An Interview with James Grant, Founder and Editor of Grant’s Interest Rate Observer
James Grant is the founder and editor of Grant’s Interest Rate Observer. Before founding Grant’s, he previously worked on the bond desk of McDonnell & Co., as a cub reporter at the Baltimore Sun, and as a columnist at Barron’s. Mr. Grant is the author of nine books. His most recent book, The Forgotten Depression: 1921: The Crash That Cured Itself, received the Manhattan Institute’s 2015 Hayek Prize. Mr. Grant is a 2013 inductee into the Fixed Income Analysts Society Hall of Fame, a member of the Council on Foreign Relations, and a trustee of the New York Historical Society.
The Politic: I just took a chemistry exam.
James Grant: My wife Patricia decided to go to medical school at the age of… not 25. I think she was closing in on 40. This entailed a few years of catching up, including an organic chemistry class at NYU. After the midterm, she took our then-4-year-old, Alice, to the chemistry department office. There was a bulletin board, and one’s grade was posted opposite to one’s social security number. Very discrete. Patricia examines the grade… something like 27/100… and she does her best to offer Alice a lesson in pure perception. No comment. Just seeing the number.
But it didn’t work because, as she discovered, Alice’s teachers in preschool were so solicitous – suddenly beginning then – about Patricia’s chemistry course and her ‘interesting’ and ‘unusual’ decision to pursue this very demanding course while having children at home. A form of passive aggressive attack by the teachers. But, Patricia finally passed the organic chemistry class. Anytime that I hear anybody say he or she has taken a chemistry test, I have an immediate sense of empathy and indeed fear.
Alright! Starting with the basics, I know you were born in New York and that you frequently mention baseball and music in your writing. What’s the scoop? What led to the Mr. Grant we know?
I was a serious student of the French horn from junior high school through high school, and I intended to pursue a career in that. However, my intentions were somewhat ambivalent. I left college after exactly one semester and went into the navy. I did not play the French horn at all while aboard the U.S.S. Hornet.
I went back to college at Indiana University, which was then and still is a mecca of music, but I did not pursue music when I got there. I had been away from the French horn for two and a half years. At that point, it was really over. And it was probably just as well. I was very good, but there is such a fine and important line between being very good and being accomplished.
As to baseball, I was died in the wool. I mean, I was just a rabbit. Well, not a rabbit–because I did not exactly foam–but I was so in love with the Brooklyn Dodgers. They left me; I did not leave them. That was May of 1957. I had played Little League baseball growing up. I think I got a hit. If you get more than one hit, you tend to forget them. But if it is just one hit… it is ever in your memory. I dearly loved and continue to love both baseball and music, though I no longer play French horn.
I grew up with my family on Long Island, and I just had an antipathy for it: I hated the flatness and the featurelessness of it. In fact, I resolved to live any place except Long Island. Today, Patricia and I live on the western tip of Long Island called Brooklyn Heights. Our children have packed up and left, but we continue to live there. Now we are within 500 yards of salt water, but we never really escaped Long Island.
You mentioned the Brooklyn Dodgers. If I’m right, Jackie Robinson started playing 1-2 years after you were born. Was Jackie your guy?
Actually, Don Newcombe was my guy. He must have died Tuesday (February 19). He was a powerful, right-handed pitcher, a Cy Young Award winner, and such a good hitting pitcher that they would pinch hit him for position players. Newcombe had two bad turns in his life. The first–more important–was his alcoholism. He managed to shake the alcoholism, and the last 30 years of his life were all about helping Major League baseball players stay away from drinking. The second– less tragic–facet of his career was never having excelled at a World Series game. The Dodgers were in the World Series a lot in those years. I do not think he ever personally won a World Series game and, in fact, he lost a couple that were ever-so-close, which I think he took very badly emotionally. He unsuccessfully tried to drown his worries in Rheingold or Schaefer, whichever beer was the ruling brand of the day.
When you first started working on the financial desk of the Baltimore Sun, you were regarded as having a “dead-end” job. That sounds pretty funny. When you passed down the halls, were you given weird looks?
