Elite Overproduction

Rising asset prices, too many degrees and why this means the Conservatives need to be a bit more left-wing

In November 2019, Julius Krein, conservative journalist and founder of the journal American Affairs, published a fascinating assessment of The Real Class War. Krein’s central gambit is simple:

The socioeconomic divide that will determine the future of poli­tics, particularly in the United States, is not between the top 30 per­cent or 10 percent and the rest, nor even between the 1 percent and the 99 percent. The real class war is between the 0.1 percent and (at most) the 10 percent—or, more precisely, between elites primarily dependent on capital gains and those primarily dependent on profes­sional labor.

In this post, I seek to tease out some of the ideas in Krein’s essay, but frame them in the context of the political and economic landscape in the UK. Whilst there are ways in which the situations in these two countries differ, there are many parallels.

Ultimately, as in the US, we must figure out a better way to include the managerial class in the process of wealth creation. Inequality between elites is the root of the current chaos.

Failure to fix this is a systemic risk.


  1. If you don’t hold assets, you’re getting poorer…fast

  2. The wage gap is also widening

  3. Meanwhile, we are churning out useless degrees

  4. Result: the managerial class are suffering from severe “status anxiety”

  5. This disaffected elite wants change. They’re drifting left - radically

  6. The working class have gone the other direction

  7. But Conservatives have a problem - their core voter base risks dying out

  8. Trouble is brewing - but there is a solution

1. If you don’t hold assets, you’re getting poorer…fast

This is well-documented. It has been especially true post-2008: the Federal Reserve, the European Central Bank and the Bank of England have all been printing money aggressively (quantitative easing).

This is leading directly to the inflation of asset prices.

If your main source of income involves selling your time for money (rather than benefitting from the capital gains involved in holding stocks, bonds and real estate), your relative wealth is diminishing.

As we know, the Covid reaction has essentially been “print even more money”.

Don’t get me wrong, it’s created some great memes.

But it’s bad news for non asset-holders.

2. The wage gap is also widening

The wages of the wealthiest 0.1% have been growing much faster than those of any other category of earner for quite some time. Between 1940 and 1980, their share of total pre-tax income in the US hovered between 3% and 4%. Since 1983, it has risen to 12%. This dynamic, combined with the exponential rise in asset prices, means the gap between the 10% and the 0.1% is getting wider at an accelerating pace. In fact, it is happening as fast as the widening of the gap between the 1% and everyone else:

The gap in the UK follows a similar trend to the States. In both real and percentage terms, the earnings growth of the top 0.1% has significantly outstripped the 1% in recent decades:

Basically, the super-rich have had better earnings growth AND more cash to spend on assets, whose prices are skyrocketing due to quantitative easing. They also tend to be more financially literate and likely to invest.

These rising asset prices generate more earnings for the asset holders, and so on.

3. Meanwhile, we are churning out young people with useless degrees

A university education was promised to many as their ticket into the elite.

But we are pumping out degrees much faster than our population is growing:

And we are awarding more first class honours:

This phenomenon is known as elite overproduction. There simply isn’t space to give all this aspiring elite access to truly elite jobs. Combine this with a growing wealth divide, and you have a foul concoction of angry people who feel entitled to much more than they are being given.

Good explainer video here if you want to dig deeper.

4. Result: the swelling managerial class are suffering from severe “status anxiety”…they’re pissed off

As wealthy asset holders drive up rents and house prices relative to salaries, and things like university tuition fees also increase, the 10% are no longer able to enjoy the status associated with their income bracket. Relative to their peers in the top 1% or 0.1%, members of the 10% are down and out.

Clustered around the hubs where capital is being generated and distributed, salaried professionals in journalism, law, medicine, consulting, accounting, tech and even finance are getting a raw deal. In London, the 1% have been ousted from Chelsea and are buying houses in Hackney, Brixton and Peckham.

It’s especially an issue for millennial elites, who were often too young (with insufficient earning power) to jump on the money printing train when it left the station in 2008.

