Category: Books

Take Back Our Party, Print Edition

By James Kwak

I’ve never wanted to write a book as much as I wanted to write Take Back Our Party. And I’ve never wanted people to read one of my books as much as this one—in particular, before the 2020 Democratic primary season ends. For that reason, I bypassed the usual publication route. (As my editor at Pantheon liked to say, the period for turning a manuscript into a book is, for unknown reasons, the same as the gestation period of a human. In his defense, he did get both 13 Bankers and White House Burning out in around 5–6 months.)

cover image Instead, David Dayen, executive editor of The American Prospect, agreed to publish the book online, and it went live here in December. In addition, I wanted there to be a print edition for people (like me) who, well, prefer reading things on paper—and for mailing to people who should read it. Ryan Grim at Strong Arm Press gamely agreed to publish it, knowing that it was already available on the Internet. Jordan Jones did the interior design and Soohee Cho did the cover. The print edition has a small number of corrections, it has real footnotes with accurate page citations (something you can’t do with Internet-style hyperlinking), and it has a descriptive index so you can look up your favorite neoliberal from the past three decades.

You can order a print or ebook copy via the Strong Arm website (or, of course, from your least-favorite monopolist). They should start shipping on Tuesday, and I believe the ebook is available right now. The online version at the Prospect will still be available for the foreseeable future.

I’m pretty sure I’m going to lose money on this, taking the book design costs into account, but that was never the point. The point was for people to read it. So do that now.

Review Copies of Economism

By James Kwak

If you teach introductory economics or introductory micro, at either the high school or university level, and you’re interested in possibly using Economism in your class, let me know and I’ll send you a (free) review copy. Just email me at james.kwak@uconn.edu from your school account, tell me what class you are thinking of assigning the book to, and let me know your shipping address, and I’ll order a copy for you.*

Quick summary: The central theme of Economism is that some of the basic models taught in “Economics 101” have acquired disproportionate influence in contemporary society and are routinely and systematically misapplied to important policy questions. The problem is not that introductory models are wrong, but that too many people forget their limitations and believe that their simple conclusions can be reflexively applied to the real world. As Paul Samuelson said in the first edition of his textbook, the idea that “any interference with free competition by government was almost certain to be injurious … is all that some of our leading citizens remember, 30 years later, of their college course in economics.” In chapters on labor markets, taxes, trade, and other topics, Economism first walks through the implications of introductory models before explaining how a richer understanding of economic reality, including empirical research, teaches different and more interesting lessons.

If you worry that the typical first-year curriculum produces too many students who think unregulated markets are the answer to every problem, Economism may be the antidote you need. In the Financial Times, Martin Sandbu wrote, “Economics lecturers, take note: include [Economism] on your syllabus and set aside ample time to discuss its arguments in class.” The book has also received praise from many economists including Ian Ayres (Yale Law School), Jared Bernstein (former chief economic adviser to Vice President Joe Biden), Heather Boushey (chief economist, Washington Center for Equitable Growth), Simon Johnson (MIT Sloan; former chief economist, IMF; and my frequent co-author), Dani Rodrik (Harvard), and Noah Smith (Bloomberg View).

For more about the book, you can visit economism.net. The Atlantic also published an excerpt. (It’s basically the first half of the labor market chapter, on the minimum wage; the second half of that chapter deals with the compensation of very high earners.) And again, email me if you want a review copy.

(Note: I’m not doing this for the money; I’m doing it to get the book in the hands of as many students as possible. I have donated all of my royalties from 13 Bankers, White House Burning, and Economism to charitable organizations. I can’t anticipate my financial situation for the rest of my life, but I will donate all royalties from Economism for at least the next five years.)

* The fine print (updated): In the past twelve hours, the large majority of requests I’ve gotten have not actually been from people who teach introductory economics classes, so here are some clarifications:

You know how publishers send you review copies of textbooks, hoping that you’ll assign them to your students? This is the same thing. That’s why I ask that you tell me what class you might use the book in. If it isn’t introductory economics or introductory micro, or if you don’t specify a class, I may send you a review copy, but only after seeing how many requests I get from people who are teaching those classes.
I’m not actually going to try to check what your teaching schedule is, so this is on the honor system. But please remember that I’m paying for these books, not the publisher.
Let me know if you prefer hard copy or Kindle. If the latter, I need to know the email address of your Amazon account.
Non-U.S. requests: I can’t send hard copies outside the U.S. because I’m ordering the books individually from Amazon. (It’s too much work for me to mail them individually.) I can send you a Kindle copy. So please send me the email address of your Amazon U.S. account; I don’t think the book is for sale from most other Amazon subsidiaries, and in any case I’m buying the books with my Amazon U.S. account.

