The Prof G Pod with Scott Galloway - State of Play: Inflation, Twitter, and Story Stocks

Episode Date: January 28, 2021

Neil Irwin, a senior economic correspondent at The New York Times, joins Scott to discuss the economic learnings from the Trump-era, inflation, and his thoughts on the stimulus efforts. Neil is also the author of, “The Alchemists: Three Central Bankers and a World on Fire” and “How to Win in a Winner-Take-All World.” Follow him on Twitter, @Neil_Irwin. (18:22) Scott opens with why Twitter needs a new business model and details what strengths Twitter can leverage. Scott makes the case for new leadership at Twitter. This Week’s Office Hours: Bitcoin (46:36), Amazon platform sellers (51:17), and the future of story stocks (55:29). Have a question for Scott? Email a voice recording to [e-mail].  Learn more about your ad choices. Visit podcastchoices.com/adchoices

Episode 46, the atomic number of palladium, the number of mountains in the 46 peaks, the age at which I started experiencing erectile dysfunction, developed a home remedy for ED that consists of snorting a pound of Cialis, or as I like to call it, a Tuesday night. Is that wrong? Go, go, go! Go! Welcome to the 46th episode of The Prop G Show. In today's episode, we speak with Neil Irwin, a senior economic correspondent at The New York Times and a bestselling author.

With Neil, we discuss economic learnings from the Trump era, what challenges lie ahead of our economy, and his thoughts on the stimulus. Okay, what's happening? We have some business to discuss, you and me. So last week, ByteDance, the parent company of TikTok, announced that it was launching a payment service for Douyin. Am I saying that correctly? Douyin?

Douyin? The Chinese version of TikTok as a way to build its presence in the country's e-commerce space. The total transaction value in the digital payment space is supposed to be $7 trillion this year and continues to grow at a compound annual growth rate of 12%. $7 trillion business growing 12% a year. Cutching, get into payments. You know how I've been talking about getting into ed tech or health tech? Let's change that to fintech, specifically payments. Within that, the market's largest sector, digital commerce, will register 4.2 trillion. You know who shares a CEO with a payments company? One guess. That's

right, Twitter. Slow roll, nose ring, Jack Dorsey, silent retreats, vacationing in French Polynesia. I wonder if he splits his time between two archipelagos. Anyways, he's built a platform that has registered anemic growth and little to no innovation, all the while becoming a serving platter of disinformation that profits off of rage. It ends up that engaging in misinformation or trafficking in misinformation is a bad business, but it also ends up engaging in misinformation or trafficking in misinformation. Subscale is the number three. It's not only bad for the Commonwealth, but it's just really fucking stupid. On the day of Twitter's IPO in 2013, the equity closed at $45 per share. As of market close on Monday, the share price sat at 47 bucks. I think it's above 50 bucks right now. So let's say, okay, great. You're

up 10% in the last eight years versus what? 700% at Facebook. The New York Times has outperformed Twitter. The New York Times has outperformed Twitter substantially. If you could go back in time, you would say to your mom and dad, oh my God, don't invest in Twitter. Invest in that high growth relative to Twitter company, the New York Times. See above anemic growth. Since 2013, Twitter has been outperformed by all of its competitors, including Snap, Google, the aforementioned New York Times, and Facebook, compounding the company's poor return to shareholders. Full disclosure, I'm a Twitter shareholder, which probably explains the rage in my voice. Management's inability to address toxic content on the platform has rendered Twitter a handmade disedition. The firm needs to jumpstart product

innovation, embrace vertical content, and adopt a subscription-based model. The thing that gets me so fucking frustrated here is the upside. The upside is as enormous as the gross negligence demonstrated by management and the board that has put up with this bullshit. Twitter's potential is enormous. The platform serves as the circulatory system of an information age with unprecedented reach and influence. Were Twitter to command the space it occupies, the company could generate commensurate financial results. I hate that term, commensurate financial. They could go big fucking bank. And I'm not talking about the ass of someone on Twitter. I'm talking about crazy shareholder appreciation here in seven years as a public company. Twitter stock has

failed to keep pace with inflation. This has not only been because the company does not offer a compelling product, the platform has enjoyed accelerating user growth and now boasts nearly 190 million daily active users. However, the company has not kept pace with its peers in turning a compelling product into a strong business. Or put another way, the business model and management's ability to monetize this product has been incredibly anemic. This company's strategic thinking brightens up a room by leaving it out of Pinterest, Snap, Facebook, and Twitter. Twitter is the only company to see average revenue decrease per user since 2018. That's right. Everyone else has figured out a way to increase the revenue on

their platform per user, except for the bird. The market has punished Twitter for its failures and assigns the same multiple of revenues as menace economy peer Facebook, which generates nearly 20 times Twitter's revenues. So Facebook, a mature company, not growing as fast, a total menace to society, inviting all sorts of warranted scrutiny, and that's the multiple assigned to Twitter. Twitter moving to a business model that does not traffic in misinformation would unlock tremendous value as evidenced by other platforms. For example, Snap and Pinterest,

who use their algorithms to amplify interest, not amplify anti-vax, ridiculous fucking con. All this bullshit about First Amendment. These platforms have no obligation to the First Amendment. The First Amendment states the government should pass no law that inhibits or prohibits free speech. That has nothing to do with a private company, for God's sakes. They've all built algorithms that traffic in interest versus rage, except for Facebook and Twitter that have decided, I know, let's use our algorithms to become, what was that, Skynet? Anyways, Twitter's growth potential coupled with a focus on stakeholders, not just shareholders, would bring tremendous upside to shareholders. It's no secret that the former president's behavior on the platform for the past four years turned Twitter's stock around. In fact, the stock had declined 63% from its IPO the day Trump took office and then accelerated 210% until the day of Biden's inauguration,

or specifically until the day that Twitter, 1,449 of 1,460 days into his tenure, decided to suspend his account. And then finally, what do you know? Finally, what do you know? They take his account down and the stock declines. Why? Because they built a business around rage and misinformation and used the president's hate, rage, invective, and general bullshit to wallpaper over their lack of innovation. In order to capitalize on Trump's incendiary tweets and the tidal wave of activity they generated, management looked the other way as the platform was hijacked by forces of disinformation and division. The company tolerated an environment where false news stories were 70% more likely to be retweeted than true stories, propelling them across the network six times faster than true stories.

