The Social Capital Stall Behind America’s Gerontocracy

Byrne Hobart for Palladium Mag (2020-10-10)

  • As with savings glut (more savings reduce consumption), there’s a social capital glut, too.

  • People accumulate social capital over time (trust, responsibilities, favours, etc.), but new entrants can also start accumulating some. Social capital savings glut means that people in charge hoard reputational capital by avoiding risks, leading to stagnation as the price of stability.

  • Example: the average birth year of a Fortune 500 CEO hadn’t changed since 2005 till 2019 (1958). An old boys’ club for sure.

  • In entertainment actors do change, but most concepts don’t (most new top grossing movies are sequels or remakes).

  • In the past people in their 20s, 30s and 40s thought they could reach their peak within 10 years of hard work; now peak career is reached at the ages of 65+.

  • Thomas Piketty: any time the real return on wealth exceeds the rate of real growth of the economy, this necessarily leads to large and growing income inequality. Same applies to social status / influence accumulation. The rich get richer, the management gets more powerful, etc – via simple compounding.

  • Wars / crises tend to destroy accumulated wealth faster than they destroy economy as a whole. (Destroying physical assets or increased taxation to fund the restoration of the damages.)

  • Wars are an important mechanism to redistribute political status to the young. US: there haven’t been any major righteous conflicts with clear victory, hence the elites stayed the same. That’s why the status glut will probably stay intact until the institutions themselves break down.

  • Thus, there’s no clear path to national leadership via business; there can be career advancement, but it leads to success in the firm, not in the government.

  • CEOs / politicians must be generalists being able to get the whole picture and appoint specialists to cover the many areas they’re responsible for. So it’s a nice symbiosis between good specialists having their job security under a powerful generalist who derives his/her power from these good specialists and deters competitors.

  • Over time social capital has a compounding effect. Career leverage rises with seniority. Early-stage businesses don’t have stability and revenue predictability, hence they can’t raise debt – something the established firms happily stuff their balance sheets with.

  • Crash is a self-correction mechanism in financial systems: ever increasing large borrowings create a sort of a bullwhip effect to the extent that one firm’s inability to borrow brings the whole market down.

  • With social capital it’s harder to identify the bubble and the conditions for its crash. There’s no value in going against the “market” other than betting on an “underdog”. And even when this underdog gets into the position of power, they still need to surround themselves by specialists (incumbent or incoming) who would have their day in offering their own interpretation of the facts.

  • Many companies are publicly leaning left on social issues while staying right on the economic issues (to detract attention from inconvenient questions about lost jobs and tax optimization).