Last Wednesday, Gawker took time out of reporting on Ryan Lochte’s urinary habits and the health consequences of video game marathons to run an article by Hamilton Nolan suggesting that there should be a maximum income.
Nolan’s argument essentially boils down to the idea that $5 million is “enough,” especially since it can provide $250,000 a year just on interest if invested conservatively. He asks how the slickest PR Firm in the world can explain how a person deserves more than $5 million a year consider the plight of the poor. I’m no slick PR Firm, but I’ll give it a shot.
Rich people aren’t rich because poor people are poor. Rich people are largely rich because they helped make fewer people poor. In a market economy, people are paid the value they add to their firm. If they are paid more than that, then the firm loses money by keeping them on. If they are paid less than that, another company will offer an amount between what they are paid and the value they add. People who make more than $5 million a year do so because they add more than $5 million a year in value to their firm. At the end of the day, people who make more than $5 million a year are creating more value than that for customers.
There are reasons why the pay of a few Americans may be unjustly high. The most obvious reason is crony capitalism, which allows people to profit not by serving customers in the market, but by forming a cozy relationship with the government. Lobbying to have regulations which will cripple your competitors may be profitable, but it isn’t a component of the free market. Most lobbyists add more value in government favoritism to their firms than they are paid, but that value is not passed on to consumers. This demonstrates that some income stratification is the result of too much, not too little, government.
The United States of America was not founded on a vague and twisted notion of freedom, as Nolan alleges. The signers of the Declaration of Independence so valued the “unalienable Rights” of “Life, Liberty and the pursuit of Happiness” that they pledged with “firm reliance on the protection of divine providence” their Lives, Fortunes, and Sacred Honor. Mr. Nolan even explicitly states that he does not care about the economic impact of the law, but that he only wants to see a fairer America. My idea of a fairer America is one in which we can all pursuit our own happiness unrestrained by people in Washington who think they know how to lead our lives better than we do.
For further reading on the topic of wages and productivity please read F.A. Harper’s Why Wages Rise, available as a free PDF from the Ludwig von Mises Institute.