That's according to a 2018 MIT study co-authored by Twitter's own former chief media scientist. The company could have and should have taken steps toward resolving these problems years ago. The real issue is the company's ad-based revenue model, which is corrosive to the Commonwealth and inhibits and inhibits shareholder value. Even if an ad-based model did not produce the digital exhaust that we're all too familiar with, it's been doomed by Twitter's insufficient scale. Twitter's reach is large compared to traditional media, but dwarfed by that of Google and Facebook, who dominate digital advertising. A distant third to a duopoly is a really shitty position. Social media companies

that are building ad-based businesses in the shadow of Google and Facebook duopoly are doing so based on defined niches and differentiated products, at least the ones that are succeeding. Pinterest's visual discovery engine aligns its users around interests in food, fashion, crafts, and other areas that drive engagement without relying on enragement. And the platform offers creators and users the tools they need to deepen their connection with the platform and one another. Snap's ephemeral content and emphasis on sustained personal connections insulates it from what Snap refers to as the prioritization of virality and permanence that drives other platforms towards enragement rather than true engagement. I like

that, virality and permanence. They're trying to avoid that. Well, good for you. Good for you, Evan Spiegel, you dreamy, tall drink of lemonade. Twitter provides no tools for users to capitalize on the conversations they've had and the connections they make on the platform. As a result, users are forced to take their conversations, ideas, and businesses off the network. Sensing low-hanging fruit, creator platforms, including Substack, Clubhouse, and LinkedIn have moved in on monetizing value inspired and created by Twitter. The ultimate garage with its door open has been Twitter. Subscription model would change everything. A subscription model that charges accounts with followers over a certain threshold and then scales as follower accounts increase would immediately recast the firm as a recurring revenue firm.

What do we call that? Give me a rundle. Let's get ready to rundle. Here are a few ideas and tools the company could capitalize on. Personalized recommendations for accounts to follow based on user activity, including Spotify's Discover Weekly or TikTok's For You page. Improved search and thread navigation so users can more easily filter through historical Twitter activity and follow the global conversation. On-platform payments and expanded profile pages with greater customization,

the most under-monetized, most valuable real estate on the internet, the profile pages on Twitter. Sure, the company recently announced that it acquired Review, an email newsletter service which will help it compete with Substack. However, Substack raised $15 million in its Series A funding round led by Andreessen Horowitz and currently is the most attractive option for the top talent looking to build their individual audience via newsletters because fucking Twitter was asleep sitting on their hands or specifically sitting in French Polynesia. Plus, we haven't seen Twitter put

its roughly 800 million R&D budget to good use. They spent $800 million, $200 million, freaking $16 million a week on R&D. Where is that shit going? Twitter feels very 1999 and not a great way. That's unfair. I don't think they were around in 99. Anyways, they feel old. They feel old and tired. Old and tired. It smells like old people in here. Oh, wait, what's that? It's Ode Twitter. $800 million a year. Where the fuck is that going? Specifically, audio tweets and fleets. That's their big innovation, a weak copy of Instagram stories, which has fallen flat in the marketplace. Another thought, the company should also consider acquiring and or creating its own vertical content. Verticalization

takes a close second, a close second to run all in terms of creating massive stakeholder value. Branded content companies, including CNN and the New York Times, generate far more revenue per user than Twitter. And both Spotify and Netflix registered massive share price acceleration once they began investing in, guess what, their own content. What happened to Netflix stock when they dropped House of Cards? What happened to Spotify stock when they decided to go vertical with Joe Rogan? Cutching. Their stocks absolutely went on a tear. And lastly, shareholders, shocker, spoiler alert, deserve new leadership. Here's an idea.

Full-time leadership. Twitter has failed to deliver financial returns to its shareholders and allowed its platform to become a threat to democratic institutions. Ultimately, ultimately, the failure here is management and legacy directors. It is time for a change. Company leadership has been warned repeatedly of the dangers it was courting by failing to moderate the toxic content flowing across its platform. As far back as 2010, a study published in the Journal of Information Warfare

warned that Twitter was, open quote, a powerful tool for disinformation operations, close quote. Since then, people ranging from UK Prime Minister Theresa May to US Special Prosecutor Robert Mueller to Twitter's then CEO Dick Costolo called out the company for its failure to address its problems with toxic content. In December 2019, I joined this course. That's right. In a public letter to Twitter's board, I argued that the company had put the pursuit of profits over the sanctity of US elections. In addition, I wrote that the algorithms that promote conspiracies and junk science and inconsistent application of your terms of service have resulted in a firm that not only underperforms, but is dangerous. December 19 is when I wrote this. By the way, I did not hear back. That's just poor form. Granted, I only owned 330,000 shares, but that's a lot of cabbage for

a prof. Maybe just a quick nod, maybe just a quick phone call back. Hey, Scott, go fuck yourself. Anything, fine, but just a little bit of a response. Twitter's continued failure to address these issues, I wrote, open quote, threatens the foundations of our social order, close quote. Despite an R&D budget now exceeding $200 million per quarter, attempts to address disinformation and abuse via product development have been feeble. The company has been similarly inert when it comes to improving financial results. The missed opportunities at Twitter, the missed opportunities, historic. The most successful media firm globally in 2020 was TikTok. This product was developed at Twitter. It was called Vine. And Twitter management shut it down in January 2017, about the time that TikTok began to get traction. Oh, I wonder if that was by accident. Dorsey has repeatedly defended Twitter's embrace

of the status quo. When challenged about the platform's role in spreading disinformation, Dorsey has positioned Twitter as the neutral platform for a global conversation. However, however, Dorsey, at least he's supposed to be the CEO, appears to have little interest in the problems on his platform. Just one month before the 2020 election, when asked in a Senate hearing how much Twitter spent on content moderation, Dorsey admitted he did not know. With respect to the company's unacceptable financial performance, Dorsey has been visibly absent all under the approval or the acquiescence of its board of directors. What the hell are you thinking?

