Elite Convergence

Published April 10, 2015

National Review - April 6, 2015 issue

Review: The New Class Conflict, by Joel Kotkin (Telos, 230 pp., $29.95)

Conservatives thinking about class and economic inequality will be attracted to Joel Kotkin’s latest book. There’s much to like in it, especially its description of how the leading elements of the upper-class Left inherently favor economic policies that enrich themselves at the expense of the average American. Ultimately, though, Kotkin’s work falls short precisely because he focuses his talents almost exclusively on the Left. The truth is that elites on both the right and the left have more in common with each other than with their nominal political allies, and it is their tacit alliance that is creating an economic system that threatens to unmoor America from its heritage.

Kotkin starts by drawing attention to the most important, yet overlooked, political problem facing America: the dimming economic future for non-college-educated, native-born Americans. This group, which he labels the Yeomanry, was not benefiting from recent economic gains even prior to the Great Recession. Kotkin chronicles their stagnant incomes and their declining economic opportunities, to great effect.

Kotkin lays the blame for this at the feet of two groups, the Oligarchs and the Clerisy. The Oligarchs are the leaders of the emerging big firms in information and high technology: Google, Oracle, Facebook, Apple, and the like. This group is acquisitive, green, and convinced that they know what’s best for average people. They believe that their model of social liberalism and global capitalism is what America needs, and Kotkin argues that they are eager to create a nation in their image. In this, he argues, they are no different from the turn-of-the-century Robber Barons often excoriated by their progressive friends.

For all their wealth, the Oligarchs need allies to remake America. They find these in the Clerisy. The Clerisy are the lawyers, teachers, professors, journalists, and foundation officials who work in the information and ideas industries. Michael Barone calls them “gentry liberals,” and both Kotkin and Barone hit on an essential element of their character when they draw on medieval connotations for their name. The Clerisy share the Oligarchs’ smug self-satisfaction, the sense that their lives are morally superior to those of the rabble about them. They share the Oligarchs’ social liberalism, their soft-green politics, and often their disdain for religion. They are natural allies of the Oligarchs not only because of the values they share with them, but also because of the power they wield: If the Oligarchs own the emerging information economy, the Clerisy control access to the institutions that train the workers needed in that economy and the institutions that establish the norms that govern daily personal life.

Together, Kotkin writes, these groups work tirelessly to reform America in their image. Their green politics prevent the development of natural resources, thereby preventing semi-skilled Americans from having access to the sort of trained, well-paying jobs that provide decent middle-class lifestyles. They try to restrict, in the name of “smart growth,” the suburban developments that the average American craves. They increasingly use their private and public power to create “no fly” zones around moral issues they find of crucial import, such as gender and race. From the ideas in our heads to the homes where we live to the toys that we use, this alliance is set upon transforming average America — us — in their image.

The conservative who takes Kotkin at face value will likely come away with an “I told you so” attitude: “I knew it was all the liberals’ fault.” Unfortunately, though, Kotkin’s work is too often sloppy and rushed. He makes key factual errors that quick Internet searches could have fixed, always in favor of claims that attack the Oligarch/Clerisy alliance. For example, he states that “San Francisco, Portland, and Seattle, achingly political in theory, are actually becoming whiter and less ethnically diverse as the rest of the country diversifies.” No, they’re not. Census data show that in fact all three cities have become less white in each census over the past 20 years.

This sloppiness matters. Kotkin’s rush to convict the educated Left leads him to overlook the important complicity among certain elites on the Right in the Yeomanry’s plight.

Kotkin does notice this Left–Right convergence. He remarks early on that middle Americans feel, “for good reason,” abandoned by both parties. Later on, he notes that an alliance against home ownership seems to exist between the Clerisy and Wall Street. Kotkin considers this alliance to be “odd,” but it is anything but. In fact, the rise of what Kotkin could have called the Financiers and their growing influence on the right is essential to an understanding of what is really happening to the American middle class.

