Inner Rings and Greater Things - Week in Review 27/02

Shadow societies, premium mediocre millennialdom, the refragmentation of the American economy, the depressed meritocracy and how to make it all a little bit better

Long one this week, but there is a lot of information to take in. Please enjoy and feel more than free to comment here or get a conversation going on Twitter.

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Part 1: The Desire for Inclusion

On The Inner Ring by C.S. Lewis

What do humans want? In the eyes of C.S. Lewis, author of The Chronicles of Narnia and many other fine books, the answer is inclusion in unofficial hierarchical rings or, as Tolstoy calls them, “second systems”. In fact, we are not merely driven by a desire for inclusion in such groups but, perhaps even more so, by the terror of being left out.

In these so-called shadow systems, one is not simply voted into the club by its members. These systems are characterized by their opacity: they are only discovered gradually. Usually, one initially discovers that they are outside of the ring. Thus begins a sort-of education about the system’s properties. Lewis describes these characteristics as follows:

  • There aren’t knowable pass-words to gain entry, per say (look at the scene in Eyes Wide Shut. He gets caught because he doesn’t know that there is no password!). Rather, there is “a particular slang, the use of particular nicknames [and] an allusive manner of conversation” that define individual rings

  • Hard to grasp who is truly in or out. There are often an obvious few who are clearly in/out but most stand at the borderline, unsure of their relative footing

  • Membership composition is constantly in flux: people are constantly moving up and down hierarchies

  • One never knows formally if they have been admitted or expelled. There is no Eyes Wide Shut moment where someone is revealed as a fraud and cast out. Neither is there a big celebration to welcome new members

  • Insiders and outsiders call these systems by different names. It is called “we” or “you and Obama and me” by those inside. For outsiders, it is some permutation of “they” like “that gang” or “the caucus”

  • Co-incidence between official and unofficial hierarchies is a factor of the wisdom and energy of leaders. The more wise and energetic, the greater the convergence

No one is immune from the desire to be a part of Tolstoy’s “second systems”.

Image result for eyes wide shut

Sure, in Eyes Wide Shut (look, it’s literally a ring!!!) or in the case of the American guy who travels across an ocean striving to be part of the sacred trust of innovation capital allocators in a foreign land (c’est moi), there is a desire to ascend into ever more exclusive and well-heeled rings. But the desire to participate also affects ‘non-strivers’ in equal measure too. Lewis writes:

“An invitation from a duchess would be very cold comfort to a man smarting under the sense of exclusion from some artistic or communistic côterie. Poor man—it is not large, lighted rooms, or champagne, or even scandals about peers and Cabinet Ministers that he wants: it is the sacred little attic or studio, the heads bent together, the fog of tobacco smoke, and the delicious knowledge that we—we four or five all huddled beside this stove—are the people who know."

Regardless of your politics or personal ambitions, you are unable to avoid the desire for inclusion. In fact, the desire conceals itself so well that we as humans often don’t realize it when we act in a way to quench it. We tell ourselves and our loved ones we are suffering under the strain of ‘too much work’ or another concern of the shadow system but it is a lie. Lewis again:

“It is tiring and unhealthy to lose your Saturday afternoons: but to have them free because you don’t matter, that is much worse."

The rings themselves, Lewis notes, are “morally neutral”. Yet, he believes naked desire to enter is dangerous. He likens it to the peaceful death of an elderly relative who has lived a good and full life. The event itself is neutral morally, yet an heir openly desiring their ancestor’s passing is rather evil and uncouth.

Lewis believes a life spent chasing increasingly exclusive inner rings is akin to “trying to peel an onion: if you succeed there will be nothing left”. The grass is always greener or, as Lewis says, “the circle cannot have from within the charm it had from outside”.

Cheerily, there is a path away from this dangerous desire. Work should take on an artisanal quality: it should be an end, rather than a means or, as Peter Thiel would say, toil should be done with a definite-optimistic future in mind. The PayPal founder would say effort should be channeled towards building or creating rather than accumulating liquid assets or moving through Inner Rings. Lewis has more:

"If in your working hours you make the work your end, you will presently find yourself all unawares inside the only circle in your profession that really matters. You will be one of the sound craftsmen, and other sound craftsmen will know it. This group of craftsmen will by no means coincide with the Inner Ring or the Important People or the People in the Know. It will not shape that professional policy or work up that professional influence which fights for the profession as a whole against the public: nor will it lead to those periodic scandals and crises which the Inner Ring produces. But it will do those things which that profession exists to do and will in the long run be responsible for all the respect which that profession in fact enjoys and which the speeches and advertisements cannot maintain."

