Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisntal and I'm Tracy Halloway. So, Tracy, I
Speaker 1: don't know, you're just waking up in Hong Kong. But
Speaker 1: we had a little bit of market volatility to day.
Speaker 1: Do you see that, you know what? I woke up
Speaker 1: to an alert on my phone. Something It's never good.
Speaker 1: Have you ever noticed whenever you get those alerts on
Speaker 1: your phone, it's never anything good. It's always something bad.
Speaker 1: But yes, something about stocks falling. Yes, there's never been
Speaker 1: a good push, that's safe to say. But it is
Speaker 1: June eleventh. We just had this market volatility. Nonetheless, even
Speaker 1: with the volatility, there is this sense that people have
Speaker 1: and maybe it'll change by the time people are listening
Speaker 1: to this episode. Is that the sort of the most
Speaker 1: intense periods of the crisis at least, you know, it's
Speaker 1: not as intense as it was back in early April
Speaker 1: or late March. Yeah. Absolutely, I think that's true. And
Speaker 1: certainly earlier this week we did get another alert, which
Speaker 1: was so I guess sometimes you do get good alerts,
Speaker 1: but the alert was smid regains all its losses for
Speaker 1: the year and basically went back to the highs that
Speaker 1: it was seeing before the coronavirus. So we do have
Speaker 1: a sense, and I think a lot of people will
Speaker 1: attribute it to either the federal Reserve or some of
Speaker 1: the fiscal stimulus measures by the government, that these have
Speaker 1: combined to at least save the stock market, if not
Speaker 1: the real economy. Right, it's still very tb D on
Speaker 1: all that. One of the things, and you and I
Speaker 1: have talked about this tracy, is that in the middle
Speaker 1: of a crisis. One of the things that makes crises
Speaker 1: interesting is it new ideas can emerge. And so often
Speaker 1: when things are growing, people don't want to rock the boat.
Speaker 1: But in the middle the acute phase of a crisis,
Speaker 1: it always feels as though there's openings for sort of
Speaker 1: new ideas, new approaches, and a sort of wide range
Speaker 1: discussion about what the future should look like. Yeah, I
Speaker 1: think that's right. It's funny how there's nothing like losing
Speaker 1: money to make everyone reevaluate their capitalist model. But yes,
Speaker 1: there does seem to be an opportunity in crisis for
Speaker 1: people to start thinking about deep seated issues in their
Speaker 1: respective markets, or the way the economy works, or even
Speaker 1: the political system which is something that we're sort of
Speaker 1: seeing now. Yeah, that's exactly right. So today we're going
Speaker 1: to be talking to a guest who actually got a
Speaker 1: lot of attention. He had this interview when totally viral.
Speaker 1: I think it was back in early April. That had
Speaker 1: to do with Bailouds, and it was very opposed to Bailouds,
Speaker 1: but it was a sort of good example of how
Speaker 1: in the most intense period there is this sort of
Speaker 1: yearning for people uh to offer different ideas than the
Speaker 1: sort of standard approach where we just sort of try
Speaker 1: to u put everything back together again. Yeah, and can
Speaker 1: I just say that this interview was so viral that
Speaker 1: even I in Hong Kong without access to US cable
Speaker 1: TV saw clips of it exactly. So today we're going
Speaker 1: to be talking to Chamath Poli Hapatia. He's the founder
Speaker 1: and CEO of Social Capital. He's the chairman of Virgin Galactic.
Speaker 1: I think he owns a steak in the NBA team,
Speaker 1: the Golden State Warriors. I think there's our there's our
Speaker 1: second time now we've talked to someone who owns part
Speaker 1: of an NBA team, Having talked to Mark Cuban, as
Speaker 1: you mentioned back in April, he uh did this interview
Speaker 1: on CNBC talking about the airline bailouds it's been very
Speaker 1: critical of share buybacks bailouts that, in his view, prop
Speaker 1: up the rich while failing to protect everyday people. Things
Speaker 1: are a little bit less severe right now than they
Speaker 1: were back then, but nonetheless, I think there's still a
Speaker 1: lot of space to be talking about these ideas. So,
Speaker 1: without further Ado Chama, thank you very much for joining us.
Speaker 1: Thanks guys, thanks for having me on. So let's go back.