Working on the financial desk of the Baltimore Sun was so uncool that people did not even bother to look scornfully. This was the age of Woodward and Bernstein, of Watergate, the Nixon impeachment, and the Nixon resignation. The only thing to do at a daily paper was to win the next Pulitzer Prize by exposing the next political scandal. That was the one and only career path.
But it was also the time of the bourgeoning inflation of the 1970s and the time of great monetary drama and financial markets drama. I was not really aware of the portentousness of the 1971 decision by the Nixon administration to abandon the Bretton Woods system, which entailed exchanging dollar bills for gold at a rate of about $35 per ounce of gold. Any central bank in the world could say, “We have enough dollars, thank you. We would like their equivalent in gold from Fort Knox.” That was a constraint on Nixon’s domestic, fiscal policy-making ambitions, so he and his treasury secretary, John Connally, decided to just ditch the American commitment and make that exchange. But this was a little bit in the background. I was only peripherally aware of just how important Nixon’s decision was at the time; I certainly was not as well-read in the things that I’ve become better-read in now.
But my qualification for this dead-end position was having spent exactly 7 months on the bond desk of a New York Stock Exchange-member firm called McDonnell & Co. When I got out of the Navy, it was February of 1967. I was going back to school in September, so I had some time to earn some money. I went to Wall Street and got a job as a clerk at this firm. I sat there in this room helping my bettors transact in large sums of money, in the millions of dollars, and watched others make in the hundreds of thousands of dollars. This was quite unexperienced.
I had studied economics in college. So, my economics degree plus, mind you, my career on Wall Street qualified me as the Warren Buffett of the newsroom. People kind of smiled and said, “Yes… that’s a very well-qualified fellow.” I had no idea at the time how little qualified I actually was, and I think my financial editor, Jessie Glasgow, quickly understood my lack of qualification. He was very indulgent with all my foibles and pretenses. I’m very grateful to him.
The hedge fund industry only really took off in the 1990s, right?
The hedge fund industry first took off in the 60s. There was a guy with the magnificent name of Alfred Winslow Jones… A.W. Jones. He came to the realization that if you were to be investing in a certain set of stocks and betting against another set of stocks, or ‘long’ the good ones and ‘short’ the bad ones, you could make a very good living. And you could charge your investors, your limited partners, a very fancy fee for participating in this clever strategy. Jones succeeded, and as is the way on Wall Street, his success inspired many imitators.
In the late 1960s, when it was a time when Wall Street had been called the so-called “go-go market,” hedge funds became very cocky and very rich and then suddenly very poor and much fewer in number. So, the 70s were a time of sackcloth and ashes on Wall Street. The market went down and down some more. Inflation came in and interest rates went up. All the people who seemed so smart in 1967 and 1968 were suddenly on the outside looking in and wondering what happened– one of the standard themes on Wall Street. One seems to be smart cyclically yet stupid, also, cyclically. A very humbling line of work is Wall Street.
So, the market shot up in the 60s, inflation rates went up in the 70s and the market struggled, and then there’s a period… until the Internet bubble in the mid-late 90s?
The rough history of modern Wall Street, in only a few words, might go this way. 70s… bad. Inflationary. 80s… Interest rates, in 1981 peak out at the now seemingly and literally incredible heights of like 15 percent for long-term government bonds. But interest rates were positively alpined in the early 80s because the rate of inflation had put them there. Rate of inflation comes down, interest rates come down, stock prices go up, and the 80s are just a wonderful period on Wall Street. They take a little pause to do the wonderful things starting in 1987, the year of the not-now-so-famous but at the time very, very formidable stock market crash. In one day, October 18, 1987, the market was down something like 20 percent. And then come the 90s, the time of the great internet frenzy and what seems in retrospect to be rather a bubble, though at the time seemed to be only the reasonable updraft of everything having to do with the prospect of a new economy based upon digital technology. That ended in about the year 2000. Then come the events of 2001. Everyone needs to buy a house. That period lasted to about 2003-2005. The stock market went up very handily in 2007. Then comes the very famous Great Recession, the period of contrition and recrimination thereafter, and then another upward lurch. There you have it, Eric. There’s Wall Street for you in about three paragraphs.
