The Prof G Pod with Scott Galloway - The Geopolitics of Cryptocurrencies — with Niall Ferguson

Episode Date: May 20, 2021

Niall Ferguson returns to the pod for a discussion about his latest book, Doom: The Politics of Catastrophe. Niall shares why "all disasters are in some sense man-made" and what history can teach us about handling crises. Niall also explains the state of play around digital currencies from a geopolitical perspective. Follow Niall on Twitter, @nfergus.  Scott opens with his thoughts on AT&T’s reverse merger with Discovery, and what it means for the streaming wars. He also discusses the implications of stock buybacks and dividends.  Related Reading: Companies Are Flush With Cash—and Ready to Pad Shareholder Pockets Algebra of Happiness: Find moments of engagement. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Episode 69, the atomic number of Thulium. In July of 1969, Neilstrong became the first person to walk on the moon speaking of moonwalkers michael jackson's book severely underrated the ins and outs of child rearing okay if you think i'm looking to get canceled trust your instincts. Go, go, go! Welcome to the 69th episode of The Prop G Show. In today's episode, we speak with one of our favorite Prop G podcast guests, Neil Ferguson.

Neil is a senior fellow at Stanford University's Hoover Institute and a Bloomberg opinion columnist. He's also the author of 15 books, and his latest, Doom, the Politics of Catastrophe, is out now. I like this guy, Doom, the Politics of Catastrophe. There's a white dude even more angry and depressed than the dog. We hear more about Neil's latest book during our interview, as well as his thoughts on geopolitics or on the geopolitics of cryptocurrencies. That's going to be interesting. Stick around. Okay, what's happening? The biggest news or what I think is the biggest business story maybe of the quarter, maybe of the year is AT&T spending Time Warner in a reverse merger with Discovery. Who predicted this? Who said this was going to happen? Seriously? Who said, okay, they got to sell this shit? I don't know. I don't know. One guess, one guess, and it rhymes

with dog. It's dog. Anyways, the $43 billion deal will help create a new company that will merge WarnerMedia's assets, including CNN, HBO, and Cartoon Network with Discovery's various programs, including HGTV, Food Network, and Animal Planet. So it's going to be Don Lemon, Naked and Afraid, or Freed Zakaria. I don't know, talking about Shark Week. It's going to be pretty interesting. This thing's going to be a juggernaut.

By the way, that $43 billion number is a little bit misleading. Supposedly, the new entity will take on $43 billion of AT&T's debt. So that's like getting $43 billion technically, even though, I don't know if AT&T still owns 71% of the new entity, are they really getting rid of the debt? But anyways, we'll say, all right, $43 billion plus they'll own 71% of the new entity. Say, or estimates are that the new entity will be worth around 60 or 70 billion. So it sounds like, it sounds like optimistically, AT&T is getting 70 to 80 billion dollars, maybe, maybe, for an asset they paid 110 billion dollars for cash and the debt they assumed

about three years ago in June of, I think it was June of 18 when the deal actually closed. Or put another way, AT&T has basically burned or destroyed a billion dollars worth of shareholder value every month for the last three years with their adventures in media. However, however, when you're moving in the wrong direction, a step back is a step in the right direction. And the team does deserve or the AT&T team does deserve some credit for recognizing or not continuing this consensual hallucination that this shit was working. It wasn't. It's a smart move by AT&T given where we are here and now, and essentially confirms that the company should have never merged with Time Warner three years ago. Speaking of which, Time Warner is literally the Kevin Bacon of catastrophic acquisitions. They executed the worst execution, maybe in corporate history, paying I think $150 or $160

million for AOL. You've got fucked. Anyways, that was just a crazy, stupid acquisition. And then, and think about it, AOL was the worst part of a $5 billion acquisition. By the way, I think Apollo, who purchased Yahoo, is going to make out like fucking crazy $5 billion, four and a quarter when you take out the cash for a company that's the fourth most traffic website in the world. Who are three, two, and one? Amazon, Facebook, Google. Hello, one and a half trillion, 900 billion, and 1.2 trillion. And then number four, they just picked up for four and a quarter billion.

Oh, my God. Get your greed glands going, Apollo. They stole that thing. They stole that thing. They stole that thing. Anyways, back to AT&T's divestiture of Time Warner to the new co, Discovery Plus, whatever they're going to call it. The consolidation will likely result

in their ability to cut costs by around $3 billion and the new company will be investing $20 billion in content. So that's a serious contender in the streaming wars. What is their strategy going to be? Well, it should be to hold on to the melting ice cube that is the cable bundle and the ad-supported media they have. And they have some of the best ad-supported media in the world, Turner, Cartoon Network, CNN. I love CNN. I just love CNN.

Fareed Zakaria, a professional role model. Anderson Cooper, we're close, close friends. He doesn't know that yet, but we're close friends. Anyways, for context, Netflix spent $17 billion on content in 2020, and Disney will be spending $14 to $16 billion a year on streaming content by 2024. So everyone started competing or battling for number two behind Netflix. And all of a sudden, this thing called Discovery is now one of the real formidable players within punching distance or striking distance of number two. This makes all the sense in the world for Discovery that was literally the last guy at the dance about to go home alone. Is that the term? Or get to the dance or whatever.

And anyways, they had to do something. They were seriously sub-sub-scale. The odd person out now is Peacock that looks like a 90-pound weakling compared to the rest of these streamers. And what does AT&T or what does the New Discovery Plus have to do? They have to cross the chasm and maintain the credibility and make the sort of staggering investments the other streamers are able to make. What's the insight? What do people miss about this? And that is AT&T's shareholder base is there looking for a 5% dividend, which by the way has been cut so they can make massive investments in 5G, which is the right move. And so they were never going to let John Stankey make the kind of investments to take the dividend away, take the EBITDA down, to compete toe-to-toe with the streamers.

