A contrarian worth rooting for

From BloombergBusiness:

Three years ago, at the tender age of 38, married with three children and $4 billion richer, Arnold shut his fund and decided to spend the rest of his professional life giving away his money as counterintuitively as he had earned it. He had made millions at Enron and billions at Centaurus, zigging when others zagged. Now, that rare person who grows less popular the more he gives away, he is focusing on dilemmas dragging down the nation that no one else wants to confront.

Sitting in the Houston offices of his foundation, he explained, “I was troubled when I was trading that it’s hard to make that direct tie between the financial industry and the greater good. My life was 100 percent trying to make money in the first phase, then 100 percent trying to do good in the second.”

Contrarian Causes

Arnold and his wife, Laura, a former corporate attorney, are targeting contrarian, underappreciated causes, things like research integrity, drug-sentencing reform, organ donations and broken pension systems, an especially radioactive issue.

.  .  .

And Arnold, a moderate Democrat who believes a rich country like the U.S. should provide a high safety net for its citizens, sees the stakes as being no smaller than the survival of the very governments that provide that net.

Good for him—those are under-appreciated issues.

Critics say pension reform is a euphemism for denying workers what they have been promised and paid for. One Rolling Stone writer called Arnold a “ubiquitous young right-wing kingmaker.”

Bailey Childers, president of the National Public Pension Coalition, a union-backed group set up in part to help counter Arnold’s influence, said, “There’s not this crisis that they want you to believe there is in states that are doing what they’re supposed to do. This is an attack on workers who have played by the rules.”

The Dems have moved so far left that a moderate Democrat is now a “right-winger.”



40 Responses to “A contrarian worth rooting for”

  1. Gravatar of Kevin Erdmann Kevin Erdmann
    7. February 2016 at 10:41

    Those causes seem reasonable, but I do question whether someone working in contrarian financial speculation who can’t fathom how finance could be connected to the greater good would be able to tease out meaningful solutions to societies misunderstood problems.

  2. Gravatar of Kevin Erdmann Kevin Erdmann
    7. February 2016 at 10:43

    The fact that he can be cast as a right winger even as he is flummoxed about the usefulness of finance says something about the state of the right, too.

  3. Gravatar of Britonomist Britonomist
    7. February 2016 at 12:33

    James Hamilton on negative rates: http://econbrowser.com/archives/2016/02/negative-interest-rates-2

  4. Gravatar of Mark Mark
    7. February 2016 at 12:40

    I actually imagine many, maybe most ‘right wingers’ (by this I mean ‘actual’ right wingers as opposed to classically liberal ‘Koch brothers’ “right wingers) share with leftists much of the same suspicion of finance. The more sophisticated conservatives certainly have a better understanding of the usefulness of the financial sector than even the most sophisticated progressives, but among regular people, not so much. I wouldn’t expect someone in finance like this man though to share this sort of popular misconception that the generation of investment capital and the aspiration toward the accurate pricing of assets were a bad thing.

    I wonder how many Americans, left or right, share Jon Stewart’s desire to outlaw short-selling?

    Oh and I have to rant how annoyed I am by the common complaints about pension reform. Who has the gall to complain that they are being deprived of what they were promised as part of a voluntary contract from coffers filled by what is taken by force from their fellow citizens? The state can revise its ‘contract’ with me (my tax rate) at will, and I don’t even have the luxury of being able to quit as a taxpayer in protest; ergo the taxpayers surely have the right to demand alterations in the pensions for which they have no choice but to pay. Frankly when I hear complaints like that it only makes be want to reduce pensions more.

  5. Gravatar of Gary Anderson Gary Anderson
    7. February 2016 at 12:58

    Geez Scott. The Republicans have moved so far right that Eisenhower would be considered a Democrat. And really, they all work for big finance. They are handsomely rewarded for it too. Did you know two Rothschilds sponsored Sarah Palin? And one of them sponsored Hillary Clinton?

    Both parties have parked their allegiance with international bankers instead of with the American people.

    The only thing that makes the Dems the lesser of two evils is they tend to hate war a little more. And they don’t want fire to come out of heaven and burn Sodom for not helping the disadvantaged. That is what happened to the real Sodom, Scott. Look it up.

