Defective Equilibrium mentions that John Minto’s idea of a salary cap is madness. He is correct.
My question is why? Why have a salary cap? Why would society need to stop people voluntarily trading?
If someone pays someone else an “eye popping salary” this is voluntary trade, why do we feel that we have to jump in and regulate a “maximium value” for this trade? There are two reasons for asking this question:
- It makes us realise that capping salaries just because they seem too big isn’t a “fair” thing to do.
- It might make us see where an actual market failure exists – which is turn might illustrate an issue we should look at regulating.
So, why?
2 comments
StephenR says:
September 3, 2009 at 12:10 pm (UTC 12 )
If someone pays someone else an “eye popping salary” this is voluntary trade, why do we feel that we have to jump in and regulate a “maximium value” for this trade?
“we”?
We/John Minto may be fixated on the notion that salaries are a zero-sum game – CEO salaries come at the cost of the the salaries of people ‘who do the real work’. Could be, just popped into my head though.
Eric Crampton says:
September 3, 2009 at 2:04 pm (UTC 12 )
Send him a copy of Nozick’s thought experiment on Wilt Chamberlain.