in America to make it a better solution than the current system...and the cost of making those adjustments (and they'd need to be made constantly, now and forever onward into the future) would likely cost more than the value they'd add.
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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I agree, Insurance companies are a huge expense in the US medical system. They do not exist in a socialized medical system - part of why American medical cost are more than double those of Europeans, who live 2 to 3 years longer, but you are dividing my integrated suggestion into parts and then saying the separated parts don't work well - I agree with that too.

    There is no sense to your first paragraph if medical school were free. They could be with less total medical cost as in Europe, especially if US doctors getting this benefit had to server on modest salary say three years in a poor neighborhood. The people there don't get preventive care, which is very cost effective. Instead they get sick and still don't get medical services. When they are really sick, with secondary complications (like organ failures) can hardly walk, a friend drops them at some hospitals emergency room (and quickly disappears) Then their medical cost can be 1000 times higher than if they got the vaccine or early care.

    Rich, new MDs should be allowed to buy their way out of the three years of low-salary, obligated service, by paying some what more than their education costs. They would be free to have a high priced private practice, with clients who are also very rich. (Fellow members of their country club or golf partners etc.) They probably became doctors for the fortune they can make from those rich clients - They certainly don't want to server the poor and needy.

    The less interested in getting rich, the dedicated doctors who do three years of obligatory service, pay nothing for their education and work on a merit salary in the public health service (which all advanced countries except the US have). In the USA, the AMA makes sure there is limited supply of doctors, that the poor mainly go to emergency rooms when near death, that it costs a lot to be come doctor so that doctor's fees in the US's "for profit" system are necessarily at least five times higher than European doctors fees.
    You say: "In many of the scandinavian countries, because college is free, there is a huge shortage of plumbers, carpenters, etc. The people who would have gone into a trade after high school instead went to college and got some language or history or philosophy degree because hey, why not, its paid for. In a system where it is expensive to go to college, only those who really want a higher education will pursue it, ..."
    I have been in Norway more than a dozen times as first wife was Norwegian. Both my children are fluent in the language and have worked summers there - One went to an international school (half of student were not Norwegians) a full year there. The only complaint I ever heard my wife say about plumbers was how much American ones charged.

    Why do you say there is a shortage of skilled manual labor there? Is that just your theory? Or do you have some supporting facts?

    Many American go to college as it is expected of them - Many would rather work with their hands, earn money for a red sports cars, etc. but not going to college is almost a source of shame. The quality of instruction in typical US college is quite poor compared to European ones when much smaller fraction of populations is shamed into going to university. Ergo: making college free does not in fact, only in your theory, make everybody go to college.

    It is society, mainly US society, that looks down on one who wants to be a plumber, etc. instead of a book worm. Part of the reason a smaller percentage of Scandinavians go to college is when they graduated from high school is that they are already educated as well as typical US college junior. Probably speak 3 or 4 languages, do very well on math exams, are well versed in world history, etc.

    As my first wife was an elementary school teacher in Norway, I know something about their system and why it gives a much better education. The key feature is the Teacher moves up to the next grade with the same students she had last year. No time is lost learning which new student is good in math, weak in spelling etc. No passing a poor student on to get rid of him. The responsibility is clearly fixed in that one teacher who had them for at least six years. The students and the teacher become an "educational team" with the objective of producing a graduating class ALL of whom are well educated.

    For example if in 4Th grade Yaun is learning algebra and geometry but still having trouble with European History, and Turid is the converse (trouble with operations on fractions, etc. at grade level), then the teacher may pair them up to help each other while she works more closely with a few others. In the US when 5th grade Johny can't read. - No specific teacher is to blame. Exceptional Norwegian teachers in a small towns get public recognition - at least their name on plack in the library, if not a banquet for them and their graduating class, etc.

    My ex-wife still 40+ years later get X-mas cards from a few of her class. About 20 years ago, one who has done very well financially, said in his card that if she every needed any financial help: "Just ask as she made him the success he is today." That would never happen in the US system where teacher just passes almost all students on to the next grade and forgets about them and they about her.

    No wonder that typical a Norwegian high school graduate is years more advanced educationally than a typical US high school graduate, and may not chose to go on to college, even if it cost little. He may chose to build sail boats and sell them instead, etc..

