Friedrich von Blowhard writes:

Dear Blowhards,

For some time now I’ve been noodling around with a fairly coherent set of ideas, which I can only describe as “My Theory of Everything.” Very little of this theory is in any way original; mostly I would claim to have noticed how the various pieces of it fit together in a nice tidy way. (For previous posts that have explored elements of this theory, or which led up to it, I would send you to The Long View: Aristocracies Then and Now; Risk, Reward and the New Class; Auctionocracy; and Healtharchy.

Anyway, I thought the time for acting coy about this is past, so I’ve decided to spill the beans about what I really think is going on in today’s society, economy and culture:

The political, economic and cultural history of the United States over the past century has largely been the story of a new elite’s rise to power. This group, the New Middle Class, or New Class for short, includes the professions (law, medicine, accounting, etc.); senior corporate and government manager-bureaucrats; financiers; educators; journalists, etc. In short, the New Class is society’s technocratic elite, comprising roughly 10% of the population today, although a century ago it was much smaller. Members of this class can be recognized by the fact that they receive high financial rewards and/or occupy positions of social prestige and power in our (so-called) capitalist society but do not take risk positions with their own capital. They are above all not entrepreneurs, who made up the Old Middle Class and the old industrial elite.

The New Class first made its mark on society with the Progressive reforms, then seized the opportunity to enormously restructure the nation during the Great Depression and World War II, and continued its rise to dominance in the postwar decades, usually justifying its management of affairs by claiming to act in the name of the community and the underprivileged (a roughly center-left political position.) However, after achieving unassailable dominance by roughly 1970 and feeling secure in power, the New Class has in the last four decades largely cast aside its onetime pose of egalitarian concern for society at large and worked fairly nakedly for its own advantage. Growing inequality in the U.S. over that 40-year period has been the result of an ever-increasing share of national income going to the New Class. (The New Class’s enthusiastic embrace of mass immigration and globalization generally likewise highlights the gap that has opened up between the interests of this elite and those of the balance of their countrymen.)

Members of the New Class are bright, well-educated and hard-working and would do reasonably well in any society. However, their current spectacular level of financial and social remuneration (and their truly exceptional ability to get that remuneration without putting their own capital at risk) in a 'capitalist' society are in significant part the result of their control over government decision-making and the adoption of specific policies that are favorable to them. (Business models have a fairly short shelf-life, but the governmental toolkit fortunately contains items like regulation, carefully tailored tax incentives, intellectual property regimes, etc., that provide a greatly stabilizing effect.)

The New Class control of government occurs through three channels: first through campaign contributions to, and lobbying of, elected governmental officials (who are often New Class members themselves), a process that was invented in its modern form by the New Class; second through capturing regulatory and administrative policy and turning it to their own benefit, another New Class specialty; and third through the revolving door between government and private-sector New Class occupations. The nexus of the risk-averse New Class with the coercive power of the state has proven so durable the New Class is becoming a privileged -- and increasingly hereditary -- group analogous to that of the aristocracy of Ancien Regime France. This, of course, is not so good for everybody outside the magic circle who must absorb the risk that the New Class sheds.

(A consequence of this symbiotic relationship between government and the New Class is the support which New Class members have historically given toward all forms of big government and social control, perhaps the most striking example of which is the perpetual militarization of American life at levels far beyond what is necessary to defend American territory.)

A second major pillar of New Class dominance is its monopoly over the intellectual and thus the political discourse of contemporary society, which is conducted in a manner that carefully never questions the New Class’s own 'meritocratic' position at the head of the table. The very flexible New Class has adopted and abandoned multiple political postures from Progressivism to FDR’s New Deal to 'get-the-government-off-your-back' Reagan Republicanism. Political ideology in the hands of the New Class is only a vehicle for purposes of manipulating or distracting mass opinion; it is important to realize that the New Class is confined to, and defined by, no single political ideology. As a consequence of the dominance of the non-ideological New Class, political world-views (especially expressed in left vs. right rhetoric) are largely useless or downright misleading when attempting to understand contemporary American life. (Acting with rather more honesty in the cultural sphere, the New Class was the prime backer and inspirer of Modernism during its rise to power and remains the prime backer and inspirer of Post-Modernism having achieved it.)

The New Class has buttressed its monopoly on social discourse over the decades by recruiting an ever-increasing share of most intelligent members of society into its ranks (in recent decades virtually all of them), which correspondingly reduces the number of articulate people who don’t share New Class perspectives and who might present alternative visions. (One example of the cultural consequences of this recruitment pattern is the de-vitalization of working-class and middle-class art.)

