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....

Another thing I noticed when I was working in the City was the number of men who would, frankly, faff about half the day rather than get on with it, and then miraculously find things to do shortly before they were due to go home in time for their children's bedtime routine. They would then phone their spouses, all apologetic, saying that they were just snowed under and would have to stay at work late, and could they have a quick word with the kids on the phone, returning home later that night once the homework and bedtime routine was safely out of the way. Yes, some of the time they were really working hard, but a lot of the time they were evading their home responsibilities by pretending to be more busy than they actually were. Yet in a divorce, I'm sure all that would be conveniently forgotten and they would be the put upon husband who did all the hard work while their spouse got her nails done and never bothered to get a proper job.

rabbit - no not for 1 min suggesting everyone is like my ex SIL thankfully.

ttosca - just to let you know.

The Bank of England just announced today that it is doing another £50bn of Quantitative Easing and the ECB announced it is considering taking another Euro 7 trillion of poor quality loans off Euro area bank balance sheets.

It is all about bailing out banks - nothing to do with the real economy and real people. Makes me sick.

To be fair, it also smacks of blind panic.

That is my view too - looks like the Euro 130 bn Greek bailout has been 'agreed' with virtually no hard conditions as well.

More money to bail out banks. Only 17% of that Euro 130 bn of money will actually get to the Greek people. The other 83% will literally go straight back out of the Greek Treasury dept to the banks in the form of capital and interest payments.

I think excessively high salaries trapped people into areas of the economy where they were not necessarily making the best use of their skills (eg trained engineers, scientists and mathematicians going into finance). The result was an unbalanced economy - a situation even worse than that of those trapped on benefits, in that some of the people trapped could have helped create more jobs and a more stable country by being elsewhere, doing something else.

"It is all about bailing out banks"

If you live on tick... which is effectively what most countries have been doing... then you can't be surprised if a lot of the money generated has to go towards paying off debts and keeping creditors like central banks happy. The Greek government were dishonest when they joined the Euro, have never balanced their economy since and are now in a hole and can't seem to stop digging. £50bn of quantitiative easing is not bailing out any banks as such... it's an attempt to stimulate the economy now that interest rates are at such perpetually low rates.

Cogito - I keep having this little fantasy doing this little thought experiment in my head.

Imagine Mervyn King and George Osborne announced today that the BoE was going to withdraw all QE and the Treasury withdraw all tax payers money from the financial system over a steady two year period starting on Monday.

I suspect the stockmarket and all the banks might well collapse immediately. I supect the BoE and Trasury know thsi and of course they would never make that announcement. The problem I have is I can't ever imagine a time when it wil be right to go back to a normal economy where wages (including banker bonus), prices and credit are all allowed to come to an equilibrium.

Can anyone explain to me where money actually comes from these days? Is it all actually imaginary, and we are playing with imaginary amounts which we imagine we can afford, but not actually connected to anything? I know it's not connected to gold anymore, in any event... Did we have a boom because we all imagined we were very rich, and now we're having a bust, because we all imagine we aren't??????? It all seems a bit of a con to me that we have to give money to the banks in order to be able to borrow money from the banks and then they tell us we have to give them some more money via the Bank of England reserves before they will give it back, and even though we lent the banks the money in the first place just so that they could give it back to us plus an interest charge, they get to decide what they are willing to lend it out for (which happens to be for more financial speculation rather than investment in new businesses). Are we not just playing into their hands, parting with our imaginary cash and giving them more and more in return for being told we are now in huge debt, which they don't think we can afford to pay off (because they are making sure of it)?

I think bankers have been watching too many episodes of Hustle.

Did we have a boom because we all imagined we were very rich, and now we're having a bust, because we all imagine we aren't???????

Pretty much yes. Too many borrowed money to pay for the things now which they otherwise would not be able to afford. People did it to fuel holidays, home improvements, moving to a better house, better car etc., governments did to fund spending sprees invest in services/benefits they otherwise couldn't afford. Too few stopped to think that when you borrow money, one day you must pay it back.

Now we have to pay it back. And the blunt truth is that you end up with less to spend now because not only do you have to pay the capital back, you also must pay interest too.

Well, yes, I know that. But my point is, we don't appear to know how much we owe, we just appear to be at the mercy of overpaid peoples' moods. We are expected to trust people who lent profligately to have suddenly become staid and sensible, rather than to go swinging wildly from one extreme to another. And we keep giving these idiots more and more cash which doesn't actually exist, it's just been swiped out of thin air and printed by the Bank of England in order for them to gamble a bit more for their own profits and not share any of it with anyone else. What is actually "real" money, anyway, if the Bank of England can print as much as it likes?????? And why on earth do we operate under a system which seems to be governed by such a ridiculously unhealthy herd mentality? Either there is an evil mastermind behind this, creating a new world order as per his view of how things should be, or all these supposedly highly intelligent people are a bunch of bulls and bears who don't really understand intellectually what they are doing and why, they just know how to make money for themselves and have no control over, or interest in, what this does to the rest of the world order.

And if their only responsibility is to make money for themselves, then why are we throwing cash at them?

There are people who want a 'new world order' and the Euro crisis and financial crisis probably help take us a few steps closer to it, and it seems to be 'progressive'. But will it metamorphose as a beautiful butterfly from a caterpillar, or will it turn out to be a progressive hound of hell?
Will the people rue the day that the progressives have their way?