Speaker 1: I mean, I remember that interview. It absolutely blew up
Speaker 1: all over social media. What was your main message, like,
Speaker 1: what was the thrust of what you saw we were
Speaker 1: doing wrong, both in terms of an economy and in
Speaker 1: terms of the political approach to addressing the crisis that,
Speaker 1: in your view is misguided. Well, I mean, I think
Speaker 1: that we've probably known for a long time that the
Speaker 1: tools that we give politicians to help society function probably
Speaker 1: have never been duller. They typically have a lot of
Speaker 1: unintended consequences, and so my commentary was more of a
Speaker 1: frustration in realizing that this thing was going to meaningfully
Speaker 1: exacerbate what was already a very very skewed economy and
Speaker 1: that the people that needed the help wouldn't get it,
Speaker 1: and that you would see the emergence of a lot
Speaker 1: of perverse incentives that wouldn't really fix the system properly,
Speaker 1: you know, just to know that now we're going to
Speaker 1: deal with the tail many years long of the activity
Speaker 1: of Treasury and the Fed over just you know, what
Speaker 1: was basically four to six weeks of a of a
Speaker 1: drunken binge will play out in ways that will have
Speaker 1: just a lot of unintended consequence, I think. So I'm
Speaker 1: going to declare an interest here, which is that my
Speaker 1: dad is a former pilot, and he was a pilot
Speaker 1: for Southwest Airlines for a long time, and I remember
Speaker 1: distinctly in the early two thousand's after the nine eleven attacks,
Speaker 1: when a bunch of his competitor airlines were getting bailed out,
Speaker 1: he used to get really annoyed and say, why are
Speaker 1: his taxes going to pay his competitors. Of course, fast
Speaker 1: forward to now he's retired, but he still takes a
Speaker 1: big interest in Southwest and of course Southwest Airlines is
Speaker 1: one of the airlines getting a bailout. But what do
Speaker 1: you say to people who will argue that this is
Speaker 1: a short term cash flow problem, and just because people
Speaker 1: have been ordered to stay inside for you know, the
Speaker 1: foreseeable future revenues are drying up. That shouldn't mean that
Speaker 1: companies that are essentially viable should go out of business. Yeah,
Speaker 1: I agree with that. I just think that the incentives
Speaker 1: that the government creates to make sure that those things
Speaker 1: don't happen can be very different um them just giving
Speaker 1: a hand out. And the reason is because that the
Speaker 1: handcuffs that we put on companies when we give them
Speaker 1: these handouts are very brittle. And so what happens in
Speaker 1: the case of airlines specifically, is that, you know, we
Speaker 1: made them sign a pledge that essentially said that they
Speaker 1: wouldn't lay anybody off until I think September, and I
Speaker 1: think what you're going to see is a wave of layoffs,
Speaker 1: and I think American has already announced that it's going
Speaker 1: to happen essentially October one. And so, in no event
Speaker 1: did any of this capital do anything other than just
Speaker 1: dilute the actual problem at hand and confuse us all
Speaker 1: into thinking what the problem was. Because you create a
Speaker 1: problem where you've inflated the money supply, you've you know,
Speaker 1: created more debt all of that debt. It gets spread
Speaker 1: across every single American citizen, and none of us are
Speaker 1: necessarily better off for it. So I think the better
Speaker 1: question to ask is, actually, what could we have done
Speaker 1: to actually help Southwest Airlines or American Airlines, or United
Speaker 1: or Delta and the panoply of other companies that needed
Speaker 1: help to bridge the time between the coronavirus and a
Speaker 1: normal resumption in business. And I think you would have
Speaker 1: come up with a whole bunch of different answers than
Speaker 1: the ones that we came up with, which which is
Speaker 1: essentially was here's a check, Please at least don't do
Speaker 1: anything until near the election, so that we can at
Speaker 1: least look, you know, semi competent. Well, what does that
Speaker 1: look like to you? So we've kind of as a
Speaker 1: if you look at the Federal Reserve and the Treasury combined,
Speaker 1: we've sort of taken a dual track approach, which is,
Speaker 1: provide a lot of liquidity loans to small businesses, loans
Speaker 1: that could potentially turn into grants to keep the corporate
Speaker 1: infrastructure alive. And then for the layoffs that have happened,
Speaker 1: is sort of expanded unemployment insurance so that households can
Speaker 1: maintain their income and buying power during the acute phase
Speaker 1: of the health crisis, and the idea in theory is
Speaker 1: that as the health crisis phades, the businesses were kept
Speaker 1: alive with access to sort of cheap financing, households were
Speaker 1: able to keep their buying power, keep their homes, keep
Speaker 1: paying their rent, keep putting food on the table during
Speaker 1: this period, and then ideally go back to their old jobs.
Speaker 1: And we sort of do that bridge from the past
Speaker 1: to the future. Well, so what is what is the
Speaker 1: ideal of what would the idea of approach been do? So,
Speaker 1: you know, for you and your listeners, how I would
Speaker 1: imagine this is a two two dimensional grid and the
Speaker 1: X axis is something that says short term and long term,
Speaker 1: and the y axis is bottoms up, top down. Look,
Speaker 1: for the last forty to fifty years, we've always believed that,
Speaker 1: you know, a top down reallocation of wealth was the
Speaker 1: only way trickle down economics that was really you know,
Speaker 1: started by Reagan and frankly hasn't changed very much since
Speaker 1: in any presidency thereafter, to be completely honest, um, and
Speaker 1: we've never believed that bottoms up actually works. What I
Speaker 1: would have advocated for was a lot more short term
Speaker 1: bottoms up help, and I think what that looks like
Speaker 1: is guaranteeing wages for basically a lot of individual people
Speaker 1: that would have been put out of work and making
Speaker 1: sure that they have complete financial security to at a
Speaker 1: minimum pay their ongoing repeat bills and at a maximum
Speaker 1: to actually be able to pull forward some amount of
Speaker 1: spending that they would otherwise not do. And the reason
Speaker 1: is because you know, we are not a country that
Speaker 1: relies on government spending to drive the economy, although now
Speaker 1: after these last four or five weeks, you know the
Speaker 1: government is responsible for probably fifty of GDP, which is
Speaker 1: you know, a little crazy. So in the short term
Speaker 1: I would have done something that was a lot more
Speaker 1: bottoms up. Some people would call it u B I
Speaker 1: I don't think we need to label it, but I
Speaker 1: do think that hand money in the hands of consumers
Speaker 1: would have been a much smarter strategy. And then over
Speaker 1: the long term, I do think that top down really
Speaker 1: works and long term change. Top down is all about
Speaker 1: incentives and tax policy, and I think the right thing
Speaker 1: to have done there would actually be to make it
Speaker 1: uh much more profitable and credible for companies to spend
Speaker 1: on things like R and D to you know, not
Speaker 1: fritter away the cash profits they have today via buy backs.
Speaker 1: You know, all these idiotic basically activities, which is the
Speaker 1: tool kid of the dumb CEO. And if you actually
Speaker 1: force some intelligent long term planning and thinking at the
Speaker 1: board level and at the CEO level and tie compensation
Speaker 1: to things that are truly long term versus EPs, you
Speaker 1: would change those incentives as well. So if I was
Speaker 1: the government, I would have spent trillions of dollars on
Speaker 1: giving money to individual citizens, and then I would have
Speaker 1: spent several trillion dollars of tax incentives that told companies, hey, listen,
Speaker 1: I'll give you a short term loan, but in return
Speaker 1: you must sign up for the following idea. You must
Speaker 1: spend at least fifteen or twenty percent of your profits
Speaker 1: on R and D. You must actually say fifteen in
Speaker 1: a rainy day account for the future. You must guarantee
Speaker 1: the pensions. There are all these things that you could
Speaker 1: have done. None of those things were done. You know
Speaker 1: two thirds of the SMP five hundred do have an
Speaker 1: R and D budget. How is that possible? I definitely
Speaker 1: want to talk about the idea of the idiot CEO
Speaker 1: manufacturing short term EPs growth, but just before we do.
