Jim Stone is the founder, Chairman and CEO of the Plymouth Rock group of companies. Jim began his career by teaching as a Lecturer in Economics at Harvard, after earning a BA (with highest honor), MA, and Ph.D. in economics there. He served as Massachusetts Insurance Commissioner from 1975 to 1979 and then as Chairman and Commissioner of the U.S. Commodity Futures Trading Commission for four years. On his return from Washington, he founded Plymouth Rock, now a property casualty insurance group with annual premiums in excess of $1 billion annually.
He is a former member of the Board of Directors of the Boston Globe, a former Vice Chairman of Global Post, a web-based international news service, and a former Chairman of Management Sciences for Health, a large humanitarian non-profit. Jim is a currently a member of the Board and Executive Committee of Cold Spring Harbor Laboratory and Chairman of the panel that awards the School on the Move Prize annually to the most improved Boston public school. He has served as an advisor to governments in three developing countries, and he has authored two book and numerous articles on insurance and finance. Jim is married, the father of two children, and lives in Boston.
His book, Five Easy Theses: Commonsense Solutions to America’s Greatest Economic Challenges, was published by Houghton Mifflin Harcourt (May 3, 2016).
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Morris: Jim, to what extent has your formal education been invaluable to what you have accomplished in life thus far?
Stone: Other than my marriage, the decision to get a Ph.D. was probably the best decision of my life. The combination of skills and credentials helped qualify me for government positions at an early age, helped me raise money for my business when I started up, and helped substantively and intellectually in every task I’ve taken on. I can honestly say that I had no idea at the time that the Ph.D. would be so valuable.
Morris: Here is one of my favorite quotations to which I ask you to respond. First, from Lao-tse’s Tao Te Ching:
“Learn from the people
Plan with the people
Begin with what they have
Build on what they know
Of the best leaders
When the task is accomplished
The people will remark
We have done it ourselves.”
Stone: I’ll assume it’s coincidence, but this quotation is the motto of Management Sciences for Health, the wonderful non-profit I served and chaired for many years. It hangs on a wall in my office. Management Sciences for Health is a large humanitarian NGO, dedicated to improving public health is many of the poorest and most troubled countries in the world. We do it by applying only readily available techniques and technologies, so we can exit from each project with something left behind that can be enduring and locally managed. This requires cooperation in-country at every level, and scrupulous avoidance of the urge to claim the credit for shared accomplishments. I’m very proud to have worked with MSH for so many years.
Morris: Now please shift your attention to Five Easy Theses. For those who have not as yet read it, hopefully your responses to these questions will stimulate their interest and, better yet, encourage them to purchase a copy and read the book ASAP. First, when and why did you decided to write it?
Stone: I have had careers in academics, government, and business. This book ties all of those together. I felt, in particular, that my government career left me with unfinished business, since I was not successful in limiting leverage or increasing disclosure in financial markets. The tide has, in fact, gone the other way and I wanted to make another attempt to rein in this dangerous trend. And I wanted to counter the argument that America is on the decline. Finally, I have been discouraged at the lack of attention to serious issues these days in Congress and I hoped that a book like this might get people motivated to give our leaders a much needed and very hard push.
Morris: Can you summarize your five theses for us? A broad overview will do for now, and then we can return to each in more detail.
Stone: The five topics are Fiscal Balance, Inequality, Education, Healthcare, and Wall Street reform. On fiscal balance, my point is that we are running up huge deficits for our descendents unwisely. Deficit spending should be used only to invest in the future such that our children and grandchildren will thank us. Deficits don’t meet that test today.
The savings needed to restore fiscal balance are readily available with simple changes to the big ticket items. To name just one, we have huge and misguided tax subsidies, measured in the hundreds of billions of dollars annually.
On inequality, I contend that far too much of this nation’s wealth and income is gravitating to too few. This undermines the democracy we all cherish and the overall social cohesion necessary to maintain our wonderfully successful society. Reversing the trend means changing tax rules that are mostly designed for the already wealthy.
My thesis on education is that college has become unaffordable for most of the kids who attend, and, while most of the population won’t ever graduate from college, our high schools don’t prepare students for that reality by providing vocational and occupational training. I think one answer is a Universal National Service program. Next, we spend about eight points more of GDP on health care than other developed countries and our health outcomes aren’t as good. We can repair this error, but to do so we need to address pharma prices, excessive testing, wasted administrative costs, and ever-expanding end-of-life care costs.
Finally, there is a need for much more fundamental financial sector reform than we have seen so far if we are to avoid another crash like that of 2008-9. We need to cut back the scale of banks, and of leveraged trading more generally. We need to make hedge funds as transparent as mutual funds. These steps would be incredibly effective in safeguarding our financial market’s strength. My book tries to present rational answers to all of the basic issues raised in this list.
Morris: Please explain your reference to “the sleeping dragon” and why you hope it will be awakened.
Stone: Some major problems can be solved by our political process and our leaders. Others can be solved only when there is popular demand and insistence and politicians feel at risk of unemployment if they ignore the groundswell. The five issues I deal with will require a virtual earthquake of popular demand to solve. Contributors and lobbyists hold a lot of sway in DC almost all the time. But they can be overruled when the public wakes up angry enough. That public itself, therefore, the sleeping dragon I refer to.