The Right to Have Rights

By James Kwak

There’s a story you hear often these days. The story is that America has too many lawsuits: too many lawyers, too many people filing frivolous suits, too many excessive damages awards by juries, and so on. This story is the reason for all the “litigation reform” in recent decades: the Private Securities Litigation Reform Act of 1995, Prison Litigation Reform Act of 1996, the state-level tort reform movement, Bell Atlantic v. Twombly, Ashcroft v. Iqbal, and so on.

There are two problems with this story. The first is that it isn’t true. Take medical malpractice, for example—a frequent target of tort reform advocates. Only a tiny fraction—probably under 2%—of people harmed by negligent medical care actually file suit. Of suits that are filed, according to an after-the-fact review by unaffiliated doctors, 63% involved errors by doctors, and another 17% showed some evidence of error. According to the most basic economic theory of torts, we want people harmed by negligence to sue, because otherwise potential defendants (doctors, companies, etc.) will not have sufficient incentive to make the efficient level of investments in preventing injuries. In short, it is highly likely that we suffer from not enough lawsuits, not from too many lawsuits.

The second problem is more important, however. That problem is that while the costs of litigation are real—not just money but also defensive medicine, intimidation of startups by patent trolls, intimidation of the media by billionaires—the exclusive focus on costs overlooks the crucial role of litigation in our democracy. That is the focus of the new book In Praise of Litigation by Alexandra Lahav, a colleague of mine at the University of Connecticut School of Law. (The book is also where I got the statistics in the previous paragraph.)

Continue reading “The Right to Have Rights” →

Economism and the Law

By James Kwak

Economism—the simplistic, unreflecting application of Economics 101 models to complex, real-world issues—is particularly influential in the law, including both legal academia and actual court opinions that decide important questions.

https://twitter.com/Noahpinion/status/821440674675335168

Noah Smith, for example, points to a paper by a law professor arguing that forced prison labor deters crime because it effectively raises the price of crime in a supply-and-demand model. The problem with this model is that it doesn’t accurately describe criminal behavior. Smith quotes economist Alex Tabarrok on what happened when the United States dramatically increased the harshness of punishments:

In theory, this should have reduced crime, reduced the costs of crime control and led to fewer people in prison. In practice … the experiment with greater punishment led to more spending on crime control and many more people in prison.

Continue reading “Economism and the Law” →

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: Special Holiday Offer

By James Kwak

As you may have noticed by now, I have a new book coming out. It could be a perfect holiday gift for, well, maybe a handful of people out there—the father-in-law who wonders why our country’s economic policies are so screwed up, or the annoying libertarian niece who insists that we should get rid of public schools and privatize the police force, or the progressive friend who studied anthropology and is unnecessarily intimidated by economics. But even if you pre-order it, you won’t get it until around January 10.

So, here’s the offer: If you pre-order a copy of Economism as a gift for someone, I will mail you a signed card with the image of the book jacket on the front and, on the inside, an explanation of what the recipient is getting (i.e., a book that will arrive in January). That way you can give the person the card instead of the book. If you want a card, send me an email at james.kwak@uconn.edu with your name and address and the name of the person I should inscribe it to. I am planning to mail the cards out by first class mail on Saturday, December 17 (from Massachusetts), which will give them a full week to get to you before Christmas. If you need one sooner for a different holiday, let me know and I’ll do what I can.

If you send me an email by Sunday (December 11), I expect to be able to send you a card. After that point I can probably do it, but I can’t guarantee it because it depends on how many extras I order in advance.

Have a happy holiday season.

Economics 101, Economism, and Our New Gilded Age

By James Kwak

My new book—Economism: Bad Economics and the Rise of Inequality—is coming out on January 10 (although, of course, you can pre-order it from your local monopoly now). If you’d like more information about the book, the book website is now up at economism.net. (I used Medium instead of WordPress.com this time.) The post below, which is also the top story on the book website, summarizes the main themes of the book.

Income inequality is at levels not seen for a century. Many working families are struggling to get by, only kept afloat by Medicaid and food stamps. The federal minimum wage is just $7.25 per hour—below the poverty line even for a family of two. The bright outlook for corporate profits has driven the S&P 500 to record levels. Surely it makes sense to raise the minimum wage, forcing companies to dip into those profits to pay their workers a bit more.

