Scott Galloway's Blog, page 7

Optimism as a Default Setting

Josh Brown is one of Prof G Markets’ favorite guests. He’s funny, fearless, and genuinely insightful about the markets. Turns out, he’s also a great writer. We asked him to share the post below, making the case for optimism, as that is not our strong suit. I’m more of a “the glass is empty, we’re out of water, and it’s big tech’s  fault” kind of guy. This post is adapted from his forthcoming book, You Weren’t Supposed to See That, coming out September 4.

Optimism as a Default Setting

by Josh Brown

At the turn of the 20th century, banker J.P. Morgan was the most powerful man on Wall Street, perhaps the most powerful man in the world. Finance in those days was still the Wild West, largely unregulated and prone to boom and bust cycles much more violent than anything we see today. On several occasions, Morgan personally orchestrated emergency measures to stop bank runs that might have otherwise taken down the financial system — typically increasing his own wealth in the process.

Shortly after one of those near misses, the Panic of 1907, an old friend of Morgan’s from Chicago came for a visit. The friend was, in the phrase of Mark Skousen, from whom I got this story, a “perma bear” — no matter what the market did, his outcome was always pessimistic. As usual, he and Morgan got to talking about the markets. And as usual, Morgan’s friend saw poor omens in every market indicator, while Morgan saw only buying opportunities. Eventually they headed out for lunch, and, walking up Broadway, Morgan’s friend was admiring the towering skyscrapers that were starting to define the Manhattan skyline. Impressed, he acknowledged they had nothing like them in Chicago. Eventually, Morgan stopped and turned to his friend. “Funny thing about these skyscrapers,” he said, “not a single one was built by a bear!”

Six years before that conversation, Morgan had completed his purchase of Andrew Carnegie’s entire steel operation for the unheard-of sum of $480 million, hundreds of billions in today’s dollars. You don’t do that deal and amass that kind of wealth with a persistently negative outlook. Count the perma bears on the Forbes 400 list or the number of pessimists who run companies in the Fortune 500. You will find none.

Winners and other men and women of foresight and ambition do monumental things; pessimists watch them from the sidelines, making a list of all the reasons things won’t work out. The losers do get to win sometimes, too. But their victories tend to be Pyrrhic, as every calamity ultimately leads to opportunity when the dust clears.

Bullish

In 2009, deep in the depths of the Great Financial Crisis, I saw Sam Zell speak to an audience of real estate investors and developers. He told us that “kings would be made” in that moment. He had nothing left to sell anyone, having blown out of his massive real estate holdings just three years earlier in a time of optimism. Old Sam had seen too many of these cycles; he knew that you always bet on positive outcomes, and you bet heavily when you’re alone on that side of the trade. It doesn’t always work, but it mostly does.

Pessimism is intellectually seductive, and the arguments always sound smarter, especially when they dovetail with our own worries. In the early years of the recovery from that crash, Sam’s advice (which Morgan would have echoed) was hard to follow. Even four years later, in 2013, when the stock market finally made it back over the 2007 high, optimism was scarce.

I remember distinctly how hesitant investors were to think positively about the future back then. On financial social media, saying things might work out OK was practically an invitation to be mercilessly ridiculed.

There were all sorts of reasons not to trust the recovery, and if you know anything about the media, then you know they had been relaying these reasons to us morning, noon, and night, repeatedly admonishing us lest we get too optimistic. Valuations were high, they said, while earnings would surely disappoint. Interest rates would rise. Various debt crises would ensue. Demographics were unfavorable. Obama’s healthcare plan surely meant the end of America. A looming government shutdown that fall would undoubtedly be the nail in the coffin.

And yet, somehow none of those things sank us. The year 2013 turned out to be the best for stocks since the halcyon days of the late 1990s. The Dow Jones Industrial Average finished the year up 26.5%, its best finish in 18 years. The S&P 500 had its best annual return in 16 years, capping out the year with an almost 30% return, ending December at a new record. The Nasdaq soared 38.2%, led by an emerging group of biotechnology and solar stocks that put on an extraordinary show for a new generation of growth stock enthusiasts.

