Plain English with Derek Thompson - Four Megatrends for 2024 in Tech, Economics, Media, and Weird Science

Episode Date: January 3, 2024

Derek shares what he considers the most important narratives of the moment, including the return of normalcy in economics, a big shift in sports media, Big Tech's 1890 moment, and ... aliens. Host: Derek Thompson Producer: Devon Baroldi Learn more about your ad choices. Visit podcastchoices.com/adchoices

Galaxy Lights, Coachella, Lightning Bolt Necklaces. 20203 was the year of Scandival. On March 3rd, one cheating scandal launched a reality TV investigation that generated hundreds of conspiracy theories, thousands of podcast episodes, and millions of dollars in revenue. I'm Jody Walker, host of an American Scandival. One retrospective story told in three salacious parts. Listen, December 26th, on the Ringer Reality Feudel. feed. Hello, everyone. Happy New Year. I'm Derek Thompson, and this is plain English 24.

Today, it's just me on the mic. In our first episode of the year, I wanted to collect some of my thoughts about the world and share four the most important storylines of the moment, four megatrends as I see them across economics, media, tech, and science. And the task I've set up for myself is something like this. If someone approached me and they said, Derek, what's going on in the economy right now? I only have a few minutes, but quickly, in four or five minutes, just tell me what you think the most important storyline that you see happening right now in econ is, or in media, or so forth. What is it? And this podcast is my attempt to give you just that across the subjects that we follow most closely on the show. So let's jump right into it. We're

going to do economics, then tech, then entertainment, and then finally a category that I'm calling weird science. Last week, we had our breakthroughs of the year episode. and if you want to know what I think are the most important achievements and frontiers in biotech right now, you should listen to that episode from last week. I really love the recording that we did with Dr. Eric Topal. But that's what's happening in science, in the discoveries that could save people's lives. Weird science is more like the world of discovery that is just damn fascinating, even though it has no immediate implication for our lives, for human lives.

And you know what? I'm just going to tell you right now, the theme of the... weird science chapter of this podcast, it's aliens. So listen to the end of the show and you will get five good minutes of me on aliens. But before we get all extraterrestrial, let's begin with the extremely terrestrial. Let's start with economics. The title of your 2024 economic megatrend is the big softy. The big softy. Let's back up a bit to set this up. For the last year, The most important debate in economics has been hard landing or soft landing. That is, with high inflation, will the Federal Reserve have to tank the economy and destroy

millions of jobs in a so-called hard landing of the U.S. economy, or will the economy manage to reduce inflation without reducing employment and achieve a so-called soft landing? A year ago, as listeners of this show know, it was a matter of broad conventional wisdom that the economy was headed for a crash landing. There was an infamous now Bloomberg algorithm that said there was a 100% chance of a U.S. recession. Many esteemed economists, like Larry Summers, said a recession was just about inevitable. After all, the U.S. hadn't who denied itself out of an inflationary jam like this in 70 or 80 years. But the experts were off. The conventional wisdom was wrong. The economy grew strongly throughout 2023. And despite gloomy, soft data,

that is gloomy consumer sediment. If you ask Americans what they thought about the economy, they were typically quite down on it. The U.S. in the last year has seen rising wages, rising GDP, falling wage inequality, a rising stock market. So look, I am very much out of the business of telling people how they should think about their life and their economy. Like, if you are trying to buy a house in a major city right now,

well, the housing market sucks. and if you are trying to lease a car for the first time in five years, you're going to look at lease rates with today's interest rates, and you're going to think, my God, the car market sucks. And if you have tens of thousands of dollars in student loans, and the academic labor market is too crowded for you to find a job that pays well that you like, you're going to think this labor market sucks. All of that is true.

The economy is not one thing or even two things. The economy is a billion different things for 300 million different people. And at that level of heterogeneity, there is no such thing as a universally good economy. But with all those caveats out of the way, I think it is absolutely fair to say that a growing economy with growing real wages and historically low unemployment, that counts as a happy surprise compared to what the experts were predicting one year ago. And this all to me raises an important question that we need to tee up before we talk about

the economic megatrend of the next year. Why did the economy surprise on the upside? why has the economy been surprisingly good and defied the prediction of experts? Now, I think there are three big reasons, and I'm stealing these or sort of co-lating them from two former guests of this show, Bloomberg's Connorsen and Skanda Amarnath at Employ America. Number one, the economy is less interest rate sensitive than it used to be. Less interest rate sensitive than it used to be. That is, we're not a bunch of manufacturing plants anymore.

