Smart People are Overpaid and It’s the Government's Fault

If you are a true nerd, the first thing you are going to ask is “overpaid by what standard”?

So let me rephrase the title of the blog post in nerd speak; People with higher then average I.Q scores are subsidized by government actions and as a result people with above average I.Q are receiving a higher share of total GDP than is optimal. (Optimal being the situation that would result in greatest amount of real growth in this country’s GDP.)

This is a fairly simple thing to prove, provided you are willing to grant me a few premises.

First Premise: The tax code is overly complicated compared to the hypothetical optimal. (Again, the optimal is that which promotes maximum real growth in GDP.)

Second Premise: The nation’s economy is excessively regulated compared to the optimal.

Third Premise: The nation is overly litigious compared to the optimal.

Fourth Premise: The first three premises represent problems which all economic actors must overcome. Moreover, the problems they present require skills readily available only to high I.Q actors.

Fifth Premise: The supply of high I.Q actors is not elastic. Thus, the price for the labor of high I.Q actors follows the standard laws of supply/demand.

If you grant that overregulation, excessive lawsuits, and complex tax codes all present problems that increase the demand for high I.Q people, then the price for the labor of high I.Q actors should rise until demand and supply stabilize. Therefore, it follows that if you grant that regulations, the rate of lawsuits, and the complexity of the tax codes are not optimal, then you must admit that the pay rate for high I.Q people is not optimal either.

Some might argue that the bad effects of sub-optimal government interventions in the economy counteracts the extra pay that high I.Q people receive as a result of such complications. This may be true in that absolute sense, but it is not true in the relative sense. This is because the high I.Q people have increased demand for their services to help offset the bad effects sub-optimal government intervention, whereas the low I.Q people don’t.

For example, let us say that a high I.Q person and low I.Q person that both pay high car insurance premiums because of the legal environment in which they live. Now the high I.Q person is going to be making more money then the low I.Q person. Thus the car insurance is going to be taking a higher percentage of the low I.Q person’s income. This means the low I.Q person is relatively worse off than the high I.Q person as a result of the sub-optimal legal environment.

Moreover, since the term sub-optimal legal environment implies that lawyers are chasing every ambulance they see, it also implies a greater than optimal demand for lawyers. Now lawyers are generally considered a high I.Q profession, so this greater demand will increase the wages for high I.Q people. Even high I.Q people who are not lawyers will benefit because the higher demand for lawyers will cause more high I.Q people to want to be lawyers. This will result in less competition for high I.Q people in other fields.

From this example we can see how high I.Q people are relatively better off than their lower I.Q compatriots in a sub-optimal legal environment. Similar examples could be constructed for the effects of sub-optimal regulation and overly complex tax code.

Obviously, an argument along these lines that was based on the real world instead of theoretical examples would be more complex. But I think that basic point is valid. Complications posed by government regulation, complicated tax code, and an out-of-control legal environment will increase income inequality.

2 Responses to “Smart People are Overpaid and It’s the Government's Fault”

  1. guest says:

    The supply of lawyers is kept artificially scarce by licensing standards and other barriers to entry. High I.Q. does not enter into it, it’s all about massive rent seeking.

  2. Anonymous says:

    You make alot of assumptions……not a lot of substance in your statement

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