October 19, 2018

Archeconomics

I made up the term “archeconomics.” I’m using “arch” in the sense of “first principles” — e.g., as in “archetype.” An “arch” is the larger version of the smaller expressions of itself — e.g., not just a villain but an arch-villain, not just an angel but an archangel. Life goes big when an arch-something is at work: experience expands beyond circumstance, meaning magnifies, significance is exaggerated.

Archeconomics is therefore the larger story behind economics.

I ended last week’s post by referring to the larger story behind the rentier economy. As usually happens when I’m on a research trail, several commentaries have appeared in my various feeds lately that look beyond the usual opinionated mash of current events and instead address over-arching ideas and issues. All of them deal in one way or another with the current status and possible future of the liberal worldview — an arch-topic if there ever was one.

The term “liberal” in this context doesn’t refer to political liberal vs. conservative, but rather to historical liberalism, which among other things gave us post-WWII neo-liberal economics. Mega-bestselling author Yuval Noah Harari describes this kind of liberalism in his latest book 21 Lessons for the 21st Century:

In Western political discourse the term “liberal” is sometimes used today in a much narrower sense, to denote those who support specific causes such as gay marriage, gun control, and abortion rights. Yet most so-called conservatives also embrace the broad liberal worldview.

The liberal story cherishes human liberty as its number one value. It argues that all authority ultimately stems from the free will of individual humans, as expressed in their feelings, desires, and choices. In politics, liberalism believes that the voter knows best. It therefore upholds democratic elections. In economics, liberalism maintains that the customer is always right. It therefore hails free-market principles. In personal matters, liberalism encourages people to listen to themselves, be true to themselves, and allow their hearts — as long as they do not infringe on the liberties of others. This personal freedom is enshrined in human rights.

If you read Harari’s books Sapiens and Homo Deus. you have a sense of what you’ll find in 21 Lessons, but I found it worth reading on its own terms. Two recent special magazine editions also take on the fate of liberalism: “Is Democracy Dying? from The Atlantic andA Manifesto for Renewing Liberalism” from The Economist. The titles speak for themselves, and both are offered by publications with nearly two centuries of liberal editorial perspectives.

Another historical liberal offering from a conservative political point of view is “How Trumpism Will Outlast Trump,” from Time Magazine. Here’s the article’s précis:

These intellectuals are committed to a new economic nationalism . . . They’re looking past Trump . . . to assert a fundamental truth: whatever you think of him, Donald Trump has shown a major failing in the way America’s political parties have been serving their constituents. The future of Trump’s revolution may depend on whether this young group can help fix the economy.

Finally, here’s a trio of offerings that invoke environmental economics — the impact of the global ecology on global economics being another archeconomics topic. The first is a scientific study published last week that predicted significant environmental degradation within a surprisingly short time. Second is an article about the study that wants to know “Why We Keep Ignoring Even the Most Dire Climate Change Warnings.” Third is last week’s announcement that the winner of this year’s Nobel Prize in Economics is an environmental economist.

Some or all of those titles should satisfy if you’re in the mood for some arch-reading.

Next time, we’ll return to plain old economics, with a look at how the low income social strata is faring in all the dust-up over rentiers and economic inequality, robotcs and machine learning, and the sagging paycheck going to human labor.

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

The Rentier Economy: A Primer (Part 2)

My plan for this week’s post was to present further data about the extent of the rentier economy and then provide a digest of articles for further reading.

Turns out that wasn’t so easy. The data is there, but it’s mostly buried in categories like corporate capitalization, profits, and market concentration. Extracting it into blog-post-sized nuggets wasn’t going to be that easy.

Further, the data was generally only footnoted in a maelstrom of worldwide commentary. Economists and journalists treated it as a given, barely worthy of note, and were much more interested in revealing, analyzing, and debating what it means. The resulting discourse spans the globe — north to south, east to west, and all around the middle — and there is widespread agreement on the basics:

  • Economic thinking has traditionally focused on income from profits generated from the sale of goods and services produced by human labor. In this model, as profits rise, so do wages.
  • Beginning in the 1980s, globalization began moving production to cheap labor offshore.
  • Since the turn of the millennium, artificial intelligence and robotics have eliminated jobs in the developed world at a pace slowed only by the comparative costs of technology vs. human labor.
  • As a result, lower per unit costs of production have generated soaring profits while wages have stagnated in the developed world. I.e., the link between higher profits and higher wages no longer holds.

Let’s pause for a moment, because that point is huge. Erik Brynjolfsson, director of the MIT Center for Digital Business, and Andrew McAfee, principal research scientist at MIT, wrote about it in their widely cited book The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (2014). The following is from a chapter-by-chapter digest written by an all-star cast of economists:

Perhaps the most damning piece of evidence, according to Brynjolfsson, is a chart that only an economist could love. In economics, productivity—the amount of economic value created for a given unit of input, such as an hour of labor—is a crucial indicator of growth and wealth creation. It is a measure of progress.

On the chart Brynjolfsson likes to show, separate lines represent productivity and total employment in the United States. For years after World War II, the two lines closely tracked each other, with increases in jobs corresponding to increases in productivity. The pattern is clear: as businesses generated more value from their workers, the country as a whole became richer, which fueled more economic activity and created even more jobs. Then, beginning in 2000, the lines diverge; productivity continues to rise robustly, but employment suddenly wilts. By 2011, a significant gap appears between the two lines, showing economic growth with no parallel increase in job creation. Brynjolfsson and McAfee call it the “great decoupling.” And Brynjolfsson says he is confident that technology is behind both the healthy growth in productivity and the weak growth in jobs.

Okay, point made. Let’s move on to the rest of the rentier story:

  • These trends have been going on the past four decades, but increased in velocity since the 2007–2009 Recession. The result has been a shift to a new kind of job market characterized by part-time, on-demand, contractual freelance positions that pay less and don’t offer fringe benefits. Those who still hold conventional jobs with salaries and benefits are a dying breed, and probably don’t even realize it.
  • As non-wage earner production has soared, so have profits, resulting in a surplus of corporate cash. Low labor costs and technology have created a boom in corporate investment in patents and other rentable IT assets.
  • Rent-seeking behavior has been increasingly supported by government policy — such as the “regressive regulation” and other “legalized monopoly” dynamics we’ve been looking at in the past few weeks.
  • The combination of long-term wage stagnation and spiraling rentier profits has driven economic inequality to levels rivaled only by pre-revolutionary France, the Gilded Age of the Robber Barons, and the Roaring 20s.
  • Further, because the rentier economy depends on government policy, it is particularly susceptible to plutocracies, oligarchies, “crony-capitalism,” and other forms of corruption, leading to public mistrust in big business, government, and the social/economic elite.
  • These developments have put globalization on the defensive, resulting in reactionary politics such as populism, nationalism, authoritarianism, and trade protectionism.