Because the New Class works primarily through its control of government, it not only redistributes benefits to itself from the rest of society, but almost certainly reduces the overall ability of society to creatively respond to problems. In the short term, this is because the New Class spends its energies chiefly feathering its own nest. In the long term, in what may seem a paradox, this is because the New Class relies on its superior intelligence and reasoning skills to solve problems. Sadly, despite the stellar SAT scores of the New Class, human brainpower -- even that of this elite group -- is simply not sufficient to solving the difficult problems of social life.

The current collapse of financial innovations such as securitization and complex derivative structures is perhaps a current-events object lesson in the limits of New Class system-building, especially when combined with New Class nest-feathering. (Although one must admit that the human cleverness of the New Class is almost certainly equal to the task of keeping an ever-increasing share of the marbles for itself: note the compensation at elite financial institutions continues to rise even as multi-billion-dollar write-offs are taken by shareholders: risk for thee and not for me isn’t the motto of the New Class for nothing).

The complex problems of social life in fact only yield to Darwinian experiments, most of which are destined to failure; but because the New Class is fundamentally risk-averse and dislikes the creative destruction that attends such experiments, it largely allows only those experiments which it can control (or which increase its control) to take place. As a consequence, America’s economic and cultural creativity are being slowly strangled.

For those who wish to reverse or slow this process of strangulation, I can only suggest that it is paramount that the New Class somehow be pried out of their lucrative positions of governmentally-guaranteed safety and induced into taking part in the Darwinian process of experiment, to which they would undoubtedly have much to contribute. If this cannot be done (and it is certainly possible that it cannot), the rest of society, the bottom 90%, are definitely walking the road to 21st century serfdom.

Cheers,

Friedrich

Will they survive the coming Greater Depression, do you think? After all, the one thing we can be sure of is that it won't have been their fault. No sirree.

Posted by: dearieme on January 22, 2008 8:00 AM

Just a slight tweak to your review of British history in one of the links -- I'm not sure why you count Churchill as a journalist rather than an aristocrat. Journalism was his "profession," so to speak, but his father was a Lord, and his grandfather was the Duke of Marlborough. You might as well consider, say, Lord Curzon a "journalist," seeing as, in his youth, he went around the world writing articles and travelogues much as Churchill did in his youth. But no one would confuse George Nathaniel Curzon with a journalist.

Posted by: Taeyoung on January 22, 2008 8:36 AM

Somehow, I don't see myself waltzing into serfdom.

For the past 30 years, the U.S. has experienced continuous growth and prosperity.

Life is good. Everybody's getting fat.

Drawing these elaborate theoretical models of how things should work... what does it actually do? The world is chaotic. We're all doing what we have to do on a daily basis to get along.

I see absolutely no constituency for re-alinging society according to some intellectual ideal. For the vast majority of Americans, jobs are plentiful, the stores are full of stuff and the highways are full of cars heading for the country for a weekend getaway.

To tell you the truth, I don't see what you are talking about. Why does this sort of agonizing about the "structure" of things appeal so to intellectuals? What do you think you are accomplishing by doing this?

Wasn't the lesson of the 20th century... you know the genocide caused by the intellectually managed societies... wasn't the lesson of this that the great glories of the intellect are so much crap?

The future belongs to technocrats and bureaucrats because they've proven that the kind of incremental, stodgy improvement they have to offer works better. Sadly unglamorous and ungratifying to the intellectual ego, but true. All those movies about the Man in the Grey Flannel Suit were just so much nonsense. We need bean counters and managers.

Let things happen. We'll be OK.

Posted by: Shouting Thomas on January 22, 2008 10:15 AM

the bottom 90%, are definitely walking the road to 21st century serfdom.

Yes, if present trends continue. But trends always change.

The New Class is fissile (withness HRC v. OHB) and its adaptive flexibility is limited by their religious denial of human biodiversity.

Also, the number of articulate people who don’t share New Class perspectives is growing (Sailer, Auster, Mencius, you guys, many others.)

Posted by: PA on January 22, 2008 10:18 AM

Presumably, the ne plus ultra of this class would be represented by Lyndon Johnson, who rose to prominence on the shirt tails of the New Deal, cobbled together a media empire in his area of influence and funneled millions of tax dollars into his own business interests after reaching high office. A pioneer of sorts.

Posted by: Bob Grier on January 22, 2008 10:22 AM

Members of this class can be recognized by the fact that they receive high financial rewards and/or occupy positions of social prestige and power in our (so-called) capitalist society but do not take risk positions with their own capital. They are above all not entrepreneurs, who made up the Old Middle Class and the old industrial elite.

