James: I wanted to talk first about your advice to take an old pro to lunch. Finding good mentors has been enormously important in my life. I’ve had about half a dozen. One gave me my first job in finance, one helped me survive in Washington, one brought me into the insurance business, and one treated me so much like a son that I live in the house that he used to live in now.
John: I think our generation had lots of mentors. I was lucky enough to have mentors both on the writing side and in terms of business. A couple of years ago, I gave a talk at Brandeis to a class of business school graduate students. I asked them, “How many of you have had mentors that have brought you along?” Out of 60 people, four raised their hands. Because of my books, people write me from around the country every week. I ask them all, “Do you have mentors?” No. It’s sadly lacking in America today. Which is why this generation is hungry for advice and counsel.
If you’re a young person in one of your first jobs, the smartest thing you can do is to find the oldest person in the office and offer to take them to lunch. Insist that you will pay for them. They will be flattered by it and they can become a mentor to you and you can soak up that knowledge from the old pro. They wouldn’t be the oldest person unless they were good at what they did.
James: It’s very important advice.
John: One of your theses is that one of the biggest problems in America is soaring medical costs and a medical system that seems to be out of control. What do you think are the smartest common sense solutions to our health care problems? Which of these “street smart” solutions would have a chance of getting passed in any congress?
James: I’ve tried to say in Five Easy Theses that I don’t know how to get anything through Congress. I do try to lay out what the destination ought to be but I don’t know the political road map—that’s beyond me these days.
On health care, it’s fairly easy to figure out where the problem is. We spend 18 percent of GNP on something none of our peer nations spends more than 10 percent on. That’s a trillion dollars a year for which we don’t seem to get any noticeable results in our health statistics.
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What do we have to do? We have to cut down on marketing and administration costs, which are about 20 percent here and about 2 percent in other countries. We need to cut down on unnecessary testing, much of is driven by the tort system and defensive medicine. We need to get pharmaceutical prices down. We’re about the only country whose policies seem designed to push them up rather than down. You’ve all seen a lot in the press recently about how easy it is to abuse the pharmaceutical pricing system. Lastly, we need to deal with the hardest issue, which is end of life care. I don’t have a full answer to that one, but I sure know where to start. Let’s ask people when they’re healthy and fit, “What kind of end of life care do you want?” Then, honor their wishes. We don’t do that now. We spend far, far more than that.
We need to do all of those things. Whether we can get Congress to do it, I don’t know.
John: I wish you were going to be in the presidential debates.
“It’s okay to be a little pushy.”
James: I had my time in government…
The next piece of advice that I want to focus on is when you said, almost controversially, “It’s okay to be a little pushy.” I think that important lesson is hard because if you want to be a nice person in life, you tell yourself, “I shouldn’t be pushy.” If someone says no, they mean it, and I should respect their answer. The truth is, you can be nice and polite and still manage to get your view across. I summarized it to one of my kids with a line from Gilbert and Sullivan. “If you wish in the world to advance, your merits you’re bound to enhance, you must stir it and stump it, and blow your own trumpet, or, trust me, you haven’t a chance.”
John: One of my best friends in college went to Hollywood and he was going to go into the movie business and everybody knew he was going to be a big hit, he would be a king out there. He had huge energy, extremely charismatic. But it never really worked out for him. He bounced around, he did a few things, but he never made it the way all of his friends thought he’d make it.
Some years ago, after he’d been in the business for a long time, we had dinner in Los Angeles. After a few drinks, he looked at me and said, “You know why I never really made it big?” And I said, “No, why?” He said, “Well, I grew up in New York City and I went to Buckley School and I was shipped off to Milton Academy and I went to Harvard College. I thought this would open up all doors and be the ticket to stardom.” And he said, “While I was saying thank you to the hostess for the weekend, the kids from Brooklyn, who never went to college, and hitchhiked west, were going by me like a shot, and they’re the ones who made it.”
I advise young people, see if you can have a little more Brooklyn in you, or a little more New Jersey. Think The Sopranos—well, not to that extent—but you have to learn to stand up for yourself. You think, I’m a gentleman or a lady and if I act decently, things will come to me. No, they won’t. You have to develop a little bit of sharp elbows in life to really get where you want.
