1

1he CenLre for lndependenL SLudles

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!ohn 8onyLhon LecLure
PllLon PoLel Sydney
Monday, 19 november 2012
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LeL me begln by expresslng my Lhanks Lo 1he CenLre for lndependenL SLudles for Lhe greaL
honour of selecLlng me Lo dellver Lhls year's !ohn 8onyLhon LecLure. l have been an admlrer of
Lhe work of Lhe ClS slnce 1986 and my flrsL vlslL Lo AusLralla, and lL ls a greaL honour Lo [oln Lhe
dlsLlngulshed llsL of lecLurers who have preceded me.
1hls ls my fourLh Lrlp Lo AusLralla, all under Lhe ausplces of Lhe ClS. l've en[oyed myself
lmmensely on each of Lhem, excepL when Lhe Llme has come for me Lo geL up and speak abouL
my laLesL work on Lhe sLaLe of Lhe unlLed SLaLes. 1he quesLlon aL Lhe back of my mlnd as l geL ln
fronL an audlence of AusLrallans has Lhus always been, 'Why would Lhese people wanL Lo know
whaL l'm abouL Lo Lell Lhem?' 8ecause lL goes wlLhouL saylng LhaL AusLralla ls very dlfferenL
from Lhe unlLed SLaLes ln many ways, and Lhe uS experlence does noL necessarlly glve much
guldance as Lo whaL course AusLralla oughL Lo Lake.
1onlghL l feel less apprehenslve, because Lhe sLory l am golng Lo Lell abouL Lhe unlLed SLaLes ls
noL so dlfferenL from whaL's been golng on ln AusLralla. AL leasL LhaL's been my lmpresslon from
conversaLlons wlLh AusLrallans and from readlng Lhe manuscrlpL of a forLhcomlng book by nlck
CaLer, edlLor of Lhe !""#"$% '()*+,-.,$, whlch deals wlLh some of Lhe same Loplcs. So whereas
l am noL so brash as Lo Lry Lo Lell you exacLly how Lhe uS experlence parallels AusLralla's, l lnvlLe
you Lo make Lhose [udgmenLs for yourself as l go along.
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1he CenLre for lndependenL SLudles
Pere ls Lhe slLuaLlon ln Lhe unlLed SLaLes: CaplLallsm has become a dlrLy word. ln Lhe recenL
presldenLlal campalgn, Lhe uemocraLs successfully porLrayed whaL MlLL 8omney accompllshed
aL 8aln noL as parL of Lhe wealLh creaLlon LhaL has made Lhe unlLed SLaLes so prosperous, buL as
desLrucLlve manlpulaLlon of power Lo enrlch lndlvlduals ,* */" "01"$)" of ordlnary Amerlcans.
More broadly, resldenL 8arack Cbama Lrled a LacLlc LhaL has always backflred agalnsL uS
pollLlclans ln Lhe pasL-encouraglng class warfare. 1hls Llme, lL worked.
none of Lhls has happened [usL because of Cbama, nor has lL happened because of Lhe flnanclal
melLdown and subsequenL CreaL 8ecesslon ln 2008. 8arack Cbama and Lhe melLdown relfled
long-Lerm Lrends. ln a nuLshell, over Lhe course of Lhe lasL 30 years, Lhe unlLed SLaLes has seen
a dlvergence ln classes LhaL ls dlfferenL ln klnd from anyLhlng Lhe naLlon had known before. arL
of LhaL dlvergence has led Lo a new lower class LhaL has dropped ouL of Lhe lnsLlLuLlons of
Amerlcan llfe-especlally marrlage and work. 1he oLher parL of Lhe dlvergence has led Lo a new
upper class LhaL ls lncreaslngly segregaLed from, and lgnoranL of, llfe ln malnsLream Amerlca.
1he naLure of LhaL new upper class has conLrlbuLed mlghLlly Lo Lhe class anLagonlsm LhaL we are
now seelng ln Lhe unlLed SLaLes, and Lo Lhe bllghLed repuLaLlon of caplLallsm. My purpose ln
Lhls year's 8onyLhon lecLure ls Lo descrlbe Lhe larger hlsLorlcal forces LhaL have been aL work ln
Lhe unlLed SLaLes (and l Lhlnk Lhey have analogues ln AusLralla), Lhen Lurn Lo how Lhey are
manlfesLlng Lhemselves, and conclude by Lalklng abouL whaL mlghL be done.
Cver Lhe course of Lhe LwenLleLh cenLury, and especlally durlng Lhe lasL half of Lhe LwenLleLh
cenLury, Lwo large hlsLorlcal forces reshaped Amerlca's soclal sLrucLure. 8ralns became much
more valuable ln Lhe markeLplace. Amerlca's unlverslLy sysLem became much more efflclenL aL
flndlng LalenL wherever lL exlsLed-and sendlng Lhe LalenLed noL only Lo college buL Lo ellLe
colleges.
llrsL, conslder Lhe ways ln whlch bralns became more valuable ln Lhe markeLplace. lmaglne
someone wlLh specLacularly good maLh skllls and no soclal skllls whaLsoever-a compleLe nerd
and dork. ln 1920, how could he make a llvlng? Pe could Leach maLhs, buL he wouldn'L be very
good aL LhaL wlLhouL soclal skllls. Pe could be an acLuary. 1haL's abouL lL. ln 2012, how does he
make a llvlng? lf he ls a glfLed programmer, as many glfLed maLh sLudenLs are, he sLarLs by
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1he CenLre for lndependenL SLudles
chooslng beLween Lhe compeLlng offers from Coogle and Apple, where he soon wlll be maklng
slx flgures. lf he ls a Lerrlflc pure maLhemaLlclan, Lhe quanL hedge funds can reallsLlcally offer
hlm Lhe prospecL of wealLh beyond Lhe dreams of avarlce.