And what's effectively going on here in media, the cable bundle, the ad-supported bundle, or even the subscription bundle that goes through or flows through another cable provider doesn't get the data. And it's all about having the relationship with the consumer such that you can get access to the data, serve up, and say, okay, if you liked season three, Game of Thrones, episode seven, chances are you'll like season three, Game of Thrones, episode eight. That home screen recommendation from Netflix, their ability to maintain custody of the relationship is really the key about streaming. So there's a big difference between HBO, which generates carriage fees from cable companies, and HBO Max, which has a direct relationship with the end consumer. So what do they have to do here? They're going to have to

keep the ad industrial complex at Time Warner cheerful and happy while they basically milk the shit out of thing and then take all of that profit, of which there is still a lot. Keep in mind the cable bundle. The cable bundle generates three times the profits of all the streamers, but the streamers are worth three times as much. So the entire marketplace absolutely distinguishes between different types of revenue. They look at the cable bundle revenue and they're like, meh. And then they look at streamer revenue or revenues from streamers and they're like, hello, hello, come on over here, pull up a stool. And then they value that revenue at a multiple of revenues. And what do you have here? Look at Netflix and Amazon's shareholder base. They want growth and vision, whereas AT&T's shareholder base wants a dividend,

which means that John Stankey just doesn't have the firepower, the willingness to pull out the bazooka and his shareholders aren't gonna give him shells the way that they will keep giving cheap gasoline and shells and armaments or munition. I'm really trying to figure out this war metaphor here, the way they do to Netflix and Amazon,

which has a shareholder base that is unprecedented. The thing that has probably been most transformative or one of the things that's been most transformative about our economy is that the shareholder base of certain companies has entirely changed their complexion and their needs. And that is they have substituted or been willing for management to substitute vision and growth for profits. We've never had that before. We've never had shareholders

willing to fund kind of a 20 or 25-year adventures in the internet and vision and innovation the way shareholders have done it for Netflix and Amazon, which you could argue have just kind of got the mother of all hall passes in terms of cheap capital as it relates to their profitability, which hasn't been striking by any means. But anyways, AT&T had no choice. They had to do something. Putting it into a new code that will be a formidable competitor in the streaming war is the right move. It's the smartest thing they could have done, and still, this is a $30 to $50 billion shareholder train wreck. All right, all right. Moving on. What else is circling in the news? What are we looking at? What are we looking at? The Wall Street Journal cited data from Goldman

Sachs and reported that since the beginning of this year, U.S. companies have conducted a record $504 billion of stock buybacks. That shouldn't come as a surprise given that these companies are sitting on a record amount of cash. At the end of 2020, cash holdings for the S&P 500 reached nearly $2 trillion. That is the 500 companies in the S&P 500 had $2 trillion on their balance sheet. Jesus Christ, that's roughly a 25% increase from the same period in 2019. Stock buybacks or share repurchases are Latin for making the wealthy shareholders more wealthy and inflating the share price. And that is, okay, let's not invest in the future.

The whole point around the tax cuts, the Trump tax cuts on corporations was that it would stimulate the economy because all these companies would take their excess profits and buy plants or start building factories or hire more. I'm on the board or have been on the board of several public companies. And I can tell you when this all happened, we showed up in the next board meeting and pretty much everyone said, oh my gosh, oh my gosh, we didn't make 25

million in EBITDA this quarter. We made 33 because our tax rate went down. What did not happen is, okay, let's get more aggressive and start investing. That didn't happen. It was either more EBITDA that flowed to the bottom line or more share repurchases. And what's wrong with that? Share repurchases, a lot would argue, is an efficient way to return capital to shareholders. What's wrong with it here is that effectively you reduced corporate tax rates and we didn't pay for that any other way. It didn't result in growth. It didn't pay for itself, which is kind of the greatest lie, mostly fomented on the right for the last 30 years, that this trickle-down theory, more like piss on the middle-class and lower-income households. But anyways, it didn't result in this type of growth.

What it resulted in was more debt that our kids and future generations will have to pay. And then stocks went up, you could argue artificially, and who did that benefit? Who owns 90% of stocks by dollar volume, the top 1%. So this just didn't make any sense as far as creating a healthy economy. The whole lie, if you will, that it was going to be reinvested in growth or infrastructure just didn't happen. According to the New York Times, Just Capital Research found that since the tax cuts were passed, 1,000 largest public companies have actually eliminated more jobs than they created.

Okay, thanks for that. And on top of that, JPMorgan Chase analysts estimated in the first half of 2018, about $270 billion in corporate profits previously held overseas were brought back or repatriated to the U.S. due to the changes in the tax code. Yet 46% of that was spent on stock buyback. So good news, money did get repatriated. We did tax it. There weren't these silly inversions

or capital being held off shore, which is inefficient, but they brought the capital back and used it for, wait for it, share repurchases. So what's a company to do? When companies have excess cash, they have a few options. They can invest in their current assets, paying employees more. They can invest in their future through research and development,

prepare for economic downturns by paying down debt and holding onto cash. And when things go south, such as, I don't know, in a pandemic, you have cash on hand or can take on debt so you don't need a government bailout. And then finally, after doing those things, and if they're still sitting on piles of cash, they can return the money to shareholders. Harvard Business Review reported that in 2018, only 43% of companies in the S&P 500 recorded

any R&D expenses, which means they're not investing in R&D or they're not investing anymore. The Institute for New Economic Thinking found that between 2009 and 2018, 466 companies on the S&P 500 spent $4 trillion on buybacks and $3 trillion on dividends. That's $7 trillion that didn't go to workers' wages, innovation, and strengthening balance sheets. My God, we're not raising minimum wage?

Companies can't afford it? The Chamber of Commerce? What the fuck are you thinking? Even trying to keep a straight face by fighting an increase in minimum wage. Remember PPP? The Washington Post found that, to no one's surprise, publicly traded companies use some of the money to purchase stock buybacks and pay dividends. Think about that. You're getting

bailout money and you're using that money to buy back stock? According to the Post, CRH Medical Corporation received a $3 million PPP loan and then went on to complete five acquisitions and purchase more than $228,000 worth of its own shares. Think about this $3 million. Think about unemployment, right? Think about $300 a week for somebody. So what is that? That is 10,000 people could get unemployment for another week.