To take one recent example of Dorsey's inattention to the business is his near silence on the company's most recent earnings call in contrast with other tech company CEOs presenting their firm's prospects to shareholders, Dorsey spoke just 11% of the time, whereas his peers were responsible for nearly 50% of the content on the respective calls. In other words, he speaks... Well, there's no other words. He's speaking one-fifth less about his company because he doesn't know what the fuck is going on there. His insistence on managing Twitter from far-flung retreats and months-long adventures is absurd. Remember his plans to move to Africa? According to the New York Times, Dorsey oversaw the company's response to the events of January 6th from a, open quote, private island in the French Polynesia frequented by celebrities escaping the paparazzi. For years, those of us raising concerns about Twitter's toxic influence in society were accused of being alarmist.

But techno-utopianism ended on January 6th. The notion that our democracy is not vulnerable is a dangerous one. And the fight to protect it continues. Management enabled by the board has demonstrated a profane lack of regard for the Commonwealth, impotent strategic thinking, and an inability to capture a fraction of the shareholder value presented on the platform. As an American citizen and shareholder, I find management's actions and inaction irredeemable. Therefore, therefore, we believe Mr. Dorsey and legacy directors must leave the firm. This is the part of the rant where I'm supposed to acknowledge that there's

huge potential and there is, and that shareholders want to work with Mr. Dorsey and legacy directors. No, we don't. Get the fuck out. Stay with us. We'll be right back after this break for our conversation with Neil Irwin. when you're starting your small business, while you're so focused on the day-to-day, the personnel, and the finances, marketing is the last thing on your mind. But if customers don't know about you, the rest of it doesn't really matter. Luckily, there's Constant Contact. Constant Contact's award-winning marketing platform can help your businesses stand out, stay top of mind, and see big results. Sell more, raise more, and build more genuine relationships with your audience through a suite of digital marketing tools made to fast track your growth. With Constant Contact, you can get email marketing that helps you create and send

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to give you a primer on how to integrate AI into your life. So tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. Welcome back. Here's our conversation with Neil Irwin, a senior economic correspondent at The New York Times. Neil, where does this podcast find you? I'm in Washington, D.C. in my house. Nice, in D.C. So let's start there. Give us the state of play around the economy here. So, you know, I'm looking out my window right now, and it is as gloomy as it can be. It's cold. It's wet. It's icy. It's not a good situation, the weather in DC right now. But

it's also a situation where I can look ahead a few months and say that it will get better. Spring is on the way. It will get warmer. And that's how the economy is looking. Look, this is a very dark time. Things are going the wrong direction on employment. Things are going the wrong direction on economic activity. But we're starting to see the pieces line up so that things can get better as the year progresses. And nothing's guaranteed. We don't know exactly what the pace will be, how they'll get there, how long it will take things to really return to health. But more so than six months ago, we can now see what that pathway looks like. You said that Trump had an incredible ability to ignore economic orthodoxy. What did you mean by that?

So, you know, Donald Trump comes in as president four years ago and says, we're going to have the strongest, most booming economy ever. That was his promise. And in terms of growth, that's not what happened. Things kind of kept growing at a steady pace. But the truth is, things really did. By the time we got to the pandemic, by the time we got through 2019, early 2020, the economy really was better than it had been in a very long time. And in fact, that raises questions of, has the economic orthodoxy held for too long and been too pessimistic for too long? There's been this view throughout the economics profession that

eventually if the unemployment rate gets too low, you'll just have inflation. You don't want it to get too low. Eventually, if deficits are too high, you'll have a spike in interest rates and you'll have inflation. There have been these speed limits that economists at the Federal Reserve and the Congressional Budget Office and the mainstream centrist policy elite has believed in for a long time. I think the Trump years contribute to this evidence that those speed limits aren't what we thought and that the economy actually can hum at a higher level. We can have lower unemployment than anybody used to think. So talk a little bit about inflation, because I was always under the impression that at some,

well, you've said that don't think of the risk of inflation, think of specific risks to inflation. Can you detail that? Sure. So you hear this noise around, oh, we're going to get inflation. We have the government spending all this money. We have the Fed keeping interest rates super low for forever. That's inevitably going to cause inflation. And of course, it might.

You could have inflation happen. But I think we have to be careful with our terms and what we're really talking about. And there are different forms that inflation can take that have different implications for whether it's really something to worry about or to view as a negative. At the most benign end, there's just a kind of rebound effect that could happen as we get through the 12-month point of the pandemic from last spring. So at that point, you're going to see a lot of goods, especially oil, electricity, certain retail goods.

