Author Archives: James Kwak

Conflicts and Corruption

By James Kwak

To be clear, the idea that Donald Trump will be president while he or his children effectively own a company that does business all over the world is preposterous. (Quick primer on trust law: A trust is managed its trustees for the benefit of its beneficiaries. In this case, we know the trustees include two of Trump’s children, and the beneficiary is likely to be either Trump or his children.) If people, companies, and foreign governments want to pay bribes to the president of the United States, they need only give favorable deals to the Trump Organization. An in any of his official actions, the president will have the temptation to do what’s right for his company, not for the country.

The point I wanted to make in my Atlantic column today, however, is that this is just the most obvious and egregious example of the larger problem of corruption: government officials acting in the interests of themselves, their family and friends, or their business associates. The example I focus on is estate tax repeal, because that one thing alone would be worth more than $1 billion to the Trump family. It’s a classic example of a president doing what’s in his own personal interests and the interests of his core constituency of gazillionaires, while pretending it’s for the good of the country.

Betsy DeVos is another great example, perfectly illustrated by this graphic from the AFL-CIO:

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The way American politics works is that people and organizations with money—today, largely billionaire families—invest in politicians and demand policies that favor their private interests. Donald Trump just eliminated the middlemen—not only winning the presidency, but also inviting fellow billionaires like DeVos into his cabinet. This is why, beyond the ongoing catastrophe that is the Trump presidency (which technically hasn’t even started yet), we still need to fix our democracy, so everyone has an equal say in our government.

For more, see the full article in The Atlantic.

Economism Typo Contest

By James Kwak

Today, you may be getting your copy of Economism: Bad Economics and the Rise of Inequality in the mail. Or you may even be able to buy it in a bookstore. But before you crack it open, I want to tell you something.

I hate typos.

I try to read each of my book manuscripts carefully before submitting them. I hire my own line editor to go through my writing for grammatical and stylistic errors. The publisher then does a copy edit. When I get the “galleys” back from the publisher, I hire my own proofreaders to scour them again for mistakes. But inevitably typos sneak into the published books. Here’s one from 13 Bankers:

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(That should be “economic policy,” in case you’re wondering.)

Furthermore, I am almost incapable of reading anything that I’ve written before. It’s just too boring when you already know what the next sentence is going to say; at best I can skim. So it’s very hard for me to catch mistakes in anything that I’ve published. Out of sympathy to my fellow writers, I often circle typos when I find them in books that I am reading. Sometimes I even email the author out of the blue with a list of mistakes, if there is still time to fix them in the paperback version.

So, before you start reading, I’d like you to know about the Economism Typo Contest. If you are the first person to find and tell me about a mistake, I will send you a limited edition, spiral-bound, 5×8 notebook with the jacket cover of Economism on the front (signed on the inside if you like). Or, if you prefer, I will pay you ten dollars in cash money.

The detailed rules and instructions for submitting mistakes are over at the version of this post over at Medium.

Thanks for your help.

Economism and the Future of the Democratic Party

By James Kwak

I haven’t written much about the election itself (except to point out that the same data can be interpreted in diametrically opposing ways). That’s because the election was so close that the fact that Clinton lost can be explained by any number of but-for causes, and much of the Democratic Internet has been a cacophony of people insisting that their preferred cause (Comey, Russian hacking, not enough attention to African-Americans, too much attention to minorities, not enough attention to the white working class, too much emphasis on Trump’s personality, etc.) was the One True Cause.

I do think, however, that if Democrats (a group in which include myself) want to return to power and change the overall political dynamics of this country, one thing we need to recognize is that Republicans have been crushing us on the economic messaging front for decades. We have adapted by becoming Republicans Lite—no longer the party of jobs and the working person, but now the party of minimally intrusive market regulation, technocratic expertise, and free trade agreements.

This is the subject of my article in Literary Hub today, “The Failure of Democratic Storytelling.” Now that Democrats are out of power virtually across the board, we have the opportunity to develop a new vision, without having to compromise with Joe Manchin, Arlen Spector, and Susan Collins to squeak legislation through Congress. The question is what we make of that opportunity.

A Change Is in the Air

By James Kwak

There was one moment, when I was finishing up the manuscript of Economism, that I thought someone had already said what I was trying to say in the book. This is what I read:

“The beauty and the simplicity of such a theory are so great that it is easy to forget that it follows not from the actual facts, but from an incomplete hypothesis introduced for the sake of simplicity. … The conclusion that individuals acting independently for their own advantage will produce the greatest aggregate of wealth, depends on a variety of unreal assumptions …

“Individualism and laissez-faire could not, in spite of their deep roots in the political and moral philosophies of the late eighteenth and early nineteenth centuries, have secured their lasting hold over the conduct of public affairs, if it had not been for their conformity with the needs and wishes of the business world of the day. …

“These many elements have contributed to the current intellectual bias, the mental make-up, the orthodoxy of the day.”

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The Curse of Credentialism

By James Kwak

I just finished reading J. D. Vance’s memoir, Hillbilly Elegy. I don’t feel like adding to the torrent of instanalysis of the “white working class,” however, so I’ll just comment on the description of Yale Law School—which, in the book, serves the dramatic function of introducing the author to the Elite.

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Photo by Shmitra at the English language Wikipedia (CC BY-SA 3.0)

There are a few details that seem unfamiliar to me—I can’t recall attending a single one of the “cocktail receptions and banquets” that Vance describes as the school’s social rituals—but then again I was thirty-nine and married with a child when I started law school. But there is one thing that Vance nails: the culture of credentialism.

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Larry Kudlow and Economics in the Trump Administration

By James Kwak

Noah Smith (along with a fair section of the Internet) has some concerns about Larry Kudlow as chair of the Council of Economic Advisers: he’s overconfident, too much of a partisan, and fixated on nonexistent problems (e.g., inflation). I’m not so worried that he’s on Team Republican; after all, Donald Trump gets to pick the advisers he wants, and they shouldn’t be rejected solely because they take political sides. But I am worried about what Kudlow’s appointment means for the relationship between economics and policy.

The world is a complicated place. Anyone who studies society in depth should learn to have respect for that fact. At any given moment, we have only a hazy understanding of what combinations of transitory phenomena and underlying structural factors produce what outcomes. (For Exhibit A, see the election that took place on November 8.) This tweet at the beginning of Game 7 of the Cubs-Indians World Series, channeling the great French historian Fernand Braudel, is one of my all-time favorites:

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How Not to Invest

By James Kwak

Forty years after John Bogle launched the Vanguard 500 Index Fund, passive investment funds now account for about one-third of the mutual fund and ETF market. You would think this would pose a threat to traditional asset managers that charge hefty fees for actively managed mutual funds, and this is true in part. On average, index funds charge 73 basis points less than active funds, and the average expense ratios for actively managed funds have fallen from 106 bp to 84 bp over the past fifteen years (Investment Company Institute, 2016 Investment Company Fact Book, Figure 5.6).

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