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James Kwak

James Kwak



Articles by James Kwak

The COVID-19 Economy: What Can We Do?

July 12, 2020

By James Kwak
Today, the Washington Post’s Outlook section published my article on the future of the American economy in the wake of the pandemic. They invited me to write it because of my earlier blog post on “Winners and Losers.” (Hey, despite all appearances, maybe blogs are still worth writing.)
Photo by skeezeThe article is pretty gloomy. The short summary is that the COVID-19 pandemic will accelerate and reinforce the two primary economic trends of our time: consolidation and inequality. At this moment, I believe that more strongly than when I originally drafted the article two months ago. It seems to me that, as a society, we are caught between two unacceptable outcomes: either we reopen elementary schools (at least) so that parents can go to work, adding fuel to the

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COVID-19: Winners and Losers

March 29, 2020

By James Kwak
I think it’s highly likely that the dust will clear eventually and that our economy will come back to life at some point in the next two or three years. I know there are certain disaster scenarios that can’t be ruled out, but I think they are unlikely. I’m not going to guess when things will return to a semblance of normal. Really, no one knows.
Photo by Free-Photos from PixabayThe question for now is: what will that economy look like?
A few things, I think, are clear. The economy will not grow back up to its trend line prior to the pandemic. This, for example, from the Center on Budget and Policy Priorities, is what happened after the financial crisis and Great Recession:

Not only did actual GDP fall, but the trend line of potential GDP fell as well, costing the economy

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COVID-19: Inequality

March 26, 2020

By James Kwak
By some measures, in the short term, COVID-19 will surely reduce inequality of wealth, and probably inequality of income as well. As a purely mechanical matter, the rich have a lot more money to lose when the stock market crashes and most sectors of the economy grind to a halt.
Photo by Free-Photos from PixabayAt the same time, however, this pandemic is throwing into stark relief how unequal the lives of Americans are today. Most of the upper-middle class and rich seem to fall into one of two categories. Those without children in the house trade suggestions on how to fill their time: virtual happy hours, virtual yoga, free streaming opera, binge TV-watching, etc. Those with children in the house trade suggestions on how to keep said children occupied so that we can get

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COVID-19: The Butcher, the Brewer, and the Baker

March 24, 2020

By James Kwak
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
—Adam Smith, The Wealth of Nations
Image by Mandy Fontana from PixabayThis is the most famous line from the most famous justification of market capitalism. Smith’s point is that it is individual self-interest that drives the economy. In the next paragraph, he goes on to describe how gains from trade explain the division of labor in a modern economy:
“The certainty of being able to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he may have occasion for, encourages every man to apply himself to a particular

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COVID-19: The Statistics of Social Distancing

March 23, 2020

By James Kwak
It seems that social distancing is the primary strategy for slowing the propagation rate of COVID-19. That and widespread testing are the key tools for containing an outbreak, for reasons discussed repeatedly in the media.
Photo by Hans Braxmeier from PixabayBut does it work? Or, more to the point, how well do different degrees of social distancing work? How strict does it need to be, and how tightly does it need to be enforced? It seems to me that this is an important and at least theoretically answerable question.
Thanks to ubiquitous commercial and government surveillance, there are staggeringly comprehensive databases of exactly where people are at all times. Google has one, for example. Picture for yourself an enormous aerial picture of some metropolitan area with a

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COVID-19: Not One Penny

March 22, 2020

By James Kwak
The airline industry is trying to hold up the federal government for $29 billion in grants and another $29 billion in loans. They threaten that if they don’t get the grants they will lay off employees, and that if they don’t get the loans they will use their remaining cash on dividends and stock buybacks.
Photo by Júlia Orige from PixabayFirst of all, the second threat is staggering in its audacity. At current course and speed, the airlines will go bankrupt. When you are in financial distress, the last thing you should do is take your scarce cash and hand it to your shareholders. That meets at least the spirit, and perhaps the letter, of a fraudulent conveyance in bankruptcy law. But it represents the pinnacle of the idea of shareholder capitalism: screw the workers, screw

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COVID-19: Who Bears the Losses?