At this point you’re at Barron’s. Then I read that you had a small quarrel with the leadership, deciding to leave Barron’s to found Grant’s where you’re not doing too well at first?
I arrived at Barron’s in 1975 and left in 1983 over an utterly inconsequential, intra-office squabble over ‘who did what.’ The lower the financial stakes of an argument, the more intense the emotion; I’m not sure if that’s actually a rule, but there seems to be something in that. Certainly, there was not much money involved and the personalities involved were very intense. So anyway, I left. What to do? We had 2 kids then, on our way to 4… one of whom would become a Yale alumna.
So, what to do? I could have gone, I suppose, to Fortune, Forbes, or Businessweek. But Barron’s was a writer’s publication. You could write your own style. They were very indulgent in that way, and I rather liked that. And I thought, “Well, the world doesn’t have enough to read!” That was my first misconception.
My second misconception was projecting financial results out about 5 to 10 years in the future on the then-brand-new, Lotus 1-2-3, automated spreadsheet. With the right amount of make-believe, you could imagine yourself getting extremely comfortable… indeed, verging on very, very rich with a big tax problem in just about 5 years, which I proceeded to do. And 5 years was, in fact, the almost-but-not-quite amount of time it took to make my first salary. A slight mal-adjustment of the Lotus 1-2-3 assumptions. It was a long time taking off, but at length, it did just in time for the fourth child.
While you were at Barron’s, and right before you left for Grant’s, did you have name-brand recognition as a financial journalist?
I thought so, and it was on that basis that I was able to project these fabulous results in the future. I wrote a column called ‘Current Yield,’ which I reasonably thought was very popular. Barron’s had a circulation of about 250 thousand at the time. I figured that at least one half of the people reading Barron’s read my column, so I figured “If only 10 percent of those people subscribe to Grant’s Interest Rate Observer…” But it turns out, “If only one tenth of 1 percent,” or something like that. It was a little bit off the mark.
That was a very formative episode in adult education. Because when you are associated with a recognizable organization as in the case of Barron’s or perhaps, if I may so, with an eminent one such as Yale… You tend, we tend, human beings tend to assume that that organizational luster is, in part, ours. We bathe in that luster.
Barron’s was not the most eminent name on Wall Street, but it was a recognizable one, and people would take my phone call. I figured, “Wow, this is me!” But as it turns out, it was Barron’s, and I had to prove to the world that it ought to take time out to do what I wanted it to do and pay for the thing I wanted the world to pay for. It was a rather important lesson in the way the world actually works.
I read that when you first founded Grant’s and it wasn’t doing all that well, it was really your wife Patricia that pushed you to keep going?
Oh yeah, she was fabulous! She was a banker at Lehman Brothers just before she got into organic chemistry. I was so discouraged that I had used all my profit-sharing money from Dow Jones. At the start, that was about 80 thousand dollars. More money than it seems today (it is about 200 thousand dollars today). I guess that’s, what… one semester at Yale or something?
Though 80 thousand dollars was seemingly enough to start this thing, I went through that money in about 4 or 5 months, and there was not much coming through the door. Everything was going wrong. One issue was printed upside down. One time, I took the envelopes, containing one of the first-ever issues of Grant’s, to the Post Office. I managed to leave all of the envelopes in the back seat of the cab, distractedly as I got out, wrestling around for money to pay the cab driver. I took everything out of the cab except the precious envelopes with the postage attached to the new subscribers of Grant’s.
Those things are just life’s annoyances, unless you can put them together in a pattern indicating your certain failure in the business, if you get that discouraged. I had reached the point where I was putting all these bad moments together, forming a pattern. I refused to believe that anything could go right after one particularly bad week, and Patricia was just particularly supportive. She would not hear of stopping. She would not hear of quitting.