This is a services economy. It's ed, med, and a hotel bed. Education, healthcare, leisure. So in the 1960s and 1970s, when interest rates increased, and you were, say, a manufacturing firm, you might have stopped borrowing money to build new plants or buy new equipment. Higher interest rates destroyed demand. But in 2023, when the economy is much more about,

health care and education, think about this. If you need a knee replacement and interest rates go up, what are you going to do? Are you going to cancel your knee replacement because the 30-year mortgage rate went up? Of course not. Your ACL does not care what the 30-year is. You're going to get that knee replacement. And if you multiply that across the EdMed Hotel Bed economy, what you get is a country that is less sensitive to rising rates, and that's one of the big reasons why I think rising interest rates did not crash economic activity. The second big reason why I think higher interest rates did not crash economic activity is that consumers had a lot more cash than they did a few years ago. You had the Trump checks. You had the Biden checks. You had student loan interest

payment moratorium. You had fatter checking accounts, which meant that consumers had more room to spend even as prices went up on everything from the couches to apples to houses. And finally, number three, I think that one of the major reasons why the U.S., in many countries around the world, saw higher inflation is because of supply-side constraints. There were constraints on the amount that the economy could make so that as demand poured back into the economy after the pandemic, we saw higher prices for, again, everything, for the houses and the couches and the cars and the groceries. and as supply side constraints have fallen away a little bit in the last 12 months,

inflation has automatically come down even as interest rates continued to go up. So where does this leave us? Well, as I see it, we're all coming in for a soft landing with inflation declining significantly since last year. But if you look across the economy, if you look across key economic indicators, it's not just inflation that's softening. It is just about everything. So manufacturing orders in the last few months are weekly positive.

I would say weekly positive. You could say that is soft. Housing permits are positive, but they're weekly positive, aka soft. Job growth is softening. We averaged about 300,000 new jobs made per month a year ago. Now we're getting closer to 150,000 to 200,000 new jobs per month. Again, that is weak but positive, aka soft. wage inflation is softening, quit rates are softening, consumer spending is softening. The San Francisco's

Fed estimates that consumers will run out of their excess savings sometime in the first half of 2024, so consumer spending might continue to soften. And since the Federal Reserve is committed to easing its interest rates, you're going to have mortgage rates and lease rates come down as well. So the mega trend of 2024 in economics, as I see it, is the big softy. I am predicting a Charmin soft, goose down pillow soft, pre-event defense soft economy in 2024, a year of weak positives across the board without fears of a recession. And in a way to sort of round out this economic megatrend, in a way you could say that 2024's economic megatrend is the return of boring. Like for the last four years, the economy has been exciting in mostly

terrible ways. The 2020 flash freeze pandemic depression was horrific, but it was also historic. That was followed by historic government bailouts, historic interventions, historic shortages, historic supply chain crises, historic inflation, historic rising interest rates.

It's just been one frigging piece of history after another, and history is often exciting in the worst of ways. Relatively speaking, I think we are coming in for a 2024 that will feel like a relative snooze. The big softy. That is the megatrend of economics for the next year. That brings us to megatrend number two in tech, which will be anything but a snooze. So if the 2024 theme in economics was the big softy, your 2024 megatrend in technology

is, heavy lies the crown. So let's back up again, and this time we're backing way, way up. In the 1880s, the Gilded Age produced a group of corporations that bestrode the U.S. economy. Production of oil and steel was ludicrously concentrated in the hands of a small number of companies. Today, we know many of those companies by the surnames that they made globally famous. There were the Vanderbiltz who dominated in shipping and rail. John Rockefeller, whose stewardship of standard oil made him the richest American of all time. And Andrew Carnegie, whose dominance in steel and infrastructure briefly made him the richest American. of all time. On the other side of the Vanderbilts and the Rockefellers and the Carnegie's,

there were a handful of government reformers who thought that these monopolies had grown too big. And these reformers were not socialist. They were not communist. They weren't trying to destroy capitalism. In a way, you could say they were trying to save capitalism from itself, to unclog the free market, to allow competition to flow where these monopolies had previously stifled it. And in 18, One of these reformers, a Republican senator from Ohio, named John Sherman, introduced the Sherman Act to prohibit monopolies from manipulating the market or signing anti-competitive agreements that unnaturally punished smaller competitors.