Instead, we gave $3 million to CRH Medical so they could buy back stock or go make acquisitions. Seriously, what the actual fuck? In sum, we need tax and regulatory policies that discourage this sort of behavior and encourage companies to invest, fueling innovation and building security for the next downturn.

And what's the best investment a company can make? What is the best investment America needs to make right now? Is it artificial intelligence? No, it's organic intelligence. We need to restore dignity to work. The jobs report was supposed to be 950,000 new jobs. Instead, it was a quarter of a million, and everyone freaked out. But the insight is in the nuance in the data,

and that is the quarter of a million jobs added were all men. In other words, there was actually net job destruction among women in the labor force. Why is that? Because when 50% of schools are still closed, that means mom is now the teacher. And let's be honest, it's always the mom. And if you want to bring women back into the workforce, which really drove our economy for about 20 or 30 years, you have to make the trade for work work. Think about what it's like to be at work right now, especially in a blue collar or lower wage job. You're dealing with your own mask. You're dealing with other people's masking. You're in a more dangerous workplace. And by the way, we've seen the NASDAQ go up fourfold. We've seen inflation up 24% since 2008. We've seen CEO compensation explode. And we've

seen minimum wage explode from $7.25 to $7.25. You want people to show up for work, we need more dignity in work. We are the wealthiest nation in the world. Let's start acting like it. Stay with us. We'll be right back for our conversation with Neil Ferguson. The Capital Ideas Podcast now features a series hosted by Capital Group CEO, Mike Gitlin. Through the words and experiences of investment professionals, you'll discover what differentiates their investment approach, what learnings have shifted their career trajectories, and how do they find their next great idea? Invest 30 minutes in an episode today.

Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. Hey, it's Scott Galloway, and on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robeson, the senior AI reporter for The Verge, 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 Ferguson, a senior fellow at Stanford University's Hoover Institute and a Bloomberg opinion columnist. Neil, let's start with a quote from one of your recent opinion columns. Back in April, you wrote, not only are American monetary authorities underestimating the threat posed to dollar dominance by China's pioneering combination of digital currency and electronic payments, they're also treating the blockchain-based financial innovations that offer the best

alternative to China's yuan-like gatecrashers at their own exclusive party. Say more about the state of play around geopolitics and the crypto space. Well, it's great to be with you, Scott. I think one of the big lessons of history is that times of great disruption, including pandemics, are often times of accelerated monetary innovation, and this time is no exception. It's been as if somebody sped up the tape since January of last year. The Chinese brought forward their plan for a central bank digital currency, which they'd been kind of kicking around previously. But even late 2019, I remember hearing in Beijing that it wasn't ready for primetime.

The pandemic forced the pace for them. And meanwhile, we've experienced an extraordinary explosion, not only in the sense that the price of Bitcoin surged last year and into this year, until Elon showed up, but also decentralized finance has been growing by leaps and bounds in ways that are in many ways more interesting. So this is a time of extraordinary monetary innovation. What strikes me is that the US authorities, the Federal Reserve and the Treasury, are the kind of party poopers, is maybe the wrong expression, but they're certainly the small

C conservatives who look askance at all this. And when you ask them about central bank digital currency, they say, no rush to do that here. And if you talk to them about crypto, they say, well, looks like it's being used for nefarious purposes, but as long as we can tax it, we'll let it go. So I think that's roughly where we are. And it leaves the future pretty open-ended at this point. So let's first off talk about the China stablecoin or whatever the term is for, the China crypto coin. It seems to me that just right out of the gates, it's sort of doomed to fail. Because one of the core value propositions of crypto is its decentralized nature. And it can't

be controlled by a central government or a central bank. But that's one of the key attributes. And the notion of engaging in exchange around a technology or device that has the Chinese security apparatus has access to seems totally contrary to why people buy crypto in the first place. Isn't this thing dead on arrival? How does this work? Well, no, that's exactly why it's alive on arrival in China. The point, I think, which has not been widely understood abroad is that the main goal of producing a central bank digital currency is to limit the power of the electronic payment platforms that had arisen out of China's big tech companies, Alibaba and Tencent. And what happened in China was extraordinary because at a much faster clip than we saw in the West, consumers switched from cash to paying with phones using online apps that had been built by the big tech companies.

This started to worry the Chinese Communist Party because of the speed with which these payment platforms grew. And as Jack Ma and his friends like Eric Jing at Ant began to imagine the next stage of this process where Ant was going to go global, the CCP, the Chinese Communist Party, said, whoa, whoa, whoa, slow down, slow down. You are getting too big for your boots. And so a couple of things happened. First, there was a major slap in the face, the abandonment cancellation of the ant-IPO, and then a bunch of new regulatory pressures on the big tech companies. And then the second punch was the accelerated rolling out of the Chinese monetary system and ensure the continued dominance

of payments of the state-owned banks, which effectively will be the intermediaries still between the central bank and consumers. It'll be a two-tier system. So consumers are being encouraged to use the yuan or ECNY to pay instead of using Alipay or WeChat Pay. I think it's much more a domestic power play than it is about the international monetary scene. And as I said, this is why it's alive on arrival, because the CCP really wants to have the kind of surveillance that a centralized central bank digital currency with AI will give it. And it doesn't want to have that power in the hands of a private actor like Jack Ma. It strikes me that, so I read that the USD accounts for about 60% of foreign currency reserves. And that is this not very much discussed or underrated aircraft carrier squadron that is just incredibly powerful. Our ability to exert influence,

whether it's through economic sanctions with teeth or just transparency, that we get to see the flows of power globally because they have to go through our SWIFT network or through an American bank at some point, that any threat to the USD, whether it's crypto or the yuan or another currency, is really a substantial decay or erosion in our power. Talk about, does crypto present this existential threat to the USD and ultimately America's influence around the world? It doesn't look like it right now when you just look at the scale of crypto, even if you look at the kind of peak market caps, it's still a relatively small piece compared with the vast scale of the US dollar's reach. Not only is the US dollar dominant in central bank reserves, but even more importantly, it's dominant in international trade.