Is it possible, in our modern era, to approach work this way? Can we, in the era of abundance and frictionless consumption, as Sir Alex Danco likes to call it, overcome the impulse to penetrate Inner Rings in order to create long-lasting things in a definite-optimistic manner? Let’s find out!

Part 2: The Reality of Exclusion

On The Premium Mediocre Life of Maya Millennial by Venkatesh Rao, The Refragmentation by Paul Graham, and Meritocracy Harms Everyone by Daniel Markovits

Venkatesh Rao, in his brilliant essay The Premium Mediocre Life of Maya Millennial, comes up with a heroic framework for understanding modern ‘middle class’ dynamics. He sees, below the “too big to fail 1%” (more on that later) and the “Cryptobourgeoisie”, the modern Yuppie middle class, whom he christens “premium mediocre”. This middle class lies directly upon the API layer, as Venkat smartly calls it. Quickly, for the non-tech folks, an API is, in the words of Justin Gage, like a drive-thru window but in code: it takes an input, say in the case of Lyft the start and end address, and gives predictable outputs (i.e. the best driver to pick you up). The API layer is “the terrifying structural barrier of our times”, as Rao sees it. Those above it have the distinct privilege of telling the robots what to do. Investors and business people (“in the too big to fail 1%”) do this through a few layers of abstraction while programmers and other technical workers do this concretely. On the other side of the API layer, one finds those who are told what to do by robots. Our Lyft driver from earlier would qualify, as would an employee at an Amazon fulfillment center. The catch with this, however, is that while the premium mediocre middle class hovers above the API barrier, it does so with tremendous precarity and unease. Sadly, mobility downwards from the premium mediocre class is far more realistic than ascending to upper rungs. How members of the premium mediocre class participate in the economy reflects this near impossibility of upward mobility. Rao:

“Premium mediocrity is a pattern of consumption that publicly signals upward mobile aspirations, with consciously insincere pretensions to refined taste, while navigating the realities of inexorable downward mobility with sincere anxiety. There are more important things to think about than actually learning to appreciate wine and cheese, such as making rent. But at least pretending to appreciate wine and cheese is necessary to not fall through the cracks in the API.

If you think about it, premium mediocrity is the antithesis of Thiel’s definite optimism. It is a strategy useful to prepare for success, though, due to structural problems (more on that in a moment), it is increasingly unlikely to be reached and there is certainly no concrete idea of what it will look like. Rao describes it well:

“The essence of premium mediocrity is being optimistically prepared for success by at least being in the right place at the right time, at least for a little while, even if you have no idea how to make anything happen during your window of opportunity. Even if you know nothing else, you know to move to San Francisco or New York and hoping something good happens there, rather than sitting around in some dying small town where you know nothing will ever happen”.

The question to answer now, I think, is twofold: (1) why is the premium mediocre middle class so starved of opportunities for upward mobility? and (2) why is society so divided/fragmented (i.e. across the API layer or between the 1% and the premium mediocre middle class)? Let’s move on to one of my favorite essays by Paul Graham to try to figure it out.

Simply put, the equality (and also the definite optimism that came with it) which characterized the some 40 years between 1940 and 1980 in America was an aberration, a result of two abnormal forces. These forces were World War II and the rise of large corporations.

America in wartime was quite socialist: variations in income decreased tremendously and tax levels made corporate profiteering a near impossibility. As Graham writes, “the US economy was conscripted”. Between 1942-1945, all wages were set by the National War Labor Board. Tax-wise, any increase in corporate profits over prewar levels was taxed at 85% and what was left of profits was taxed at a marginal rate of 93% at the individual level. Crucially, these maneuvers did not revert once the war ended. The enemy shifted from the Axis Powers to the USSR. Graham:

“In tax rates, federal power, defense spending, conscription, and nationalism, the decades after the war looked more like wartime than prewar peacetime."

At around the same time, innovations in finance, communications, transportation and manufacturing coalesced to make possible a new type of company: the big, national, vertically integrated corporation. Mid 20th century corporations were a significant source of social and economic cohesion. Graham quotes Michael Lind:

“The major sectors of the economy were either organized as government-backed cartels or dominated by a few oligopolistic corporations."

