What Would Be The Purpose of a Maximum Wage?


There was an interesting oped in Yahoo Finance proposing the need for a maximum wage.  See the original story here.   The idea is that certain salaries are too high and that it would be in the best interest of the country if salaries were limited to a certain amount.  Some figures proposed in the article were 100 or 200 times the Federal minimum wage.

What is most interesting are the reasons given for why this is needed.  These are, as quoted from the piece:

1) “The U.S. is evolving into an oligarchy in which wealthy elites exercise far more power over the political process than ordinary citizens.”

2) “Democratic citizenship depends on a certain commonality of shared experience and power across regions and races and classes.”  “…  it becomes close to impossible when the super-rich use their incomparable wealth, power, and influence to insulate themselves from meritocratic checks of the market as well as government oversight and regulation, ensuring that they acquire ever-greater wealth, power, and influence over time.”

3) “An added benefit of tying maximum pay to the minimum wage is that it would give the super-rich an incentive to back (or at least to stop opposing) a minimum wage hike. Now there’s a way to inspire democratic fellow-feeling across classes!”

The first reason seems to indicate that the wealthy have more power in politics than ordinary citizens.  Certainly those who are wealthy are able to contribute more to candidates or even run campaign ads directly for candidates or for their political causes.  Still, a lot of the issue stems from the average citizen not taking responsibility for self-education on issues and events.  Beyond the television news and newspapers, there are commentary shows with both left-leaning and right-leaning perspectives.  There are also editorial boards with left leaning (the New York Times) and right leaning (the Wall Street Journal) pages.  These venues allow individuals to hear both sides of the issues if they choose to take advantage.  There is also the internet which allows easy research into the facts behind issues.  An individual who takes any time at all to keep informed would not be affected by political ads.  Also, does it really make a great deal of difference whether an individual is making $3 M per year or $10 M per year on their ability to use their wealth to support their political views to the extent they can?

The second reason seems to say both that rich people won’t be able to relate the common class, and therefore not be able to make an informed Democratic choice, and that they can be above the law because of their wealth.  Again, while the wealthy may have money, they still have the same number of votes as a common citizen would.  It is up to the common citizens to ensure that they put individuals into office that will enforce the needed regulations fairly regardless of the wealth of the individuals running the companies.  Realize also that we are not a Democracy where the citizens get together and vote directly on the laws.  Instead we are a Republic where the citizens elected representatives to make laws and do the business of government for them.

The third reason misunderstands the reason for the opposition to increases in the minimum wage.  The opposition is based on simple economics, understanding that someone cannot make more in salary than they produce in goods and services for their employer.  The people arguing against a minimum wage increase don’t do so to try to keep more for themselves – they know that their salaries are a drop in the bucket when compared to personnel and operating expenses of their companies.  It is because they know that raising the minimum wage would price many people out of the market, resulting in less economic output (since people who were earning $7.25 per hour would now be sitting at home earning and producing nothing), which in turn would hurt both the people working for their company and the profits of their company.  The less production there is, the less wealth there is to go around.  It isn’t a zero-sum game where when the CEO gets more and the workers get less.

One odd thing to note is that the author appears to equate “Democracy” with Socialism in the second and third reason.  Democracy means that there is an equal vote among people, not that there is an equal sharing of resources.  This reminds one of the use of the word “Democracy” to describe Socialist dictatorships that are anything but Democracies or Republics such as the People’s Republic of China.

Thinly veiled in this article is the real reason for calling for a maximum wage.  It is a combination of personal envy on the part of the authors and a desire to stoke envy in order to gain power.  The authors know that there are a lot more workers than there are ultra-wealthy and they hope they can get the workers to vote those on their side of the political aisle into power by using jealousy and envy.

Let me say that I do think many CEO salaries and bonuses are ridiculous.  This really isn’t something that affects the salaries of workers at the company or our Republic, however.  It is the owners of the companies – the share holders, who are being effected as their companies are being looted through collusion by executive pay boards that have gotten way out-of-hand.  They don’t need a law or a government entity to rein in executive pay, however.  They have the power to do so themselves through shareholder propositions and by putting a lower price on companies that overpay their CEOs versus those that do not.

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The SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy
The SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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