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Obamacare, Taxes, United Airlines, and My Tea Infuser

By James Kwak

Over at Medium, I just posted a new article about the Jonathan Gruber-Obamacare “scandal.” Republicans are highlighting Gruber’s remarks as proof that the individual mandate really is a tax, and that the administration hid that fact in order to put one over on the public. But this whole argument flows from a faulty premise: that whether something is a tax or not is a question that has a knowable answer.

Last week I wrote a post complaining about my dismal experiences on United Airlines, which I chalk up to two things. The first is miserable computer systems. (It’s remarkable when you can see a computer system failing, and you know exactly what’s going wrong.) The second is the oligopolistic/near-monopolistic structure of the industry, especially when combined with a do-nothing Antitrust Division over at DOJ. It’s not just me: Tim Wu thinks so, too.

Finally, before that I wrote a post about Amazon’s extraordinary dominance in online retailing of physical goods. Who cares if no one will buy your phone when people are happy using other people’s phones to buy toilet paper and diapers from you?

Enjoy.

A Conference On Finance For Everyone Else

By Simon Johnson

It is hard to move around in Washington these days without bumping into a conference on the future of finance. But most of these are either closed to the public, or run on behalf of large banks as part of their lobbying efforts.

Next week, there will be a conference open to everyone at George Washington University to discuss where we really are on financial reform, and what still needs to be done. You should register in advance through the web page (link given above), but there is no cost to attend.

Featured speakers include Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, and Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corporation. We also have a wide range of other technical experts – on issues from resolution to “shadow banking” – who are willing to speak frankly and engage in honest discussion.

GW Center for Law, Economics and Finance (C-LEAF), Stanford Graduate School of Business, Max Planck Institute for Research on Collective Goods, and Better Markets generously made this event possible.

If you want to understand what has really happened to finance, show up.

No, You Can’t Get a Drink at 5 AM

By James Kwak

I’m in the United Club at SFO waiting for a flight, and the bar is closed until 8. So much for business travel.

I just published a post over at Medium that is really about two things: how both airline marketers and on-campus recruiters perpetuate the idea that air travel is glamorous, even when all of us know that it isn’t. It’s sort of a sequel to one of my favorite posts of those I’ve written, “Why Do Harvard Kids Head to Wall Street?” which I think is the one Paul Tough mentioned in his book about grit. Now that it’s recruiting season in the Ivy League, I thought it might be useful.

Also, last week I wrote a post about the HP breakup and what it implies about corporate management.

Cultural Capture and the Financial Crisis

By James Kwak

A few years ago, while still in law school, I was invited to write a chapter for a Tobin Project book on regulatory capture. It was a bit intimidating, being part of a project that included luminaries like David Moss, Dan Carpenter, Luigi Zingales, Richard Posner, Tino Cuellar, and the deans of two of the best law schools in the country. I was asked to write something about an idea that I had slipped into 13 Bankersalmost in passing, about the cultural prestige of the financial industry and the political and regulatory benefits the industry derived from that prestige. My chapter turned into a discussion of the various mechanisms by which status and social networks can influence regulators, creating the equivalent of regulatory capture even without traditional materialist incentives (cash under the table, promises of future jobs, etc.).

Two weeks ago, an investigation by ProPublica and This American Life illustrated the culture of deference, risk aversion, and general sucking-upitude among New York Fed bank examiners that effectively resulted in the capture of regulators by the banks they were supposed to be regulating. As David Beim wrote in a confidential report about the New York Fed, the core problem was “what the culture expected of people and what the culture induced people to do.”

I wrote about the story for the Atlantic and referred to my book chapter, but at the time the chapter was not available for free on the Internet (at least not legally). The good people at the Tobin Project have since put it up on the book’s website, from which you can download it (legally!). Note that they are only allowed to put up one chapter at a time and they rotate them, so this is a limited-time offer.

Game of Thrones, The Wire, and the New York Fed

By James Kwak

I wrote a column that went up this morning at The Atlantic about the ProPublica/This American Life story about the New York Fed. The gist of the argument is that we all knew the New York Fed was captured; for people like Tim Geithner, that’s a feature, not a bug.

There was a paragraph in my original draft that I really liked, but I can completely understand why the editors didn’t want it:

“When Tyrion Lannister wants his son killed, he sentences him to death in public. When Avon Barksdale wants potential incriminating witnesses killed, he obliquely lets his lieutenant know that he’s worried about loose ends—because he doesn’t want his fingerprints (voiceprints, actually) visible. When senior New York Fed officials want their staff to go easy on Goldman Sachs—well, they don’t need to lift a finger. The institutional culture takes care of it for them.”

This is similar to the idea at the core of “The Quiet Coup,” the Atlantic article that had a million page views back in 2009. In a less well developed political system, rich businessmen buy favorable policy by passing money under the table (or hiring politicians’ relatives, or giving them loans and then letting them default, and so on). In the United States, for the most part, you don’t have to do anything illegal: the system takes care of it for you, whether it’s bailout money from the Treasury Department or regulatory forbearance from the New York Fed. That system is a combination of personal incentives, cultural capture, and institutional sclerosis.

In short, buying politicians (or regulators) is good. Not having to buy them in the first place is even better.

New Collection on Medium

By James Kwak

I’ve joined a new collection on Medium devoted to business and finance writing. It’s called “Bull Market,” after an intense lobbying campaign (including alleged vote-buying, although I haven’t tried to collect) by Felix Salmon, and includes Felix, Mark Buchanan, Dan DaviesAlexis Goldstein, Francine McKennaEvan Soltas, and Mark Stein. The goal is to write thoughtful articles that don’t just respond to the latest story on the wire (although there will be some of that, too).

My contribution for today is a post about the no-poaching lawsuit in Silicon Valley and what it says about class consciousness in America today.

I hope you enjoy the collection.

Changes

By James Kwak

You may have noticed that my blogging has tailed way off over the past few months—to, well, just about nothing. You probably noticed that it was pretty spotty for a long time before that. The main reason is that I’ve been busy with a new teaching job, which requires some effort on academic publications, and raising two small children. The other major factor is that I often just find I don’t have much that’s original to say. Financial regulation is a pretty heavily covered field, and I don’t have the time to be a real expert on, say, derivatives clearinghouses, and—believe it or not—I generally try to avoid posting if I don’t have something new to add. I tried to get back into the flow in the spring semester, when I was only teaching one class, and that worked for a while. But at the beginning of the summer I started doing some part-time consulting for my old company (I’m on unpaid leave from my law school this semester), and that’s made it impossible to keep up with the news, much less write something interesting about it.

That said, I still like to write. I’ve started posting occasionally on Medium, which I like both for the gorgeous interface and because it isn’t organized as a reverse-chronological list—which means that I don’t have to worry as much about saying something newsworthy before the moment passes. This week I wrote about playing Minecraft with my daughter (OK, it’s mainly about the Microsoft acquisition) and one of my favorite topics, why megabanks run on bad software.

I don’t know how long I’ll be keeping this up, but in the meantime my plan is to write an occasional post here summarizing things that I write on Medium or elsewhere on the web. As usual, I’ll also post new articles to Twitter more or less immediately after publishing them.

Thanks for reading.