Since there were so few companies on the supply side, consumer choice was therefore limited. For a long time, there were three cable TV stations: NBC, CBS, and ABC. All the content produced by these channels was mid-market because the whole family would come together after dinner to watch the evening’s programming. It was like the Super Bowl, but every night or, as PG says, Americans were “literally in sync”. At work, because nearly everyone served in the Armed Forces, conformity was king. Folks were meant to look and act the same. “Second systems” were weak and hardly ubiquitous.

On the economic side of the equation, large corporations enabled equality too. The 50s, as The Irishman showed us, was a time in which labor unions were powerful and far-reaching. Their strength enabled them to negotiate, on behalf of their members, wages paid above market price. At the same time, the corporations were happy to pay because as oligopolies, they knew they could pass on the high costs of labor to customers without losing them.

So, labor was overpaid, relative to market, and management? They were relatively underpaid. Graham quotes prominent economist J.K. Galbraith in 1967, “there are few corporations in which it would be suggested that executive salaries are at a maximum”. A basket of incentives made this so. First, taxes on income remained quite high in the post-war years (especially in the UK!). Thus, executives would receive non-taxable perks, such as private schooling for their children and flights on the company Gulfstream. Second, because there were so few sizable companies in that oligopolistic era, job security was hugely valuable and people generally stayed with one firm for most of their career. Work was illiquid because there was no market for it to flow to, so wages were ‘artificially’ low. Even more crucially, long-termism was essential. Executives couldn’t milk the company for cash and run away, they had to take care of it to retain their pension and provide for their co-workers, with whom they often spent a near lifetime with.

The biggest factor in executive compensation was prestige. In the mid-century, prestige came mostly from the institutions one was affiliated with. Since there were so few companies, one was fortunate indeed to be one of the few at the top. Of course, where you went to college mattered a great deal then (it still does but more later). Finally, since there were few stories of founder success (Ford and Rockefeller were generations away and started from humble origins), college educated people wanted to join up with the nearest large corporation. Graham has more:

“The result of making college the canonical path for the ambitious was a world in which it was socially acceptable to work for Henry Ford, but not to be Henry Ford”.

Then, the 80s hit, bringing with it two more hugely influential forces: technological innovation and (de)regulation. The gaining influence of computers led to a fundamental change in business models. Computers, by making communication external to the firm exponentially simpler, drastically reduced Coasean costs of transacting with the market/other firms. No longer were economies of scale an asset, in fact, they became a liability, with the ability to innovate technically a much more important attribute. With this new technology, it became possible to make many new things. Entrepreneurs now had the tools to build what we now know as startups: companies that start small and end up big. Vertically integrated companies literally dis-integrated, opening the door for new companies to build new things innovatively in the value chain.

The Carter presidency in the late 1970s brought with it ‘de-oligopolization’. Long-distance communications and air travel were two industries most affected by this new regulatory environment. Prices dropped drastically with new competition. A bit later, during the Reagan years, the innovations of hostile takeovers and leveraged buyouts forced companies to face absolute rather than relative standards. Graham:

“Any public company that didn't generate sufficient returns on its assets risked having its management replaced with one that would. Often the new managers did this by breaking companies up into components that were more valuable separately.”

Naturally, wages were affected by these seismic changes in big business. Salaries were driven to market price on the lower end because, without oligopoly status, companies couldn’t afford to pass on abnormally high costs of labor to customers (simultaneously, labor unions lost their monopoly status). For executives, increased competition (i.e. more companies) led to a move upward towards receiving compensation at market rates (and then beyond). The idea, for the first time in nearly 100 years, that one could ‘make their fortune’, became well-understood. Technology as a means to create wealth (and thus inequality) was now weaponized. Graham again:

“The variation in the amount of wealth people can create has not only been increasing, but accelerating. The unusual conditions that prevailed in the mid 20th century masked this underlying trend. The ambitious had little choice but to join large organizations that made them march in step with lots of other people — literally in the case of the armed forces, figuratively in the case of big corporations.”

The dis-integration of vertically integrated firms and the development of powerful new technologies inaugurated a new epoch of American economic history. Say hello, to the Era of the Meritocracy.

