Jack Bogle founded Vanguard and helped create the index fund, which right now is completely revolutionizing the financial industry.
You see, the index fund is leveling the playing field and is democratizing investing by giving everyone – whether you’re a small mom & pop investor or a giant pension fund – access to the market average return at very little cost. Hedge funds that can’t consistently beat the market are closing up shop as the evolutionary process of survival of the fittest takes hold and Vanguard – perhaps more than any other asset manager – is benefiting immensely (the company is taking in $1 billion from investors per day).
So it’s surprising that Jack Bogle – creator of the index fund and long-time champion of Main Street – is most worried that the United States is becoming too democratic.
Isn’t democracy a good thing? Isn’t that what America is all about?
Well… not actually.
In a recent interview with CNN, Jack Bogle covers many topics – from the stock market, to Trump, to how he is so productive at age 88. Bogle also explains why democracies actually aren’t the ideal form of government, and why the United States was never set up to be a democracy.In the interview, Jack Bogle is asked what worries him the most about the future of the United States. His answer: that the U.S. is becoming too much of a democracy. Here Bogle explains what he means:
Jack Bogle’s right about the Founding Fathers. The United States was not established as a direct democracy, which is a form of government in which people decide (e.g. by voting) policy initiatives directly.
Rather, the United States is a republic, which is a form of government in which individuals are elected to represent the citizen body, and they decide policy initiatives. (There’s actually a bit of a nuance to these definitions, because the United States is technically a democratic republic, which is still a democracy, just not a direct one – but you get the point.)
But what’s so bad about the United States becoming more of a direct democracy and less like a republic? Doesn’t that mean that policies will more accurately reflect what people actually want?
Well, possibly… But if voters are not adequately informed and educated on the issues they are voting on, then you wind up with decisions like Brexit – which Jack Bogle thinks was a huge mistake:
Interestingly, Charlie Munger has made a similar point before. In Munger’s USC Law School Commencement Speech from 2007, Munger told a funny story about there being two types of knowledge – “Planck” knowledge and “chauffeur” knowledge.
The story goes like this:
The point of that story, according to Charlie Munger, is that there are two types of knowledge in the world:
- Planck knowledge: These people truly have the knowledge and have paid the dues and have the aptitude.
- Chauffeur knowledge: These people have learned to prattle the talk, they have a big head of hair, and a nice voice, and they make “a hell of an impression,” but in the end they just have chauffeur knowledge.
It’s important to get the opportunities and the power to make decisions into the hands of people with Planck knowledge, and out of the hands of people with chauffeur knowledge.
This isn’t to say, of course, that politicians in a republic necessarily make better decisions than ordinary voters in a democracy – or that they are even more educated or better informed than ordinary citizens. As Jack Bogle points out, Brexit might have happened anyways even if all the voters were properly educated on the issue.
But in an ideal society, voters need to take the time to really think about and understand issues before voting on them.