Your idealization of competitive capitalism (which I don't dislike, mind you) might have seemed curious to many American thinkers in the 19th century.

What seems questionable about the paragraph above is the assertion that the "Old Middle Class" was made up of entrepreneurs. That was really only true of the period that began once industrialization had gotten well under way - let's say the 1830s in the United States. Prior to that time, the Old Old Middle Class would have been made up of people like artisans and small farmers, on the lower end of the social scale, and merchants and large farmers on the higher end, with professional people like doctors, lawyers, soldiers and the clergy mainly belonging to the middle of the Middle.

As industrialization advanced, many people from the artisan and small farming group would end up becoming "wage earners" in the new factories. And many social commenters in the 19th century did not regard this as an unmitigated good, or indeed as good at all. A portion of the middle class was disappearing, in other words. And people asked, what would become of the American ideal of independent small-holders? Could these "wage slaves" be capable of independent thought, or would the economic interests of their bosses determine the way they voted? Would industrialization increase inequality? These were real concerns voiced by many 19th-century American thinkers. One reason why the historian Frederick Jackson Turner (1861-1932) idealized the frontier so much is that he believed it had helped to "level" the inequalities introduced by industrial capitalism, keeping the US connected to its roots and to political virtue.

As for the growth of the professional middle classes, no doubt it presents new problems, perhaps for the reasons that you state. But I don't know that the problem of increasing inequality is quite as severe as you suggest. The professions have expanded so much in numbers because so many people/families who were no more than working class labourers a couple of generations ago have been able to move into them. That they are risk-averse is a pity, I agree, but on the other hand, society in the heyday of competitive capitalism was also highly unequal, and often frightening for those who had to endure the boom-bust cycle unalleviated by "management" of the economy, both workers and entrepreneurs.

Posted by: alias clio on January 22, 2008 11:35 AM

Irving Kristol:

Today there is a new class hostile to business in general, and especially to large corporations. As a group, you find them mainly in the very large and growing public sector and in the media. They share a disinterest in personal wealth, a dislike for the free-market economy, and a conviction that society may best be improved through greater governmental participation in the country's economic life. They are the media. They are the educational system. Their dislike for the free-market economy originates in their inability to exercise much influence over it so as to produce change. In its place they would prefer a system in which there is a very large political component. This is because the new class has a great deal of influence in politics. Thus, through politics, they can exercise a direct and immediate influence on the shape of our society and the direction of national affairs.

Combine this notion of the New Class with Murray and Herrnstein's Bell Curve cognitive stratification of society, and you have a doctrine of despair that is perfectly encapsulated in this post.

Despair? Well, yes, I think. There is NO possibility of the New Class being pried out of their government-guaranteed positions of safety. They--we! I'm a member!--are too entrenched, too smart, and too ruthless to be pried out of anything by anyone, short of a revolution.

Since I think a revolution would be a disaster, just as revolutions nearly always are, I'd prefer that we muddle along as best we can, and rather than "prying out", we try instead to find a way to prevent those in power from doing much damage, the underlying principle of the Open Society (viz. Popper).

Posted by: PatrickH on January 22, 2008 11:39 AM

Friedrich, I think one question that comes from the "The New Elites Really Stink" theme is this:

"Why was it once fashionable to boast about your families' obvious greatness (i.e. my mother was a Princess, my father was a Captain of Industry) but now we can only boast about their involvement in the Cultural Revolution (i.e. my father marched with Martin Luther King)?"

In other words, why have we accepted this change so whole-heartedly. I will give an example.

I have this one friend who has two younger sisters and one younger brother. No one in the family is dumb, but she is certainly the quickest and possibly the smartest. This family is pure Irish-Catholic Philadelphia Working Class. Her father was a Union Laborer.

However, it is her, the quickest, who was the only one to dive head-first into Elitist Status Seeking. The others seem perfectly content living their Middle Class lives with simple Middle Class Values.

But I don't think that she got "duped" into this mindset, I think that it was instinct.

Why is it that this new Elitist World-View is the fashionable World-View?

Posted by: Ian Lewis on January 22, 2008 11:51 AM

That this "new class" reaps economic benefits without taking on any risk, in and of itself, tells you that this "new class" is largely parasitical.

Posted by: Kurt9 on January 22, 2008 12:20 PM

"The very flexible New Class has adopted and abandoned multiple political postures from Progressivism to FDR’s New Deal to 'get-the-government-off-your-back' Reagan Republicanism."

