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James Kwak

James Kwak



Articles by James Kwak

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 »

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

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

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.

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.

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

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

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

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

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 »

Fees Add Up

May 22, 2017

By James Kwak
Public pension funds are having a tough time. On the one hand, the average funding ratio (assets as a percentage of the present value of future obligations) is below 80% because of inadequate contributions by sponsors (states and municipalities) and poor investment returns since the collapse of the technology bubble in 2000. On the other hand, because pensions responded to low returns by shifting more of their money into hedge funds and private equity funds, a larger proportion of their assets is siphoned off as investment fees each year.
Unlike some people, I am not against hedge funds and private equity funds in principle. I think it’s highly likely that there are people who can beat the market on a sustained basis—particularly if they are people who are especially

Read More »

Fees Add Up

May 22, 2017

By James Kwak
Public pension funds are having a tough time. On the one hand, the average funding ratio (assets as a percentage of the present value of future obligations) is below 80% because of inadequate contributions by sponsors (states and municipalities) and poor investment returns since the collapse of the technology bubble in 2000. On the other hand, because pensions responded to low returns by shifting more of their money into hedge funds and private equity funds, a larger proportion of their assets is siphoned off as investment fees each year.
Unlike some people, I am not against hedge funds and private equity funds in principle. I think it’s highly likely that there are people who can beat the market on a sustained basis—particularly if they are people who are especially

Read More »

Soak the Poor, Feed the Rich

March 7, 2017

By James Kwak
After the dangerous clown show that has been the Trump White House, it’s comforting to return to some good, old-fashioned conservative policymaking: bashing the poor to cut taxes on the rich. I’m talking, of course, about the Republican plan to repeal and replace Obamacare.
Health care financing can sometimes seem like a complicated topic. Adverse selection, risk adjustment, blah blah blah. But it’s easy to understand the American Health Care Act or, as it is sure to be known, Trumpcare. In the medium term, financing policies have little effect on the price of health care. At most we can hope to “bend the [long-term] cost curve.” So health care policy essentially comes down to a single question: Who pays?

Let’s start with the most fundamental element of the Republican

Read More »

Soak the Poor, Feed the Rich

March 7, 2017

By James Kwak
After the dangerous clown show that has been the Trump White House, it’s comforting to return to some good, old-fashioned conservative policymaking: bashing the poor to cut taxes on the rich. I’m talking, of course, about the Republican plan to repeal and replace Obamacare.
Health care financing can sometimes seem like a complicated topic. Adverse selection, risk adjustment, blah blah blah. But it’s easy to understand the American Health Care Act or, as it is sure to be known, Trumpcare. In the medium term, financing policies have little effect on the price of health care. At most we can hope to “bend the [long-term] cost curve.” So health care policy essentially comes down to a single question: Who pays?

Let’s start with the most fundamental element of the Republican

Read More »

Review Copies of Economism

March 6, 2017

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 [email protected] 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

Read More »

Review Copies of Economism

March 6, 2017

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 [email protected] 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

Read More »

Why Is Connecticut Giving Its Employees’ Money to the Asset Management Industry?

January 30, 2017

By James Kwak
In general, the State of Connecticut offers pretty good defined contribution retirement plans to its employees. Most importantly, it offers several low-cost index funds in institutional share classes. For example, you can invest in the Vanguard Institutional Index Fund Institutional Plus Shares, which tracks the S&P 500 for just 2 basis points, or the TIAA-CREF Small-Cap Blend Index Institutional Class, which tracks the Russell 2000 for just 7 basis points. Administrative fees are unbundled, and are only 5 basis points. For no good reason I can discern, however, you can also invest in actively managed stock funds like the JPMorgan Mid Cap Value Fund, which costs 80 basis points.
As I’ve previously said, I have mixed feelings about target date funds. In principle, they do

Read More »

Why Is Connecticut Giving Its Employees’ Money to the Asset Management Industry?

