So, economic stimulus

[fivemack]

VAT has gone down by 2.5% as of 1 December, which means the fancy camera I want to buy could conceivably cost 15 quid less in the New Year than it does now. Of course, fancy cameras being made mostly of microchips, it's likely to cost fifteen quid less anyway thanks to process optimisation in the silicon foundries of Taiwan, but hopefully these are cumulative.

But the purpose of an economic stimulus can't just be to move lumps of consumption around by a few months; I don't think that even in the current climate it's necessary to run a big sale in November purely so that you have the cash to pay the salaries for your shop workers in December.

So Alistair Darling's job is to make Britons more profligate than they are now for the next two years (despite the financial mess being, as far as I can see, a function of a decade of unbalanced profligacy) and more frugal than they are now for at least four years to follow. I don't see how subtle tweaks to the tax system can do this; indeed, I don't know if it can be done. Interest rates are the obvious instrument, but profligacy and frugality are functions of upbringing and circumstance in that order; after-tax interest rates on straight savings accounts are now below the rate of inflation, but this has meant that I grumble slightly, keep most of my money in just-as-insured short-term bonds, and devote slightly more to the stock market where there's a possibility of higher returns.

What government policy would make you go out and spend more in February?

Comments

[(Anonymous)]

But what justification is there for those conditions including what they can pay their executives?

Companies already pay corporation tax in return for that privilege. You need a very strong justification, like the actual physical wellbeing of employees, to justify interfering in how the company is run.

Minimum wage laws are dodgy but I can see a case can be made; maximum pay laws I can't see any way in which they are not totally unjustifiable. If a company pays over the odds, it will go bust: hos is that not enoguh control on maximum pay?

S.

[fivemack.livejournal.com]

We've just spent a year and a half, and will probably spend another year and a half yet, discovering that 'it will go bust' is not enough restraint.

I wouldn't immediately dismiss wage inequality as necessarily irrelevant to actual physical wellbeing: we're status-conscious apes; stress hormones drive blood pressure, and heart attack and stroke are pretty blatant insults to physical wellbeing.

[(Anonymous)]

We've spent a year and a half discovering things about risk assessment and creditworthiness ratings. You'll have to explain to me how that has anything to do with capping pay (as opposed to reforming pay strategies to change the balance of risk/reward trade-off).

So. Basically, anybody who's not me being very successful makes my blood pressure higher; therefore we should outlaw, or at least cap, success?

S.

[fivemack.livejournal.com]

Would you mind telling me who you are?

I am not suggesting capping success, but I think it's probably healthy to cap status, and I don't think it's possible to pay people amounts that differ by two orders of magnitude without it being an overwhelming driving factor to their status.

[(Anonymous)]

You thinking it's probably healthy (in a very very indirect way through blood pressure etc) is a fairly weak justification for a government sticking its nose into how a company spends its own money. As I initially said, such a ridiculous level of interference in what is basically a matter of contract between two parties into which the government should not stick its nose requires a very serious, immediate justification; something along the lines of a clear and present danger to the employee's safety is required. 'Other people might be cross that this person is being paid so much and thirty years later have heart attacks' is hardly a present danger: there's not even direct causality!)

What's more it seems to legitimise envy as a policy driver, as your effectively saying that people's health will suffer because they are envious of those with more money, and the solution to this is to stop people being paid a lot rather than to tell those who are envious to get over it!

S.

[fivemack.livejournal.com]

I think we are arguing from very different axioms; I'm happy for a government to stick its nose into how people spend their own money - the entire thread is about what shape nose the government should use to convince people to spend more of their own money - and companies deserve much less protection from governments than humans do.

Why would you expect that telling people not to envy would work? Many organisations, including some with explicitly divine backing, have been attempting to discourage envy for at least three thousand years, and yet still we envy; envy's there all the way through the primates, it's something wired in hard enough that it's unrealistic to expect that telling people to get over it will work. At best you have just as much envy hidden by a thick layer of self-induced guilt.

[(Anonymous)]

There's a very big difference between a government making certain courses more advantageous than others to try to encourage people to take them, and punitive measures aimed at things it disapproves of -- and the tone of this suggestion was firmly in the 'punitive' category. How would you like it if the government capped the amount you could save per month so that you couldn't just increase your standing orders, and forced you to spend the excess?

