Archive for January 10, 2017

Would a Maximum Wage Make the UK Fairer?

The world is full of extreme inequality, arguably globalism has made this worse but although there are plenty of idealistic rants against this disparity it’s difficult to find genuine real-world solutions.  Unfortunately Jeremy Corbyn, the Uk Labour leader, also seems to be struggling finding a sensible solutions too. His latest suggestion is that the British Government should instigate a cap on maximum wages in order to address this issue.

BBC Abroad in 2017

Let’s think about it for a minute, it’s about rich people right?  Rich people have too much money, take most of it off them and set a ceiling and we’ll all be more equal.  It might work in a socialist economic workshop but unfortunately in the real world there are many reasons why it would be a complete disaster.

Most successful Western economies are pretty aspirational, people generally don’t hate high earners.  They don’t boo the overpaid Premiership footballers off the pitch because of the size of their wage packets.  In fact you could guarantee the cries of despair if the millionaire superstars left to play in more lucrative leagues.  We don’t despise rock stars, well paid actors or a host of other overpaid people – mostly we feel just a little jealous and hope to be in the same situation.

Imagine a country where you knew if you became successful past a certain level the government would take all your cash off you.  How would they do it, is just one of the obvious problems.  You can guarantee that there would be a mass exodus of high achievers before they reached that level. A guaranteed  consistent brain drain would obviously help with inequality as everyone would get significantly poorer and the rich would move countries.

Even those who stayed would likely have numerous method of avoiding any ceiling, their wages would be transferred in shares, dividends, bonuses and routed through a selection of financial instruments in order to avoid whatever legislation was in place. Say goodbye to economic growth, to wealth generation, to risk taking and investment,  to job creation – to the rewards that create entrepreneurs and new businesses.

Even for those of us who think there is a genuine problem in how wealth is distributed in the global economy – this is a seriously flawed idea. It just makes everyone poorer, the economics of envy simply doesn’t work in the real world.

John Galway