According to S&P Dow Jones Indices, 457 of the S&P 500’s large cap stocks — roughly 90% of the index components — were up on the year. More than two-thirds of them had gains of 20% or more.

A new car company came out of the woodwork, too, and its relatively unknown CEO, Elon Musk, appeared on the cover of Fortune magazine as “Businessperson of the Year” in December. Tesla’s stock was up over 350% in 2013, kicking down the door to a new era while clearing the cobwebs of the aughts decade crisis away. Tesla’s rise and Musk’s wholly unorthodox approach to building his business represented the start of something entirely different from what we were accustomed to. This brought out as many haters and doubters as it did fans and acolytes. What was clear to both sides, however, was that something was changing.

Netflix had made its transformation from the company that mailed you physical DVDs to a streaming platform that changed the way we watched television and movies forever. Its stock rose 300% that year, becoming one of the hottest growth stories in the market. Best Buy mounted a notable comeback, too, notching a 240% return for investors who hadn’t given up on the company. BlackRock’s shares returned more than 50% as the stock market recovered, and the company surpassed all others in terms of assets under management, with the ETF giant breaking above $4 trillion.

For every negative you could have cited about the environment of 2013, there were plenty of reasons for optimism, as stocks reached new heights and smashed through a wall of skepticism. You just had to work a little harder to find them. This was true then, and it is true now. It will always be true. And despite all that we were worried about, and all of the unimaginable things that have befallen us since then, the stock market has been just fine. During the last 10 years, the S&P 500, assuming the reinvestment of dividends, has returned over 230%, or roughly 12% per year.

Bear Hunting

Today we are once again contending with all sorts of threats to our future well-being. Earnings expectations, we are told, must ultimately revert lower once companies run out of price hikes they can put forth, while the cost of employing people and running a business will surely increase. Profits are too high and must come down.

There’s the 2024 presidential election to be fearful about, too. As of this writing, the contest features “an unhinged insurrectionist criminal-tyrant who wants to wipe his ass with the Constitution” and a vice president who’s been thrust into the role after her party chased the “bumbling old man” out, after spending the last 18 months telling us he was perfectly healthy and up to the job. Surely a nation of 350 million people could do better. Somebody has to win, despite the fact that millions of people wish their choices were someone — anyone — else. So we’ll vote and live with the consequences. A few people on the winning side will be elated. Most of us will simply be relieved that it’s over — or possibly terrified by the prospect of what comes next.

There is more. We’re surely on the precipice of World War III, with China, Iran, and Russia allying themselves against Ukraine, Israel, and the rest of the free world, which the United States represents (and supports, both financially and militarily). We’ve got thousands of gaslit students (and their mendacious professors) openly supporting terrorism, kidnapping, mutilation, rape, and murder on college campuses across America. TikTok’s China-controlled algorithms gleefully pump the most divisive content they can surface directly into the national bloodstream.

Higher interest rates have put the housing market into a deep freeze. You can’t buy, and you most certainly can’t sell, risking a 100% increase in your mortgage rate. The national debt is ballooning by trillions of dollars, and the cost of servicing it all threatens to become our budget’s single biggest annual line item, supplanting Social Security and defense spending. Gas prices are high, rents are even higher, food prices are outrageous, hotel rooms and flights are egregious, and, even though nearly everyone has gotten a wage hike in recent years, the cost of living still seems to have outpaced it.

Talk to the average person on the street, and there’s almost nothing good worth saying. The polls are nearly unanimously negative.

“It’s bad and likely to get worse.”

What is bad? What is likely to get worse?

“I don’t know. It. Everything.”

OK, nice talking to you.

My point is that it’s easy to make lists of problems. Of everything that could go wrong or get worse. I could do it with my eyes closed, and so could you.

It’s much harder to have the imagination and the courage to talk openly about what might go right. What might improve. What unexpected thing could have a remarkable impact on how we work and live and change things for the better. Paradoxically, these types of improvements come along all the time. Given the long-term trend toward progress and convenience and lengthening lifespans, we ought to be more comfortable discussing the positives than we are.

But the bad stuff lands like a thud, generating headlines and invoking worst-case scenarios that drown out the sound of anything else. The good stuff creeps up on us, occurring slowly and quietly in the background as we gradually (and unobservantly) grow acclimated to it without even realizing. It’s rare for us to feel it or remark upon it in real time. The media has no vested interest in reminding us of it.

