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....

They just pumped more billions into the system in what they call quantitaive easing. They say it is because the banks are not lending to each other. If these private banks were nationalised then we could make them lend to each other and we wouldn't need to pump billions into them because they are not lending to each other.

'We are an ambitious and competitive species, both men and women and it's huge fun.'

That is true, but that should not be at the expense of millions starving or going without healthcare. We know it can be done, we created a National Health Service, where once there was none. Children no longer clean chimneys. We are no less competitive than we once were, but we have also made things fair.

It requires regilation in the national interest. Not the communism that many progressives desire, not the slavery of the population, the destruction of liberty and the return of the gulags.

We need a better regulated capitalism.

Saving the financial system is the same thing as saving the bankers, so no point pretending otherwise.

Of course the West cannot always remain in the ascendancy. That doesn't mean the West has to enjoy the process of becoming the new Third World, or becoming the stomping ground of billionaires and their selfish ways.

Those around today are not the fittest : the fittest were killed off in the last two World Wars, leaving behind a lot of short sighted, flat footed, heart-disease prone simpletons, and crooks.

The bailouts were not "for us" they were an attempt to slow down the inevitable fall from grace of the powers currently in the ascendancy, which actually messed up big time and ought no longer to be in the ascendancy.

Life certainly is interesting, I'll give you that.

Banks and their employees are two different things. And within this categories are quite different people and entities. Which you mean?
Which banks would you nationalise? Why? How would that work? What would your nationalised banks do? Would you stop non-nationalised banks doing business in your fictious country?
It seems to me that either you do not understand the role of financial intermediation or you have not thought your proposals through. I am afraid going into either is beyond my telephone typing, apologies.

Banks and their employees are not two entirely different things - they can't run without employees. Yes, there are, however, many different people and entities lumped in under the general "banker" designation, some of whom were doing what bankers have always done and others attempting to be creative with hedge funds. Unfortunately, when one group of people get phenomenally and successfully greedy, everyone else wants a slice of the action and starts behaving similarly, until boundaries become blurred and before you know it, hardly anybody is really interested any more in the original businesses and what they were set up for, they are all just looking at figures going up and down and how they can manipulate them (preferably without actually having to do anything useful with respect to the running of the businesses concerned). Why not lend recklessly if it doesn't matter to you what happens to the business at the end of the day, because you've worked out a way of being the one who ends up with the profit, anyway? We've developed a huge industry of people who don't care about the real businesses in which they invest - they rely on others to do the real work, they just want to cash in on the profit. And we are all constantly being encouraged to behave the same way - we should all become shareholders who buy and sell shares for a profit, without expressing any real interest in the businesses in which we invest, just in the amount of money they generate for shareholders. And if we don't become shareholders in our own name, we should become shareholders through our pensions, etc, so that we are all responsible for this don't-care attitude. We are all living a big lie, encouraged by the financial industry, that we can make money by handing money over for other people to play with.

I may not understand the role of financial intermediation, but there are others who do

www.social-europe.eu/2011/10/why-we-need-nationalised-banks/

and the governemnet already nationalised Northern Rock and partially nationalised some other banks. Are you saying that they don't understand the role of financial intermediation too?

www.telegraph.co.uk/finance/financialcrisis/3187946/Financial-crisis-Banks-nationalised-by-Government.html

'Would you stop non-nationalised banks doing business in your fictious country?'

Certainly not. But I would stop bailing them out with public money. They are private businesses.

The gvmt understands the importance of financial intermediation v well, hence nationalising some banks.

But banks haven't been nationalised, really, have they? The government doesn't have enough say in how they run to describe them as nationalised.

In fact, owning the majority of shares in the business just encourages the government to encourage the banks to carry on with business as usual, rather than to change to a less-immediately-profitable-but-more-sensible-in-the-long-term model, doesn't it? The government is desperate to offload the shares asap.

rabbitstew, I think you are right. They have implemented a halfway house type system. They have bailed them out with public money but they don't seem to be able to force them to lend to each other or to small businesses. They don't seem to have managerial control.

And they don't seem to have much say about the size of the bonus pool.

They call for restraint, but evident it ain't.

Maybe it's because they believe they will leave the country.

Actually it is worse than that: because of all the noise about banks being the big bad ogres, the disgraceful brouhaha about bonuses, the rush by politicians on all sides to make cheap political capital by attacking the City, etc, not only are new entrants less likely to come to London but existing City-based financial institutions are reorganising themselves to avoid the UK. London us now the most unfriendly of the major financial centres and if the views aired here are anything to go by, it will continue being so for a while. The UK is very successfully killing one of the few industries it is good at- and enjoying doing so as well. But the enjoyment will be short-lived, the consequences (such as having a longer, deeper recession than would otherwise be the case and a slower recovery ) much longer-lived.
If it was being done to any other industry people would see the damage much mire clearly and try to stop it, but because it is about something not many understand and most people could not do, it goes on and on and on.

The stupid thing is, it is your middle-of-the road UK nationals that suffer most: the brightest people whose skills are much in demand (and who speak more languages than English) have been leaving for a while now, it is the secretaries, the mail and print room staff, the juniors, the clerical and even the middle management staff, the cleaners etc who now find themselves with no jobs. Not to mention those who work in the City but no in finance: the sandwich shops, the tailors, the dry cleaners, the hairdressers etc. less jobs for them too. And the nannies, cleaners, shops that used to workforce those who have now left.
RBS itself might not leave (it can't), but many others are and once a critical number has left it is much more difficult to re-establish credentials.