1he lncreased markeL value of bralns applles Lo all professlons. Suppose you were an aLLorney
ln 1920. ?ou made a good lncome, buL lf you had a prlvaLe pracLlce, you charged Lhe fees LhaL
prlvaLe lndlvlduals could afford Lo pay for rouLlne legal servlces. lf you worked for a
corporaLlon, you made an ordlnary corporaLe salary. When Lhe law was falrly sLralghLforward
and buslness deals were falrly sLralghLforward, no lawyer, excepL for a handful of celebrlLy
defence lawyers and dlvorce lawyers, charged lavlsh fees. 1oday, lf you are an aLLorney wlLh Lhe
lnLellecLual glfLs LhaL enable you Lo puL LogeLher Lhe lncredlbly compllcaLed lnLernaLlonal
buslness deals LhaL are now commonplace, you can be worLh a commlsslon of mllllons of
dollars. lf you can negoLlaLe a favourable regulaLory declslon on a complex, hlghly Lechnlcal
lssue, a declslon LhaL make Lens of mllllons of dollars dlfference Lo Lhe boLLom llne of your
corporaLe cllenL, you can be worLh your four-flgure hourly fee.
ln buslness, Lhe same Lhlng happened. 1he blgger Lhe sLakes, Lhe greaLer Lhe value of marglnal
lncremenLs ln skllls. ln 1960, Lhe corporaLlon ranked aL 100 on Lhe 23+*($" 455 had sales of $3.2
bllllon ln Loday's dollars. ln 2010, Lhe hundredLh-ranked corporaLlon had sales of $24.3 bllllon-
almosL an elghL-fold lncrease ln consLanL dollars. lf you are a skllled manager who can lncrease
your dlvlslon's proflLablllLy by 10, you are worLh a loL more money Lo a company wlLh annual
sales of $24 bllllon Lhan Lo a company wlLh annual sales of $3 bllllon. arL of Lhe effecL of Lhe
vasL lncrease ln Lhe slze of Loday's largesL corporaLlons ls LhaL Lhe people who can rlse Lo Lhe
Lop ln Lhem are noL [usL affluenL, as Lhey were 30 or 80 years ago, buL genulnely wealLhy.
1he second large hlsLorlcal force happened falrly abrupLly, ln Lhe 1930s, ln Amerlca's
unlverslLles. l'll use my alma maLer, Parvard, as an example. As laLe as 1932, Lhe mean
enLrance-LesL score for lncomlng Parvard freshmen puL LhaL average freshman well above Lhe
average of all sLudenLs Laklng Lhe LesL, buL noLhlng speclal-aL around Lhe elghLleLh percenLlle.
8y 1960, Lhe ,6"+,7" freshman was aL Lhe nlneLy-elghLh percenLlle. 1he score for Lhe average
Parvard freshman ln 1932 would have placed hlm ln Lhe boLLom 10 of Lhe lncomlng class by
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1he CenLre for lndependenL SLudles
1960. ln elghL years, Parvard wenL from a place wlLh a loL of rlch, moderaLely brlghL klds and a
few super-smarL ones Lo a place wlLh loLs of super-smarL klds and some rlch ones. 1he same
Lhlng happened LhroughouL Amerlca's ellLe colleges.
Why ls Lhls lmporLanL? llrsL, because college ls a cruclal soclallslng experlence, and soclallsaLlon
aL ellLe colleges ls especlally powerful. lL's noL [usL LhaL belng ln an ellLe college glves lLs
sLudenLs a powerful sense of belng speclal and enLlLled, Lhough LhaL's parL of lL. 1hese glfLed
sLudenLs are ln LhaL envlronmenL aL a Llme ln Lhelr llves when Lhey especlally wanL Lo be seen
as flLLlng ln. lL ls an envlronmenL Lallor-made Lo generaLe a dlsLlncLlve culLure whose members
share LasLes and preferences LhaL seL Lhem aparL from Lhe common herd. And LhaL's whaL
happens.
Second, ellLe employers also recrulL aL ellLe schools-noL because a Parvard or ?ale educaLlon
ls parLlcularly good. Lven ln 1961, when l arrlved Parvard, we were Lold ln Lhe flrsL week LhaL
Lhe hardesL Lhlng abouL Parvard was geLLlng ln, and LhaL ls even more Lrue Loday. LllLe flrms
recrulL aL ellLe schools because Parvard undergraduaLes are ln facL usually super smarL, and
bralnpower ls worLh a loL ln Lhe markeLplace. 1he resulL ls LhaL Lhe graduaLes of ellLe schools
are dlsproporLlonaLely concenLraLed among Lhe sLaffs of Lhe mosL lnfluenLlal flrms ln Lhe
flnanclal and corporaLe worlds, of Lhe mosL presLlglous newspapers and magazlnes, publlshlng
houses, oLher medla ouLleLs, and Lhe mosL presLlglous [obs ln WashlngLon's lncesLuous world of
bureaucraLs, leglslaLors, lobbylsLs and lawyers.
1hlrd, Lhese klds who are shlpped off Lo ellLe schools Lend Lo end up marrylng each oLher.
Conslder Lhe CLC of a company ln 1920. Whom dld he marry? llrsL, he goL marrled ln hls early
or mld-20s-LhaL was Lhe normal age Lhen-and he had probably marrled some verslon of Lhe
glrl nexL door. 1here's noLhlng wrong wlLh Lhe glrl nexL door, buL she ls noL sysLemaLlcally
screened for lC or for oLher excepLlonal ablllLles. now conslder Lhe CLC of a company ln 2012.
Pe probably dldn'L marry unLll aL leasL hls laLe 20s, probably hls 30s. And he dldn'L marry Lhe
glrl nexL door. Pls company was engaged ln llLlgaLlon and a really cuLe lawyer on Lhe oLher
slde's Leam caughL hls eye. Pe marrled her. She goL her 8A aL SLanford and her law degree from
?ale. She ls lndeed screened for lC, amblLlon, lndusLrlousness, and all sorLs of oLher quallLles.
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1he CenLre for lndependenL SLudles
1hls klnd of Lhlng goes on all Lhe Llme. 1ake a look aL Lhe onllne Sunday edlLlon of Lhe 8"9 :3+#
;.<") wlLh lLs secLlon llsLlng recenL weddlngs-whaL some people call Lhe mergers and
acqulslLlons secLlon. lncredlbly able people marrylng lncredlbly able people.