March 21, 2020

By James Kwak
Our business and household sectors are losing lots of money every day, and will continue to lose money for the foreseeable future. People no longer spend money at restaurants. Restaurant owners can no longer pay the rent or pay back their business loans. Restaurants fire their workers, who lose their paychecks and can no longer pay their rent, or their credit card bills, or their student debt. In an economic crisis like this, the overriding question is: who ultimately bears the losses?
Photo by skeeze from PixabayWe’ve been through this before. In the 2008 financial crisis, we applied the usual rules of capitalism—unless you were a large bank. Businesses failed and their owners (including shareholders, for corporations) were wiped out. Renters were evicted. Homeowners lost

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Thoughts About COVID-19: PPE

March 20, 2020

By James Kwak
PPE, as we now know, stands for Personal Protective Equipment, like face masks and gloves. Right now there isn’t enough of it, and that’s one of the constraints on being able to test people, which is one of the biggest problems we face.
Photo by ehpien (CC BY-NC-ND 2.0)
The only point I want me make here is this: This is how capitalism is supposed to work. If you’re a for-profit healthcare provider—or any kind of provider that is trying to provide the most value, however defined, with limited resources— you are not going to stock up on enough PPE to handle every possible scenario you might face. This is what management consultants and business school professors have been saying for decades. PPE, like inventory, is a form of working capital. If you can reduce the amount

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About that Democratic Primary …

February 11, 2020

By James Kwak
Today is the day of the New Hampshire primary, and, perhaps more importantly, lots of people in California are getting their ballots around now. Before you cast your vote in the Democratic presidential primary, I wish you would read Take Back Our Party, either online (for free) or in print. But I know most of you won’t, so this is what I want to say.
As a preamble, if you are a moderate Democrat—if you think welfare reform and financial deregulation were good ideas; if you think, along with Barack Obama, that more oil production is a good thing; if you think that America’s health care problems can be solved by private health insurance companies—what I am going to say is not for you. Go ahead and vote for Joe Biden, or Pete Buttigieg, or Amy Klobuchar.
The key message

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Take Back Our Party, Print Edition

February 7, 2020

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.)
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

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Economism on Marketplace

February 6, 2020

By James Kwak
David Brancaccio of Marketplace has started a new radio project called Econ Extra Credit: reading a first-year economics textbook, one chapter per week, along with his listeners. Luckily, he chose one of the textbooks produced by the CORE project, a group of economists who set out to rewrite the economics curriculum in the wake of the financial crisis and Great Recession.
David invited me to talk with him about “Economics 101” and the one-sided impression of the world that people often take away from the class—especially those for whom it is their only economics class. This, of course, was the subject of my 2017 book Economism: Bad Economics and the Rise of Inequality.
You can hear the whole interview here. Enjoy!
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False Choice

December 21, 2019

By James Kwak
The scene: Two well-dressed, fully employed people sitting at a table in the chic café at their workplace.
Martha: Do you like your health plan?
George: I love it.
Martha: How much do you pay for your plan?
George: About $550 per month.*
Martha: Do you have a deductible?
George: I have a $1,000 deductible for my whole family.
Martha: What about co-payments?
George: I have to pay 20% of the cost for hospital stays and outpatient surgery.
Martha: What if you just want to see the doctor?
George: I pay $25 to see my primary care physician, and $40 to see a specialist.
Martha: Can you see anyone you want?
George: I pay more if I see people out of network, but the insurer still pays something.
Martha: I’m thinking about switching to the new plan they’re offering. Have you

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Take Back Our Party, Chapter 4: Our Democratic Party

December 20, 2019

By James Kwak
Ever since I finished Economism (and the 2016 elections, which happened about the same time), there has only been one thing I have wanted to write. I tried in “The Importance of Fairness: A New Economic Vision for the Democratic Party,” and in “A New Economic Vision, in 27 Words,” and again in “Hey Democrats, the Problem Isn’t Jobs and Growth.”
I wanted to write this thing because it has become clear to me not only that our economic world is screwed up in all sorts of obvious ways, but also that the only viable path to fixing it runs through the Democratic Party. The Republican Party is what it is; even if it weren’t currently in the grip of a madman, it would at best be the party of Mitt Romney, Paul Ryan, Lindsay Graham, Marco Rubio, Ted Cruz, … you get the point. The