And then I managed to raise what turned out to be the only money I needed to raise, about 35-thousand dollars from a man named John Holman, who for years and years refused to be named. But he’s going to have to live with this now. H-O-L-M-A-N. I was pleased to hear him say at our 25th-anniversary dinner that it was the best investment he ever made. It was a nice thing to hear. He’s a very good investor. Thirty-five thousand dollars got us over the hump, but more importantly, Patricia’s confidence got us over the hump.
Any lessons from being in the Navy about maintaining a sense of perspective when thinks weren’t going as well as they could have?
I think that helped. Certainly, it was an important couple of years in the business of growing up. I learned to put up with things I really didn’t care to put up with. I was a gunner’s mate on an aircraft carrier. It was during the Vietnam War. We did in fact spend some months off the coast of North and South Vietnam, but it was nothing like war, war because we were never shot at.
But, my experience in the navy did help me, especially in college, to appreciate what college was about. When I was aboard the U.S.S. Hornet, there was a guy who wanted me to throw my books over the side because they weren’t regulation. I did manage to evade that direct order.
When I got out here, I was 21 years old, just about 21, and all I had to do all day was read books and write things and listen to people. It was just an otherworldly experience. It was great. And I don’t think I would have soaked up as much if I had just come from high school. To that extent, I think the navy did help, but not in the sense of facing some sort of mortal danger and therefore seeing in a business somewhat less mortal danger. I felt that failing at Grant’s would be a pretty damn mortal danger.
It’s rather funny. The old “gap year” was in the Navy, while the new “gap year” is freely traveling around the globe.
[laughing]. I saw a friend of mine from Wall Street. That night, we were at The Breakers hotel, a very fancy hotel in Palm Beach, Florida. He introduced me to his 19-year-old son. I’m not sure if this applies to you, Eric, but sometimes in my adolescence, I wanted to disappear into the floor just because I didn’t want to be anywhere, certainly not with my parents. And you’re just hopelessly awkward and ill at ease. At least, that was one phase of my adolescence, and I think it was one phase of this kid’s adolescence. Perhaps that was the phase at which he happened to be standing.
I thought I’d make conversation with the kid. You never know exactly what to say because you don’t want to grill him on his SATs or something. “Well, go to school?” “No,” his father volunteered, “he’s on a gap year.” The kid’s father rattled off 6 or 8 exotic places! [laughing] I thought to myself, “Yeah. And Palm Beach.” [laughing] He was plainly embarrassed at having a gap year. I think the idea is rather a cliché now. Unless, Eric, you’ve had one, in which case I’ll stop talking!
One more question on the early 1980s. You found Grant’s. The company is struggling. Your wife Patricia pushes you to keep going. Shortly thereafter, she pivots to attend medical school. Was that a deal that you two struck up? You would keep going with Grant’s if she went for medical school?
No… just loving the other person, I guess. That’s all. No deal. Nothing transactional. As I expect you will discover on your own in a marriage, if you start saying, “If you do the dishes, then I’ll do…” If it becomes overly-transactional, I think something is missing. Just wanting the best for the other person, I think, is what it is about. You’ve got enough of that transactional friendship in life already. No need to bring it home.
You frequently used to go to the New York Public Library on 42nd Street to read, right? I do that too sometimes.
Oh, yes! That’s when they had books in it. That’s how long ago it was. This was Fifth Avenue and 42nd street. I just started at Barron’s in the late 70s, and I was learning my craft of financial journalism. My hero was Walter Bagehot. I’m not sure if you ever encountered him in your readings. His dates were 1826 to 1877. He died when he was 51 years old. It was a very convenient age for a biographer to die. He was an eminent mid-Victorian, a man of letters, and the most distinguished editor of The Economist. He wrote something called Lombard Street, which is still this canonical piece of writing on what a central bank should do in a time of crisis. He also wrote wonderful literary essays for the quarterly reviews of the day.
I wanted to read his stuff. So, I went to the library and would have them produce bound volumes of The Economist for me. This is before everything was digitized. These great, dusty volumes of what is now known as “hard copy” would come up from the basement, and I would sit there and read them. I could tell his style, of course, even then, and I counted up his words.
