William J. Bernstein is the editor of the quarterly asset-allocation journal Efficient Frontier, founder of the popular website EfficientFrontier.com, and a principal in Efficient Frontier Advisors. He is often quoted in national publications, including The Wall Street Journal, Barron's, Money, and Forbes.
He is also the author of The Four Pillars of Investing, The Intelligent Asset Allocator, The Birth of Plentyand A Splendid Exchange. Bill graciously agreed to be my guest for the inaugural edition of what will be a regular feature for my AdvisorOne blog, in which I will endeavor to ask and receive answers from interesting people to Five Good Questions.
In your excellent book, The Birth of Plenty, you outline four primary elements as the building blocks of human progress – property rights, scientific rationalism, capital markets, and transportation/communication. Are any of these at risk in America today and, if so, how?
It’s an interesting question, and one I’ve not been asked before.
It’s quite obvious that as a nation we’ve become fat, dumb, and lazy: a very high percentage of our science graduates, for example, are foreign born, and an additional large slice is first generation Americans.
We overconsume and undersave, particularly on educational, social, and transport/communications infrastructure; it’s a scandal, for example, that the water system of our largest city is more than a century old. Every time I go through a European train station or an Asian airport I’m embarrassed for our country.
The good news is that none of those things, except possibly the last, reflect on the crucial four factors: our institutional infrastructure, which is the world’s best, bar none. It’s not just that we have open and free capital markets, universities, and an independent judiciary that protects individual liberties and property rights, it’s also that we do a superb job of intellectually and financially nurturing our best and brightest.
If you don’t believe that, then ask yourself what would have happened to Bill Gates if he had dropped out of the Sorbonne or Tokyo University. Or ask yourself, if our educational system has been falling apart for the past half century, why we’re still pulling down the lion’s share of science Nobels.
So I’m still optimistic; even if we’re getting lazier by the generation, we’ll still attract the global cream of the crop here.
You have argued, here for example, that extreme income and wealth inequality hinder economic growth and are bad for our economy. In brief, how do you suggest we try to correct that problem?
Well, I’m going to show my political stripes here. When people read Birth of Plenty, they assume I’m a libertarian, because of the book’s emphasis on property rights. But at the end of the day, “property rights” is nothing more and nothing less than the respect that folks with less than you do have for your property, and if there’s too much spread between the rich and poor, that erodes that respect and property rights enforcement costs skyrocket.
There is no question that economic inequality is killing us; we have the highest rates of obesity, homicide, violent crime, and incarceration in the developed world, things that all covary strongly with inequality.