1hese parenLs don'L [usL pass on money Lo Lhelr chlldren. 1hey pass on soclallsaLlon Lo a
parLlcular klnd of world and Lhey pass on LalenL, boLh Lhrough genes and Lhelr parenLlng. When
Lhls goes on for decades-and lL's been golng on ever slnce Lhe college sorLlng machlne klcked
lnLo hlgh gear ln Lhe 1930s-you change Lhe composlLlon of Lhe nexL generaLlon of Lhe
successful, and Lhe old adages abouL 'shlrLsleeves Lo shlrLsleeves ln Lhree generaLlons' don'L
have Lhe same valldlLy LhaL Lhey used Lo. 1he new upper class ls much more Lenaclous ln
hanglng onLo lLs sLaLus across generaLlons.
lourLh, Lhe comblnaLlon of Lhe wealLh LhaL ls commonplace among Lhls new ellLe, Lhelr shared
LasLes and preferences, and Lhe llmlLed number of urban cenLres ln whlch Lhese mosL
presLlglous [obs are concenLraLed, means LhaL Lhe new ellLe flocks LogeLher as never before.
uslng census daLa, l consLrucLed an lndex for raLlng all of Lhe naLlon's posLal codes-we call
Lhem 'zlp codes' ln Lhe unlLed SLaLes-on an lndex LhaL comblned medlan famlly lncome and
Lhe percenLage of adulLs wlLh college degrees, and ranked all 31,720 of Lhose zlp codes from
Lop Lo boLLom. l labelled Lhose ln Lhe Lop 3 as 'SuperZlps.' ln many parLs of Lhe counLry,
SuperZlps are lsolaLed, surrounded by less exalLed nelghbourhoods. 8uL Lhe four urban areas
where mosL of Lhe mosL powerful people ln Amerlca llve-Lhe areas ln and around new ?ork
ClLy, Los Angeles, San lranclsco, and, of course, WashlngLon-SuperZlps form large clusLers of
conLlguous zlp codes. Pere's an example: WashlngLon's movers and shakers overwhelmlngly
llve ln LhlrLeen zlp codes ln Lhe norLhwesL parL of Lhe clLy and Lhe ad[acenL suburbs of Chevy
Chase, 8eLhesda, McLean, and oLomac. As of Lhe 2010 census, 11 of Lhe 13 are noL [usL ln Lhe
Lop flve percenLlles of zlp codes, buL ln Lhe Lop half of Lhe nlneLy-nlnLh percenLlle. 1he oLher
Lwo? 1hey're ln Lhe boLLom half of Lhe nlneLy-nlnLh percenLlle. lurLhermore, Lhose 13 are
surrounded by anoLher 80 conLlguous SuperZlps wlLh a populaLlon of 1.7 mllllon people. 1he
new ?ork area has 202 SuperZlps arranged ln half a dozen of Lhese conLlguous clusLers, wlLh an
aggregaLe populaLlon of 2.7 mllllon.
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1he CenLre for lndependenL SLudles
8uL hasn'L Lhls always been Lrue? Paven'L Lhe successful people always moved Lo Lhe good
nelghbourhoods and llved LogeLher? 1he answer ls generally yes, buL never before have ellLe
nelghbourhoods been so culLurally homogeneous. llfLy years ago as now, Lhere were
nelghbourhoods ln Lhe unlLed SLaLes LhaL were famous for belng Lhe home of Lhe rlch and Lhe
powerful-Lhe upper LasL Slde of new ?ork, norLhwesL WashlngLon, Lhe Maln Llne ln
hlladelphla, Lhe norLh Shore of Chlcago, 8everly Pllls and 8el Alr ln Los Angeles, and Lhe llke. l
assembled census LracL daLa from Lhe 1960 census for 14 such ellLe nelghbourhoods. ln 1960,
Lhe medlan famlly lncome ln Lhose 14 nelghbourhoods was $84,000. 1haL's expressed ln Loday's
dollars. 1oday, $84,000 ls noL wealLh. lL's noL even affluence. 1hls resulL doesn'L mean LhaL rlch
people dldn'L llve ln Lhose 14 nelghbourhoods. 8aLher, Lhere were loLs of people llvlng ln Lhem
who weren'L rlch. ln 1960, only 26 of adulLs ln Lhose nelghbourhoods had college degrees.
1he average couple, lncludlng a loL of Lhe rlch ones, conslsLed of a man wlLh a bachelor's degree
and a wlfe wlLh a hlgh school dlploma. All by lLself, LhaL lnLroduces a loL of range lnLo Lhe
soclallsaLlon of Lhe people aL a dlnner parLy ln Lhose nelghbourhoods. 1oday, Lhe same dlnner
Lable ln Lhose same nelghbourhoods ls llkely Lo conslsL of couples who are all aL leasL affluenL,
many of Lhem wealLhy, almosL all of Lhem have college degrees, a loL of Lhem have advanced
degrees, and a loL of Lhose degrees come from ellLe colleges. 1hey now are Lhe domlnanL
culLural force ln Lhose nelghbourhoods-whlch ln Lhe naLlon's mosL powerful clLles are now noL
[usL nelghbourhoods buL conLlguous areas coverlng many zlp codes and Lens or hundreds of
Lhousands of people.
WhaL are Lhe dlsLlncLlve LasLes and preferences of Lhe new upper class? WhaL ls Lhe culLure
Lhey have produced? l'll glve you some examples LhaL you can compare wlLh AusLralla's verslon
of Lhe new upper class. lor example, leL us look ln on back-Lo-school nlghL aL a good prlvaLe
elemenLary school where Lhe new upper class send Lhelr chlldren. 1he flrsL Lhlng you'll noLlce ls
how gerlaLrlc Lhe parenLs are. ln Lhe Lyplcal publlc elemenLary school, Lhe moLhers of Lhe
chlldren are mosLly ln Lhelr laLe 20s Lo mld-30s. ln Lhe ellLe school, you may see no moLhers aL
all who are ln Lhelr 20s. Many are ln Lhelr 40s. WlLh Lhe men, Lhe dlfference ls even greaLer,
wlLh even more of Lhe men ln Lhelr 40s and some ln Lhelr 30s. Cr older.