As you see, my attempt to put some numbers to the terms “rent” and “rentier” led me straight into some neighborhoods I’ve been trying to stay out of in this series. Finding myself there reminded me of my first encounter with the rentier economy nine years ago, when of course I had no idea that’s what I’d run into. I was at a conference of entrepreneurs, writers, consultants, life coaches, and other optimistic types. We started by introducing ourselves from the microphone at the front of the room. Success story followed success story, then one guy blew up the room by telling how back in the earliest days of the internet, he and Starbucks’ Howard Schultz spent $250K buying up domain names for the biggest corporations and brand names. Last year, he said, he made $76 Million from selling or renting them back.

He was a rentier, and I was in the wrong room. When it was my turn at the mic, I opened my mouth and nothing came out. Welcome to the real world, my idealistic friend.

As it turns out, following the rentier pathway eventually leads us all the way through the opinionated commentary and current headlines to a much bigger worldwide issue. We’ll go there next time.

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

The Rentier Economy — Primer Part 1

As we saw last week, the original Monopoly game — then known as The Landlord’s Game — offered a choice of two different games, one played under “Prosperity” rules and the other under “Monopoly” rules. The post-WWII economic surge was a real-life Prosperity game: it generated a rising tide of economic benefit that floated all boats across all social classes. The surge peaked in the 1970’s, and since then the Monopoly rules have increasingly asserted themselves, resulting in, among other things, stagnant employee compensation (except for the top 10%) and rising returns to capital owners — the lion’s share paid in the form of rents. The latter reflects the rise of a “rentier economy.”

First, we need to define “rent”:

Economists use the term ‘rent’ in a special way. For them, rent refers . . . to the excess payment made to any factor of production (land, labor, or capital) due to scarcity.

The scarcity factor that gives rise to rents can be natural, as with the case of land.

But rents can also arise from artificial scarcity — in particular, government policies that confer special advantages on favored market participants.

The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality, Brink Lindsey and Steven Teles (2017).

And “rentier”:

A rentier is someone who gains income from possession of assets, rather than from labour. A rentier corporation is a firm that gains much of its revenue from rental income rather than from production of goods and services, notably from financial assets or intellectual property. A rentier state has institutions and policies that favour the interests of rentiers. A rentier economy is one that receives a large share of income in the form of rent.

The Corruption of Capitalism, Why Rentiers Thrive and Work Does Not Pay, Guy Standing (2016)

Economists didn’t see the rentier economy coming. They especially didn’t foresee how government policy would create it. The following is from The Corruption of Capitalism:

John Maynard Keynes, the most influential economist of the mid-twentieth century, famously dismissed the rentier as the ‘functionless investor’ who gained income solely from ownership of capital, exploiting its ‘scarcity value.’ He concluded in his epochal General Theory that, as capitalism spread, it would mean the “euthanasia of the rentier,” and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity value of capital:

“Whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. . . . I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work.”

Keynes was mistaken because he did not foresee how the neoliberal framework built since the 1980’s would allow individuals and firms to generate ‘contrived scarcity’ of assets from which to gain rental income. Nor did he foresee how the modern ‘competitiveness’ agenda would give asset owners power to extract rental subsidies from the state.

Eighty years later, the rentier is anything but dead; rentiers have become the main beneficiaries of capitalism’s emerging income distribution system.

The old income distribution system that tied income to jobs has disintegrated.

And this is from The Captured Economy:

The last few decades have been a perplexing time in American economic life. Following a temporary spike during the Internet boom of the 1990’s, rates of economic growth have been exceptionally sluggish. At the same time, incomes at the very top have exploded while those further down have stagnated.

As a technical matter, rent is a morally neutral concept. . . . Nevertheless, the term ‘rent’ is most commonly used in a moralized sense to refer specifically to bad rents. In particular, the expression ‘rent-seeking’ refers to business activity that seeks to increase profits without creating anything of value through distortions to market processes, such as constraints on the entry of new firms.

Those advantages can also take the form of subsidies or rules that impose extra burdens on both existing and potential competitors. The rents enjoyed through government favoritism not only misallocate resources in the short term but they also discourage dynamism and growth over the long term. Their existence encourages an ongoing negative-sum scramble for more favors instead of innovation and the diffusion of good ideas.

Economists have had an explanation for the latter trend, which is that returns to skill have increased dramatically, largely because of globalization and information technology. There is clearly something to this explanation, but why should the more efficient operation of markets be accompanied by a decline in economic growth?

Our answer is that increasing returns to skill and other market-based drivers of rising inequality are only part of the story. Yes, in some ways the US economy has certainly grown more open to the free play of market forces during the course of the past few decades. But in other ways, economic returns are now determined much more by success in the political arena and less by the forces of market competition. By suppressing and distorting markets, the proliferation of regulatory rents has also led to less wealth for everyone.

To be continued.

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

The Landlord’s Game

“Buy land – they aren’t making it anymore.”
Mark Twain

You know how Monopoly games never end? A group of academicians wanted to know why. Here’s an article about them, and here’s their write-up. Their conclusion? Statistically, a game of Monopoly played casually (without strategy) could in fact go on forever.

I once played a game that actually ended. I had a strategy: buy everything you land on, build houses and hotels as fast as possible, and always mortgage everything to the hilt to finance acquisition and expansion. I got down to my last five dollars before I bankrupted everybody else. It only took a couple hours. Okay, so the other players were my kids. Some example I am. Whatever economic lessons we might have gained from the experience, they certainly weren’t what the game’s creator had in mind.

While Andrew Carnegie and friends were getting rich building American infrastructure, industry, and institutions, American society was experiencing a clash between the new rich and those still living in poverty. In 1879, economist Henry George proposed a resolution in his book Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy.

Travelling around America in the 1870s, George had witnessed persistent destitution amid growing wealth, and he believed it was largely the inequity of land ownership that bound these two forces — poverty and progress — together. So instead of following Twain by encouraging his fellow citizens to buy land, he called on the state to tax it. On what grounds? Because much of land’s value comes not from what is built on the plot but from nature’s gift of water or minerals that might lie beneath its surface, or from the communally created value of its surroundings: nearby roads and railways; a thriving economy, a safe neighborhood; good local schools and hospitals. And he argued that the tax receipts should be invested on behalf of all.

