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    Let Them Eat Coke

    A few thoughts on current events.

    Ralph Wanger, CFA, 01/30/2017

    The views expressed here are those of the author and do not necessarily reflect the views of Morningstar.

    The liberal intelligentsia was in a state of shocked disbelief after the election. Many of them don’t know one person who voted for Trump, and they invented tortured explanations of what went wrong. My favorite example was Paul Krugman on Nov. 25. He believes that he is an expert on the voters in Kentucky, and he was trying to figure out why Kentucky rejected Clinton:

    “To be honest, I don’t fully understand this resentment. In particular, I don’t know why imagined liberal disdain inspires so much more anger than the very real disdain of conservatives who see the poverty of places like eastern Kentucky as a sign of the personal and moral inadequacy of their residents.

    One thing is clear, however: Democrats have to figure out why the white working class just voted overwhelmingly against its own economic interests, not pretend that a bit more populism would solve the problem.”1

    Krugman decided the working class in eastern Kentucky, many of them coal miners, chose to vote Republican due to their intense resentment of the disdain in which they are held by other Americans. Krugman suggests that he has discovered how to dissect disdain into two classes, “imagined “and “very real.” He said that liberal disdain is imagined while conservative disdain is very real and that the citizens of Kentucky can perceive which is which. This is preposterous twaddle. I have been disdained at by academics at Harvard and MIT and felt at the time that their disdain was real enough. The problem with disdain is not what its motive is on behalf of the disdainer but very much more the effect it has on the hapless disdainee.

    Krugman then goes on to express bewilderment as to why the white working class voted overwhelmingly against its own economic interests. Could it possibly be that good ol’ Billy Joe down in Clay County has heard that the mine he works at is going to close? It is closing because the Environmental Protection Agency is trying to impose its new Clean Power Plan to ban the use of coal by electric utilities. Is it possible that closing the mine might affect his economic interest? I think that is much more likely than the imagined scenario in which Billy Joe is differentiating between liberal and conservative versions of disdain. What Billy Joe hears is that the bureaucrats in Washington won’t let him earn his bread mining coal but will disdainfully let him eat coke.2

    The Electoral College
    I was on the debate team in high school in 1949, and we debated the Electoral College. It was a good topic, with practical reasons to keep it and plausible reasons to change it. The argument is so theoretical that the debate judge’s decision is not going to cause a fistfight between the pros and the cons. But the Electoral College is stuck right in the middle of the U.S. Constitution, and getting it out of the Constitution would require an amendment passed by three fourths of the states. The Electoral College was expressly designed give outsized power to small states. You can see why the citizens of California might think this is unfair and the citizens of Wyoming think it is terrific. Regardless of the merits of the debate, there will always be more small states than big states, and 13 small states can block a constitutional change. In any case, it is more dignified to change rules before the game rather than retroactively after.

    The Fiduciary Rule
    I have previously written3 that I thought the Department of Labor fiduciary rule change on the responsibility of investment advisors was going to do great damage to the investment advisory profession and the mutual fund industry. The Labor Department is intent on reducing the management fee and sales charges on actively managed mutual funds used in retirement accounts. This would greatly accelerate the trend toward exchange-traded index funds. Congress passed a law telling the Labor Department to “stuff it,” but President Barack Obama vetoed it. I thought that settled the question. Surprise! Now, with a Republican president who has professed dislike for regulation, it is now possible that the rule will be withdrawn. Because I spent 40 years running an actively managed fund, I am very happy that the business may survive after all.

    CFA, is a trustee of Columbia Acorn Trust.