Crucially—and I think author Daniel Markovits in Meritocracy Harms Everyone (and Venkat in his piece on Maya Millennial too) demonstrates this well—our meritocratic period has not led to greater opportunities for hardworking outsiders nor has it enriched the lives of those proximate but not quite in, the 1%. Even when everyone plays by the rules, only the rich can truly ‘win’. At the same time, our ‘winners’ suffer due to the demands succeeding in a meritocracy impose.

Aristocratic children used to revel in privilege. See, for instance, Wes Anderson’s nostalgic films The Royal Tennenbaums and Moonrise Kingdom (author’s note: I fucking love those movies). Now, the children of meritocracy’s elites calculate and scheme, looking to accumulate as much human capital as possible, to be used for an ‘important’ yet undefined future endeavor (*cough* indefinite optimism). Children are suffering on account of this. Markovits paints a troubling picture:

“Wealthy students show higher rates of drug and alcohol abuse than poor students do. They also suffer depression and anxiety at rates as much as triple those of their age peers throughout the countryA recent study of a Silicon Valley high school found that 54 percent of students displayed moderate to severe symptoms of depression and 80 percent displayed moderate to severe symptoms of anxiety.”

Look, I’m about as close to a pure product of these environments as you can find. Competitive (public) high school in a town bursting with Meritocracy’s finest elites, then an Ivy League university, where there were about three archetypes: athlete, child of Meritocratic elite or aspiring Meritocratic elite. I have seen countless, if not hundreds of peers, go through this gauntlet and suffer tremendously as a result. Incredibly, few, if any, were you to ask them, would be able to articulate why they would impose such conditions on themselves. Competitive spirit? Perhaps. Naked desire for material wealth? Perhaps, but not a real answer, douche. I think Markovits grasps it well: it is driven by fear (remind you of something?).

“A person who extracts income and status from his own human capital places himself, quite literally, at the disposal of others—he uses himself up. Elite students desperately fear failure and crave the conventional markers of success, even as they see through and publicly deride mere “gold stars” and “shiny things.” Elite workers, for their part, find it harder and harder to pursue genuine passions or gain meaning through their work. Meritocracy traps entire generations inside demeaning fears and inauthentic ambitions: always hungry but never finding, or even knowing, the right food.”

The rich (under capitalism) should dominate society idly, not forcefully, as is now the case. Forcefullness leads to inequality because it promotes blind accumulation and those who are able and willing to work the most/hardest to chase wealth for wealth’s sake, especially in zero-sum games, will accumulate every increasing sums. Of course, these folks become Inner Ring chasing “scoundrels” as Lewis calls them, peeling the onion until there is nothing left due to pure FOMO.

Idleness is key. It allows us to devote our energies to important spiritual, creative and community-driven ventures. Germans work significantly fewer hours than Americans. What do they do with this extra time? They volunteer for organizations in their communities. 45% of people between 14-49 volunteer. The median German volunteers 10 hours per month. Nearly one in three people living in the former West Germany are members of Vereine (clubs), where they give back to the community and their neighbors.

Recall again, for me, C.S. Lewis and Eyes Wide Shut. The lessons they provide us are more or less the same. There always exists more exclusive and interesting groups of people to encounter by finessing your way through life’s Inner Rings. In fact, the existence of these groups is not ammoral. They exist as a fact of life. What is dangerous is a blind pursuit, peeling the onion until there is nothing left to peel.

Achievement ought to be equated with artisanal mastery because, what is the pursuit of artisanal mastery if not the setting of a definite optimistic goal for yourself, one in which you have a clear and concrete idea of the future you can build.? We live in a modular world. Yes, it is all about you. The Refragmentation Paul Graham describes has made it so every individual, regardless of whether they like it or not, has tremendous power and potential to be an entrepreneur, in whichever field you wish, as long as you express your own power. Don’t seize the means of production, construct your own concrete future by focusing not on the quality of the Inner Ring you are in nor by the amount of work you do but rather, try to maximize your own marginal contribution. Getting caught up in political trifles is not the way. It may not totally work, but at least you can say you tried :)

Berlin Tech Jobs DealRoom Report

On Twitter, I opined a bit on DealRoom’s recently released report on startup jobs in the German capital.

Definitely worth checking out. Link here

Art of the Week

I’m pretty obsessed with L'Impératrice. They have wonderful, groovy basslines and bring great energy. This is a dope video of them on some rooftop in the suburbs east of Paris. I actually think they’re playing in Berlin tonight but missed out on those tickets, sadface.

As always, thanks for reading and be well,

Max