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.

John Maynard Keynes was a smart man, and a full analysis of his ideas goes well beyond one blog post. But most people claiming to be “Keynesians” haven’t really read Keynes. Instead, they expound two nonsensical ideas that sound vaguely like Keynes: “government spending solves all problems”, and “people buying stuff creates economic growth”. Both can be easily disposed of.

For the first, note that all government spending comes from somewhere. Therefore, all government spending is at something else’s expense. If the government taxes, it’s at the expense of consumer goods. If they borrow, it’s at the expense of investments. If they print it, it’s at the expense of anyone holding cash. Government spending is only a win if the new use makes us better off than the original use. Sometimes it does. Often it doesn’t. But there’s nothing magical about government spending that solves all woes. Usually, this argument is just an excuse to spend more on some pet project.

For the second, this confuses cause and effect. A healthy economy highly correlates with consumer spending. A lot of not-very-smart people assume this means spending causes a healthy economy: the reason people are broke is because they aren’t buying stuff. But this is a logical fallacy. In reality, consumer spending is our goal, the thing we want. A healthy economy is the means of achieving that goal. The economy is the cause and spending is the effect. People aren’t broke because they aren’t buying stuff: they aren’t buying stuff because they’re broke.

This is easier to see if one looks at physical stuff, rather than money. In all but the very short term, production and consumption are equal. If consumption is low, there must be low production. It’s much, much easier to consume than produce: production is the hard part. Hence, our problem is that we need more production. At the individual level, no one is ever short of demand: a construction worker would happily buy a private jet if he could. He can’t because he can’t afford it, and he can’t afford it (on the average) because he can’t find sufficiently productive employment.

Suppose you attend an Ivy League school, getting honors in computer science. You get a job at Google. You make, roughly, $100K per year. You have plenty of food and a nice apartment, but you don’t live luxuriously. You probably aren’t much richer than your parents. You might think, therefore, that you’re basically an Average Joe. You have a nice job, but you’re basically just another guy making a living.

But wait. Let’s use math. About 0.2% (1 in 500) people attend the Ivy League. Within that group, only a minority major in something technical, and only a small fraction of them get honors, if honors means anything. Defining “ability” as a scalar is tricky – it has many components – but for most reasonable weightings, you’re in the top 0.1%. Now, looking at income distribution, top 0.1% means making millions a year. It means you can buy a house in the Hamptons and a private jet. Of course, you don’t have any of that. But why?

The main reason is wealth increases dramatically with age. Not just by a factor of two or three, but by orders of magnitude. The reason you don’t feel particularly special, compared to average adults, is that they’re thirty years older and get enormous advantages from that. It’s like running a marathon with a big lead backpack – you’d have to be at the top to compete at all.

Projecting forward, then, when you take the lead backpack off – when you’re a few decades older – you have a good chance of being in the top 0.1% elite, the private-yacht-party-jet crowd. We can make a pretty ironclad argument:

Assumption 1: The US economy will keep growing, or at least not shrink dramatically.

Lemma 1: There will, therefore, be at least as much money and goodies around in several decades.

Assumption 2: Income inequality will keep growing, or at least not shrink dramatically.

Lemma 2: Since there will be at least as much total stuff, and the rich will have at least as large a share of it, the rich will have at least as much stuff.

Observation 1: A large fraction of the Ivy graduates of yesteryear are now global elites.

Observation 2: The Ivies are doing a decent job of selection – relative to decades ago, those admitted aren’t especially lazy or stupid.

Lemma 3: A large fraction of today’s Ivy graduates will become global elites.

Conclusion: Since a large fraction of Ivy graduates will become global elites, and since the global elites of tomorrow will be at least as wealthy and powerful as today’s, the average Ivy graduate today has a large chance of joining the private-yacht-party-jet club when he becomes older.

Related: If You’re Young, Don’t Give To Charity

Suppose you have a goal, Z. You have a plan for getting Z: X -> Y -> Z. You do X. But, it turns out, X doesn’t lead to Y. The plan won’t work.

What do you do? Most people, at most times, simply give up. But what if you really care about Z?

Well, you could spend the next ten years working sixteen hours a day, trying desperately to get Y. But that won’t work either. X doesn’t lead to Y – it doesn’t matter how much effort is used. What now?

For starters, note that Z isn’t impossible. Almost nothing is. The universe is just atoms and photons – and the configurations of atoms which humans care about, but are prohibited by physics, is (relatively) very small. There’s nothing fundamentally impossible about sprouting wings and flying.

So we know there’s some path to Z, and that X won’t lead to Z. But how did we invent the X plan in the first place? Every plan rests on a chain of background assumptions – everything from “the law of gravity”, down to “I drive to work on highway 99″. These assumptions are the context in which we form plans.

So, to get Z, start removing background assumptions, from the ground up, until you have a workable plan. Suppose you want to buy groceries, but the store’s closed. Are there other grocery stores nearby? What about restaurants with takeout? Is there a farm you can buy food from? Might your friends have food? Your neighbors? Can you fly to the next town? Can you break into the store and steal stuff? Could you look up the manager, knock on his house’s door, and get him to open the store for you? Eventually, there will be some way you can achieve Z.

For this to work well, you must make sure Z is really the goal, and not just a particular way of achieving the goal. If Z is “get groceries”, the real goal might be Z’, “eat food”, with the original plan really being X -> Y -> Z -> Z’. There are now other ways of achieving Z’ that don’t go through Z.