  6. Gravatar of ben ben
    7. February 2016 at 15:27

    > Sitting in the Houston offices of his foundation, he explained, “I was troubled when I was trading that it’s hard to make that direct tie between the financial industry and the greater good. My life was 100 percent trying to make money in the first phase, then 100 percent trying to do good in the second.”

    Because you were taking from others in the first half. Straight from the horse’s mouth. Yet he seems confused by this.

  7. Gravatar of Alexander Hamilton Alexander Hamilton
    7. February 2016 at 15:47

    Whenever I foolishly read one of Garys posts I’m always reminded of the character Grassy Knollington from the British satirical magazine Viz.

  8. Gravatar of Benjamin Cole Benjamin Cole
    7. February 2016 at 16:36

    Good for Arnold.

    Let’s see if he takes on the Veterans Administration. Think about it: a federal pension and health care plan for former federal employees. Health care is provided in federally owned hospitals, staffed by 300,000 federal employee doctors and nurses and administrators.

    A federal employee can retire after 20 years of employment, and receive full lifetime VA pension and health care benefits. The health care component could be described as pure distilled communism. French railway workers would blush at this system.

    This VA program is entirely unfunded, and operates on a pay-as-you-go soak the income taxpayer basis.

    Eliminating property zoning? Arnold? Hello? Anybody?

  9. Gravatar of Steve Steve
    7. February 2016 at 16:45

    What Mark said, especially the final paragraph.

  10. Gravatar of Gary Anderson Gary Anderson
    7. February 2016 at 17:18

    “Whenever I foolishly read one of Garys posts I’m always reminded of the character Grassy Knollington from the British satirical magazine Viz.”

    I am sorry you are so conspiratorially challenged, Hamilton. That means that you are missing a certain intelligence that others have.

    But one day you will understand.

  11. Gravatar of Ray Lopez Ray Lopez
    7. February 2016 at 18:20

    Kevin Erdmann: “contrarian financial speculation who can’t fathom how finance could be connected to the greater good”… apparently Erdmann is unaware of the several econometric studies that show advanced countries with highly developed finance sectors do worse than similar countries with less developed finance sectors. Then again, what else do we expect from a man who thinks there was no housing bubble in 2006?

  12. Gravatar of david david
    7. February 2016 at 22:36

    “A study of more than 150 state and local pensions found the total unfunded liability between $1.1 and $3.1 trillion”

    these kinds of ballpark figures have been dealt with in the past:

    “OK, this is quite amazing: Dean Baker catches the WaPo editorial page claiming that we have $3.8 trillion in unfunded state and local pension liabilities. Say it in your best Dr. Evil voice: THREE POINT EIGHT TRILLION DOLLARS. Except the study the WaPo cites very carefully says that it’s $3.8 trillion in total liabilities, not unfunded; unfunded liabilities are only $1 trillion.

    how big is that $1 trillion anyway? It still sounds like a big number, doesn’t it? Dean tries to compare it with projected GDP, which is one way to scale it. Here’s another.

    You see, the Boston College study doesn’t just estimate assets and liabilities; it also estimates the Annual Required Contribution, defined as

    normal cost – the present value of the benefits accrued in a given year – plus a payment to amortize the unfunded liability

    And it compares the ARC with actual contributions.

    According to the survey, the ARC is currently about 15 percent of payroll; in reality, state and local governments are making only about 80 percent of the required contributions, so there’s a shortfall of 3 percent of payroll. Total state and local payroll, in turn, is about $70 billion per month, or $850 billion per year. So, nationwide, governments are underfunding their pensions by around 3 percent of $850 billion, or around $25 billion a year.

    A $25 billion shortfall in a $16 trillion economy. We’re doomed!

    OK, there are some questions about the accounting, mainly coming down to whether pension funds are assuming too high a rate of return on their investments. But even if the shortfall is several times as big as the initial estimate, which seems unlikely, this is just not a major national issue.

  13. Gravatar of Alexander Hamilton Alexander Hamilton
    7. February 2016 at 23:16

    @Gary I guess I’ll just have to get by with what I’ve got then.

