Winners and Losers Part II

The Eye of Sauron

In my previous post I discussed policy effects on “Losers” versus “Winners” using an income category to define who falls into which group. I did not talk about why I chose these terms, which could be construed as derogatory. These categories play fundamental roles in the worldview of the Right. The primary influence for this piece is a post by Stay Slick, The Dark Elves' Fallacy: A Critique of Neoreactionaries and will serve as the framework for my analysis.

Curtis Yarvin and Neoreaction (NRx)
Slick’s post is about the ideas of Curtis Yarvin, who blogged under the name Mencius Moldbug back in the 2000’s. According to Slick, Yarvin’s ideas, called Neoreaction (NRx) is Yarvin’s call for Hierarchy, Power, the real order of things. Current society consists of Losers (Hobbits) and Winners (Elves). The Elves are an entrenched elite, ruling from behind the veil of liberal institutions Yarvin calls the Cathedral. Neoreactionaries (Dark Elves) see through the Cathedral to the reality that democracy and rule of law are illusions and power is all there is. They seek to displace the Elves and rule in their place, but openly, without pretense. This view is a colorful version of the standard conservative belief that people are not equal, some are superior to others and that society should be ordered in a way that reflects this reality (Winners on top, Losers on the bottom is the natural order). The NRx solution to the problems of our time, is to destroy the Cathedral and establish a dictator:

Just install a competent ruler. Let them run the world like a company. Abolish the inefficiencies of democracy.

That this will not work had already been demonstrated. Here’s a passage from the ABC’s of Communism by Nikolai Bukarin:

We might conceive the organization of production as being effected in the following manner: a small group of capitalists, a capitalist combine, controls everything; production has been organized, so that capitalist no longer competes with capitalist; conjointly they extract surplus value from the workers, who have been practically reduced to slavery. Here we have organization, but we also have the exploitation of one class by another. Here there is a joint ownership of the means of production, but it is joint ownership by one class, an exploiting class.

It describes a situation in which society has been organized under a capitalist combine who runs it like a company, as Yarvin calls for. Now replace the capitalist combine with Communist Party and you have a situation which described what the Soviet Union actually became. A country in which everybody worked for a single company, overseen by a Board of Directors (Politburo) headed by the Chairman (the unitary executive). This result is what President Reagan called the Evil Empire, and I agree, it was evil.

Now Yarvin might object that he was not calling for the economy to be organized under this CEO ruler. But if you still have independent companies operating the economy, then your role as the CEO of the state is as the manager of the collective interests of the corporations (who are your constituents). During the last capitalist crisis, American corporations faced a shortage of sales per unit of capital (retained earnings invested). Individual companies devised a variety responses, such as marketing, consumer finance, and productivity improvements to boost margin—none of which addressed the core issue; capitalists collectively needed a bigger market to exploit (see discussion in America in Crisis for more details). In the end the economy collapsed after the 1929 crash.

If you leave subordinate institutions to run their own affairs, you will eventually run into collective action problems like those faced by Republican policymakers after the 1929 crash. The only way to solve such a collective action problem is through a mechanism that brings the interests of all stakeholders to the table. The inefficiencies of democracy (if not democracy itself) are needed to deal with situations like this—unless you want to go the Soviet Union route. Even if the country is not a formal democracy (e.g. China) the authoritarian leader must still balance stakeholder interests against his own goals.

NRx is a potential solution to the Secular Cycle crisis.
I have previously written about Turchin’s Secular Cycle theory and the crisis period that began around 2006. Rising inequality leads to a growing number of elites and intensified competition for elite positions. In politics increased elite competition translates to rising polarization between the parties. Polarization intensifies into political turmoil as elites battle for the “high seats of our civilization” in a high-stakes game of musical chairs. The crisis reaches a climax at the start of the fourth phase of the cycle, resolution, in which the number of societal elites is reduced, solving the problem of excess elites.

The Cathedral in NRx discourse has been described as “the intellectual institutions at the center of modern society.” I see these institutions as those dominated by the Mandarins, or Blue Elites, whose interests are represented by the Democratic party. Destruction of the Cathedral would greatly reduce the status of the Mandarins, just as Emancipation reduced the status of Plantation elites. The problem with this analogy is it took a shooting war to push the Democratic Planation elites off their high seats and into subordinate positions below the Republican Capitalist Elite. NRx does not call for a civil war or revolution, this is to be done using normal politics.