Speaker 1: When it comes to government policy, it did feel like
Speaker 1: there was a sense that in the worst of the crisis,
Speaker 1: people were trying to act relatively fast. And when people
Speaker 1: like that are trying to act relatively fast within a
Speaker 1: very defined political system, they tend to reach for things
Speaker 1: that already exist, or they reach for fiscal tools that
Speaker 1: they've used before. How would you encourage politicians specifically to think,
Speaker 1: you know, slightly more creatively when they faced this sort
Speaker 1: of time sensitive crisis and start thinking about new ways
Speaker 1: of tackling the idea or tackling the problem. Well, the
Speaker 1: things that we did were actually completely novel and new.
Speaker 1: U b I wasn't a concept that existed until you know,
Speaker 1: we decided to give to every uh, every American. You know.
Speaker 1: We we had no concept that the FED would be
Speaker 1: impowered or to basically use a bunch of cash, lever
Speaker 1: it up and enter the capital markets and by debt
Speaker 1: of all kinds of maturities to be able to pick
Speaker 1: off you know, debt that's actually you know, degraded in
Speaker 1: quality and credit worthiness to buy e t s. These
Speaker 1: were all new things that none of US had ever
Speaker 1: seen before. So I think that they know clearly invented things.
Speaker 1: I just wish they would have invented smarter things. When
Speaker 1: I ever I saw your your interview a Railian against
Speaker 1: the bailout, I tweeted something kind of cynical, but I
Speaker 1: also kind of wonder what the deal is. So you're
Speaker 1: the chairman of Virgin Galactic. The ticker is SPC, which
Speaker 1: kind of sounds like space, except that you've said in
Speaker 1: the past that the sort of at least medium term
Speaker 1: likely business model is something that can heat's not actually
Speaker 1: going into space, but terrestrial travel that could be like
Speaker 1: a much better version of business class, much faster, potentially
Speaker 1: more economical than traditional business class. Do you feel that
Speaker 1: you have a incentive or that you the company of
Speaker 1: which your chairman is a competitor of these companies that
Speaker 1: you were calling out against their bailout. You know, we
Speaker 1: we have a lot of work to do before we
Speaker 1: build a hypersonic airplane. And just to give you a
Speaker 1: sense of it, um, a hypersonic airplane is something that
Speaker 1: flies at nine to a hundred and ten thousand, hundred
Speaker 1: and twenty thousand feet. The spaceship that we have today
Speaker 1: flies up to three fifty feet. So we're in the
Speaker 1: business of spaceships, and we will be for a very
Speaker 1: long time. It's just that when you're in space, the
Speaker 1: physics are such that flying from here to Beijing is
Speaker 1: not nearly as troublesome as when you're flying at thirty
Speaker 1: thousand feet. And so obviously long term, you know, we
Speaker 1: can enable a different form of travel that's not possible
Speaker 1: by basically going so high into the into the atmosphere
Speaker 1: that a lot of the practical difficulties of traditional planes
Speaker 1: are not the problems that we would face. But I
Speaker 1: really do firmly believe we're in the business of spaceship.
Speaker 1: It's just that those spaceships can be used for a
Speaker 1: whole host of different applications, including point to point what
Speaker 1: you call that. I guess we can get sonantic and
Speaker 1: call it an airplane if you want. So you are
Speaker 1: kind of in I mean in theory in terms of
Speaker 1: like a revenue model, they would be your competitive Maybe
Speaker 1: just on one more cynical note, but you're talking about
Speaker 1: government policy. Sorry, sorry to throw this all out at
Speaker 1: you at the beginning, but um, you're talking about government
Speaker 1: policy and central bank policy distorting economies and potentially distorting markets.
Speaker 1: A lot of people would say that venture capital has
Speaker 1: benefited enormously from the kind of central bank liquidity that
Speaker 1: we've seen in recent years, and that because of it,
Speaker 1: you've had a lot of money that can continuously fund
Speaker 1: a lot of loss making tech enterprise. How do how
Speaker 1: do you respond to that? Yeah, you're right. I mean
Speaker 1: there's there's no point putting lipstick on a pig. Like
Speaker 1: let's let's be honest about what's happened. You know, starting
Speaker 1: in two thousand and eight and two thousand and nine,
Speaker 1: we printed an enormous amount of money. The United States
Speaker 1: government stepped into financial markets and basically told investors, listen,
Speaker 1: I'm going to take the things that you have and
Speaker 1: give you U S dollars in return. Those investors, in
Speaker 1: turn took those US dollars and said, well, I can
Speaker 1: do three things with it. One is nothing, two as
Speaker 1: I can buy bonds, or three as I can buy stocks.
Speaker 1: And what has happened is we've had the most incredible
Speaker 1: market that we've ever seen. Along with that, what that
Speaker 1: gives investors is an enormous amount of confidence because they
Speaker 1: will conflate luck and skill. They think that they were
Speaker 1: geniuses in picking stocks, and we don't really you know,
Speaker 1: take into account is we we have this huge behemoth
Speaker 1: behind us, you know, giving us a massive tail wind
Speaker 1: in that. What happened was a bunch of you know,
Speaker 1: um investors decided that they needed more liquid exposure to
Speaker 1: get even better returns, and so they pumped enormous amounts
Speaker 1: of money in private equity. Now what did those private
Speaker 1: equity companies do. They went back and issued more debt,
Speaker 1: bought companies, fired people, you know, pillaged balance sheets. They
Speaker 1: also then decided that venture looked interesting, and they tripled
Speaker 1: and quadrupled the amount of money that's gone into venture.