  14. Gravatar of Michael Rulle Michael Rulle
    8. February 2016 at 06:05

    Arnold’s performance as a natural gas trader for clients and himself was a remarkable feat. But it does not surprise me that his skill does not translate into a complete understanding of the importance of his role as speculator in the futures markets. As big as he was, and he was big, he was still just a small cog in the wheel of finance. I hope he does not become a person who thinks what he did to make his money was somehow “bad” for which he now has to atone.

    His core charitable issues seem fine to me. But I always wonder if society is better off if he and other wealthy persons were to invest in profit making ventures—-even if as simple as investing in the Vanguard fund—-rather than focusing on issues they really have no expertise in.

    I am sure his desire to do good is sincere and hopefully effective. I am not saying it will not be. Still…..I ask the above question quite often about foundations and charities. I think my implied skepticism, not cynicism, is unfortunately more accurate than not.

  15. Gravatar of Brian Donohue Brian Donohue
    8. February 2016 at 06:15


    I live in Illinois and have a thorough understanding of pension math.

    Officially, the state’s pension shortfall is $111 billion, but this is based on “expected return” assumptions that are inappropriate (see Josh Rauh or anyone who understands finance) and are too optimistic to boot.

    The real shortfall is more like $200 billion for Illinois.

    There are 12.88 million citizens in Illinois. That comes to $15,527 of pension debt per citizen.

    And the state Supreme Court struck down a recent law aimed at trying to rein these promises in…


    In the perspective of the federal debt ($19 trillion over 326 million Americans, or $58,000 per citizen), it’s not so bad I guess.


  16. Gravatar of Ray Lopez Ray Lopez
    8. February 2016 at 06:27

    @Michael Rulle – the trend now is for the rich to give away their money before they die. It’s a meme that started with W. Buffett and B. Gates, and has continued. I think it’s fashion, and peer-pressure, not guilt. A. Carnegie did the same thing 100+ years ago; J.D. Rockefeller did not, but roughly their off-spring ended up the same.

  17. Gravatar of Njnnja Njnnja
    8. February 2016 at 06:36

    OK, there are some questions about the accounting, mainly coming down to whether pension funds are assuming too high a rate of return on their investments.

    The $3.8 trillion assumes that funds can lay off the risk at an 8% return on assets. That assumption is ridiculous unless one assumes that large numbers of fund sponsors are going to default on significant portions of their obligations. That is more than “some questions about the accounting.”

    Right now, Brazilian government bonds are yielding about 7% and Greece government bonds are yielding about 9%, so if you want to argue that total liabilities are only $3.8 trillion, then you are arguing that the safety of those pension payments should be slightly more secure than investing in Greece but less secure than investing in Brazilian government bonds. One cannot consistently argue that the total liability if $3.8 trillion *and* that all existing pension promises should be paid.

    At a more realistic (“market-based” as opposed to “fantasy-based”) return on assets, say, 2% that Treasuries currently yield, the liability is $7.6 trillion (actually, they don’t even display the liability at that low a rate in the report so you have to extrapolate). Instead of a $1 trillion shortfall, it’s more like $4.8 trillion. The “3% of payroll” shortfall is based on a $1 trillion number that should be $4.8 trillion. If you amortize the 4.8 trillion over a standard 10 year period, you get something like $480 billion per year, which is about 56% of total state and local payroll, not 3%.

    To conclude, in order to reach fully funded status for actual promised benefits without defaults (10 years from now!), we would have to cut total payroll of government workers by over 50% and put that money into the pension fund instead. As long as you think that state and local government workers are OK with that size of a reduction, then I guess it’s not a big deal. Somehow I doubt that is the case.