James: If you don’t ask, you don’t get.
John: By the way, as far as having a little more Brooklyn in you, I mean old Brooklyn—not new Brooklyn, which is the most expensive real estate in America it seems.
Back to the big problems: financial reform is one of your five theses. I don’t know why every public company CEO will not lobby to shut down what’s called high frequency trading. It’s like a thousand people looking at a computer screen treating markets like they’re video games. It’s scaring the public, who think the game is rigged and that they can never get anywhere. If you could please talk to all of us about the concept of “carried interest” and why this tiny number of hedge funds should get the breaks. What are the biggest abuses that you would lean on in the financial reform area?
“‘Rigged’ is a strong word but, in that sense, the system is tilted towards the Wall Street financial contributors that have been so important recently in political campaigns.”
James: After the 1929 crash, the policymakers got it exactly right. They understood the system needed less leverage and more disclosure. This time, we didn’t do either of those things. We made some reform efforts in Dodd-Frank that are good, but they’re not the big ones, which are, I repeat, less leverage and more disclosure.
These high frequency traders are involved in a really good example of a zero-sum game on Wall Street, or even a negative-sum game. To the extent that they make money, they’re taking it away from the fundamental investors on whom market accuracy and capital allocation depend.
You asked about the carried interest. That’s something that only the private equity people think is justified because they get the fruits. It basically says that they get to be in a business and instead of paying income taxes on their income, they get to treat it as capital gains—even if they didn’t invest to earn it. “Rigged” is a strong word but, in that sense, the system is tilted towards the Wall Street financial contributors that have been so important recently in political campaigns. We ought to fix it. More disclosure, less leverage.
John: Applause to that.
James: Another of your pieces of advice that resonated with me was to make sure you know who you’re meeting with and what their passions are. You go for an interview, you’ve got to know something about the other guy.
President Jimmy Carter, whom I worked for, said that one of the reasons that he chose Walter Mondale to be his running mate is that Mondale was the only one who had carefully read his book before the interview. And when I was being interviewed by Senator Herman Talmadge, who was the chairman of the committee that had to confirm me to be chairman of the CFTC, I read Senator Talmadge’s remarks on the floor of the Senate about the agency that I was hoping to run. When he asked me questions, I was able to say “Well, I agree with what you said last March,” and I’m sure it was helpful. You’ve probably got examples like that from your own life, but that is certainly good advice.
John: I believe in doing your homework. What does that mean? A quarter of a day a week, I call young people around the country who have written me to basically saying, “Can you help me with my life and future?” I call them and say, “This is a one shot, you can’t call me back but you took the time to write me. So tell me a little bit about yourself and if I can give you a leg up, I’m happy to do it.” They’ve done their homework because they’ve written me and talked to me about what my books have meant to them.
Then about a year ago, a young lady from one of the non-profits where I’ve been on the board for many years came to see me. She wanted to find out how much I planned to give that year or to a capital campaign. She went right into the pitch. I said, “Time out. You have no idea who I am.” I didn’t mean, the glorious me, the wonder of me, I didn’t mean it in that sense. Just… I said, “I’m tired of being treated like an ATM for lots of organizations.”
It’s easy to do your homework these days. If I were having an interview with anybody, I would Google them first. If the Google turns up something like, “I have a passion for chess and I’ve loved chess all my life,” you flatter the person who’s interviewing you by saying to them, “Boy, I could never master chess. I couldn’t remember the moves. Where did that interest in chess come from?” You kind of turn the interview around and show the person who’s interviewing you that you paid attention and that you did your homework. You’re much more likely to get a good result.
James: Worked for me.
“Doing basic training with every single class of person in America woke me up, showed me that life is not just a little pocket in Boston.”