Really caring about Z, then, is about recursively questioning assumptions, until some plan for Z is found. As the example suggests, it is often wise to not really care – really caring can have high costs. However, it’s almost always useful to spend five minutes junking assumptions and making new plans, instead of just giving up. Often, the cost is much lower than one might naively suppose, if one doesn’t think about the problem.

(Related: Make an Extraordinary Effort)

The undecidability of the halting problem is a formalization of the grandfather paradox.

Consider a “perfect oracle”, which can predict Earth’s state indefinitely far forward, down to the atomic level. It can easily be used as a time machine. Just make a room, put up a sign saying “Messages to the past here”, and then predict that room’s future state. Indeed, an oracle is more powerful than time machines, since it can see messages future-dwellers don’t want it to see.

Of course, the problem with perfect oracles is that one can see what one will do in two minutes, and then decide not to do it, creating a paradox. Equivalently, John Smith Jr. could write “John Smith Sr., don’t marry that woman!” in the time-room, causing his father not to marry, and himself not to be born.

Formally, consider John Smith Sr. as a Turing Machine. He wants to know whether he’ll halt at some future point (or what John Smith Jr. will think of his marriage, or any number of other things). Suppose he can. But then, he could write code saying “if we run forever, halt; if we halt, run forever”. Contradiction, so it’s impossible.

Several people I know, all under 30, want to do good. They want to do so much good, in fact, that they donate a large fraction of their income to charity.

This is almost always a bad idea. It’s admirable, but it’s the wrong decision. If you’re under 30, don’t give away large amounts of money, and send this blog post to anyone who does. The reason is simple:

Wealth almost entirely belongs to the old. The median 60-year-old has 45 times (yes, forty-five times) the net worth of the median 30-year-old. 99% – not 80%, not even 95%, but ninety-nine percent – of American billionaires are over 40.

Old people, of course, have more time to accumulate wealth. They’ve also had more time to learn skills, make friends, earn degrees, gain experiences… everything that gives someone higher earning potential. They also have almost all the political power. There are a hundred US Senators, and not a single one is under 40. You can’t even be President until you’re 35. It’s not surprising, then, that old people utterly dominate lists of the wealthy.

What does that imply? Any money a 25-year-old can give – even if they donate half their income – is chump change. It’s a single drop in a large bucket, compared to what they can donate later in life, when they’re older and much much richer. It doesn’t matter. At all. It means nothing.

What does matter is that 25-year-old’s human capital and social capital. The job they have, the skills they know, the connections they make… those determine, when they’re 60, whether they’re worth $1 million or $10 million or $100 million. If they donate half their wealth to charity, their human and social capital now determine whether that donation will be tiny or huge.

So, don’t donate that spare cash. Invest it in yourself. Donate a small amount, to keep yourself in the habit, and use all of the rest to make yourself a better, smarter, friendlier, and more capable person. Buy books. Take classes. Get a better job. Move to a better city. Throw parties. Get a gym membership. Go out dancing. Travel places you haven’t been. Build things you haven’t built. Start a business. Learn a craft. Do anything that levels you up. It not only feels good, it’s the virtuous thing to do.

EDIT: To all the new visitors from Instapundit – Rational Conspiracy welcomes you! However, please do read Money: The Unit Of Caring and Purchase Fuzzies and Utilons Separately before commenting, as these posts address many common misconceptions about charity. Also, if you’d like to know more about me and what I do, check out my medical company, Panacea Research.

Consider the life of a poor man. To make money, he must work every day. And for his employer to pay him, that work must (to a first approximation) be economically valuable.

Now, consider a rich man. What does he do all day? For the most part, whatever he wants. He’s rich enough to not need money, so he can write math papers saying 2 + 2 = 5, and not care if no one reads them.

Of course, being rich is higher status than being poor. But, because of human psychology, this means rich behaviors are higher status than poor behaviors. Sometimes, that’s good – we want blowing money on the lottery to be low-status. However, it also means useless things (which the rich can do) are higher status than useful things (which the poor are forced to do). And that leads to unfortunate consequences.

Consider education. Which is higher status: philosophy or welding? Philosophy, clearly. But how did it get that way? Are people, commuting on the subway, moved by insights they read in philosophy papers? Has philosophy given us great powers, like flight and electricity? Of course not. Most modern philosophy could be lost in a disk crash, and no one would notice, let alone care. (Note that many “useless” things, like music, actually fail this test: everyone would be sad if all modern music was lost.) Philosophy is high-status because it, like the impractical dresses noblewomen wore, is the domain of the rich.

It would be OK, although sad, if the rich sent children to philosophy schools. The real trouble comes when everyone tries to imitate them. How many high schools – ordinary high schools, not expensive prep schools – have eliminated welding classes? I don’t have statistics, but I’d guess most. Why avoid giving people valuable skills? They’re too useful. It would be so declasse.

It’s gone so far that almost everyone can spend sixteen years – a decade and a half!, consider that sixteen years ago, Bill Clinton had just been re-elected – learning “to get a good job”, without having the faintest idea what their skills are, or how they might create value for an employer. After which, of course, they are scooped up by the likes of Goldman Sachs and Morgan Stanley, for lack of anything better to do.

We, as a society, have largely inherited the aristocratic notion that making a living is disreputable, without inheriting the human capital that would allow us to not need to. And then we wonder why the economy is such a mess.