Actually, hiring the well-connected is a big problem
Following the news that the Securities and Exchange Commission is investigating whether two instances of alleged nepotistic hiring at JPMorgan Chase violate laws against bribing foreign officials, the most surprising reaction has been a general shrugging of the shoulders by American elites.
Andrew Ross Sorkin, who I've known for years and work with here at CNBC, gives voice to the privileged spirit of our age:
But given that many of the children of the elite have some of the best educations and thriving networks of contacts, it is hard to see how businesses are supposed to not seek them out, let alone turn them away. As hard to defend as the phrase may be, it is a reality of life, "It's not what you know, but whom you know."
Sorkin mentions a bunch of well-known instances of the children of the elite.
Stephen Schwarzman's son Teddy was an intern at Goldman Sachs and went on to be an analyst at Citigroup. He then became a lawyer at Skadden, Arps, Slate, Meagher & Flom, before leaving to pursue a successful career in the movie industry. Did Goldman, Skadden or Citigroup hire Teddy because of his father? Did they expect to get business from Blackstone? Maybe.
But more likely they thought he was a qualified recruit who, given his upbringing, had a golden Rolodex. His résumé certainly fit the mold of the firm's other eager new hires: He earned his bachelor's at the University of Pennsylvania, then graduated, cum laude, from the Duke University School of Law.
The same goes for the prime example of this issue in the United States: Chelsea Clinton. Ms. Clinton worked at the consulting firm McKinsey & Company after college and later at Avenue Capital, a hedge fund founded by a big Clinton fund-raiser, Marc Lasry. But Ms. Clinton, a Stanford graduate who is considered intelligent by virtually everyone who has spent time with her, had as genuine a claim on those jobs as anyone else graduating the year she did.
What you have here is the outlines of an argument in favor of nepotism, in favor of inequality, in favor of discrimination. The young Schwarzman was a "qualified recruit." The young Clinton is "considered intelligent by virtually everyone who has spent time with her." In other words, it's all OK because what's going on is discrimination in favor of the capable and intelligent.
Not many people are well-prepared to face the facts about nepotism of merit, in which ever greater economic rewards go to the talented off-spring of talented professionals. Our moral compasses seem to be stuck in an era in which the great enemies were inherited wealth and racial discrimination. A colorblind, meritocratic elitism escapes our critical faculties.
But it probably will not do so forever. Charles Murray, the controversial libertarian scholar, published a book last year titled "Coming Apart." Murray's thesis was that our nation was "coming apart at the seams" of class. Too many of us had fallen into an underclass where life is beset with social pathologies. The elite is increasingly isolated—socially, economically and even physically—from the underclass. There's little reason to think this will soon be reversed.
And it's not just cranky conservatives who are worried about this. Last year, Chris Hayes of the Nation and MSNBC, published Twilight of the Elites—America After Meritocracy. The U.S., Hayes argued, was become more economically stratified, with a small elite doing very well, a large underclass suffering, and less movement between the two groups.
It is not simply that the rich are getting richer, though that's certainly true. It is that a smaller and smaller group of über-rich are able to capture a larger and larger share of the fruits of the economy. America now features more inequality than any other industrialized democracy. In its peer group are countries like Argentina and other Latin American nations that once stood as iconic examples of the ways in which the absence of a large middle class presented a roadblock to development and good governance.
So: income inequality has been growing. What about mobility? While it's much harder to measure, there's a growing body of evidence that, at the same time income inequality has been growing at an unprecedented rate, social mobility has been declining.
You shouldn't have to be a radical to see this as perhaps the most important problem of our time. The gearing of our economy toward providing more rewards to the children of the elite, under the moral cover that this is just rewarding talent and intelligence, is self-perpetuating. It's mildly alleviated by the fact that we're still pretty good as a society of selecting out the highly intelligent, not-descended-from-wealthy professionals and inviting them into the upper middle classes. But for those who aren't "considered intelligent by virtually everyone" and who lack the "golden Rolodex," economic opportunity is increasingly meager.
I'm not going to offer you any ready built solution to this problem. But just because we don't have a cure for our condition doesn't mean we have to pretend it's healthy.
—By CNBC's John Carney. Follow me on Twitter @Carney