January 30, 2017

By James Kwak
In general, the State of Connecticut offers pretty good defined contribution retirement plans to its employees. Most importantly, it offers several low-cost index funds in institutional share classes. For example, you can invest in the Vanguard Institutional Index Fund Institutional Plus Shares, which tracks the S&P 500 for just 2 basis points, or the TIAA-CREF Small-Cap Blend Index Institutional Class, which tracks the Russell 2000 for just 7 basis points. Administrative fees are unbundled, and are only 5 basis points. For no good reason I can discern, however, you can also invest in actively managed stock funds like the JPMorgan Mid Cap Value Fund, which costs 80 basis points.
As I’ve previously said, I have mixed feelings about target date funds. In principle, they do

Read More »

The Right to Have Rights

January 27, 2017

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

Read More »

The Right to Have Rights

January 27, 2017

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

Read More »

Economism and Economics

January 24, 2017

By James Kwak
One point I try to be clear about in my new book is that economism—the assumption that simple Economics 101 models accurately describe the real world—is not the same as economics. There are people who think that all of economics, or at least all of modern, mathematically inclined, “neoclassical” economics, is at fault for the growth of neoliberal capitalism and the increase in inequality in rich countries. I am not one of them.
In my mind, the problem is knowing just a little bit of economics—the proverbial little bit of knowledge. (My favorite form of that proverb, despite its religious origins, is the following: “A little knowledge is apt to puff up, and make men giddy, but a greater share of it will set them right, and bring them to low and humble thoughts of

Read More »

Economism and Economics

January 24, 2017

By James Kwak
One point I try to be clear about in my new book is that economism—the assumption that simple Economics 101 models accurately describe the real world—is not the same as economics. There are people who think that all of economics, or at least all of modern, mathematically inclined, “neoclassical” economics, is at fault for the growth of neoliberal capitalism and the increase in inequality in rich countries. I am not one of them.
In my mind, the problem is knowing just a little bit of economics—the proverbial little bit of knowledge. (My favorite form of that proverb, despite its religious origins, is the following: “A little knowledge is apt to puff up, and make men giddy, but a greater share of it will set them right, and bring them to low and humble thoughts of

Read More »

Economism and the Law

January 23, 2017

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.

The "economism" that @jamesykwak talks about is at its worst in the legal profession: https://t.co/84oUoNl49r
— Noah Smith (@Noahpinion) January 17, 2017

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

Read More »

Economism and the Law

January 23, 2017

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.

The "economism" that @jamesykwak talks about is at its worst in the legal profession: https://t.co/84oUoNl49r
— Noah Smith (@Noahpinion) January 17, 2017

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

Read More »

Economism and Health Care

January 20, 2017

By James Kwak
A core feature of competitive markets, according to the basic model, is that they allocate goods to the people or companies that are willing to pay the most for them. In theory, and in many situations, this is a good thing: If I am willing to pay $1,000 for a custom portrait of my (daughter’s) dog, and you are only willing to pay $1 for it, then aggregate satisfaction is likely to be higher if I get the portrait. But not always: If I am willing to pay $10 for a turkey sandwich, but you are only willing to pay $1 because you only have $1, and have no borrowing capacity, then society may very well be better off if you get the sandwich. Yet in an ordinary, healthy market, I get the sandwich.
This problem is acutely apparent when it comes to health care. People place a high

Read More »

Economism and Health Care

January 20, 2017

By James Kwak
A core feature of competitive markets, according to the basic model, is that they allocate goods to the people or companies that are willing to pay the most for them. In theory, and in many situations, this is a good thing: If I am willing to pay $1,000 for a custom portrait of my (daughter’s) dog, and you are only willing to pay $1 for it, then aggregate satisfaction is likely to be higher if I get the portrait. But not always: If I am willing to pay $10 for a turkey sandwich, but you are only willing to pay $1 because you only have $1, and have no borrowing capacity, then society may very well be better off if you get the sandwich. Yet in an ordinary, healthy market, I get the sandwich.
This problem is acutely apparent when it comes to health care. People place a high

Read More »

Conflicts and Corruption

January 12, 2017

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

Read More »

Conflicts and Corruption

January 12, 2017

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

Read More »