Telling people not to murder or steal hasn't worked either, but that's no reason to stop trying.

S.

[fivemack.livejournal.com]

Once again, please could you tell me who you are; there are at least two people I can think of who might sign their posts 'S'.

The government caps the amount that I can save in accounts paying interest tax-free at £3600 a year, which I think is absolutely analogous to capping the salary disparity that can be permitted without an increase in the rate of corporation tax; this troubles me little.

[(Anonymous)]

It's not even nearly analogous: for one thing, the kicking-in of tax isn't intended to punish you for saving more, whereas the policy suggested was clearly from the tone meant to punish those companies with the temerity to decide for themselves how much they will pay their employees rather than what Monkey Hands thinks they should be paying. Rather the opposite: the lack of tax is there to encourage you to save more, but without any compulsion. You're free to ignore the if you want. In any case, the amounts involved are fairly trivial, and I got the impression that Monkey Hands would rather the punishment for those who dare to transgress the maximum allowable salary differential was sufficient to cause real pain.

S.

[mobbsy.livejournal.com]

I believe tha the government's role is to protect and improve the quality of life for its citizens (as the institution constructed to implement the collective will of the nation).

One obvious way of improving quality of life is to improve prosperity, and I'd accept that a free market should provide that (subject to free availability of information), however there's plenty of evidence¹ that large differences in relative living standards degrades quality of life. In my opinion, a goal of government should be to attempt to improve quality of life by reducing inequality, while balancing that against also improving overall prosperity.

¹ A very quick google suggests I could throw a barrage of references here supporting this statement, but I won't waste time doing so unless you think it necessary.

(Another example where overall prosperity can conflict with quality of life is environmental impact of business, and that too needs regulation. I see that as a reasonably close parallel to this case.)

Consider the extreme case of average incomes rising, but the entire rise being given to the existing top 1% of the population. Prosperity has risen, but entirely to the degradation of the quality of life of the general population.

Actually, I think a hard cap on salary would be quite a bad idea; however the idea of a tax geared on the ratio of minimum to maximum salary seems a rather clever way to offer an incentive for companies to reduce inequality without the large market distortion of salary caps.

[(Anonymous)]

The government's role is to protect its citizens from real dangers, to enforce justice, and to get out of their way as much as possible otherwise.

Who is being protected from what real danger by this punitive tax? Vaguenesses about heart attacks thirty years down the line don't count, unless you can prove that said person wouldn't have had a heart attack but for the unbearable stress caused by their own envy -- both because they're vague, and because I don't see why we should protect people from their own envy.

If the average income rises but the rise is confined to the top 1% of the population (assuming this is all in real terms), nobody's quality of life has dropped unless they allow themselves to be eaten up with envy, and them I have no sympathy for.

S.

[arnhem.livejournal.com]

I think that it has very little to do with envy, Stark.

On the one hand, I've seen what large-ish companies will do to the mass of lower-paid employees, by direct observation, and it is quite often deeply exploitative and morally repugnant. Not in a "not paying very much" kind of way, but in a "ruining peoples' lives while applying highly inappropriate pressures and threats to them so as to extract as much as possible out of them over the short term before chucking them away" kind of way. Having seen this directly in action, I disapprove.

And on the other hand, we observe a quite small group of very well rewarded executives, who have constructed a monopoly-like structure in which they each are responsible (via membership of each others' boards, and by being in control of the companies that are majority share-holders of each other) for controlling their own incomes, and see no reason to place any limit on them.

What we observe is policies that are entirely constructed around the desire to justify implausibly large (in the sense that I'd struggle to spend it if I had all day to do so) salaries and bonuses by excessively short term strategies, and by grinding "maximum efficiency" out of the mass of employees.

And, in practice, I observe quite a lot of those very highly paid executives exhibiting complete thoughtless incompetence that runs completely counter to the self-congratulatory assertions they make to justify the awards they make themselves.

If you haven't seen who bloody awful this is for those on the receiving end, you are somewhat fortunate and sheltered.