That's where you lost me, Friedrich. How many journalists, bureaucrats, professors, artists (high-brow and popular) and opinion-makers of any kind voted for Reagan? Heck, even in my field (software) you have to work fairly deep in the DOD complex before you'll find Reaganites reaching parity (forget dominance) compared to the standard-issue left-of-center professional.

Posted by: Fredosphere on January 22, 2008 12:21 PM

Yeah, I'm with Fred on that part. I don't see the New Class voting for Reagan. Much of the Left that Reagan was able to get came from the Blue-Collar Union set, not the Elites.

Posted by: Ian Lewis on January 22, 2008 1:57 PM

Much of the new class is able to realize economic benefits without risk by creating legal and other artificial barriers of entry. For example, the AMA uses licensure and state medical boards to limit who can play doctor and to prevent outside competition.

Posted by: kurt9 on January 22, 2008 2:19 PM

Excellent, great to read this. I'm with you on much of it, god knows. I wonder a bit about your emphasis on enterpreneurship. Haven't entrepreneurs always been the exception the rule? But I take what I think is your larger point, which is that the New Class has been very successful at building itself safe and lucrative nests that are well-protected from the kinds of forces that many of the rest of us contend with daily. Dean Baker often makes a similar point. Why should factory workers, for instance, be subjected to intense international competitive pressures, while the D.C. policy wonks who write the regulations aren't?

Posted by: Michael Blowhard on January 22, 2008 4:54 PM

While I might admire the optimism Shouting Thomas seems to feel, to me it flies in the face of reality. The figures on wealth disparity, "real" income levels, etc. all show the very wealthy holding an ever greater portion of wealth, while the lower one is on the economic ladder, the more ... and more rapidly ... one is losing. While I may have some caveats about certain details in FvB's analysis (his antipathy to modernism as a cultural phenomena is a minor one,; who to consider part of the New Class as opposed being in the incredibly shrinking Middle Class is a more significant one) overall it is a pretty good place to begin looking at the return of a de facto aristocracy in the form of the New Class.

My main quibble with Friedrich's post has to do with whether the New Class as he outlines it matches the New Class I see in terms of an economic elite controlling things for their betterment at the expense of the 90+% of the rest of us. If I read alias clio correctly I think her analysis closer to mine; most educators, journalists, government workers, and professionals are, I would argue, firmly stuck in the middle class and struggling to keep hold of their increasingly tenuous position. CEO's, hedge fund managers, top management executives in huge corporations and so on are unquestionably part of the New Class.

An entrepreneur who runs a traditional small business, taking all or most of the risk, is a different creature than, for example, a 23 year old with a cool internet idea who is able to get venture capital to invest billions in a business that has yet to make a profit. This only seems possible because so much wealth has accumulated in the hands of that top 10% that what were once the hallmarks of business decision making, like prudence and due diligence, are no longer considered necessary virtues.

From the New Deal through perhaps the seventies (I'm not going to go look up exact statistics right now) the effects of government regulations, tax policies, expenditures on social programs and entitlements had what might be thought of as a "compressor/limiter" effect. Those at the very bottom were helped above the abject, grinding, hopeless, poverty that had previously been the fate of the worst off among us; the extraordinarily wealthy were kept from seeing their piece of the pie be an ever larger one by progressive tax policies.

Once the eighties arrived Supply Side Reaganomics (aka Voodoo Economics) and the one-two punch of the narrow focus promulgated by financial policy wonks on the nation's overall GDP as a sign of economic health as opposed to a more nuanced appreciation of how the GDP is divided among the populace and the (cynical) manipulation of the 90+% through the endless repetition of the mantra of NO TAXES, without a reasonable understanding and explanation of who pays and who benefits from those taxes has, along with the emergence of global corporate capitalism, brought us to this point.

Serfs up!

Posted by: Chris White on January 22, 2008 5:04 PM

Chris White: Actually, what I was trying to say was that FvonB appears to idealize the old industrial-entrepreneurial economy as one that was in some way more egalitarian, more egalitarian in that the various classes of society assumed a more equal risk of financial loss, than the New Economy created, in part, by the growth of the New Class. I do not think this is altogether accurate, for the reasons that I explained above.

The other point I wanted to make was that what he calls the Old Middle Class, was not in fact that. The real Old Middle Class was the one that existed before the Industrial Revolution changed the world forever, the one based on the old Jeffersonian (Roman?) republican ideal of a nation of small-holding farmers whose political virtue was guaranteed, so to speak, by the independence that came from owning land that could support the voter and his family.