But that’s not what you learn in Economics 101. The impact of a minimum wage is blissfully easy to model using the supply-and-demand diagram that dominates first-year economics courses.

screen-shot-2016-11-28-at-2-57-46-pm

Continue reading “Economics 101, Economism, and Our New Gilded Age” →

Models of Economic Policymaking

By James Kwak

The evening that he won the Iowa caucus in January 2008, Barack Obama said this:

Hope is the bedrock of this nation. The belief that our destiny will not be written for us, but by us, by all those men and women who are not content to settle for the world as it is, who have the courage to remake the world as it should be… . [the belief that] brick by brick, block by block, callused hand by callused hand, … ordinary people can do extraordinary things.

That speech is at the opening of K. Sabeel Rahman’s new book, Democracy Against Domination. It invoked one of the central mobilizing themes of Obama’s 2008 campaign, which set him clearly apart from Hillary Clinton: the idea that the senator from Illinois would usher in a new kind of politics, a more democratic, more inclusive approach to government as opposed to business as usual inside the Beltway.

Well, that didn’t happen. Whatever you think of President Obama’s policy goals and accomplishments, he had little impact on how our political system works. Plenty of blame for that goes to the Republicans, who set out from Inauguration Day focused exclusively on making him a one-term president. But it’s also true that the new president did not make political reform a priority during those first two years when he had majorities in both houses of Congress.

Continue reading “Models of Economic Policymaking” →

The Last Chapter Problem

By James Kwak

Like many analytically minded liberals, I’m good at identifying problems and less good at coming up with solutions—a common disease sometimes called the “last chapter problem.” I recently finished reading The Reconnection Agenda by Jared Bernstein (which you can even download from his blog), which takes the opposite approach.

The problem he addresses is one that we all know about—inequality, stagnant real wages, the divergence between productivity gains and living standards, etc. Bernstein recalls a meeting with a group of insiders in 2014, when a pollster interrupted a discussion of the post-Great Recession economic recovery to say:

If you mention the word “recovery” to people, they don’t know what you’re talking about. And they conclude you don’t know what they’re talking about. It’s not just that they feel disconnected from an economy that’s supposedly growing. It’s that they don’t think anyone understands or knows what to do about their situation.

Continue reading “The Last Chapter Problem” →

And the Award for Best Financial Crisis Book …

… goes to Chain of Title, by David Dayen (with apologies to Jennifer Taub, Alyssa Katz, Michael Lewis, and many others, including my co-author, Simon Johnson).

Chain of Title isn’t primarily about the grand narrative of the financial crisis: subprime lending, mortgage-backed securities, collateralized debt obligations, credit default swaps, synthetic CDOs, the collapse of the global financial system in 2008, and the frenzied bailout that followed. Instead, it’s about foreclosure fraud: how mortgage servicers, banks, and the law firms they hired systematically broke the law to force people out of their homes. At the same time, it’s about securitization fraud: the fact that an untold number of securitizations were not properly executed, meaning that they violated the terms of their underlying agreements, meaning that their investors should have been able to force rescission of the entire deal.

The substance of the argument has been well known for years, so I’ll try to pack it into one sentence: The banks creating mortgage-backed securities failed to properly transfer notes (the documents proving a borrower’s obligation) to the trusts that issued the MBS, so not only was the securitization itself faulty, but the trust did not have legal standing to foreclose on homeowners—so the banks paid third-party companies to forge the required paper trail, and lawyers knowingly submitted fraudulent evidence to courts, who usually accepted it.

This has been common knowledge on the Internet since 2009 or 2010. But Dayen does what good writers do: he tells the story of a few real human beings figuring out the workings of this vast fraudulent system on their own, fighting against it … and ultimately, for the most part, losing. The book makes you feel the anger, disbelief, hope, and disappointment of those days over again. Even though I knew how the story ended—in a whimper of liability-eliminating settlements and self-congratulatory back-patting by politicians—it was still painful to read. Continue reading “And the Award for Best Financial Crisis Book …” →

Mysteries of Money

By James Kwak

Have you heard this story before?

The first assets deemed safe were coins made of precious metals. As a technology, coins had many problems: they could be clipped or, debased by the sovereign. They had to be assayed and weighed to determine their value in the best of times; whole currencies would collapse in the worst, when the “fraudulent arts” gained the upper hand. Coins were bulky, too, and vulnerable to theft. But they worked: they were always liquid, their edges could be milled to prevent clipping; and, for long periods of time, coins served as fairly reliable stores of value.

As trade expanded, problems with coins gradually led to the creation of paper money – privately-produced circulating debt in all its early forms: moneys of account; bank notes and bills; goldsmith notes; and merchants’ bills of exchange, all of them convertible on short notice into coins.

That’s David Warsh, paraphrasing Gary Gorton, who’s really just recounting conventional wisdom, handed down from economist to economist since time immemorial.