And, I think, it is inevitable that the greedy and utterly self-centred will gravitate to roles where they can be exploitative and selfish; and that one useful function of government is to try to make this more difficult for them.

[(Anonymous)]

If you want to improve conditions for the mass of lower-paid workers, then do that directly. Minimum wage laws, I already suggested I can see a case for. If you want to argue for changes to conditions on grounds of protecting employees' health, then do that too.

But I still don't see what any of that has to do with mandating some ratio between highest and lowest paid employees. If a company wants to hire someone who is the very best in their field, whether it be fund management, playing football, designing computer code, or directing films, and in order to do so is willing to outbid any competing firms and pay them a salary that is hundreds of times what the lowest-paid person in the company earns, that is entirely the company's decision about how to run its business and completely independent of the issue of how it treats those at the bottom end of the wage scale, so the government has no business setting punitive tax rates to discourage companies from competing to hire those at the top of their game.

And also, to forestall a possible objection, if the company wants to hire someone for some other asset they bring to the company not related to their talent, such as celebrity cache or publicity, again, that's entirely up to the company. It has nothing to do with how those at the bottom are treated -- and, again, if you think those at the bottom are treated in a way that injures them feel free to make the case that their conditions should be improved -- and is, again, entirely up to the company as to whether it thinks that extra factor is worth paying for.

If you want to help those on the receiving end, help those on the receiving end by agitating for their conditions to be improved. Don't interfere with how the company runs its business at the other end entirely.

S.

[arnhem.livejournal.com]

You are presuming that the treatment of those at the bottom of the pile is in some way entirely independent of the self-treatment of those at the top of the pile. It doesn't work that way; apart from anything else, the metrics that those at the top of the pile use to justify their salaries and bonuses are typically "efficiency" rather than "well-being of the workforce". "Efficiency" translates to mis-treatment of the workforce in a way that has far greater scope than just how much they're paid.

And my point still rests that it is the greedy and entirely self-centred (and indeed high-functioning sociopathic) who self-select for roles where they can do this. [ Not that all people in such roles are, but that there is a selection pressure for it ].

Free markets are not the magic solution to everything. There's a very narrow range of situations where they are genuinely free and mostly work (where there is a reasonable balance of supply and demand, free flow of information, and sufficient independent operators), and even then you find pathological behaviours like confusopolies springing up.

In most situations what appears to be a free market, isn't. Notably, in the particular situation we're discussing here, there is a quite small closed group of people who define their own metrics for success which, it transpires, are fairly bogus (suspicion turns to proof when the world economy collapses as a consequence of their "best in field" management skills).

Companies that say "we've got to pay a million pounds a year to get the best person" (or indeed "six million pounds a year to get this popular presenter") are showing striking irrationality in allowing themselves to be manipulated by an artificially constructed restriction on supply, that it would be quite straightforward for them to side-step.

[(Anonymous)]

If you think 'efficiency' translates to real mistreatment of the workforce then we're back to what I wrote before: concentrate on dealing with the actual ill-treatment. Punitive taxation for the salary differential does not in itself improve the lot of the lowest paid one jot. Unless, I suppose, you propose to set the taxes at a level where it is cheaper for the company to raise the lower salaries to avoid the tax than it is to pay it, if they want to hire the best person. But that'd be a tricky level to achieve, and still would be underhand and not directly addressing the problem of treatment of those at the lower end of the salary scale.

Free markets aren't the magic solution to everything but in general the government needs a good excuse to start meddling in agreements freely arrived at between private parties. If I can convince a company that my services are worth £2.4 million per annum, I don't see why the government should get any say in that.

If it really would be quite straightforward for companies to sidestep this alleged artificially constructed restriction, why aren't more of them doing it, saving money, and outcompeting their rivals hollow?

S.

[monkeyhands.livejournal.com]

In response to S:

1. I'm not talking about capping the highest salary in a company. I'm talking about linking it to the lowest salary in a company. Companies would still be free to pay whatever ludicrously high salaries they like to the people at the top; it's just that they would then be forced to raise the salaries of the people at the bottom too. So it's not a "maximum wage" at all.