And that dominance has actually grown over time. So the US dollar is the world's currency. However, it does run on some quite antiquated rails. If you think about what we're talking about when you use those initials USD, we're talking about a fiat currency that became decoupled from gold 50 years ago, 1971, which is run more or less at the discretion of the Federal Reserve, which the world likes to use and which is therefore difficult to dislodge

by any other fiat currency. And this is a critical point. Nobody is going to come along with another fiat currency and easily replace the dollar. The Europeans tried it, remember. They came along and they said, hey, what? Look, we've got a new currency called the euro.

And quite a lot of business started to be done in euros. But the euro is still a long way from rivaling the dollar. The Chinese will never be able to replace the dollar with the yuan or mnmbi because it's a non-convertible currency. You really don't want to be left holding a pile of those guys given that you can't get your money out at will. So I think if we were stuck in the technology

of, let us say, 15 years ago, there would be no real discussion to be had. And even in the early years of crypto, it was fair to say, as Larry Summers said, you can't replace something with nothing. You can't replace the dollar when Europe's a museum, Japan's an elderly care home, China's a jail, and Bitcoin's an experiment. But I think we've moved on a bit since then, partly because of the acceleration that the pandemic has caused. And what we're seeing are a couple of things. Firstly, we, the guys who have to pay our taxes and dollars, are looking at the federal government's fiscal and monetary response. And the same Larry Summers is worried about it in a way that he wasn't in the period after the financial crisis. The second thing that's important is that technology is making the US dollar system

look superannuated. It's still pretty clunky, after all, when we are making payments domestically. I'm always kind of frustrated by sometimes how long it takes for checks to clear. And that feels like the 20th century is calling, asking for its payment system back. As technological innovation happens, the US dollar looks more and more like the old way of doing things. Swift. I mean, Swift is the key, right? But Swift is a really old way of doing cross-border payments between banks. And this is the critical point, Scott. The rest of the world has an incentive to move to some different payment architecture if it's faster and more efficient, and if it gets it out of the US's control through financial sanctions of their lives. And this is the thing that I think is really critical.

The US has overused its superpower, a superpower only discovered after 9-11, by using financial sanctions on whoever it feels like putting pressure on. And from a European vantage point or an Asian vantage point, it would be quite nice if there were ways you could do business that didn't leave you vulnerable to US financial sanctions. So I think the technology is now there to build alternative cross-border rails, and the incentive is there to start using them. And that's why I think things have got really interesting, mainly because the pandemic's fast-forwarded things that were otherwise going to move quite slowly.

Yeah, it's definitely been an accelerant. So let's zoom out. Crypto technologies and fintech and geopolitics, the winners and the losers with this acceleration innovation around crypto and fintech. Well, the winners are the early adopters. Anybody who listened to their teenage son

or whoever it was that first recommended it and has been hodling significant amounts of crypto. And it's been a glorious ride for those people who got early to the party. And even if it's been a little bumpy along the way, and it's been kind of a bumpy month, you're still laughing in terms of your returns over a one or two year timeframe. Losers, well, I think that all depends. The United States isn't bound to lose. One of the points I make towards the end of the book Doom

is that if you thought China had sort of won 2020, you had jumped to the wrong conclusion. The US is still very dominant, not only in the monetary system, but it's also very dominant in the sense that the US treasury is still the safe asset that institutions are almost obliged to hold. The US still leads in technology

in a lot of different domains. It turns out that China is still far behind with things like vaccines. So I don't think we can immediately say the US is losing. In some ways, 2020 revealed the full extent of its power and indeed even the resilience of its sometimes rather flaky looking democratic system. But I think if you had to kind of pick big, big losers in the current moment, it's obviously those emerging markets that had to fight the crisis with weak balance sheets and weak currencies. I'm thinking here of Brazil. It's one thing to do massive deficits and money printing if you're the US. But if you do it as Brazil, you're going to get into some pretty difficult territory.

So I think there are a bunch of loser currencies out there, like Turkish Lira is another example of this, that reveal that as for many years, you can't play by US rules if you're an emerging market. What's unclear, and I think it's too early to tell, is how successful the Chinese central bank digital currency will be. Because it could fail. It could fail because Chinese consumers say,

you know what, I just actually prefer Alipay, and what's so cool about this new central bank digital currency? It could fail because nobody really wants to use it for cross-border transactions. And this is the critical issue. If the Chinese can find a way to get people to use their yuan in cross-border transactions, then I think the US dollar has something to start worrying about. Until then, yeah, until then, it's still the number one player, not the only player, but the number one player in town. So let's talk a little bit about ransomware. Ransomware attackers or payments rose 337%

from 2019 to 2020, reaching more than 400 million worth of crypto. Do you have any thoughts on the relationship between crypto and sort of this illicit activity. It's obviously the currency for ransomware. Does crypto present another threat around facilitating or being the currency for this type of crime? Well, if you ask people at the U.S. Treasury for their view on Bitcoin or crypto generally, they'll make long faces and say, well, it is used for nefarious purposes.

But actually, if you just look at the long run trend going all the way back to the early days of Bitcoin, the share of transactions that are illicit is really quite low now. But I mean, that reputational issue isn't going to go away because the obviously appealing way to get paid, if you want to do something criminal is in crypto rather than dollars to a bank account, that's going to be easy to track down. So you're never quite going to shed the illicit activities. I think that seems inherent. The point is that they're still relatively modest. And let's face it, there's a lot of illicit activity going on out there with banknotes. There are still, remember, really, really untraceable, truly crypto forms of currency, and they're called banknotes. So I think this sometimes gets overdone in the minds of the

regulators, because they're still kind of 10 years back when there was a lot more dubious stuff being done with Bitcoin. I do think the issue of ransomware matters, but it matters in a slightly broader sense, namely that we are in a state of permanent cyber war. Many of us are oblivious to it, but if you're a corporation, you're increasingly aware of it. And the scale of this cyber warfare is kind of bewildering. We think we're at peace,

but we're not actually. There's this raging cyber war, which has multiple actors, which targets corporate as well as government clients. And we just saw a little trailer for the next disaster in the attack on the colonial pipeline. You've got to think forward to a situation in which a large-scale cyber attack is launched that disables a big part of US infrastructure, takes the internet down, for example, in a really extreme case. And I always think to myself, when I look at such crypto holdings as I've been able to amass, these won't be much use if the internet is down. So do you have any thoughts on the specific coins and technologies?