From “Monopoly Was Invented To Demonstrate The Evils Of Capitalism,by new economist Kate Raworth.[1]

George’s book eventually reached the hands of Elizabeth Magie, the daughter of newspaperman James Magie and a social change rabble-rouser in her own right. Influenced by her father’s politics and Henry George’s vision, she created The Landlord’s Game in 1904 and gave it two sets of rules, intending for it to be an economic learning experience. Again quoting from Ms. Raworth’s article:

Under the ‘Prosperity’ set of rules, every player gained each time someone acquired a new property (designed to reflect George’s policy of taxing the value of land), and the game was won (by all!) when the player who had started out with the least money had doubled it. Under the ‘Monopolist’ set of rules, in contrast, players got ahead by acquiring properties and collecting rent from all those who were unfortunate enough to land there — and whoever managed to bankrupt the rest emerged as the sole winner (sound a little familiar?).

The purpose of the dual sets of rules, said Magie, was for players to experience a ‘practical demonstration of the present system of land grabbing with all its usual outcomes and consequences’ and hence to understand how different approaches to property ownership can lead to vastly different social outcomes.

The game was soon a hit among Left-wing intellectuals, on college campuses including the Wharton School, Harvard and Columbia, and also among Quaker communities, some of which modified the rules and redrew the board with street names from Atlantic City. Among the players of this Quaker adaptation was an unemployed man called Charles Darrow, who later sold such a modified version to the games company Parker Brothers as his own.

Once the game’s true origins came to light, Parker Brothers bought up Magie’s patent, but then re-launched the board game simply as Monopoly, and provided the eager public with just one set of rules: those that celebrate the triumph of one over all. Worse, they marketed it along with the claim that the game’s inventor was Darrow, who they said had dreamed it up in the 1930s, sold it to Parker Brothers, and become a millionaire. It was a rags-to-riches fabrication that ironically exemplified Monopoly’s implicit values: chase wealth and crush your opponents if you want to come out on top.

“Chase wealth and crush your opponents” — that was my winning Monopoly strategy. It requires a shift away from the labor economy — selling things workers make or services they provide — to the rentier economy — owning assets you can charge other people to access and use. The scarcer the assets, the more you can charge. Scarcity can be natural, as is the case with land, or it can be artificial, the result of the kind of “regressive regulation” we looked at last time, that limits access to capital markets, protects intellectual property, bars entry to the professions, and concentrates high-end land development through zoning and land use restrictions.

Artificial scarcity can also be the result of cultural belief systems — such as those that underlie the kind of stuff that shows up in your LinkedIn and Facebook feeds: “7 Ways to Get Rich in Rental Real Estate” or “How to Create a Passive Income From Book Sales and Webinars.” In fact, it seems our brains are so habitually immersed in Monopoly thinking that proposals such as Henry George’s land ownership  tax — or its current equivalents such as superstar economist Thomas Piketty’s wealth tax, Harvard law and ethics professor Lawrence Lessig’s notions of a creative commons, or the widely-studied and broadly-endorsed initiation of a “universal basic income” — are generally tossed off as hopelessly idealistic and out of touch.

More to come.


[1] Kate Raworth holds positions at both Oxford and Cambridge. We previously looked at her book Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist  (2017).

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

The Pledge

19th Century Steel Baron Andrew Carnegie was (a) more than okay with the right to make as much money as you want; but he (b) was not okay with spending it any old way you like. He had some very specific notions about the latter:[1]

By the late 1880s, Carnegie’s place as one of the wealthiest men in the United States was cemented… With the time afforded him as the controlling shareholder, Carnegie put forth theories on capitalism. the human condition, and the American Republic. In 1889, Carnegie wrote an article simply titled “Wealth” — it would soon become known as “Gospel of Wealth.” . . . In it he offered an unapologetic defense of the system that enabled great wealth such as his.

[Carnegie believed that] the price for… material progress — “cheap comforts and luxuries” — was great wealth inequality. . . . Any thinking person, Carnegie surmised, would conclude “that upon the sacredness of property civilization itself depends — the right of the laborer to his hundred dollars in the savings bank, and equally the legal right of the millionaire to his millions.” But his defense of capitalism was a setup for a most startling conclusion.

In the article Carnegie argued that the greatest of men, capitalists, should be unencumbered to accumulate wealth. But once great wealth was achieved, these men should, during their lifetimes, give it away. As the possession of wealth was proof to society of great achievement, aptitude, industriousness, and ability, it made little sense that it should be bequeathed to descendants. Inherited wealth would undermine the argument that those with wealth earned it, deserved it.

Next, he held that if men waited until death to give the money away, less competent men unused to large sums would squander it thoughtlessly, however well-intentioned. While Carnegie viewed wealth as a symbol of intellectual mastery, the actual possession of it should be considered only a trust fund, with “the man of great wealth becoming mere trustee for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could for themselves. The man who dies thus rich, dies disgraced.”

Carnegie was hailed by newspapers, socialists, workingmen, and, more discreetly, even his fellow capitalists . . . for such enlightened views.

Carnegie’s legacy of endowments endures to this day. (I have clear memories of our small town Carnegie library.) Carnegie’s fellow Robber Barons created similarly enduring legacies, such as those reflected in the following names: Johns Hopkins, Leland Stanford, Ezra Cornell, Cornelius Vanderbilt, and James Duke.

Carnegie’s philosophy also endures today. albeit expressed in terms more in tune with the ethos of our times. Consider, for example, the Giving Pledge, formed “in an effort to help address society’s most pressing problems by inviting the world’s wealthiest individuals and families to commit more than half of their wealth to philanthropy or charitable causes either during their lifetime or in their will.”

As of May 2018, 183 individuals or couples from 22 countries had taken the pledge, representing total net worth closing in on a trillion dollars. Some of the Pledgers are household names; most aren’t. I randomly clicked several of their photos on the Giving Pledge home page, which takes you to their statements about why they took the pledge. Noticeably absent is Carnegie’s belief that capitalists are “that the greatest of men,” that “the possession of wealth [is] proof to society of great achievement, aptitude, industriousness, and ability,” or that wealth is a “symbol of intellectual mastery.” Nor is there an expressed fear that “less competent men unused to large sums would squander it thoughtlessly, however well-intentioned.” Instead, there’s a certain humility to many of the statements: they often mention lessons learned from forebears or other role models, and often express gratitude for having been “blessed” or gotten lucky, such as this one:

Allow me to start by saying that I am not sure I am a worthy member of this group of extraordinary individuals. I consider that I have been lucky in life.