But the optimists are eventually proven right. Not every day, but always and eventually. Indisputably. It just takes a while to be able to see it play out. Even if you don’t believe me, make your investment in the future anyway, just in case I end up being right again. Plant your seed regardless. If you end up being right in your pessimism many years from now, we will all have bigger problems than what our investments are worth. Being optimistic all the time is difficult. But having any other disposition as a default setting makes little sense when you’re investing for a future far out in front of us.

Josh Brown

P.S. NYU colleague Professor Aswath Damodaran joined me and my co-host Ed Elson on the Prof G Markets podcast this week to discuss the corporate life cycle. Listen on Apple or Spotify

P.P.S. Section’s hosting a fireside chat next Wednesday with my colleague at Stern, Conor Grennan, to talk about Deploying AI in the Enterprise. Join for free.

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Art of the Plea Deal

After reading this, many readers will accuse me of Trump Derangement Syndrome (TDS). I believe I suffer from a different ailment, DAS: Democracy Addiction Syndrome. And Daddy needs his fix.

Today’s post is an updated version of one I wrote a year ago. While things have changed — a lot — since last August, my argument not only holds up, it’s gotten stronger.

Trump & Math

It’s increasingly likely Trump will exit the presidential race in exchange for an omnibus deal, across jurisdictions, that keeps him out of jail. The rise of Kamala Harris and the growing probability that the former president will lose in November make the logic colder and more compelling. Opinion polls show Harris ahead of or tied with Trump in six of the seven critical swing states. She’s beating him, for instance, in North Carolina, which he just barely won in 2020, and where Biden had been struggling even before the debate disaster.

It’s not the poll numbers themselves, which are all within the margin of error, but the Harris/Walz ticket’s momentum going into the DNC, which historically provides a 4- to 6-point polling bump. By the end of month, Harris could have a high-single-digit edge with nine weeks until election day. This is similar to the margin that compelled Nancy Pelosi to march up to the West Wing and tell President Biden to sign his resignation … with his pen or his blood.

Felon

This May, Trump was convicted of 34 counts of fraud by a New York jury in the Stormy Daniels case, the weakest case against him. Sentencing has been held up while he appeals, and it’s unlikely he’ll see any jail time, as a first-time, nonviolent offender. The other cases — federal trials involving January 6 and the allegedly illegal possession of classified documents, and the Georgia case about trying to overturn the 2020 results there — are different stories. They’re much stronger, but have been delayed by Trump’s appeals and moves to get judges and prosecutors replaced. None of them will come to trial before the election, and if he wins they probably never will. If he loses, though, he will face trial and the real possibility of conviction and incarceration; it’ll take time, but the gears of accountability and justice grind forward.

Harris has revitalized her party with a campaign that emphasizes youth, optimism, and hope for the future. She’s done this by saying (wait for it) nothing. Trump has done her job for her as he continues his grievance/rage tour. The age issue has turned from a bug into a feature for the Democrats. The Earth has shifted under Trump, and he’s stumbling. Recent better inflation numbers and the likelihood of a Fed rate cut soon will help Harris, too.

Also, somebody forgot to tell Trump he’s no longer running against Biden; he’s ranting that the guy who dropped out weeks ago is “close to vegetable state” and hallucinating scenarios in which Biden still gets the Democratic nomination. If “Get off my lawn” were an LLM, it would be the Trump campaign.

Crime and Punishment

President Trump is an obese 78-year-old male. The average 80-year-old has a life expectancy of (another) 8 years. Trump’s obesity and prison would probably cut that in half, meaning any sentence greater than 48 months is a life sentence. Incarceration, balanced against a life (post-deal) of golf clubs, sycophants, and porn stars, should weigh heavily on even the most delusional psyche.

How serious is the threat of prison? 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 which indicted 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 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 weren’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 his 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%. That’s a 1% chance of not going to prison.

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, not least of which is the Supreme Court decision granting Trump immunity for official actions as president. So 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 exceptional odds. The most favorable math still lands him in prison.