    I don't have the data, but bet less than 40% of Norwegians go to college, despite it being nearly free. And also bet 80% of US high school graduates go to college even if it cost much more, perhaps with a loan. I.e. you argument is contradicted by the facts. If there were more US plumbers getting a drain fixed would not be so expensive - more like it costs in Norway where there is pride, not shame, in working with your hands and thus an adequate supply of skilled labor.
    Last edited by a moderator: Apr 27, 2011
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  7. Jeff 152 Registered Senior Member

    On Finland:

  8. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    While they may not have gained "job training" they probably did get educated. There is a difference between job training and education. Certainly it is possible to get both, but too often the only trained are easily lead and vote as told, instead of know how to think, drawing on the lessons of history, the thoughts of great prior writers, etc.

    Our fundamental difference, as noted in my first reply to you, is you seem to think the purpose of higher education is help you to get a higher paying job rather than to get a good general education. I was lucky. I went to Cornell as an undergraduate in an experimental 5 year program which met all the requirements of the liberal arts college division and of the engineering school division. I worked like two dogs as I came very unprepared from the public schools of West Virgina, but I got the foundation for later getting my Ph.D. in physics and a good general education. As I recall I graduated with nearly 170 credits, instead of the standard 120. The 5 year program experiment was dropped as most found it too long and too hard and transferred out.

    I strongly believe one needs to BOTH get training for good job, AND learn how your society came to hold the beliefs it does, some about other societies with different beliefs, etc. Unfortunately, few are willing now to put forth the effort to do both. Many, just want to get trained for the law or business or to become a high paid doctor, as quickly as possible. I was much more a "professional student" spending 15 years total after high school before getting my Ph.D. I love learning - still do it every day.

    Your quote also states that in Finland: "Unemployment among educated people has become a chronic problem. "
    Is that not true in the USA today also? Have you read about how few, who were trained for some technical job, get a job that uses that training? - Or how many end up serving Big Macs, etc. while hoping for a better job?
    Last edited by a moderator: Apr 27, 2011
  9. Jeff 152 Registered Senior Member

    I agree that nobody should go to school just to try and get rich. But that is the way a lot of people are, and it's unlikely that will change. And it's a vicious spiral - you need to go to school to get a good job and then you need to get paid well to pay off for your very expensive schooling. not to mention paying for rising medical costs, etc. Or inflation.

    We all want to make a good living so we can support a family comfortably. Sure, some people take it too far, and nobody needs a yaht or a mansion to support their family, but you can't blame people for wanting to provide a good, comfortable living for their families. Some people just naturally want more, and as long as they have to work harder for it and dont get it unfairly then more power to them.
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I don't have facts, but believe that with today's US economy getting trained for high paying job (with some exceptions like going into law or medicine) at college is not likely to be as financially rewarding as becoming a plumber, etc. or starting your own, well chosen small business, which provides a needed service at a reasonable price (for example a plumbing service firm that gives 24 hour coverage).

    I.e. the US has changed with outsourcing, large corporations making most of their profits from foreign markets, now using well trained and much cheaper foreign engineers and designers, etc. getting an degree, even one in engineering or chemistry at college, is no longer the ticket to a comfortable income and life style as it was a couple of decades ago.

    What few understand is that with the dollar's decline in value and salaries now also again declining in purchasing power (for typical purchase which include food and fuel of the CPI) Joe American is NOT going to live as well as his parents did. Part of this is due to the fact that the era of cheap energy is gone.

    SUMMARY: If you go to college, do so because you want to understand your self and the world you live in better, not to get a high paying job, with a few exceptions in fields mentioned earlier. (The US has too many lawyers and too few doctors dedicate to service - both facts very costly to the US economy.)
  11. kororoti Registered Senior Member

    While I disagree with the idea of limiting investors' "wages" (because they take an actual risk of losing money), I actually sympathize very much with the idea of limiting the wages a non-investor can make.

    CEO salaries have gotten insane, I very highly we're getting a value commensurate with the cost. (The odds such that we would be in a recession if that were true are.... very small...)

    If you really examine the dynamics, 99% of the reason they make such a high wage is the same reason unionized workers make more money.

    They have the ability to effectively go "on strike", and the company can't easily hire a "scab" to replace them. This often has less to do with their skills per se than it does with the difficulty of training a replacement who knows all the specifics of their job.

