Should index funds be illegal? Some things—people, companies, decisions, institutions, societal structures, whatever—have bad consequences because they are bad. Instead of making the bad decision, you should just make a better one. Other things have bad consequences because they are big and complicated and require difficult tradeoffs; you have to live with the bad consequences to get other good consequences, though perhaps you could make a different decision to get the same, or different, good consequences with fewer, or different, bad ones. And then there are things that have bad consequences because they are somehow isomorphic to the world; they have bad consequences because they have all the consequences; they contain a version of everything that exists. So it misses the point to criticize them for the bad stuff. "Everything you hate about The Internet is actually everything you hate about people," says Balk's First Law, the clearest example of this sort of thing: The internet is a structuring and indexing and reflection of the world, and so if the world contains horror and misery and evil and ignorance then so will the internet. Or these days you could more or less substitute "Facebook" for "the internet" and it would be about as true. I don't mean that as a defense of any decision that Facebook has or hasn't made, but it is kind of praise of Facebook. They have done what they set out to do, connecting the world and so forth; now there's a pretty complete copy of the world inside of Facebook. The fact that you can be born and die and mourn and celebrate and fall in love and be a victim of fraud and conduct political campaigns and wage war on Facebook is … troubling? … but also an obvious sign of Facebook's success; if Facebook didn't include war and murder then it would not be the full representation of the world that it actually is. Anyway here's Al Gore on index funds: "I think the large passive managers have a real difficult decision to make," former Vice President Al Gore told the Financial Times in December. "Do they want to continue to finance the destruction of human civilization, or not?" I just think that's the wrong way to look at it, you know? Of course they want to continue to finance the destruction of human civilization! (Gore was talking about the big index fund managers' approaches to climate change.) Not because they are particularly interested in the destruction of human civilization themselves, but because they are interested in whatever the market is interested in. Humani nihil a se alienum putant. They are just aggregators of human preferences, and if people want to destroy human civilization—in more neutral terms, if people want to invest in fossil-fuel companies or whatever—then the index funds will take a piece of that. That's just sort of what it means to be a passive manager. Attacking the index funds for properly indexing human behavior is a little silly. You have to go change the behavior directly! The passive managers passively reflect the active decisions of active managers; if you change those decisions—if the people actively choosing stocks stop owning fossil-fuel companies—then the index funds' decisions will follow. But this is hard to accept. The inexorable logic of the market can sometimes lead to results that no individual human would want; more commonly, though, it can lead to results that the particular humans running index funds might not want, or might not seem to want, or might want to rhetorically distance themselves from anyway. (Lots of people actually do think that easy access to firearms is straightforwardly good, but the managers of BlackRock Inc. kind of don't.) If you don't like the results, and you think that the index-fund managers might personally not like the results, it is tempting to call them up and ask them to overrule the market. And that does happen from time to time. Index providers (not index-fund managers, though they are influenced by the fund managers) have decided that companies with dual-class stock should not be included in some indexes: Those companies exist, and active investors buy them, but they have been declared out of bounds by (some) indexes; the indexes just choose not to reflect that aspect of the world. But you can only do so much of that; after all, the reason that index funds are so big and influential is that people want passive investments. If you get too active about how you do passive, you lose that advantage. Also, though, index funds don't just own shares (in a way that passively reflects the world); they vote shares, and they are not obligated to do that in a way that reflects everyone else's votes. (Some people think they should be!) I suspect that shareholder voting decisions have considerably less effect on the world than shareholder ownership decisions do, but if you own enough shares and vote on enough things it does tend to matter. And so that passage that I quote above comes from a big Bloomberg Businessweek article about, you know, should index funds be illegal, as I often joking put it. Or as the headline puts it, "The Hidden Dangers of the Great Index Fund Takeover." It covers a lot of themes we often discuss around here—the antitrust implications of all the competitors in every industry having the same shareholders, the "Problem of Twelve"—and if you like that stuff then you'll find lots of good