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1he CenLre for lndependenL SLudles
AnoLher vlslble dlfference ls welghL. ln Lhe malnsLream school, Lwo-Lhlrds of Lhe parenLs are
overwelghL and abouL a Lhlrd of Lhem are obese. AL Lhe ellLe prlvaLe school, Lhe parenLs are, on
average, a loL Lhlnner, and obeslLy ls rare, because Lhe new upper class pays a loL of aLLenLlon
Lo healLh and flLness. 1hey may work ouL aL Lhelr healLh clubs and be aLLracLlvely lean or run
maraLhons and look emaclaLed. 1hey know Lhelr cholesLerol counL and ofLen Lhelr percenLage
of body faL. 1hey eaL loLs of whole gralns, green vegeLables, and ollve oll, whlle llmlLlng lnLake
of red meaL, processed foods, and buLLer.
When lL comes Lo alcohol, Lhe new upper class usually drlnk wlne or bouLlque beers. l can'L Lell
you how ofLen l'm Lhe only person holdlng a marLlnl aL a recepLlon peopled by members of Lhe
new upper class. As for smoklng, do noL Lry Lo llghL up when you vlslL an upper-class home
unless you wanL Lo become an lnsLanL soclal parlah.
1elevlslon ls anoLher source of dlfference. ln Lhe average Amerlcan home, Lhe Lelevlslon ls on
abouL 33 hours a week. When you ask members of Lhe new upper class abouL Lhe Lelevlslon
Lhey waLch, you geL Lwo klnds of answers. Some people wlll say LhaL Lhey don'L even have a
Lelevlslon any more. CLhers wlll say Lhey have one, buL Lhey use lL mosLly Lo waLch uvus of
movles, and maybe =39$*3$ '>>"?. Pardly any of Lhe new upper class ever waLch so much of
as a second of Lhe game shows, reallLy shows, soap operas, and hlL serles LhaL Lhe resL of Lhe
counLry waLches.
noLhlng LhaL l've sald abouL Lhe new upper class ls bad. ln facL, a loL of whaL Lhe new upper
class does ls good. l've poked fun aL Lhelr obsesslon wlLh flLness, buL belng healLhy and flL ls
good. ln Lhe unlLed SLaLes, [usL abouL everyone ln Lhe new upper class ls marrled, and a hlgh
proporLlon of Lhose marrlages are flrsL and only marrlages. 1haL's good. A new-upper-class
women who geLs pregnanL behaves admlrably. She does noL drlnk alcohol or allow herself Lo be
exposed even Lo second-hand smoke, she makes sure her nuLrlLlonal lnLake exacLly mlrrors Lhe
opLlmal dleL, she breasLfeeds her newborn, and she and her husband bombard Lhe lnfanL wlLh
lnLellecLual sLlmulaLlon from Lhe momenL of blrLh, and someLlmes from Lhe momenL Lhey know
concepLlon has occurred. All LhaL's good Loo, even lf lL ls someLlmes carrled Loo far.
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1he CenLre for lndependenL SLudles
1he problem ls noL LhaL Lhe new upper class has bad hablLs, buL LhaL Lhey are lncreaslngly
lsolaLed and segregaLed from malnsLream Amerlcan culLure, llvlng ln a bubble. When l was
wrlLlng @3<.$7 '1,+* l flnally came up wlLh a way Lo geL my readers Lo undersLand how lsolaLed
Lhey really are, so l creaLed a 23-lLem qulz. lL has serlous quesLlons such as 'Pave you ever llved
for aL leasL a year ln a nelghbourhood ln whlch fewer Lhan half of Lhe people had college
degrees?' lL has some quesLlons LhaL poke fun, such as 'ln Lhe lasL year, have you sLocked your
frldge wlLh a mass markeL Amerlcan beer?' 1he new upper class has lncredlble dlsdaln for mass
markeL beer. 1helr beer has Lo be a speclal dark harvesL ale made by 8elglan elves. lf l were Lo
name whaL l conslder Lhe mosL lmporLanL quesLlon, lL's Lhls: 'Pave you ever held a [ob LhaL
caused a body parL Lo hurL aL Lhe end of Lhe day?' Carpel Lunnel syndrome doesn'L counL. 1haL
quesLlon ls lmporLanL because lf you /,6"$A* held such a [ob, you are fundamenLally unable Lo
empaLhlse wlLh Lhe vasL number of people who do hold such [obs. ?ou don'L 7"* all sorLs of
lmporLanL Lhlngs abouL whaL llfe ls llke when you come home aL Lhe end of Lhe day wlLh
someLhlng hurLlng.
And LhaL brlngs me Lo Lhe scarlesL parL abouL Lhe lsolaLlon of Lhe new upper class. lL's noL a blg
problem lf someone has grown up ln a worklng-class or mlddle-class famlly and Lhen become
rlch and powerful. 1haL person sLlll remembers. Pe can be puL down on Lhe maln sLreeL ln a
small Lown ln kansas or a worklng-class nelghbourhood ln 8osLon and recognlse all Lhe soclal
cues, and know how Lo geL along. Pe's ln famlllar LerrlLory. WhaL scares me are Lhe chlldren of
LhaL person. 1hey go Lo prlvaLe schools from k-12, spendlng Lhelr summers aL Lennls camp or ln
excluslve resorLs where Lhelr parenLs vacaLlon. 1hey go Lo excellenL colleges, spendlng Lhelr
summers lnLernlng aL Creenpeace or Lhe 8rooklngs lnsLlLuLlon. 1hen Lhey geL Lhelr law degrees
or Lhelr M8As, and move seamlessly lnLo Lhe same upper class bubble as adulLs LhaL Lhey've
llved ln all Lhelr llves. And Lhey haven'L a clue abouL how ordlnary people llve.