    If a high level exec quits and doesn't train their replacement, they've essentially shut down some of your operations. Sometimes they even deliberately sabotage those operations if they feel mistreated. (I've seen cases where an exec is fired without notice, and immediately escorted out of the building by security, out of fear they will do this if they're allowed to reach their desk.) Unskilled workers only have this power when they are in a union.

    Also, just like unions, their ability to do this sometimes allows them to raise their wages so high that the company loses the ability to compete. You think the AIG guys would have gotten their bonuses in a proper competitive environment?

    Actually salary caps work very well in the NBA and other sports leagues. By your logic, players like Shaquille O'Neil would never become pro basket ball players.

    Look what happened when they lifted their salary caps after the strike. The Lakers franchise snapped up most of the best players, and the whole game has suffered for it. We all basically know who's going to win every year before the playoffs even start. It's kind of boring. Certainly Shaq and Kobe Bryant aren't pushing themselves as hard right now as they would be if they were on separate teams and had to face each other.
  12. Success_Machine Impossible? I can do that Registered Senior Member

    Switzerland likes my idea

    Switzerland to hold referendum to limit executive salaries to 12-times the lowest paid worker at an organization. Read the article:

    My limit was 5-times the lowest paid worker.... While I applaud the effort I think there are some reasonable explanations for why the ratio is higher than what I proposed:

    - whoever wrote the proposed law didn't want to limit his/her own prospects;
    - whoever wrote the proposed law didn't want to scare other people into voting against it;

    I think a 12-times ratio would basically maintain status-quo, at least in the public sector. I'll be interested in seeing how this gets implemented in the private sector.
  13. Success_Machine Impossible? I can do that Registered Senior Member


    Well, the Swiss voted against it, according to Bloomberg:

    Of course executives would be against it! Duh. Can't say I'm surprised at the vote either. I'm routinely disappointed by public opinion.
  14. cornel Registered Senior Member

    The Swiss are pretty good in running their own country, no doubt they had their reasons.

    Your idea is pretty good, btw, but the 5:1 ratio is a bit low, it would be economically crippling for the larger companies.(and keep in mind that bruto 5:1 often means netto 5:2)
    The ratio would have to scale up a bit for larger companies, counted by # of employees, to compete decently over CEO's

    The biggest problem i see is, hiring new people for something cheap, companies would have thier own "minimum-wage" and thus be scared to hire new employees.
    It may not be a a bad thing if some larger companies get "cut up" by outsourcing some tasks, markets work better with many smaller companies then one big one, but highcost development will suffer from this.
    Smaller scale business would likely develop more speciality, if so they'd become more productive, which is a good thing in itself, but the redistribution of work and thus money would suffer.
    (maybe this would work better if we had a sort of guild-system as around 1400 )
  15. joepistole Deacon Blues Valued Senior Member


    I don’t know where to begin. I guess I will start with your source. You need to be careful using information from the NTU, they may claim to be non-partisan but they are very right wing libertarian in their ideology. And they are pushing for a very regressive system of taxation. They advocate the flat tax solution whereby those with lesser incomes pay more of their income in taxes than the wealthiest. Two, you need to be aware that the lion’s share of executive compensation comes in the form of stock, so the ultimate value is difficult to assess and then there is the matter of deferred compensation. And then there is the matter of how income is defined. Not all income is treated as income (e.g. master limited partnerships) and there is great variability in how businesses and partnerships are structured. And then there is the matter of stifling business development. If I am a successful entrepreneur I will relocate to someplace like Ireland where I can be an overnight billionaire (e.g. Mark Zuckerberg) and avoid your tax scheme. If you are a US law maker, you can make laws for the US but not for foreign countries.

    And what makes you think tax revenues are volatile? Tax revenues are only volatile if the economy is volatile and that is a different matter.

    A applaud what you are attempting to do. The idea is novel. But there are many better ways to do it. The purpose of taxation is not to redistribute wealth but rather to pay for the goods and services purchased by government. The solution is to make our system of taxation more progressive, meaning the more you earn the more you pay in tax.

    The US has a very complicated tax code where not all income is income and certain kinds of income are preferenced (i.e. the kind of income earned by the wealthiest among us). I think you and the state would be better served by implementing a minimum income tax rate. You have people like Mitt Romney, multi-billionaires, who earn millions and pay 9% or no income tax. If the average American pays 35% or more of his/her income in payroll and income taxes, people like Romney should also.
  16. joepistole Deacon Blues Valued Senior Member


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