This just in from John Judis at “The New Republic,” Obama’s sympathies are really with Wall Street, not with Main Street. But I object to Judis’s own gloss on the old chestnut of comparing very high compensation in the business world with the very high compensation of athletes and entertainers. Judis makes the wrong argument. His argument is that banking is not analogous to professional sports for various reasons. This might in principle be a reasonable argument, but I don’t think that it is. The better argument is to say that the very high salaries are not justified anywhere, not in business, not in professional sports, not in entertainment. That is my position. One has to rebut the whole presumption of payment according to product that undergirds the free-market ideology. “The market” makes all kinds of crazy distributive decisions. The people who happen to benefit most tend to benefit from particular regulatory constraints and barriers to entry that are the opposite of a free market.
I just heard Woody Allen say to Terry Gross on “Fresh Air” that he never understood why entertainers are paid so much compared to teachers, but he confesses that he has never protested about this fact, since he has profited greatly from it. In any event, one has to distinguish two claims from one another: (i) market prices are just; (ii) market prices are efficient, or Pareto-optimal, meaning that any change in market-determined prices would produce a lower GDP. A lot of people seem to believe (ii), without believing (i). Obama may be such a person. I believe neither (i) nor (ii). If we cut the after-tax income of the highest paid people in America, say anyone with over $1,000,000 in annual wage and salary income, by 50%, the people themselves would not suffer much, and the economy as a whole might benefit. It’s not as though people would stop working extremely hard to become movie stars, professional athletes, CEO’s, and investment bankers, if the compensation at the top of the competitive pyramid in these fields were cut in half. I don’t think it would affect the pool of people interested in these professions, except perhaps very marginally, and I don’t think it would affect the effort expended by the pool.
Judis’s article does raise a very troubling doubt about Obama’s principles, however, and I am certainly coming to call into question my enthusiasm for the man.