There's going to be huge price spikes just because of the base effects, because of the 12-month period passing through. Others are a little more lasting, right? So you can imagine a scenario. People are going back to hotels, restaurants all at once in the summer, fall, whenever it might be. And there's actually a spike in demand, fixed supply. You could have a situation where for those particular products, you have huge price spikes

because of a mismatch between supply and demand. But that's also not something that we should really worry about too much. That's markets adjusting. And if hotel rooms in Miami cost a lot of money, that's a reflection of supply and demand, not something that's a systemic problem in the economy. Things get a little more interesting if you think there's going to be an effect where all this money people have been saving for the last year as they've not been spending money on things. Do they all rush out to spend that money at once? Does that create a kind of sloshing of money through the economy that can cause a broad

based rise in prices, in wages? Within limits, that's a positive thing. That's creating a good self-sustained expansion. But at extremes, that can create something like the 1970s, where there's just too much money sloshing around in search of too few goods, and you get a broad based set of price increases that can feed on itself. So I was brought up, and I was an economics major, undergrad at UCLA. That's the good news. The bad news is I got a 2.27 GPA, which means I know nothing about economics. But my understanding is when you create this level of deficit, when you print this much

money, that you should naturally see some sort of inflation and the deficits don't matter until they matter and inflation doesn't matter until it matters. And then I read these reviews of the deficit myth, the book that basically says that printing money is absolutely the right thing right now. As someone who likes to think of themselves as fiscally responsible, aren't we drunk at the printing press right now? Isn't there real downside risk to creating these sorts of deficits? I think what you have to ask is, okay, if that's the situation, if deficits are too high and interest rates are too low and the Fed is keeping policy too easy, what would the evidence of that be? Now, some people would say, oh, the fact that stock markets are booming and asset markets are booming, that's evidence.

I don't view it that way. I think for evidence that policymakers are running the economy too hot, that they're throwing too much money into the system, you want to see evidence in inflation, in interest rates, interest rates, particularly bond yields, inflation break-evens, which is a way of measuring future inflation expectations through the bond market, things like that. And you're not seeing that. What you're seeing instead is kind of the opposite. Yes, rates have risen a little bit in the last couple of months, but we're still at very low interest rates. And we're still seeing all the forward-looking indicators pointing toward inflation not being a problem.

The reality I think we've learned is you can only really have an inflation problem when the economy is bursting at the seams and really has activity beyond its real economic potential, which is workers, capital, equipment, all the things that people use to make things. And if anything, we've been below that potential for most of the last 20 years. And I think realizing that that's been the central problem of the last two decades of the entire 21st century, being below potential, cranking below what we're capable of, trying to fix that and trying to get to the point where we're revving so we can even talk about inflation and deficits as a problem,

that would be a sign we're heading the right direction. And we're not there yet. When you have 1% 10-year treasury yields and you have all the forward-looking indicators pointing toward low inflation for years to come, that's not the problem we're having in 2021. But my understanding is even with interest rates at historic lows, we're now spending more on interest on the debt than we are on the military. And what happens if interest rates are cyclical? Say interest rates do spike, don't we, with this level of deficit, run the risk of forcing our federal government and treasury to spend so much money just on the interest on these ballooning deficits that it crowds out all other discretionary investment?

So the thing you have to remember is that in a world in which interest rates rise, it's true that the government's debt service burden would also be rising. But that's also a world where nominal GDP is rising, meaning the size of the total economy is rising through some combination of higher growth and higher inflation. So it's both the numerator and denominator rising. You don't necessarily have a rising debt burden. So the simple way of thinking of this, so I'll give you both the colloquial version and the technical version. The technical version is nominal GDP growth is higher than interest rates. And if you look at forward-looking indicators, ought to be that way for a long time to come. So that's the

equivalent of your household and you're borrowing money at, let's say, a 2% interest rate, but your income is rising at a 5% annual rate. And you can borrow pretty comfortably when your income is growing faster than the rate that you're paying on your debt. Yes, you owe an extra, let's say, borrow $1,000. You owe an extra $200, but your income rose by $500, meaning you are more able to handle that rather than less. So then the question of, are deficits too big right now or too small?

It boils down to, do you believe that we can kind of jolt this economy back to life and have a situation where 10 years from now, nominal GDP, the total amount of activity in the economy is higher than it would have been otherwise. And we're actually humming at a higher level and therefore comfortably able to afford deficits. You know, the most dangerous thing for debt sustainability is if we end up in a low growth, low inflation trap for a long time to come. That would make it very hard to handle the coming retirement boom, the Medicare spending. Yeah.

I mean, the risk is the real thing you want to be careful of is that we know these burdens that the federal treasury is going to be facing. Social security payments and Medicare payments for the baby boom generation as they retire. And those obligations are what they are. The bigger the economy is, the more we're producing in a few years, the better we are able to handle those. And making good policy now to get to that point is the real goal. So, Neil, I want to put forward a thesis and you tell me where I have it wrong. And that is, we've seen massive unprecedented stimulus. We've seen a modest decline in compensation, which masks the real pain because we have most of the people who've taken a hit in terms of their earnings weren't making a lot to begin with. And it also, the net number is lower than you might think because there's been raises.

We have a trillion dollars in just direct stimulus into people's hands. We have a marginal loss in compensation. I think on a net level, it's about $50 billion. And we have a half a trillion dollars in incremental savings because no one's going to the Olive Garden or Disney. So we have one and a half trillion dollars in additional capital out there that has flooded into the market or people just save it, takes interest rates down, which again, bolsters equity markets, or actually goes directly into the markets into a small number of story stocks because people don't want to do the research. They want to go into Tesla or Apple or Amazon. And the result is a massive inflation in the value of assets, which are owned by rich people,

1%, 80% or 90% of stocks owned by the top 1%. And we've just created this upward spiral of making the wealthy super wealthy on the credit card of future generations. I've read somewhere that only 15% of people who received their stimulus plan on spending this. Wasn't the stimulus essentially a grift where we have thrown some loaves of bread and a circus at people who really needed it? But really the primary objective or the outcome here is to take the rich and just make them super rich. I know that was a mouthful, so I'll give you some time to unpack that. So look, a lot of your diagnosis, I don't disagree with at all, right?