Posted by: alias clio on January 22, 2008 7:32 PM

I grew up in an America in which it was a given that conservatives were idiots. All bien pensants agreed: government is good and means well and the more of it the better. It followed from this general agreement that high progressive taxation and regulation were necessary tools to control the private sector's (and individual's) natural greed and criminality. This was the liberal orthodoxy. And it held. The grip of this orthodoxy was not broken until the election of Reagan.

Frankly, I think we are a much freer people now than we were back then. Liberal PC can be and is answered vigorously on a daily basis by talk radio and right here on the net. Back then the news was ABCCBSNBCNYTIMES and only ABCCBSNBCNYTIMES. There was no countervailing voice.

Am I equating liberal PC with the New Class? Yes, I think correctly. Is it powerful? Yes. But at least it can be answered now. To that extent the New Class is less not more powerful than it was in the past.

Posted by: ricpic on January 22, 2008 8:24 PM

I think you're defining the New Class way too broadly. Most government civil servants aren't too well off and have very little power except in the vague aggregate sense. And a lot of hedge fund managers and CEOs aren't liberal at all. Bush and Hillary's minions hate each other.

You're right that there's an elite running things for their own benefit (IMHO), but I don't see enterpreneurs as being morally superior; they subject their employees to the same risks as the employees of large corporations.

The increase in risk comes from the dismantling of the social safety net. We can help the American people with more government, not less. Come on, Friedrich. You love the French, and they've got government up the wazoo! Why do you think they've got time for culture? Because Big Government weakens business's hand to the point where workers don't have to slave away at two jobs all the time.

Trust me, man, art, culture, and life have no greater enemy than unrestrained free enterprise.

All IMHO, of course.

Posted by: SFG on January 22, 2008 9:51 PM

So what historical developments over the past 50 or so years brought about the current situation? Anyone care it trace its origins? And also, how do you reverse it?

Posted by: Alex on January 22, 2008 9:57 PM

Members of the New Class may not be putting much of their own money at risk, but on the other hand they have less and less job security than the managerial and professional classes of past generations.

Posted by: Peter on January 22, 2008 10:01 PM

From a close reading of this post and its comments, I've come to the conclusion that "The New Class" is comprised of those across the political aisle from you.

Same ol' same ol'...

Posted by: JV on January 23, 2008 12:55 AM

Couple things. I agree with FvB and Chris White about the increasing disparity of the have's and have-nots. I think ST is overstating the facts when he says an "overwhelming majority have plenty of jobs and shop in stores stuffed with things" but even if not, that's not really the "class" FvB is referring to---the real New Class that he is referring to never shop in the stores ST is referring to, and the multiple of their compensation has become ever-increasingly staggering, as measured in the multiple of the payments to CEO's in annual compensation vs. the "average" annual compensation of worker bees. Every single supposedly "disgraced" CEO in the recent round of outrages (including the departing CEO of Merrill Lynch after annoucing the first $5 billion of $18 billion of losses) has sailed away on total compensation of over $50 million owed to them (in the current year--not total). Yes, there is a disconnect between risk and reward. Actually, the fundamental economic model has been altered, IMHO.

Second, I am really confused by the discussion of the liberals and conservatives, and Bush and Clinton minions. Much Much bigger loyalty here (than ideology about whether the government can help the poor or not), to which I think FvB refers, is the loyalty of the New Class to making absolutely sure that the New Class can still nest-feather. Hillary and George W. may claim to disagree about whether or not it takes a village, but Hill sure jumped on the $100,000 gain from her insider tip from the Pres of Tyson Foods and and was enraged when the sweetheart real estate deal called "Whitewater" wasn't paying off in spades, and remember the total investment of the Clintons in those deals was about $16,000. Hillary wanted the New Class PAYOFF, dammit. No different from George W. being floated and bailed out by his daddy's friends so he could claim to be a successful businessman in awl and baseball. I mean literally---no different.

And yes---it is why things won't change. Why take risk to get reward when you don't have to? They aren't going to volunteer to give it up.

Posted by: annette on January 23, 2008 10:06 AM

I like Annette's use of "nest-feather" as a verb! There's a lot of that around these days. I'm going to be stealing that one ...

Posted by: MIchael Blowhard on January 23, 2008 10:28 AM

In my work as a multimedia artist, I have on two occasions worked closely with CEOs of a couple of different corporations. I became, in effect, their publicists.

In both cases, they were wonderful, compassionate, competent and responsible men. This isn't exactly a "scientific" sample, I'm sure. But, the world is complicated. Please allow me to relate to you what I really saw going on in the executive suite and among the middle managers.

