Nobel prize winning economist Friedrich Von Hayek once famously remarked ‘if socialists understood economics, they wouldn’t be socialists’, a point Jeremy Corbyn took it upon himself to demonstrate this week when calling for a maximum earnings cap.
During a media blitz ostensibly to ‘relaunch’ his opposition, he appeared on Radio 4’s Today Programme, ostensibly to talk about Brexit and immigration. After taking almost the complete opposite position to what had been briefed on those issues the day before, he then made an offhand comment about imposing a maximum earnings cap in the name of equality.
“I would like there to be some kind of high earnings cap, quite honestly. I can’t put a figure on it and I don’t want to” he told Today. “I would to like to see a maximum earnings limit, quite honestly, because I think that would be a fairer thing to do.”
Needless to say, this became the headline of the day, and dominated his subsequent media appearances. And for good reason too, a maximum earnings cap would have profound effects on our economy.
If you limit the amount people can earn, you immediately put a limit on their productivity. If there is no incentive to work beyond a certain point then people will cease to do so. Why would anyone currently earning £10m do the same work for £1m? They’ll either do 10% of the work, or go elsewhere where their efforts are rewarded.
The argument seems to go that nobody is worth that sort of money. But that assertion is not backed up by reality. For example, Steve Jobs’ death wiped $17.5bn off of Apple’s share price. The value a competent CEO can add to a firm is why shareholders are happy to pay them such high sums.
This is a point seemingly lost on Corbyn. During an interview with Laura Kuenssberg on the BBC he referred to the lower levels of employees as “those that are actually doing the work” belying a belief that CEOs don’t actually do all that much bar, well, smoking cigars and diving into swimming pools full of gold coins presumably.
Despite Corbyn’s assertion that income inequality is running rampant, the statistics show otherwise. The crash of 2008 made us all poorer, but it also made us more equal. Data from the ONS shows that income inequality, far from being on the rise, is at it’s lowest point in 30 years.
Regardless, his pursuit of egalitarianism within company ranks is, and I struggle to find a diplomatic way to put this, sheer idiocy. For example, he proclaimed his disgust at the high wages earned by CEOs compared to ‘shopworkers’ et al.
I’m sure many people have sampled the delights of retail work at some point in their lives, this writer included. But the idea that my 8 hours a day stacking shelves, ordering stock and serving customers required the same level of skill and attention to detail (or indeed the same level of giving a toss) as the CEO is ludicrous.
Moreover I’d wager you’d be hard pushed to find a shop worker who knows what their company bigwigs are paid, much less care. Their concern is for themselves and that they’re being paid fairly for the work they carry out. If they feel that isn’t the case, they seek employment elsewhere. Such is life.
But, as much of a cliche as it is, Corbyn’s wage cap is the politics of envy encapsulated. This is not even a Robin Hood approach, where ‘excess’ earnings are redistributed. Just a straight up, ‘no, you can’t earn that much, it’s not allowed.’ It is spectacularly authoritarian, born out of the fallacy of the fixed pie.
Of course, if Corbyn actually means to confiscate any and all earnings above a certain level then we’re now talking about an income tax level of 100%. The fact this is being suggested by the leader of the opposition on national radio and not by a pimply sixth former in a debating society shows just how devoid of serious thinking Labour have become.
Inequality doesn’t matter. What does matter is overall poverty levels. If the poorest man is getting richer then it is of little consequence that the richest man gets richer still. In fact, some research suggests that growth occurs more readily when there is more inequality.
A rising tide lifts all ships, but Corbyn’s approach would drain the ocean. A cap of the likes he advocates would see a mass exodus of talent, and thus tax revenue from this country. The public services, and public sector employees, who’s funding and wages rely on those tax revenues would soon find themselves without income.
Not only would it strangle economic growth, it would also halt progress. Why would the tech wunderkind with a killer app bother to pursue the idea if the fruits of his labour and rewards for his ingenuity are destined to be disposed of by the state?
It is incredible that such an ill-conceived idea has been seriously suggested by a prominent UK political figure. It’s closer to communism than socialism. The most surprising thing of all though, is that Corbyn can still surprise us with his ignorance.