So it's clearly the case that asset prices have risen remarkably over the last year for all the reasons you're describing. If you had told me a year ago that we would have 6.5% unemployment, 900,000 people filing jobless claims every week, all these bad things happening in the real economy, all these people unemployed. And yet, the stock market would be up 15% in 2020, that we'd have penny stocks going through these insane booms because everybody's rushing into them. Really, 1999, 2000 dot-com bubble types of dynamics in a lot of markets.

And I completely agree with that. And I also agree with the piece that when there's this surge in asset prices like we've seen, people who own assets are the beneficiaries, which tends to be the rich, as examples say. That said, I think you have to think through some counterfactuals here. To think that the fiscal actions last year are just helping the rich because these things are happening, I think is completely wrong. Look at some of the biggest pieces of this. You know, these, the checks that went to most Americans, first of all, they have a phase out at high income. So that's mostly people

at low and mid-level incomes. Unemployment insurance benefits were a big piece of that. That was a huge piece. You know, that's literally putting an extra $600 a week in the pockets of people who did not have a job because they lost due to the pandemic. So, you know, I think the fact that we've had this surge in asset prices, which I did not expect, to be clear, I, you know, I think that these dynamics you're describing where there's all this pent up savings, it's going into bubbly asset prices, was not something I would have expected a year ago. But just because that's happening doesn't mean the stimulus is futile or just a thing for the rich. And I would add that, if anything, the riskiest thing, if you are worried about asset bubbles and worried about the rich getting richer, fiscal action is really more powerful than monetary action. And I think there's a stronger case that- Explain the difference between the two. Sure. So the Federal Reserve controls interest rates and can buy lots of securities, usually treasury bonds, but lately they've, last March, they went into being ready to prop up different types of securities markets for

corporate debt and other things. And that's one factor in this surge in asset prices that you're talking about. And so a lot of people say, oh, the Fed's driving up asset prices. There's certainly some truth to that. But I think the important thing is, what we saw last time in the 2008 recession and recovery, when fiscal policy does too little, monetary policy ends up doing more to try and get the economy on track. And that creates an expansion that is more weighted toward asset prices and more beneficial to the wealthy. So I think the best thing that can happen if we want to be in a world where ordinary

people are doing better and asset prices aren't just going toward bubbly levels, having a government response more weighted toward fiscal policy is beneficial. If the Biden administration is able to spend some serious money like they're talking about to pump directly to individuals, to families, to unemployment recipients, that implies the Fed's going to be raising interest rates sooner rather than later. And that implies that some of these effects that mostly affect asset prices will be unwinding. So I want to get your thoughts on a few policy ideas. that implies that some of these effects that mostly affect asset prices will be unwinding. So a few, I want to get your thoughts on a few policy ideas. There's always a tension between capital and labor. It feels like to me that for the past three decades, capital has been kicking

the shit out of labor, that we're very quick to call for bailouts of small businesses or airlines when there's an exogenous event of a pandemic. But it strikes me we've had this exogenous event where the asset owners are just killing it. And we do have deficits. We do need to fund programs to get our brothers and sisters and the wealthiest nation in the world out of food insecurity. It seems to me that why is no one calling for, in these extraordinary times of wealth creation among people with more than $10 million in assets, a one-time wealth tax? And I've always just thought that the mortgage tax, interest deduction, and capital gains are nothing but a transfer of wealth from the poor to the

rich. And as somebody who makes all of their money from capital gains, the notion that I'm less or more inclined to invest because of the rate on capital gains, I never have any idea what it is. And the notion that somehow you're going to starve the world of capital if you take up capital gains tax, the investment world is flush with investment capital right now. That is not the problem at all. So I just find all of this is a narrative to kind of make the rich super rich. And anyways, I just wanted to get your thoughts on what I am missing here. No, look, I think there's something to that. So it's a slightly, you're talking about individual income taxes, but on the corporate tax code, we had the Trump tax cuts, the TCJA that passed at the end of 2017. You know, the entire theory behind that law was to

cut tax on corporations by a lot, encouraging capital formation, encouraging investment. The idea is you get higher productivity, make the pie bigger, everybody's richer. But my read of the data is that you cannot see in 2018, 2019, some- You get stock buybacks, right? You get stock buybacks, you get higher after-tax earnings by corporations, higher stock prices. But what you don't see real evidence of is a surge in capital spending and the kind of things that really drive productivity in the long run. So I'm sympathetic to what you're saying, that, like, you know, there's an entire framework of tax policy built around we have to encourage capital, we have to encourage investments. And I don't see the evidence, certainly not clear cut evidence that it really pays those dividends. And if you were to, if you were on Biden's economic team, what are the two or three things

you would recommend as policy that you think would help the economy or, you know, help start addressing income inequality, jumpstart growth? What would, what would your, you know, you got five minutes or 60 seconds. What are the two or three things that Biden-Harris should consider? Look, Biden has surrounded himself with people who are more deeply versed in all of these issues than I am. And every kind of idea around inequality reduction, what's politically feasible, he has very smart people he's listening to. But one thing I would kind of chime in on that is the idea of making some of this response to a recession, to a crisis, more automatic and more tied to economic conditions. So think back to last spring,

we have this crisis. They expand unemployment insurance benefits through, I think it was through the end of July, but then it just went away. And even though the crisis was still very much underway, well, what if instead we had a setup where, okay, anytime the unemployment rate spikes above this level, we're going to have these expanded unemployment benefits. What if that was built into the law in an ongoing way? So it didn't depend on the whims of Congress and who happens to be in charge and what the political dynamics at that exact moment are, but rather the government's going to step in and help ordinary people who are in trouble based on the scale of the crisis,