Other themes in the statements are (a) a recognition that attaining great wealth is not solely a matter of rugged individualism, but that cultural and historical context deserve a lot of credit, and (b) a belief that giving back is a way to honor this reality. I.e., wealth made possible by historical and cultural circumstance ought to benefit all members of that culture, including the most needy. As it turns out, this isn’t just a kind-hearted philosophy of life, it’s a statement of the economic terms upon which much wealth has in fact been created and in the past and continues to be created today.

State-sponsored policies that favor timely and innovative ideas and technologies represent a significant type of societal support for wealth creation . We’ll look at that next time.


[1] Americana: A 400-Year History of American Capitalism, Bhu Srinivasan, (2017).

 

The Great Gatsby Lawyer

How okay are we, really, with the right of everyone (a) to make as much money as they want, and (b) to spend it any way they like? If we would limit (a) or (b) or both, then how and why?

Consider for a moment what your (a) and (b) responses have been to the upward mobility stories we’ve looked at so far: Richard Reeves, Matthew Stewart, Steven Brill. Travie McCoy. David Boies, Eric and I. Now consider this story from an article in Above the Law:

[P]ersonal injury attorney Thomas J. Henry threw a lavish bash to celebrate his son, Thomas Henry Jr.’s, 18th birthday. And the price tag for the Gatsby-mixed-with-burlesque-themed fête? A cool $4 million.

To rack up such a hefty bill, the event had lots of performers which included showgirls, aerial performers, art installations, and contortionists (oh my!). Plus, there were musical performances and celebrity guests.

And don’t think the over-the-top party was the only gift the birthday boy received:

The star of the party, who sat on a throne-like chair when he wasn’t dancing, was given a fully loaded blue Ferrari, an IWC Portugieser Tourbillion watch and a custom-made painting from Alec Monopoly.

Henry’s work as a trial attorney is obviously pretty lucrative. The big payouts he’s been able to secure for his clients have made him a member of the Multi-Million Dollar Advocates Forum.[1]

Henry is known for throwing giant parties. Just last year, he spent $6 million for his daughter’s quinceañera. I guess we know which one is really daddy’s favorite.

The writer telegraphs her attitude about the story with the article’s tone and with the understated lead line, “this seems extreme.” Apparently she would cast a vote for limitations on (b). When I’ve shared the story with friends, the response is usually stronger than “this seems extreme.”

I wonder why. Maybe it’s because this looks like a case of conspicuous consumption, which never goes down well. Economist/sociologist Thorstein Veblen coined the term in his 1889 book, The Theory of the Leisure Class, to describe how the newly prosperous middle class were buying things to communicate their move up the social ladder. The neighbors were rarely impressed — that is, until they made their own purchases, and then the game turned into keeping up with Joneses.

The conspicuous consumption shoe might fit here: Mr. Henry’s website tells a bit of his upward mobility story — German immigrant, raised on a farm in Kansas, etc. Or maybe there’s something going on here that transcends his personal story. In that regard, the term “affluenza” comes to mind.

The term “affluenza” was popularized in the late 1990s by Jessie O’Neill, the granddaughter of a past president of General Motors, when she wrote the book “The Golden Ghetto: The Psychology of Affluence.” It’s since been used to describe a condition in which children — generally from richer families — have a sense of entitlement, are irresponsible, make excuses for poor behavior, and sometimes dabble in drugs and alcohol.

From an article by Fox News. See also these descriptions from CNN and New York Magazine.

Definitions of the term come loaded with their own biases, judgments, and assumptions. This is from Merriam-Webster:

Affluenza: the unhealthy and unwelcome psychological and social effects of affluence regarded especially as a widespread societal problem: such as

feelings of guilt, lack of motivation, and social isolation experienced by wealthy people

extreme materialism and consumerism associated with the pursuit of wealth and success and resulting in a life of chronic dissatisfaction, debt, overwork, stress, and impaired relationships

And this is from the popular PBS series that came out shortly after The Golden Ghetto:

Af-flu-en-za n. 1. The bloated, sluggish and unfulfilled feeling that results from efforts to keep up with the Joneses. 2. An epidemic of stress, overwork, waste and indebtedness caused by dogged pursuit of the American Dream. 3. An unsustainable addiction to economic growth.

Affluenza made quite a splash in the estate planning world where I practiced, spawning a slew of books, CLE presentations, and new approaches to legal counseling and document design. Affluenza went mainstream in 2014 with the highly-publicized trial of Ethan Couch, the “Affluenza Teen,” when a judge reduced his sentence on four counts of intoxicated manslaughter and two counts of intoxicated assault after an expert witness testified that his wealthy upbringing had left him so psychologically impaired that he didn’t know right from wrong.

For a great number of my clients, that their kids might catch affluenza was their worst nightmare.[2] Their fear suggests this consensus to Thomas Henry’s partying habits:

(a) it’s okay to make all the money you want,

(b) but it’s not okay if you use your money to make your kids a danger to themselves and to others.

I wonder — would it temper our rush to categorize and judge Mr. Henry if we knew his philanthropic history and philosophy? This is from his website:

Mr. Henry’s overall philosophy is that helping others when you have the good fortune of being successful is not an elective decision but a mandatory decision. People who achieve success have a duty to help others.

That statement closely mirrors the beliefs of Robber Baron Andrew Carnegie. We’ll look at that next time, along with the perceptions of other 0.01 percenters about the social responsibilities of wealth.


[1] The Forum’s website says that “fewer than 1% of U.S. lawyers are members,” which appropriately signals Thomas Henry’s position in the economic strata.

[2] I used to tell my clients that if I had a dime for every time a client said, “I don’t want my money to ruin my kids,” I would have been a rich man. That was hyperbole, of course: a dime each time wouldn’t have made me rich. On the other hand, a million dollars each time might have made me a billionaire. A billion is a BIG number.

 

The Matthew Effect

“For to everyone who has will more be given, and he will have abundance;
but from him who has not, even what he has will be taken away.”

The Gospel of Matthew 25:29, Revised Standard Version

Economists call it the Matthew Effect or the Matthew Principle. Columbia sociologist Robert K. Merton used the former when he coined the term[1] by reference to its Biblical origins.[2] The more pedestrian version asserts that the rich get richer while the poor get poorer.

