Scott Galloway's Blog, page 12

Tell Me A Story

A lot can happen in 18 months. Last January, the Nasdaq and venture funding were fresh off all-time highs. The market was birthing two unicorns (startups worth more than $1 billion) per day. Then the music stopped. Tech stocks led a market collapse with some shedding more than 90% of their value. Bitcoin fell from $60,000 to $16,000. The Iron Bank of Silicon Valley imploded. 

And then the steady hand and hype of the Fed and AI, respectively, seized the controls and pulled the nose up. The markets recovered, led by a small number of stocks that dominate the Nasdaq. The hype machine has returned to full spin cycle. Animal spirits have returned as we, again, become increasingly skeptical of skepticism. Some of today’s prophets will turn out to be frauds (just like last time) and, unable to raise money or hawk SPACs, will start podcasts. I wrote the following post 18 months ago during the froth and, as our subscribers have grown 50% and we enjoy a 44% open rate … three quarters of you have not read it.    

[The following was originally published on January 21, 2022.]

“A man’s reach should exceed his grasp, or what’s a heaven for?”

— Robert Browning

Entrepreneur is a synonym for salesperson, and salesperson is the pedestrian term for storyteller. Pro tip: No startup makes sense. We (entrepreneurs) are all impostors who must deploy a fiction (i.e. story) that captures imaginations and capital to pull the future forward and turn rhyme into reason. No business I have started, at the moment of inception, made any sense … until it did. Or didn’t. The only way to predict the future is to make it.

This is not the same as lying. There’s a real distinction between an entrepreneur and a liar: Entrepreneurs believe their story will come true. This requires confidence … and delusion. It helps to be somewhat detached from reality — to assume that, for whatever reason, you are the one who can see into the future, and that in the new world your product/service will be needed and successful, despite overwhelming evidence (i.e. the current reality) that it’s not. A reality distortion field if you will.

The Crazy Ones

A vision that’s not widely derided likely isn’t much of a vision. MLK was a radical reformer who had a 63% disapproval rating at the height of his activism. Women were perceived as physically incapable of the demands of flight, until Amelia Earhart landed her Lockheed Vega in an Irish farmer’s field. Steve Jobs was a Zen Buddhist college dropout who believed he didn’t need to shower because he only ate fruit and that you could treat pancreatic cancer with juice therapy. He also believed he could put computers in the homes and pockets of everyone on Earth. Crazy.

Being a great storyteller carries risks. Success begets acolytes who tell you you’re right when you’re wrong. Worse, you start believing them. This leads down a dangerous path where vision breaks from reality, and — likely aided by a fear of failure — curdles your confidence into a con.

Elizabeth Holmes

Holmes was assembled in a factory from parts of prior visionaries: smart, Stanford dropout, turtleneck, building blood-testing technology. Plus a nice backstory: Her professor told her the original concept for Theranos would never work. In addition, hundreds of millions in funding from backers including Tim Draper and Larry Ellison, coupled with covers on Fortune and Forbes, were a heavy blanket of affirmation that ensured Ms. Holmes was a visionary. The visionary narrative is a self-perpetuating machine: a flywheel of storytelling, capital, and the future that capital can pull forward, which buttresses the storytelling, and so on and so on.

Fun fact: Ms. Holmes cost her investors less than a billion dollars, didn’t make any real money herself, and is going to prison. Adam Neumann cost his investors $11 billion, received a 10% commission on those losses, and is going to Coachella. Note: Ms. Holmes’s vision progressed to the exaggeration/fabrication of contracts and clients, whereas Mr. Neumann’s “only” went so far as accounting irregularities.

When I Say Steve, You Say Jobs

Fast forward: There was no working technology, and Ms. Holmes has been convicted by a jury of her peers — and faces 20 years in prison. Soon after, VCs distanced themselves, claiming they’d seen through the facade. The tell for people who exaggerate for a living is, after it’s been deemed illegal, they begin preaching the importance of restraint. The narrative being wrapped around the very unlikeable Ms. Holmes is that she’s an outlier. No, she’s just one point on the line that is our storytelling economy in a frothy part of the cycle.

The Valley’s “always tell the truth” sermon is reductionist and hypocritical. It ignores the fact that many of our nation’s most valuable companies are priced on promises of technologies that don’t exist. The entire venture capital industry, in fact, is predicated on promising things that don’t exist.

Microsoft, perhaps the most successful tech company in history, got its break when Bill Gates sold IBM an operating system he didn’t have. (He and Paul Allen subsequently bought what they needed from another programmer, but they didn’t tell him they had the deal with IBM to distribute it.) Allegedly, an engineer at the company coined the term “vaporware” a year later. Promising something that doesn’t exist is as central to the Valley ethos as late-night coding sessions, hoodies, and the hallucination that the public has asked you to solve the world’s problems vs. just do less damage.

“[Google Glass] will be broadly available. You won’t have to jump through any hoops.”

— Sergey Brin, 2013

“Can we build a better phone for prime members? The answer is yes.”

— Jeff Bezos, 2014

“A year from now, We’ll have over a million cars with full self-driving.”

— Elon Musk, 2019

Yes, claims about health-care solutions warrant scrutiny beyond whether or not rich investors get their money back, but Holmes wasn’t convicted for defrauding patients. She’s going to prison because she ripped off George Schultz, not because her bogus blood-test machine errantly told someone they had HIV.

Florida AR company Magic Leap has (no joke) burnt billions since 2010, with nothing other than a failed $2,300 headset to show for it. The company routinely hyped technology that didn’t exist, even using Hollywood special effects to mock up its PR videos. An early (fired) employee called the company’s founder “a believer in magic.” It was meant as a compliment. And the tricks keep coming. In October, Magic Leap announced it had raised another $550 million and was pivoting from consumer to … wait for it … health care. Nobody seems all that concerned that a company with a 12-year track record of false promises and fake products is now going into medicine. And, with the right leadership and engineers, it could build something valuable. You know … vision and capital … and more vision and more capital.

The line between vision and fraud is only drawn in hindsight. We set arbitrary deadlines for entrepreneurs to deliver on their vision, and their vision only becomes fraud when we say time’s up. What if Holmes, with five more years and another billion dollars, shipped a working product? Or pivoted to a home-testing machine for an acute respiratory syndrome?

“Real artists ship.”

— Steve Jobs

Heretic

When valuations are overwhelmingly driven by stories, things can get ugly. Investors will do whatever it takes to defend their narrative — their investment depends on their flocks screaming “heretic!” at anybody who questions the scripture, as the foundation doesn’t hold up to more modern orthodoxies (i.e. math). Theranos employees made a video game where they shot at the Wall Street Journal reporter who exposed the company’s fraud. The firm also engaged Harvey Weinstein’s attack-dog-attorney, David Boies, to try to shut down the story.

Swarming anyone who questions the narrative is a built-in feature of stocks and sectors that have gotten too far out over their skis. I often commit the crime against humanity of pushing back on Bernie Bros, VC-backed unicorns, Tesla longs, meme stocks, or web3. I do this knowing the flying monkeys and bots will attempt to burn the village to save it from my boomer views. These guys, and they’re always guys, make the High Sparrow’s Faith Militant look thoughtful.

Note: I’m going to see if I can offend everyone with this post. #squadgoals.

Pendulum

The pendulum swings between stories and fundamentals. Right now, we’re still deep in the story phase. Capital is cheap: $621 billion went to startups in 2021, a 111% jump from 2020. We’re seeing record numbers of unicorns: 959 across the globe, up from 569 in 2020. The hottest sector is fintech, which accounts for 15% of these firms — all promising to become the next JPMorgan. Are they lying or telling the truth? A: Yes. Vision.

There are few fundamental truisms in the markets. One of them is … fundamentals. Another is cyclicality. And in my view, the atmospherics, if not sheer probability, augur that we’ve entered the less-appealing part of the cycle. Ground zero will be a regression from fiction to nonfiction, story stocks that represent ownership in a (shitty) business, not a movement. The meme trade is already unwinding.

Blind

The darkest side of our idolatry of innovators is that we become blind to the costs incurred by those who are least able to bear them — and we protect those who least need protection. It bears repeating. Holmes is going to prison because she defrauded investors — specifically, members of the Valley aristocracy and the global elite. Tim Draper led her seed round, and Rupert Murdoch invested $100 million. That’s what brings the feds to your door. Remember Martin Shkreli, the guy who raised the price of a life-saving treatment needed by AIDS patients 56x just because he could? He’s in prison, but not for price gouging. He was convicted of defrauding … investors.