The CEOs were truly trying their best to serve the interests of the stockholders, i.e., to turn a profit. Interestingly, these CEOs were what would be called, in NYC, "conservatives." They were religious family men. They did, however, leave their religion and politics at home while they sought to encourage their managers and employees to do the same.

In this respect, the CEOs mostly failed, because the managers had been indoctrinated in the great diversity crusade, and because many of the managers were beholden to old technologies. Managers were almost uniformly "liberal" and they were vocal and angry in the assertion of their politics and their hostility to traditional values of religion and family. The line workers correctly received this as hostility to their own old fashioned values.

Since I wrote the online managerial course for one of these firms, I can tell you that the diversity crusade overrode ever aspect of business. The real message that managers got on every level was that promoting women, blacks and gays over white men was the first order of business. So, that was what the managers focused on. It was almost as if the product of the business was secondary to the great diversity crusade. (White women were the beneficiaries of this, since the other sainted diversity candidates didn't actually exist. Black men qualified for high managerial jobs are virtually non-existent.)

The internet revolution threatened the jobs of middle managers because those people really don't know technology... except from the standpoint of buzzwords. So the managers struggled to focus the business on what they did know. HR managers wanted to focus on the diversity crusade. Marketing preferred print over web because that was what the managers knew. And on and on.

So, here's a summary of what I saw from the side of the CEO. In the midst of a ruthlessly changing market, the CEOs were trying to to steer their companies toward profit and responsibility to the shareholders. They faced a dug in managerial class that had entirely opposed agendas. And the employee class was just trying to get along any way possible.

Does this messy reality have any place in all this theorizing?

Posted by: Shouting Thomas on January 23, 2008 10:57 AM

I tried, in my first post, to suggest that grand political and economic theorizing appeals to the vanity of intellectuals, and that this is a problem in itself.

That seemed to product no response, so I thought I'd repeat and elaborate.

I cannot understand why this grandiose theorizing continues to have any credence. The 20th century was a virtual laboratory for this theorizing... and the results were diastrous and nightmarish. Nazism, facism, communism... all of these were the result of Utopian theorizing about manufacturing a perfect world.

What I see in this post is refusal to accept the absolute failure of this Utopian dreaming and grandiose theorizing.

The world works better puttering along in a trial and error fashion. Grand efforts to perfect everything produce incredible human misery.

Why do intellectuals refuse to acknowledge this reality?

Let me try to put this in brutal fashion. I think that I hate the song "Imagine" by John Lennon more than any song every written. No, the world isn't made better by imagining a perfect world. No, you aren't a saint because you spend you time imaginging a perfect world. In fact, you are more likely to be a tyrant in the making.

Posted by: Shouting Thomas on January 23, 2008 11:05 AM

What is the obsession here with "equality"? Liberty and equality are opposites--nature is inherently unequal in the way it distributes its endowments. So if you choose equality over liberty, you need a totalitarian government to enforce it, and totalitarian governments have always impoverished people more, and even killed them to impose this most stupid of "solutions".

If you really want to understand the inequality people are seeing these days, look no further than your own wallet. Those Federal Reserve Notes in there come at a very high price to you and your fellow citizens. Rampant money printing--inflation--in addition to "free trade" is destroying this economy.

Free trade is simply a corporate fig leaf for vicious labor arbitrage--the process of moving your operations to the lowest labor-cost country and selling your products into the highest labor-cost country for maximum profits. Eventually, more and more jobs flow to the low labor-cost country, the trade deficits between the two countries goes to the moon, and the economy and paper currency of the high labor-cost country both crash.

The inflation of the money supply is another big culprit. When prices go up and up every year, including labor costs, your workers become more and more uncompetitive. What's the real differnce between a guy making a weld on an auto frame in Detroit as opposed to one in Bejing? Nothing, really--they use the same equipment, and are probably both just as fast and good--what does vary is the price of their labor. We are bleeding jobs to the rest of the world because of our high monetary inflation rates, "free trade" agreements (where other countries manipulate their currencies downward to put our workers at a competitive disadvantage).

The real "New Class" are the people who benefit from high monetary inflation--the already rich, those in finance, and the government/legal establishments. Financial people benefit from inflation because they can charge much higher fees for their services in a highly inflationary environment, and they also are made to look far more competent than they are because many asset values "rise" in inflationaly environments, and not much skill is needed to follow the overall trend. If we had stable money, interest rates would be really quite low. Most returns on investment include not only the premium on riskng your money (what the interest rate is supposed to reflect), but also an inflationary premium, so that your investment doesn't shrink in value. This benefits the financial industry, because if the average return on investment is 3% with stable money, as oppposed to 8% with inflated money, they'll have a lot harder time charging 1-2% for their services in the 3% return environment.