According to the Matthew Effect, social capital is better caught than taught, better inherited than achieved. That notion is borne out by current economic and demographic data[3] showing that the only children with a statistically relevant shot at experiencing a better standard of living than their parents are the ones born with a silver spoon in their mouths — or, as David Graeber says in Bullshit Jobs, the ones “from professional backgrounds” where they are taught essential social capital mindsets and skills “from an early age.”[4]

Statistics are susceptible to ideological manipulation, but bell curves conceptualize trends into observable laws of societal thermodynamics. The Matthew Effect bell curve says it’s harder to get to the top by following the Horatio Alger path: you’re starting too many standard deviations out; your odds are too low. On the other hand, if you start in the center (you’re born into the top), odds are you’ll stay there.

That might depend, however, on how long your forebears have been members of the club. Globetrotting wealth guru Jay Hughes has spoken and written widely of the concept of “shirt sleeves to shirt sleeves in three generations.” According to the aphorism, if the first generation of a family follows the Horatio Alger path to wealth, there’s a 70% chance the money will be gone by the end of the third generation, which means the social capital will be gone as well. That first generation might defy the odds through hard work and luck, but odds are they won’t create an enduring legacy for their heirs.

My own law career was an exercise in another folk expression of the Matthew Effect: “you can take the boy out of the country but you can’t take the country out of the boy.” (No, that’s not me in the photo — I just thought it made the point nicely.) My career finally hit its stride when I created a small firm serving “millionaire next door” clients — farmers, ranchers, and Main Street America business owners who became financially successful while remaining in the social milieu where they (and I) began. Nearly all of those families created their wealth during the post-WWII neoliberal economic surge, and are now entering the third generation. I wonder how many are experiencing the shirt sleeves aphorism.

Curiously, my transition out of law practice was also dominated by social capital considerations — in particular, a social capital misfiring. I had a big idea and some relevant skills (i.e., some relevant human capital — at least other people thought so), but lacked the social capital and failed to make the personal transformation essential to my new creative business venture.[5]

In fact, it seems the Matthew Effect might be a larger theme in my life, not just my legal career. In that regard, I was surprised to find yet another one of my job stories in Bullshit Jobs. This one was about a townie who took a job as a farm laborer. His job included “picking rocks,” which involves tackling a rocky field with a heavy pry bar, sledge hammer, pick axe, spade, and brute strength, in an effort to remove the large rocks and make it tillable. I’d had that job, too. I was a teenager at the time, and it never occurred to me that it might be “completely pointless, unnecessary, or pernicious” (Graeber’s definition), which is how the guy in the book felt about it. In fact, when I told my parents about my first day of picking rocks over dinner, my dad was obviously so proud I thought he was going to run out and grill me a steak. Obviously I’d made some kind of rite of passage.

Picking rocks is just part of what you do if you work the land, and there’s nothing meaningless about it. I enjoyed it, actually — it was great training for the upcoming football season. I can scarcely imagine what my law career and life might have been like if I’d felt the same way about my first years of legal work as I did about picking rocks.

The Matthew Effect has far-reaching social, economic, legal, and ethical implications for the legal profession, where social capital is an important client- and career-development asset. Next time we’ll look at another lawyer who, like David Boies, rose from humble origins to superstar status, and whose story brings a whole new set of upward mobility issues to the table.


[1] Merton was originally trying to describe how it is that more well-known people get credit for things their subordinates do — for example, professors taking credit for the work of their research assistants — the professors enriching their credentials at the expense of their minions’ hard and anonymous work. Merton might just as well have been talking about law partners taking credit for the work of paralegals, law clerks. and associates.

[2] As for why “Matthew” when the other Synoptic Gospels (Mark and Luke) have the same verse, I suspect that’s in part because Matthew is the first book in the New Testament canon, but it may also substantiate a derivative application of Merton’s law made by U of Chicago super-statistician Stephen Stigler, known as the Law of Eponymy, which holds that “No scientific discovery is named after its original discoverer.” I.e., later arrivals collect the accolades the” original discoverer” never did. In that regard, Mark’s gospel is believed to have been written first, with Matthew and Luke’s coming later and deriving from it. That would make Mark the true original discoverer. That this economic phenomenon is not called the “Mark Effect” is therefore another example of Stigler’s law.

[3] See, e.g., the “Fading American Dream” graph and the “Geography of Upward Mobility in America” map in this NPR article.

[4] The phenomenon has been widely reported. See this study from Stanford and our trio to new Meristocrats from a few weeks back: Richard V. Reeves and his book Dream Hoarders and his Brookings Institute monograph Saving Horatio Alger (we looked at those last time). The second was philosopher Matthew Stewart, author of numerous books and a recent article for The Atlantic called The 9.9 Percent is the New American Meritocracy. The third was Steven Brill, founder of The American Lawyer and Court TV, author of the book Tailspin: The People and Forces Behind America’s Fifty-Year Fall—and Those Fighting to Reverse It and also the writer of a Time Magazine feature called How Baby Boomers Broke America.

[5] I’ve told that story elsewhere, and won’t repeat it here, but if you’re interested in more on this issue, a look at that particular social capital disaster might be illustrative. See my book Life Beyond Reason: A Memoir of Mania.

 

Rebel Without A Cause

Continuing with David Graeber’s analysis of Eric’s job experience from last time:

What drove Eric crazy was the fact that there was simply no way he could construe his job as serving any sort of purpose.

To get a sense of what was really happening here, let us imagine a second history major — we can refer to him as anti-Eric — a young man of a professional background but placed in exactly the same situation. How might anti-Eric have behaved differently?

Well, likely as not, he would have played along with the charade. Instead of using phony business trips to practice forms of self-annihilation, anti-Eric would have used them to accumulate social capital, connections that would eventually allow him to move on to better things. He would have treated the job as a stepping-stone, and this very project of professional advancement would have given him a sense of purpose.

But such attitudes and dispositions don’t come naturally. Children from professional backgrounds are taught to think like that from an early age. Eric, who had not been trained to act and think this way, couldn’t bring himself to do it.

Like Eric, I couldn’t bring myself to do it either — although it was not so much that I couldn’t, it was more a case of not knowing how. I was bright enough, had a knack for the all-important “likeability factor” with clients and colleagues, and worked with lots of clients and other professionals who were members of the Red Velvet Rope Club. But like Eric, I remained on the outside looking in, and I spent a lot of time feeling envious of others who fit in so easily.