Our laws reflect our values. What we hold dear, who we deem precious (i.e. who needs protection). We’ve decided the rule of law in the U.S. must be a warrior for corporations and old, wealthy investors. Teen girls and rural American families burying opiate addicts? Fuck you, you’re on your own. Who’s going to jail? No member of the Sackler family. Nor this guy.

Life is so rich,

P.S. This week on Prof G Markets, we took a deep dive into my personal finances. Listen here, or watch on YouTube.

P.P.S. Section’s Marketing Mini-MBA closes enrollment next week. The AI for Business Mini-MBA just opened (and is already 50% full). Sign up and I’ll see you in class.

The post Tell Me A Story appeared first on No Mercy / No Malice.

Test

Then AI and steady leadership at the Fed grabbed the stick and pulled out of the dive, markets came back (again led by tech). Now the hype machine has clicked back to 11. It’s a good time to recall our tendency to put aside our skepticism when times are good. Some of today’s prophets will turn out to be frauds, just like last time. I wrote the following post 18 months ago, it’s just as true today, and will be true tomorrow. 

[The following was originally published on January 21, 2022.]

 

“A man’s reach should exceed his grasp, or what’s a heaven for?”

                                                    — Robert Browning

Entrepreneur is a synonym for salesperson, and salesperson is the pedestrian term for storyteller. Pro tip: No startup makes sense. We (entrepreneurs) are all impostors who must deploy a fiction (i.e. story) that captures imaginations and capital to pull the future forward and turn rhyme into reason. No business I have started, at the moment of inception, made any sense … until it did. Or didn’t. The only way to predict the future is to make it.

[The following was originally published on January 21, 2022.]

Entrepreneur is a synonym for salesperson, and salesperson is the pedestrian term for storyteller. Pro tip: No startup makes sense. We (entrepreneurs) are all impostors who must deploy a fiction (i.e. story) that captures imaginations and capital to pull the future forward and turn rhyme into reason. No business I have started, at the moment of inception, made any sense … until it did. Or didn’t. The only way to predict the future is to make it.

The post Test appeared first on No Mercy / No Malice.

Head of the Class

This week on No Mercy No Malice, we’re featuring a guest post from Richard Reeves. Richard, a writer and a scholar whose work focuses on what I believe are pressing issues, has become my Yoda regarding the conversation concerning failing young men. We hosted Richard on the Prof G Pod last fall, and it was our most-listened-to episode. He’s a blue-flame thinker who combines data-driven insights with empathy and a perspective. You can hear from him regularly via his substack, Of Boys and Men. His 2022 book, Of Boys and Men: Why the Modern Male Is Struggling, Why It Matters, and What to Do About It, is a landmark book on the topic.

Head of the Class

by Richard Reeves

My favorite high school teacher was Mr. Wyatt. He taught English, mostly poetry and Shakespeare. He was also a Korean War veteran, a part-time bus driver, and a curmudgeon. I loved him. And because of him, I also came to love reading and writing. It’s no exaggeration to say that he changed my life.

Mr. Wyatt was living proof that masculinity and literacy could go together. To a 15-year-old boy, that really mattered. Seems I’m not alone in this regard. In the U.K., where I grew up, 1 in 2 men say a male teacher was an important role model. Ask the men in your lives about the educator who had the biggest impact on them; most will name a man.

But my own sons had fewer opportunities to connect with a male teacher, for the simple reason that there are many fewer of them around. In 1980 men accounted for 33% of K-12 teachers in the U.S. Today it’s down to 23%.

If the male share had remained at 1980 levels, we would have an extra 400,000 men teaching in our schools. (That’s more than the total number of teachers in California.) The male share is set to drop even further unless something’s done about it: In the 2019-20 school year, only 18% of education majors in college were men.

Each year, the National Center on Education Statistics publishes a report blandly titled “Characteristics of Public School Teachers” showing the steadily falling share of male teachers. Each year, it fails to get any serious attention from either the media or policymakers.

If the share of women was declining in a major profession, it would, quite rightly, generate headlines. There is lots of concern, for example, about the lack of women in the tech industry. Among the workers at the big five companies — Amazon, Apple, Facebook, Google, and Microsoft — only 31% are women. That 31% may well be too low a share of women in Big Tech, but it’s a lot higher than the 23% share of men in education. The lack of women in tech is often described as an existential crisis, while the lack of men in schools merits barely a mention.

Male teachers are especially scarce in the early years. Only 3% of pre-K and kindergarten teachers are men. In fact, as a share of their professions, there are twice as many women flying U.S. military planes as there are men teaching kindergarten.

“It takes some degree either of social ignorance or of personal courage for a man to enter teaching at the elementary school level,” noted education professor George Brown. For a man to teach young children, he wrote, “is to spit in the face of a strong societal stereotype.” That was in 1960. Today I’d wager the stigma is, if anything, even greater.

My own son, who teaches at the elementary level, has faced stigma and suspicion. A man who wants to work with children is seen as, well, weird. This is a vicious cycle. The more scarce men become in teaching, the weirder a decision to enter the profession will seem. My fear is that we are close to a tipping point, where, almost by definition, non-weird men will think twice about choosing teaching as a career option. (My son, for the record, is not weird.)

“If this trend continues, we may see a day when 8 of 10 teachers will be female,” wrote Richard Ingersoll and his colleagues in a 2018 report from the University of Pennsylvania (one of the very few attempts to draw attention to this crisis). “Given the importance of teachers as role models, and even as surrogate parents for some students, certainly some will see this trend as a problem and a policy concern.”

I do think it is a problem and a policy concern. The emptying out of men from our schools is bad news for at least three reasons.

First, having a male teacher improves educational outcomes, especially in certain subjects like English (where boys are lagging furthest behind girls). One study suggests that If half the English teachers in middle schools were men the achievement gap in reading between girls and boys would fall by approximately a third — a massive effect. (Important note: the performance of girls in English doesn’t seem to be affected by teacher gender.)

But it turns out that English, where male teachers might have the biggest classroom impact, is the subject men are least likely to teach. Men account for just 1 in 10 middle school English teachers.

Second, male teachers are much more likely to take on after-school activities, especially coaching sports teams. A recent Brookings study finds a gender pay gap among K-12 teachers of about $2,200 a year in favor of men. The difference in base pay is just $700 a year. Most of the gap, about $1,200 a year, is explained by the extra pay men get from doing extracurricular work.

The researchers write about this as a problem to be solved. Which it is, if the only thing we’re worried about is the gender pay gap. But if male teachers are working extra hours to coach their students on the soccer field or debate stage, and getting paid for it, I’m more inclined to clap than wring my hands.

The role of coaches in the lives of many students is close to a sacred one in our culture. This is especially true for boys without dads. And there are more of those all the time. Since 1980, the share of children being raised by a single mom has risen from 18% to 24%.

So: More homes without dads and more classrooms without misters. That’s a bad combination.

Third, the men in our schools are mentors to both male and female students. A recent study published by the National Bureau of Economic Research found that having an informal mentor in high school improved educational performance across a range of measures; most impressive was a 9% increase in college attendance.

But one finding in the paper did not get much attention. Men make up 59% of high school mentors, even though they account for only 40% of high school teachers. So male teachers are stepping up in a big way to mentor both boys and girls.

The term “teacher” doesn’t get close to describing the impact of the men and the women working in our school system. But it does a particular disservice to male teachers, who are even more likely than their female colleagues to provide coaching and mentoring to their students.

In short: Male teachers rock. So, how do we get more of them? Here are five suggestions:

1. Increase wages. K-12 teacher pay has been essentially flat, in real terms, for at least a decade. According to the National Education Association, in 2019 almost two-thirds of school districts offered a starting salary below $40,000 a year. The low salaries are especially offputting to men. (Caveat: The teachers who should get the most money are the good ones and/or those working with the poorest students.)

2. Double extra-duty pay. Teachers who stay late to run clubs or coach sports should not just be rewarded, they should be doubly rewarded. Extracurricular activities provide students with precious opportunities, especially for kids from poorer backgrounds, and there’s a growing class gap in access to after-school sports.

3. Scholarships. Generous college scholarships ought to be available to men who want to pursue education as a career, especially in crucial subjects like English. This is not a radical idea: After all, there are thousands of college scholarships for women seeking to enter traditionally male fields, including STEM.

4. Celebrate misters. School districts, counties and states should support and fund the creation of male teacher learning networks, award “Male Mentor of the Year” prizes, and plaster the faces of successful male teachers across billboards. Remember the line that feminists taught us: You can’t be it if you can’t see it.

