The Rationalist Conspiracy

The US has, not one upper class, but two. One might call them “the government” and “Silicon Valley”, but they are much broader and deeper than a single area or institution.

The old elite originated in the Progressive era of the early 20th century, and came to power during FDR’s administration. It consists, generally, of graduates of elite law and business schools, placing a high value on credentials. Its members are affluent, but not really rich. It includes virtually all Democratic elected officials, some Republican ones, most CEOs of Fortune 500s, old-style journalists, and some scattered groups like lobbyists, policy wonks, and elite academics.

The new elite was created by the hippie movement and the Reagan reforms, starting about thirty years ago. Unlike the old elite, many members are wealthy, and appear in the Forbes 400. New elites are primarily tech entrepreneurs, but also include entrepreneurs in other fields, some investors, hackers, “new media” people, and nonprofit project managers. They are, on average, far more intelligent and technically skilled than old elites. Their members also attend elite colleges, but they tend more towards MIT, CMU, and Caltech than the traditional Ivy League (though there is of course much variance), and rarely have JDs or MBAs.

Both elites control large corporations, but different ones. The old elite has no entrepreneurs – their corporations have been around forever. They view “CEO” as another job in the bureaucracy, like “product manager” or “copy editor”. The company hires them, they work for a salary for a few years, and then they leave. These corporations are mostly owned by institutional investors, and the CEOs and managers usually hold very little stock themselves. (Even though institutional investors own them, they have little power – the old elite wrote laws that gave most power in public companies to the CEO and board, not shareholders.)

The new elite is built around entrepreneurs, so most of its corporations are new. The CEO is usually also founder, or someone the founder hired. Being younger, these companies are much more closely held, with management and employees holding large or controlling shares. Hence, there are generally much less plagued by principal/agent problems.

Why draw these lines? Why not, say, define a “North Elite” and a “South Elite”, or “Tall Elite” and “Short Elite”? Because social classes are fundamentally social. Beneath the companies and titles and power games, elites are essentially defined by who talks to who. It’s very common for, say, East Coasters to be friends with West Coasters, or short people to be friends with tall. Hence, these are bad categories. Both the Old Elite and New Elite are highly interconnected amongst themselves, but have few connections to each other.

This is largely a generational divide – people mostly make friends in their rough age bracket. Very few New Elites are older than 45, and very few old elites are younger. Of course, both groups have older/younger wings: the old elite has lots of Harvard Law students angling for a spot, while the new elite has older folks like Bill Gates. But these cohorts have very little comparative power.

How can one, not being privy to private conversations, judge who talks to who? One easy way is examining the flow of people. Within the old elite, CEOs will often sit on each others’ boards. An old elite CEO often hops from company to company – the average F500 CEO only stays a few years. CEOs move from business to government to business to government. Bankers become regulators and vice versa, congressmen become lobbyists and vice versa.

The new elite is similarly mobile. Investors become entrepreneurs, and vice versa. People hop around from company to company, project to project, city to city. New elites hire each other, write together, work together. Look at the careers of Elon Musk, or Jack Dorsey, or Steve Jobs.

But there’s de minimis flow between the elites. The number of programmers or microchip engineers in Congress is zero, even though programmers are now >1% of the labor force. Similarly, there’s no way Google or Facebook would hire some politician or lawyer or management consultant as CEO, though that would be typical for old elite companies. And, of course, there’s the age gap.

One might think an old elite CEO making $2M is rich, but even if he pays no taxes, has no expenses, and remains CEO for two decades (all nearly impossible), his net worth is only $40M – a tiny fraction of many new elites. Why aren’t old elites rich? The old elite likes hierarchy, structure, and large bureaucracies, and that’s what they focus on when competing for status – moving up within the hierarchy. The new elite judges status more by wealth, popularity, coolness, and technical ability.

These groups mostly co-exist peacefully, at least for now. But, as always, there is fighting around the edges, SOPA being an excellent case in point. The music industry, old elites, wanted another bill protecting their interests. Since the government are themselves old elites, this had always worked in the past, and the bill was expected to sail through. Google, Wikipedia, and other new elites weren’t part of the old-elite government, and couldn’t fight back using the old elite tools of lobbying and campaign donations. So they used their own power to mount a publicity campaign, with enough force to kill the bill.