Those dynamics dogged the early years of my law career. In time, a general sense of inadequacy became depression, which I compensated for by nursing a rebel-without-a-cause attitude.

My experience didn’t have to be that way. Consider, for example, the story of super-lawyer David Boies. Like Eric and me, Boies was also born to working class parents and grew up in a farming community, but that’s where the resemblance ends. Chrystia Freeland introduces him this way in her book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else(2012):

As the world economy grows, and as the super-elite, in particular, get richer, the superstars who work for the super-rich can charge super fees.

Consider the 2009 legal showdown between Hank Greenberg and AIG, the insurance giant he had built. It was a high-stakes battle, as AIG accused Greenberg, through his privately-held company, Starr International, of misappropriating $4.3 billion worth of assets. For his defense, Greenberg hired David Boies. With his trademark slightly ratty Lands’ End suits (ordered a dozen at a time by his office online), his Midwestern background, his proud affection for Middle American pastimes like craps, and his severe dyslexia (he didn’t learn how to read until he was in the third grade), Boies comes across as neither a superstar or a member of the super-elite. He is both.

Boies and his eponymous firm earned a reputed $100 million for the nine-month job of defending Greenberg. That was one of the richest fees earned in a single litigation. Yet, for Greenberg, it was a terrific deal. When you have $4.3 billion at risk, $100 million — only 2.3 percent of the total — just isn’t that much money. Further sweetening the transaction was the judge’s eventual ruling that AIG, then nearly 80 percent owned by the U.S. government, was liable for up to $150 million of Greenberg’s legal fees, but he didn’t know that when he retained Boies.

What did Boies have that Eric and I didn’t? Well, um, would you like the short list or the long? Boies is no doubt one of those exceptionally gifted and ambitious people who works hard enough to get lucky. I suspect his plutocrat switch was first activated when his family moved to California while he was in high school, and from there was exponentially supercharged by a series of textbook upwardly mobile experiences: a liberal arts education at Northwestern, a law degree from Yale, an LL.M. from NYU, joining the Cravath firm and eventually becoming a partner before leaving to found his own firm.

That’s impressive enough, but there’s more to his story: somehow along the way he was transformed into the kind of person who belongs — in his case, not just to the 9.9% club, but to the 0.1 %. Yes, his human capital was substantial, but it was his personal transformation that enabled him to capitalize (I use that term advisedly) on the opportunities granted only by social capital.

And now, if the 9.9 percenters we heard from a couple weeks back are correct, the pathway he followed is even more statistically rare (if that’s even possible) than when he travelled it — in part because of an economic principle that’s at least as old as the Bible.

We’ll talk about that next time.

Eric and Kevin’s Most Excellent Career Adventures

       

David Graeber’s book Bullshit Jobs is loaded with real-life job stories that meet his definition of “a form of employment that is so completely pointless, unnecessary, or pernicious that even the employee cannot justify its existence even though the employee feels obliged to pretend that this is not the case.” One of those stories rang a bell: turns out that “Eric” and I had the same job. The details are different, but our experiences involved the same issues of social capital and upward mobility.

Eric grew up in a working class neighborhood, left to attend a major British university, graduated with a history major, landed in a Big 4 accounting firm training program, and took a corporate position that looked like an express elevator to the executive suite. But then the job turned out to be… well, nothing. No one would tell him what to do. He showed up day after day in his new business clothes and tried to look busy while trying in vain to solve the mystery of why he had nothing to do. He tried to quit a couple times, only to be rewarded with raises, and the money was hard to pass up. Frustration gave way to boredom, boredom to depression, and depression to deception. Soon he and his mates at the pub back home hatched a plan to use his generous expense account to travel, gamble, and drink.

In time, Eric learned that his position was the result of a political standoff: one of the higher-ups had the clout to fund a pet project that the responsible mid-level managers disagreed with, so they colluded to make sure it would never happen. Since Eric had been hired to coordinate internal communication on the project, keeping him in the dark was essential. Eventually he managed to quit, kick his gambling and drinking habits, and take a shot at the artistic career he had envisioned in college.

My story isn’t quite so… um, colorful… but the themes are similar. I also came from a strong “work with your hands” ethic and was in the first generation of my family to go to college, where I joined the children of lawyers, neurosurgeons, professors, diplomats, and other upper echelon white collar professionals from all 50 states and several foreign countries, At the first meeting of my freshmen advisory group, my new classmates talked about books, authors, and academic disciplines I’d never heard of. When I tackled my first class assignment, I had to look up 15 words in the first two pages. And on it went. Altogether, my college career was mostly an exercise in cluelessness. But I was smart and ambitious, and did better than I deserved.

Fast forward nine years, and that’s me again, this time signing on with a boutique corporate law firm as a newly minted MBA/JD. I got there by building a lot of personal human capital, but my steel thermos and metal lunch bucket upbringing was still so ingrained that a few weeks after getting hired I asked a senior associate why nobody ever took morning and afternoon coffee breaks. He looked puzzled, and finally said, “Well… we don’t really take breaks.” Or vacations, evenings, weekends, or holidays, as it turned out.

A couple years later I hired on with a Big 4 accounting firm as a corporate finance consultant. My first assignment was my Eric-equivalent job: I was assigned to a team of accountants tasked with creating a new chart of accounts for a multinational corporation and its subsidiaries. Never mind that the job had nothing to do with corporate finance. Plus there were two other little problems: I didn’t know what a chart of accounts was, and at our first client meeting a key corporate manager announced that he thought the project was ridiculous and intended to oppose it. Undaunted, the other members of the consulting team got to work. Everybody seemed to know what to do, but nobody would tell me, and in the meantime our opponent in management gained a following.

As a result, I spent months away from home every week, trying to look busy. I piled up the frequent flyer miles and enjoyed the 5-star accommodations and meals, but fell into a deep depression. When I told the managing partner about it, he observed that, “Maybe this job isn’t a good fit for you.” He suggested I leave in two months, which happened to be when our consulting contract was due for a renewal. Looking back, I suspect my actual role on the team was “warm body.”

Graeber says that, at first blush, Eric’s story sounds like yet one more bright, idealistic liberal arts grad getting a real-world comeuppance:

Eric was a young man form a working-class background… fresh out of college and full of expectations, suddenly confronted with a jolting introduction to the “real world.”

One could perhaps conclude that Eric’s problem was not just that he hadn’t been sufficiently prepared for the pointlessness of the modern workplace. He had passed through the old educational system . . . This led to false expectations and an initial shock of disillusionment that he could not overcome.

