PDF Summary:Evil Geniuses, by Kurt Andersen

Over the past forty years, economic inequality in America has reached levels not seen since the early 1900s. In Evil Geniuses, Kurt Andersen traces how wealthy elites, corporations, and right-wing economists systematically reshaped American political and economic systems starting in the 1970s. He examines the strategies these groups used—from the Powell Memo's call to action to the rise of shareholder primacy and the weakening of antitrust laws—to consolidate power and increase their wealth at the expense of working and middle-class Americans.

Andersen explores the consequences of these changes, including wage stagnation, declining economic mobility, and the financialization of the economy. He also discusses how this cycle of wealth and political influence has become self-perpetuating, and considers pathways toward restoring a political economy that serves the majority rather than a powerful minority.

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The collaborative mindset shifted to prioritizing bonuses, allowing workers to feel uninhibited about taking large financial risks using others' money to create revenue and substantial bonuses. On Wall Street, risk management became a joke, with bankers, traders, and executives overruling risk managers, primarily concerned with maximizing annual profits and bonuses. As bankers and investment banks increased their risk-taking, they often managed this by persuading or deceiving others to shoulder the risks they wanted to avoid. Thus, the invention of all sorts of new derivatives. The finance sector created the term "incognito leverage" for corporate debt that is invisible, not on balance sheets, and concealed from investors. Big banks began behaving like traders instead of reliable advisors. The outcome was a race to innovate risk-transfer methods, like credit default swaps—derivatives purchased by financial companies that were based on loan defaults and financial ruin.

(Shortform note: Incognito leverage is a term used to describe a situation where a company or financial institution has taken on more risk than is apparent from its financial statements. This hidden risk can make the company more vulnerable to financial shocks or downturns than investors or regulators might realize. Incognito leverage can occur in several ways: Off-balance-sheet items: Companies might have obligations or risks that don't appear on their balance sheets, such as certain types of derivatives or special purpose entities. Complex financial instruments: Some financial products, like certain derivatives, can create exposures that aren't immediately obvious. Interconnectedness: A company might be exposed to risks through its relationships with other firms, even if those risks aren't directly on its own books. Contingent liabilities: These are potential obligations that only become actual liabilities under certain conditions, making them easy to overlook.)

The government played an enabling role as well. In 1974, a federal statute governing pension funds redefined "prudent" so that pension fund managers were legally required to focus solely on maximizing current cash value, by any means, even if that necessitated imprudent investments or investments that could eventually ruin their pension beneficiaries’ industries or communities. In 1978, the addition of 401(k) to federal tax law incentivized everyone to open a 401(k) account and direct part of each paycheck toward financial instruments for their retirement, which provided Wall Street with an immediate, enormous new revenue stream. In Reagan's initial year as president, Congress lowered the capital gains tax to a level not seen in decades. By 1986, the worth of shares had doubled, and it then doubled twice more before the century concluded.

(Shortform note: The 1974 statute in question is the Employee Retirement Income Security Act of 1974 (ERISA), which established federal standards for private pension plans. While ERISA did require pension fund managers to act in the best interests of plan participants, it did not mandate a single-minded focus on maximizing current cash value at the expense of long-term stability. In The Employee Retirement Income Security Act of 1974, James A. Wooten explains that Congress imported the core fiduciary duties from the common law of trusts—exclusive loyalty to participants and beneficiaries, prudence, diversification, and adherence to plan documents. This framework imposed on plan fiduciaries an ongoing obligation to manage pension assets cautiously and for the long-term security of promised benefits, rather than to chase the highest possible short-term investment returns.)

The government exposed everyone to increased risk by enabling financial schemers through another means: bonds. Large companies and municipalities take out massive loans by issuing and trading bonds. The swift growth of America's financial industry between about 1980 and 2000 was staggering. Its growth abruptly doubled compared to the pace of the '50s, '60s, and '70s. In 1980, venture capital, private equity, and hedge funds—the "alternative alpha" sector—had control over a tiny portion of the American economy. Just prior to the 2007 crash, those amounts had increased to $1.4 trillion and $1.8 trillion, respectively.

