The November 25, 2012
A Big Idea
The Almanack has not had a Big Idea in quite a while. In the past few years,
whenever an idea of any size came along, it was swept away by a Day-Job-
Crisis. But here is a thought we find simple and compelling, and only
Most economists agree that between 1945 and 1980, the productivity of the
United States grew at a pace never seen before or since, in all of human
history. Tax rates were very high during that period, especially high on top
earners. Tax rates dropped dramaticallly in the '80s, and growth flattened.
Maybe there is no correlation. The global economy is both complex and
complicated, and the U.S.A. is not the only vector, just the biggest.
But what if there is a correlation, related to competition?
The top one percent have always played the game to win, it doesn't matter what
game, football or foosball, baseball or whiffle ball, or riding itty-bitty
bicycles upside-down. Most avid sports fans contend that getting rich is not
the point, in fact BEING rich is probably a detriment to a great player's
performance. Winning at the negotiating table, being the highest-paid player
in the league, is a very important personal stat, like a score for the whole
season, but how much they have in the bank matters not at all.
Why would it be different for traders or bankers or industrialists? As long as
they want it, they will play the game like any other competitors, all in.
Salary matters, in exactly the same way as the P&L matters: that's the score
in the game.
If you take 90% in taxes, what's left over is still too much to spend, and the
score hasn't changed at all.
If you provide a very large incentive for a player to take his fat paycheck and
retire, the game itself is the loser.
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