Hence Bitcoin 2017.

We don’t have to feel sorry for these people (they will be fine), but we should recognise something: the support of the professional managerial class is required in order to maintain the stability and order of the entire system.

5. This disaffected elite wants change. They’re drifting left - radically

The educated upper-middle class generally aligned with the right in the 70’s and 80’s. In the UK, many of them voted for Thatcher. They knew they would benefit from the shift to a service economy.

In the 90’s the left (under Blair), recognised that creating a similar recipe of neoliberalism, with a slightly more “progressive” sauce, offered opportunity to combine the support of this powerful voter base with that of the working class.

The Tories under Cameron did a reasonable job of copying Blair and curried some favour for a while.

But now many of this same liberal metropolitan elite (especially the youth - most impacted by the circumstances outlined in points 1-3) are looking for something new.

Democratic Socialists like Alexandria Ocasio-Cortez and Bernie Sanders - or the UK’s own Jeremy Corbyn - are more popular with young middle-class, university-educated city dwellers than with the working-class they profess to stand for.

The liberal elite wants a new order. They're tired of crony capitalism. They're tired of QE-fueled, debt funded share buybacks and flagrant displays of corporate socialism. As Ben Hunt says, they want to Burn it the F#&! Down.

Scary stuff.

6. The working class have gone the other direction

Many of the upper-middle class (the 10%) now see that “equality” (higher tax, more market regulation, more wealth redistribution, reining in big tech, protecting and funding public services, etc.) will operate in their favour.

But they have a short-term issue. They’re struggling to attract the working class to their cause with the old stories about a society that is “better for everyone”.

This, of course, is because they’re banging the wrong bloody drum.

Globalisation and neoliberalism have been much less kind to the working class than this new liberal elite.

There is a yawning values disconnect between these two potential voter bases. Shoreditch-dwelling hipsters who grew up in the suburbs and studied history at Bristol university lack the ability to understand what a former steel worker from Scunthorpe (now unemployed) is living through:

The sense of possibility, of social motion has, among the disadvantaged white British population, been replaced by a wider sense of stagnation and loss. [source]

Liberal elites lack empathy for the fact that, typically, this voter is quite socially conservative. They don’t realise that he’s tired of feeling accused of being a “privileged white male” (in spite of the now well-recycled fact that working class white boys are the least socially mobile demographic in Britain).

They don't understand the extent to which the communities, culture and jobs that formed the backbone of the British working class world have simply wasted away.

The Conservatives understand this. They understand it viscerally. That’s why they won Brexit, and that’s why they won the last election by a landslide.

Some of my more left-leaning friends will claim they get it, and truly have the best interests of the working class at heart, “if the poor uneducated masses up in Grimsby would only understand that Bozza and his chums have lied to them”. But this is at best a factor in their thinking.

At best. Like Krein I contend that the Liberal Elite, like Conservatives, and most other primates, are mainly worried about their own status in the hierarchy:

What­ever the underlying merits of “woke” critiques and causes might be, these postures are mainly adopted in intra-elite competition for posi­tions and influence…[source]

The sooner young Liberals transparently admit that they are promoting personal interests (and stop pretending it is mainly about helping the working class), the sooner they will be able to understand where their interests and those of the working class actually align (I will give you a clue - it isn’t anything to do with gender, race or bathrooms. It’s about money). Only when they realise this will they stand a chance of catching up with the Conservative party.

Keir Starmer looks like he has potential to do a good job. Good luck to him. As the Guardian points out, he still has a long road ahead.

7. The Conservatives have a bigger problem - their core voter base risks dying out, and their immigration shtick is going to lose its sheen

Demographic trends are currently pushing hard against the Conservatives. Not only are younger voters far more likely to be left-leaning, but people are remaining more left-leaning later in life, a result of the “liberalisation” of our institutions and society (academia, marriage, media, culture, etc.).