John: More than anything, one of your concepts that I believe in deeply is that every young person should do national service of some kind. Whether it’s the Peace Corps, or the military, you name it, it should be mandatory for men and women. I was in the Army Medical Corps, trained as a war-time medic. It was a graduate school education to spend this time doing service of some sort. Doing basic training with every single class of person in America woke me up, showed me that life is not just a little pocket in Boston. It’s much bigger than that. It was one of the best experiences of my life. Universal national service is, in my view, one of your best ideas in the book, but how do we sell the concept? How would politicians accept what is essentially a draft? Talk a little bit about why you think this is so important.
James: I got there by a kind of roundabout route because what I was interested in was the failures of our education system. 70 percent of people are never going to go to college. We don’t give them vocational or occupational training and we throw them into a work force where often they find they don’t fit, they get discouraged, and they don’t have skills. The 30 percent that do go to college find themselves paying more than they can afford and ending up with debts that may cripple them for years. Unless you’re rich and brilliant, the system isn’t working terribly well for you. I thought after high school, people should have service and that service could be in social services, or infrastructure building, or military. All three of those are badly needed. They would get the occupational skills and they would get credit if they went on to college—financial credit—that they would have earned. Then, as I thought about it, I saw there are half a dozen other reasons: the social mixing, the patriotism, the discipline, the maturity. There are so many good reasons that I have become quite committed to the idea.
John: One of your other theses is focused on the subject of inequality in America. My father used to say, “You can’t legislate human nature.” We may be born equal, but it changes the moment that birth takes place. I think everybody would like to hear your solution to the inequality situation.
“The one thing I’m sure the founding fathers didn’t want was a hereditary aristocracy in this country. And that’s what we’ll get if we don’t begin fixing this wealth distribution problem.”
James: First of all, your father is right: we are a hierarchical species, we’ll always be. Utopian solutions don’t work. As E.O. Wilson said about complete flattening, “Great idea, wrong species.”
But that doesn’t mean that you want to go all the way in the opposite direction. Or you end up with the Dark Ages, where the king and a few noblemen and clergymen have everything and everybody else is starving and diseased. There’s a point in between you want to get to and the United States has been at that point for most of its history, where we’ve had a really healthy middle class. But in the last 40 years, something bad has happened. There’s been probably more wealth created in the past 40 years in the United States than in any other country in the history of the world—and it’s all gone to the top percentiles. Not just most of it, all of it. And that’s not good.
Median income has not gone up in 40 years. You wonder why there are angry voters this year, people looking for extreme candidates, I think that’s the reason. So we’ve got to do something to moderate that. And probably, as unpopular as it is these days, I think the estate tax is the fairest and simplest way to do that. But there are other things we could do. We should probably not have trusts that allow people to pass on unlimited amounts of money onto the next generation. There’s a number of other things we can do. I try to list them in the book.
You should always be suspicious when anyone channels the founding fathers, but I’m going to do that anyway, and say that the one thing I’m sure they didn’t want was a hereditary aristocracy in this country. And that’s what we’ll get if we don’t begin fixing this wealth distribution problem.
If I could do just one more of yours? I liked your advice, “Never look back.” People waste huge amounts of time and emotional energy on “should haves.”
John: I think that negative energy comes from dwelling on the past. Since I’m essentially in the psychiatric business, I have 2,000 clients all over the world.
James: A financial psychiatrist.
John: It involves advice and counsel about so many things: the kids, the aging parents, should I buy or rent, lease or own. And all kinds of life problems. Which makes the business exciting and interesting, and every day it’s different, because it involves human nature. Markets, in my view, move 80 percent emotionally—fear and greed—and 20 percent reality. And if you understand human nature, I think you can do better in the stock market.
But as far as dwelling on the past, many people talk to me about their lives, and about what their parents did to them, how the family sucked the life out of them. All families are dysfunctional in their own way, of course. Every family is a soap opera. So I try and laugh about what was done to me in the past, perhaps, that could have held me back, and I try and look what I call “over the chasm” into the future. And yes, we learn more from our mistakes in life than our triumphs, and we should remember not to try and make the same mistakes over and over, but look forward in life: what’s next? Always have a dream. And if that dream comes true, let’s go on to the next dream.
This conversation has been edited and condensed.
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