Tue 27 Jul 2010
I accept that this post isn’t really arguing for 100k a year max incomes, as Matt says:
Similarly, one important reason high-end consumption items are so expensive is that the people who buy them have so much money. If there weren’t all these rich people around, that house on the Hamptons would be much cheaper and you wouldn’t be so desperate to earn enough money to buy it. These points are important, underappreciated, and should shape our thinking about policy to a greater extent than they do, and I think the Grief piece is a welcome contribution to dramatizing that fact even if the specific proposal has some problems.
Some problems still remain, though. Though surely the wages of some CEOs are driven primarily by prestige competition, what about doctors? Medicine is actually a field where the income is necessary (and 100k a year is not enough) to compensate the doctor for the immense losses (both financial and otherwise) they have suffered on the route to becoming a physician.
- Educational costs: Now, on some level, the prices of education, both undergraduate and medical school, are driven by the higher wages one can expect to reap as a physician, but it’s still going to cost a lot.
- Hours worked/work conditions: 100k seems like a decent hourly salary at 40 hours a week. It’s not so nice at 80 hours a week, especially when you consider that those extra 40 hrs are probably worth a lot more to you as luxury time. Plus, what’s the cost of literally having people’s deaths on your hands? Even the best doctor will one day, have a patient die that they could have done something about. One of the best features of my job is that I don’t have that kind of responsibility, and it would take an immense amount of money (much higher than the difference between my salary and 100k) to get me to change that.
- Opportunity cost: you could have earned a lot of money working, instead of the 4 years of medical school, or having a part-time job in college (you may not have time for that as a pre-med), and the 3-4 years as a resident, during which you make a very small amount.
- Intangibles: what’s the proper wage for someone who has sacrificed personal relationships or time with kids to the extent that a doctor has? I’m not sure that I can put a price on that, but I’m pretty sure it’s high.
- Value of what they’re providing: certain surgeons actually can save lives that no one else in the world can. Now, I’m not saying that we should compensate them at the going insurance rate for life-years or whatever, but I think most of the people in the world are fine with the idea of people who save lives making more than 100k.
So yes, I accept that for some jobs, the high salary is driven by competition instead of real compensation. But there are quite a few where it is not — there are “real” as opposed to positional reasons for their paychecks. I know Matt’s not actually recommending the max income policy, but it’s hard to imagine any policy that we might propose that reduces the positional component of a CEO’s pay without similarly affecting doctors, who may have little or no positional income. After all, it’s hard to show off all your conspicuous consumption if don’t get home until after all the other Maserati owners have gone to bed.