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Take Back Our Party, Chapter 3: Bad Politics

December 19, 2019

By James Kwak
Chapter 2 of Take Back Our Party made the case that the market-centric policies of the Democratic establishment have failed to do anything about—and in many cases have exacerbated—the rise of inequality. Chapter 3 continues the indictment, arguing that the “growth and opportunity” doctrine of Clinton and Obama has also failed as politics.
The New Democrats chose to identify themselves as the party of jobs and growth because they did not want to be seen as the party of redistribution and welfare. But in copying the Republican message of market-driven growth, they also lost the ability to differentiate themselves from those same Republicans. While conservatives promised that slashing regulations and cutting taxes would unleash the ingenuity of the private sector, the

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The Crisis of the Democratic Establishment

December 14, 2019

By James Kwak
The Democratic Party is at a crossroads. On a host of issues, it is clear what we stand for and how we differ from the Republicans: minority rights, abortion, immigration, gun control, climate change, the importance of facts, and, of course, whether or not the president is above the law. On economic issues, however, the picture is not so clear. Elizabeth Warren’s speech at St. Anselm’s College on Thursday is an attempt to fix that problem—and also a shot across the bow of the Democratic elite. 
With each passing year, the widening gulf between the very rich and everyone else becomes more and more apparent. Even after ten years of economic expansion and with unemployment at historic lows, working-age adults in the bottom half of the income distribution make less than they

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Take Back Our Party, Chapter 2: Bad Policy

December 13, 2019

By James Kwak

Today’s installment of my new book, Take Back Our Party, evaluates the quarter-century reign of the Clinton-Obama axis over Democratic economic policy. (Chapter 1, if you missed it, is a historical account of the rise of the New Democrats and what they did once in power.)
The picture is not a pretty one, no matter how you look at it. This chart, for example, shows the distribution of economic growth across different groups in the income distribution:

(Data are from Piketty, Saez, and Zucman, of course.) There it looks like the bottom 50%—that’s half of the people in our country—have more or less broken even. But the true story is even worse:

Among people in the bottom 50%, all of the income growth has gone to the elderly in the form of rising Social Security and

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Take Back Our Party, Chapter 1

December 13, 2019

By James Kwak

Chapter 1 of my new book is now available at The American Prospect. (If you missed the introduction, you can find all the chapters here as they are released).
This chapter, “Their Democratic Party,” is a brief history of the takeover of the party by the New Democrats in the 1980s and 1990s. It describes how, in the aftermath of the crushing electoral defeats of 1980 and 1984, a new generation of party leaders—including Bruce Babbitt, Chuck Robb, Lloyd Bentsen, and of course Bill Clinton and Al Gore—chose to run away from the historical Democratic legacy as the party of workers and the poor. Instead, they trailed in the rightward footsteps of the Republicans, associating the party with business, the private sector, finance, and economic growth.
Their economic platform

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New Book — Completely Free!

December 9, 2019

By James Kwak
After Simon’s book with Jon Gruber earlier this year, it’s my turn to release a book. Take Back Our Party: Restoring the Democratic Legacy is now available starting today at The American Prospect. Actually, today the introduction is available. The remaining chapters will be released between now and Wednesday next week. As David Dayen (executive editor of the Prospect) said, now that we’re in the Second Gilded Age, we’re adopting one of the publishing models of the First Gilded Age: serialization in a magazine.
The book is a political sequel to Economism. The basic argument is that the Democratic Party has been taken over by market-oriented centrists who think that effective management of private sector markets is the best way to help ordinary people (think of welfare

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Hey Democrats, the Problem Isn’t Jobs and Growth