Skoronek’s Political Time model provides a better framework. Here what NRx seeks is to create an updated version of the Reagan dispensation, like William McKinley did with the Lincoln dispensation. Such an achievement would create a new Political Order to follow the Neoliberal Order. There would be considerable continuity between the two political orders because they both reflect Republican dispensations, just as there was continuity between the Lincoln and the McKinley-Roosevelt dispensations.

Achieving this goal does not require any violence, but it does require achieving a new electoral dominance. In all previous dispensation changes, the reconstructive party won at least three presidential terms in a row to establish their political dominance. It seems clear that the 2024 election result was more of a rejection of the Democratic status quo than a desire for what President Trump was promising. Similarly, the 2020 election was a rejection of the Republican status quo represented by the very same President Trump. In 2028 it will again be a Republican status quo under evaluation. It strikes me as magical thinking that somehow things will go better for the GOP this time.

What NRx proposes is rule by the money men.
Allistair Pembroke suggests that Yarvin might be right that in the modern world Tech elites do possess a genius that the politicians we elect lack:

Six of the world’s ten richest men are ex-software engineers, and one of the other four is Steve Ballmer. The man at number one is now also one of the most powerful, and not merely the richest. Yet I never cease to be amazed at how poorly other people understand the world of “software guys”, and how little curiosity they have about their culture, experience and ways of thinking. I think this success comes from the fact that…It’s not enough to know programming; you have to learn that and then also learn finance, logistics, tax bureaucracy, physics, how a factory worker makes the perfect arc weld etc, depending on what industry you end up in. This leads to the phenomenon you see where developers walk into random industries and totally up-end them with huge success

I rather doubt that Jeff Bezos or Mark Zuckerberg achieved their success from knowing physics or how to make an arc weld. Taking those things out, what is left is knowledge about business. Every technically trained person who opts for the managerial path learns these things. They get the technical training, use it to get their first job, and then move onto the managerial track, or found their own startup, and become businessmen. There is nothing special about Tech. The reason why Pembroke sees them as special is because the firms some of them have founded or invested in rapidly developed large market capitalizations in the biggest financial boom in history (over 1995-2024 inclusive, the S&P 500 index has risen at a 6.3% rate after inflation, faster than over any previous thirty-year period). The boom has granted fortunes to some startup founders and early investors allowing them to run money without having to find investors. Successful money men of this type are seen as the most badass of Winners and so the logical rulers under Yarvin’s scheme.

For example, Elon Musk has been proposed as a likely candidate for a CEO ruler. Musk’s status as the richest man in the world is based on his stake in Tesla, a car company with an extraordinary valuation, over $700,000 per car sold. Assuming a 10% rate of return, supporting this valuation would require $70,000 of profit per car sold. Since revenue per car is about $40,500, this is impossible. Actual profit is about $4,000, implying that over 90% of Tesla’s value is speculative excess. In a world in which Bitcoin, whose value is entirely speculative excess, can sport a $1.9 trillion market cap, Tesla’s 90% speculative valuation on top of a real business seems positively sedate.

Lofty valuations can make sense if they reflect future potential; Amazon’s market capitalization at the peak of the 1990’s tech bubble was about the same as their current earnings making it significantly undervalued relative its discounted future earnings. Amazon in 1999 was a book retailer, now it is a universal retailer, having vastly expanded the size of the market it exploits generating the earnings growth that justified its high price in 1999. At $4K/car profit, to generate a profit stream justifying today’s valuation would require Tesla selling around 31 million cars per year, twice the size of the America car market. Tesla is already a major player, there is no room for Amazon-like growth. It is obvious that in the long run TSLA will sell for less (in constant dollars) than it does today. Similarly, Bitcoin and other crypto will eventually come to earth.

NRx doesn’t address the core problems facing America
NRx proposes to return America to a technological version of the medieval world of Winners and Losers, rulers and ruled, with financial success replacing martial skill as the initial justification for noble status. As I have showed in Part 1 this has pretty much been the operating system under the Reagan dispensation. NRx promises a continuation of the Reagan system, the fruits of economic growth will continue to go to the Winners, who in the mind of Yarvin and his fellow travelers, deserve this because they are the competent ones. NRx just wants to establish the Capitalist elite as a permanent order.

