The rise of the alpha geeks means the 1 percent is more fiercely educated and the returns on elite education are higher than ever before. One way to understand why we are living in a golden age of the nerds is with a metaphor invented by Jan Tinbergen, joint winner of the first Nobel Prize in economics: the race between education and technology. That idea is the title of and conceptual framework for a recent book by Larry Katz and Claudia Goldin, the Harvard pair who study how the interplay between new technologies and education shapes income distribution.
In the nineteenth century, as the first gilded age was reaching its peak, technology raced ahead of education. As a result, if you were what counted as highly educated in that age—which was finishing high school (remember, bestselling author Henry George left school at fourteen)—you could command a premium compared to unskilled workers. Over the next fifty years, as America invested massively in public high schools, education caught up with technology, and the nerd premium narrowed. For Americans born from the 1870s to about 1950, every decade was accompanied by an increase of about 0.8 years of education. As Goldin and Katz write, “During that 80-year period the vast majority of parents had children whose educational attainment greatly exceeded theirs.”
But about thirty years ago, that increase in education stopped while technology continued to race ahead. The result is the rise of the geeks. In one example, the wage premium earned by young college graduates compared to young high school graduates more than doubled between 1979 and 2005. Getting a college degree adds almost a full million dollars to your lifetime earnings. Economists Thomas Philippon and Ariell Reshef, who have studied the connection between deregulation and soaring incomes in finance, found that the wage premium for a college education increased from 0.382 in 1970 to 0.584 in 2005, an increase of more than 50 percent—a figure that goes a long way in explaining why income inequality has soared. As another economist, Thomas Lemieux, concluded in a 2006 study of the subject, “Most of the increase in wage inequality between 1973 and 2005 is due to a dramatic increase in the return to post-secondary education.”
Moreover, broad measures of the return on education understate the rise of the super-smart in one crucial respect. Just as the winner-take-all economy rewards those at the very top much more richly than those one rung beneath them, a super-elite education has outsize rewards.
Any middle-class parent living in a city that is home to a significant community of the 0.1 percent—and that means not just the obvious centers of New York, San Francisco, and London, but also emerging metropolises like Mumbai, Moscow, and Shanghai—knows that the perceived high value of an elite education has prompted a Darwinian pedagogical struggle that begins in nursery school. That contest has prompted absurdities like the story of Jack Grubman, the Citigroup tech analyst who made positive recommendations about companies he thought were weak in exchange for support from his boss, Sandy Weill, for his twin two-year-olds’ application to attend the 92nd Street Y, probably the most sought-after nursery school in Manhattan.
It is easy to dismiss these contortions as nouveau riche excess or a neurotic example of a child-centered culture run amok. But the reality is more disturbing. In a recent essay, University of Queensland economist John Quiggin calculated that the total first-year class of the Ivy League universities—around twenty-seven thousand—is just under 1 percent of the U.S. college-age population of around three million. And in our education-driven, winner-take-all economy, that 1 percent of eighteen-year-olds has a huge edge in forming the 1 percent as adults. “With those numbers in mind,” Quiggin writes, “the ferocity of the admissions race for elite institutions is unsurprising. Even with the steadily increasing tuition fees, parents and students correctly judge that admission to one of the ‘right’ colleges is a make-or-break life event, far more than a generation ago.”
To understand how hard it is to get into an elite university, the lengths students go to be admitted, and the extent to which the biggest perk of being born rich isn’t inheriting a trust fund—it is being expensively educated—consider this story from inside the Harvard admissions process. When he was president of the university, Larry Summers liked to drop in on the deliberations of the admissions committee.