February 2, 2018

It’s inequality.
By James Kwak
This American Life‘s forays into politics and economics are generally less satisfying than their ordinary storytelling fare. That’s especially true when they try to answer some specific question, like “What is wrong with the Democratic Party?”—the subject of a segment last month. The story did have some telling moments, however, most vividly when moderate Congresswoman Cheri Bustos was trying to pitch the party’s forgettable and already-forgotten “Better Deal” message (which she helped design) to a local newspaper. Here are a couple of excerpts. (The audio begins at 53:50, or you can read the transcript).
First, on jobs:

Cheri Bustos
We want to be in a position to help create 10 million good-paying, full-time jobs. There are still people hurting, and I

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Hey Democrats, the Problem Isn’t Jobs and Growth

February 2, 2018

It’s inequality.
By James Kwak
This American Life‘s forays into politics and economics are generally less satisfying than their ordinary storytelling fare. That’s especially true when they try to answer some specific question, like “What is wrong with the Democratic Party?”—the subject of a segment last month. The story did have some telling moments, however, most vividly when moderate Congresswoman Cheri Bustos was trying to pitch the party’s forgettable and already-forgotten “Better Deal” message (which she helped design) to a local newspaper. Here are a couple of excerpts. (The audio begins at 53:50, or you can read the transcript).
First, on jobs:

Cheri Bustos
We want to be in a position to help create 10 million good-paying, full-time jobs. There are still people hurting, and I

Read More »

Tax Rates and Entrepreneurship

October 9, 2017

By James Kwak
My friend and co-founder Marcus Ryu wrote an op-ed in the Times today. Here’s how it begins:
The tax cut framework recently put forward by President Trump relies on a central claim: that reducing taxes on corporations and wealthy individuals will open the wellsprings of entrepreneurship and investment, turbocharging job growth and the American economy. Were this premise true, reasonable people might countenance giving a vast majority of benefits to the very rich, as Mr. Trump’s plan does, in exchange for greater prosperity for all. But it’s not.
I don’t have a lot to add, since Marcus makes the case very well. I’ll just expand on two of his points. One is that lower tax rates do not actually encourage people to start companies. When we started our company in 2001, there

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Tax Rates and Entrepreneurship

October 9, 2017

By James Kwak
My friend and co-founder Marcus Ryu wrote an op-ed in the Times today. Here’s how it begins:
The tax cut framework recently put forward by President Trump relies on a central claim: that reducing taxes on corporations and wealthy individuals will open the wellsprings of entrepreneurship and investment, turbocharging job growth and the American economy. Were this premise true, reasonable people might countenance giving a vast majority of benefits to the very rich, as Mr. Trump’s plan does, in exchange for greater prosperity for all. But it’s not.
I don’t have a lot to add, since Marcus makes the case very well. I’ll just expand on two of his points. One is that lower tax rates do not actually encourage people to start companies. When we started our company in 2001, there

Read More »

A New Economic Vision, in 27 Words

June 28, 2017

By James Kwak
A couple of weeks ago I posted a 6,000-word essay laying out a new economic vision for the Democratic Party. It kind of vanished into the ether, although Stephen Metcalf was kind enough to say this:

Reupping. I really think this is a critical, possibly foundational, document, and I seriously urge anyone following my account to read it. https://t.co/CXRxe4OfhU
— Stephen Metcalf (@Metlandia) June 16, 2017

So here it is, in 27 words:
All people need a few basic things:
An education
A job
A place to live
Health care
A decent retirement
Let’s make sure everyone has these things.
If you want more, there is always the long version.

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A New Economic Vision, in 27 Words

June 28, 2017

By James Kwak
A couple of weeks ago I posted a 6,000-word essay laying out a new economic vision for the Democratic Party. It kind of vanished into the ether, although Stephen Metcalf was kind enough to say this:

Reupping. I really think this is a critical, possibly foundational, document, and I seriously urge anyone following my account to read it. https://t.co/CXRxe4OfhU
— Stephen Metcalf (@Metlandia) June 16, 2017

So here it is, in 27 words:
All people need a few basic things:
An education
A job
A place to live
Health care
A decent retirement
Let’s make sure everyone has these things.
If you want more, there is always the long version.