When I wrote this biography of Bagehot, which is coming out in July, one of my first drafts… He would, by actual count, write upwards of 7,500 words a week. My editor at W. W. Norton & Company who publishes my biography insists, “You didn’t really count them.” I said, “Yeah, yeah. I really counted them!” At the time, I was a very deliberate writer, and I marveled at the facility of first draft guys. There are a couple of types of first draft people. The first type is the one who doesn’t give a damn. We could all be that first draft writer. The second, much more rarified type is that person who thinks in such a way as to have the sentences tumble out one after the other, just as they should fall, and then the paragraphs in their succession. Those people are blessed. And, of course, they are hateable.
Bagot was that second type of first draft person. His pen could scarcely keep up with his thoughts. I found it inspiring. Let’s call that 1977. That was then. But I continued to read him off and on, and I spent the last 3 to 4 years in his biographical company. Lo and behold, the book is forthcoming in July!
I was interested to see that you won the Manhattan Institute’s 2015 Hayek Prize, of which I know UIC Professor Deirdre McCloskey and Stanford Professor John F. Cogan are also recent recipients. When did you get into free market ideas?
I guess in college and especially in graduate school, when I had so much time to follow my own reading program. I think my interest especially ripened when I spent 2 years at Columbia doing something called International Affairs. I did not know then, nor am I really quite certain now, what that was about except two years to read books. A great pleasure and privilege.
Are you familiar with Russell Kirk’s The Conservative Mind? I took that as my bibliography, and I would go into Butler Library and just revel in it. I would go through the stacks and read things that Kirk had cited in his survey of the history of Conservative thought and freedom. It was a very special couple of years. I think that was what deepened my convictions along these lines.
Then at Barron’s, Robert M. Bleiberg, my mentor, was one of the most important keepers of the flame of free market economics. He kept the flame alive during the not-so-welcoming years of the 50s and 60s. When people look back on the 50s, they say, “Oh, yes! That was the time of the classical Republican Dwight D. Eisenhower fiscal probity and sensible shoes conservatism.” But the 50s were actually also the time of a suffocating consensus that we lived in a mixed economy, very high marginal tax rates, and the notion that the government had every right, for example, to prohibit the private ownership of gold.
Bleiberg set his face against all these things as fraise. Now that I think of it, to “set one’s face against” is a Russell Kirk phrase. Bleiberg resisted all of these things and battled mightily in the pages of Barron’s. He wrote the front-page editorial in the 50s and 60s. I got a lot of this stuff from him. And come to think of it, Grant’s owes everything, or at least a great deal, to Barron’s, especially the Barron’s of Bob Bleiberg’s tenure. Everything from the look of the front page to the spirit of the editorial mission.
At Columbia, you were also mentored by Jacques Barzun. Right?
Yes, but it was not so much a personal mentorship. I had one class with him. Barzun gave a cultural and intellectual history of Western life during the transition from the 19th to the 20th century. Barzun is fabulous. He just died in 2012, not so many years ago, at 104 years old. He published one of his great works, From Dawn to Decadence, at the age of 93. Talk about an inspiration. I’m 72 years old, so 90 is like right around the corner. But to think that one can produce that kind of scholarship past the age of 90, Eric, is very encouraging! [Laughing] Beacon! [laughing] Lighting the path of the AARP years in, I hope, a more constructive way than just getting a discount on a drug prescription!
So that was just one class?
Yeah. Just one class. And then I went to see him once. This was around 1971. Columbia was in tumult because of all these Maoist and Stalinist students, these privileged revolutionaries from Scarsdale, who were up in arms at Columbia over everything and anything.
Barzun was doing his best to maintain his aristocratic detachment and aloofness from this madness. So, I wanted to see him one day while he was in office hours. I got dressed up in my brand-new Brooks Brothers flannel blazer, a white shirt, and a tie. Mind you, I think I’ve overdressed my entire life. I went to see him and said, “Professor Barzun, I would like to know how to become well-read.” I think he suspected that I was putting him on or something. He gave me an answer which I thought was a little bit flippant. Not nearly so serious as I was as this budding intellectual. In any case, I didn’t stop worshipping him just because of that! I kept on reading his books and being so delighted in his lecturing.