according to economic data. And that's what a lot of center and center-left wonks have been talking about for years. There are certainly people in the Biden orbit who are big boosters of these ideas, but it does not, as of right now, look like it's making its way into this legislation. It's not making its way through Congress. So advice to your younger self and assume your younger self is an economic animal that just wants to position him or herself with a skillset and in a sector where they'll be able to develop economic security for them and their families? What advice do you have for young people in terms of how the economy is reshaping and how they prepare for that reconfiguration? So I think fundamentally, we're in a world where the forces that contribute to bigness, that contribute to large organizations

having a lot of advantages are very powerful. And yes, there's more blowback on antitrust and bigness, and we'll see what direction the Biden administration goes on that. But it's not a coincidence that Apple and Amazon and Facebook and Google are currently some of the most valuable corporations that have ever existed in the history of the world. It's not a coincidence that the biggest banks have gained market share over in the banking industry or retailers, Amazon and Walmart have gained market share over mom and pop stores. And some of that is, we can talk all day about the reasons, but some of that really is driven by technological fundamentals. And you have a situation where network effects are powerful, where platform economics that

are underneath a lot of businesses are bigger than ever, even things that you don't think of as tech businesses. Banking, partly I choose my bank because I want to be able to get an ATM on every corner. So that creates a kind of network effect for which bank people put their deposits in. That's a long way of saying, being in one of these big organizations that's one of the kind of winners in the winner-take-all economy is important. And to be the type of person who can thrive in those types of organizations, it's a distinctive thing.

It's a little different than a world where there's dozens of mid-sized companies competing. It's understanding the way technology intersects with the economic rationale of the company. It's understanding the moving pieces of how the company makes its money. And so that's what I believe is kind of the crucial ideas for understanding how to chart a career in the 21st century. So I want to pause there because there's always a moment with one of our guests where I think that our viewers or our listeners, I should say, should really register what's been said or the point that it's made. And the point I think you were making, and I don't think I'm putting words in your mouth, is that we romanticize small business and big is not only bad or is not bad, it's actually better in our economy. And when kids come to my office hours and they say, graduates from business school, huge opportunities. And they say, I have an offer from Google, but I really want to start a small business. I'm like,

don't be a fucking idiot. Go to Google. That on a risk adjusted basis, the greatest wealth creation vehicles in the history of mankind have been what I've referred to as unregulated monopolies, which is sort of another way of saying big. And I'm not saying you want to fight City Hall. These companies, on a risk-adjusted basis, if you have access to them, if you can go to work for one of the leaders in not only just big tech, but big pharma, big ag, big banking, on a risk-adjusted basis, your efforts will get greater return there. And we don't like to talk about it because we like to romanticize entrepreneurship. We like to romanticize small and big, but there's just no getting around it. These platforms are incredible

places to build careers. So my sense is you have an awesome job. Can you give us a sense of how you got where you are in any sort of pivotal or seminal moments or decisions in getting you to this? What seems like a pretty, pretty cool gig. It is a pretty cool gig. Thank you. So I started out as a summer intern at the Washington Post in the year 2000 when I graduated from college. I was on the local business desk and I wrote articles about dinky little companies in Washington, D.C. that were 20-person startups trying to make a go of things. So I kind of grew up in that traditional newspaper world, came back to the Washington Post after grad school and covered the financial crisis. I covered the Federal Reserve and the Treasury Department and the economy during the global financial crisis, which was really a formative experience. Seeing how these moving pieces of financial markets, policy, the economy, how they fit together, how they can make each other better or worse.

That was my formative career experience. Jumped to the New York Times in 2014 to take on this role as a roving economics commentator, analyst, writer. And I've been with a team called the Upshot at the New York Times since 2014. Which does amazing work. I'm especially impressed with the infographics and the creative team at the Upshot. I think the work you guys do is inspiring. Okay. so it always really upsets me when I find out that people as talented as you are that much younger than I am. So I am 14 years or 13 years older than you, ideally.

And don't hold back and don't give me this bullshit. I just want to be adding value or doing exactly the same thing. Try and push the limits of your, or just try and be as raw as possible. In 13 years when you're my age, what is your, where would you, what seat would you like to be in professionally? What would just be just awesome? What bells do you want to ring? Yeah, this is tough. I, you know, this is something I'm wrestling with all the time.

Look, I'm 42. I have a cool job as you, and I like my job. But, you know, look, I'm 42. I have a cool job and I like my job. But ultimately, I'm way too young to just kind of say, all right, I'm done. I'm going to do this for another 25 years and then call it a day. That's not a good way to live. And I firmly believe that people need to shake it up and try something different and stretch themselves in new ways. And that's the way to both to expand your horizons to remain competitive on the job market, but also for kind of quality of life and to feel good about yourself and to feel like you're always growing. The thing is, I have a hard time telling you what direction that would be. I hope that what I'm doing in 13 years looks different than what I'm doing now and feels different and involves

creating really good work. But if I was to try and tell you exactly what field, exactly what type of employer, exactly what format, I think it would just be hard to do. But if I come on this show in 10 years and I'm doing the exact same thing, please slap me and tell me that I've done it all wrong because I really do believe that's the case. Neil Irwin is a bestselling author and senior economic correspondent at the New York Times where he writes for the Upshot, the Time Cipher, Analysis of Politics, Economics, and more. He's also the author of The Alchemists, Three Central Bankers and a World on Fire and How to Win in a Winner-Take-All World. He joins us from his home in Washington, D.C.

Neil, stay safe. Thanks so much, Scott. We'll be right back. What software do you use at work? The answer to that question is probably more complicated than you want it to be. The average U.S. company deploys more than 100 apps, and ideas about the work we do can be radically changed by the tools we use to do it.

So what is enterprise software anyway? What is productivity software? How will AI affect both? And how are these tools changing the way we use our computers to make stuff, communicate, and plan for the future? In this three-part special series, Decoder is surveying the IT landscape presented by AWS. Check it out wherever you get your podcasts.