(Shortform note: The “alternative alpha sector” refers to money-management firms that focus on producing “alpha,” or extra return above what a plain, well-diversified portfolio would normally be expected to earn, by relying on nonstandard financial techniques. The “alternative” part of the term refers to the fact that these firms use nonstandard financial techniques. For example, a hedge fund might use leverage (borrowing money to invest more than it actually has) or short selling (betting that a stock’s price will fall) to try to generate higher returns.)

Wall Street's larger and better-known industry of brokering, advising, and mediating between numerous investors and the traditional bond and stock markets increased fivefold as a portion of the U.S. economy between 1980 and the early 2000s. The expansion of mutual funds, in particular, was even more remarkable: In 1980, they contained approximately $400 billion in investments (in today's money), but by 2007, that amount had reached $16 trillion, an increase by a factor of 40.

(Shortform note: The growth of Wall Street’s intermediation business and the mutual fund industry was largely driven by a shift in how these firms made money. Traditionally, brokers and advisers earned commissions on each transaction they facilitated. However, as described in The Mutual Fund Industry, the industry shifted to an asset-based fee model, where firms earned a percentage of the total assets they managed. This change created a strong incentive for firms to gather and retain as many assets as possible, leading to the explosive growth in both intermediation services and mutual fund assets.)

This has greatly benefited those in financial industries. In the U.S., wealth has only increased for the uppermost tier, but those who are well-paid in finance have set the standard. In just one generation, the total amount of fees collected by mutual fund managers increased by a factor of ten, surpassing $100 billion annually. Research by Harvard Business School indicates that as late as 1990, fees paid to managers of venture capital, hedge funds, and private equity were almost nonexistent.

(Shortform note: A 2013 study by Robin Greenwood and David Scharfstein found that the financial sector’s share of the U.S. GDP nearly doubled from 4.9% in 1980 to 8.3% in 2007. This growth was largely driven by the expansion of asset management services, including mutual funds and alternative investments like hedge funds and private equity. The study highlights how the proliferation of fee-based financial products contributed to the concentration of wealth among top financial professionals.)

In the early 21st century, that smaller cohort was bringing in upwards of $100 billion annually, too. The government agrees that the billions annually given to those managing hedge funds and private equity firms aren't large salaries but instead investment earnings, even though those managers don't actually have ownership stakes. This loophole for "pass-through income" allows them to be taxed at a 20% rate instead of the standard top rate of 37%. In 1978, employees in finance earned the same average amount as those in other industries. By the year 2000, the typical finance worker earned $92,000, while other workers made an average salary of $59,000. However, in the post-1980s period, finance executives began receiving much higher premiums—three or four times the compensation of their counterparts in other sectors.

The Carried-Interest Loophole

In The Triumph of Injustice, Saez and Zucman explain that the tax code has been restructured to benefit the wealthy, particularly through the “carried-interest” loophole. This loophole allows private-equity and hedge-fund managers to pay lower taxes on their earnings by classifying them as capital gains rather than ordinary income. The authors argue that this is a clear example of how the tax system has been manipulated to favor the rich. They propose that carried interest should be taxed like ordinary earnings, which would eliminate this unfair advantage. This would ensure that all income, regardless of its source, is taxed at the same rate, promoting a more equitable tax system.

The Consequences and Potential Reversal of Elite Rule

Andersen explains that financial disparity and instability have increased since the eighties. The share of income received by the ultra-rich has risen to 5%—a tenfold increase from its 1970s level. The wealthiest 20% of Americans now possess around 80% of the total wealth, a far bigger portion than they had prior to the 1980s. The wealthiest 1% hold 56% of American-owned stocks, which is 25% more than in the late 1980s.

(Shortform note: The statistics Andersen cites are supported by the work of economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, who have developed a comprehensive approach to measuring income and wealth inequality in the United States. Their research involves constructing “distributional national accounts,” which allocate 100% of national income and wealth to individuals, allowing for a detailed analysis of how economic resources are distributed across different segments of the population. By linking tax-return microdata with national-accounts totals, the authors can track the evolution of income and wealth shares over time, providing empirical evidence for the trends Andersen describes.)

The top 0.1% control 22% of all the wealth, over triple the share they had in the 1970s, and the 1.5 million households worth around $10 million or more possess 39% of all the wealth, nearly double what they held in 1980. The richest 1% have gained twenty-one trillion dollars in wealth from the late 1980s onward, with households averaging a $12 million increase. The majority of U.S. income now belongs to the highest-earning 10%.