2. I think fivemack's point about heart attacks may well be valid, but it hadn't occurred to me when I made my original comment and it wasn't a reason for what I proposed at all. I think you've been focusing way too much on arguing about the heart attack thing (probably because it's the least-easily-proved bit of what fivemack says) and ignoring his broader point that low salaries and income inequalities do have a broader impact on wellbring.

3. I don't agree with fivemack that humans necessarily strive for status or that this status is necessarily related to earnings. I also don't believe that the stress you get from working in a company where pay is unequal is to do with "envy" as such; it's to do with regularly being shat on and being aware of the total unfairness of your situation.

4. I do believe that the income inequalities created by a company's decisions on salary are an externality which government has to clean up. Income inequalities have a direct and negative effect on various areas which government deals with: crime and health, for example. So I believe it's completely fair to force a company to pay for the consequences of its own decisions through tax.

5. I don't believe that forcing a chief executive to accept a maximum of, say, 200 times the salary of a company's lowest worker can be seen as "pain" or "punishment" for the chief executive.

6. arnhem has made many of the other points I would otherwise have made myself.

7. I refuse to continue discussing this with you since I don't know who you are and I don't believe you are arguing in good faith. You have ignored fivemack's two requests to say who you are.

[(Anonymous)]

I don't know what you mean by 'arguing in good faith'. You think I'm just playing the devil's advocate?

(What does knowing who I am have to do with anything? I don't know who you are. Well, I'm assuming you weren't christened 'Monkey Hands'.)

It's not a maximum wage, but it is a punitive system designed to hurt those businesses which do not act in the way you approve, is it not?

And while it's quite a complex change to work through the implications of, I wouldn't be surprised if it did act as an effective cap on top-end wages because companies which raised the lowest wages in order to allow their top-end wages to rise higher would find themselves uncompetitive. Indeed, I suspect this is part of your reason for suggesting it; is it not?

Income inequalities may have an effect on crime, but the solution to that is to deal with the crime. Yes, it's a classical view, but that's the way it is.

As for health, I don't see how income inequalities, as opposed to income absolutes, have any effect on health whatsoever. The areas of the country where life expectancy are lowest are not those with the greatest income differentials, they are those where the absolute income is lowest. That someone in Knightsbridge earns £500,000 pa is not what causes Glaswegians to die in their forties, and if that high-earner was to have his salary slashed it wouldn't make the health provision in Calton any better.

I never suggested that capping a chief executive's salary (and now you admit it's meant to be a cap, do you?) was 'pain' or 'punishment'. Just that it was none of the government's business.

S.

[arnhem.livejournal.com]

(What does knowing who I am have to do with anything? I don't know who you are. Well, I'm assuming you weren't christened 'Monkey Hands'.)

I think that the point is that fivemack probably knows who 'Monkey Hands' is, but doesn't know who '(Anonymous) / S.' is.

And although not fully transitive, friends-of-friends relationships inform the way we interact with people.

[(Anonymous)]

If you're going to put stuff on the public internet, it's in the public arena. That means people you don't know are going to see it. Indeed, it implies rather that you want them to see it, that you think that what you write is worthy of a global audience.

S.

[arnhem.livejournal.com]

If it really would be quite straightforward for companies to sidestep this alleged artificially constructed restriction, why aren't more of them doing it, saving money, and outcompeting their rivals hollow?

Because the people setting the company's strategy are not, ultimately, interested in the long term benefit to the company, but in maximising their own immediate reward through bonuses.

A little before the short-termism really starts to come back to haunt them, they move onto the next company. The particularly neat bit of the trick is how it looks like the company can't cope without them after they leave.

[(Anonymous)]

In that case, why don't the shareholders or board of a company refuse to sign off on the CEO's package (institutional shareholders like pension companies certainly have both the clout and the motive to do so, if it really is as irrational a move as you suggest)?

Anyway, this isn't just about CEOs. There are other instances of highly-paid employees -- the team Barclays rescued from Lehman springs to mind, who are probably part of the reason they didn't take the government's cash with its attached strings -- who are not CEOs, but who I'm sure are among the tall daisies Monkey Hands would like to strike the heads from.

S.