Worse yeL, Lhey are llkely Lo have an exLremely condescendlng vlew of whaL ordlnary people
are llke. 1he chlldren who have been cocooned ln a new upper class world are aware LhaL Lhey
have always been around smarL klds. lf Lhey wenL Lo an excluslve elemenLary and secondary
school, Lhey've probably never had a close acqualnLance who was even close Lo Lhe naLlonal
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1he CenLre for lndependenL SLudles
average ln lC. And so we end up wlLh a generaLlon of prlvlleged chlldren who grow Lo
adulLhood assumlng LhaL Lhe half of Lhe populaLlon LhaL ls below average musL be really
hopeless. 1hey have no ldea of Lhe good humour, commonsense, ablllLy Lo cope wlLh adverslLy,
and general compeLence LhaL can be found across Lhe whole range of human belngs, lncludlng
Lhose who don'L LesL very well on verbal analogles and quadraLlc equaLlons. And Lhese same
chlldren of prlvllege are lncreaslngly noL chlldren, buL adulLs ln 30s and 40s who are rlslng, or
have already rlsen, Lo places of greaL lnfluence over Lhe culLure, pollLlcs and economy of Lhe
unlLed SLaLes.
1hls condescenslon has noL gone unnoLlced by Lhe resL of Amerlca. ln Lhelr ldeologles, Lhe 1ea
arLy and Lhe Cccupy Wall SLreeL movemenL could noL have been more unllke. 8uL a greaL deal
of Lhe energy ln boLh movemenLs came from a sense LhaL a deLached ellLe runs Lhe counLry,
seLLlng rules for Lhe resL of socleLy LhaL Lhey don'L have Lo observe Lhemselves. lor Lhe 1ea
arLy, Lhe bad guys are bureaucraLs and elecLed offlclals who encumber Lhe llves of ordlnary
people wlLh regulaLlons LhaL make lL hard Lo run Lhelr schools, communlLles and work llves as
Lhey Lhlnk proper. lor Lhe Cccupy movemenL, Lhe bad guys are Lhe 1 who lord lL over Lhe
99. 8uL Lhey're boLh angry aL Lhe new upper class-[usL dlfferenL componenLs of lL.
1he soluLlon for Lhe lnLruslve bureaucraLs ln Lhe new upper class musL be pollLlcal ln naLure.
noLhlng wlll happen unLll we flgure ouL ways Lo reln ln runaway governmenL. 8uL whaL are we
Lo make of Amerlcan's lncreaslng accepLance LhaL lf you've goLLen rlch, you Look lL from
someone else? WhaL happened Lo Lurn Lhe mood of Lhe counLry so far from Amerlcans' hlsLorlc
celebraLlon of economlc success? WhaL happened Lo make caplLallsm a dlrLy word? And whaL
can be done abouL lL?
1wo lmporLanL changes ln ob[ecLlve condlLlons have conLrlbuLed Lo Lhls change ln mood. Cne ls
Lhe rlse of whaL l wlll call 'colluslve caplLallsm.' Colluslve caplLallsm ls noL new. 8ecall Adam
SmlLh's remark ln ;/" !",-*/ 3B 8,*.3$) LhaL 'eople of Lhe same Lrade seldom meeL LogeLher
. buL Lhe conversaLlon ends ln a consplracy agalnsL Lhe publlc, or ln some conLrlvance Lo ralse
prlces.' lndeed, one of Lhe greaL successes of Lhe llberal pro[ecL of Lhe nlneLeenLh cenLury was
10
1he CenLre for lndependenL SLudles
Lo creaLe markeLs LhaL were boLh free and LhaL lnhlblLed colluslon. 1he lnhlblLlon never reached
perfecLlon, of course, buL lL worked preLLy well-and now lL seems Lo be worklng less well.
arL of Lhe recenL deLerloraLlon lnvolves more flagranL colluslon among people ln Lhe prlvaLe
secLor-whaL ls known as crony caplLallsm. 1he phenomenon ls real. no one has succeeded ln
puLLlng preclse numbers Lo lLs growLh or prevalence, buL l have yeL Lo Lalk Lo someone wlLh an
lnslde vlew of corporaLe Amerlca who does noL have sLorles Lo Lell of execuLlves and boards
Laklng care of each oLher aL shareholder expense.
8uL l submlL LhaL Lhe problem of crony caplLallsm ls Lrlvlal compared wlLh Lhe colluslon beLween
enLlLles ln Lhe prlvaLe secLor and publlc secLor. ln Loday's world, every buslness's operaLlons
and boLLom llne are affecLed by rules seL by leglslaLors and bureaucraLs. 1he resulL has been
corrupLlon on a masslve scale. SomeLlmes Lhe corrupLlon ls reLall, whereby a slngle corporaLlon
creaLes a compeLlLlve advanLage Lhrough Lhe cooperaLlon of regulaLors or pollLlclans.
SomeLlmes Lhe corrupLlon ls wholesale, creaLlng an lndusLrywlde poLenLlal for proflL LhaL would
noL exlsL ln Lhe absence of governmenL subsldles or regulaLlons. 1he posLer chlld for Lhls
corrupLlon ls Lhe subprlme morLgage crlsls. Why on earLh would lnvesLmenL houses on Wall
SLreeL creaLe all Lhese exoLlc flnanclal lnsLrumenLs for Lradlng ln subprlme morLgages? 8ecause
Lhe federal governmenL ln lLs wlsdom passed leglslaLlon, buLLressed by regulaLlons, LhaL noL
only subsldlsed such loans buL ln many cases requlred banks Lo make Lhem. Cuess whaL: lf you
make lL posslble Lo geL rlch by lendlng money Lo people who are unllkely Lo pay lL back, clever
people wlll Lake advanLage of lL. Many of Lhose clever people on Wall SLreeL behaved
lrresponslbly, even desplcably wlLhouL Lhlnklng abouL long-Lerm consequences. 8uL Lhe only
reason Lhey goL Lhe chance was because governmenL creaLed Lhe LempLaLlon, Lhrough well-
lnLended pollcles, Lo lncrease homeownershlp among low-lncome people, sLarLed under 8lll
CllnLon and conLlnued enLhuslasLlcally by Ceorge W. 8ush. MosL of Lhe publlc ls noL aware of
Lhe degree Lo whlch governmenL's colluslon wlLh caplLallsm caused Lhe flnanclal melLdown of
2008, buL colluslve caplLallsm has more broadly has become vlslble Lo Lhe publlc and
lncreaslngly deflnes caplLallsm ln Lhe publlc mlnd.