He was struck by one particularly difficult case. He explained: “There’s a kid. You know, Harvard gets huge numbers of really strong applications. Kid comes from a good private school in a major city. Kid’s got good grades—not unbelievable grades, but really strong grades. Kid’s got test scores—really good test scores, but not remarkable test scores. So he looks like a kid that would do fine at Harvard. But we’ve got seven thousand kids like him and we’ve got two thousand slots. But the kid did have one thing that was really quite special. And that was this. Kid spoke Mandarin. The reason the kid spoke Mandarin was that he had done a really terrific and dedicated job working with his Mandarin tutor three days a week after school since he’d been in ninth grade. And he was serious about it and he had really worked at it and he was fluent in Mandarin. Not many people are. And he hadn’t done it as part of a school program, he’d done it as an activity that he had chosen himself. But what’s the right way to react to that? One way to react, which I think on balance in that particular case was probably the right one, was this really is an impressive achievement that counts for a lot. On the other hand, what fraction of families in the United States or Canada would have the wherewithal to get for their child a Mandarin tutor three days a week for four years? How do you think about that? And were we perpetuating privilege? Or were we recognizing merit?”
Getting into the “right” college is just a start. As the baby boomers aged into the commencement address generation, their standard advice to graduates was, as Steve Jobs memorably enjoined, to “have the courage to follow your heart and intuition,” to “love what you do,” and never to “settle.” Drew Faust, in her third commencement address as president of Harvard University, urged the graduating students to adopt her “parking space theory of life”: “Don’t park ten blocks away from your destination because you think you’ll never find a closer space. Go where you want to be. You can always circle back to where you have to be.” But the winner-take-all economy turns out to be unforgiving of people who spend too long finding themselves. A 2011 study by Ad Age, the advertising trade magazine, found that to break into the 1 percent in your lifetime, you need to be earning an annual income of $100,000 by the time you are thirty-five.
NOT EVERYONE GETS A SECOND ACT
What’s new isn’t so much the pure power of getting an early start. That’s both easy to intuit and well reported. One example is a 1968 study of Nobel Prize winners by social scientist Robert Merton. He found that one striking shared characteristic of the future Nobelists was being talented enough and focused enough at a young age that they were able to find their way into the labs of the most eminent scientists in their fields—“of 55 American laureates, 34 worked in some capacity as young men under a total of 46 Nobel Prize winners.”
The bigger shift has been that, in a time of rapid economic change, there are fewer second chances for those who don’t take off from the starting blocks at a sprint, or who run in the wrong direction for their first few laps. That was true during the industrial revolution. As Alfred Marshall, the pioneering nineteenth-century English economist, wrote, “The conditions of industry change so fast that long experience is in some trades almost a disadvantage, and in many it is of far less value than a quickness in taking hold of new ideas and adapting one’s habits to new conditions. A man is likely to earn less after he is fifty years old than before he is thirty.”
Marshall, who transformed economics by going out and doing field research, made that observation in 1890. A century and a quarter later and on another continent, you could hear remarkably similar comments from leaders of the Internet revolution. “A lot of professional writers apply here,” Keith Griffith, the director of editorial recruiting at Groupon, the Chicago-based Internet sales site, told a reporter in 2011, fiv
e months before the start-up’s $700 million IPO. “I’ve had applicants from Rolling Stone, the Wall Street Journal. But it’s really hard to get them to do what we’re looking for. It’s easier to teach people than unteach them.”
This volatility makes us unhappy. Carol Graham, a researcher at the Brookings Institute, has identified what she calls the paradox of the happy peasant and the miserable millionaire—ambitious members of the middle class in fast-growing economies are actually less happy than poor people in more stable societies. One reason for the distress of the group Graham calls the “frustrated achievers,” she believes, is the uncertainty of their economic position. They worry that at any moment they could lose their jobs and savings and drop back down to the bottom.
By contrast, early super-success is a useful hedge against the vagaries of an unpredictable economy. Many of today’s plutocrats stumbled a decade or two into their careers, but by then they had already accomplished so much that they were poised to seize even larger opportunities.