5. Set a 1 in 3 target. Last but not least, let’s set some concrete goals. How about we aim for the same share of male teachers as when Ronald Reagan was first elected? That means at least 1 in 3 teachers should be male. School districts, states, teacher training colleges, and the Department of Education should set this 1 in 3 share as an explicit goal and publish annual progress reports. The Biden Administration has a Million Women Into Construction Initiative. California awards $25 million a year in grants toward the same end. Great! Where are the equivalent initiatives and investments to get Men Into Education?

Unless we act quickly, there will be fewer and fewer men in our classrooms every passing year. If policymakers don’t think that’s a problem, they should explain why not. If they think it is a problem, they should do something about it.

Richard Reeves

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Grief and Happiness

This week on No Mercy No Malice, we’re featuring a guest post from Mo Gawdat, an Egyptian entrepreneur, former senior executive at Google, and bestselling author on human happiness. We had Mo on the Prof G Pod a few weeks ago, and his message deeply resonated with our team and listeners. Mo’s passion for humanity, intellectual rigor, and strength of mind is inspiring. We asked him to share the origin story of his work on happiness with our No Mercy No Malice readers, and he agreed. His thoughts are below.

 

 

Grief and Happiness

by Mo Gawdat

I spent over half my life working in technology, a career that culminated in a leadership role at Google, where I was chief business officer at Google X, the company’s “moonshot factory.” It was in every sense a dream job, working with the world’s smartest people on our most interesting problems. In 2014, however, my life changed irrevocably. The change originated in a profound tragedy. But then that tragedy led me to a new mission: to better understand happiness and communicate that understanding to the world. You can read more about that project on my website, mogawdat.com. This is the story of how I got there.

For a long time, I sought out concrete accomplishments and rewards, and that drive helped me become successful as a technologist and business executive. I made a lot of money at a young age by understanding mathematics, programming, and online securities trading, and my career accelerated from there. But the more money I made, the more miserable I became. I was a rich, grumpy brat.

Eventually, I came to see this myself, through the eyes of my children. When my daughter was just 5 years old, full of joy and optimism, I snapped at her for interrupting something I was doing on my laptop, causing her to cry. I realized then: I didn’t like the person I was. I started to research happiness — but knowledge is not always enough.

My son Ali, from the day of his birth, embodied the secret to happiness. He was like a little Buddha, an inscrutable monk with that peace of the truly happy about him. In 2014 I lived in Dubai, and my son lived in Boston, where he played in a band. He called me one day, out of the blue, and asked if he could come visit. He said, “I feel obligated to come and spend time with you.” An odd choice of words, right? Before his visit, however, he had to have surgery. It was one of the most common procedures you can imagine: removing his appendix. But the surgeon inexplicably made a cascading series of mistakes, five in a row. All preventable, and any one or two of them fixable. But five in a row was too much. Hours later, my son had left the world.

Not long before he died, Ali told his sister about a dream he’d had, and she shared it with me. A dream that he was everywhere and part of everyone. I know now that in many spiritual traditions that is the definition of death. At the time, however, I saw it as a calling — and I still do — a challenge from my son to me. I was a senior executive at one of the world’s largest and most connected companies; I knew exactly, literally, how to reach billions of people. “Consider it done,” I told my daughter when she described Ali’s dream. I decided then to write a book about happiness, about everything Ali had taught me about it, to convey his essence through the written word to those billions of people. If I could do that, then Ali would be everywhere, be part of everyone, just as he had dreamed.

To jump ahead in my story: Somehow the universe made it work. Within six weeks of the book’s launch, we were a bestseller in eight countries. My videos were viewed 180 million times. I formalized my life’s goal: to make a billion people happy. Everything I do professionally — these days, I focus on AI — is in service of bringing happiness to a billion people.

Yet all that happiness was borne of the most terrible grief imaginable, a parent’s loss of a child. Before I could truly understand happiness, I had to pass through grief.

There is a finality to death that contradicts everything we’ve ever been told, undermines everything we’ve relied upon. It triggers our fear, it triggers our helplessness, it triggers our insecurity. Suddenly, we can no longer trust life. We miss the person we love who left us. We are scared for them and where they are, and scared for ourselves without them. We have lots of uncertainties. It’s an overwhelming trauma.

The first step through it is to grieve, fully grieve. If you are angry, be angry. If you are unsure, be unsure. If you want to take a break, take a break. This first step is largely out of our control. But then there are two steps that follow, one logical, one spiritual.

The logical step may sound harsh. But they say the truth will set you free. And this is the truth: There’s absolutely nothing, nothing you can ever do to bring them back. I have a very mathematical, logical mind, so, believe it or not, I went out and did the research. Has anyone ever come back? I knew people do come back from near-death — I had to know, what’s the limit to that? I was in the moonshot business, remember.

But, of course, Ali was truly gone. There was no technology or technique that could change that. I could hit my head against the laboratory wall for 27 years, but he’s not coming back. And while I was torturing myself, the world wasn’t getting better. So I had to get to a place of acceptance. I call this committed acceptance. 

“Acceptance” means understanding that this is your new baseline. I will never receive another hug from my son. I will not hear his voice on the phone or see him play music ever again. That’s my new baseline. I will stop pretending otherwise. “Committed” means I can still improve my own life and the lives of those around me. You don’t have to know how you’ll do it. You tell yourself, “Now that I’ve accepted this tragedy, I’ve accepted this pain, I’m going to crawl out of it.” The word is “crawl” because that’s how it feels. Today I’ll do one thing that makes my life better than yesterday, and tomorrow I’ll do one thing that makes my life better than today. That’s it.

That’s the practical step, committed acceptance. It’s about the physical world, the reality we experience with our senses. The world which Ali has left, and the world I can make better, a little bit every day. But spirituality and science both tell us that this is not the only world, not the only way to understand existence. I call this other step the spiritual step, but you could also call it the quantum step. Quantum mechanics is physics at the atomic scale, the laws that govern the building blocks of what we know as space and time. And it teaches us that there is more to the universe than meets the eye. Which is something spiritual teachers have been telling us for centuries.

There is a nonphysical aspect to life. Call it consciousness, call it the spirit or soul: There is something beyond the physical about us. That nonphysical element is the part that disconnected from my son’s body when he left. The handsome form he left behind on that intensive-care table was no longer him. You could feel it, you could feel that his essence was no longer there. That essence is life, and it is outside the realm of traditional physics, outside space and time. It has to be, or we wouldn’t be able to perceive space or the passage of time. There’s a subject-object relationship there, between consciousness (or the soul, or the life force, or the spirit) and the physical world.

That aspect of life, I will call it consciousness, is distinct from the physical form in which it resides. It neither comes into existence when that physical form is created nor goes out of existence when the form decays. Death is not the opposite of life. Death is the opposite of birth. Life exists before, during, and after. My son’s physical form was born, and my son’s physical form decayed. But the essence of my son, his consciousness, has never gone anywhere. His body will never again live — that’s committed acceptance — but his consciousness never died.

I see this from a physics point of view more than a religious point of view, but either way, I tend to believe my son is OK. And I know that I, too, will leave this physical form and that I, too, will be OK. I don’t know how, exactly, because I’m still here, in the physical world. But whatever happens to our consciousness when the physical form decays, I don’t believe it goes to a bad place. In fact, it’s not even a place, it’s not even a time. It’s an eternity of consciousness. And that’s the truth of who we are. My son taught this to me, in his dream. We are everywhere, part of everyone.

 

Mo Gawdat

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Trump and Math

I don’t know, nobody does. However, I believe it is increasingly likely Donald Trump withdraws from the race for president as the result of a plea deal. Why? A: math.

Facing prosecutions in at least three jurisdictions, it’s likely, if he is not reelected, Trump will be tried, convicted, and sent to prison. I don’t believe this will happen, as a plea deal serves everyone’s interests. Trump and the prosecutors, I speculate, will settle for a lifetime ban on serving in public office in exchange for the resolution of criminal proceedings against him. As the political map comes into focus, a plea deal will emerge as the best outcome for Trump. And as the knock-on effects of imprisoning a former president become a reality, a deal will also become the best (or least bad) outcome for the nation.

Trump’s Math

President Trump is an obese 77-year-old male. Any sentence to a prison facility is likely a death sentence. Attorneys general wield the power of possible incarceration. Even more compelling? The prospect of survival — avoiding death behind bars. Incarceration, balanced against a life (post-deal) of golf clubs, sycophants, and porn stars weighs heavily on even the most delusional psyche.

How serious is the threat of prison? As I write this, President Trump has been indicted three times: in New York for tax and reporting violations related to hush money payments; in federal court in Miami for mishandling national security documents and obstructing the investigation into his conduct; and in federal court in D.C. for attempting to subvert the 2020 election. Later this month a fourth is expected, in Georgia, on charges of election tampering. But what is the risk he actually goes to jail? What sounds improbable looks more probable when we do the math.