Speaker 1: What do venture capitalists do? They respond to those market
Speaker 1: dynamics and they raise larger and larger funds, doing dumber
Speaker 1: and dumber things so that they can get the money
Speaker 1: while the getting is good. I mean, this, this problem
Speaker 1: of people very quickly reverting to lowest common denominator behavior
Speaker 1: in search for money is tried and tested and true
Speaker 1: and has been true for hundreds of years. And you know,
Speaker 1: I don't think venture capitalists are any more virtuous than
Speaker 1: anybody else. And so that's absolutely what they did. But
Speaker 1: if you trace it all back. How did it start?
Speaker 1: It started with the United States government deciding to print
Speaker 1: trillions of dollars. Now, ask yourself, what happens in two
Speaker 1: thousand and twenty five when you look back at two
Speaker 1: thousand and twenty and realized that, you know, we printed eight, nine,
Speaker 1: ten trillion dollars. When it's all said and done, almost
Speaker 1: fifty of a year's worth of GDP UM. So, whatever
Speaker 1: has happened in the last ten years, I suspect in
Speaker 1: the absence of some cataclysmic market realization, um, we are
Speaker 1: we are going to go to heights that you didn't
Speaker 1: think were possible from you Well, let's talk about right now.
Speaker 1: So obviously you have a lot of different purchase via
Speaker 1: which you see the economy. Early June, most people would say, okay,
Speaker 1: things are not as dire looking as they were in uh,
Speaker 1: early April. But how from your various businesses and your
Speaker 1: various roles including sports and so forth, what's your assessment
Speaker 1: of the economy me and its trajectory? And you feel
Speaker 1: like we're on a path regardless of the incentives that
Speaker 1: policies created towards something resembling the pre crisis economy, or
Speaker 1: were still a long way from that in your view.
Speaker 1: So the first thing to remember is that typically the
Speaker 1: way that markets behave in the face of a recession
Speaker 1: is can be can be sort of seen over about
Speaker 1: six quarters. I'm just gonna make the math simple. Six quarters.
Speaker 1: And in the first two to three quarters the markets
Speaker 1: trade down, and they trade down because people are trying
Speaker 1: to figure out when the bottom is, and you know,
Speaker 1: the economy is contracting, and then it's contracting a little
Speaker 1: bit more, and then it contracts yet a little bit more.
Speaker 1: But it's that last quarter where we have been taught
Speaker 1: as normal traditional market participants in the middle of a
Speaker 1: recession to buy and that's the term. And then you
Speaker 1: get the next two or three quarters of massive ripping
Speaker 1: equity prices, and then the economy returns to normal and
Speaker 1: then you get back to judging companies based on normalized elearnings.
Speaker 1: If you had said a priority this event, how would
Speaker 1: people react to our session, That's what they would have said.
Speaker 1: They would have said, Okay, we are in for two
Speaker 1: to three quarters of a draw down and then uh,
Speaker 1: you know, the markets will turn and rip back over
Speaker 1: two to three quarters. Instead, what we did was shut
Speaker 1: down the economy and we took it to zero. So
Speaker 1: from a very basic level, it actually couldn't get any
Speaker 1: worse than the first quarter. And you know when then
Speaker 1: you again supercharge it with all the money that the
Speaker 1: Fed gave us. This is why we've had such a
Speaker 1: such an indiscriminate rally going into early June. Now all
Speaker 1: of that said, my large and more broader market framework
Speaker 1: still applies, which is at their thrip, typically three phases
Speaker 1: of a market. And the way that I think about
Speaker 1: it is, at first, you reflect the worst and everybody
Speaker 1: assumes the worst, and you have to basically manage to
Speaker 1: the absolute worst case scenario. But that's all psychological, and
Speaker 1: in all of that, what happens is people realize that
Speaker 1: they overreacted, as they always do. And then what happens
Speaker 1: is you start phase two, which is you priced the news,
Speaker 1: and what that means is you become a little bit
Speaker 1: more sober, you become a little bit more thoughtful, You
Speaker 1: take a little bit more time, and you try to
Speaker 1: really understand what's happening and try to really weigh the
Speaker 1: balance of things that are happening and be a little
Speaker 1: bit more judicious in your decision making. And then you
Speaker 1: enter the third phase, which is then you harvest profits,
Speaker 1: and you can be harvesting profits for a year, for
Speaker 1: ten years. You know, you could wait till the last
Speaker 1: month of the tenth year. But the point is that
Speaker 1: then you're really in a position where markets are trending
Speaker 1: higher and you can safely be a holder and a
Speaker 1: net seller and make money. I think where we are
Speaker 1: is we're in the middle of phase one and two.
Speaker 1: We reflected the worst in March, and what we're still
Speaker 1: trying to find is our version of the truth, and
Speaker 1: so we're testing theories in the marketplace right now. We're
Speaker 1: pricing the news, trying to see how people react. So
Speaker 1: we just spent the last six weeks pricing the news,
Speaker 1: which is that there's a v shape recovery and everything
Speaker 1: is going to be great. Uh, then you know, George
Speaker 1: Floyd happened, and it's unlocked a level of discomfort in
Speaker 1: the in the again, the real world, we've had a
Speaker 1: spike in coronavirus cases in the last two to three weeks,
Speaker 1: and I think now the market is going to price
Speaker 1: a different kind of news, which is that this is
Speaker 1: going to be tumultuous and that it's not going to
Speaker 1: be a clean recovery and that there's a lot more
Speaker 1: uncertainty to come. And I think that over the next
Speaker 1: probably two to three weeks, we're going to play around
Speaker 1: with that model of how the market should work to
Speaker 1: see if that works. In general, my perspective is that
Speaker 1: unfortunately for us, the amount of money that the Fed
Speaker 1: is printed mutes and masks any of these things, and
Speaker 1: so the tendency will be for the markets to trend
Speaker 1: higher going into the fall, into the election, just zooming
Speaker 1: out from markets. Uh. In one of your investor newsletters,
Speaker 1: you were talking about how you were viewing a sort
Speaker 1: of parallel with with what's happening now and a moment
Speaker 1: in time from US history, which was the Gilded Age.