The Sherman Act and similar antitrust laws were used throughout the 20th century and 21st century to break up standard oil and American tobacco and AT&T and dissolve the relationship between movie theaters and movie companies. Monopoly history, as I see it, moves in phases. So in the 19th century, these big industrialists grew unabated for decades, and then they were cut down and broken up. And then in the 20th century, other debatable monopolies grew for decades only to be cut down and broken up. You could argue that today were coming out of an unusually fallow period of antitrust, which is another way of saying it's been an unusually good time to be a big giant conglomerate in America.

In 2017, the first year of the Trump administration, the number of antitrust cases fell to a 50-year low. And several measures of industry consolidation stood at a half-century high across the economy. And we're not just talking in tech right now in industries like airlines and alcohol. You saw that the big were just getting bigger. Now, today, the biggest companies truly are in tech. And one way to see this is to look at the set of tech companies that are currently, called the Magnificent Seven. So the Mac 7 is Apple, Amazon, Google, alphabet, meta, Microsoft, Navidia, and Tesla. Those seven companies accounted for the majority of all equity market gains

in 2023. By some measures, we've actually never seen a period in S&P 500 history when seven companies so dominated in terms of one-year appreciation, cash flow, profit, valuation, For the last year, these companies truly have dominated the economy as much as any small group of firms has since perhaps the days of the Vanderbilts and the Rockefellers and the Carnegie's. But in the last few years, federal and state governments have taken on big tech. And this is a battle that is crescendoing as we speak. The Justice Department has spent years building a case against Google, which might be the federal government's biggest monopoly trial of the 21st century. The gist of this case, DOJ versus Google, is that Google pays Apple tens of billions of dollars for Google to be the default search engine on iPhone and iPad and all of the Apple devices, and that this payment illegally suppresses competition. Now, that's the biggest case that we're seeing in the story of U.S. versus big tech, but it's not the only one, not by a long shot.

The FTC has filed an antitrust lawsuit against meta, the company that owns Facebook, challenging its acquisitions of Instagram and WhatsApp. It is continuing to fight Microsoft on its acquisition of Activision. The FTC and more than a dozen state attorneys general have filed lawsuits alleging that Amazon maintained monopoly power by making it harder for competing platforms to attract customers. And on top of all of this, all these little attempts to sue big tech companies, you have 24 shaping up to be a historic year for litigation in artificial intelligence. In December, just a few weeks ago, the New York Times sued OpenA. and Microsoft over AI use of its copyrighted work.

The lawsuit provides startling evidence that if you ask ChatGBT to BT certain questions, the responses basically republished an entire uncredited New York Times article. And that is just the tip of the iceberg. If courts determine that some AI companies, in fact, do have to pay up to license the work that they are training their models on. Many authors have filed suit against AI companies. Authors like Jonathan Franzen, John Grisham, have filed lawsuits against AI companies. for slurping up their books in their training data.

Getty images, the photography syndicate, has also filed a lawsuit. Now, to sort of sum all of this up, I like what James Grimmelman, who's a professor of law at Cornell, told Axios. He said, quote, copyright owners have been lining up to take wax at generative AI like a giant pinata woven out of their work.

2024 is likely to be the year. We find out whether there's any money inside. So you add this all up, and it looks like the magnificent seven are going to rack up magnificent litigation fees in the next year. Google and Apple have this date with the DOJ. Meta and Amazon have the attention of the FTC. Microsoft's relationship with OpenAI puts it at the white-hot center of a copyright law controversy, and that's all before we even get into Tesla's ongoing court drama with

regard to its self-driving technology. Put it all together. I think we are seeing that big tech has moved firmly into its late-gilded age phase where extraordinary growth creates big political and legal turbulence. Now, before we move on, I want to zag a bit on my own analysis, or at least to suggest one way that while it sounds like I'm setting up the argument that this legal turmoil is inevitably going to strike down big tech the same way that the Sherman Act and similar antitrust litigation struck down standard oil and American tobacco, I think it is possible

that this legal turmoil could actually ironically strengthen big tech. So how would this happen? Well, try to follow the logic. If the biggest risk to AI innovation is litigation, if to be a successful AI company almost requires that you set aside a huge pot of money to pay big fancy law firms

to settle disputes with, you know, the authors of the licensed work or potential artists that are using your work. Well, that just means the most successful AI companies are going to be the ones with the resources to fight lawsuits and pay for large amounts of data that they're licensing. That is a world where AI progress is prohibitively expensive

and expensive on top of all of the money that it costs in order to run the machines and buy all the GPUs that are necessary in order to make progress at the frontier of artificial intelligence. That is a world where the most innovative AI companies are the companies that are already the biggest. So if this is true, then it's conceivable that the biggest tech companies, as we move into the age of AI, are just going to get even bigger. Okay, so we are halfway home. In economics, your Megatrend theme was the Big Softie.