Federal prosecutors rarely lose: In 2021, 94% of defendants charged with a federal felony were convicted. State and local prosecutors convict at high rates as well — the Atlanta office expected to indict Trump boasts a 90% conviction rate. Of those convicted by the feds, 74% received prison time. In cases for mishandling national security documents specifically, the DOJ regularly obtains multiyear prison sentences. And the documents case against the former president is notable for the weight of the evidence, including audio of him sharing military secrets he admits he hadn’t declassified, the sensitivity of the papers, and his blatant obstruction — offenses the DOJ and courts take very seriously.

It’s not any one case that cements Trump’s fate, but the compounding risk of several (indictments). Generally, defendants have a 3 in 10 chance of escaping an indictment without prison. A 30% chance of prevailing, four times in a row, is just under 1%.

This Is Different

OK, but Trump is not a typical defendant, and no case against him will be straightforward. He has unlimited resources and can deploy the full apparatus of a billionaire’s legal defense. In addition, there is a non-zero probability any jury will have a Trumper who refuses to convict. Also, prosecuting each case presents obstacles.

The New York case is generally regarded as weak, and while the Manhattan DA’s office is well resourced, it’s not the DOJ. As heavy as the federal documents case looks on paper, trying it will be a challenge — just working out the logistics of handling sensitive government secrets in the context of a public trial could take months of litigation and appeals. The election interference charges are complex and based on novel or rarely tested legal theories — there just isn’t a lot of precedent for the events of January 6. But the numbers remain stacked against Trump.

Still, let’s improve his odds of exoneration from 3 in 10 to 8 in 10 — only a 20% chance in each case that he’s convicted and sent to prison. The math is still ugly: 0.8⁴ = 0.41 which means Trump has only a 41% chance of escaping prison, even when given remarkably favorable, exceptional, odds. The most favorable math still lands him in prison.

Get Out of Jail Card(s)

There are two: 1) He retakes the White House, or 2) he (see above) reaches a plea deal.

The prison vaccine is Trump winning the presidency, or another GOP candidate winning and pardoning him. That resolves the federal charges — the greatest threats — and Trump likely believes he or some other Republican president could likely shut down the remaining prosecutions.

However, Trump’s political power is about to crash onto the rocks of electoral math. Barring a dramatic change in the GOP primary, which could happen, the likely outcome is the former president wins the nomination, then loses decisively to Biden in the general. Current signals suggest the Republican nominee will be Trump. The strongest would-be contender, Ron DeSantis, went from anti-woke warrior to brightening every room he leaves. He’s an awful candidate. In six months, DeSantis has plummeted from 34% to 15% in Republican primary polling, ceding his ground to the former president. Our very stable genius is now polling at 58%. In the past half-century, no candidate leading by 20 points at this stage has lost the nomination. Trump is up by 43.

But Trump’s favorable math across the primary is equally ugly in the general election. The media highlights national polls, favorable/unfavorable ratings, and other clickbait. But that’s not how we elect presidents. As we’re reminded every four years, we elect presidents by state.

Ninety percent of the states are foregone conclusions (Biden holds a 30-point lead in California; Trump, a 21-point lead in South Dakota). Pundits agree that only a handful of states will matter in 2024: UVA names Arizona, Georgia, Nevada, and Wisconsin. Roll Call swaps Pennsylvania for Nevada. The Hill drops Nevada but adds Michigan and a wild card, North Carolina. And the Biden campaign itself appears to be focused on all of the above, minus North Carolina.

Demographics Are Destiny

Biden only needs to win three of these states to reclaim the White House: Michigan, Pennsylvania, and Wisconsin. And his odds look good, great even. He won all three in 2020, and since then things are trending even bluer. In Pennsylvania, the Democrats flipped a Senate seat in 2022, and in Michigan, they took full control of the state government. In Wisconsin, the GOP had a slight edge in the midterms, but Biden leads in every poll taken in the state this year. He also has the edge in Michigan and Pennsylvania.

Trump’s prospects are tenuous in the other four. Biden carried Georgia in 2020 (as well as Arizona and Nevada), and in 2021 the Democrats flipped a Georgia Senate seat, then defended it 2022 (though they lost a House seat). North Carolina reflects how change is not good for Trump. He won the state in 2020 by a 1.3% margin. However, it’s a state in transition, a microcosm of the broader challenge faced by the GOP: The party’s base is older and whiter, and that population is giving way to a younger, more diverse, better-educated electorate — more likely to vote blue. In North Carolina, those effects are magnified by economic growth from new tech and finance jobs. Toyota, Apple, and other new employers are bringing in a younger, more educated workforce. In 2022, Democrats gained two House seats in North Carolina; the state’s delegation is now even at seven and seven. Similar trends are present in Arizona and Nevada, both states Biden won in 2020.

Nationwide, since Trump won the White House in 2016, 32 million young people have become eligible to vote, and 20 million elderly voters have died. That’s a 52 million voter swing from old to young. These younger citizens vote in greater numbers than previous younger generations, and they show no signs of becoming more conservative as they age.

Bidenomics

We’re still a long way from November 2024, and a lot could happen — war is still raging in Europe, and Biden is 81. However, the most important factor in almost every presidential election, by far, is the economy. On that front, everything’s coming up Biden. GDP growth accelerated from 2% to 2.4% last quarter. Unemployment remains low (3.6%), and job growth continues to exceed expectations, with 372,000 new jobs created in June. Inflation fell to 3% in June, its lowest rate in two years. Contrast that with other nations, including France (4.5%), Germany (6.4%), and the U.K. (7.9%). More importantly for voter economics, U.S. wage growth is now outpacing inflation. Perceptions haven’t caught up with reality, but they will. If voters continue to vote on the economy, Trump loses badly.

Devaluation

The closer we get to a Trump loss in 2024, the more his currency for a plea deal diminishes. A loss would cement the notion that he has cost the party too much for too long. Traditional Republican leaders can’t wait to see the last of Trump, and his acolytes now have power bases of their own. Fox will abandon him, the cloud cover provided by Lindsay Graham, Kevin McCarthy, and other sycophants will disappear, and the pool of jurors who’d refuse to convict will shrink. He’ll also lose access to any backroom influence his political allies might bring to bear on the DOJ or state and local prosecutorial offices. His currency is a single token, his potential return to the Oval Office. And once that’s gone, so is his leverage.

Trump won’t like the deal, but the decision will be easier to make than many people think. He has no observable ideological commitment or loyalty to the Republican Party compelling him to run again. In the 2022 midterms, Trump amassed a war chest of $108 million and gave none to GOP candidates.

And he gives up all the time. His track record is quitting: from his six bankruptcies, including the Trump Taj Mahal Casino, to his innumerable abandoned projects, such as his defunct New Jersey Generals football team and the disgraced education for-profit Trump University. And people who know him, including his former chief of staff, John Kelly, and his former footstool, Chris Christie, say he has a real fear of going to jail.

In sum, Trump’s odds of landing in prison are perhaps 50/50 right now and likely to get worse as we approach the election.

Deal or No Deal?

Is there a deal to be had? It won’t be easy, but the array of prosecutors could work together to strike an agreement, for their own sake and the good of the nation. A coordinated negotiation between the DOJ, Georgia, and the Manhattan DA would be complex, but nothing precludes the effort. The alternative is worse: Trials would be a circus, convictions would be subject to years of appeals, and any ultimate incarceration would be a logistical nightmare. And when we step back from the details of these cases, what should the nation be seeking? Is it accountability? Or for the nation to move on? The answer is yes, and a plea deal achieves this.

There’s a broader lesson here. Our successes and failures are not a function of probability, but patterns. Our actions, like interest, compound. A kind act may go unnoticed, but kindness fosters enduring relationships and goodwill. Criminal acts may or may not result in punishment. But criminality screams for justice’s attention. And justice, while slow to act, is always listening.

Life is so rich,

P.S. This week on the Prof G Pod, I spoke with Rutger Bregman, a Dutch historian and author. We discussed human nature, power dynamics, and his thoughts on Universal Basic Income. Listen here.

P.P.S. If you’re an executive or department lead, join Section for a free event on Leading in the Age of AI, a primer on how every exec should be thinking about AI for their business.