When you get somebody’s voice in the back of your head… that voice, that professor, or that mentor who wants you to think clearly, to read more, or to read more intelligently… that voice, if you’re lucky, never leaves you: It’s a constant, echoey reminder of the way that one might conduct one’s own life. I was lucky, Professor Barzun was one of those voices. Robert H. Ferrell, F-E-R-R-E-L-L, American diplomatic historian at Indiana University was a second voice. Scott Gordon, a historian of economic thought at Indiana, was a third voice. I expect that you’ve already had this experience or will have more of it. Just cherish it as I know you are.
I hear people of older generations shrug off democratic socialism by explaining: “You weren’t there for the fall of the Berlin Wall. You just can’t understand.” What’s your take?
Ah, yeah. I am kind of a bit disheartened by this kind of reembrace of collectivist ideas by the rising generation. I’ll fax you… Let’s try this again. I will digitally transmit to you, Eric, the front page of the current issue of Grant’s. We always have a cartoon on the front page. This cartoon is “Darwin Confounded.” The subhead is: “American evolution goes backwards. FDR – 1932. JFK – 1960. LBJ – 1964. AOC – TODAY!” [laughs]
The notion that one should pick up the cause of communism after so many hundreds of millions of people have suffered and died at the hands of this ideology… It’s pretty dismaying to see the expressed enthusiasm for these ideas by so many people that are in the rising generation. To be sure, these people were not around for the fall of the Berlin Wall (1989). Nor were they around for the Ukrainian famine orchestrated by Joseph Stalin (1932-33). Nor were they around for the Great Leap Forward in China (1958-62). Nor were they around for the subsequent death of tens of millions of people in China. Nor were they around for the Hungarian Revolution (1956).
You don’t need to have experienced these events for you to know about them, right? That’s why we have libraries. Anyways, you can just read the papers about what’s happening in Venezuela. I believe in individual liberty and the proper boundaries of state intervention into one’s life, and I see that so many other people believe exactly the opposite. But actually, one belief is just proven.
Within that context, it’s kind of interesting that you were born shortly after the Great Depression ended in 1939.
Yeah. I was born in 1946. My parents are very much children of the Depression. My mother especially, who grew up poor in the Great Plains, went hungry at times. My father never went hungry, but he understood full well what it meant not to have money. So, I grew up with these attitudes. You don’t need to have imbibed these attitudes at home, or to have witnessed them in person, to understand that we can fill in the past through reading: to see what statism, collectivism, totalitarianism, fascism, and communism have finally meant. In a way, these things seem like evidently-eradicable diseases that keep on popping up like the measles, or dysentery, or polio. You think they have been eradicated, and yet, there they are again! So is the case with collectivism of all shapes. But some people, I guess, just kind of like collectivism. That’s the lesson of history.
Any final comment?
I have been spending all manner of time with a book that I’ve read my whole adult life. It’s James Boswell’s The Life of Samuel Johnson. You know Samuel Johnson, the author of the first important dictionary of the 18th century (A Dictionary of the English Language) and an important English literary figure. This book is on tape as well. It’s almost 40 hours. A big book. The Wall Street Journal asked a bunch of people for their year-end book tips, and I said, “Well, my book tip is The Life of Samuel Johnson on tape.” I confess that what I do is go to sleep with my phone under my pillow, playing The Life of Samuel Johnson, which conjures up the most literate and sweet dreams. You go to sleep listening to this magnificent man of letters. As relayed in the book, one of the things Johnson will do is dictate a legal brief to Boswell, his biographer as well as his lawyer. Johnson will dictate a complete brief from the top of his head, a perfect piece of legal draftsmanship uttered extemporaneously. I’m not sure if this constitutes hygienic sleep habits… But I came to this late, and I’m going to keep on doing it.