Why should a Wall Street Trader make more than an Air Force Pilot?

Alan Reynolds (Senior Fellow at the Cato Institute) wrote an opinion piece in the WSJ on 12/06/11 entitled "Tax Rates, Inequality and the 1%"

He (perhaps facetiously) subtitled it "Those who obsess over income shares should welcome stock market crashes and deep recessions because such calamities invariably reduce 'inequality.'

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My response... DAMN THAT IS DISINGENUOUS OBFUSCATION!

 

While he makes a valid point about fairly factoring in how tax rate changes may likely have influenced how compensation is structured and thus measured, the bulk of it is specious garbage.

 

1) His subtitle's implication is that every OWS supporter "obsesses" about income shares as if that would be invalid (in fact or manner). Further, more perniciously, it explicitly argues that every supporter of OWS wants to punish the wealthy just for being wealthy (and even if it means hurting the poor). This is insulting and obscene.

It would be comparable to a crackpot OWS protestor shouting "The richest 1% want to eat the poor's babies."

And, to be fair, I only did that for one month. ;-)

 

2) On to the substance...

Certainly different tax codes should indeed be factored into economic analysis. But if changing tax codes mean we can't compare different time periods then the entire study of economics would devolve from an aspiring science (q.v. objectivity, isolating variables, testing predictions etc.) into a subjective art perhaps more akin to dogmatic cults (q.v. theories can't be challenged by facts, ideology trumps real world experience).

 

Different people imagine different idealized future worlds. But for those with substantially similar goals there must be objective measures. This is so we may assess the effectiveness of proposed policies based on their past performance. 

 

A country's most basic/fundamental economic measure is the income of the citizenry (as a barometer of their prosperity). On this crucial point, is there any serious doubt that wages have been largely flat for the majority of Americans over the past 30 years? Conversely, does anyone earnestly challenge the notion that the top 1% (or 0.1% or maybe 0.01%) have been increasing their incomes at an rate much faster/greater than that of the rest of the American population?

 

Of course, the truly great deserve great success. American culture embraces this celebration of superiority in part to motivate further greatness. I am not any different. So the question that interests me is: By what measure is one determined to be truly great? 

 

If someone is entrepreneurial and creates a business (or hedge fund or law firm etc.) then he certainly deserves greater success than the person who merely performs a job he was trained to do (even if that job has billions on the line). Why should the trader who controls $1billion in investment assets make more than the Air Force pilot who controls a $2billion B-2 bomber? (let alone over 50x more)

 

The biggest issues for the OWS movement are:

 

a) Increasing Inequality with zero structure in place to counterbalance this scary trajectory (and even so most there barely aspire to Canadian-style "socialism").

 

b) Banks got bailed out (through TARP and the trillions in loans and balance sheet transfers of "toxic assets") all on the taxpayers' dime and then these same banks had the temerity to claim they had "record profits" in order to shamelessly rationalize excessive bonuses.

 

>>> NOTE: I'm all for unfathomably large bonuses for the investment managers who outperform the market. But, for a given set of risk & objectives, if mutual fund manager "X" massively underperforms a comparable (mindless) index fund, why should he make anything at all? (let alone tens of millions).