Except it leaves out the most interesting part of the story.

I’ve been reading Christine Desan’s book Making Money, on the history of money in late medieval and early modern Europe. It’s a fascinating story, full of both meticulous historical detail and compelling conceptual arguments about the relationship between forms of currency, political authority, and the creation of the modern state. Continue reading “Mysteries of Money” →

Finance and Democracy

By James Kwak

Roger Myerson, he of the 2007 Nobel Prize, wrote a glowing review of The Banker’s New Clothes, by Admati and Hellwig, for the Journal of Economic Perspectives a while back. Considering the reviewer, the journal, and the content of the review (which describes the book as “worthy of such global attention as Keynes’s General Theory received in 1936″), it’s about the highest endorsement you can imagine.

Myerson succinctly summarizes Admati and Hellwig’s key arguments, so if you haven’t read the book it’s a decent place to start. To recap, the central argument is that under Modigliani-Miller, the debt-to-equity ratio doesn’t affect the cost of capital and therefore doesn’t affect banks’ willingness to extend credit; the real-world factors that make Modigliani-Miller untrue (deposit insurance, taxes, etc.) rely on a transfer of value from another party that makes society no better off.

Continue reading “Finance and Democracy” →

The Desperation of the Vanishing Middle Class

By James Kwak

I recently finished reading Pound Foolish, by Helaine Olen, which I discussed earlier (while one-third of the way through). The book is a condemnation of just almost every form of personal financial advice out there, from the personal finance gurus (Suze Orman, Dave Ramsey) to the variable annuity salespeople to the peddlers of real estate get-rich-quick schemes to Sesame Street‘s corporate-sponsored financial education programs. (Of them all, Jane Bryant Quinn is one of the few who generally come off as more good than evil.)

A lot of what’s going on is just semi-sleazy entrepreneurs trying to make a buck, taking “advice” that is equal parts routine, wrong, and contradictory and packaging it into attractive-looking books, TV shows, and in-person events. A lot of the rest is marketing by the real financial industry, which either (a) wants to make a show of promoting financial education so people will think they are good or (b) wants to teach people that they need their products. (You pick.)

Continue reading “The Desperation of the Vanishing Middle Class” →

A Book That Needed To Be Written

By James Kwak

I have previously written about (here, for example) what I call economism, or excessive belief in the little bit that you remember from Economics 101. The problem is twofold. First, Economics 101 usually paints a highly stylized, unrealistic view of the world in which free markets always produce optimal outcomes. Second, most people in the world who have taken any economics have only taken first-year economics, and so they never learned that, from a practical perspective, just about everything in Economics 101 is wrong. (Complete information? Rational actors? Perfectly competitive markets?) This produces a nation of people like Paul Ryan, who repeats reflexively that free market solutions are always good, journalists who repeat what Paul Ryan says, and ordinary people who nod their heads in agreement.

The problem is not the economics profession per se. These days, to make your mark as an economist, it helps to be arguing (or, better yet, proving) that the free market caricature of Economics 101 is wrong. The problem is the way it is taught to first-year students, which pretty much assumes that Joseph Stiglitz, Daniel Kahnemann, Elinor Ostrom, and many others had never existed.

What we need, I have often thought, is a companion book for students in Economics 101, one that points out the problems with the standard material that is covered in the textbook. For a while I was thinking of writing such a book, but I decided against it for a number of reasons, one of them being that I am not actually an economist. Fortunately, John Komlos, who really is an economist, has written a book along these lines, titled What Every Economics Student Needs to Know and Doesn’t Get in the Usual Principles Text.

Continue reading “A Book That Needed To Be Written” →

The Politics of Intellectual Fashion

By James Kwak

Update: See bottom of post.

For years now, Anat Admati has been leading the charge for higher capital requirements for banks, especially large banks that benefit from government subsidies, first in a widely cited paper and more recently in her book with Martin Hellwig, The Banker’s New Clothes. Admati’s great service has been clearing the underbrush of misunderstandings and half-truths so that it is possible to have a debate about the benefits of higher capital requirements. Yet even after all this work, the media (and, of course, the banking lobby) continue to repeat claims that are simply false or highly misleading.

In another effort to beat back the tides of ignorance, Admati and Hellwig have put out a new document, “The Parade of the Bankers’ New Clothes Continues,” which catalogs and addresses these claims. In the simply false category, the most common is probably that capital is “set aside”; in fact, banking capital is assets minus liabilities, and the capital requirement places no restrictions on what a bank can do with those assets.

Continue reading “The Politics of Intellectual Fashion” →