Welcome back. Let's bust into office hours. Kaboom, bust away. Question number one. Hey, Professor Galloway, this is James coming at you from Boston, Massachusetts. I wonder how you respond to the idea that Bitcoin has made the transition from currency to a security. When it was originally founded, Bitcoin was meant to be a currency that people used for transactions a lot, like a digital gold. And now, with recent market volatility and a lot of press coverage, it seems to be treated a lot like a security, a lot like an investment vehicle, things that people are making a bet on but not necessarily transacting with. I just wonder if you could respond to this and sort of talk a little bit more about Bitcoin as a investment vehicle rather than a currency, and if you see any downsides or any upsides to that type of transition. Thank you so much. Love the show.

James from Boston, thanks for the thoughtful question. We're getting a lot of questions about Bitcoin. As a matter of fact, our most downloaded episode was our episode on Bitcoin. And I think we had Michael Saylor on, who's a very thoughtful guy. I've actually known Michael for about 20 years. I don't know why I decided to tell you what our most downloaded episodes are. Anyways, anyways, if you talk to somebody at Bitcoin or even CoinDesk, they would not want to acknowledge that Bitcoin is a security. A security technically represents ownership in a company or a lien against the company's finances. And the moment you do that, you have to be regulated by the Securities and Exchange Commission. So they would say, no, verboten, we're not a security. Is it a payment mechanism, something you can be

used to transact an exchange of goods? well, okay, then maybe it's a payment method. Fair enough. Although I don't know that many people who are using Bitcoin to buy assets. I would argue that if it's anything definitive, it's a currency. And a currency is just something that two parties agree can serve as a store of value. I think Bitcoin, if you will, sort of benefits from this inability to label it as a specific type of currency product or asset because that unleashes it from any distinct valuation metrics. All we know is it is a currency or potentially a store of value because different parties have agreed it's a store of value. It has this hip anti-government technology feel to it. It is seen as a hedge

potentially against inflation as gold funds have declined. Those declines are correlated to the increase in Bitcoin's price. So people say, okay, if I want to take off for Europe with a go bag, I can take $100 million worth of Bitcoin with me pretty easily. To take $100 million worth of gold is not easy. Also, gold is very hard. It's not very divisible, so it's not a great payment platform. So it sort of benefits from this mysterious techno feel and not being defined specifically as a payment, as a security. And I also believe with any hint of inflation, this thing skyrockets. I predicted it was going to go to $50,000 this year. I predicted that when it was at 19,000, it immediately jumped to 42,000. Now it's back, I think, in the low 30s. So where do you go from here? I haven't yet, but I am going to buy some

Bitcoin. Now, why am I going to do that and why haven't I? I haven't because one of my many flaws as an investor is that I always want to buy things on sale. And no matter where it is, I think to myself, I want to buy it at 20% less here. So even if something is a great buy, I think, okay, if it's 12 bucks, I want to wait until it's at nine. And I lose a lot of stuff because it just continues going up from that point. I always want to buy stuff on sale, which I don't think is a great or Olympus way. It's been bad for me. So I've never gotten in because it consistently goes up about every time I decide I'm thinking about buying it. But I think the reason you want to own a little bit of Bitcoin is I think there's a non-zero chance that this thing just goes parabolic,

that at the first hint of inflation, insecurity around central banks, you could just see coupled with some of the legitimacy that it's being lent by financial institutions, you could see this thing just go apeshit. And I don't think you want to have kind of the ultimate FOMO of saying, Jesus Christ, if I just owned three coins, if I just owned five coins, right, or one coin or a quarter of a coin, you can buy fractional ownership in Bitcoin. I think you want enough such that if the thing does go parabolic, you don't hate yourself. But at the same time, if it crashes, and it could, I think this is a very speculative asset, you don't put your financial well-being at future. If that sounds like a mealy-mouth answer, put enough in such that if it goes way up, you don't hate yourself. But I would be very careful putting more than,

say, 5% or 10% of your net worth in Bitcoin. Having said that, the people who have, wow, ka-ching, have they done well. Thanks for the thoughtful question. James from Boston, next question. Hi, Scott. This is Julia Noran Johnston in New York City. I'm the founder of the trade publication Business of Home. So naturally, I've been loving your prediction that home brands are poised for major growth in the new economy. My question is about Amazon. Many of my friends try hard to support small Main Street businesses as opposed to Amazon and rightly believe that Amazon is demolishing by dominating this little niche. It seems to me that this is an underrepresented group of businesses that media isn't necessarily covering. Shouldn't platform sellers count as small businesses as much as local storefronts do? Can I feel less guilty about shopping Amazon

if I'm supporting small businesses who are selling through Amazon. Thanks so much. Love your show. Julia from NYC. Gangster question. Gangster question. I think I heard a daughter or a son in the background, which one of the wonderful things about working from home is people become much more tolerant of kids in our lives, right? I've been on MSNBC and you can hear my kids in the background and they're totally down with that.

And I think that's a wonderful thing. We have families. There's no reason that we can't acknowledge that and occasionally have some work interruption. So what do I tell entrepreneurs who come to me and say, all right, I'm starting a small consumer business? Well, there's two assets. There's two core competences to taking a business from kind of zero to 50 million if you're in a consumer business, and that is selling an actual physical hard item to end consumers.