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Frenemies

Hollywood’s writers and actors are on strike. As I’ve written before, their leaders have picked the wrong moment to cast themselves in a working-class drama. In sum, they have little leverage, as there are too many of them and the strike is a gift for studios looking to slow the arms race of the streaming wars and recalibrate costs for a leaner business cycle. Yet while the writers and actors are naive, the studios may, in the end, prove to be bigger fools. Their mistake is a familiar one, personally and professionally: the failure to discern among allies, competitors, and enemies.

Real Enemy

The studios’ real enemy isn’t a pair of naive, shortsighted unions, or one another, or streaming. Their antagonist isn’t even TikTok, though the short-video company will be happy to absorb the additional viewing hours once people have to adjust their habits. (Pro tip: Late-night TV will soon be a shadow of itself as consumers find substitutes.) The enemy is the same enemy the rest of media, and retail face, Big Tech. Specifically, in this case, Big Tech AI offerings that will digest content (at zero cost if they have their way) and wedge themselves between the consumer and repurposed content.

The writers and actors should get credit for identifying the threat AI presents. However, their demand for an extended pause in adopting the technology has been achieved a total of zero times by labor. Case in point: The teamsters and UPS came to an agreement before a walkout, because 1) they had leverage; UPS would have begun hemorrhaging cash vs. stockpiling it (as Netflix has done) in a strike; and 2) their demands were reasonable, raising hourly wages by $2.75 and installing AC in trucks. If the Teamsters’ requests mirrored the WGA’s, the demands would have been a pause on autonomous driving research and a mandate that all trucks have three drivers in them. Also, and this is a key point, the delivery business needs more drivers, and Hollywood needs fewer writers/actors/execs.

The focus of the WGA, SAG-Aftra, and the studios should be capturing compensation for the coal powering these AI plants and demanding IP protection for their digital twin(s). (More on this later.) Their thinking is too small. The real threat is not studios using AI, but studios being replaced by AI. If you think the studios are mendacious, let me introduce you to ground zero for … mendacious fucks … Big Tech.

To appreciate how precarious the studios’ position is, consider what they actually do. It’s not making movies and TV shows. Writers, actors, directors, and an army of skilled laborers do that. Promotion and distribution are still studio functions, but they rely heavily on the internet and third-party cloud providers. No, the primary function of the studio in today’s ecosystem is to allocate capital to projects that offer the greatest ROI. This means having a stomach for losing capital. A lot of capital, in the hope that one hit will pay for all the misses. It’s venture capital with better-looking people and worse traffic.

Filmed entertainment is ruinously expensive. It takes a special kind of edible to pile Benjamins and light them on fire greenlighting Pete Davidson in Marmaduke ($50 million budget, $800,000 in box office, 0% on the Tomatometer). One signal capital allocation is the primary function for Hollywood studios is how easily Big Tech muscled its way in. Nobody brings a taller pile of Benjamins, or a stronger stomach to risk it, than Big Tech. Apple, Netflix, and Amazon now dominate Hollywood. And what did they bring? Cheaper capital.

A decent, if crude, algorithm for economic security is to find the biggest pile of money and stand as close to it as possible. The writers/actors and studios need to stand closer to the Big Tech pile. The numbers here are unfathomable. But … let’s fathom. If you stacked the cash on hand of AAPL/NFLX/META/GOOG/MSFT in $100 bills, it would reach 262 miles into orbit. Low Earth orbit satellites would collide with the stack, as would the International Space Station. Meanwhile, Paramount’s stack  ($2 billion or about 7,500 feet) wouldn’t crest LA’s San Gabriel mountains.

As long as creating this content costs megayacht money, the competitive set for the studios will be relatively limited. The reason the writers and directors are standing in front of Loews instead of making Marmaduke 2 is they need the studios, which is to say they need access to the things only the studios can/will pay for: soundstages, cameras, special effects, and one another. The emerald sanctum level 9,000-light tier isn’t going to unlock itself — Tom Cruise doesn’t work for free.

But … ChatGPT will.

The Universal Substance

The secret to the greatest creation of shareholder value is simple: Tech inserts itself between consumers and content.

This often means creating a layer of innovation on top of other people’s content. In the 1980s and ’90s, aggregating millions of individually meaningless credit card transactions gave direct marketers visibility into consumer spending patterns, letting them target consumers with unprecedented precision. In the 2000s, tech repeated the trick with voting data. Google, Yelp, and Travelocity all do something similar. They alloy disparate and independently valueless pieces of data into something worth more.

I’ve been on both sides. Earlier in the Internet era, when Google’s mission statement was “Don’t be evil” and people believed this bullshit, I sat on the board of the New York Times Co. I made a scene at my second board meeting, urging the company to shut off access to Google, band together with other publishers, and protect the one thing we had: differentiated content. Nobody listened, I was politely ushered (i.e., kicked) off the board, and Google (followed by Facebook) proceeded to eat the publishing industry like a snake swallowing a mouse … after suffocating it slowly.

The newspaper industry is a shadow of itself and dependent on the kindness of strangers who are billionaires. The result: The number of journalists has been cut in half, and the number of PR comms professionals working at Big Tech has increased sixfold. The ratio of bullshit/spin to journalism has gone the wrong way by 12x.

Tech has reconfigured the barriers for retail stock market investors, purchasers of used goods, and amateur filmmakers and musicians. Tech is both a universal solvent — it dissolves  barriers — and a universal alloy, solidifying new, more powerful ones. It’s a universal substance, practicing a metallurgy bordering on alchemy. I’m not entirely sure what the point of this paragraph is, but it felt poetic. Edibles.

First They Came for the Writers

Just as the writers’ union has miscast itself as the Knights of Labor, studio heads are deluding themselves believing they are the Rockefellers and Morgans of the era, astride global empires that will benefit by replacing people with machines. The truth is, both are Native American tribes, feuding and weakening one another as European settlers lay in wait for their ultimate slaughter. And the studios have paved the way by converting their business into something that runs on the regurgitation of pre-existing IP, which is AI’s best trick.

Netflix is an outlier. Thanks to its access to foreign and nonunion content, its deep library of existing content, and disinterest in late-night content, the company is hoarding so much cash it’s considering stock buybacks. Disney and Paramount, dependent on ad-supported and linear content, are deluding themselves if they believe they have shared interests with Netflix. Note: Netflix isn’t just a studio, but a tech firm.

What Can Be Done?

You can’t stop the universal substance, but you can direct it and insert yourself in between Big Tech and how it makes money. If the feuding Hollywood tribes want to participate in the next generation of the entertainment business they need to stand on the things they share, the stuff they can realistically defend. The characters, stories, icons — the brands they have built up in our collective consciousness. I’m not a fan of doing business through lawyers — it’s generally a value and innovation destroyer to rely on the legal process — but see above … slaughter.

The studios, in cooperation with the writers and actors they depend on, ironically, to make their business cost prohibitive, should hire competent, aggressive law firms and send very serious letters to every tech company with a large language model (LLM). Then sue them. Meanwhile, hire a slightly less aggressive law firm to start forging joint rights agreements (studios and actors/writers) that lock down the IP of digital twins (actors and their characters). License to LLMs limited rights to crawl their content and provide studios/labor persistent rights to any revenue the LLMs produce. Finally, hire likable lobbyists to push Congress for accommodations in the law that better protect IP and limit the freedom of maneuver for AI companies.

One area of opportunity is the Section 230 liability shield that protects social media platforms and other online publishers from liability stemming from the user-generated content they distribute. In my view, we should remove Section 230 protection for AI-generated content.

To date, the strike reflects that neither the studios nor the unions understand the technology. They are laggards: Barry Diller is rallying publishers (including the NYT) around a lawsuit, book authors and programmer have filed class actions over the scraping of their content, Getty Images is suing the makers of AI image generator Stable Diffusion, and Shutterstock cut a deal with OpenAI. The unions’ demonization of studio heads makes for good TikToks, but it misses the larger point.

Sabotage

The unions are obsessed with how much money the studio heads make. Yes, Bob Iger will make $27 million this year, vacations on yachts, and wears a lot of cashmere. But Tom Cruise made $100 million from Maverick, and he’s a Scientologist. There are too many actors, writers, and studio execs for an industry that cannot sustain current spend and has attracted the great white shark of business, Big Tech. Bob and Tom are allies, not enemies. The real nemeses are in San Jose and Redmond.

Too often, we sabotage our own happiness letting familiarity and dysfunction turn allies into perceived enemies. We inflate our contributions to a relationship, while diminishing the other party’s. We let familiarity and contempt best our shared history. Your spouse, your parents, Republicans and Democrats, other Americans, other democracies, writers and studios. All allies. We’re in this together.

Life is so rich,

 

P.S. In this week’s Office Hours edition of the ProfG Pod I answer questions on Apple’s investments in health care, private schools, and teaching your kids about social media. Listen here.