  18. Gravatar of dw dw
    8. February 2016 at 07:36

    well i dont know what he means by pension reform, he didnt say. but we do know what some mean by pension reform, they do mean eliminate it. no doubt about that. and those same folks tend to look on 401ks as replacements, even though they were never set up to do that, they were to be at be one pat of it along with a pension and social security. and as we saw in 2008, they are very susceptible to external event (market collapse) that had nothing to do with 401k participants actions. course if we were top look closely we might notice that in favor of these are the same ones whose own livelihood depends on them being funded. and the fees that they collect from them. what they dont point out is that house hold incomes tend to be in 50,000 range, and thats from 2 workers, with more expenses because of going to 2 jobs. never mind having kids. and there are lot who dont even make that much.

    and from a non finance profession, i dont see what finance does for us much. some times it helps i suppose fund some things , but lets admit it also takes a lot away, for no gain at best, and major losses at worst.

  19. Gravatar of Anand Anand
    8. February 2016 at 07:54

    This post is pretty weird:

    1. On what basis did Scott conclude that he is a “moderate Democrat”, except the piece labeling him one? “Moderate” is a floating signifier. The person is quoted as saying that he believes in a high safety net, but gives no details of what this means.

    2. On what basis is this person’s opinion worth listening to, except that he has lots of money and wants to give it away? This is regardless of whether his views are right or wrong.

    3. The “right-wing” comment is made by a Rolling Stone article by Matt Taibbi, not the Democratic party. Taibbi is much to the left of the Democratic party in general. Indeed, he spends most of his time bashing the Obama administration on the financial sector.

    4. The governor of Rhode Island being talked about in the piece is a Democrat.

    All in all, not one of your better posts.

  20. Gravatar of Randomize Randomize
    8. February 2016 at 09:15

    As a young guy contributing toward one of the better state pensions, I can say with authority that I’d rather they simply raise contribution rates rather than cut benefits or raise the retirement age. The state of Washington recently raised contributions from 4.5ish to 6% to match declining interest earnings and the world didn’t end; Social Security and other pensions could do the same and the result would be similar.

  21. Gravatar of dw dw
    8. February 2016 at 09:46

    and in SS case, they could also remove the cap on the contributions.

  22. Gravatar of Adam Adam
    8. February 2016 at 09:49

    Like, where? Because it sure seems like “the Dems” are about to nominate a Clinton for the presidency.

    Party nominee is a pretty crude proxy for the stance of party policies, of course, but where are the left wing policies? Where are the new programs being proposed? Where’s the big spending and the significantly higher taxes?

    The Dems have moved so far to the left that the enacted the Heritage Foundation’s health care plan. Scary.

  23. Gravatar of Scott Sumner Scott Sumner
    8. February 2016 at 09:54

    David, “OK, there are some questions about the accounting”

    Insert Madoff joke here.

    I don´t think Krugman has done his homework.

    Everyone, I am currently stuck in Iceland, that´s all I have time for now.

  24. Gravatar of Morgan Warstler Morgan Warstler
    8. February 2016 at 10:51

    “Too much capitalism does not mean too many capitalists, but too few capitalists.”

    Trump: The Distributist


    Someday, coming soon, Economists will be forced to admit that Large Firm Efficiencies are not real if a large firm economy drives Government larger as a share of GDP.

    Tech is the reason they will be forced to admit it

    You see Uber and Airbnb are LARGE Distributist Firms. And we love them!

    What Trump is pointing towards, and what I think most of the GOP will move towards, is a macro software driven Distributist government – in both the way it suns itself and the way it regulates…. towards more competition and greater end agency.

    This will put much of the Fortune 1000 on the wrong side of history in the near and mid term.

  25. Gravatar of dw dw
    8. February 2016 at 11:29

    and most of the ‘short falls’ in pensions end up being not putting in enough in the pension, or gaming the funding so that the employer puts in less. cause an employer can change the assumptions going (like how long employees will live, etc). and did employers do this? of course they did. and have some even earned money from this? yes they have. have some stopped their employee one, but kept the much executive one, that was much in much trouble? of course they have.

  26. Gravatar of dw dw
    8. February 2016 at 11:33

    and lets face it, the real difference between a pension and a 401k is that one is managed by professionals full time, while the other is done part time, by those whose job is unrelated to managing a money. otherwise they both ‘invest’ in stocks and bonds to make money to fund retirement

  27. Gravatar of Tom Brown Tom Brown
    8. February 2016 at 12:01

    Give me a pragmatic, incrementalist/realist over a hysterical Jacobin any day. I abhor the Jacobins on the right and the left. This guy Arnold seems like a pragmatic incrementalist/realist (from your description). I can see why he’s a moderate Democrat. It’ s a pity he’s incurred the wrath of the Jacobins.

