TUESDAY, JULY 24, 2012

Part 2—Dr. Stone’s rude diagnosis: It isn’t real hard to explain the dysfunction of our modern elites—elites which often seem to be trying to wreck the basic American system.

We’re sorry, but no: Our financial masters didn’t destroy the world in 2008 because they “can’t admit to themselves that they are elites”—because they “think they are countercultural rebels, insurgents against the true establishment.”

That’s David Brooks’ absurd explanation. (See THE DAILY HOWLER, 7/23/12.)

We’re sorry, but no: Our financial masters aren’t wrecking the world because they can’t admit they’re elites. Nor have they rigged our foundational systems because such conduct is somehow caused by meritocracy itself.

That’s Chris Hayes’ less absurd, but still unhelpful explanation. “Whoever says meritocracy says oligarchy,” Hayes says, in a largely serious way, on page 57 of his new book.

Why have our financial elites rigged so many systems, invented so many “sophisticated new financial instruments,” purchased so many politicians, reworked so much of the tax code? It isn’t all that hard to explain, unless you perhaps don’t want to.

What explains the misconduct of our elites? Twenty-five years ago, Oliver Stone answered that question rather crisply. Leering on the set of “Wall Street,” Michael Douglas explained the ethos which already prevailed among our grotesque elites:
GEKKO (1987): The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A.

Thank you very much.
How hard is this to explain? And no, this ethos didn’t start in the “fail decade,” the first decade of this new century, the decade covered in Hayes’ new book. In 2008, NPR’s Jim Zarroli looked back on the genesis of the Gekko character:
ZARROLI (2/17/08): As conceived by director Oliver Stone, a slimy embodiment of all that was wrong with American capitalism. When we first meet him, he's pacing around his glitzy Manhattan office, barking orders and juggling phone calls as he takes his own blood pressure. He's a lion of the business world, an alpha male famous for his cunning and financial acumen.

Gekko is also—as the young stockbroker Bud Fox learns—a major-league crook who trades in insider information and manipulates markets as easily as other people make conversation.


As conceived by Stone and screenwriter Stan Weiser, the movie was meant to be a cautionary tale about business ethics. Gekko was a larger-than-life composite of some of the fallen financiers from the insider trading scandals of the 1980s.
Elsewhere, it has been said that Gekko was meant to evoke such Reagan-era swindlers as Ivan Boesky and Michael Milken. At any rate, the breakdown of our major elites was well underway by this point.

How hard is this to explain? We think Stone explained it quite crisply.

Everybody understands the history of this breakdown. Paul Krugman explained that history rather convincingly in his 2007 book, “The Conscience of a Liberal.” Starting in the 1950s, the wealthy and powerful began to fight back against the strictures of the New Deal, which had greatly limited their wealth. After several decades of upper-end Fight Club, the culture of greed was running strong—and massive rewards were being dispensed to those who rose to the top.

To judge from the data, some virtues of the old WASP elite were swept away in the process. Late in his book, Hayes cites a well-known change in upper-end compensation:
HAYES (page 218): The first era of equality, from the end of the Second World War to the early 1970s, represented a period of historically unprecedented growth, mass affluence, and middle-class expansion that has not been duplicated since. Income equality markedly declined, even as the economy posted a nearly unmatched level of annual GDP growth...[T]he ratio between average CEO compensation and average production worker compensation hovered around 25 (by 2009 it was 185).
As part of the ethos of the old WASP elite, CEOs were much less grasping. George Romney is often cited as an example of a CEO who refused larger pay during this era. Walter Cronkite’s salary made him a pauper when compared to the salaries now dispensed to marginal TV “news” players.

As greed became good, compensation soared. In “Twilight of the Elites,” Hayes spends an inordinate amount of time explaining how this system of massive reward works among major league baseball players. Very slowly, at very great length, he explains the breakdown as follows (see pages 77-89, 91-95):

According to Hayes, players who hit the most home runs would get the biggest contracts. (By the 1990s, those contracts were very large.) Again according to Hayes, players who hit fewer home runs didn’t make as much money.

According to Hayes, the presence of these mammoth rewards put pressure on everyone to cheat. In this way, those massive rewards helped produce the steroids scandal.

Hayes goes on—and on and on—about the way this system of massive pay works among baseball players. He never makes any attempt to explain how this type of reward structure works within his own elite, the failing mainstream press corps.

The mainstream press is a major elite. It has massively failed in the past few decades; it’s far more important than major league baseball. But we think you know the first rule of Fight Club:

In Hayes’ book, the mainstream press is whisked to the side of the stage.

Why do our modern elites “stink?” (Brooks’ term.) Why have some of those elites been destroying our basic systems? Stone explained it decades ago, though others are still more reticent.

Go ahead! Reread the highly sanitized column in which Brooks discusses Hayes’ book. This is David Brooks’ account of why today’s elites “stink:”
BROOKS (7/13/12): The corruption that has now crept into the world of finance and the other professions is not endemic to meritocracy but to the specific culture of our meritocracy. The problem is that today’s meritocratic elites cannot admit to themselves that they are elites.

Everybody thinks they are countercultural rebels, insurgents against the true establishment, which is always somewhere else. This attitude prevails in the Ivy League, in the corporate boardrooms and even at television studios where hosts from Harvard, Stanford and Brown rail against the establishment.

As a result, today’s elite lacks the self-conscious leadership ethos that the racist, sexist and anti-Semitic old boys’ network did possess. If you went to Groton a century ago, you knew you were privileged. You were taught how morally precarious privilege was and how much responsibility it entailed. You were housed in a spartan 6-foot-by-9-foot cubicle to prepare you for the rigors of leadership.

The best of the WASP elites had a stewardship mentality, that they were temporary caretakers of institutions that would span generations. They cruelly ostracized people who did not live up to their codes of gentlemanly conduct and scrupulosity. They were insular and struggled with intimacy, but they did believe in restraint, reticence and service.

Today’s elite is more talented and open but lacks a self-conscious leadership code. The language of meritocracy (how to succeed) has eclipsed the language of morality (how to be virtuous). Wall Street firms, for example, now hire on the basis of youth and brains, not experience and character. Most of their problems can be traced to this.

If you read the e-mails from the Libor scandal you get the same sensation you get from reading the e-mails in so many recent scandals: these people are brats; they have no sense that they are guardians for an institution the world depends on; they have no consciousness of their larger social role.
Greed is good, Stone crisply explained. According to Brooks, the problem on Wall Street involves the youth and inexperience of those who are now getting hired!

From Brooks’ essay, would a Martian even know that compensation has run wild among our elites in the past forty years? Would a Martian find a single hint that something resembling a vast sprawling greed might be driving our ongoing breakdowns?

It’s an iron law of discussing elites—you mustn’t embarrass your fellow elites! Brooks is clownish in his discussion. But to our ear, Hayes is somewhat less than fully frank too.

In our view, Hayes fudges the nature of this vast greed in Chapter 6, his highly academized penultimate chapter. And uh-oh! In the course of his full seven chapters, he barely mentions the elite he must know best—the elite within which he is rising.

Tomorrow: “Social distance”


  1. greed was greatly incentivized by lowered tax rates.

  2. I'm disappointed this book has such a stupid premise, because the abysmal failure of our current elites requires analysis. Not that those at the top haven't always tried to rig the game in their own favor, but what is remarkable is that they've been so successful at corrupting institutions that were designed to foster a level playing field. In previous times, abuses by elites would reach a head, and society would react by strengthening the institutions that constrain them.

    Today, there is no sign that society has the will to do the necessary work of kneecapping our barbarian elite.

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