P.P.S. Missed my talk on AI with Gary Marcus this week? Watch the recording here. And if you want to learn to set an AI strategy, join our upcoming Generative AI Business Strategy workshop for $250.

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Boys to Men

America has a vision of itself as the land of opportunity, with rights and liberty for everyone. That is not and has never been the reality. But for 250 years we’ve been closing that gap at a greater pace than any other multicultural democracy. Lately, however, there’s evidence we’re losing ground. Life expectancy is down, inequality is up, and our discourse has become increasingly coarse. Every segment of society, except the wealthiest, can point to setbacks. One group’s slide is particularly steep, and its decline presents a threat to the commonwealth and our prosperity: Our young men are failing, and we are failing them.

Crisis

Boys start school less prepared than girls, and they’re less likely to graduate from high school and attend or graduate from college. One in seven men reports having no friends, and three of every four deaths of despair in America — suicides and drug overdoses — are men. I’ve written about this at length here, and about how it relates to declining birth rates here.

Alienation and disaffection drive despair and violence. By age 27, high school dropouts are four times more likely to be arrested, fired by their employer, on government aid, or addicted to drugs than their peers who graduated. We face declining household formation, reduced birth rates, and slowing economic growth just as baby boomers enter decades of nonproductive retirement.

The lack of an open dialogue about these issues has created a void filled by voices espousing thinly veiled misogyny, demonization of vulnerable groups, and a vision for masculinity that wants to take non-whites and women back to the fifties and Old Spain, respectively. The good news is the dialogue has become much more productive recently. There’s a growing recognition of the size and severity of the challenges facing young men, and we can now turn our focus to solutions.

The Secret to Our Success

In 1945 the U.S. economy was the “Arsenal of Democracy,” a coast-to-coast assembly line of tanks, ships, and ammunition. Forty percent of the nation’s GDP went toward the war effort. (Today we spend 3% of our GDP on the military.) But at the end of World War II that economy lost its sole customer — and in short order, we had to find jobs for 10 million young people, mostly men, leaving military service and coming home. Wages fell, rents rose, workers in every major industry went on strike, and a nationalist movement began bubbling up. Leaders of every stripe feared a return of the Depression, or worse.

Except that’s not what happened. The next 30 years brought record-low unemployment, sustained economic growth, and world-changing technological innovation. Millions of households enjoyed steady increases in their quality of life, so much so that we had to invent a new social concept: the middle class. The term “working class” couldn’t encompass the two-car garage, summer vacations, and son (and soon, daughter) heading to college that exemplified an American middle-class lifestyle. And contrary to perception, the postwar middle class was not solely the province of white men. Twenty-seven million American women entered the workforce between 1950 and 1980, increasing their participation by 50%. The percent of Black men who were in the middle class by income rose from 22% in 1940 to 68% in 1970.

Underlying this prosperity was robust state support. The G.I. Bill funded college for 2 million soldiers and home loans and small business loans for hundreds of thousands more. Truman’s housing legislation expanded the government’s role in building homes and financing home ownership. Eisenhower launched a 40-year project to build a national highway system, at a cost of over $500 billion in today’s dollars. Income taxes were progressive — the top rate was 91% — and the wealth of the biggest earners was redistributed through social programs and investments in infrastructure, education, and science.

Redux

The greatest innovation in the history of the West, the American middle class, was the product of intentional and sustained public investment. Our retreat from that vision has led to decades of prosperity, but little progress. We’ve slid into a cascading pattern of failure — to rear, educate, and employ young men. Returning to our tradition of investment could rebuild the engine of capitalism and reverse the slide in their fortunes.

Some ideas:

Redshirt

The day a boy walks into school, he’s behind half the class. With brains that mature later than girls’, boys almost immediately fall behind girls in school. We should “redshirt” them, just as we hold back college athletes for a year so they can develop further. This proposal comes from Richard Reeves, who wrote last year’s landmark book Of Boys and Men. He joined me on my podcast and recently left Brookings to found the American Institute of Boys and Men.

Once in school, boys have fewer male role models. Fewer than 1 in 4 teachers in America are men, down from 1 in 3 in 1980. It’s a vicious cycle, as the fewer male teachers boys see, the less interested they become in pursuing teaching themselves. Lacking male exemplars of strength, kindness, and generosity, boys look elsewhere for models. Like Andrew Tate, the global “alpha male” sensation  — and an accused trafficker, rapist and self-proclaimed pimp. New York’s NYC Men Teach initiative is a good start. It’s focused on men of color, however; we need more programs encouraging men — all men — to go back to school and serve as role models for our boys.

We need more extracurricular mentoring. One of the most influential people in my life was Cy Cordner, a stockbroker I met after walking into the Dean Witter Westwood office at age 13, who taught me about stocks and markets while in junior high. Cy, along with several other men who took an interest in me, helped shape the trajectory of my life and career. So do all mentors. Kids with mentors are 81% more likely to participate in sports, 78% more likely to volunteer in their community, and twice as likely to hold a leadership position at school. We need more male mentorship programs like Building Better Men, Growing Kings, and the Mentoring Alliance.

At UCLA I joined a fraternity my freshman year. Growing up without any siblings or a present father meant there were few men in my household. The Greek system has received a great deal of warranted scrutiny for encouraging reckless behavior. Yet I would, unreservedly, advocate for a young man/woman to join a fraternity/sorority. Zeta Beta Tau shrank an unfriendly place of 30,000 people down to a group of brothers who, in their own way, cared about one another.

Within a week of pledging, my “Big Brother” told me to stop smoking so much pot and reduce my class load from four to three to ensure I did well my first quarter and gain some confidence. Commonsense advice, which I lacked as a 17-year-old male who’d never spent more than seven days away from home. Without a network of other men serving as guardrails for me, I likely would not have graduated.

Young Men

Since the 1990s, preparing our kids for college has become entrenched in our DNA as the fundamental step to a brighter future for them. The rigid emphasis on national exams and $200,000 liberal arts degrees has crowded out vocational education as a path to success and stability. Parents shouldn’t worry about children who opt for woodworking vs. computer science. Instead we should worry about men who choose day trading and pornography over building, creating, and repairing. Vocational training in Germany is a pre-employment system for youth, imbuing skills in kids at a young age even if they decide to pursue college. Establishing a household without debt and a marketable skill is key to building a foundation for a family and relationships.

 

 

Some of our greatest citizens were apprentices, including Washington (surveyor), Franklin (printer), and Revere (silversmith). We need to sustain investment in this type of training, along the lines of Biden’s $150 million Apprenticeship Building Program.

Four-year colleges are still and will likely always be a tangible path to upward mobility. We should use the leverage we have over them as their primary financiers (i.e. tax payers) to break a corrupt higher-ed cartel and expand freshman seats. I wrote about this two weeks ago: Our fight over affirmative action and legacy admissions misses the forest for the trees. We need to add more seats, not a reallocation of elites across a zero-sum game kept static by universities that aspire to be Chanel bags vs. public servants.

Families

The vaccine to keep boys from becoming broke, lonely men is a stable childhood with male role models. Typically, that means two loving parents with reliable income and enough free time to spend with their kid. In 1960 roughly 5% of American children were born to unmarried mothers. Today that number is 40%. Between 1975 and 2020, the share of children living without one or both of their parents doubled — from 15% to 30%. Single parent environments can be loving and can produce productive citizens — I am the product of one of them. However, we shouldn’t pretend that every modern (or traditional) family is a harmonious and stable environment. Marriage isn’t the only way to build a family foundation, but it’s a potent one. Kids raised by married parents have stronger relationships with their fathers, see greater health and educational achievements, and are far less likely to experience physical/emotional/sexual abuse or poverty. Interestingly, girls are less affected by family instability and single parenthood than boys. Likely explanation: Boys are physically stronger and girls are emotionally and mentally stronger.

How to keep more parents from divorcing? A: Money. One-third of American couples say money is a major source of conflict in their relationship, and research shows financial disagreements are the strongest predictor of divorce. Economic stress is tearing at the fabric of young families today, as 35-year-old Americans have half as much wealth than they did in 1989. Meanwhile, 75-year-olds are twice as rich. We continue — via Nimbyist housing permit laws, rollbacks on child tax credits, preferential capital gains tax rates, and corporate tax loopholes — to transfer money and opportunity from young to old. Congress should continue the bipartisan effort to extend the child tax credit, which relieves some of the economic burden facing young parents.