There are also more young immigrants, and immigrants tend to align with the left or centre-left. As they get older, all these people will vote more. The Tories will forever be the party that caused Brexit and took away their future (unless, of course, they sort this mess out).

Winning over working class voters is a useful short-term ointment, but without real change, it won’t last.

Right now, older people and the post-industrial working class see great appeal in the right’s concrete policy proposals - particularly curbing immigration and leaving the EU (and therefore reducing job competition, improving the ability of social services to cater to British-born people, “taking back control”, etc.).

And let’s be clear… aside ethical considerations about migration policy, there is nothing inherently unreasonable or illogical about suggesting that certain immigrants are more likely to create economic value than others. Thomas Sowell has an interesting, rational perspective on this subject.

Research from Oxford’s Migration Observatory seems to support Sowell's point somewhat: non-EEA migrants to the UK are a net negative fiscally. I appreciate “Non-EEA” is way too broad a brushstroke - but it is a data point that we must consider.

Right - so there might be some value to curbing some forms of immigration from some specific countries. As the son of Irish immigrants in business with a daughter of Chinese immigrants, I have no problem accepting facts. The accusations that half the country are racist are silly. Sure, some of them might be (often more out of ignorance than genuine evil), but I can see why they might think less immigration would be good.

All that being said, there is zero evidence that the decision to leave Europe has so far had any impact on Britain’s ability to reduce net non-EEA migration. In fact, it appears to be rising! Moreover, all the high-value European migrants are leaving, and the banks are pissing off to Frankfurt.

All that time pandering to UKIP voters may have won the Tories some seats, but it won't help them in the long run. Why? Because immigration is a scapegoat.

8. Trouble is brewing - but there is a solution

As the Tories know well, the real sources of social discontent in Britain are:

  1. the shift to a knowledge-based economy, which severely (and solely) impacts the working class, and

  2. the widening income gap, which affects the working class and managerial classes alike.

Factor in economic headwinds post-Brexit, and now Covid, and the near future doesn’t look great. The cracks in the Tories’ arguments will appear, and the working class will revert to Labour.

Wealth divides have a tendency to grow and shrink cyclically. This isn’t a novel issue. What the wealthy and powerful must be wary of is how the current situation resolves itself. An angry, radicalised liberal elite united with a disillusioned working class would be a powerful, disruptive combination.

Let’s look at historical cases of revolt and system collapse.

Who led the charge? No prizes for guessing…

Liberal Elites

  • The toppling of the Ancien Régime in France was led by the Jacobins. They were lawyers, journalists and intellectuals - not working men.

  • What of the Bolsheviks? Lenin’s father was a mathematics professor, his mother the daughter of a physician. Trotsky, the son of a wealthy farming family, was sent for private education in Odessa and spoke good German, French and English.

How will it play out this time around? In these situations, as a rule, things tend in one of two directions:

  1. Make concessions, reform

  2. Face rebellion, turmoil and system breakdown.

Now, the current state of affairs in the UK is by no means on a par with France in 1789 or Russia in 1917. But the pragmatic move for conservatives in the the UK is to nip it in the bud. They can do so by focusing on appeasing the young managerial class.

As Tim Pitt (a former advisor to Sajid Javid) argued in the FT in January, somewhat counter to their nature, the Conservatives need to start worrying about inequality. I should be clear here. I’m not talking about more women or people of colour in C-level roles (albeit a good thing).

I’m talking about tax. I’m talking about market regulation. I’m talking about housing policy. This is what will restore social stability, win over young people and allow Britain to “build back better” (the current Conservative party slogan).

The Tories seem to understand this…but they will need to walk the walk over the next four years.

It is not just their seat in power that depends on it.

I’ve written previously about the untapped promise Britain has as a hub for technology and innovation. I believe we can - and must - seek to grow and innovate our way out of this tricky period. But we must do it in a manner that does not leave people behind. If you’re interested in working with Odin on the problem of democratising venture capital, drop me an email or sign up at https://joinodin.com/