  28. Gravatar of J Mann J Mann
    8. February 2016 at 12:02

    David, I’m not sure Krugman read the underlying report that he’s using as authority. If he did, he’s being close to dishonest. You can read the report here:


    1) Krugman is right that if you use the assumptions in place in 2013, then increasing pension contributions by 25 billion per year over current trend for thirty years would eliminate a $1 billion shortfall. Of course, he doesn’t mention that he’s talking about scrounging up a constant stream of $25 billion per year payments.

    It’s like I go to my spouse and say “We can’t afford to borrow an extra million on the house,” and she says “Oooh, one MEEELLION dollars? Who are you, Dr. Evil? It’s only a payment of $2,100. $2,100 is a lot less than a million, you liar. I eagerly await your correction.”

    Well, duh, but it’s $2,100 per month, every month, for thirty years, and I don’t think you’re going to pay it, which means we have a present unfunded liability of . . . wait for it . . . one million dollars… (Well, using Krugman’s pension numbers. If you want housing numbers, cut the debt to about half a million).

    2) And that’s before we get into the fact that the PAPER KRUGMAN HIMSELF CITES AS AUTHORITY says that the $1 trillion shortfall depends on the assumption that pension funds will make a real return of 8% per year indefinitely, which the authors find unrealistic and contrary to consensus. They note that under a 5% annual return assumption, the shortfall rises to $2.7 trillion.

    3) It’s possible that Krugman’s correct and I’m wrong. Go look up the following two facts:

    3.1) Since 2013, how much have US pension funders closed their ARC gap. If it’s a substantial fraction of the 20% underfunding (say if they’re above 90% of the ARC overall and trending upward), I still think the 1 trillion is right, but Krugman had a point that the problem turned out to be manageable. If not, he’s like the guy whose doctor tells him he’s fifty pounds overweight, and says “well, all I have to do is create a 16 calorie a day deficit (every day for thirty years).” Sure, you could absolutely lose 50 pounds by climbing the stairs at work for thirty years, but that doesn’t make it not 50 pounds.

    3.2) What’s the risk adjusted average rate of return for pension assets over the last 10 years? Is it over 8 percent? What’s the predicted return for the next 10 years?

  29. Gravatar of Plucky Plucky
    8. February 2016 at 14:14

    The basis of calling Arnold a “moderate democrat” is that this is more or less Arnold’s self-description. He is for the most part ordinary democrat on social issues, and a third-way, non-socialist on economics. He was an early supporter and fundraiser for Obama vs Clinton in 2007-8.

    The misnomer is “contrarian”. “Contrarian” is the word journalists use when they want to write a heroic-individual-against-the-world story (i.e. the only story they really want to write). Few if any people in the gas trading world would call him by that name. “The best” is the description they would normally use. He put up >100% annual returns for 8 consecutive years. That’s not what a contrarian’s return profile looks like. That’s the return profile of someone who consistently did his homework quicker and more thoroughly than anyone else in the market, had the confidence to take huge amounts of risk, and managed to almost never be wrong. He’s a legend for a reason.

    Commodity futures are an odd corner of finance, and really aren’t part of finance at all (commodity futures aren’t securities, e.g.). There is no such thing as “investing” in commodity futures. You’re either hedging or speculating. Anyone in commodity futures who describes himself as an “investor” is either lying to you or lying to himself. Taking a position in a commodity future is not creating or taking title to a capital asset.

    The value added by commodity futures markets are very real but also very indirect and abstract. They are fundamentally insurance markets (very fast-moving ones, but insurance markets nonetheless). The value added by insurance markets is the value added to firms by giving them certainty on their future cashflow and moderating volatility. Those are both highly valuable functions, but are also numerous steps removed from anything tangible you can point to.