While I agree that finance is one of the UK's biigest exports and revenue generators. It has also been a curse. In essence the UK economy has become so unbalanced that it the UK has suffered the classic 'Dutch Disease' where all of the brightest graduates, capital and investment that might have been deployed to build new firms in other industries is diverted to finance.

The Icelandic economy was just the same until the Icelandic people voted to allow their banks to go bankrupt and already their economy is recovering. The Icelandic President was on TV recently describing how that recovery has been in a broad spread of industries with graduates now entering industries and even setting up their own ventures that they would have shunned previoulsy and gone straight into banking.

In my view the City has become over large in the UK economy and we need to get away from the idea that it is our only saviour and wealth generator. For example, there is potentialy a fantastic technology cluster in the Thames valley and M4 corridor. How much bigger would that be if the young graduates and capital had not been so skewed towards the City. We might have our own version of Silicon Valley without any need for Govt spending money on Regional Development Agencies.

I entirely agree with MoreBeta. Yes, of course it is very bad for the economy if banks leave the City, but the fact is, they have been exceptionally toxic for the health of the overall UK economy precisely because of their success at the expense of all other industries - to the point that we need them because we were stupid enough to encourage them so much that we lost all other profitable sources of income. All the best talent was sucked away from alternative industries into the City, where HUGE amounts of money could be made - and the talents of the people enticed that way could have been much more appropriately and effectively used elsewhere. The City is, after all, an environment where the too-clever seem to think they can come up with clever mathematical models removing all risk and they always come acropper in the end. Perhaps they should have used their considerable brains in an industry less dominated by fight and flight hormones - somewhere where their talents genuinely are in short supply. After all, the City operated quite happily for years with really stupid people running it on the basis of school ties and big lunches, so I don't believe it requires THAT much intelligence (besides which, I've worked in the City myself, so KNOW it doesn't), just that it has attracted intelligent, greedy people to it with promises of great wealth.

Of course it will be the secretaries, print room staff, etc, who suffer most if City people pull out of the UK - but do we want an economy where you are either a banker or work in a banker's print room? Yes, in a way to make a fuss is cutting off our nose to spite our face, but to say nothing when you think there is something badly wrong is just cowardly.

And yes, the argument isn't really helped by referring to "bankers" since traditional banking techniques (eg lend money for a specific project and get paid back with interest) and retail banking are not the hugely profitable part of the finance industry, but then all types of banks have had a habit in recent years of getting involved in all sorts of things, regardless of the original purpose of the bank in question, and don't want to separate out that more risky work. And even if they do separate the more speculative work from what most people regard as traditional banking, those sorts of activities will still be allowed to go on, it seems, possibly even less regulated than ever if everyone thinks they've been very clever protecting the money of "ordinary" people by making their banks far less profitable but more safe, so it won't do anything to stop continuing booms and busts, colossal disparities in wealth between those who have the money to play about with speculation and withdraw their cash just in time before the next crash and those who don't, and a drawing of all the best talent into the world of finance and away from real innovation and job creation in which a wider pool of people in this country can share. It isn't really "the banks" which started the problem, they just had enough money available to them to join in with it and were encouraged by those who wanted a share in unsustainable profits. The banks just want a share of what plenty of other people in the City are playing about with (and whom most people lump together under the general "banker" designation to mean anyone willing to take excessive risks with other peoples' money). The real problem is with the magnitude of the risky behaviour - small numbers of people can mess about with colossal sums of money as they use their existing profits plus the cash of anyone else who wants a share of the action, and cause no end of havoc for the "ordinary" people at the end of the day. This problem will not be solved by breaking up the banks, it will just mean that runaway greed and wealth will be whittled down to a smaller pool of people, controlling more and more ridiculous amounts of money and wielding their power in any way they fancy, because they don't see what's wrong with affecting the markets in ways unpredictable for everyone else.

I think the worst thing that could happen would be to break up the big banks and let the private hedge funds and their like continue to make a small group of hugely wealthy investors even more wealthy at everyone else's expense, because that way we still all suffer the busts, but get less share of the booms. I would rather some sorts of behaviour just weren't tolerated at all...

And when asked what she would do about the current economic crisis, rabbitstew confidently said, "I wouldn't start from here..."

The more we invest in our own pensions, the more we encourage them. We suffer if we do save and we suffer if we don't. We are all still completely at the mercy of the fluctuations of the market and always will be.

We always have been unless we live separately and self suffiiciently etc. Most people don't want that. They don't have the skills to be prosperous or without being supported by others,. 75% of people in the UK are net takers from the system and the few (25%) who are successful and competent and pay a lot of tax support all the rest. All this banker bashing is very unfair. if we dissassociated ourselves from the parts of the UK which make nothing and are pretty useless those of us in the 25% would be a lot better off btu we don't because as in the famous quote we are doing God's work and unlike with vicars the ungrateful poor don't think us for it. C'est la vie.

'if we dissassociated ourselves from the parts of the UK which make nothing and are pretty useless those of us in the 25% would be a lot better off'

How would the 25% receive their mail in the morning, supplied and delivered by workers who have been up all night? How would their children and parents receive medical care by nurses and doctors who have been up all night? How would they be rescued from disasters and accidents by emergency workers who work all through the night? There is no useless 75%, but some of teh 25% are less useful than they think and less grateful than they should be.

Well, you could view someone who cleans hospitals for very little pay, or who childminds other peoples' children as being a net taker from society, but I think that would be a somewhat unfair analysis, Xenia. It would be more fair to view them as essential to the people going out to do the most profitable work. You can't have the top 25% without the bottom 75%, so take out the majority who "take, take, take" and you'll find the top 25% can't do what they want to do any more, either.