Morris: Why do you have a “predilection” for free-enterprise democracy?
Stone: Free enterprise democracy has proven the best system by far for maximizing freedom, prosperity, and happiness. Dictatorship, Soviet style communism, and hereditary aristocracy have proven about the worst environments for people to achieve all three of these goals. I would find it a challenge to understand any American who says he or she wants to trade away free enterprise or democracy. We need to modify their details from time to time, of course, but let’s never lose them.
Morris: For those who have not as yet read your brilliant book, please tell us more about what you think should be done in each of five areas. First, fiscal balance
Stone: In the short run, and in fact right away, we could balance the budget just by getting rid of interest deductions. It’s a common misconception that the home mortgage interest deduction helps the middle and lower classes. The bottom third of people are renters and get no benefit at all from the deduction. The next third don’t itemize deductions and get no benefit, and the top third enjoy in proportion to how big a house they buy. That’s terrible policy, but the corporate deduction is worse. It makes ordinary citizen taxpayers subsidize leveraged takeovers and the preference. In the longer run, we need to deal with Social Security and the promises to seniors we can’t keep without major change. People today are expected to live about 20 years longer than we were when FDR created Social Security. And it may soon be 30 years or more. Nobody wants to up the eligibility age, but it’s an inevitability, and the sooner we act the more gentle the impacts will be.
Morris: Next, tell us about income and wealth inequality.
Stone: 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 the wealth distribution problem. If you wonder why there are angry voters this year, just consider the fact that median income has not gone up in 40 years. 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. I’m no utopian. We shouldn’t try to make everyone equally wealthy, but going too far in the other direction is at least as bad, and that’s where we are headed. As unpopular as this proposal is these days, I think the estate tax is the fairest and simplest way to do move the needle, and our trust laws are a travesty.
Morris: And what about education?
Stone: Our educational system just doesn’t work as well as it should any more. 70% of people are never going to go to college, and we don’t give them the vocational or occupational training they need before we throw them into a work force where too often they find they don’t fit. The 30% that do go to college find themselves graduating with debts that may cripple them for years. Unless you’re rich and brilliant, the system isn’t working terribly well for you. I favor Universal National Service after high school, where young people could work in social services, or infrastructure building, or the military. All three of those are badly needed. All of the participants would get useful occupational skills and all would be offered financial credit toward college. There are half a dozen other reasons why this would be a good idea. For example, the social mixing, the patriotism, the discipline, and the maturity. There are so many benefits to be gained that I have become quite committed to the idea. And it’s been received well by readers of Five Easy Theses.
Morris: What is your health care thesis?
Stone: It’s fairly easy to figure out where the healthcare problem lies. We spend 18% of GNP on something none of our peer nations spends more than 10% on. That’s a trillion dollars a year for which we don’t seem to get any noticeable benefits in our health statistics. What do we have to do? We have to cut down on marketing and administration costs, which are about 20% here and about 2% in other countries. We need to cut down on unnecessary testing, much of which 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. We’ve all seen a lot in the press recently about how easy it is to abuse the pharma 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.
Morris: Finally, what needs to be done in financial sector reform?
Stone: After the 1929 crash, the policymakers got it exactly right. They understood the system needed less leverage and more disclosure. And they set us a system that made our capital markets the best and safest in the world for half a century. This time, we didn’t fix either of those problems. The reform efforts in Dodd-Frank are directionally good but they’re not the big ones, which are, I’d repeat, less leverage and more disclosure. The banks are simply too large not to put the whole world’s economy in constant jeopardy, and much too large to manage well. The hedge funds are so opaque that they invite chicanery. Derivative positions are vastly oversized and for the most part speculative. Winston Churchill said in 1919: “I would rather see finance less proud and industry more content.” That’s what we should all want to see today.
Morris: I’ve described the book as “brilliant,” but don’t critics complain that some of these proposals are unrealistic in the current political environment, and that not all of your theses are new?
Stone: How we deal with the book’s five subjects will have a monumental impact on our nation’s future success and vitality, on the lives of our children and grandchildren. These issues will ultimately all have to be confronted. Right now, we have a no map showing either a destination or a route. While I don’t have a political roadmap through the wily DC thickets, this book offers a set of desirable and clear destinations for five critically important issues, issues that too many leaders fear to take on. Making clear where we ought to go is a necessary first step.
As for newness, I’d contend that very little in public policy is genuinely new. The Roman Senate debated many of the same issues we argue about today. I’m looking for the best solutions for our times and our country, and novelty that doesn’t make a bit of difference. Sometimes you have to wait for an idea’s time to come. Was abolition a new idea when Abe Lincoln adopted it? Was democracy itself a new notion when it was enshrined in the constitution? My title, I admit, is a bit facetious. But let’s get on with it and take these necessary steps, and we’ll strengthen our nation for decades.
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Jim invites you to check out the resources at these websites:
The Five Easy Theses link
The Amazon link