Speaker 1: Can you walk us through that parallel, because I think
Speaker 1: it's really interesting, Um, you know, the Gilded Age? Uh.
Speaker 1: And basically this is the late eighteen eighteen hundreds, turn
Speaker 1: of the turn of the nineteen hundreds. What we saw
Speaker 1: was a handful of industries really represent all the success
Speaker 1: in the world, specifically the railroads, and a handful of
Speaker 1: industrialists that were personified with both greed and villainy in
Speaker 1: many ways for being at the center of those industries
Speaker 1: and it's not dissimilar to how tech is viewed or
Speaker 1: has been viewed going into this pandemic. But what really
Speaker 1: happened was, you know, there was there was pushback against immigrants,
Speaker 1: there was pushback against women's rights, there was pushback against
Speaker 1: labor organization. But eventually what happened was there was a
Speaker 1: pushback against trust busting. There was you know, a movement
Speaker 1: for labor rights, for women's rights, for immigrants, for high schools.
Speaker 1: You know, organized high schools didn't exist until the late
Speaker 1: eighteen hundreds, etcetera. All of this is to say that,
Speaker 1: you know, we sort of had a short term bottoming
Speaker 1: in the pure form of capitalism that had preceded it,
Speaker 1: and we layered capitalism with a lot more social consciousness.
Speaker 1: And I believe that we're in that progression right now,
Speaker 1: and I think that you know, in the next four years,
Speaker 1: it really irrespective of which whoever holds the presidency between
Speaker 1: is the bottoming of the top down, trickle down economic process,
Speaker 1: you know, largely defined by a gerontocracy who will eventually
Speaker 1: recede into the you know, annals of history and will
Speaker 1: be replaced by young progressives on both the right and
Speaker 1: the left, and so by four and beyond through I
Speaker 1: think we're gonna see a rise in progressive ideals and
Speaker 1: arise in social consciousness, a more responsible approach that looks
Speaker 1: at every human inside of the United States as roughly
Speaker 1: equal and asks ourselves what we have to do. A
Speaker 1: lot more trust busting of big companies, higher taxes for companies.
Speaker 1: All of those things I think are in there are
Speaker 1: sort of like, you know, what I expect to happen
Speaker 1: over the next five to ten years. Let's talk about
Speaker 1: that further, particularly from the perspective of the tech world.
Speaker 1: You're at Facebook for a long time. Facebook is in
Speaker 1: many ways at the center of a lot of these
Speaker 1: a lot of these tensions because so much information flows
Speaker 1: through Facebook. There's tension with inside Facebook, different views on
Speaker 1: how it should regulate itself and regulate speech, or how
Speaker 1: much it should just be a completely open platform. There's
Speaker 1: also you mentioned trust busting. I'm sure I know there's
Speaker 1: a lot of people who want Facebook to be broken up.
Speaker 1: But give us your take on Facebook's role right now
Speaker 1: and how it should first of all, how internally, how
Speaker 1: management should be in your view, addressing some of these
Speaker 1: thorny issues about what it should allow on his platform,
Speaker 1: and then also perhaps your view on what a policy standpoint,
Speaker 1: the rest of society, politicians and I trust experts should
Speaker 1: how it should go about regulating placebook. Let me answer
Speaker 1: it in the context of all of big tech, so Google, Facebook, Apple, Amazon, Microsoft.
Speaker 1: To my answer is that these guys should, um try
Speaker 1: to continue to build the most value for consumers and
Speaker 1: try to give as much of that away as cheaply
Speaker 1: or as freely as possible, because it is the only
Speaker 1: path to maintain consumer loyalty. Um. You know, the tech
Speaker 1: sector has largely been responsible for a decade of deflation.
Speaker 1: You know, they have taught consumers not to spend money
Speaker 1: because you get great things for free, and tomorrow you'll
Speaker 1: get even more great things for free. That's an inherently
Speaker 1: deflationary set of behaviors and dynamics that that largely the
Speaker 1: tech the tech industry has created. The other reality, those
Speaker 1: that governments, I think have two very practical issues. The
Speaker 1: first is that big tech threatens their ability to govern,
Speaker 1: and the second is that big tech is collectively more
Speaker 1: economically viable than most governments. And so what you see now,
Speaker 1: for example, if you look in Australia, is a much
Speaker 1: more aggressive taxation and policy regime in Europe, a much
Speaker 1: more aggressive taxation and policy regime. Um, we've heard that
Speaker 1: the fifty A G s plus the federal dj who
Speaker 1: seemingly couldn't agree on anything, has agreed to try to
Speaker 1: trust Bus Google. You know, in France, they tried to
Speaker 1: tax Amazon or they're going to tax you know, the
Speaker 1: dollars that they make their through Amazon Prime. So this
Speaker 1: is the beginning of this trend. You know, local, state
Speaker 1: and federal governments all around the world are the poorest
Speaker 1: they've ever been, and these five or six companies are
Speaker 1: the richest they've ever been, and so it sets them
Speaker 1: on a collision course. That's pretty obvious, and what I
Speaker 1: think the markets are doing right now is trying to
Speaker 1: fight the obvious. If you look at, for example, the
Speaker 1: the weighted SNPI market cap versus the unweighted, what that
Speaker 1: means is every company is worth the same versus every
Speaker 1: company is worth what their market cap is worth. The
Speaker 1: weighted market cap has completely dispersed from the unweighted, which
Speaker 1: is to say that, you know, the big five tech
Speaker 1: companies have completely ripped and the rest of you know,
Speaker 1: the four other companies in the SNP five have been
Speaker 1: kind of sitting on their hands. And the reason why
Speaker 1: that lollygagging is happening in the capital markets is that
Speaker 1: market participants don't want to believe that it's true that
Speaker 1: the future profitability and long term profit capture of these
Speaker 1: businesses will stay intact. The practical reality is that when
Speaker 1: you look at what's happening, just by reading the news,
Speaker 1: you can see that, you know, there's not much recourse
Speaker 1: for these companies over time once the government decides that
Speaker 1: they're going to get their pound of flesh. So it's
Speaker 1: pretty obvious from my perspective. I don't think that it's
Speaker 1: the consensus you um, but if you know, if you
Speaker 1: had to basically trade that news, what I would tell
Speaker 1: you is that you're over time, especially as we rally,
Speaker 1: you'll see more dispersion of these five companies relative to
Speaker 1: the rest. And that's when you want to get short,
Speaker 1: because that's when the the spread will collapse at some point,
Speaker 1: when enough of these lawsuits basically you know, trigger a
Speaker 1: realization that a bunch of these things will get broken
Speaker 1: up and taxed and over taxed, and it's just going
Speaker 1: to be an ugly position I think for big tech overtime.