Demographics Are Destiny

We don’t have to do any of this. But we’re barreling toward a nation of old people where over half of government spending will be on seniors, diminishing our ability to invest. As is happening in Japan and Italy, this results in an anemic economy that loses relevance on the global stage. The population decline across the West is the biggest threat to democracy. Today, 1 in 6 Americans is 65 or older — a century ago it was 1 in 20. We spend, as a percentage of GDP, 7% on seniors vs. 0.5% on children. The demographic situation is getting so dire that ratings agencies are predicting half of nations’ credit ratings will be downgraded to junk in the next 40 years. (We discussed this on Prof G Markets.)

The population “bomb” predicted in the seventies was half right: It has detonated, but it was an implosion. Democracy and capitalism need household formation, which means they need more economically and emotionally viable men to partner with women, who’ve registered exceptional, hard-fought gains. One of the primary reasons women terminate pregnancies is they feel they do not have a reliable partner.

Invest

Each year, $8 trillion worth of stocks and bonds trade hands. Of that $8 trillion, only $300 billion represents “true investment,” used to grow companies via IPOs or secondary issuances. And that’s a problem. We’ve become a nation of arbitrageurs vs. investors. We arbitrage information, distributing whatever creates the most engagement vs. pursuing the truth. We arbitrage fossil fuels and ignore the externalities. And worse yet, we arbitrage youth — milking them for capital and labor to enrich the incumbents. If there was ever a law that highlighted the war on youth, other than a minimum wage that’s below the poverty line, it’s this: student loan debt cannot be discharged in bankruptcy. A clean start, a second chance — these ideals are core to the American experience. However, our youth are sequestered from this American ideal. Think about this: The cohort not given a second chance is the generation that deserves it most, young people.

What is the point of all this? Our economy, education, laws, our society? I’d offer that the whole shooting match, the whole reason for a nation, is to create a context for deep and meaningful relationships. Deaths of despair, a lack of economic opportunity, and lost young men are all signs that our nation continues to offer prosperity but not progress. It’s time again to start investing. America needs young men, and they need us.

Life is so rich,

P.S. This week on the Prof G Pod, I spoke with Jake Tapper, CNN’s chief Washington correspondent. We discussed his latest book, “All The Demons Are Here,” and the upcoming presidential election. Listen here.

P.P.S. Last call to join my free event next week: The Threats and Opportunities of AI with me and Gary Marcus. Sign up here.

 

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Threadzilla

Last week, Twitter became MySpace: a social network void of innovation being slowly euthanized by Meta. In less than a week, Meta’s Threads registered 110 million users — equivalent to the combined population of Germany and Australia, and the most violent corporate disruption in platform history.

What can be learned?

Bloat

The business strategy that marked 2023 is not leveraging AI or adopting hybrid work, but focusing on bloat. Specifically how to reduce it. Whether you’re a critic or a stan, Elon’s 80% reduction in the bird’s workforce is the most impactful business decision of the year. The Zuck may have coined the phrase “the year of efficiency,” but it was Elon who inspired the movement. The result is the Nasdaq’s best first half in four decades, fueled by the nitro and glycerin of AI hype and profits increasing thanks (mostly) to cost cutting.

A new generation of business leaders discovered that a firm with a 20% operating margin can see as big an increase in value by cutting costs $1 billion as it can by increasing revenue by $5 billion. For all the complaints from Musk critics about a buggy site “on the precipice of crashing,” he’s maintained a minimum viable product while shedding 4 in 5 employees in six months. The business is running better than it did for most of Twitter’s early years as the “fail whale.” Twitter has held up under the demands of a World Cup, U.S. elections, the collapse of the Valley’s Iron Bank, and a Russian mutiny. There’s also evidence that trolls, bots, and inappropriate content are more rampant. In sum, re content moderation, Twitter sucks. But … it always has.

As I stated at the beginning of the year, Elon didn’t fire 6,000 employees at Twitter, he (effectively) terminated over 300,000 workers across tech. Because every other tech CEO felt they could have the great taste of reduced expenses while avoiding the calories of collapsing revenue. And here’s the rub — and what is so insane about the year at Twitter — the decline in revenue is correlated to its reduction in workforce, but not caused by it. Under adult management, the company could have transitioned from break-even to a tech business with enviable operating margins.

Guardrails and Allies

Elon fired people for arbitrary reasons or no reason at all. He was insolent, even cruel — accusing workers of sex crimes and refusing to pay contractually owed severance. He’s also refused to pay vendors, including the owner of Twitter’s office space and its cloud providers. He’s suing the law firm the company used to force him to honor his contractual obligation to close on the acquisition. And advertisers are still waiting for a cogent explanation of “free speech” according to Elon.

Domains

So what happened? The Dunning-Kruger effect is a cognitive human bias that causes us to overestimate our abilities in domains where we have low competence. This acutely affects some in the venture capital and tech communities. Enabled by their public profiles, wealth, and tech bro enablers, these folks shapeshift from one week to the next into geopolitical experts and constitutional law scholars and computer scientists. The less they know about a topic, the more confident their tone. We’re all enablers re Elon. If Zuckerberg announced he was building an EV or multistage rocket, wouldn’t we question the industrial logic?

Self-Inflicted

The misperception about disruption is that it’s a function of innovation or excellence. In fact, disruption is driven by stasis and the incompetence of incumbents. Threads is void of any real product innovation — it’s a stripped-down Twitter clone pushed into the market by a team not much larger than the Prof G Media team. (Memo to self: Challenge team to grow newsletter to 110 million subscribers in a week.) And that’s the thing: Threads’ early success has nothing to do with Threads. It’s a function of the dysfunction at Twitter (aka Elon) and Meta’s monopoly footprint.

Netflix ate cable’s lunch as cable was a fat and happy regulated monopoly, charging hundreds of dollars for several great shows and hundreds of not great shows meant to distract you from paying hundreds of dollars for … several shows. Warby Parker disrupted an industry, sunglasses, dominated by one company, Luxottica, that was also bloated. Market dominance is its own defense, especially in social media, where network effects make existing networks impervious to startups. But Musk’s behavior lowered the drawbridge, and Zuckerberg walked through it without any resistance. Twitter’s implosion is historic. There has never been a firm in the modern economy that’s fallen this far, this fast that has not been accused of fraud.

Unraveling

We’re not only witnessing the unraveling of a firm, but a person. I have written about mens’ need for guardrails. These can take several forms — an office, a girlfriend, regulation, a board. The erosion of Musk’s guardrails as money and sycophants melt whatever better judgment or grace he had has resulted in a reputation experiencing the same trajectory as Twitter’s revenue. If Elon had never downloaded the micro-blogging app he’d be much wealthier and universally revered for his formidable accomplishments. Instead, he’s set a land speed record for hero to villain.  

To be clear, Twitter will not go away. Elon remains the wealthiest man in the world and can fund Twitter’s operations, and the interest on its debt, for years if not decades. There’s ample Elon stans and a sizable cohort who don’t care about any of this and have communities or identities on Twitter that work for them. Meanwhile, Threads faces many of the same challenges as Twitter: How do you balance openness and diversity of views with standards of decency while generating sustainable cash flow? It’s a riddle few, if any, firms have solved. LinkedIn? Reddit?  

Downward Spiral

History says the nose of this jet will be difficult to pull up. In 2008, MySpace was one of the most trafficked websites in the U.S., with 115 million active users, generating $800 million in revenue in a year. Then Facebook surpassed its user count and the business was sold for $35 million to Justin Timberlake. Friendster also had 115 million users at its peak in 2008. There’s a learning here: Social media apps do well until Mark Zuckerberg kills them. 

Meta’s Meta Opportunity

There’s a bright side to this. If Threads is the new Twitter, there’s an opportunity for Meta to establish itself as the new Meta. A Meta that takes content moderation, the spread of misinformation, and age-gating seriously. That sees its users as more than just data corpses for organ harvesting. There’s an opportunity for Zuck to step back and think about the long term, the direction he wants the business to head. If Meta gains significant market power in another segment of the social industry, government scrutiny will be intense — Threads hasn’t launched in the EU, because Meta hasn’t sorted how to get the Instagram/Threads coupling through the EU’s regulatory system. The Threads/Twitter saga is another proof point for the FTC and DOJ. The biggest threat to Threads is when we realize it’s owned by Meta.  

Threat

A few weeks ago, Musk challenged Zuckerberg to trial by combat. This is proof that being in your thirties, or even your fifties, and enormously blessed is still no guarantee that your testicles have descended. However, in the cage match proposed by Musk, thus far, the Zuck is kicking the shit out of Elon. I’m rooting for the fists.

Life is so rich,

P.S. This week on the Prof G Pod, I spoke with Mo Gawdat, former Chief Business Officer of Google [X]. We discussed the need to control our response to AI and the four major threats he’s identified — listen here.