stuff in the article: A 2018 study found that, when the same institutional investors are the largest shareholders in branded drug companies and generic drugmakers, the generic companies are less likely to offer cheaper versions of the brand-name drugs. Consumers could be paying higher drug prices as a result. "The potential effects on anti-competitive conduct are really serious," says Melissa Newham, a Ph.D. candidate at KU Leuven in Belgium and a co-author of the study. It's an odd bind for the index funds, this simultaneous worry that they have a subtle hidden influence on companies, making them less competitive, but that they also don't use their obvious explicit influence to change companies in other ways: Novick, the BlackRock executive, has called the competing theories over how fund companies wield their power the Goldilocks dilemma: "Do asset managers do enough? Do they do too much? Or are they doing just the right amount?" she said at a Harvard roundtable on corporate governance. On the one hand, you don't want index funds to influence companies in ways that you don't like; if they are changing how companies do business in bad ways, then that's bad. On the other hand, you do want index funds to influence companies in ways that you do like; if they are failing to change how companies do business in good ways, then that's also bad. Robot pizza pivot Naively I would have thought that a good thing about running a business in which you hire robots to make pizza is that, if you decide to get out of the pizza business, you don't have to lay off a lot of humans. Robots made your pizza, so when you stop making pizza you are mostly laying off robots. But, no, wrong: Zume Pizza Inc. said it was cutting about half of its staff and shuttering its pizza business, making the former robotic pizza maker the latest in a long line of SoftBank Group Corp.-backed companies forced to slash spending. In a note to staff, Zume co-founder and Chief Executive Officer Alex Garden said the five-year-old startup would focus on its nascent packaging line, announced last year, along with food production and delivery systems. Zume is closing the pizza delivery business, known for serving up robot-made pies, on which it built its name. The company is also cutting 360 employees. Obviously it's easy to make fun of Zume Pizza Inc., the robot-pizza startup, for getting out of the pizza business. "Pizza" is right there in the name, and then again in the comical shorthand description that everyone uses for Zume. On the other hand there is something appealing about this description of Zume: Employees describe a culture at Zume where the emphasis moved quickly from one project to the next, with priorities driven by engineering ambition rather than market research. For example, last year a team of engineers spent months working on a project, codenamed "Penrose," to equip food deliveries with sensors that would record data such as the temperature of the food once dropped off with the customer, according to two people familiar with the situation who asked not to be identified discussing private information. At the end of the year, with no customers committed to the sensors, the project was dropped and its manager left the company. I don't know, "priorities driven by engineering ambition rather than market research" sounds like … praise? Building cool ambitious difficult things and then seeing if someone will buy them seems more interesting, and potentially more socially valuable, than just asking people what improvements they would like to see in their products. But perhaps it is a problem when you pair it with this: Zume, which won a $375 million investment from the SoftBank Vision Fund in late 2018, joins a lengthening list of struggling companies backed by the Japanese conglomerate's $100 billion tech investment fund. Known for showering companies with far more cash than they were seeking to raise, the Vision Fund's strategy is to anoint a category leader that no competitor can catch up with. "We're gonna build a robot to make pizza, and then find out if that's a good idea, and if not we'll do something else, maybe packaging or something": Great, fine, cool approach if it's like three of you in a garage. But once you get $375 million to become the untouchable category leader in robotic pizza, then you have to hire hundreds of people to perfect your pizza robots and build mobile kitchens and a delivery service and whatever else you need to scale up a worldwide robot-pizza delivery business. And then when you find out that robot pizza is not actually a good idea, the pivot is a lot harder and more public and more embarrassing, and it involves a lot of layoffs. More money than you want is not always what you want! Congressional insider trading It's as old as America! From Jason Zweig's "This Day in Financial History" for Jan. 9, 1790: Insider trading gets off to a roaring start as Treasury Secretary Alexander Hamilton submits to Congress his "Report on the Public Credit," which proposes buying up distressed bonds to consolidate the national debt. U.S. and state bonds, which had been trading at a fraction of their value, immediately surge in price. In one of the earliest, and most shocking, cases of insider trading on record, several members of Congress hire sailboats and stagecoaches to take them south faster than the news can travel