The premium on early success means that the alpha geeks of the super-elite have been driven from a young age. The dorm room incubation of our most important technology companies is common knowledge. That’s where hedge funds are starting, too. Bill Ackman, the most influential activist investor in America today, whose targets have included J.C. Penney and Target, founded his first hedge fund with a classmate right after graduating with an MBA from Harvard. Ken Griffin, the billionaire founder of Citadel, the Chicago-based hedge fund, started trading bonds out of his college dorm room.
The pattern holds for many of the emerging markets plutocrats, too. Carlos Slim, who bought his first share when he was twelve, started to make serious money straight out of college, when he was one of Los Casabolseros, or Stock Market Boys, a group of aggressive young men who traded shares on the Mexican stock market and played dominoes together after the market closed. Many of the Russian oligarchs first ventured into commerce while they were students taking advantage of Mikhail Gorbachev’s tentative perestroika reforms to open businesses as diverse as window washing and computer programming.
The result is a super-elite whose members have been working to join it for most of their conscious lives—if not since nursery school, certainly since high school, when the competition for those elite college places begins in earnest. College, which boomers may fuzzily recall as a halcyon season of parties and self-discovery, has become, for the future 1 percent, a grueling time to found your start-up or to build a transcript that will earn a first job at an elite firm like Goldman Sachs or McKinsey. One sign of the shift is the illicit drug of choice among the gilded youth—Adderall. Its great virtue, one Princeton engineer told me, is that you can study for twenty-four hours without losing your concentration or needing to sleep.
ORPHANS OF CAPITAL
For those who make it, the relentless pace continues. One badge of membership in the super-elite is jet lag. Novelist Scott Turow calls this the “flying class” and describes its members as “the orphans of capital” for whom it is a “badge of status to be away from home four nights a week.” The CEO of one of the most prestigious multinationals recently climbed Mount Kilimanjaro with his daughter to celebrate her graduation from college. He told a friend the two-week expedition was the longest they had ever been together.
“They make a lot of money and they work incredibly hard and the husbands never see their children,” Holly Peterson said of the financiers of the Upper East Side. Their lives are driven not by culture or seasons or family tradition, but by the requirements of the latest deal or the mood of the markets. When Mark Zuckerberg rebuffed Yuri Milner’s first approach, the Russian investor, who was already a multimillionaire, turned up at the Internet boy wonder’s office in Palo Alto the next day, a round-trip journey of twelve thousand miles. In November 2010, the number two and heir apparent of one of the top private equity firms told me he was about to make a similar journey. I was a having a drink with him near Madison Park on a Wednesday night. He told me he needed to leave by eight p.m., because he had to fly to Seoul that evening. He planned to make the fourteen-thousand-mile round-trip for a ninety-minute meeting. His putative partners had invited him to Korea just forty-eight hours before, on the Monday of that week. It was, he told me, “a test of our commitment.” When the European sovereign debt crisis came to dominate the markets in 2011, New York traders started to set their alarm clocks for two thirty a.m., in time for the opening bell in Frankfurt. Some investors in California didn’t bother going to bed at all.
Wall Street e-mail in-boxes give you a flavor of the working lives of financiers, at least as they perceive them. In the spring of 2010, when the Obama administration first proposed a millionaires’ tax, an anonymous screed pinged its way around trading desks and into the electronic mail of a few journalists. It begins with the declaration “We are Wall Street,” and goes on to describe the intense workdays of traders: “We get up at 5 a.m. and work till 10 p.m. or later. We’re used to not getting up to pee when we have a position. We don’t take an hour or more for a lunch break. We don’t demand a union. We don’t retire at 50 with a pension. We eat what we kill.”