Well, it was certainly obvious that Ethereum was a new and interesting life form because it was something that had quite distinct differences relative to Bitcoin in terms of supply, just the way it works, but also that it was going to be the basis, kind of open source basis for a lot of other coins and tokens. So you have this kind of Cambrian explosion of experiments, which had a peak in 2017, and then another big surge in the last year and a half or so. And of course, you have to pick your way warily through this extraordinary explosion of innovation because there are shit coins in amongst that crowd. But there are also some serious experiments that have some potential value and lasting value. And then

there are the kind of things that are a little bit in between, like the stable coins. Now, stable coins, I think, are a special category because if they're fiat-backed, you're really dealing with a form of bank. Something which has a reserve of fiat and is issuing a digital token is really behaving like a bank. And there, I think, there are all kinds of regulatory downsides. And I'm not convinced that those solve a real problem. But there are some solutions to the problem of how do you get stability out there. One that I've been involved with is Ampleforth, where Ample has its supply varying in response to price movements. And that's a serious innovation. Evan Kuo and his team have come up with something that just behaves differently and solves the problem. It's not going to go to the moon.

It's not going to go to zero. It's going to fluctuate in the short run and be stable over the long run. So I've been kind of picking my way through this world, looking a lot of ideas and trying to see if they make sense to me as an historian, because as my core competence is financial history, I'm always asking myself the question, well, how does this fit into the big picture of financial history? So what are your thoughts on corporate inspired coins such as Libra, or I think it's called Diem right now. I think Amazon is even experimenting with a coin in Mexico.

Well, I'll tell you a story. A few years back, before Diem was unveiled or Libra as it was originally called, I was asked to give a talk to a very savvy crypto fintech group at a birthday party, you know, because crypto bros don't, you know, just go out and get drunk on their birthdays. They have to have some kind of edutainment. My talk was about understanding the future of money in Historical Perspective. And one of the key slides was the one in which I said, well, obviously there is going to be some kind of version of electronic payments in the West that is superior to PayPal in its reach.

But please, please do not make Facebook the company that builds it. And everybody laughed because they all knew what I didn't know, which was that Facebook was building it. And Dave Marcus was actually in the room, the guy who was heading up Libra. And I've talked often to him since then about the fundamental problem that they had inevitably to encounter,

which was that Facebook had done itself so much reputational harm around the 2016 election and proceeded and continued to do more reputational harm to itself that it seemed highly unlikely to me that it would succeed in the payments business. And that's why I would have preferred any of the other big tech companies to do it over Facebook. There's also this central point that I made earlier about stable coins. If you say, as they originally did, we're going to have this bunch of fiat currencies, a big basket of fiat currencies sitting in Switzerland,

essentially you're creating a bank. And the thing about social media is it's not really regulated. And the thing about banking is that it's totally regulated. And that means that you're in a totally different environment from Facebook was used to working in, which is why it's taken so long to get this thing off the ground, why they've had to rename it and rethink it. And I remain skeptical that this can really be made to work. Though ultimately, it is a bit odd that we don't have bigger and better ways of paying for things with our smartphones than we do. China definitely got ahead of us there. And it's still not entirely clear to me why the way we pay for things in the United States still remains

quite clunky. I mean, I'm constantly frustrated by the need to write checks or, you know, make online wire transfers, which are costly and slow. I mean, damn it, people, at least get Venmo. Coming up after the break. If you actually only knew three things about planet Earth, if you knew fault lines, major volcano sites, and cities, location of cities, you'd think that humanity has a real sort of penchant for building major conurbations near geologically dangerous places. Stay with us. What software do you use at work? The answer to that question is probably more complicated than

you want it to be. The average US 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. Support for the show comes from Alex Partners. In business, disruption brings not only challenges, but opportunities. As artificial intelligence powers pivotal moments of change, Alex Partners is the consulting firm chief Thank you. across North America and Europe to dig deeper into how tech companies are responding to these changing headwinds. And in their 2024 Digital Disruption Report, Alex Partners found that 88% of executives report seeing potential for growth from digital disruption, with 37% seeing significant or even extremely high positive impact on revenue growth. You can read both reports and learn how to convert digital disruption into revenue growth at www.alexpartners.com. That's www.alexpartners.com. In the face of disruption, businesses trust Alex Partners to get straight to the point and deliver results when it really matters.

Let's talk about your book, Doom, the Politics of Catastrophe. In the book, you argue that all disasters are in some sense man-made. Say more. Well, if a volcano erupts, it's a natural disaster, clearly. If Britain and Germany go to war or China and the United States. That's a man-made disaster. But the thing about the volcano erupting is that if it's an uninhabited island, it doesn't really matter.