"Today?s decisions, of course, will not immediately solve the crisis. But we have begun the process by which it will be solved," Mr Brown said. "I think a new world order is emerging with the foundation of a new progressive era of international co-operation,"

www.telegraph.co.uk/finance/g20-summit/5097195/G20-summit-Gordon-Brown-announces-new-world-order.html

www.dailymail.co.uk/news/article-1166182/Brown-DOES-God-calls-new-world-order-sermon-St-Pauls.html

Brown wants a new world order

'all these supposedly highly intelligent people are a bunch of bulls and bears who don't really understand intellectually what they are doing and why, they just know how to make money for themselves and have no control over'

Lots of blogs and conspiracy sites had long predicted a financial crisis caused by the derivative bubble. Where were all these clever ratings agencies and highly paid regulators? Were they just pawns on the chessboard of the 'new world order'? Where were the cheques and balanced accounts? Why will the public pay the bill? Is the 'old order' over, has the public lost the game, is it a 'new world order' checkmate, will things ever be the same?

Oooh. Cool. I'm a conspiracy theorist after all! I certainly feel like a pawn in somebody else's game, anyway.

We have always had cycles. This is no different from others. It is how markets work. It is worse today than the 20s crash for example.

We have however moved to spending much much more. We used to spend about 36% of national income and Labout got us over 40%. Article in today's FT magazine about it. http://www.ft.com/cms/s/2/cfcf70d6-5202-11e1-a30c-00144feabdc0.html#axzz1m7E68dxf

'I'm a conspiracy theorist'
Then the ignorant will call you a fool, because they are all just tools.

We're all pawns in the game.
The proletariat was just a pawn in the Bolshevik game and teh people of Europe are just pawns in the Euro crisis game. They're both losers, they both pay the bill.

There are puppertmasters, puppets and pawns, sinners, spinners, and the spun, twas the same since the early dawn, nothing is new under the sun.

'We have always had cycles. This is no different from others. It is how markets work. It is worse today than the 20s crash for example.'

Cycles have a pattern, they are to some extent regular and cyclical. Therefore the clever regulators must be able to spot when they come, just as the meteorologists can often predict the weather. If they know when the next cycle comes themn they can take measures to prevent it.

But the reality is, a cycle doesn't move by itself, it requires a cyclist and the cyclist turns the pedal and spins the wheel. The cyclist knows when the next cycle will occur and rides the crest of the wave. The cyclist profits from that knowledge and the public is left in the dark.

The cyclist is the puppetmaster and the public is a pawn.

Economist like Paul Krugman predicted the crisis. Bloggers and conspiracy theorists knew all about the huge buildup of the derivative bubble and the figures for indebtedness were all readily available. So how come the highly paid regulators and economic chiefs at the top banking institutions couldn't see it coming?

Why did they let Lehman go under? Couldn't they foresee the ramifications?
Then they could have slowly restored confidence and hived off the bad assets. The cost would have been far less than the subsequent public bailouts and the allied austerity measures that billions of people across the world are now suffering?

Maybe if they had saved Lehamn Brothers, then a progressive new world order would not have been able to emerge.

"Today?s decisions, of course, will not immediately solve the crisis. But we have begun the process by which it will be solved," Mr Brown said. "I think a new world order is emerging with the foundation of a new progressive era of international co-operation,"

www.forbes.com/sites/robertlenzner/2011/10/16/bush-should-have-bailed-out-lehman-brothers/

'
Max King, strategist and portfolio manager, Investec Multi-Asset Protector fund

'The authorities achieved the worst possible outcome. They allowed Lehman to fail but bailed out everyone else. The benefit of instilling moral hazard on the world was immediately lost and the chaos the Lehman collapse caused was pointless. Either Lehman should have been bailed out also or the authorities should have treated other banks more harshly. The unconditional blank cheque written to rescue Anglo Irish, for example, looks likely to bankrupt Ireland. Sadly, the authorities and central government have forgotten nothing from economic history but also learned nothing.'

www.investmentweek.co.uk/investment-week/discussion/1732196/should-lehman-allowed-collapse

Did the banks sack their chief economists for not spotting the crisis which was predicted by many other people, or are they all still receiving their bonuses?

Claig: many people in the banks and academia "predicted" a crisis, but nobody knew when it would come. That was generally the brightest minds at the best institutions- which incidentally are usually the most reviled by the general public.

Some of those institutions acted on the research and got through the crisis better than others. But the fact that Bank A and professor Y say there is an asset bubble does not mean banks B, C, D are going to hold the same view and, even if they did, they might have different expectations as to the effects, length and geographical spread of the effects. Plus, you then have to factor on politics: for example, lots if people have been saying for years that the UK economy is over-indebted, that too many people get too much credit etc. But at the same time the government (Tory, labour, etc) wanted to reduce red tape, reduce regulation and encourage spending and home ownership. Regulators are accountable to the government , so there is little they could do in that situation.
DS has woken up, must go

You are right, lots of academics and other people saw it coming.

'But the fact that Bank A and professor Y say there is an asset bubble does not mean banks B, C, D are going to hold the same view'

It is really the responsibility of governments and regulators to take preventive action, some banks are just pawns making reckless gambits.

If a storm is predicted, you batten down the hatches, you don't just arrange deckchairs on the Titanic.

It is all about politics and power, puppetmasters and pawns, possibly even a perfect storm for a progressive new world order to be born.