If you have followed my blog for awhile, you will have seen me mention Turchin's theory of elite overproduction and the wealth pump. I recently came across an article published in June 2023 which explains the wealth pump. Entitled "Interest rates have broken the global wealth pump," the author, Edward Chancellor, writes:
“Everybody knows that the dice are loaded … the poor stay poor, the rich get rich.” In the 35 years since Leonard Cohen wrote these words, the rich in the United States have become even richer and the poorest have stayed resolutely poor. In the past, periods of widening inequality have often ended in civil conflict. We have reached another such crisis point, says the complexity theorist Peter Turchin. ...
He continues:
Turchin uses big data to reveal historical patterns – what he calls “cliodynamics”, after Clio, the Greek muse of history. In his latest book, “End Times: Elites, Counter-Elites and the Path of Political Disintegration, opens new tab”, Turchin argues that complex societies go through repeated cycles of internal peace and harmony, interrupted by occasional outbreaks of internal discord. The turning point comes after long periods of stagnating or declining incomes, growing inequality, declining public trust and an explosion of public debt.
As the rich multiply in numbers, the social pyramid becomes inverted [ed: Turchin does not argue that it becomes inverted, but that the top becomes too heavy from a greater number of people at the top or aspiring to be in the top of the pyramid], resulting in what Turchin calls “elite overproduction”. When there are more aspirants for positions of power than there are places, the elites start fighting among themselves and so-called “counter elites” emerge who threaten to bring down the system. Over the centuries, many countries have witnessed this pattern. Turchin cites examples from medieval France to mid-19th-century China, when a failed applicant for the civil service, Hong Xiuquan, launched the Taiping Rebellion, the bloodiest civil war in history.
Elite overproduction arises when economic conditions favour the rich at the expense of everyone else. Turchin calls this a “wealth pump”. For instance, rapid population growth tends to depress real wages, raise food prices and boost land rents, benefitting landowners. Large-scale immigration boosts corporate profits, as does the widespread emergence of monopolies. The Gilded Age in the United States followed the 1864 Immigration Act which was intended to ensure an adequate supply of cheap labour for business. In the late 19th century many industries consolidated. These developments lined the pockets of robber barons such as Andrew Carnegie and Henry Clay Frick, whose business operations merged to form U.S. Steel, eventually fuelling a popular backlash.
We have been living through a second Gilded Age, says Turchin. In the United States, immigration and the offshoring of manufacturing has undercut the power of labour. American business has undergone another round of consolidation. Corporate profits have risen to their highest level (relative to GDP) since 1950. Meanwhile median wages stagnated and unskilled workers experienced a drop in real incomes. Even before the pandemic, the rise in U.S. life expectancy had gone into reverse due to increased drug overdoses and other so-called “deaths of despair”.
Elite overproduction is visible in the increasing number of college graduates who are over-qualified for the jobs on offer. The unseemly competition to enter top colleges came to public notice in 2019, when investigators found rich parents had paid bribes to get their children into the best universities. Elite infighting has broken out: Turchin describes former President Donald Trump as a typical “counter-elite” who capitalised on popular discontent. We have now entered the pre-crisis phase. “Many observers were taken aback by the intensity of ‘cancel culture’ that appeared out of nowhere. But such vicious ideological struggles are a common phase in any revolution,” Turchin writes.
Chancellor goes on to discuss how monetary policy has also favored the elites and contributed to elite overproduction; but his article gives a thumbnail of the general issue.
Key to the wealth pump, is to keep the wages of non-elites as low as possible to maximize income for the elites (especially those at the very top of the pyramid). (The flip side of low wages is coming up with new and better ways of extracting wealth from the non-elites; and the two are often related. The coal fields of the late 1800s had their company towns and stores; today, illegals push up housing prices which are further exacerbated by investment from the elites, whether it is Chinese buying residential properties in British Columbia and Australia, or Black Rock buying up homes in the United States).
And, as Chancellor notes, the wealth pump is dependent on encouraging mass immigration (legal and illegal) and offshoring jobs.
And while the counter-elites (such as Trump and his wealthy and/or politically connected supporters) may use popular discontent to get power, we cannot assume that these counter-elites will ultimately do anything to destroy the wealth pump. Rather, we should assume that they merely want to get control of the wealth pump for themselves. For instance, much as I like what Elon Musk has done with SpaceX and disrupting the entrenched elite's media echo chamber, Musk is very much for continuing the flow of legal migration, including increasing the number of H1B visa holders.
The basic problem with H1B visas is that the program is used to undercut the wages of American tech and skilled workers. A 2017 article in IEEE Spectrum highlights this issue. Responding to an article that spoke favorably of H1B visas, the authors note that most H1B visa recipients do not receive wages commensurate with Americans doing the same jobs.
For example, Wipro, a large outsourcing company, paid its 104 program analysts in San Jose exactly $60,000 each in 2016. Brocade, in contrast, paid their programmer analysts $130,000 in the same city.
