Category Archives: Economics

Book review: Christopher Hayes – Twilight of the Elites

Twilight of the Elites book coverI just finished ‘Twilight of the Elites’ by Christopher Hayes a few days ago whilst on a plane from Melbourne to sunny Perth for a friend’s wedding.

TL;DR summary: The themes and contention of the book will be familiar to any regular reader of progressive books or blogs: growing income inequality and elite failure. A relatively unique point is the rejection of the bipartisan consensus that improving equality of opportunity through the education system is the answer. Hayes sees the social distance between the elite and the Average Joanne as the key problem, and contends that it can only be addressed through direct taxation and income redistribution.

Hayes describes how meritocracy is an unquestioned ideal at the heart of many American education and corporate institutions – he describes his high school alma mater, Hunter College High School in Manhattan, entrance to which is purely based on test scores.

He states his ‘Iron Law of Meritocracy’:  ‘eventually the inequality produced by a meritocratic system will grow large enough to subvert the mechanisms of mobility.’ The idea is that meritocracies defeat themselves by their own design because those rewarded by the system provide their friends and children with special support to negotiate the meritocracy, which ultimately leads to a separate elite and perpetuation of inequality over generations. In the case of Hunter, his meritocratic alma mater, the racial and economic distribution of students does not match the broader distribution in New York at large, with black and hispanic students vastly underrepresented – he attributes this to the expensive test prep institutions that have cropped up around the school.

He acknowledges the pragmatic need for an elite for society to function, but says the current elite is failing. To him, the key problem is the social distance between the elite and the average person: with growing fractal inequality in the US, the elite are increasingly distant from the lives of the lower and middle class. I don’t really object to that, but he spends most of his time establishing this point using a distressingly simple portrayal of moral hazard in the GFC. Not that that wasn’t a large part of the problem, but the moral hazard in that case was intra-elite as well.

The last chapter of the book puts forth Hayes’ (quite conventional!) solution: income redistribution, including estate taxes. This chapter reminded me a lot of The Spirit Level, which, like any good progressive, he references a few times.

Reading the book I was reminded of a chapter in Peter Singer’s Practical Ethics where he calls for a shift of emphasis from equality of opportunity to equal consideration of interests. I actually think Singer more effectively demolishes the meritocratic ideal whilst capturing the  tensions in practical implementation of this ideal in that one chapter than Hayes achieved in his book. But Twilight of the Elites unsurprisingly has a better narrative structure and is probably a lot more accessible for most people.

As a follow up for some contrast I’m reading Robert Schiller’s ‘Finance and the Good Society’, which seems to be a kind of idealistic apologetic for finance. I’ll follow up with something about that when I’m done!


The median influencer is an older citizen of some affluence

On why depressions are a ‘choice’ (emphasis mine):

The ailing developed economies are plutocratic democracies. “The people” do have power, but influence is weighted in a manner correlated with wealth. The median influencer in these economies is not a billionaire, but an older citizen of some affluence who has mostly endowed her own future consumption. She would like to be richer, of course. But she is content with her present wealth, and is panicked by the prospect of becoming poorer. For such a person, the depression status quo is unfortunate but tolerable. The risks associated with expansionary policy, on the other hand, are absolutely terrifying.

Decision making under Uncertainty using Heuristics

I friend from Uni sent me this interesting talk about decision making given by Gerd Gigerenzer (wiki) discussing how heuristics can be very successful at decision making under uncertainty:

One example he gives is of allocating the assets in your portfolio. If you actually knew the true risks, you could use what appears to be a mathematically optimal procedure (mean-variance optimisation) to pick the best portfolio – that is, it would be mathematically optimal if you could quantify the true risks.

But, as it turns out, the heuristic of simply dividing your money equally between your 1/N asset choices – stocks, for example – usually gives a better result, because the variance in the parameter estimation needed for the mathematically optimal procedure means it’s actually a worse method under uncertainty! At least, that’s how I understood it.