Sounds like my story, too, but then Graeber takes his analysis in a different direction: “To a large degree,” he say, “this is really a story about social class.” Which brings us back to the issues of upward mobility and social capital we’ve been looking at. We’ll talk more about those next time.

In the meantime, I can’t resist a Dogbert episode:

 

Upward Mobility — Pop Music Style

I had a different post planned for this week, but then I heard a song over the gym soundtrack last week that perfectly illustrates the dynamics of social capital and upward mobility and the perils of the rags-to-riches journey. It also captures an attitude that often accompanies that feeling of having your nosed pressed up against the glass: wanting to move up but feeling blocked. That’s a lot of economics to pack into one pop song, so I just had to feature it.

I talked about all of that in the very first post in this series just a bit over a year ago, when I wondered out loud whether money can make us happy:

I mean, all these famous (and mostly rich) people are entitled to their opinion, but we’d like to find out for ourselves if money could make us happy — we’re pretty sure we could handle it.

Rapper Travie McCoy was pretty sure he could handle it, too. He wrote a song saying so — the one I heard at the gym — then lived his own upward mobility rise, fall, and eventual comeback. His experience couldn’t be more different than that of the 9.9 percenters we heard from last week. Apparently the social capital of the pop music red velvet rope club isn’t the same as the club covered by Forbes.

McCoy teamed up with Bruno Mars to do the song back in 2010. Obama was president, we were just coming off the Great Recession, it was five years after Hurricane Katrina and four years before Bruno Mars did his first Super Bowl halftime. Last time I checked, the song’s official video was closing in on 330 Million views. Obviously it hit a sweet spot. The song made an appearance on Glee— the unofficial version I found had nearly a million views — more hitting a sweet spot.

Judging from what happened next, McCoy might have been wrong about whether he could handle it. A “whatever happened to Travie McCoy?” search suggests his big hit didn’t give him the life or make him the person he visualized in the song. Among other things, there was a steep decline into opioid then heroin addiction, but since then he has clawed his way back into the music scene.

We’ll let the song deliver its economic lessons on its own terms. If you want to take a short break for a catchy tune, you can watch either the official video or the unofficial Glee version below. (The latter is an excellent cover, with the lyrics spruced up for prime time TV, as reflected in the lyrics below.)

I wanna be a billionaire so frickin’ bad
Buy all of the things I never had
I wanna be on the cover of Forbes Magazine
Smiling next to Oprah and the Queen

Oh every time I close my eyes
I see my name in shining lights
Yeah, a different city every night oh right
I swear the world better prepare
For when I’m a billionaire

Yeah I would have a show like Oprah
I would be the host of everyday Christmas
Give Travie a wish list
I’d probably pull an Angelina and Brad Pitt
And adopt a bunch of babies that ain’t never had **it
Give away a few Mercedes like here lady have this
And last but not least grant somebody their last wish
It’s been a couple months that I’ve been single so
You can call me Travie Claus minus the Ho Ho
Get it, hehe, I’d probably visit where Katrina hit
And damn sure do a lot more than FEMA did
Yeah can’t forget about me stupid
Everywhere I go Imma have my own theme music

Oh every time I close my eyes
I see my name in shining lights
A different city every night oh right
I swear the world better prepare
For when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire

I’ll be playing basketball with the President
Dunking on his delegates
Then I’ll compliment him on his political etiquette
Toss a couple milli in the air just for the heck of it
But keep the five, twenties tens and bens completely separate
And yeah I’ll be in a whole new tax bracket
We in recession but let me take a crack at it
I’ll probably take whatever’s left and just split it up
So everybody that I love can have a couple bucks
And not a single tummy around me would know what hungry was
Eating good sleeping soundly
I know we all have a similar dream
Go in your pocket pull out your wallet
And put it in the air and sing

I wanna be a billionaire so frickin’ bad
Buy all of the things I never had
I wanna be on the cover of Forbes Magazine
Smiling next to Oprah and the Queen
Oh every time I close my eyes I see my name in shining lights
A different city every night all right
I swear the world better prepare for when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire

I wanna be a billionaire so frickin’ bad!

More upward mobility stories coming up — one of them is my own.

Mobility and Meritocracy

Occupy got the math wrong. They weren’t the 99%, they were the 90%. And that extra 9% makes things much worse for them.

Of the top 10%, the stratospheric 0.1% wears a visible-from-space economic inequality target. Not so the 9.9%: they’re folks like you and me — the Horatio Alger heroes of our times, people like Peter Boies (we met him last time). Ironically, though, a closer look reveals that they’ve done such a perfect job of upward mobility that they’ve pulled up the ladder behind themselves. They didn’t mean to, that’s just the way it worked out. Which means the 90% are quite likely to remain the Heathcliffes of the world, blocked by the red velvet rope, barred by the glass ceiling.

Says who? Says the 9.9%, and they ought to know. They’ve become the New American Meritocracy — or Aristocracy, depending on who’s analyzing the data. And now that they’ve got the Central Park view, the rest of us have to deal with the implacable security guard. (I saw one of those once, at the entrance to a 5th Avenue luxury condo high rise. He looked like Clubber Lang from Rocky III, had positioned himself feet defiantly apart and arms crossed in the main entrance revolving door, so that you had to move him to move it. Don’t even think about it.)

I learned about this new social class recently from three different sources. The first was Richard V. Reeves and his book Dream Hoarders and his Brookings Institute monograph Saving Horatio Alger (we looked at those last time). The second was philosopher Matthew Stewart, author of numerous books and a recent article for The Atlantic called The 9.9 Percent is the New American Meritocracy. The third was Steven Brill, founder of The American Lawyer and Court TV, author of the book Tailspin: The People and Forces Behind America’s Fifty-Year Fall—and Those Fighting to Reverse It and also the writer of a Time Magazine feature called How Baby Boomers Broke America.

Reeves, Stewart, and Brill are all members of the 9.9%. All three got their by rising up from below. And all three cite the same economic and related social data to support their conclusion that their class has barred the way for the rest of us. Pause for a moment and wonder, as I did, why would they write books and articles to implicate themselves in that way? It’s easy to suspect a bad case of Thriver (not Survivor) Guilt, but after reading their work, I think it’s because their success turned into an ideology buster: not only are the Horatio Alger condos sold out, but Clubber Lang is barring the way to any newcomers, and that kind of thing just doesn’t happen in America.