Those two things are incredibly adroit use and deft use of Instagram, great consumer brands, whether it's a beauty brand, a new Swiss vacuum cleaner, some sort of new hair removal technique, whatever it might be. Typically, typically the way you get great top of the funnel awareness and drive a lot of attention

is through Instagram. And then number two, capital light distribution on Amazon. Amazon is a fantastic partner to leverage their capital, their infrastructure, their fulfillment, their massive traffic. I think they're doing a fantastic job. I think there's a ton of small businesses benefiting from Amazon. The problem is that once you get big enough, such that the algorithm on Amazon says, you know, your business selling this type of weed killer has amazing margins and is selling really well. We just might get into Amazon Essentials and introduce a weed killer. And that is when you're sitting on top of that data set and you decide, okay, batteries probably have a 70 or 80% gross margin. All batteries are produced in one of three factories in Shenzhen. Why don't we just move in and kill

Duracell and Energizer? And some people might say, great, that's disruption. Yeah, that's fine. But at some point when the platform gets to see all of your data and then move in and make sure no small business ever becomes a medium-sized business, Houston, we have a problem. And that's the problem with Amazon. But by all means, zero to 50 million, maybe even zero to 100 million, right? Or even if you're an established brand, such as like a Tumi that wants to increase your sales by 10 or 20%. I think Amazon is probably an incredibly prosperous, mutually beneficial platform. I don't have an issue with that. By all means, kill it, make bank on Amazon, embrace Amazon. What I do have a problem with is a company that has established monopoly power and isn't letting any acorns or saplings grow up to be redwoods. And that's what Amazon is doing. Amazon isn't doing anything that Macy's or JCPenney's hasn't done in the past where they observe all the little brands growing and then introduce their own private label. It's just that

Amazon is doing it at scale. And as a result, we have 50% as many new businesses being formed every day because it's just getting more and more difficult to grow your business. Anyways, a great question. I'm a fan of Amazon's marketplace, Amazon's platform for early stage consumer companies. I'm just not a fan of Amazon's monopoly power and how I think it suppresses wages and lowers growth in our economy. Next question. Scott Marshall Berman, Livingston, New Jersey. Wanted to get your thoughts on story stocks as a form of investment. Are they here to stay? Is that concept of investing versus looking at true metrics? The future of investing, is it just a time and a place that we have good storytellers

and there's abundance of cash that's looking to be invested and people are not doing analysis and actually just looking for that forward momentum and that story? Or is this the next way, the new generation, the new way to analyze and to look at a stock, less on the numbers and more on the story? Marshall from Livingston, thanks so much. An interesting question. So typically, typically, stock is driven by two things, the numbers and the narrative. You look at the four-wall unit economics. If it's a retailer, you look at the gross margins. If it's a CBG company, and you always look at growth. And then you assign, you look at its peers and say, all right, a salty snacks CBG company typically trades at 12 to 15 times EBITDA.

And then you look at the management and you listen to their vision. And if it's a compelling vision, it's a compelling story. You give it 15 times instead of 12 times. So roughly speaking, kind of two thirds numbers, one third narrative makes up the valuation. That is flipped. Now it's effectively the narrative. Storytelling, I would argue, is the core competence of a CEO, that when Elon Musk outlines his vision for an EV future, it's very compelling. You buy the stock, he then accesses the cheap capital of that stock and pulls the future forward. Amazon's initial or Jeff Bezos' initial shareholder letter saying they were going to be ruthlessly focused on value, convenience, and I think speed, like value, convenience, selection. You just wanted to

buy stock when you heard that. And despite not being profitable for whatever it was, 10 or 15 years, the story sustained the stock and they were able to pull the future forward with that cheap capital. So storytelling or the narrative, if you will, has become increasingly important. And now it seems to be 90% of some of these stock companies' valuation. You just have a very difficult time justifying on any traditional valuation metric some new economic model is when the market crashes and we revert or there's a regression to the mean and straight fundamental numbers start to matter again. So what does that mean? I think we ride it and enjoy it. And I've advised a lot of CEOs recently on what is the story? Okay, why are you disruptive? Who are your peers? What is the vision? What is the really compelling story that you can put in a box and then communicate to the marketplace such that they will weigh in, drive your stock up, and you can use your stock as currency to go pull that future forward?

So I don't see it changing for a while. There will be a regression of the mean, and the regression of the mean will be especially vicious. Markets are cyclical, and the stocks that get hit the hardest will be the ones that have, quite frankly, become kind of 90% narrative and 10% numbers. So I think those companies will be really vulnerable. But until then, my brother, green eggs and ham. We want that storytelling.

And it is incredibly important. Never has vision meant more in the financial markets. And also, it seems as if the numbers themselves have totally disarticulated from the valuation. Where does it end? I don't know. About the time guys like me say a market is overvalued, it usually has another two or three years to run at crazy compound rates. But this is something I think about a lot. And as long as it's running, look, everyone said the first trillionaire was going to be out of climate. It might be. It might be Elon Musk. Elon Musk has added the value, added the value of the GDP of Hungary to his personal net worth since March. Think about that. And there's only 1.2 million electric vehicles in the world. And there's 1.3 billion internal combustion vehicles. Why? Because it's an amazing story. Save the planet, great product, electric. And by the way, this is the guy in the mind that can put people on Mars. So what better story is there? I go to the beach and I see, I think it was called the Dragon, Capsule Dragon, Space Dragon, something Dragon, something Dragon, Game of Thrones, no,

SpaceX launching their capsule. And I'm with my kids and I see this SpaceX capsule flying into the near atmosphere. And I think I got to go buy Tesla stock or I got to buy SpaceX stock, which is available in the private market. So anyways, the story never been more important than ever. Does it probably mean there's a pretty vicious fall concentrated amongst story stocks? Yes. But I'll tell you, it's hard to stay away from these things right now because it's just champagne and cocaine among the storytellers. Thanks for the question, Marshall. Thank you for your questions. If you'd like to submit one, please email a voice recording to officehours at section4.com. Our producers are Caroline Shagrin and Drew Burrows. If you like what you heard, please follow, download, and subscribe.

Thank you for listening. We'll catch you next week with another episode of The Prof G Show from Section 4 and the Westwood One Podcast Network. Genius. Genius. Genius. Support for this podcast comes from Klaviyo. You know that feeling when your favorite brand really gets you. Deliver that feeling to your customers every time.

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