by foot. They can snap up bonds at bargain prices before Southern newspapers spread the news of Hamilton's proposals. Wellllll. The news was public. The lesson here is that even "public" news is not simultaneously, instantaneously available to everyone: A report is read into the record in Congress, and then the reporters in Congress go back to their desks and write up the report with their quill pens and typeset it and print it and hand it out in the town square, and then visitors from neighboring towns buy copies and bring it back to their towns, and it slowly disseminates out into newspapers further afield, but meanwhile if you heard the report in person and are motivated, you can hop on a stagecoach, travel faster than the news, and make a killing on the bonds. This is not necessarily a function of your position as a member of Congress; people watching Congress from the gallery, or even people reading the news the next day in the town square in New York,[1] can also jump on sailboats and race ahead of the Southern newspapers to buy up bonds. The issue here is not insider trading, it's using technology (sailboats, stagecoaches) to react to public news faster than the rest of the market. Obviously the particular technology here sounds quaint now, but the issue never entirely goes away. We talked last month about the famous 1960s Texas Gulf Sulphur insider trading case, in which insiders traded on corporate news after it was public but before the wire services had actually published it. And we talked about that case, in turn, because it was relevant to an entirely modern story about electronic traders who could hear public speeches given by the governor of the Bank of England a couple of seconds before everyone else, because they had a faster audio feed. The technology changes and the time advantages are compressed, but the same issues keep coming up. Everything is seating charts Sure why not: Rethinking how a space is structured could change the ways people do their jobs, Mr. Dewane says. His solution, one beginning to gain traction across the U.S., is a concept he calls a "eudaimonia machine," its name based on the Greek term for human flourishing. In it, workers move through five or six distinct zones during the day. Each space has a purpose, from socializing to research, allowing people to alternate between focused work and chances to recharge. The design culminates in individual "deep-work chambers," intended for focus. … Rethinking how a space is structured could change the ways people do their jobs, Mr. Dewane says. His solution, one beginning to gain traction across the U.S., is a concept he calls a "eudaimonia machine," its name based on the Greek term for human flourishing. In it, workers move through five or six distinct zones during the day. Each space has a purpose, from socializing to research, allowing people to alternate between focused work and chances to recharge. The design culminates in individual "deep-work chambers," intended for focus. There's a diagram. The other zones are also great; they include space for shallow work (basically an open office) and a "deep break space," which is maybe not as deep as it sounds (it's "a space for employees to socialize over coffee or even games," fine). Also a "contemplative area": " After hours of deep work, this is a space where workers can collect their thoughts. The space will include a bench overlooking plants." It seems fine? Yes, fine, if you have the sort of job that benefits from hours of uninterrupted work but also from some collaboration, it is good to have both a private office and a place to hang out with your colleagues. (That more or less describes how I structure my day, though my deep-work chamber is just my apartment, which I leave to do the shallow work of pestering my colleagues after finishing Money Stuff.) Obviously most workplaces don't have the money to give everyone five different places to sit, but if you do, go for it, sounds great. I just like the idea that eudaimonia—happiness, blessedness, human flourishing, "the good composed of all goods" (pseudo-Plato), "the highest of all goods achievable by action" (Aristotle)—is a product of office design. It's probably true! You spend a lot of time in your office, and how it actually works matters. But imagine telling Socrates that. "The key to wisdom is knowing what you do not know," he would say to you, and you'd be like "no actually have you tried this chair, the key to wisdom is this chair." Things happen Defiant Ghosn Invokes Pearl Harbor, Displays Legendary Brashness. U.S. Legal Firm Hired by Nissan Becomes Target of Ghosn's Wrath. Grubhub Considers Strategic Options Including Possible Sale. Regulators Seek to Loosen U.S. Exchanges' Control Over Stock Data. Argentine election shock wrongfoots hedge funds in 2019. Quant Firm AQR Capital Cuts Jobs After Assets Decline. Wall Street strategists look to unearth the next 'Fangs.' Prince Harry and Meghan to 'Step Back' From Royal Family. Should America's GDP data include drug dealing? What Scientists Learned by Putting 3-D Glasses on Cuttlefish. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] New York! Wikipedia tells me that Congress met in New York from March 1789 until December 1790, when it moved to Philadelphia; it didn't meet in Washington until 1800. | 
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