P.P.S. Want to know how you should be using generative AI at work? Check out our post, How Should Your Business Use Generative AI? and sign up for Generative AI Business Strategy on August 15. 

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Super Drug

What if there was a drug that extended life, made you happier, healthier, and wealthier, and strengthened your relationships? The good news: It exists. The bad news: It’s being needlessly hoarded.

This drug is higher education. America is the world’s premier source, producing the compound at a purity no other manufacturer can rival. Harvard, for example, quadruples the patient’s income. It also dramatically increases their odds of becoming president. Millions come to the U.S. to access this drug. In a rational world, we’d be making as much of it as possible. Instead, we sequester it behind ivy-covered walls and sky-high tuitions. And for centuries, we prescribed it almost exclusively to white people.

15

In 1960 the Black student population across Harvard, Yale, and Princeton was 15. That’s 15 people, not 15%. In 1965, President Johnson made the case for doing something about it: “You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race, and then say, ‘You are free to compete with all the others.’” Subsequently, affirmative action has helped reallocate elite higher education more equitably: Between 1980 and 2020, the non-white Ivy League student population went from 14% to 50%.

Affirmative action has been controversial, and disputes about race-conscious admissions regularly reach the U.S. Supreme Court. This week the Court dismantled affirmative action, determining it unconstitutional to consider race in university admissions.

I believe this is the right answer (but the wrong question … more on that in a moment). I’m not alone in this view. Affirmative action is broadly unpopular. In the U.S., 74% of people don’t believe race should be used as even a minor deciding factor in college admissions. California ended affirmative action at public universities in 1996, and in 2020 voters rejected a measure to reinstate it by 14 percentage points. The benefits of race-based affirmative action have expired. (See above: The changed racial makeup at Ivy League schools.) To be clear, race is still a powerful force in American society, but it lags a more sweeping agent: money.

$$$

Students from the top family-income bracket score higher on standardized tests and are far more likely to go to college. At Harvard, 71% of Black, Latino, and Native American students come from college-educated homes with family incomes above the national median. Reshuffling elites, by race, is still elitism.

 

 

In a capitalist society, money is increasingly the ultimate determinant of everything. Beyond your college performance, the amount your parents make improves most other outcomes, from teenage birth rates to life expectancy. While it’s true a poor Black kid is disproportionately affected by poverty more than a poor white kid, the more meaningful macro-indicator of their success isn’t race — it’s that they’re poor. Family income isn’t a proxy for inequality, it is inequality. Americans support class-based preferences by 2 to 1. And they work: without looking at race, my alma maters, UCLA and Berkeley, consistently admit the highest percentage of students receiving federal Pell grants. In 2021 the UC system admitted its most racially diverse class ever.

The Court’s ruling has inspired an overdue conversation re legacy admissions. They’re a double-edged sword. It’s wrong that the unimpressive kids of shopping mall developers gain easier admission to the best colleges. Admissions directors know this. But money is the neosporin for their souls — happy alumni are generous alumni and could (in theory) provide the resources to help disadvantaged kids. But that justification is inconsistent with the rising cost and elitism of higher education.

In the past five decades, the price of college has risen 1,600%. Meanwhile, increasingly commonplace sub-10% acceptance rates are viewed as a feature not a bug. Some nuance here: This tuition increase is not evenly distributed, because the richest schools have torrents of money for scholarships. But their artificial limits on supply arbitrage good kids from middle-class families down the cartel chain to schools that charge the same price but don’t offer the same financial aid … or the same certification and experience. A kid from a top-0.1%-income-earning household is 80 times more likely to get into an elite college than a kid from the bottom fifth. College sweatshirts would be more honest if they printed  “Caste” above the logo.

Misdirection

The discussion around affirmative action and the emotion it evokes distract from the real issue and culprits. The question facing American higher education is not “Who?” It’s “How Many?” The answer should be … “More.” Specifically, lower cost, increased volume. More kids of color, more middle- and lower-income kids, more trans kids, more men, more women, more legacies, and more international students who pay full freight and become evangelists for the U.S. when they return to their native countries … or stay to run a Nasdaq company. We need to stop finding reasons to divide us and focus on solutions that enrich us. Hoarding a lifesaving drug like this would cause chaos and anger. And it has. Ask any parent of a senior applying to college.

Grand Bargain

The Supreme Court has, accidentally, illuminated a path forward. Striking down Biden’s debt-relief program freed up $500 billion earmarked for higher education. Something with a $500 billion price tag should be for an investment in the future of the country, not a populist bailout. The student debt relief package was an effort to shrink the tumor, but it did nothing to treat the underlying  cancer — cost and access. It’s telling that the affirmative action debate is irrelevant to most colleges and college applicants, as they do not have demand that far outstrips supply. That’s the answer, supply.

Here’s my proposal. The federal government should offer the largest 500 public universities (approximately the top third) an average of $1 billion per school (adjusted by size), in exchange for the following commitments. Over the next 10 years:

Reduce tuition by 2% a year;Expand enrollments 6% a year via investments in technology and infrastructure; andIncrease vocational/certificate programs to 20% of students.

The net result, in 10 years, would be double the freshman seats at half the cost (accounting for inflation) and a step-change in opportunity for kids who do not have the money, skills, or desire to pursue a traditional four-year degree. Nearly 50% of Germans have some sort of vocational certification; in the U.S. it’s 5%. Pro tip: Neither you nor your kid have failed if they don’t get a four-year liberal arts degree.

Note: Spare me the bullshit about an erosion in brand equity if our best universities broaden admissions standards. When I attended UCLA it had a 76% admissions rate, and the brand was outstanding. Scarcity is for luxury brands, not education. Rejectionist Nimbyism is a means of transferring of wealth from young/poor to old/rich: skyrocketing value in existing degrees and houses while the cost for young people to attain their dreams has — in lock step — also skyrocketed.

If we can scale companies 40% per year, then we can expand enrollments at our great public universities 6% per year. The system is ready. Remote learning and utilizing campuses during non-peak periods (summer, nights, weekends) could double capacity. Stop building luxury dorms and lazy rivers. Abandon our obsession with four-year liberal arts degrees — we can continue to produce poets and philosophers, but also plumbers and cybersecurity technicians.

Private

Most elite schools, however, are “private” though, right? Sort of. Even more than most “private” enterprises in the U.S., universities are profoundly entangled with the public purse (why the Supreme Court can tell Harvard how to run admissions). They are non-profits and don’t pay taxes on their endowment income, they are the recipients of billions in government grants, and their students pay tuition with federally subsidized student loans and financial aid. Accordingly, we should revoke the non-profit status of any university that enjoys a $1B+ endowment but isn’t expanding its freshman class size at the same, or greater, rate than population growth. If an organization is growing its endowment (i.e., revenues) but not their service to the commonwealth, there’s a term for that: for-profit.

Debt

Student loan debt is a problem, but it’s not the generation-wide disaster the left claims it is. Most student loan holders have manageable debt (the average payment is about $500 per month, or less than 10% of the median starting salary for a college graduate) which they pay off. That’s how loans work. But we should expand our existing loan forgiveness programs for those who take public service jobs or were affirmatively misled. And we should put schools on the hook for the bad debt they create. If a college’s graduate defaults on their student loans, the college should own 25% of the loss. This would force colleges to either improve the ROI of an education that foots the real economy or stop loaning $200k to kids they know will struggle to pay it back — they have this data. A student loan bailout enables universities to continue growing the tumor with increased prices: yes, it helps young adults who’ve seen their wealth cut in half (real benefit), but it also bails out universities who will not alter their predatory lending practices — meaning this generation will ultimately have to pay for another bailout.

Springboard vs. Filter

UCLA and UC Berkeley were transformative for me. I’ve given approximately $18 million to the University of California, and I still owe them. But when I applied, UCLA’s acceptance rate was 76%. (And I had to apply twice.) Today, it’s 9%. The secret to my success was being born before me and my colleagues in academia mutated from public servants to luxury brands.

The media-fueled fight over affirmative action is the latest grist for the mill of a growing, insidious American pastime: hating each other. The answer isn’t which people, but more people. The right has lost the American script, which is investing in youth whose best days are ahead of them — and the left wants to be wokesters vs. warriors attacking the real enemy. We’re missing the forest for the anger. The answer is more.

Life is so rich,

P.S. The Prof G Pod is now on YouTube. Check it out here.

P.P..S. Join me and AI expert Gary Marcus on July 25 for a free event on the threats and opportunities of AI. Grab your seat here, and come with questions.

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