Up until the Reagan years, workers in the finance sector of the economy were paid, on average, pretty close to what workers in most other industries were paid. That's all changed over the past 30 years. Do employees of the financial sector deserve to be paid so much more than most other workers? No.
Here you will find an illuminating paper by Josh Bivens and Lawrence Mishel, which addresses the explosion of economic inequality in the U.S. since the beginning of the 1980s. They theorize that much of the increase in money flowing to the top 1% consists not of just compensation, but of "rents," meaning money above and beyond what someone actually needs to be paid in order to do their job. (In other words, money that could be taxed away and redistributed without having an effect on how hard or well people work.) They are saying, essentially, that the top 1% has been busily rigging our political and economic system in their own favor, so that their share of income increases, even though they are not, in fact, doing more for the economy than they were back when income distribution was far more equal. This situation is allowed to persist because our current tax code is not truly progressive.
Nowhere is this more easily observed than in the finance sector. They note that the ratio of average salaries of finance workers compared to other workers stood at just 1.1 in 1982; by 2007, it had leapt to 1.83. Which is why all those Ivy League kids were flocking to Wall Street gigs just before the recession hit. Did the finance sector do something so worthwhile during that period that it deserved to have such a large increase in relative income? Not really.
[Economic researchers]... conclude that roughly 30-50 percent of pay premium in finance seems due to rents.
In short, the financial sector illustrates that in one of the most important sectors driving top 1 percent incomes in recent years, there was an extraordinary divergence between what top managers took home and even what shareholders (surely a privileged group compared to the wider US economy) gained. This type of divergence seems like powerful evidence to us that a substantial part of the extraordinary rise of top 1 percent incomes is not a result of well-functioning markets allocating pay according to value generated, but instead resulted from shifting institutional arrangements leading to shifting of rents to those at the very top.
What they're saying here is that the average Wall Street rich guy does not deserve all the money he's making, and you can tax the fuck out of him without causing a significant drop off in his performance, because he's making too much already, and what else is he gonna do, dig ditches?
Not quite "mandatory maximum income," but close enough. Baby steps.
[Journal of Economic Perspectives. Photo: AP]