    That said, Arnold is very much aware of what his function was in the market and how that added value. His statement is not one that should be taken literally as indicating that actually doubts the utility of commodity futures markets. It’s much more about being as personally modest as is possible for a multi-billionaire. That 100%-trying-to-make-money / 100%-trying-to-do-good phrasing is just the way a wealthy philanthropist is expected to comport himself. It’s also a typical liberal’s way of focusing on personal motivation rather than effect.

  30. Gravatar of Bababooey Bababooey
    9. February 2016 at 09:51

    Well, Scott, California state and local municipalities are providing fewer and worse services in order to fund pension obligations. Do you really want to move your tax residence here?

    Also, it’s 85 degrees. We slept with all our windows open.

  31. Gravatar of Brian Donohue Brian Donohue
    9. February 2016 at 09:54


    one thing finance tells us, when it comes to things like pensions, is “danger ahead”.

    In the private sector, where companies that lose money go extinct, the message was heard, and pensions have been frozen.

    What happened? Well, a combination of New Normal interest rates and an aging population that is living longer have more than doubled the cost of pensions over the past 20 years.

    Still, many private sector pension sponsors will continue to make hundreds of billions of contributions to frozen legacy pension plans over the next several years yet in order to cover this doubling of cost.

    Over in the public sector, the “danger ahead” signal is flashing red but largely unheeded. Yet.

  32. Gravatar of pras pras
    9. February 2016 at 11:21

    How can you say that the dems have moved far left? I would say today’s Dems are much more free-market and pro-business than the new deal dems. Under Clinton you had NAFTA, under Obams you’re getting TPP.

  33. Gravatar of pras pras
    9. February 2016 at 11:24

    When was the last time you even heard AFL-CIO mentioned in the news? Big labor is dead, and the current Dems are not trying to resuscitate them. That’s hardly far left.

  34. Gravatar of TravisV TravisV
    9. February 2016 at 16:49

    Tyler Cowen on negative IOR in Japan:


  35. Gravatar of TravisV TravisV
    10. February 2016 at 09:08

    Marcus Nunes on Yellen’s testimony today:


  36. Gravatar of dw dw
    10. February 2016 at 09:14

    @ Brian Donohue, if there is danger ahead for pensions, then there is an on rushing disaster in the 401k ‘retirement’ savings plan. cause they are basically do savings the same way, investment is their sole way to increase what was invested. one is managed by professionals, full time, the other by Amateurs part time. and if companies can invest enough to make retirement income how can employees with a lot less resources to do so? and why are we trying to 401k for what they are not designed to do?

  37. Gravatar of ssumner ssumner
    10. February 2016 at 14:07

    Morgan, If Trump is opposed to the power of big firms, why does he oppose reform of eminent domain? Why should big firms be able to grab land under the house of a little old lady? Why does he favor trade barriers?

    J Mann, Good comment.

    Plucky, Yes, I should have chosen a different adjective than “contrarian”. What I had in mind is that he was pursuing issues that others avoided.

    Bababooey, The 85 degrees sounds great, and that’s enough for me to be willing to look past the horrible, incompetent, Democratic Party led government in Sacramento.

    Pras, They have clearly moved left since Clinton, that’s what I meant. And btw, Obama is just about the only Dem supporting TPP.

    Dw, How hard is it for companies to tell employees “don’t be an idiot, put all your money in S&P500 stock and bond index funds”? Why do you have to be an expert? Companies should have a recommended investment for 401k money, and let people gamble if they want to be stupid. There’s no cure for stupidity.

  38. Gravatar of dw dw
    10. February 2016 at 16:56

    well considering this is their side job (the other is taking upwards of 50+ hours per week) and they likely have 0 back ground in making these sort of decisions. course they could just have a few stock and bond index funds, and remove all the rest right? and considering that this is retirement money, and a large junk dont make more than 30,000 a year. they dont really have all that much to put into it now do they? and some times it just wont matter what they did now will it? cause they could have made all the right choices and still be trashed, when wall street self destructs. again

  39. Gravatar of dw dw
    10. February 2016 at 18:12

    course the other thing would to make sure that cost of these ‘investments’ doesnt wipe out the gains from them

  40. Gravatar of ssumner ssumner
    11. February 2016 at 07:02

    Dw, That doesn’t in any way respond to my points.

Leave a Reply