The already rich benefit because they have the capital to invest and profit from a highly inflationary environment, whereas the average Joe is using his cash just to stay afloat.

The government and legal professions are largely redistributionists of money. The more highly inflated the money supply, the greater the cries for regulation and redistribution. Hence, the greater their power as well.

The losers in a highly inflationary environment are the productive people--those that make things or provide regular services. They depend largely on selling their services and goods to regular people, and generally make an hourly wage. The demand for their services falls off with the high inflation, as people have less disposable income to spend--the income being eaten up more and more by obtaining the simple basics, and the higher taxes that go along with the redistributionist state.

If you want to solve the problem, it is not more government that is the solution. It is in ending "free trade", imposing tariffs on imported goods so that domestic labor is not undercut, in cutting taxes and ending redistribution schemes, and most important, establishing and maintaining a stable currency. The end of free trade means keeping jobs at home, building (or rebuilding) the industrial base and providing decent livable wage jobs to the highs school graduates and high school dropouts. This will greatly eliminate the need for redistibutionist schemes. A stable currency means taming Wall Street and the financial crowd so that they don't become the winner-take-all in this game. It also benefits the average worker so that they can make and save more money. Cutting taxes and regulation would give a great boost to domestic saving and economic activity.

The "New Class" is a result of rampant money printing and bogus "free trade" deals, nothing more. You can lump in the University industrial Complex because the plebians in this wacked-out system are trying to outcompete each other with more or higher-quality college degrees.

Kill the Federal Reserve and government regulation and spending, and the problems will be solved.

Posted by: BIOH on January 23, 2008 11:44 AM

The 24-hour availability of news and the ubiquity of the internet is what is breeding this sense of doom and gloom and inequity that many people are feeling.

Prior to the internet and the 24 hour news cycle most people were not exposed to the rants of people like BIOH or read people's 'theories of everything'.

Many people are exposed to more information than they can make sense of or filter and thus become overwhelmed by it.

Posted by: Pat Hobby on January 23, 2008 1:28 PM

In general it seems that the real world results of virtually every administration since Ike's that has made good on pledges to reduce taxation and regulation have been to dramatically increase the disparity between the very wealthy 10% (heck 2%) and the rest of us ... along with the hemorrhaging of jobs overseas and debacles like the S&L crisis, Enron, sub-prime mortgages, et al. Could it be that the mantra of reduced taxes and regulations can be presented in a fashion that appeals to voters even as it obscures that these supposed nostrums, while they may seem to have a positive effect on GDP, function practically to redistribute wealth upwards? To think that the New Class is not engaged in class warfare is, IMHO, naive. Not only are they, they are winning and the rest of us are collateral damage. Tales of perfectly honorable, likable, ethical CEOs and slams against diversity or liberal academics are a distraction to the fundamental way the elite 'nest-feather' at everyone else's expense.

Posted by: Chris White on January 23, 2008 2:06 PM

Taxes have increased greatly since the 1950's on the average family here, if not at the federal level, then at the state and local level. Regulation has also vastly increased the legal, administrative, and time costs needed to comply by mostly small, but even medium and large sized businesses in the US, inhibiting job growth and sucking away income.

You really need to ditch the idea that government is the solution to problems. It is the genesis of the problem, and making it bigger only makes the problems worse. Some regulation is necessary, but the bureaucracy increases its role and scope as time goes by until it becomes all-consuming and totalitarian, which is inimical to a free society.

People really are miseducated about government and its effects, usually by government run schools (oddly enough!) and by a media which pushes big government because the corporations have so much influence in buying off the players in a big government. Remember, government took over the role of "licensing" the broadcast spectrum, and then over time, allowed the big players to consolidate it until only 5 or 6 big corporations own 90-95% of all media. Only the internet is left for real dissemination of truth. If the government "regulates" that for our "safety and security", its all over then.

A governmet that grows huge governs and oppresses you, and is run by the insiders. A limited and weak government is governed by the people. Take your pick.

You know, at the heart of it all lies a basic irony. The big government nanny-philes talk about the benificence of the government because they don't believe in the good intentions of the general populace, yet they somehow believe that the government is filled with people of this same uncaring populace who will now magically change into caring, loving parental figures to discipline the children and make everybody happy.

What a joke. Real life doesn't work that way.