Speaker 1: So you're talking about obviously inequality in society, but also
Speaker 1: inequality in companies, you know, between the big ones like
Speaker 1: the Thing stocks and some of the others, And you
Speaker 1: think eventually a lot of that is sort of going
Speaker 1: to get worked on or worked out in a similar
Speaker 1: way to what we saw I guess during the progressive
Speaker 1: era after the Gilded Ages. That sort of the thesis
Speaker 1: UM in some ways. Yeah, I mean I don't think.
Speaker 1: I don't think it's going to look exactly the same UM.
Speaker 1: Like I said, I think that you know, at that time,
Speaker 1: these were all domestic companies with domestic motives, and there
Speaker 1: were fewer actors to really manage. This time around, you're
Speaker 1: talking about global companies with um you know, global balance
Speaker 1: sheets and hundreds of regulators you know, up and down
Speaker 1: the value chain at the federal, state, and local level
Speaker 1: all around the world that will want their pound of flesh.
Speaker 1: So it's just inevitable. From the internal side, How do
Speaker 1: you think Mark Zuckerberg or some of these CEOs who
Speaker 1: are trying to wrestle this very strange role in which
Speaker 1: they're sort of de facto governments unto themselves, who have
Speaker 1: to set norms and their own lines of what they
Speaker 1: think is appropriate speech. How should they go about adjudicating
Speaker 1: these questions, because of course there are a lot of
Speaker 1: people inside Facebook that would love to see it. Depends
Speaker 1: on the lens in which you want to view it.
Speaker 1: But if you're running a big tech company, you have
Speaker 1: two options. Option one is um to hold on for
Speaker 1: dear life um and and basically, you know, wait until
Speaker 1: they come knocking. Or option two would be to do
Speaker 1: it yourself so that you can control the outcome better.
Speaker 1: For example, if you take Amazon as an example, you
Speaker 1: could make a case that Amazon could spin out a
Speaker 1: WS into its own entity right now and have some
Speaker 1: kind of an agreement that they define between them and
Speaker 1: and Amazon Retail, versus having it done to them by
Speaker 1: the d J. You know, you could make a claim
Speaker 1: that you know you could spin out Skype from Microsoft,
Speaker 1: or that you know, Gmail and the Google Ads business
Speaker 1: and YouTube should all be three separate entities, each individually
Speaker 1: traded um where you know the agreements and the bilateral
Speaker 1: sharing or trilateral sharing agreements of data are defined by
Speaker 1: them themselves. Or you can just wait and have it
Speaker 1: done to you in the absence of anything else. UM.
Speaker 1: I think it makes all the sense in the world
Speaker 1: to wait. It's not necessarily what is the moral answer,
Speaker 1: and it's not necessarily what the companies or employees may
Speaker 1: want you to do. But it's absolutely the thing that
Speaker 1: maximizes market cap in the short term, because that also
Speaker 1: maximizes your influence in the short term, which then probably
Speaker 1: gives you a sensation that maybe you can change the
Speaker 1: outcome if all this were to happen, if you saw
Speaker 1: some of the big tech giants start to get broken
Speaker 1: up or reined in a little bit, how how harmful
Speaker 1: is that for their business models? I guess I'm asking
Speaker 1: how much of their business model is predicated on having
Speaker 1: basically a monopoly over certain sets of data. Yeah, I
Speaker 1: mean I think that you probably see a whole host
Speaker 1: of other competitors. Look you, you know. The thing to
Speaker 1: keep in mind is that the UM technology ecosystem typically
Speaker 1: has swung, you know, as a pendulum between these two poles.