(Shortform note: The statistics in this section are part of a research tradition that focuses on the top 0.1% to 10% of the population, which is mathematically distinct from the rest of the population. This tradition, exemplified by Thomas Piketty’s Capital in the Twenty-First Century, uses tax and estate records to track the fortunes of the very richest groups over centuries, rather than relying solely on contemporary surveys. This approach reveals that the upper tail of wealth distribution follows a Pareto law and evolves according to its own historical dynamics.)

In the 1980s, the upper middle class—the 30% just below the top 10%—owned 29% of all the assets. Today, that 30% owns just 17% of total wealth. In 1987, the poorest 60% of Americans possessed 6% of the country's assets. Now that 60% holds only 2% of total wealth. The 607 billionaires in the U.S. hold more wealth than the Americans whose wealth ranks them above the middle but below the wealthiest—and they number 200 million.

(Shortform note: Economist Edward Wolff, in A Century of Wealth in America, uses the Federal Reserve’s Survey of Consumer Finances and related historical balance-sheet data to construct consistent estimates of household net worth by wealth group. He finds that between 1983 and 2016, the share of total household wealth owned by the top 1 percent rose from roughly one-third to about 40 percent, while the share owned by the bottom 90 percent fell from about one-third to a little over one-fifth.)

The standard monthly retirement payment from Social Security rose over three times between 1950 and 1980, accounting for inflation, but in the last 40 years, it has only grown by half that amount. Over the past four decades, full-time U.S. workers' median weekly wages have only grown an average of 0.1% annually. Men's wages have decreased by 4%. In 1973, non-managerial employees in private industry had an average hourly wage of $24.29. Today, it's $23.70. In 1980, the bottom half of Americans received 20% of the total income. By 2012, this percentage had decreased to 12%.

(Shortform note: Some economists, such as Bruce D. Meyer and James X. Sullivan, argue that the statistics cited above are misleading. They claim that the standard measures of income and wages fail to account for the full range of resources available to Americans, such as government benefits, tax credits, and non-cash assistance. When these additional resources are considered, they argue, the picture of economic progress for the bottom half of Americans looks much more positive. Meyer and Sullivan contend that the share of resources going to the bottom half of Americans has actually increased, not decreased, over the past several decades.)

During the 1980s, the middle class and those just above them earned 37% of the total income. By 2014, the portion had decreased to 27%. In 1970, just 14% of Americans resided in neighborhoods that were significantly wealthier or less affluent than the surrounding metro area. By the 2000s, this proportion had grown to a third. In 1980, at least 25% of census tracts in the U.S. had populations composed almost exclusively of non-Hispanic white individuals. Today, merely 5% of white Americans reside in those neighborhoods. In 1970, 92% of 30-year-olds in the U.S. had higher incomes than their parents did at the same age. In 2012, just 50% of Americans in their early 30s were earning higher incomes than their parents.

(Shortform note: The statistics above are part of a research tradition known as “neighborhood effects.” This tradition argues that the social and institutional characteristics of the neighborhoods where people grow up have a significant impact on their life outcomes, including income mobility. In Stuck in Place, Patrick Sharkey argues that neighborhoods are a central mechanism through which inequality is reproduced over time. He explains that when families remain in severely disadvantaged neighborhoods across multiple generations, this accumulated exposure powerfully constrains their prospects for upward mobility, even when individual effort or family characteristics are taken into account.)

If you're raised in poverty in the United States, there's less than a 25% likelihood that you'll achieve solid middle-class status. If you start off in the economic middle, you likely won't advance at all. Those raised in affluent or wealthy families are highly likely to stay in the same social class when they're adults.

(Shortform note: In the modern era, this idea is often framed as “intergenerational status persistence.” In The Son Also Rises, economist Gregory Clark uses rare surnames to track the fortunes of families over centuries, finding that social status is far more persistent across generations than conventional estimates suggest. He explains that family advantages and disadvantages fade only very slowly over time, regardless of whether the society is preindustrial or modern, democratic or authoritarian, or organized around feudalism, socialism, or capitalism.)