11
1he CenLre for lndependenL SLudles
1he second change ln ob[ecLlve condlLlons has been Lhe emergence of greaL forLunes made
qulckly ln Lhe flnanclal markeLs. lL's been an Amerlcan LradlLlon Lo ,11-,(% people who geL rlch
by creaLlng producLs and servlces LhaL people wanL Lo buy. 1haL's why 1homas Ldlson and
Penry lord were Amerlcan heroes a cenLury ago, and why SLeve !obs was an Amerlcan hero
when he dled lasL year.
When greaL wealLh ls generaLed lnsLead by maklng smarL buy-and-sell declslons ln Lhe markeLs,
lL smacks of lnslde knowledge, arcane flnanclal lnsLrumenLs, and opporLunlLles LhaL aren'L
accesslble Lo ordlnary people. 1he good LhaL Lhese rlch people have done ln Lhe process of
geLLlng rlch ls obscure. ln some cases, Lhe beneflLs are real. Modern developmenLs ln Lhe
flnanclal lndusLry have greaLly lncreased efflclency ln Lhe allocaLlon of caplLal, and conLrlbuLed
Lhereby Lo wealLh creaLlon for Lhe economy as a whole. 8uL Lhose beneflLs are really, really
hard Lo explaln slmply and persuaslvely. ln oLher cases, lL ls hard even for sophlsLlcaLed
observers Lo see whaL useful end ls belng served-for example, ln Lhe zllllons of Lrades LhaL are
done ln nanoseconds, scooplng up zllllons of fracLlons of pennles. l have asked some of my
frlends who work for quanL lnvesLmenL flrms Lo explaln Lo me how Lhese Lrades lmprove
efflclency ln Lhe allocaLlon of caplLal, and none has had a persuaslve answer, some of Lhem dld
noL even Lry Lo come up wlLh an answer. ln any case, a large proporLlon of Lhe publlc only see
some fabulously wealLhy people who haven'L done anyLhlng Lo deserve Lhelr wealLh. ln mosL
cases Lhey're wrong, buL lL's hard Lo explaln why, ln some cases, Lhey're probably rlghL.
And so LhaL's where we sLand ln Lhe unlLed SLaLes: WlLh a new upper class LhaL ls lncreaslngly
lsolaLed from and lgnoranL abouL Lhe resL of Lhe counLry, and wlLh Lhe core economlc
expresslon of freedom-caplLallsm-under susLalned aLLack by boLh Lhe populaLlon-aL-large
and by Lhe admlnlsLraLlon LhaL wlll be ln power for anoLher four years. WhaL ls Lo be done?
1he good news ls LhaL my soluLlon does noL lnvolve pollcy changes LhaL are ldlosyncraLlc Lo Lhe
Amerlcan slLuaLlon of no relevance Lo you ln AusLralla. 1he bad news ls LhaL l don'L have any
pollcy soluLlons. 1here ls no one Lo voLe for, no flve-polnL plan Lo Lry Lo geL Lhrough congress,
no execuLlve order LhaL can cure whaL alls us. We Amerlcans need changes ln Lhe culLure.
Changes ln Lhe culLure cannoL be forced-yes, governmenLs Lry Lo force such changes all Lhe
12
1he CenLre for lndependenL SLudles
Llme, buL Lhey never work ouL Lhe way Lhe governmenL LhoughL Lhey would. CulLural change
happens ln Lhe form of wldespread movemenLs, whlch ln Lurn arlse from naLlonal conversaLlons
sLarLed ln mysLerlous ways and evenLually leadlng Lo wldespread changes ln bellefs and
behavlour. Pere are Lhe changes l Lry Lo push along ln whaLever way l can:
1he overarchlng Lheme ls Lo reconnecL caplLallsm and vlrLue. 1he flrsL parL of LhaL process musL
occur wlLhln Lhe hearLs and mlnds of Lhe caplLallsL members of Lhe new upper class, and lL
lnvolves Lhe resLoraLlon of Lhe concepL of seemllness. llfLy years ago, Lhe undlspuLed luxury car
ln Lhe unlLed SLaLes was Lhe Cadlllac. Amerlcans dldn'L buy Mercedes or 8MWs ln Lhose days.
Many, many corporaLe execuLlves who could easlly have afforded Cadlllacs dld noL buy Lhem.
1hey drove 8ulcks lnsLead. urlvlng a Cadlllac would have been showlng off. CeLLlng Loo blg for
Lhelr brlLches, Lo use an Amerlcanlsm l grew up wlLh. lL would have been ($)""<-?. LoLs of
people could have afforded Lo bulld 13,000-square-fooL homes. 1hey dldn'L. Same reason. lL
would have been unseemly.
1hose same senlor execuLlves were rouLlnely engaged ln communlLy acLlvlLles-noL on a grand
scale, buL a local one. 1hey served as deacons of churches, helped ouL on Lhe fundralslng
commlLLee for Lhe local ?MCA, and wenL Lo 8oLary Club and 1A meeLlngs. lf we go back even
furLher, Lo Lhe beglnnlng of Lhe LwenLleLh cenLury, Lhe mosL promlnenL people ln an Amerlcan
clLy were parL of fraLernal organlsaLlons wlLh membershlps LhaL cuL across socloeconomlc
classes-and Lhey were openly proud of belng parL of Lhose fraLernal organlsaLlons.
l am Lalklng abouL a LradlLlon LhaL goes back Lo Lhe earllesL decades of Lhe Amerlcan republlc.