Posted by: BIOH on January 23, 2008 4:24 PM

Friedrich,

You seem to be saying that in a healthy capitalist society, risk and reward always go hand in hand; when there's lots of reward with little risk, something fishy is going on. I'm not sure this logic is correct. It's clearly possible to reap huge rewards with little risk -- entertainers, for example, get rich without risking any of their own capital. Many entrepreneurs get rich while risking little of their own capital (granted, someone's capital is being risked, but the risk/reward calculus doesn't compute for them on an individual level). Other talented people with skills in high demand can get rich in various ways too.

I'm not suggesting that members of the "New Class" are necessarily getting rich by virtue of their own rare, in-demand talents and skills, or even that their wealth is justified. Just that there are legitimate alternative routes to wealth besides risking one's own capital. Thus, the mere fact that people are getting rich these days without risking their own capital doesn't, by itself, indicate that there's anything especially worrisome going on.

Posted by: Alex on January 23, 2008 4:28 PM

While I can agree that vast disparities in income can be a problem in a democracy, as it tends to encourage class mistrust and other problems, the size of the pie, so to speak, is as important as the percentage of the pie that you are able to claim as your portion. And isn't the pie much larger today in the US than it was 50 years ago?

Posted by: alias clio on January 23, 2008 5:02 PM

I've been puzzling over the question Alex discusses too ... Here's one (perhaps lame) way of thinking of it: People like entertainers, artists, and sports people aren't risking their own capital in a financial sense (or not too much anyway -- though you might be surprised how much it can cost to maintain a studio, promote yourself, etc). But they are risking something analogous, which is their lives. I hope that isn't too melodramatic. I do think it's kinda true: Many people in fields like these are forsaking sure-thing fields like engineering, business, teaching, etc, (fields where a comfy middle-class success is more or less guaranteed) for the small outside possibility of making it as an artist. So maybe it's fair to say that, while they aren't risking financial capital they are risking life-capital.

Does anyone buy this notion?

Posted by: Michael Blowhard on January 23, 2008 5:30 PM

I agree, Michael. A young person who throws himself into the arts world, either as a performer or otherwise, has to make a calculated decision as to how long to give it an effort before bailing. Wait too long and you can't bail. It's a game of Russian roulette. If you want to succeed badly enough, you will. But at what cost? When you "arrive", will you be happy? And precisely how does an artist/writer measure success? Money? Fame? Honors?

Posted by: Charlton Griffin on January 23, 2008 7:27 PM

Well, I certainly agree with you. For that matter, taking someone like me, a Phd in a subject like history: although scholarships paid for 2/3 of my degree, I had to borrow money for that last third. Borrow money, that is, for a degree which I knew very well was not a sure-fire guarantee of a job. (I managed to pay off a $38,000 debt in four years, too.) I did it anyway because I had a compelling interest in my subject.

I mention this because it's true of many people in academia - which is often criticized as a no-risk arena by some of your commenters here. The same is true of people who go into fields like medicine (although their chances of finding work are obviously greater) and law. So it's not as if there's no risk whatever attached to these professions. I don't know about the US, but in Canada defaulting on student loan payments does enormous damage to your credit rating, so it's not as if you can just ignore them. And interest takes a bite out of you as well. I don't want to exaggerate the nature of this risk, but it is there.

Posted by: alias clio on January 23, 2008 7:30 PM

Good point, Michael. It would be interesting to figure out whether risk really does always link up with reward in some way. What's clear though is that people do have different baseline "reward levels" -- some people can always get more while risking less. Although athletes, musicians, etc., do risk a lot to take advantage of their talents, the fact that they even have those talents in the first place is a considerable reward for which they risked nothing at all. The question then is how much of the New Class's success is a reward of this sort, i.e. a more or less "natural" reward, for which no one should begrudge them?

I don't think Friedrich is right to lump doctors, lawyers, and other upper-middle class professionals in with hedge fund managers and the bank higher-ups. The former group seems to me just those people who were born into very lucky circumstances, both in terms of genetics and environment, and who took a low-risk path to making the most of their luck. There's nothing disconcerting or nefarious about any of this, any more so than there is about someone born with good hands and who becomes a carpenter, and there's nothing confusing about how these people can wind up rich while risking nothing.

Now the financial services people -- that's a different group altogether. I'm really not sure what's going on there, but I do think it could be along the lines of what Friedrich's talking about.

Posted by: Alex on January 23, 2008 8:01 PM

Yeah. And I wouldn't lump the government bureaucrats into the same boat either; they are, by and large, pushing paper around and not making much money doing it. There's definitely a New Class, but Friedrich has defined it way too widely.

Posted by: SFG on January 23, 2008 10:29 PM






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