In tech, it's the giants firmly entering this late-gilded age phase. Next up, we've got media and entertainment. And I thought about doing something regarding Trump and political media, but we really have all year to talk about politics, and I don't really like to do that anyway. I thought about playing it safe and predicting Netflix would just extend its lead over the competition and conclusively end this phase of the streaming wars with a resounding victory. But the truth is, that's sort of obvious and obvious stuff. Well, it's obvious, but obvious stuff also doesn't always happen. So as I thought about it, and especially as I thought about what kind of megatrend I should pull out for a ringer podcast. podcast, I decided I want to go with the economics of sports media. So your 2024 entertainment

and media megatrend is sports media finds a new sugar daddy. So about 10 years ago, cable news economics was pretty much my beat at the Atlantic. And I've told this story before, so I'll try to make this quick. I was so interested in the fact that the cable bundle of, you know, circa 2008, 2012 had become just about one of the most. successful business models in history, while at the same time as everyone watched TV, just about nobody understood the business of it. Like most people at the time, said, you know, 2012, 13, 14, seemed to think that TV channels were in the advertising business. But when you dug into the numbers, you realize that the richest TV channels, say ESPN, were more in the affiliate fee

business. That is, every time your household paid, I don't know, 80 bucks for cable that month, $5 or so would go to ESPN, and $6, and $7, and $8, that was ESPN's affiliate fee. And it made ESPN the most profitable jewel of the TV landscape. Now, think about what I just told you. Every household in America, more than 100 million households, were paying ESPN $5, $6,7 a month, whether they watched 100 hours of the SportsCenter or zero hours of sports center. ESPN got rich in large part because non-sports fans subsidized sports fans. And that subsidy trickled down to team valuations.

It trickled down to player salaries. It trickled down to stadium amenities. This entire ecosystem of sports, the entire multi-multi-million dollar cathedral of American professional sports was built on this subsidy. Sports in America did not get Uber rich because of sports fans. It got Uber rich because non-sports fans had to fork over hundreds and hundreds of dollars over the years to pay for the cable bundle. But all of this is changing.

The cable bundle right now is obviously an existential peril losing five to 10 million subscribers every single year. Nobody expects it to recover. And just about every media company has spent the last few years going into debt, building a streaming service that goes around it. So the business model that allowed ESPN to spend so lavishly on live sports is going away. And the same is true for T&T and TBS, which is owned by Warner Brothers Discovery, which is like $50 billion in debt. The same is true to a certain extent for Fox and CBS and NBC or wherever you watch your sports.

If sports rights deals are going to continue to grow at anything approximating their historic pace, American sports will need a new benefactor. They will need a new subsidy to replace the old subsidy that was slash has been the cable bundle. And where will they find it? I think the answer has to be tech. As the analyst Michael Nathanson told Ben Thompson, no relation, in an interview last month, quote, someone has to be a white knight. Apple, Amazon, Google, maybe Netflix,

these are the companies that actually have money and aren't getting walloped by the excruciatingly slow death of the cable bundle. And as more sports rides come up, I think you're going to see that traditional entertainment companies like Disney, which owns ZSPN and Warner Brothers Discovery, which owns TNT and TBS,

these companies that are profitlessly listing towards streaming, they're going to look into their bank accounts, which will be relatively bare, and then the tech companies, which are profitably encroaching on entertainment, they're going to look at their bank accounts and say, yeah, of course we can afford the NBA in-season tournament. That's just 18 hours of our cash flow. So I see 2024 and 25, 26, going forward. This is a big inflection point that will shift the balance of power in sports from the entertainment companies to the tech companies. And in particular, I can see Amazon

becoming a much bigger player in sports streaming, possibly even grabbing a big chunk of the NBA games in the new rights negotiation, which is probably coming next year or maybe the year after. And this would really make for an interesting bit of symmetry, wouldn't it, if Amazon replaces the cable bundle to a certain respect? Because you could tell the following story.