Pere ls Alexls de 1ocquevllle wrlLlng abouL Amerlca ln Lhe 1830s: 'ln Lhe unlLed SLaLes, Lhe
more opulenL clLlzens Lake greaL care noL Lo sLand aloof from Lhe people. Cn Lhe conLrary, Lhey
consLanLly keep on easy Lerms wlLh Lhe lower classes: Lhey llsLen Lo Lhem, Lhey speak Lo Lhem
every day.' lL was a LradlLlon lnLo whlch each new generaLlon of Amerlcans was propagandlsed
LhroughouL elemenLary school. lrom Lhe mlddle of Lhe nlneLeenLh cenLury Lhrough Lhe flrsL few
decades of Lhe LwenLleLh cenLury, Lhe nearly unlversal LexLbooks for learnlng how Lo read were
called CDE(BB"?A) F",%"+), whlch were fllled wlLh sLorles LhaL LaughL moral lessons. 1hey
weren'L saccharlne or slmpllsLlc, by Lhe way. l've read ;/" CDE(BB"?A) F",%"+)-Lhey're
13
1he CenLre for lndependenL SLudles
avallable onllne-and were fllled wlLh much meaLler sLuff Lhan my chlldren goL ln elemenLary
school. lenLy of Lhose sLorles were abouL Lhe wealLh-creaLlon aspecLs of caplLallsm. 1hey
LreaLed lnlLlaLlve, hard work and enLrepreneurshlp as vlrLues. 8uL [usL as many of Lhem were
sLorles pralslng Lhe vlrLues of self-resLralnL, personal lnLegrlLy and concern for Lhose who
depend on you. 1he freedom Lo acL ,$% a sLern moral obllgaLlon Lo acL ln cerLaln ways were
seen as Lwo sldes of Lhe same Amerlcan coln.
LlLLle of LhaL has survlved. 1o accepL Lhe concepL of vlrLue requlres LhaL you belleve some ways
of behavlng are rlghL and oLhers are wrong always and everywhere. 1haL openly [udgmenLal
sLand ls no longer accepLable ln Amerlca's schools or ln many Amerlcan homes. 1he new upper
class sLlll does a good [ob of pracLlslng some of Lhe vlrLues, buL lL no longer preaches Lhem. lL
has losL self-confldence ln Lhe rlghLness of lLs own cusLoms and values, and preaches non-
[udgmenLallsm lnsLead. Correspondlngly, we have waLched Lhe deLerloraLlon of Lhe sense of
sLewardshlp LhaL once was so vlslble a parL of Amerlca's clvlc culLure.
And so caplLallsm's repuLaLlon has fallen on hard Llmes and Lhe prlnclpled case for caplLallsm
musL be made anew. 1haL case has been made brllllanLly and ofLen ln Lhe pasL-MllLon
lrledman's 'CaplLallsm and lreedom' ls my own favourlLe. 8uL ln Loday's pollLlcal cllmaLe,
updaLlng Lhe case for caplLallsm requlres us Lo reafflrm old LruLhs ln ways LhaL people from
across Lhe pollLlcal specLrum can accepL. 1here are many ways LhaL resLaLemenL mlghL be
made. WhaL follows ls mlne:
1he unlLed SLaLes was creaLed Lo fosLer human flourlshlng-Lo enable human belngs Lo pursue
happlness. 1he means Lo LhaL end was Lhe exerclse of llberLy under Lhe rule of law. CaplLallsm ls
Lhe economlc expresslon of llberLy. 1he pursulL of happlness depends on economlc freedom
every blL as much as lL depends on oLher klnds of freedom.
?ou may be asklng whaL l mean by happlness. lormally, Lhe deflnlLlon l use ls '[usLlfled and
lasLlng saLlsfacLlon wlLh llfe as a whole,' drawn sLralghL from ArlsLoLle. lL ls, for LhaL maLLer, a
deflnlLlon LhaL flLs all of Lhe greaL phllosophlc LradlLlons.
14
1he CenLre for lndependenL SLudles
Papplness ln LhaL sense ls produced by a relaLlvely small seL of lmporLanL achlevemenLs LhaL we
can rlghLly aLLrlbuLe, aL leasL ln large parL, Lo our own acLlons. ArLhur 8rooks, presldenL of Lhe
Amerlcan LnLerprlse lnsLlLuLe, has usefully labelled such achlevemenLs as 'earned success.'
Larned success can arlse from a successful marrlage, chlldren ralsed well, a valued place as a
member of a communlLy, or devoLlon Lo a falLh. Larned success also arlses from achlevemenL ln
Lhe economlc realm, whlch ls where caplLallsm comes ln.
Larnlng a llvlng for yourself and your famlly Lhrough your own efforLs ls Lhe mosL elemenLal
form of earned success. Successfully sLarLlng a buslness, no maLLer how small, ls an acL of
creaLlng someLhlng ouL of noLhlng LhaL carrles saLlsfacLlons far beyond Lhose of Lhe money lL
brlngs ln. llndlng work LhaL noL only pays Lhe bllls buL LhaL you en[oy ls a cruclally lmporLanL
resource for earned success.
Maklng a llvlng, sLarLlng a buslness, and flndlng work LhaL you en[oy all depend on freedom Lo
acL ln Lhe economlc realm. WhaL governmenL can do Lo help ls esLabllsh Lhe rule of law so LhaL
lnformed and volunLary Lrades can Lake place. More formally, governmenL can vlgorously
uphold laws agalnsL Lhe use of force, fraud and crlmlnal colluslon, and use LorL law Lo hold
people llable for harm Lhey cause oLhers.
LveryLhlng else Lhe governmenL does lnherenLly resLrlcLs economlc freedom Lo acL ln pursulL of
earned success. l am a llberLarlan and Lhlnk LhaL almosL none of Lhose resLrlcLlons are [usLlfled.
8uL accepLlng Lhe case for caplLallsm doesn'L requlre you Lo be a llberLarlan. ?ou are free Lo
argue LhaL cerLaln governmenL lnLervenLlons are [usLlfled. ?ou [usL need Lo acknowledge Lhls
LruLh: Lvery lnLervenLlon LhaL erecLs barrlers Lo sLarLlng a buslness, makes lL expenslve Lo hlre
or flre employees, resLrlcLs enLry lnLo vocaLlons, or prescrlbes work condlLlons and faclllLles,
lnLerferes wlLh economlc llberLy, and usually makes lL more dlfflculL for boLh employers and
employees Lo earn success.
eople wlLh a wlde range of pollLlcal vlews can also acknowledge LhaL Lhese lnLervenLlons do
Lhe mosL harm Lo lndlvlduals and small enLerprlses. Puge banks can, albelL aL greaL expense,
cope wlLh Lhe absurd regulaLory burdens lmposed by Lhe recenL uodd-lrank blll, many small
banks cannoL. Puge corporaLlons can cope wlLh Lhe myrlad rules lssued by Lhe CccupaLlonal
13
1he CenLre for lndependenL SLudles
SafeLy and PealLh AdmlnlsLraLlon, Lhe LnvlronmenLal roLecLlon Agency, Lhe Lqual LmploymenL
CpporLunlLy Commlsslon, and Lhelr sLaLe-level counLerparLs. 1he same rules can crush small
buslnesses and lndlvlduals Lrylng Lo sLarL small buslnesses.
llnally, people wlLh a wlde range of pollLlcal vlews can acknowledge LhaL whaL has happened
lncremenLally over Lhe pasL half-cenLury has led Lo a labyrlnLhlne regulaLory sysLem, lrraLlonal
llablllLy law, and a corrupL Lax code. Sweeplng slmpllflcaLlons and raLlonallsaLlons of all Lhese
sysLems are posslble ln ways LhaL moderaLe uemocraLs along wlLh 8epubllcans could accepL ln
a less polarlsed pollLlcal envlronmenL.