Get Out of Jail Cards

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 shut down the remaining prosecutions. Note: If he were totally focused on staying out of prison, he’d find a way to draft Nikki Haley to take his spot at the top of the ticket. I believe she’d win, cosplay Gerald Ford, and pardon Trump. Think about it.

Swingers

Ninety percent of the states are foregone conclusions. (Harris holds a 24-point lead in California; Trump has led Biden by as much as 19-points in South Dakota.) Pundits agree that only a handful of states will matter.

Harris only needs to win three of these states to take the White House: Michigan, Pennsylvania, and Wisconsin. And the odds are looking good, great even. Biden won all three in 2020. Plus there’s the Sun Belt. In North Carolina, where Harris is now ahead, reflects how change hasn’t been good for Trump. He won the state in 2020 by 1.3%. But it’s in transition, a microcosm of the broader challenge the GOP faces: Its base is older and whiter, and that population is giving way to a younger, more diverse, better-educated electorate — more likely to vote blue.

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 — a swing of as much as 52 million voters. These younger citizens vote in greater numbers than previous younger generations, and they show no signs of becoming more conservative as they age. This will be the Gen Z(oom) election.

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 are jonesing to see the back of Trump, and his acolytes now have power bases of their own. Fox will abandon him, the cloud cover provided by Lindsay Graham, Sean Hannity, 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. Once that’s gone, so is his leverage.

Trump won’t like making a deal, but the decision will be easier than many people think. He has no observable ideological commitment or loyalty to the Republican Party. In the 2022 midterms, Trump amassed a war chest of $108 million and gave … zero 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 wouldn’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 would be complex, but nothing precludes the effort. The alternative is worse: Trials would be circuses, 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 U.S. 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 single 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: Office Hours I share some of my favorite moments answering listeners’ questions on career advice. Listen on Apple or Spotify

P.P.S. Join Section next Wednesday for a free event on Navigating AI Data Privacy. Greg Shove will talk through common pitfalls, easy fixes, and developing an AI data policy for your org.

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Weapons of War: Higher Ed

Growing up, our biggest fear was “the bomb.” Dr. Strangelove came out the year I was born. Not to worry though, see a bright flash … just duck and cover. Yep, your desk will so shield you from a thermonuclear blast. This week, I interviewed historian Niall Ferguson. He believes we’re several years into a second Cold War. Fellow geopolitical gangster Fareed Zakaria calls it a Cold Peace. Regardless, there’s definitely a cold front moving in, but you wouldn’t know it looking at America. Our minds are elsewhere, and our guard is down.

War and Innovation

Nothing focuses one’s attention like the threat of imminent death. The first guy to use a sling to hurl a rock at his enemy was an innovator. The people who forged swords and shields from a copper-tin alloy spawned the Bronze Age. The U.S. Civil War saw the arrival of hot air balloons for aerial reconnaissance, the first organized army ambulance corp, the mass adoption of railroads, the telegraph, and photojournalism. The dividends from World War I included stainless steel, zippers, and daylight savings (hard pass). Just one madman invading Europe in the middle of the last century brought us flu vaccines, mass adoption of penicillin, blood plasma transfusions, radar, computers, and countless other products. If it wasn’t for a Cold War-era Darpa project that laid the foundation for the commercial internet, No Mercy / No Malice would arrive via post. The 20th century was defined by the symbiotic relationship between conflict and progress.

Conflict and progress will also likely define the 21st century. Veterans of Israel’s Unit 8200 have founded scores of startups, including Palo Alto Networks, Waze, and Wiz. Combat in Iraq and Afghanistan contributed to significant medical advances, particularly the use of robotic prosthetics, and deepened our understanding of traumatic brain injuries. Facing a more powerful enemy, Ukrainians are developing long-range drones that cost $30,000 a piece (a fraction of the price tag for a cruise missile) to strike targets hundreds of miles inside Russia. On the battlefield, Russia and Ukraine are locked in an innovation race to produce tactical drones that start at $500. Prediction: By the time that war ends, delivery drones will be commonplace, and the best will come from Ukraine.

