Blame The Rich Elites

Posted by Bob Lord

This one may make ole Thuckarooskie's head explode when he reads it: Blame Rich, Overeducated Elites as Our Society Frays, from Bloomberg yesterday. Yes, those wonderful "job creators" he admires so much are not really our saviors, they're our destroyers. Who would have guessed? 

The author, Peter Turchin, focuses on inequality, but not from the rich vs. poor perspective. He observes that there is a proliferation of elites associated with inequality, which by itself causes problems. 

Increasing inequality leads not only to the growth of top fortunes; it also results in greater numbers of wealth-holders. The “1 percent” becomes “2 percent.” Or even more. There are many more millionaires, multimillionaires and billionaires today compared with 30 years ago, as a proportion of the population.

Let’s take households worth $10 million or more (in 1995 dollars). According to the research by economist Edward Wolff, from 1983 to 2010 the number of American households worth at least $10 million grew to 350,000 from 66,000.

Rich Americans tend to be more politically active than the rest of the population. They support candidates who share their views and values; they sometimes run for office themselves. Yet the supply of political offices has stayed flat (there are still 100 senators and 435 representatives — the same numbers as in 1970). In technical terms, such a situation is known as “elite overproduction.”

And, along with elite overproduction, we have lawyer overproduction:

A related sign is the overproduction of law degrees. From the mid-1970s to 2011, according to the American Bar Association, the number of lawyers tripled to 1.2 million from 400,000. Meanwhile, the population grew by only 45 percent.

So, what happens when we have an over-proliferation of elites, the folks some revere as "job creators?" Well, they don't focus on job creation. Instead, they fight with each other.

Elite overproduction generally leads to more intra-elite competition that gradually undermines the spirit of cooperation, which is followed by ideological polarization and fragmentation of the political class. This happens because the more contenders there are, the more of them end up on the losing side. A large class of disgruntled elite-wannabes, often well-educated and highly capable, has been denied access to elite positions.

Ultimately, Turchin explains, political violence ensues, as it did in the wake of two other periods when elites proliferated, the lead up to the Civil War and the peak of the Gilded Age. 

So, Turchin concludes, we're headed for a good bit more turmoil, but the end result won't necessarily be bad. 

We should expect many years of political turmoil, peaking in the 2020s. And because complex societies are much more fragile than we assume, there is a chance of a catastrophic failure of some kind, with a default on U.S. government bonds being among the less frightening possibilities.

Of course, catastrophe isn’t preordained. History shows a real indeterminacy about the routes societies follow out of instability waves. Some end with social revolutions, in which the rich and powerful are overthrown. This is what happened to the Southern elites — decimated in the Civil War, beggared when their main assets, slaves, were freed, and excluded from national power in Washington. In other cases, recurrent civil wars result in a permanent fragmentation of the state and society.

In some cases, however, societies come through relatively unscathed, by adopting a series of judicious reforms, initiated by elites who understand that we are all in this boat together. This is precisely what happened in the U.S. in the early 20th century. Several legislative initiatives, which created the framework for cooperative relations among labor, employers and the government, were introduced during the Progressive Era and cemented in the New Deal.

By introducing the Great Compression, these policies benefited society as a whole. They enabled it to overcome the challenges of the Great Depression, World War II and the Cold War, and to achieve the postwar prosperity. Whether we can follow such a trajectory again is largely up to our political and economic leaders. It will depend on all of us, rich and poor alike, recognizing the real dangers and acting to address them.

In other words, we're headed for a good ole class war, but it may have a decent outcome, like the last class war did.