The Financiers argue that returns to capital should be greater than returns to labor and that therefore both tax rates on, and barriers to the free movement of, capital should be reduced. In practical terms, this means free trade in goods, ideas, and people (think of immigration as the free-trade principle applied to labor). It has also meant reducing the tax rates on people who accumulate large amounts of capital (e.g., low top income-tax rates and low tax rates on capital gains).

The economic policies of the Financiers have changed the world. Free to send capital to wherever it can be most efficiently deployed, the Financiers have pulled hundreds of millions of people in the developing world out of miserable poverty. Moreover, they have created a virtuous cycle within countries hospitable to direct foreign investment, creating new middle classes and upper middle classes — based on enterprise, opportunity, and work — that are the envy of the world. Free trade and capitalism have also enriched and improved the lives of tens of millions of Americans who work in jobs in these industries, or in businesses that funnel intellectual services (such as law and finance) that they need.

Not surprisingly, though, this has created unprecedented pressure on a large segment of native-born Americans who face economic competition of an intensity unknown since the early 20th century. If you think I exaggerate, consider this: Between 1989 and 1994, the fall of the Berlin Wall, the signing of NAFTA, and the decisions of China and India to open their economies to the West added countries with a total population of 2.2 billion to the world economy. The entire developed world at that time contained about 800 million people; with the Asian Tigers and some other free-market countries such as Chile added to the mix, it’s another 100 million people. There is no way that more than doubling the size of the potential labor force available for Western investment was not going to affect the living standards — for better and for worse — of American citizens.

Kotkin notes, almost as an aside, how much the Oligarchs depend on this economic system to generate their massive wealth. Most tech companies make extensive use of Asian production facilities and immigrant engineers to fuel their operations. This spreads untold wealth to the developing world — and helps companies such as Apple make staggering profit margins on the goods they import back to the U.S. The new iPhone 6, for example, is estimated to have a 69 percent profit margin. By comparison, the companies on the S&P 500 hit a record-high average profit margin last year: 9.5 percent.

The Financiers and their allies in the conservative Clerisy (think economists, libertarian think-tankers, the Wall Street Journal editorial board) have no intrinsic reason to shake up this regime, regardless of the consequences to low- and medium-skilled Americans. They tend not to care about the downside of these changes, an aloofness they share with the Oligarchs. Moreover, they often share the cultural prejudices of their leftist counterparts: social liberalism, disdain for popular culture, and a sense of superiority that makes them feel entitled to political primacy. They may fight on the margins with the Oligarchs and the Clerisy where their interests are threatened — in particular, when it comes to limits on energy exploration and policies on climate change. But on the whole, they have more in common with their nominal political adversaries than they do with their nominal political allies.

The political effect is to encourage bipartisanship that keeps the gravy train rolling. The proposed Simpson-Bowles budget reforms are an excellent example of this, as they attempted to cure the nation’s fiscal problems by raising revenue while cutting the tax benefits and government programs whose largesse flows mainly to people in the bottom 90 percent of the income distribution. Bipartisan immigration reform, if it happens, would be another example of the Oligarch–Clerisy–Financier alliance. These are simply American examples of the sort of “grand coalitions” increasingly in vogue in Europe.

Kotkin rightly notes that elements in both parties want to end this non-aggression pact. The Tea Party wants to ally with the Financiers and kick out the Clerisy, but is divided over whether the Oligarchs can be won over (the Rand Paul wing says yes, the Ted Cruz wing says no). Meanwhile, Kossack progressives simply want to kick out the Financiers and the Oligarchs and give all power to the Clerisy. Neither side, however, has yet been able to consistently mobilize the Yeomanry on behalf of its agenda, leaving the Democratic/Republican duopoly intact and American politics in stalemate.

The path forward for conservatives will be difficult. Addressing the Yeomanry’s legitimate concerns without becoming stale, “me too” liberals will require lots of innovative policy and rhetorical entrepreneurship. Kotkin’s book does not help much in that cause. It is, however, a must-read for conservatives who want to understand the problem so they can help craft the solution.

– Mr. Olsen is a senior fellow at the Ethics and Public Policy Center.

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