In 1982, only 14% of workers reported being worried about job loss. By 1995, nearly 50% of U.S. employees at large companies expressed major concern about being let go. In 1997, pay continued to stagnate for most Americans despite low and dropping unemployment rates. By the late 1980s, the portion of Americans who lost jobs annually grew 33% and remained steady. From 1979 to 1991, the number of personal bankruptcies increased threefold, then increased by 100% again, and mortgage foreclosures went up four times, then increased by 100%.

(Shortform note: In The Two-Income Trap, Elizabeth Warren and Amelia Warren Tyagi argue that the shift from a single-earner household to a two-income household has not given families a comfortable financial cushion, but has instead converted the second paycheck from a safety valve into a necessity. Parents today commit both incomes to inescapable fixed costs—especially higher mortgages in good school districts, child care, health insurance, and car payments—so that the loss of either paycheck leaves them with no margin for error and can quickly drive even solidly middle-class families into financial free fall.)

College became far less affordable in the 1980s. Starting in 1981, states have reduced their financial support for public higher education institutions by 50%. The inflation-adjusted expense of attending college for four years has nearly tripled. At the start of the 1980s, people with college degrees earned 33% more than those who only finished high school. In 1992, their earnings were 67% higher than high school grads, and this remains true today. For those without a college degree, inflation-adjusted wages have decreased by 10 to 20% in that period.

(Shortform note: In Unmaking the Public University, Christopher Newfield argues that the conservative tax revolt of the late 1970s and the Reagan era recast public universities from tax-supported, middle-class-oriented institutions into semi-privatized enterprises expected to make up for deliberate shortfalls in public appropriations by raising tuition and fees, a shift legitimated by the claim that higher education is a private investment whose benefits accrue mainly to individual degree holders rather than to the general public. This shift in funding priorities coincided with the decline in non-college wages, creating a feedback loop that further justified tuition increases.)

In the early '90s, just 25% of those who graduated from public universities and colleges carried student loans. By 2010, the proportion was two-thirds. The entire yearly amount of student loans for higher education in 1976 was $8 billion. In the early 1980s, it increased to $22 billion, and by 2005 it hit $100 billion. In that 30-year period, the student population grew by 50%, and their annual borrowing increased twelvefold. Today, 45 million Americans hold an average student debt of $35,000 each. Since 2000, the earnings advantage for graduates has stagnated. Forty percent of new American college grads work in roles that don’t need a college education. The cost of higher education and student loans has eliminated the wealth advantage for younger Americans who hold college degrees.

The Wealth Advantage of High-Earning Majors

The cost of higher education and student loans has eliminated the wealth advantage for younger Americans who hold college degrees, but this isn’t true for all college graduates. Those who major in high-earning fields like engineering or computer science still have a significant wealth advantage over those who don’t have a college degree, even after accounting for student loan payments. For example, the median annual salary for a computer science major is $91,250, while the median annual salary for someone with only a high school diploma is $38,792. Even after paying off student loans, computer science graduates have a much higher earning potential than those without a college degree.

Next, we’ll look at how wealthy elites have leveraged their influence to entrench inequality. Then, we’ll explore how the economic system can be restored to benefit the majority rather than a powerful minority.

The Drivers of Entrenched Inequality

Andersen argues that wealthy elites have leveraged their influence to entrench inequality. The top 1% has twice as many assets as they did forty years ago, while the net worth of the lower half has declined to nearly nothing. The weekly median earnings of full-time employees have risen annually by a mere 0.1%, with the incomes of just the wealthiest 10% expanding in tandem with the economy. Economic inequality has returned to the point it was at a hundred years ago, and economic immobility is worse than ever.

(Shortform note: While Andersen’s analysis of wage stagnation and inequality is accurate for the period he covers, recent research suggests that the post-pandemic labor market has seen some shifts. A 2023 study by economists David Autor, Arindrajit Dube, and Annie McGrew found that in the period from just before the pandemic to the early 2020s, wages at the bottom of the U.S. distribution rose substantially faster than those at the middle and top, producing an unusually large compression of wage inequality, especially in low-paid service occupations.)

The influence of wealthy elites and large corporations has compromised the system. In the 1980s, they gained political influence to shift the system in their favor. This increased their wealth, which enabled them to buy additional political leverage to skew the system even further to their advantage. This cycle has continued, turning higher economic disparity into increased political inequality, which then leads to greater economic disparities.