Read More »

The Importance of Fairness: A New Economic Vision for the Democratic Party

June 15, 2017

By James Kwak
A lot has been written recently about the direction of the Democratic Party. This is what I think.
I have been a Democrat my entire life. Today, the Democratic Party matters more than ever because it is the only organization currently capable, at least theoretically, of preventing the Republicans from turning the United States into a fully-fledged banana republic, ruled by and for a handful of billionaire families and corporate chieftains, with a stagnant economy and pre-modern levels of inequality. Yet I cannot find anything to disagree with in Senator Bernie Sanders’s assessment:
“The model the Democrats have followed for the last 10 to 20 years has been an ultimate failure. That’s just the objective evidence. We are taking on a right-wing extremist party whose agenda

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The Importance of Fairness: A New Economic Vision for the Democratic Party

June 15, 2017

By James Kwak
A lot has been written recently about the direction of the Democratic Party. This is what I think.
I have been a Democrat my entire life. Today, the Democratic Party matters more than ever because it is the only organization currently capable, at least theoretically, of preventing the Republicans from turning the United States into a fully-fledged banana republic, ruled by and for a handful of billionaire families and corporate chieftains, with a stagnant economy and pre-modern levels of inequality. Yet I cannot find anything to disagree with in Senator Bernie Sanders’s assessment:
“The model the Democrats have followed for the last 10 to 20 years has been an ultimate failure. That’s just the objective evidence. We are taking on a right-wing extremist party whose agenda

Read More »

Economism and Arbitration Clauses

May 31, 2017

By James Kwak
As banking scandals go, Wells Fargo opening millions of new accounts for existing customers so that it could pump up its cross-selling metrics for investors is about as clear-cut as it gets. It’s up there with HSBC telling its employees how to get around U.S. regulations in order to launder money for drug cartels, or traders and treasury officials at several banks conspiring to fix LIBOR.
Holding Wells responsible, however, was a bit trickier. The bank agreed to restitution (i.e, refunding the fees it had collected from its customers for the phony accounts) and a paltry $185 million in fines. When customers sued for damages, however, Wells hid behind its mandatory arbitration clauses, which were so broadly written that they even applied to accounts that the customer

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Economism and Arbitration Clauses

May 31, 2017

By James Kwak
As banking scandals go, Wells Fargo opening millions of new accounts for existing customers so that it could pump up its cross-selling metrics for investors is about as clear-cut as it gets. It’s up there with HSBC telling its employees how to get around U.S. regulations in order to launder money for drug cartels, or traders and treasury officials at several banks conspiring to fix LIBOR.
Holding Wells responsible, however, was a bit trickier. The bank agreed to restitution (i.e, refunding the fees it had collected from its customers for the phony accounts) and a paltry $185 million in fines. When customers sued for damages, however, Wells hid behind its mandatory arbitration clauses, which were so broadly written that they even applied to accounts that the customer

Read More »

How Markets Work

May 25, 2017

By James Kwak
The Congressional Budget Office’s assessment of the Republican health care plan, as passed in the House, is out. The bottom line is that many more people will lack health coverage than under current law—23 million by 2026—even though the bill allows states to relax the essential health benefits package, which should in theory attract younger, healthier people. This is not a surprise.
I just want to comment on the role of markets in all of this, which I think is not fully understood. For example, the Times article by the very up-to-speed Margot Sanger-Katz explains that the American Health Care Act of 2017 will make markets “dysfunctional.”

This is consistent with the rosy view that many people, particularly centrist Democrats, have of health care: if we could only get

Read More »

How Markets Work

May 25, 2017

By James Kwak
The Congressional Budget Office’s assessment of the Republican health care plan, as passed in the House, is out. The bottom line is that many more people will lack health coverage than under current law—23 million by 2026—even though the bill allows states to relax the essential health benefits package, which should in theory attract younger, healthier people. This is not a surprise.
I just want to comment on the role of markets in all of this, which I think is not fully understood. For example, the Times article by the very up-to-speed Margot Sanger-Katz explains that the American Health Care Act of 2017 will make markets “dysfunctional.”

This is consistent with the rosy view that many people, particularly centrist Democrats, have of health care: if we could only get

Read More »