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Illustration: Aïda Amer/Axios

The best speech ever given to an audience of bankers was delivered by Paul Volcker in December 2009: "The most important financial innovation that I have seen in the past 20 years is the automatic teller machine."

The big picture: Volker was right in substance, but he did miss one financial innovation that has been unambiguously positive for the world. The low-cost index fund, as popularized by Jack Bogle (1929–2019), has given millions of investors billions of dollars in extra retirement income.

Bogle created a fund-management giant in Vanguard, which is owned by the investors in its funds and therefore has no need to maximize the profits it makes.

  • For anybody trying to work out where to invest their retirement savings, it's hard to do better — and very easy to do a lot worse — than just putting the whole amount into a Vanguard index fund.
  • Bogle's insight was that an individual investor will find it statistically impossible to beat the market over the long term, either by picking stocks or by picking fund managers. Index funds provide market returns at minimal cost, by excising stock-pickers entirely.

Millions of Americans have got the message and have moved their investments to index funds and other passive strategies. The biggest fund managers, including Vanguard and BlackRock (which owns iShares), are built on not picking stocks.

  • Vanguard and BlackRock are two of the largest shareholders in just about any big company you care to mention; they have no choice in the matter. Yet as large shareholders, they are constantly subject to campaigns urging them to divest from certain companies.
  • BlackRock, in contrast to Vanguard, is reluctant to admit that it has very little control over much of its asset base. BlackRock CEO Larry Fink enjoys the bully pulpit that comes with controlling trillions of dollars. (Bogle, by contrast, never tried to tell public-company CEOs how to run their companies.)

This week, BlackRock was embarrassed by a fake letter from Fink, designed to make him look like an ineffective blowhard. The point of the letter was to show what Fink could achieve if he really wanted to, including divesting from carbon-investing companies even in his "broad indexed funds."

  • There's a case for divestment, but a fund manager doing any such thing is by definition an activist.

The bottom line: Passive investment is good for millions, but active investment is still necessary. It holds managers accountable for their actions and provides crucial price discovery. Bogle was proud to be a passive investor. Fink, by contrast, seems to want to have it both ways.

Go deeper

3 hours ago - Politics & Policy

Senate Democrats target billionaires

Illustration: Annelise Capossela/Axios

After failing to get a deal on other planned tax increases, key Senate Democrats are pivoting to a billionaires' income tax to pay for President Biden's social spending.

The big picture: No advanced economy has attempted anything similar on such a scale.

Anti-abortion activists' Supreme Court dreams are coming true

Photo illustration: Annelise Capossela. Photos: Kevin Dietsch/Getty Images

This is the moment the conservative legal movement has been building toward for decades: The solidly conservative Supreme Court is about to hear two major abortion cases within a month of each other.

Why it matters: All of this is likely to end with significant new restrictions on abortion and a clear path for Republican-led states to win the next big abortion cases, too — the culmination of a long and bitter fight for control of the judiciary.

Felix Salmon, author of Capital
8 hours ago - Economy & Business

Trump's volatile return to the stock market

Expand chart
Data: YCharts; Chart: Axios Visuals 

Donald Trump this week became both a meme stock and a social-media entrepreneur at the same time, by announcing that a new company called Trump Media & Technology Group was going to merge with an existing company listed on the stock market.

Why it matters: The medium-term promise of Trump's media company is that it will replace Twitter for anybody wanting to keep track of Trump's messages. The short-term promise is that it can be a hot new speculative vehicle for people wanting to get rich quick in the stock market.