You could say, for decades, sports was subsidized by the cable bundle, and now it's going to be subsidized by e-commerce. In 2005, soap opera addicts helped to pay for Kobe Bryant's salary, and in 2025, people buying literal soap from Amazon will pay Lucidantius's salary. All right, so now we've done, one, economics, two, tech, three, entertainment, and I kind of cheated with that last one, because I made it all about tech again.

Sorry about that. Our last category of science. and I might as well get a little weird here. I thought about building on some past episodes. I do think that a golden age of vaccines is on its way. That's a megatrend. I do think that as exciting as these GLP1 weight loss drugs are, I think a backlash is coming for them in some kind of way.

I suppose that's another megatrend. But I have done hours of podcasting about those subjects, and I wanted to grab something way out there, quite literally. So your 2024 megatrend in weird science is, proof of life. Proof of life. In the last few thousand years of human civilization, we have discovered no

conclusive evidence of extraterrestrial life, none that I'm aware of anyway. And while I don't want to officially predict that this multi-thousand-year drought will end specifically in the next 365 days, I do want to draw our collective attention to just how subtly, yet tantalizingly close we are

to discovering extraterrestrial habitability within our solar system. TLDR, aliens. So three data points from 2023. In January, one year ago, scientists pinpointed a region on Mars that is prone to earthquakes and is creating something called a mantle plume potentially,

that is a tower of hot gas pushing up through the ground and causing cracks in the surface. And if this discovery cashes out, it would overturn decades of theories that volcanism on Mars ended thousands of years ago. According to a scientific American article on this discovery of possible mantle plumes on Mars, quote, scientists have long thought water under the Martian surface takes the form of ice, but a warm mantle plume could heat pockets of water enough to make it liquid.

Life on Earth needs liquid water, so it may not be too silly to consider the population, possibility of biology deep under the surface of Mars. In that case, Mars might not be actually dead, either geologically or in the more common biological sense. Five months later, in June, the Atlantic reported that Enceladus, a frozen moon of Saturn, conclusively has an ocean that could sustain life, as Marina Karen wrote. quote, researchers have analyzed data collected by a spacecraft as it coasted through particles of Enceladus's frozen spray, and in those tiny free-floating samples of the ocean, they have discovered for the first time evidence of phosphorus, one of these six essential elements

of life on Earth. And finally, in September of last year, a NASA spacecraft returned to Earth after a seven-year journey with bits of a nearby asteroid called Benu. When officials got a closer look at the specimen, they saw water molecules in clay minerals. Dante Loretta, the mission's principal investigator, told the New York Times that the reason the earth is a habitable world, the reason we have oceans and lakes and rivers and rain, is quite possibly because of asteroids like Benu, crash landing on Earth four billion years ago, and bringing the first droplets of water with them. By the way, that specimen that was collected,

I believe in Utah, also included sulfur and magnetite, which are apparently important as a catalyst for organic reactions. So within a nine-month span, January, June, September, we found evidence of a habitable ocean on one moon, the possibility of hot subterranean water on Mars, and confirmed evidence of water and essential minerals on a nearby asteroid. when I asked several scientists I know and trust what they considered the most important

breakthroughs of the last year. Most of them mentioned GLP-1s or the recent CRISPR breakthrough, which I talked about in the last episode with Dr. Topal, but several of them, several of them mentioned Mars and Benu, telling me that these are among the most tantalizing things we've ever discovered to suggest that the basic ingredients of carbon-based life forms are not unique to Earth, even within our own solar system. So to review 2024's megatrends, we have in economics,

the big softy, inflation, manufacturing orders, job growth, wage inflation, quit rates, consumer spending, all these major indicators look poised for a year of weak positivity. That is no boom, but certainly no recession,

and quite possibly, building on the strong growth from the last few years, a general feeling of normalcy, finally, finally, in these 2020s, which have been anything but normal, economically speaking, in tech.

Our mega theme is the late Gilded Age, is back as incomparably powerful companies get their day in court. In entertainment and media, a major shift in the financing of sports and in weird science, do not sleep on little microbial aliens. We could be closer than you think to discovering life in the solar system. That's all for today. We will see you next week on our regular schedule that is Tuesdays and Fridays. Thank you for listening. and happy new year.