1o puL lL anoLher way, lL should be posslble Lo revlve a naLlonal consensus afflrmlng LhaL
caplLallsm embraces Lhe besL and mosL essenLlal Lhlngs abouL Amerlcan llfe, LhaL freelng
caplLallsm Lo do whaL lL does besL won'L [usL creaLe naLlonal wealLh and reduce poverLy, buL
expand Lhe ablllLy of Amerlcans Lo achleve earned success-Lo pursue happlness.
lf we are Lo make Lhe moral case for caplLallsm ln Lhose Lerms, buslnesspeople who are parL of
Lhe new upper class musL noL only Lalk Lhe Lalk buL walk Lhe walk. We need Lo be llvlng Lhe llves
we celebraLe. ln dolng LhaL, l am noL asklng anyone Lo sacrlflce hls or her self-lnLeresL. 8aLher, l
am asklng for a general reLhlnklng abouL Lhe way Amerlcans of Lhe new upper class llve Lhelr
llves. l wanL parenLs who grew up ln modesL clrcumsLances and had Lo surmounL challenges
and defeaLs Lo Lhlnk abouL wheLher Lhey would really prefer Lhelr chlldren's luxurlous,
proLecLed chlldhood Lo Lhe one Lhey had. l wanL people who llve on Lwo-acre loLs, walled-off
from Lhe llfe of real communlLles faclng real problems, Lo ask wheLher Lhey are mlsslng
someLhlng. More broadly: Age-old human wlsdom has always undersLood LhaL a saLlsfylng llfe
means belng engaged ln Lhe sLuff of llfe wlLh Lhe people around us. 8y Lhe 'sLuff of llfe' l mean
Lhe elemenLal evenLs of blrLh, deaLh, growlng up, ralslng chlldren, comforLlng Lhe bereaved,
celebraLlng vlcLorles, commlseraLlng ln defeaLs, deallng wlLh adverslLy, applaudlng Lhose who
do good, and scornlng Lhose who do bad. 1he klnd of culLural renewal LhaL l seek requlres
merely a redlscovery of whaL our self-lnLeresL ls, a renewed undersLandlng LhaL lL can be
pleasanL Lo lead a comforLable, glossy llfe, buL lL ls ulLlmaLely more rewardlng-and more fun-
Lo lead a LexLured llfe, and Lo be ln Lhe mldsL of oLhers who are leadlng LexLured llves. Speaklng
16
1he CenLre for lndependenL SLudles
as an Amerlcan, Lhls does noL requlre embraclng some welrd new-age creed. lL requlres a
reLurn Lo long-sLandlng, deeply held vlew of why Amerlca's clvlc culLure has been someLhlng Lo
cherlsh. l wlll say parenLheLlcally LhaL lL bears loLs of slmllarlLles Lo Lhe clvlc culLure LhaL
AusLrallans have cherlshed.
Maklng Lhe moral case for caplLallsm ln Lhe Lerms l have descrlbed also requlres us Lo reLurn Lo
Lhe vocabulary of vlrLue. ln Lhe unlLed SLaLes, as l'm sure ls also Lrue ln AusLralla, we sLlll have
loLs of caplLallsLs ln Lhe new upper class who do have a sense of sLewardshlp. Who love Lo do
buslness wlLh a handshake. Who have a sLrong sense of whaL consLlLuLes eLhlcal behavlour. l'm
probably Lalklng abouL Lhe large ma[orlLy of all buslnesspeople ln boLh counLrles. 1he problem
ls LhaL Lhey're Longue-Lled. CaplLallsLs who behave honourably and wlLh resLralnL no longer
have elLher Lhe plaLform or Lhe vocabulary Lo preach Lhelr own sLandards and Lo condemn
caplLallsLs who behave dlshonourably and recklessly. Somehow Lhe moral case for caplLallsm,
and for Lhe vlrLues of self-resLralnL, lnLegrlLy, and sLewardshlp LhaL musL accompany caplLallsm
have sLopped belng parL of Lhe alr, parL of Lhe naLlon's clvlc caLechlsm, as Lhey once were. We
should noL only adhere Lo Lhose vlrLues, as so many of us already do. We also need Lo be open
abouL whaL we are dolng and why, and openly condemn Lhose who do noL adhere Lo Lhose
vlrLues. 1he caplLallsLs of Lhe new upper class face Lwo Lasks. Cne ls show Lhe mlddle class and
worklng class LhaL Lhe members of Lhe new upper class cherlsh Lhelr klnshlp wlLh Lhelr fellow
counLrymen and women far more Lhan Lhey cherlsh belng rlch. AnoLher ls Lo remlnd Lhose ln
Lhe new upper class who are obllvlous Lo Lhe moral groundlng of caplLallsm LhaL paylng a loL of
Laxes can never make up for Lhe roL ln Lhe culLure LhaL Lhey are encouraglng. A new upper class
commlLLed Lo prlnclpled caplLallsm can nurLure and revlLallse Lhe herlLage of llberLy LhaL ls aL
Lhe hearL of whaL makes Amerlca Amerlca and, l wlll venLure Lo say, whaL makes AusLralla
AusLralla. 1he caplLallsLs who see caplLallsm as noLhlng more Lhan a convenlenL way Lo make
money LhreaLen Lo desLroy LhaL herlLage.