A MACHINE FOR DESTROYING THE EGO
Even when they are not traveling, the super-elite inhabit a volatile world. Jobs at the top are very insecure, and becoming more so. The average tenure of a Fortune 500 CEO has fallen from 9.5 years to 3.5 years over the past decade. That’s true lower down the food chain, too. Thomas Philippon, the economist who documented the connection between deregulation and soaring salaries on Wall Street, also found that the jobs of financiers were very insecure. Nor does being your own boss protect you from the uncertainty of the markets. At a 2011 seminar at the Central European University in Budapest devoted to the psychology of investing, George Soros told the gathered academics that “the markets are a machine for destroying the ego.” Popular culture has taught us to imagine the chiefs of Wall Street as strutting masters of the universe. That’s partly true. But they are also chronically exhausted men terrified that their latest trade will turn out to be a multimillion-dollar mistake that costs them their job. Soros, secular to his fingertips, describes investing mistakes as “sins” when he talks about them with his team.
“If you push towards an Apple world, a Google world, that’s all about brutal efficiencies. The guys on the top are constantly updating their models. It’s a brutal world, actually. You have to be really on the ball and fast,” Eike Batista, the oil and mining magnate who is the richest man in Brazil and one of the ten richest men in the world, told me. “A year and a half ago, we didn’t know about tablets, right? Tablet is basically killing the PC world. So, you know, congratulations to Apple, which had the vision that it would create a dramatic change. Everybody has to change now. Look at the brutal change that is being used through that thing. And so, if the others don’t move, they’re going to be dead tomorrow.”
Batista used the Apple analogy as a way to communicate with me, a North American, in an idiom he thought I would understand. But he was really talking about a Darwinian struggle at the very top in Brazil, one of the fastest-growing economies in the world: “Of the 10 percent wealthiest, you know, 70 percent of this 10 percent wealthiest made their money in the last ten years. Voilà. So, a massive social movement.” Batista is one of those arrivistes, and the old guard doesn’t like him or his ilk one bit, he told me. “You have to accept criticism—that’s part of a democratic system like we have in Brazil,” he said, half triumphantly, half ruefully.
—
None of which is meant to make you pity the super-elite. The famous Whitehall study of the British civil service documented something humans have suspected for centuries: power is good for your health. The UK research, which was launched in 1967, found that the higher up in the bureaucracy you were, the longer you lived. That’s equally true of today’s super-elite. They may be anxious and overworked. But it is still a lot better to be a trader or a CEO earning several million dollars a year—and g
uaranteed a golden parachute—than a minimum-wage cleaner working those same sixty hours a week but without the comforts of a private jet, a housekeeper, or medical insurance. Still, to understand the mind-set of the super-elite, your starting point should be the reality—and their own self-perception—that they, too, lead anxious, overworked, and uncertain lives.
SECULAR SAINTS
The money certainly helps justify those long hours. But the super-elite also bask in a culture that, at least until the 2008 financial crisis, was happy to regard them as the heroes of our age. Their virtue need not manifest itself in any of the traditional Judeo-Christian values—Steve Jobs, who currently dominates the iconostasis, was an egotistical jerk who often treated employees, family (including his daughter), and ordinary mortals who dared to e-mail him with cruelty or disdain. But we do need them to succeed in business because of their sheer superiority to everyone else—part of the appeal of the Jobs story is his second coming at Apple, when he showed up the mediocrities who had ousted him.
Most important of all, the plutocrats, and their chorus in the popular culture, are keen to believe they are not engaged on an entirely selfish mission. Carnegie asserted that knights of capitalism like himself “and the law of competition between these” were “not only beneficial, but essential to the future progress of the race.” No one would talk like that today, but our champions of capital do like to describe their work in strikingly moral terms. Google’s company motto is “Don’t be evil,” and at a recent company conference, Larry Page, Google’s cofounder and now its CEO, said earnestly that one of Google’s greatest accomplishments was to save lives—thanks to the search engine, for instance, people can type in their symptoms, learn immediately they are having a heart attack, and get life-saving help sooner than they would have otherwise. The self-driving car, one of Page’s pet projects, would eventually, he argued, save more lives than any political, social, or humanitarian effort.
Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else Page 7