Similarly, Infosys, the largest user of H-1B visas, paid their 158 technology analysts in New York City, one of the most expensive cities in the world, $67,832 on average last year, not enough to rent a closet in that city.
A close look at H1BPay.com’s data shows that, as you move past the Googles and Microsofts of the IT world, H-1B salaries tend to cluster around the $65,000 to $75,000 level. There is a reason for this. If outsourcing companies pay their H-1B workers at least $60,000, the company is exempted from a number of regulations designed to prevent visa abuse.
But $60,000 is far below 2016 market rates for most tech jobs.
In 2014 (the last year we have good data), Infosys, Cognizant, Wipro, and Tata Consultancy used 21,695 visas, or more than 25 percent of all private-sector H-1B visas used that year. Microsoft, Google, Facebook, and Uber, for comparison, used only 1,763 visas, or 2 percent.
What’s the difference? Infosys, Cognizant, Wipro, and Tata are all outsourcing companies. Their business model involves using H-1B visas to bring low-cost workers into the United States and then renting those workers to other companies. Their competitive advantage is price. That is, they make their money by renting their workers for less than companies would have to pay American workers.
This is the real story of the H-1B visa. It is a tool used by companies to avoid hiring American workers, and avoid paying American wages. For every visa used by Google to hire a talented non-American for $126,000, ten Americans are replaced by outsourcing companies paying their H-1B workers $65,000.
But this isn't all. Bringing in foreign workers who do not share American values about meritocracy has led to Americans being cut out of the job market entirely even when they are willing to take the lower wages as certain groups (notably, the Chinese and Indians, although not limited to them) favor hiring others from the same nationalities over Americans, and slowly take over whole departments and, ultimately, whole companies, just as we've seen with another group that strongly practices this type of quasi-nepotism.
Sarah Hoyt, who as a Jewish-immigrant from Portugal and generally has no problem with giving American jobs to foreigners, even has a problem with the threat posed by the in-group loyalty shown by Indians and Chinese in hiring. She favorably cited a post on X from Eric S. Raymond that succinctly sets out the issue:
Today's big beef is between tech-success maximizers like @elonmusk and MAGA nationalists who think the US job market is being flooded by low-skill immigrants because employers don't want to pay competitive wages to Americans.
To be honest, I think both sides are making some sound points. But I'd rather focus on a different aspect of the problem.
When I entered the job market as a fledgling programmer back in the early 1980s, I didn't have to worry that some purple-haired harpy in HR was going to throw my resume in the circular file because I'm a straight white male.
I also didn't have to worry that a hiring manager from a subcontinent that shall not be named would laugh at my qualifications because in-group loyalty tells him to hire his fourth cousin from a city where they still shit on the streets.
It's a bit much to complain that today's American students won't grind as hard as East Asians when we abandoned meritocracy more than 30 years ago. Nothing disincentivizes working your ass off to excel more than a justified belief that it's futile.
Right now we're in [an] everybody-loses situation. Employers aren't getting the talent they desperately need, and talent is being wasted. That mismatch is the first problem that needs solving.
You want excellence? Fire the goddamn HR drones and the nepotists. Scrap DEI. Find all the underemployed white male STEM majors out there who gave up on what they really wanted to do because the hiring system repeatedly punched them in the face, and bring them in.
Don't forget the part about paying competitive wages. This whole H-1B indentured-servitude thing? It stinks, and the stench pollutes your entire case for "high-skill" immigration. You might actually have a case, but until you clean up that mess Americans will be justified in dismissing it.
These measures should get you through the next five years or so, while the signal that straight white men are allowed to be in the game again propagates.
I'm not going to overclaim here. This will probably solve your need for top 10% coders and engineers, but not your need for the top 0.1%. For those you probably do have to recruit worldwide.
But if you stop overtly discriminating against the Americans who could fill your top 10% jobs, your talent problem will greatly ease. And you'll no longer get huge political pushback from aggrieved MAGA types against measures that could solve the rest of it.
There are some arguing that the problem is with the H1B visa program itself, because it encourages only temporary workers, and suggest that the solution is expanding the number of green cards. But I don't see how making the foreigners taking the plum jobs permanent residents rather than temporary residents is going to help--in fact, it will make it worse because suddenly they will be eligible to bring their whole village with them.
So what is the solution? I think it is three-fold. First, squeeze off immigration and kick out as many we can. That means not just shutting down the flow of illegal immigration, but a moratorium on green cards and work visas. This needs to be coupled with real punishment, including criminal liability, for companies and their officers that employ illegals. Second, in order to deal with off-shoring, we need to punish companies that offshore production, such as through tariffs, loss of intellectual property rights on technology exported out of the U.S. to facilitate the offshoring, or some other means that has the potential to ruin a company that offshores jobs or production. And third, loose a storm of civil rights investigators and lawyers on companies that discriminate against Americans in favor of foreign workers.