But if you've built a bloody great city or a bunch of towns next to the volcano, then it becomes a disaster and significant numbers of people die. So this is an idea that really derives from Amartya Sen, the Nobel laureate economist, who years ago observed that famines are not natural disasters. Sen's point was that famines might have some, their origins in a bad harvest or extreme weather. But ultimately, it's decisions by governments and by private actors. It's those decisions that turn the natural shock into mass starvation. And as I was writing a book about

disasters, I wanted to try and set what we were going through with COVID into a broad perspective. I went back to Sen's original idea, and I thought, well, why would that only be true of famines? Surely in the end, every disaster is at some level politically constructed, even if it's only the decision to build a city by a volcano. And you might say,

well, they didn't know it was a volcano when they first built it. But actually what's fascinating is that, take Naples, every time the volcanoes erupt and there's destruction, they come back and rebuild the city. If you actually only knew three things about planet Earth, if you knew fault lines, major volcano sites, and cities, location of cities, you'd think that humanity has a real sort of penchant for building major

conurbations near geologically dangerous places. So I think this is the key insight that just about every kind of disaster is at some level, a man-made disaster and even things that seem purely natural require human decision-making and human agency to create the disaster of excess mortality. And do you see any disasters forming on the horizon based on poor decision-making now? Well, the key thing about disasters is you can't predict them. You can say that you see them coming. I have my crystal ball here. It looks like a microphone, but it's a crystal ball. I see

global warming coming 12 years from now, the world will end. And this sounds great. And everybody is enraptured because we as human beings love prophecies of doom. We are absolutely into them. All the major religions offer us prophecies of doom. And when we're done with those, we watch science fiction. But you can't predict catastrophes. But they're inherently not possible to predict.

You can't even attach a probability to there being a really, really big earthquake at some point near where I live, as I'm sitting here not too far from the San Andreas Fault. I know it'll happen, but I have no idea when, and I don't know how big it will be. So we don't really have the ability to foresee disasters, but we can either react quickly and effectively when they begin, or slowly and incompetently. And that's really the critical issue. But I'll give you a menu of disaster, Scott. Here are the things that you

could look forward to in the coming years. You could get another pandemic. You could get the consequences of climate change that have been so often discussed. But I think sooner than that, you're more likely to encounter the massive cyber attack that I was talking about earlier. You're more likely to have the big great power conflict that we haven't had in a long time. And then you might get something that you've totally forgotten about, which is a really big volcano. And the thing about really big volcanoes is they do global cooling the way we do global warming, only much faster. We haven't had a huge volcanic eruption in the world since 1815. All the ones since then have been really too small to have major atmospheric consequences. But you could be suddenly catapulted back to a very different

situation if we got a big increase in volcanic activity. So there's a bunch of stuff that we don't think enough about. I could add solar activity to that if I wanted to be fancy. And then there are all the things that we can have go wrong that arise from technological innovation. Not that I think artificial intelligence is suddenly going to start killing us, but you could imagine that as a future scenario and a number of people have. So there are way more disasters to worry about than we do worry about because we have a tendency to fixate on one or two that really interest us and plan meticulously for those. And then we act all surprised and hurt when we get a different disaster.

You also state in the book that you think we're getting worse, not better at handling disasters? Yeah, this is an argument about the relatively recent past. Obviously, in the Middle Ages, we weren't very good at handling disasters because we didn't know what the hell was going on. I mean, nobody really knew what was causing the Black Death in the 1340s. But our scientific understanding massively improved in the 19th and 20th centuries. And we got a lot better at understanding how things like pandemics happen. However, I think if you look at the recent past, like the last 20 years, you'd be bound to conclude that our disaster responses have got worse compared with, let's say, the way the federal government handled disasters in the 1950s when Eisenhower was president. And I'm struck when I look at all the disasters that have happened in the time when I've

been in the United States, going back to 9-11. I came here shortly after that. You can't really say that we've handled any of those disasters very well. It's not like we handled that disaster very well. We embarked on two wars, one in Afghanistan and Iraq, that were incredibly costly. And let's face it, were not a particularly great response to the terrorist attack. Katrina, we didn't handle that well. Financial crisis, no, we didn't handle that very well. And so the pandemic response to me seemed rather familiar, because I've kind of seen this before. The bureaucracy says it has a pandemic preparedness plan. It's 36 pages long and there's a slide deck as well. There are lots of agencies that have pandemic preparedness plans.

And yet when a pandemic actually happens, the U.S. performs terribly in international terms, far, far worse than would have been predicted. I mean, in 2019, the US was ranked number one for preparedness for a public health emergency by the World Health Organization and the Economist Intelligence Unit. We were definitely not number one when a pandemic actually happened. So a big part of the later part of the book is, well, why was that? Why did Taiwan or South Korea handle this so much better than the United States, not to mention a bunch of other Western countries that handled it badly? And that's where it gets interesting, because I think there's a facile answer to that question. And it's not right.

The facile answer is, well, Donald Trump was president and he was an imbecile. And a lot of people are happy to come to the conclusion by implication that if he'd not been president, if Joe Biden had got the job a year early, we'd have done much, much better. I think that's a delusion that will lead us to draw the wrong conclusions from what went wrong last year. When I think of, we do a quick session or a brief session in my brand strategy class on crisis management. And the general rules are acknowledge the issue, top guy or gal takes responsibility and is seen as leading the response. And three, overreact or

overcorrect. Isn't a very simple and crude takeaway from the last year that it was impossible to overreact? In the first phase of the pandemic, when we didn't know much except that there was human-to-human transmission and at least some people died, the right thing to do was overreact. Nassim Taleb had a great paper with Joe Norman and Yanir Bayam right at the beginning saying, you have to act like this is the Black Death. You have to act like it is the movie Contagion, because by acting early, you can actually contain the thing. And it was the slowness of our response that was really the disaster. January, we didn't do anything. February, we did lots of op-eds about why it was really no worse than the seasonal flu. First two weeks of March, still dithering around. Mid-March, panic. And that was happening not only in the US, but in numerous Western countries. So you had to not only overreact, as you put it, but you had to react really quickly. And that's what they did

in Taiwan and South Korea. The Taiwanese didn't even believe the Chinese when they said, oh, there's no human-to-human transmission. They knew that was a lie. And they were really quick to roll out what they had ready in case there was a SARS 2.0. They'd learned some lessons from SARS, and we had not. And therefore, they were really quick to move and very quick to ramp up testing, which we totally failed to do. Very quick to get a contact tracing app up and running in South Korea. And then, of course, what they did that we didn't do was they actually did isolate people who were infected and quarantine people who might be infected.

