Some people, as I understand it, just don’t think inequality is a problem. But for the egalitarians among us, I’ve never really understood the view that obscene executive compensation is an issue that absolutely positively certainly must only be addressed through the indirect Rube Goldberg-esque method of changing corporate governance rules. What if we had a 95 percent marginal tax rate on income over $10 million? What dire consequences would flow from this? Perhaps a certain outflow of top-flight baseball talent to Japan. But I don’t see this leading to any kind of economic calamity. Producers of certain classes of supply-constrained luxury goods would lose out as their prices go down. But my strong suspicion is that at the end of the day most of the super-rich would ultimately find it a relief to get off the treadmill of status-competition and the not-quite-so-rich would be thrilled to see their betters cut down to size.An economic policy based on its appeal to cultural resentments---what could go wrong?
Granted, the US has had very high marginal tax rates before (with top federal income taxes reaching 94% during WWII and 91% through much of the 1950s), though changes in the tax code (including rules for exemptions, etc.) may make it a little harder to compare the rates of then to now. But I think we need to be careful about going along with the notion that our economy would be more egalitarian if only our government could intervene to a radical extent. We also need to be wary of the temptation to think that one person will be better off only if another person becomes poorer.
A government with the power to implement complete economic "equality" (defined not as a freedom to pursue wealth but a limitation on wealth) by fiat is a government that, in practice, will prove to be deeply inegalitarian. Concentrating that much power in the hands of a few will lead to radical distortions of the market and significant displays of political corruption. The Soviet Union, for all its limitations on private wealth, was a far less egalitarian place than the United States. One of the reasons for using a "indirect Rube Goldberg-esque method of changing corporate governance rules" is that these rules offer a way of arriving at more egalitarian outcomes through encouraging specific channelings of private, decentralized interests. Regulation rather than dictation can lead to an economic system with more freedom, more productivity, and more equality.