Speaker 1: Poll number one is, you know, a few companies highly integrated,
Speaker 1: and then the other the other spectrum, the other end
Speaker 1: of the spectrum is a highly highly fragmented ecosystem of
Speaker 1: many small players. And we've done this twice already on
Speaker 1: the Internet. I think in general, a smaller set of
Speaker 1: five or six large tech companies just means that there
Speaker 1: will be you know, hundreds of smaller businesses that sort
Speaker 1: of more cooperate nicely together and you know, have very
Speaker 1: clean interfaces and very clean data sharing rules, and you know,
Speaker 1: there's a little bit more transparency and how you're you know,
Speaker 1: how individual consumers are being tracked, and there's you know,
Speaker 1: there's there's better interoperability. That becomes very important when you
Speaker 1: have a fragmented ecosystem. But in general, I think it's
Speaker 1: better for innovation, it's better for consumer choice. It's just
Speaker 1: not good for you know, market cap of a few
Speaker 1: folks and then the holders of those businesses as well,
Speaker 1: because then they have to go and you know, figure
Speaker 1: out where to reallocate that capital. Jamal, you mentioned a
Speaker 1: little bit ago the killing of George Floyd and the
Speaker 1: tensions that we've seen since then. You yourself, I've seen
Speaker 1: on Twitter have been very critical of the police state
Speaker 1: and how we do law enforcement in this country. I'm
Speaker 1: curious if you could talk a little bit more about
Speaker 1: what tech of Silicon Valley can contribute to accelerating change,
Speaker 1: because I think you hear a lot from tech leaders
Speaker 1: about the importance of diversity, and more companies have published
Speaker 1: diversity numbers and things like that. But from your perspective,
Speaker 1: in terms of putting things into practice that would make
Speaker 1: a difference both internally and for society, where do you
Speaker 1: see tech falling short still and what more of substance
Speaker 1: could be done. Look, um, this is a very delicate topic,
Speaker 1: and UM, I don't exactly know how to address it,
Speaker 1: to be quite honest. It's something that I've been thinking about.
Speaker 1: You know, it's really caused me a lot of anxiety
Speaker 1: actually the last couple of weeks, because when you see
Speaker 1: that stuff, both the Amy Cooper video and then the
Speaker 1: George Floyd incident back to back. You know, for all
Speaker 1: of us that are minorities, it triggers, you know, all
Speaker 1: the many slights and inconsistencies and behavior that we've observed
Speaker 1: and you know, have been done to you and have accumulated,
Speaker 1: and you you normalize them because that's what it takes
Speaker 1: to live a normal life and be a participant in
Speaker 1: society without sort of seeing you know, embittered. But I
Speaker 1: think the real the real change isn't necessarily for a company,
Speaker 1: but it's for the majority, you know, ruling class, and
Speaker 1: those are to be honest white folks. You know. The
Speaker 1: analogy I made to a friend is if your child
Speaker 1: came to you and said, you know, I'm being bullied,
Speaker 1: is that the child's responsibility or the parents responsibility to
Speaker 1: do something. If you had a very close friend and
Speaker 1: she said to you, you know, I've been sexually assault
Speaker 1: to is it her responsibility to fix it or is
Speaker 1: it our society's responsibility to actually, you know, educate people
Speaker 1: and train folks to be more respectful. And I think
Speaker 1: this is sort of what it comes down to to
Speaker 1: kind of like point to an industry and say, folks
Speaker 1: need to do better. I think MS is the mark.
Speaker 1: This is a societal issue that's that's kind of been
Speaker 1: left unaddressed for a long time. And um, I think
Speaker 1: people feel very sensitive about it on both sides. If
Speaker 1: you're a person of color, you know, you feel at
Speaker 1: points shame, anger, resentment. If you're not a person of color,
Speaker 1: sometimes you feel grief, shame, resentment, fear, discomfort. And I
Speaker 1: don't really have a very good answer. I wish I
Speaker 1: could give you an articulate sense of what needs to happen.
Speaker 1: Except that it is up to the folks who recognize
Speaker 1: that it's wrong, but who are not the ones on
Speaker 1: whom these injustices are put on to do something about it.
Speaker 1: I can tell you one story, which is at after
Speaker 1: nine eleven. You know, I hated getting on a airplane
Speaker 1: and I still do because people look at you like
Speaker 1: you're going to blow the plane up. I mean literally,
Speaker 1: and you know, knowing me and knowing who I am,
Speaker 1: you can imagine it's the furthest thing from the truth
Speaker 1: and on my mind, and it's it's just it's just
Speaker 1: a very very simple example because it doesn't really even
Speaker 1: come close to the magnitude of what black people deal
Speaker 1: with in America. But it's just an example. And I
Speaker 1: used to have S S S written on my boarding
Speaker 1: pass and it was there for years. I could have
Speaker 1: been flying business class, first class economy, domestically, internationally, one
Speaker 1: way return, it didn't matter. And uh, I would always
Speaker 1: get these guys that were kind of like very kind
Speaker 1: of like physically patting me down, and you know, it
Speaker 1: just would delay me for hours, it seemed, and you
Speaker 1: just feel so helpless and targeted. And what happened was
Speaker 1: I told a coworker at the time of mine who
Speaker 1: work today. Oh well, white guy, And what's so sad
Speaker 1: about this incident was I was not ashamed. I was
Speaker 1: just I didn't know what to do. He was so
Speaker 1: angry he wrote the same letter that I wrote to
Speaker 1: United and then all of a sudden, the SSS was
Speaker 1: gone from my boarding past. It's a very simple example,
Speaker 1: and it's not to take away from the severity of
Speaker 1: of what the real issues are. But my point is
Speaker 1: in that example, like you know, people of color sometimes
Speaker 1: feel helpless, and it's the non people of color that
Speaker 1: have to do something because you're just more credible at times,
Speaker 1: and you're taking more seriously in a way where it
Speaker 1: doesn't seem like we're complaining. And I don't feel like
Speaker 1: I've ever complained in my life. But it makes you
Speaker 1: feel pretty worthless, you know. You know, you get pulled
Speaker 1: over by the cops ten times. I remember, like, I
Speaker 1: have a driver now, and I told somebody. They asked me, like,
Speaker 1: why do you have an Asian guy as your driver?
Speaker 1: And I said, well, if it was another person of
Speaker 1: color driving me, we would get pulled over in my car.
Speaker 1: If it was a white person driving me, people would
Speaker 1: think that, you know, maybe I had sort of car
Speaker 1: jacked this car, and I've found through iteration of not
Speaker 1: getting pulled over that this is the sequence that allows
Speaker 1: me to do it. And I I did that. The
Speaker 1: reason I did that was because I was so ashamed
Speaker 1: of getting pulled over. So off. These are all these
Speaker 1: little things, These are the things that accumulate rust in
Speaker 1: a person's mind, and it's hard to overcome that stuff.
