Elites Stink, And No, An AirWick Won’t Help


David Brooks Expresses a Popular Position: Elites Stink. But they are just One Epiphany Away from Being Superb Leaders.

David Brooks’ July 12 Op-Ed, entitled Why Our Elites Stink, describes an evolution of American leadership from old-boys-network to a corrupted meritocracy. Brooks longs for the days when elites were principled and understood that their privileged position in life carried with it certain obligations to society. He asserts that all we need now is to ensure that our current crop of elites has the necessary epiphany that will cause them to once again become beacons of good. They will then be perfectly situated to reform our institutions and to provide the principled leadership that will lead to our salvation.

Most people who argue for leaving reform up to current leadership skip the romantic idea of brilliant elites coming to their senses. Generally the argument is more centered on instability. It goes something like this: If we break up TBTF banks, if we prosecute criminals on Wall Street, if we go back to honest accounting, if we remove compromised CEO’s … the results are unknowable. It could be destabilizing to markets.

Not surprisingly, people who argue this perceive that they have a significant stake in maintaining much of our compromised political economy – as in their compensation is directly or indirectly dependent on what they readily admit to be a corrupted political economy. They do not want investigations into crimes committed by bankers because there could be a domino effect; bankers who perceive that they may face jail time will implicate executives, executives will implicate regulators, regulators will implicate politicians…

The answer to this is threefold. First off, it is not supposed to be the prerogative of politicians and appointees to not enforce the law and not pursue justice. Blind justice is essential to a functioning democracy.

Secondly, in any well-functioning system, the people who are put in charge of reform are never the people who were compromised enough to allow the system to be corrupted. Just as you do not send in the same elite surgeon to correct what he or she did to botch a surgery, you do not send in a corrupt CEO to correct what he or she did to drive the company into the ground. And you do not appoint advisors and central bankers who were architects of the system that failed. If you want real reform, you send in someone who has no need to protect his or her failed legacy.

Thirdly, David Brooks and my anti-reform friends should spend some time reading up onGresham’s Law and Gresham’s Dynamics. A Gresham’s Dynamic describes an environment in which unethical behavior crowds out ethical behavior. When, for example, a business discovers that it is more profitable to rig markets or commit fraud than to compete, and tacitly adopts that as a business model, an environment ripe for a Gresham’s Dynamic is established. Within such an environment individuals who try to correct the wrongdoing are fired and people who engage in unethical behavior are promoted. This is the dynamic that had taken hold in the ratings agencies, our banks, and through out the mortgage and securitization industries – leading up to the crisis.

The problem with allowing the elite figures who enabled a Gresham’s Dynamic to correct the problem that they created, is that they are people who have proven that, in the face of incentives to behave badly, will behave badly. The people who might have tried to stop that behavior were long ago passed over for promotions or were let go.

David Brooks, in the last paragraph of the Elites Stink Op-Ed writes, “I want to keep the current social order, but I want to give it a different ethos and institutions that are more consistent with its existing ideals.”

That is a lovely thought. But allowing the corrupt, the dishonest, the reckless, and the otherwise compromised, to rebuild the village that they looted and destroyed, would only make sense to someone who is himself compromised. The elites who David Brooks romanticizes, are the foxes. His assertion that they are an epiphany away from being best-suited to rule the henhouse borders on fantasy.

Writing about corruption in America and concluding that fox-driven-ethos-change is the solution is irresponsible; there are plenty of uncompromised people who could be tapped to make our political economy more transparent, more honest, and more stable. Brooks would be well served by reading Bill Black’s work. Or he could call Bill Black directly for feedback on his assertion that compromised elites are just an epiphany away from being best positioned to pursue reform. There is a better way; we could start by enforcing the law.

Jaime Falcon – Capitalism Without Failure