The Reagan dispensation has seen the creation of speculative excess amounting to about $30 trillion¹ in excess stock market capitalization as well as the more than $3 trillion in crypto and $20 trillion² in excess home valuations. These excess valuations are what I call monumental financial architecture, which is a testament to the power and glory of the Capitalist elite, much as the Pyramids were for the pharaohs of ancient Egypt. As the bubble enlarges it becomes less stable, and government has already intervened on behalf of wealthy asset-holders to stabilize their positions through Fed QE actions. As an extension of these stabilization efforts, the Trump administration is exploring a program in which the Federal government exchanges gold for worthless crypto assets, allowing the current holders to cash out without crashing the market. The taxpayer would then be left holding the bag when it deflates.

None of the things NRx actually proposes to do will address any of the real-world problems facing the nation. Continuing to pour money into asset bubbles will make real estate assets like houses even more unaffordable for ordinary Americans. Tax cuts that add to the deficit will likely boost inflation in the current environment. If they are offset by spending cuts they will reduce aggregate demand leading to recession and, possibly a financial crisis. Even if the government does nothing, unless the business cycle has been repealed, recession will come. Inequality levels and the 2008 panic suggests that we have returned to the pre-New Deal world. Back then financial crises were spaced 18 years apart on average, and next year it will be 18 years since the last one. The market is looking toppy, who knows?

More importantly, NRx does nothing to resolve the differences among the capitalist elites. Republicans under Trump do not enjoy the landslide victories Reagan did. For all the harm the Reagan dispensation has wrought, at the time it was forged it did solve the biggest problem of the previous regime, stagflation. Stagflation was high inflation and weak growth. Inflation was cut in half and growth was stronger in the 1980’s relative to the 1973-80 period. The inflation shift was already apparent in 1984, giving Reagan a landslide victory. Dispensations are forged on real accomplishments, not BS. The success of the NRx program will require real improvements, otherwise Capitalist elites will lose faith in MAGA.

Final Notes
I usually think of politics from an operational rather than a philosophical perspective and have described what NRx beliefs mean in functional terms. My thinking is that what should be done politically is separate from what policies do, the desirability of this is a separate matter. But with the advances of AI, and the size of the speculative bubble, the stakes on the outcome of today’s political contests may be existential. So, here are some comments on where I think views like NRx come from and what I think of them.

My understanding is some NRx types like Peter Thiel are fans of JRR Tolkien’s mythos. Slick wonders “How the fuck do people read The Lord of the Rings and…embrace what Tolkien clearly framed as evil?” One of the comments noted “the Shire is the closest thing to a functioning anarchist society I’ve ever encountered in fiction. When the old kingdoms fell, the Hobbits kept happily doing their own thing without interference.” I think the lack of government and corporations in Middle Earth appeals to both liberals (the seeming lack of coercive systems) and to conservatives longing for a return to “tradition” rather than formal systems of societal regulation.

I first encountered the concept of Tradition as a conservative political philosophy in the late John Reilly’s blog The Long View, around twenty years ago. As John notes in his review of Julius Evola’s Revolt Against the Modern World, tradition refers to an idealized past that never existed which he directly connects to Tolkien:

The notion of “tradition” is not easily dismissed, nor is it inherently sinister. More than one commentator has noted that the world of tradition is simply the world of fairy stories. Tolkien's “Middle Earth” is a nearly perfect picture of the traditional world. The Italian Right even uses Tolkien's work for recruiting, to the continuing consternation of the British-based Tolkien Society.

Clearly evident in Tolkien’s writing it his distaste for technology and industry, which I find mildly off-putting as a chemical engineering Ph.D. who spent his career at a chemical plant. I still love LOTR and Middle Earth. I note “the genre’s called of fantasy, it’s meant to be unrealistic” and did not find the political implications and religious messaging of Tolkien’s work to be applicable to my own thought. People attracted to NRx are both politically libertarian/conservative and fans of technology. They embrace Tolkien’s traditionalism, but not his opposition to tech. I note it is Saruman who introduces gunpowder (the harbinger of our modern technological civilization) into Middle Earth. It is likewise Saruman who brought industry to Isengard and to the Shire. As Saruman saw his vision aligned with that of Sauron so does NRx see itself. In doing so they embrace evil.

1. GDP of 29 trillion multiplied by Buffet ratio of 2.08 minus one

2. This figure suggests about 40% of the $50 trillion housing value is speculative excess.