Elites on the Edge

Elites on the Edge, by John Mauldin.

The top layer, the fabled 1% or 10% or wherever you want to draw the line, don’t lose everything when somebody gets cancer. They are, to use Peggy Noonan’s term, a “protected” class. … The protected class doesn’t really understand the stomach-churning reality of the unprotected class, for whom just one blown tire, a trip to the emergency room, or other personal disaster completely wipes out their meager savings. They look at those who appear able to afford whatever they need, “the protected class,” and wonder why is that not me? They want to be in that class, too.

But it’s not easy to join, as I’ve been lamenting for years. Peter Turchin’s work adds to my concern. He notes, looking at many civilizations through history, that prosperity creates more wealth and wealthy people. The problem is their numbers tend to grow faster than the number of “elite” positions or jobs. In the US, for instance, we have 100 senators and 435 House members. Those numbers are fixed while the number of people who think they are qualified to hold office grows. Hence our large chattering class that circles the Washington beltway without any real power. Wall Street has a similar pattern. So do large companies, universities, state and local governments — basically all the institutions that compose society’s backbone.

Peter Turchin’s description fits the current US well

Meanwhile, a layer or two below are large numbers of people who want to join the top ranks. They think education is the key. Get a college degree and the doors to success will open. That’s not wrong, either. But here again, not all degrees are equal. Much depends on where you go to college and who you meet there. Grades aren’t the only factor.

Regardless, millions load up on debt trying to get those degrees. Many find themselves without the desired diplomas but still saddled with the debt. And it’s not just college degrees; people go into debt seeking law, MBA, medical, and other credentials they think will open the desired doors. Loose monetary policy subsidizes and encourages these ambitions while simultaneously inflating asset prices, which make them difficult, if not impossible to achieve.

So you end up with a group of potential educated elites who can’t attain or maintain the status they think they deserve, and another group below them demanding that same status. Turchin says the next step is for some of the disaffected elites to become “counter-elites” and make alliances with the lower classes, which then seek to take power. Think of 2016, when the UK had the Brexit referendum and the US saw Trump win the White House. Populist movements around the world are partly a manifestation of elite conflict. …

Covid helped the elites while decimating the un-protected:

This pandemic hit our economy like a neutron bomb, wiping out millions of low-wage service jobs while leaving the protected classes unharmed and in some cases actually better. And even the rescue wasn’t even-handed.

  • Jobless restaurant workers got a few months of generous unemployment benefits, which have now expired (and may not be extended).
  • Small business owners got PPP “forgivable loans” that came with complex rules and strict limits on how they could spend it (and many who couldn’t apply quickly didn’t even get that).
  • Large businesses got, thanks to the Fed (and Congress), trillions in practically free cash and permission to spend it however they wanted. In many cases, that meant share buybacks and executive bonuses.

Is it any wonder people want to join the elite, and are angry they can’t?

The US has become corrupt, ruled by an unsympathetic elite of surprisingly untalented people:

Cameron Murray, in a review of Turchin’s latest book, offers this foreboding paragraph:

“[T]here is a pattern that we see recurring throughout history, when a successful empire expands its borders so far that it becomes the biggest kid on the block. When survival is no longer at stake, selfish elites and other special interest groups capture the political agenda. The spirit that “we are all in the same boat” disappears and is replaced by a “winner take all” mentality. As the elites enrich themselves, the rest of the population is increasingly impoverished. Rampant inequality of wealth further corrodes cooperation.”

In past centuries and millennia, the lack of internal cooperation invited aggressive neighbors to conquer the disorganized country. Rome was not so much conquered by “barbarians” as it committed societal suicide, when the glue that held it together, the cooperation of all factions, simply disappeared.

hat-tip Chris