And we never did that. Now, it's easy to say, well, it was all Trump's fault. But it wasn't Trump's fault that CDC couldn't ramp up testing. That wasn't his fault. That was CDC's fault. So I think looking back, this was a disastrous response that was avoidable. And it can't simply all be attributed to the incompetence of the president, because it was essentially a failure of the public health bureaucracy, A, to learn some lessons from recent events like SARS, and B, to just have a plan that was ready to rumble. The thing that really strikes me when I

look at the events of 2020 is that on paper, we had a plan, many plans. We had an undersecretary for preparedness. It's just that it didn't work, and he didn't have any real ability to influence how it worked when a pandemic struck. This is the pathology that interests me, the fact that our bureaucracy has become very good at generating preparedness plans and very bad at actually making them work when they need to.

I'm curious to get your thoughts as a legitimate historian. I look back on the 20th century and I think about it's the end of World War II. We're angry at our enemies, which is understandable, and we decide to make this historic visionary investment in our enemies and we end up creating these stalwart allies that keep the peace and prosperity in Europe and in Asia. Is there a similar opportunity here to, if you will, kind of storm the beaches of India and Brazil with a vaccine and start getting off our heels and onto our toes and create allies in the Near East and in Latin America

and kind of do what America does or can do? Yes, and I'm glad to see the Biden administration is going with this because it's urgently needed. One important point is that the Western vaccines, I'm thinking particularly of Moderna and BioNTech, the Pfizer vaccine, are just much better in terms of efficacy than the Chinese or Russian vaccines. And that's been a problem so that in Chile, they vaccinated lots and lots of people, but it wasn't terribly effective. They have had similar problems in smaller places like the Seychelles. So it's not just that the world doesn't have enough vaccines. It's that the world doesn't have enough really good vaccines. So yes, I think given the way this virus mutates, the longer we leave it to frolic in countries like Brazil and India and many other southern

hemisphere countries where it's far from finished, the more mutations there will be and the more we risk in encountering a variant that is able to get around the vaccines, or at least requires a significant rebooting of the vaccine and further inoculations. We've been too slow about this. It was always going to be this way because the psychology of America first was actually not confined to America last year. Everybody was basically putting themselves first in their pandemic response, including the Europeans. But when you think about a problem like a pandemic, it clearly is a global problem.

And the failure to have a coherent global strategy for vaccination is going to cost us all in the end. Once again, it's hard to do these things globally. But let's face it, the World Health Organization, whose kind of job this is, did not do a brilliant job last year, not least because it was far too willing to listen to what the Chinese said at the beginning of the pandemic, rather than to draw the obvious inference that something much worse was happening than the Chinese were admitting. Okay, so for our remaining minutes, I want to do a bit of a lightning round with you. First things pop into your head. So biggest winners and losers coming out of COVID-19.

Biggest winners, though they're having a little bit of a whackable moment at the moment, Taiwan, South Korea, those countries have done well. Australia and New Zealand did pretty well, though they're lagging behind with well. Australia and New Zealand did pretty well, though they're lagging behind with vaccines. So I'd say top winners, Moderna and Pfizer-BioNTech. mRNA technology is the big winner of this. And thank God it's Western technology, not Chinese. And by the way, Dogecoin is now worth more than Moderna.

Yeah, that can't be right. You think? Biggest loser, Donald Trump, because Donald Trump would have been reelected had it not been for the pandemic and the way his administration mishandled it. You know, I think it comes down to 20 cents a clout. I think if he had worn a mask and said, hey, we need to get arms around this, wear a mask, I think he would have been reelected. I think it was that simple. It was remarkable that he made that bad judgment, but he was getting some pretty terrible advice. I would have, in his position, made Pence do much more of the heavy

lifting because Pence was well suited to that job, impassive, super calm demeanor, experienced with public administration. And he could have, you know, Obama didn't front up the opioid epidemic, did he? I think Trump's biggest mistake beyond the mask was actually to try to take ownership of the crisis and then fumble it. So advice to your son or a 25-year-old, if what sectors, what industry would you say, look, this is where the wind's going to be at your back? I have five children, four boys and one girl. And I don't give them individual advice. I try to have a diversified portfolio.

One's a banker, one's an artist, one's going into tech. The younger ones are still making up their minds and we'll see where they go. I mean, it's too late to give people advice when they're 25. You've got to give it to them when they're like nine. Okay, advice to nine-year-olds. Advice to nine-year-olds is you really should understand how computers work.

So it isn't just a joke, learn to code. It's too late to learn to code when you're 25, so get in there. And I've been making some headway with a nine-year-old who took like a duck to water to a simple device that introduces the notion of binary switches

very important to get that into people's heads learn languages no matter how much you hate it the more languages you speak

the better your brain will work but above all else the advice to really any age of any age child is read, read, read, read, read. You

can never read too much because you need to enlarge the sample size of human experience. You yourself will not have enough experience, but Proust has had a lot of experience for you. And if you get around to reading Proust, as I finally did this past year, you will learn a lot about the human condition that you could never have found out for yourself. Good segue into the next question. A few pieces of media you would recommend? Pieces of media. You know, I think the way to remain sane is use Twitter to follow the best journalists in the world. Turn off notifications. It doesn't matter what anybody says about you. If you want to know what your friends think about you, you can have notifications from the people who follow you.

But just don't look at the freaking notifications. Just use it like a way to read the best journalists. Follow the best journalists, read what they write. It doesn't matter who they write for. You know, example, Ben Judah, young British journalist based in New York, did a couple of brilliant pieces on Mario Draghi and Ursula von der Leyen, best essays on European politics I've read in

years. And I just came upon them because they're in an obscure publication called The Critic. But, you know, I wouldn't have found that without the way that I use Twitter, but I use Twitter just to follow good writers. That's all I use it for. Neil, how do you relax? You seem very, like, you just come across as a very intense, you come across as intense. How do you relax? Well, I think my father disapproved of relaxation. I play the double bass as part of a band,

A Night in Tunisia, which has been going since we were undergraduates, so many years ago that I don't count them anymore. Music. Music is the great relaxant. And yeah, that can also be lubricated by wine. So there's a need for a little bit of chemical relaxant. And reading.