Speaker 1: And it's hard to explain it to guys like you,
Speaker 1: because I'm sure you never understand what that means. You know,
Speaker 1: when you talk to when I talk to my black friends,
Speaker 1: it's it's not a if, it's a when was the
Speaker 1: first time that a policemen pulled a gun on you?
Speaker 1: Can you imagine? I can't imagine that. So, you know,
Speaker 1: what I just told you was a one on the scale.
Speaker 1: What they're dealing with is a thousand on the scale.
Speaker 1: And so I think it's up to you guys to
Speaker 1: solve that problem. It's not a tech industry problem. This
Speaker 1: is not an industry defining thing. This is a racial problem.
Speaker 1: I think, Uh, it is a great spot to leave
Speaker 1: it there, and I really appreciate you joining us. Appreciate
Speaker 1: your perspective, appreciate your outspokenness. I enjoy following you on
Speaker 1: Twitter and Chama. Thank you very much for joining us.
Speaker 1: Thank you very much. Thanks take care of yourselves. So
Speaker 1: I really like that conversation. I mean often, you know,
Speaker 1: what would first catalyze the discussion or wanting to have
Speaker 1: him on was the whole question about bailout. And I'm
Speaker 1: often pretty cyndical about the sort of some of the
Speaker 1: old let's let it go no bailoud nobi allouds for
Speaker 1: the rich discussion, because I often get the impression that
Speaker 1: it's sort of this desire among people with money to
Speaker 1: um buy assets on the cheap or implicitly. But I
Speaker 1: really don't think that that is that's his angle anyway. No,
Speaker 1: you definitely don't get that sense. It is interesting to
Speaker 1: see a venture capitalist piece so thoughtful on a number
Speaker 1: of these topics. So he's talking about inequality and society
Speaker 1: as well as between companies like the Big Bang stocks
Speaker 1: and others, and also trying to decide, trying to think about,
Speaker 1: trying to parse ways to fix a lot of societal
Speaker 1: and economic issues. You don't see that very often. I
Speaker 1: feel like you see a lot of like you see
Speaker 1: a lot of venture capitalists who like to talk about
Speaker 1: making the world a better place, but not necessarily in
Speaker 1: these terms and with as much sincerity. No, exactly right,
Speaker 1: And often there is this view that it's sort of like,
Speaker 1: I don't know, it's a sort of quasi libertarians, sort
Speaker 1: of like leave us alone and let us build, right,
Speaker 1: let us build this thing. And I think it's interesting
Speaker 1: that he's specifically talking about the need for, or the
Speaker 1: likelihood of more aggressive taxation. There is reincredible constant right
Speaker 1: rating tech in from a sort of like very substantive way,
Speaker 1: taking the money, and it's gonna in his view, I mean,
Speaker 1: people have been predicting it for a while. Maybe it won't,
Speaker 1: maybe it will happen. But the tension that he sets up,
Speaker 1: especially state and local government that are already sort of
Speaker 1: stretched on cash and are gonna it's gonna be much
Speaker 1: worse due to this crisis. This idea that this um
Speaker 1: this tension is coming, or this class this inevitable clashes coming,
Speaker 1: I found to be pretty compelling. Yeah, and I can
Speaker 1: kind of see it going either way, because, of course,
Speaker 1: in a crisis, like we were discussing, sometimes people want
Speaker 1: to preserve whatever the industries are that are actually making money,
Speaker 1: and tech, as we've seen, has still been doing reasonably
Speaker 1: well because it's insulated from the coronavirus quarantine measures and
Speaker 1: the stocks have been doing really great. But on the
Speaker 1: other hand, because of the social discord that's been sparked
Speaker 1: by everything that we've seen in the past month the
Speaker 1: or so, you could also see a lot of the
Speaker 1: public anger eventually aligning on big tech. So again, it's
Speaker 1: gonna be really interesting to see which way it goes. Yeah,
Speaker 1: and I feel like that's like, you know, we've been
Speaker 1: doing a number of episodes that are kind of about
Speaker 1: this question of like do we return to normal or
Speaker 1: do the events of are they so profound that they
Speaker 1: meaningfully reshape policy? And we've talked about it with trade policy,
Speaker 1: we've talked about fiscal policy, but I think this sort
Speaker 1: of question of whether we really as a society go
Speaker 1: after huge power centers is another really big aspect of
Speaker 1: that question. Yeah. Absolutely, you know, it will be fun
Speaker 1: in ten years or so if we listen to a
Speaker 1: bunch of old All Thoughts episodes from and just see
Speaker 1: how a lot of these issues eventually got resolved. That'd
Speaker 1: be fascinating. We have to get Laura, the producer, to
Speaker 1: schedule those and out in so we could do the
Speaker 1: ten years look back. Laura, please make us a time
Speaker 1: capsule of All Thoughts episodes and bury it somewhere in
Speaker 1: the Bloomberg office so that we can find it in
Speaker 1: dig it up and listen to everything. Of course, not
Speaker 1: a problem at all, Thank you. Ally. Should we leave
Speaker 1: it there? Yeah, let's do that. This has been another
Speaker 1: episode of the All Thoughts podcast. I'm Tracy Alloway. You
Speaker 1: can follow me on Twitter at Tracy Alloway and I'm
Speaker 1: Joe Why Isn't All? You could follow me on Twitter
Speaker 1: at the Stalwart. You should follow our guest Chamath Polly
Speaker 1: Hapatia on Twitter at Chama. Follow our producer on Twitter,
Speaker 1: Laura Carlson at Laura M. Carlson. Follow the Bloomberg head
Speaker 1: of podcast, Francesca Levi at Francesca Today, and check out
Speaker 1: all of our podcasts at Bloomberg under the handle at podcasts.
Speaker 1: Thanks for listening to