Feb

5

Salary Caps, from Duncan Coker

February 5, 2009 |

 I won't argue if the salary caps are warranted or not, as this is a political issue. But what I believe to be factual in economics is that caps on prices leads to supply/demand imbalances, econ 101. For example, capping gasoline at say $1.00 a gallon would cause consumers to demand more, oil companies to produce less and the result is shortages. For executive labor in the banking sector, this will be the case too, shortages of talent. It is possible there could be a massive supply curve shift where all these executives are will to take lower pay. More likely I think is that they decide to go somewhere else, and that place where ever it is, would be an interesting place to invest in.

Kevin Depew is skeptical:

Agreed, the economics of salary caps seems clear, but, to paraphrase Jon Stewart, these banks have lost hundreds of billions of dollars. Just what "executive talent" is being lost?


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