I mean, I don't watch television. I hardly watch movies anymore. Really? Because I prefer to read. And that is actually the best relaxant because it gets you out of your own nasty little experienced existence into somebody else's. I keep saying last question, so I promise this will be the last question. So the Bay Area, people are saying it's over. You've lived in a lot of different places.

Think of these cities as products or stocks. Are you long or short the Bay Area right now? You know, my brain is telling me short. I mean, especially if we get the wildfire season on an annual basis as bad as last year. But my eyes are telling me long because there's no sign of a mass exodus in the real estate prices. And I spent the pandemic, I spent it in Montana. I think we had a conversation when I was there to get away from the insane way that the Californians regulated life during the pandemic. I mean, closing the parks and beaches, are you insane?

But when you, you know, when you come back to the Bay Area, you're struck by many, many appealing features. I think it's hard to kill a really successful cluster, even with the levels of misgovernment that the Californian Democrats are achieving. Just as you couldn't kill London by bombing it from the air in the 1940s. My sense is that they cannot quite kill the Bay Area. The big earthquake might do it, but it didn't the last time. So I think some clusters have just an indestructible quality. And so, no, I'm going to stay long. I actually was nearly short to the point of leaving, and then I'm like, no so no, I'm going to stay long. I actually was nearly short to the point

of leaving. And then I like, nah, nah, nah, nah. But looking around since my return and thinking about what's likely to happen in the post-pandemic period when, to an extent that we find hard to imagine, things kind of revert to normal, my sense is that it'll turn out that some big names left to avoid some horrible capital gains taxes, but the people who wanted to come in and make it, they're not going anywhere else at this point in really large numbers. I mean, Austin, sure, sure, sure. But yeah, it still doesn't feel over at all in crypto here. It doesn't feel over in payments. Look at Stripe. I don't think Patrick Collison's about to go back to Tipperary.

So I think the key is don't look at where the people are going who've already made the money. Look at where the people are going who want to make the money. And I sense that there's still a net flow of human talent into this area. Neil Ferguson is the Milbank Family Senior Fellow at Stanford University's Hoover Institution. He's also a Senior Faculty Fellow at the Belfer Center for Science and International Affairs at Harvard and a Bloomberg Opinion columnist.

He is the author of 15 books, and his latest, Doom, The Politics of Catastrophe, is out now. He joins us from his home in Palo Alto. Neil, stay safe. Thank you, Scott. Always a pleasure to talk to you. Algebra of Happiness.

One of the things that Neil Ferguson, I just, I think Neil Ferguson is one of those kind of blue flame thinkers that people will be reading about or reading his stuff for a long time. I'm given these written 15 books, but I like how fearless he is. And also anything he says

sounds more intelligent than it is. And it's already very intelligent because of that Glaswegian accent. Isn't that a baller accent? How the fuck? I inherited my father's hair loss, his anger, his bladder problems. I have to pee two or three times a night.

Too much information? Too much information? But I didn't inherit that goddamn accent. Oh my God. God, I can't imagine what an effective salesperson and how much more popular I would have been with that accent in high school. Anyways, instead I was that tall, awkward kid with bad acne.

It was a growth period for me spiritually. Anyway, something he said that struck me was teaching his nine-year-old computers and the importance of computers. And I have, in our household, devices have been a real menace. I think my youngest for a brief time suffered from device addiction. It kind of crept up on us and was chat with their friends or do whatever it is they do. But there's a difference. There's a difference between understanding computers, understanding programming, and spending time on Snapchat. And my 10-year-old has just taken to computers like no one before, and he can set up my computer. And it brings me back to something

that we've discussed before, and that is every father has a vision of what the father-son relationship will be like. And I had this vision that my son would be into sports and wanna watch Game of Thrones with me at some point, and want to surf and do the things that I was interested in. And one of my sons is, and I don't know if he's generally interested in those things or he just wants to impress his dad. My youngest son is really not interested in anything that I'm that interested in. And it's

been disappointing for me. But what you realize is love is essentially taking a deck of cards and throwing it up and letting them land where they land. And kids get to pick those moments of engagement. And that is, if your kid identifies something that they're interested in, you know, what dads are supposed to do is put aside what their vision of fatherhood or shared fatherhood experiences would be and engage that child, create that moment of engagement in what he or she is into. Or put another way, I need to start teaching my kid how to code. That's what he's into. Those moments of engagement are up to the kids, not up to you or the vision of what you think, how these things should play out. Anyways, that struck me. Moments of engagement, they get to decide them. If you aren't having moments of engagement with your kids,

then quite frankly, it's on you. Our producers are Caroline Shagrin and Drew Burrows. Claire Miller is our assistant producer. If you like what you heard, please follow, download, and subscribe. Thank you for listening

to The Prop G Show from the Vox Media Podcast Network. We'll catch you next week on Monday and Thursday. I still, I'm not quite sure in my own mind how one is supposed to pronounce doge coin or is it dog e-coin. But when a joke becomes that valuable, you know you're in a bubble climate. And the bubble climate is characterized always by extremely easy monetary policy. And you know, as a financial historian, that that ends at some point. And when it ends, things can stop being so funny. Did you know that almost 90% of executives see potential for growth from digital disruption,

with 37% seeing significant or extremely high positive impact on revenue growth? In Alex Partners' 2024 Digital Disruption Report, you can learn the best path to turning that disruption into growth for your business. With a focus on clarity, direction, and effective implementation, Alex Partners provides essential support when decisive leadership is crucial. You can discover insights like these by reading Alex Partners' latest technology industry insights, available at www.alexpartners.com. That's www.alexpartners.com. dot A-L-I-X partners dot com slash V-O-X. In the face of disruption, businesses trust Alex Partners to get straight to the point and deliver results when it really matters.

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