(Shortform note: In The Myth of the Rational Voter, economist Bryan Caplan argues that the main source of bad economic policy in modern democracies is not pressure from organized interests, but the systematic economic misconceptions of ordinary voters. Caplan identifies four key biases that distort public opinion: anti-market bias, anti-foreign bias, make-work bias, and pessimistic bias. He explains that politicians have strong incentives to satisfy these biases rather than correct them, leading to policies that harm economic growth and prosperity.)

Wealthy elites, big business, and right-wing political forces have been working on this project for a long time. They persuaded the public in the '70s and '80s that the established economic standards and expectations of the previous 50 years were outdated and ought to be supplanted by a more traditional framework. Many people at that time didn't understand the extent or impact of the shifts or foresee their outcomes. The changes involved countless tweaks to governmental statutes, esoteric financial innovations, and large corporations altering their operations. The impacts of these changes gradually surfaced throughout the decades. The architects of economic conservatism used nostalgia to help their cause. They cloaked their novel framework in a nostalgic patriotic guise, presenting reduced taxation on the wealthy, unregulated businesses, weaker unions, and a less powerful federal government as the sole route to a stronger, better America.

Financial Innovation as a Means of Regulatory Evasion

In The Bankers’ New Clothes, Anat Admati and Martin Hellwig argue that many of the financial innovations promoted by large banks—such as intricate securitizations, credit derivatives, and off-balance-sheet entities—are primarily mechanisms for increasing and obscuring leverage, evading regulatory capital requirements, and shifting risks onto others, while providing little or no real benefit to the financing of productive economic activity. They contend that these complex financial structures often serve to make it difficult even for professionals to understand the true risks involved, rather than to create genuinely new sources of value.

Pathways to a Restored Political Economy

Andersen believes that the structure of political economy should benefit the majority, not just a powerful minority. He prefers the phrase "political economy" instead of just "economy" because it reminds us that societies and economies are shaped by negotiations, feelings, and choices about the rules of the game, what’s fair, and how to optimize for the majority. He argues that the longing for the past that emerged in the 1970s paved the way for the right's initiative, which built a reproduction-old-days political economy. This system involved excessive respect and tax breaks for businesses and wealthy individuals, with selfishness reframed as American individualism in a healthy form.

(Shortform note: Cultural theorist Svetlana Boym, in The Future of Nostalgia, argues that nostalgia can be a powerful political force. She distinguishes between “restorative nostalgia,” which seeks to literally rebuild a lost golden age, and “reflective nostalgia,” which is more about longing and memory. Boym warns that restorative nostalgia often becomes the emotional engine of political projects, as it did in the 1970s. This form of nostalgia, she explains, is at the heart of many contemporary national and religious revivals, transforming longing for an idealized past into political programs that promise to restore a mythical golden age. Boym’s analysis supports Andersen’s argument that the right’s initiative in the 1970s was fueled by a desire to recreate a past that never truly existed, leading to the reproduction-old-days political economy he describes.)

The resulting cultural stagnation benefited conservatives and wealthy individuals. Intentional shifts in politics, the economy, and society from 1900 to 1970—including Progressivism, the New Deal, and more economic and legal equality—occurred alongside rapid technological advancements and transformations in cultural trends. However, that stopped by the close of the 20th century, and America became trapped in a self-perpetuating cycle of cultural, political, and economic status quos. According to Andersen, as changes in music, design, and fashion slowed or stopped, people became more resigned and fatalistic, believing major changes in the political economy were no longer possible. As the years of inertia passed, all forms of it felt increasingly normal and familiar. An unending cycle of relaunches and comebacks conditions people to continually anticipate and accept repeated sameness, dampening their hunger for innovation, transformation, and advancement.

Cultural Repetition and Collective Action

Andersen’s argument that slower stylistic change in music, design, and fashion breeds resignation and fatalism may not apply equally across all areas of American culture. In Convergence Culture, media scholar Henry Jenkins describes how the constant recycling of familiar media franchises can actually foster new forms of collective intelligence, social connection, and even activism. Jenkins argues that when fans are invited to actively participate in the creation and circulation of new content, they come to see themselves as creative agents capable of reshaping stories, communities, and even institutions. This suggests that in participatory cultures, the reuse of familiar elements can spark creative reinterpretation and collective action rather than reinforce acceptance of existing arrangements.