What would the economic implications of salary capping be?

[Whirliwig72]

Just musing as I dole out fish fingers and smiley faces to my son... If a law were to be brought in making it impossible to earn more than a set amount (say £80k pa) and illegal to sell an asset for more than 4 x times this amount what would the implications be on society? Would it create more or less employment? ... Would people be less motivated to work hard?... Would it make people happier?... Create a more utopian society? Please give me your thoughts....

I think when people do a job solely for financial reasons they end up doing it badly. People should do what they like or are good at and take whatever salary the labour market dictates. It baffles me that the most desired jobs also have the highest pay.

(I mean, of course, without encouraging the lazy and selfish to be lazy and selfish! Encouraging them not to be lazy and selfish would be a good thing....).

Yes those are the issues that people vote on in free elections. The people decide on the balance and choose politicians who reflect their opinions. People get wise to the spin of the spin doctors and make their own decisions on what is best for them and society. The spinners often dislike the people's judgement, but the spinners have to abide by the rules of democracy.

Of course, manual workers perform services that are unprofitable for them because that's the only way their services can be profitable for someone else.

'People should do what they like'

But many people like to make money. That is often the driving force for people to take the risks involved in creating their own businesses. It's a free country and people can choose to work for money or to work on something they like.

'manual workers perform services that are unprofitable for them'

manual workers don't work for nothing, they work for their own profit - to earn money.

Lots of people choose highly paid professions rather than less well paid work not because they really want to do the job, but because their prime motivation is to ensure their offspring get the biggest leg possible up the ladder. Public schools and after school activities that look good on university application forms do not come cheap. I worked with a lot of people (in the law) who hated their jobs but appeared to feel trapped in them because they wouldn't get paid half so much elsewhere.

Yes and that is a free choice they make. We don't live in a world where every job pays the same and requires the same skills. Most people can't afford to do what they like such as write poetry; they train and educate themselves to work in areas of high demand where they are well rewarded.

But reward people too much to take risks at someone else's expense rather than their own and you remove people from an area of the economy where their skills might be of more genuine use and plonk them somewhere less useful in the long term. There are plenty of people in the City who could be making this country more competitive in engineering, or research, or manufacturing, or setting up new businesses etc, etc, but they made the decision not to take the risk or the lower pay if they didn't have to.

Exactly and that is why 'light-touch regulation' was not good enough to prevent the moral hazard that led to the astronomical public bailout of private banks.

America's regulation wasn't good enough to prevent the moral hazard, either, yet you do keep referring to that as superior. I seriously doubt the Tories would have introduced heavier regulation in the UK than that applied in the US - in fact, I suspect they would have been lighter touch, too, in an attempt to attract yet more people to the City of London. I'm sure the Tories would have loved an even bigger financial sector than we already had at the time of the crash, resulting in even more of a headache for the rest of the UK even if the regulation had been a bit "heavier." The only real difference would have been that the Tories would also have reduced tax, making this a low tax, low regulation haven for the financial industry. I also don't think the Tories would have done much to improve things for manufacturing or other sectors, either, because they appeared to be just as enamoured of the apparent success of the City as Labour was and just as much in its thrall.

Let us give the Tories a little bit of credit. You may be right, but at least the Coalition is now getting to grips with the regulation.

The only regulation banks need is to be forced to hold a proper amount of capital that is comensurate with the risk they are taking and remove the implicit or explicit Govt guarantees on deposits. The only deposits that should be guaranteed are those deposited in National Savings.

That would mean that suddenly banks would have to pay the full market price for their capital and would dramatically reduce their profits and the pay and bonus of bankers.

Totally agree Rabbit. From a banking perspective I don't think for a minute the Tories would have done anything differently.

But at the end of the day it's all speculation since they were not the party in charge and not by a long shot.

I wish the Tories would stop pretending this country would be in a hugely better state if they had been in power, then, because I really don't believe that and it makes me angry every time I hear it. I agree, Labour did a poor job in power and every time I had to look at Tony Blair during his years in power, I wanted to vomit. I just happen to think the Tories would have done an appallingly bad job, too - they would have allowed just as much runaway greed in the City and big corporations and would have run down public services into the bargain in tax reduction strategies foolishly designed to encourage the overweening greed of big business and finance at the expense of the small fry in other less immediately profitable sectors. Neither party had any sensible vision for the long term.