Until it does.

I’ll let Matthew Stewart speak for the others, quoting from his article in The Atlantic:

I’ve joined a new aristocracy now, even if we still call ourselves meritocratic winners. To be sure, there is a lot to admire about my new group, which I’ll call—for reasons you’ll soon see—the 9.9 percent. We’ve dropped the old dress codes, put our faith in facts, and are (somewhat) more varied in skin tone and ethnicity. People like me, who have waning memories of life in an earlier ruling caste, are the exception, not the rule.

By any sociological or financial measure, it’s good to be us. It’s even better to be our kids. In our health, family life, friendship networks, and level of education, not to mention money, we are crushing the competition below.

The meritocratic class has mastered the old trick of consolidating wealth and passing privilege along at the expense of other people’s children. We are not innocent bystanders to the growing concentration of wealth in our time. We are the principal accomplices in a process that is slowly strangling the economy, destabilizing American politics, and eroding democracy. Our delusions of merit now prevent us from recognizing the nature of the problem that our emergence as a class represents. We tend to think that the victims of our success are just the people excluded from the club. But history shows quite clearly that, in the kind of game we’re playing, everybody loses badly in the end.

So what kind of characters are we, the 9.9 percent? We are mostly not like those flamboyant political manipulators from the 0.1 percent. We’re a well-behaved, flannel-suited crowd of lawyers, doctors, dentists, mid-level investment bankers, M.B.A.s with opaque job titles, and assorted other professionals—the kind of people you might invite to dinner. In fact, we’re so self-effacing, we deny our own existence. We keep insisting that we’re “middle class.”

One of the hazards of life in the 9.9 percent is that our necks get stuck in the upward position. We gaze upon the 0.1 percent with a mixture of awe, envy, and eagerness to obey. As a consequence, we are missing the other big story of our time. We have left the 90 percent in the dust—and we’ve been quietly tossing down roadblocks behind us to make sure that they never catch up.

If you want more on this topic, I recommend starting with their articles, and then their books. They’re all well-researched and well-written, honest and personally disclosing, and economically and socially remarkable. Plus, for me personally, they illuminate a dimension of my own career and economic journey that were always a bit of a mystery to me. We’ll talk about that next time.

 

 

The End of Horatio Alger

“I know perfectly well that men in a race run at unequal rates of speed.
I don’t want the prize given to the man who is not fast enough to
win it on his merits, but I want them to start fair.”

~Teddy Roosevelt

In economic terms, a fair start is about equal opportunity. There’s no more enduring version of that particular ideal than the rags-to-riches story codified into the American Dream by Horatio Alger, Jr. during the Gilded Age of Andrew Mellon, John D. Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, and the rest of the 19th Century Robber Barons. If they can do it, so can the rest of us, given enough vision, determination, hard work, and moral virtue — that was Alger’s message. And according to Roughrider Teddy and politicians like him, government’s job is to guarantee equal opportunity for all, then get out of the way and let the race to riches begin.

These days, however, it seems as though the notion of a fair start is a thing of the past — so says Richard V. Reeves in his book Dream Hoarders, which we looked at briefly last time. Reeves begins by confessing that his disenchantment over the demise of the Horatio Alger ideal will no doubt seem disingenuous because he didn’t grow up American and is now a member of the Red Velvet Rope Club himself:

As a Brookings senior fellow and a resident of an affluent neighborhood in Montgomery County, Maryland, just outside of DC, I am, after all, writing about my own class.

I am British by birth, but I have lived in the United States since 2012 and became a citizen in late 2016. (Also, I was born on the Fourth of July.) There are lots of reasons I have made America my home. But one of them is the American ideal of opportunity. I always hated the walls created by social class distinctions in the United Kingdom. The American ideal of a classless society is, to me, a deeply attractive one. It has been disheartening to learn that the class structure of my new homeland is, if anything, more rigid than the one I left behind and especially so at the top.

My new country was founded on anti-hereditary principles. But while the inheritance of titles or positions remains forbidden, the persistence of class status across generations in the United States is very strong. Too strong, in fact, for a society that prides itself on social mobility.

Reeves also wrote a Brookings Institute monograph called Saving Horatio Alger: Equality, Opportunity, and the American Dream, in which he said the following:

Vivid stories of those who overcome the obstacles of poverty to achieve success are all the more impressive because they are so much the exceptions to the rule. Contrary to the Horatio Alger myth, social mobility rates in the United States are lower than in most of Europe. There are forces at work in America now — forces related not just to income and wealth but also to family structure and education — that put the country at risk of creating an ossified, self-perpetuating class structure, with disastrous implications for opportunity and, by extension, for the very idea of America.

The moral claim that each individual has the right to succeed is implicit in our “creed,” the Declaration of Independence, when it proclaims “All men are created equal.”

There is a simple formula here — equality plus independence adds up to the promise of upward mobility — which creates an appealing image: the nation’s social, political, and economic landscape as a vast, level playing field upon which all individuals can exercise their freedom to succeed.

Many countries support the idea of meritocracy, but only in America is equality of opportunity a virtual national religion, reconciling individual liberty — the freedom to get ahead and “make something of yourself” — with societal equality. It is a philosophy of egalitarian individualism. The measure of American equality is not the income gap between the poor and the rich, but the chance to trade places.

The problem is not that the United States is failing to live up to European egalitarian principles, which use income as a measure of equality. It is that America is failing to live up to American egalitarian principles, measured by the promise of equal opportunity for all, the idea that every child born into poverty can rise to the top.

There’s a lot of data to back up what Reeves is saying. See, e.g., this study from Stanford, which included these findings:

Parents often expect that their kids will have a good shot at making more money than they ever did.

But young people entering the workforce today are far less likely to earn more than their parents when compared to children born two generations before them, according to a new study by Stanford researchers.

A new study co-authored by Stanford economist Raj Chetty describes an economic portrait of the fading American Dream; growing inequality appears to be the main cause for the steady decline

Reeves and Stanford’s researchers aren’t the only ones who feel that way. We’ll hear from a couple others next time.

 

Kevin Rhodes writes about individual growth and cultural change, drawing on insights from science, technology, disruptive innovation, entrepreneurship, neuroscience, psychology, and personal experience, including his own unique journey to wellness — dealing with primary progressive MS through an aggressive regime of exercise, diet, and mental conditioning. Check out his latest LinkedIn Pulse article: “Rolling the Rock: Lessons From Sisyphus on Work, Working Out, and Life.”