I do agree that this is all water under the bridge, now, though, and that therefore parties should be judged on what their long term aims and strategies are going forward, rather than on what they have done in the past. I'm not yet seeing enough learning from past mistakes, though.

'I'm not yet seeing enough learning from past mistakes, though'

If you are referring to New Labour, then I fear you are correct.

I'm referring to the lot of them. They all seem to want to get back to "business as usual" as quickly as possible.

I find Cameron less nauseating than Blair, though. Probably because he is clearly right wing and isn't trying to hide himself in a supposedly left wing party.

I like Cameron. He is not arrogant and seems genuine. I also like Ed Miliband for the same reason.

I liked Blair at the start, it was only after some time that he seemed a little phony. But I don't dislike him either. He was only doing his job.

rabbitstew I have enjoyed reading your posts, very clear and thought provoking.

I wonder if, as a country, if the emphasis shouldn't be on the 'average and below' sector of society. If the ambition was that low skilled and average skilled people were working at jobs that were beneficial to society, and paid a liveable wage, how would that structure the economy?

At the moment the emphasis seems to be on the top level, and expecting the benefits to trickle down.

I don't know but would be interested in hearing thoughts.

I like the fact that Cameron is at least attempting to keep going and do something about the difficult situation we are in; that he is the sort of thick skinned person who can cope with the job and even appear to get some perverse sense of enjoyment out of it. I think you need a certain degree of arrogance and excessive self-belief to be able to keep going like that when everyone doubts you/tells you point blank you are utterly wrong. That's why it's so hard to find a good leader who doesn't tip into becoming a bit of a dictator as the years go by. What I didn't like about Blair was the constant stream of unbelievable statements that came out of his mouth, which either indicated that he was deeply deluded to the point of mental illness, or was bending the truth so far that it was no longer identifiable, in order to suit his own ends - and then persuading half the press to toady along with him rather than ask intelligent questions. I therefore did not like Blair. He was insincerely wrong and took spin to a whole new and unwholesome level, which is far worse than being sincerely wrong. Blair reminded me of other bad leaders who spent their early years saying everything their audience wanted to hear, changing the message slightly to suit the particular crowd they were appealing to at the time, but having no intention or ability to do all the things promised in the myriad different ways they had been promised to be done. Hitler had a good line in changing his message to suit the audience in his early years, until he had a big enough foothold on power to show his true colours with more honesty, too.

Thank you, SinicalSanta. .

Unfortunately, I think your suggestion would be considered a little bit too close to a communist utopia to be considered acceptable to most people. And of course, the lowest paid and least skilled already tend to do a lot of the most immediately useful jobs, whether cleaning, farm working, rubbish collecting, caring, etc, etc. They don't get the rewards they deserve, given the amount of propping up of everyone else that they do, enabling them to go out and make money in more skilled jobs, but how you find a politically acceptable way of giving them a bit more of what they deserve is what ends up stumping most people. It's a bit like the arguments between divorcing couples where the woman is after a share of the assets: he says she didn't earn any of it and doesn't deserve it and she says he wouldn't have had the time, energy or ability to achieve what he did if he hadn't had her behind the scenes, looking after the children, organising the household finances, keeping the house clean and warm, preparing the food, etc. Teamwork is conveniently forgotten when it comes down to sharing out the profits and it is those with their hands on the purse strings who get to decide how to share it out.

rabbit - though i don't think the vast amount of TV and shopping my ex SIL watched as a 'housewife' really balanced the hard graft that my brother put in at a paid job. though i guess you could call it 'teamwork' - he worked, she carried out the leisure activities.

That's not always the case, though, dreamingofsun! Unless you are implying that all SAHM watch TV, go shopping, make their husbands miserable and do nothing of use to anyone.

Let us give the Tories a little bit of credit. You may be right, but at least the Coalition is now getting to grips with the regulation.

They're not doing this. Banks are still under-capitalised, still too interconnected, and still 'too big to fail'. They've basically changed nothing. If one of the big banks failed again today, we'd still have to bail them out again, and it would still caused another huge financial crisis.

The Tories don't want to touch the city because they're good mates with most of the people who work there. They receive 50% of party funding from the City of London.

There is no way that the Tory scum are going to regulate the City in any meaningful way.