Hybrid Warfare

In a global economy, every point of connection is an axis of attack. Hybrid warfare is a conflict cocktail that blends conventional military operations, cyber, disinformation, guerilla tactics, lawfare, diplomacy, regime change, and economic warfare. Vladimir Putin is a seventh-level hybrid warfare wizard. He has covertly poured state resources into high- and low-tech means to pit Americans and Europeans against each other. Just as Big Tech realized the greatest ROI was misinformation from likable executives — “We’re proud of the progress we’ve made” — propaganda continues to be how nations punch above their kinetic weight class.

Radio Free Europe

The U.S. practices hybrid warfare, too. Radio Free Europe wrapped propaganda in rock & roll and pumped it into the Eastern Bloc. We spend $500 million a year so the Peace Corps can flex America’s soft power muscles. U.S. and Israeli computer scientists created Stuxnet, a virus that sabotaged the centrifuges at Iran’s nuclear facility without firing a shot. And despite spending $820 billion a year on kinetic power, our primary weapon of choice is economic. We lead the world in sanctions — it isn’t even close.

Unguarded

TikTok, owned by ByteDance, is a Trojan horse that enables the Chinese Communist Party to construct the frame through which American youth see the world, the U.S., and themselves. It’s not about whether the CCP strives to diminish U.S. standing and prosperity (they do), but if we should make it this easy for them. The U.S. government is slowly waking up to the TikTok threat. When it comes to communications platforms of declining influence — television and radio —  U.S. law restricts foreign ownership. (Note: Rupert Murdoch bypassed this law by becoming a U.S. citizen.)

Investments affecting national security, energy, and infrastructure also face scrutiny. It’s a dumb idea to give your adversaries the ability to control your weapons systems, turn off the power grid, or close your ports. And it’s plain stupid to let them implant a neural jack into the wet matter of our youth. (See above: TikTok.)

American universities, however, are undefended — they are open for business. In 2019 fewer than 3% of 3,700 higher education institutions complied with a law requiring them to report foreign gifts or contracts exceeding $250,000. The following year an Education Department report concluded, “U.S. institutions are technological treasure troves where leading and internationally competitive fields, such as nanoscience, are booming. For too long, these institutions have provided an unprecedented level of access to foreign governments and their instrumentalities in an environment lacking transparency and oversight.” A subsequent crackdown has called into question foreign money at Harvard, Yale, MIT, and other schools. But Woodward and Bernstein, the Deadpool and Wolverine of journalism, didn’t just follow the money, they identified its source.

China

High tariffs keep Florida oranges out of the Chinese market. But contracts worth $1.8 million give Chinese growers access to University of Florida citrus research. One Florida grower called the deal an “intellectual property grab.” The University of Michigan has around $1 million in contracts from DiDi Global, a Chinese ride-sharing company built on government money that forced Uber out of their market. When a Chinese equipment maker filed an IPO, it told investors that its connection to the University of Minnesota allowed it to “enjoy the latest achievements of world-class R&D institutions.” Why worry about IP theft, when IP can be purchased at a deep discount on campus?

Saudi Arabia

Sixty-two U.S. universities receive billions from Saudi Arabia. In exchange, the Saudis get access to America’s top minds, but they also get a brand makeover. The Kingdom has made similar investments in sports and startups, including in Premier League football, the PGA, and WeWork. This is, in my view, a market transaction that’s good for both parties, as American firms get access to cheap capital. However, there’s something uncomfortable about a monarchy that doesn’t share our values having influence over the universities that, arguably, shape the values of tomorrow’s business and government leaders.

A former U.S. ambassador to Saudi Arabia likened the Kingdom’s “higher-ed-washing” campaign to U.S. soft power. True, it’s the same tactic, but there’s no moral equivalency. When the Saudis buy brand makeovers from American universities, there is also a risk that the curriculum and professorships will question, in the most civilized manner, our American values.

Qatar

Since 1998, Qatar has spent billions funding satellites of U.S. universities in Doha. “Education City” is home to campuses for Georgetown’s school for politics and foreign relations, Carnegie Mellon’s computer science department, Virginia Commonwealth’s fine arts department, Cornell’s medical school, and Northwestern’s journalism school. Texas A&M has an engineering school in Qatar, though it’s set to close in 2028. Why? School officials say they’re concerned about stability in the Middle East. Meanwhile, a think tank known as the Institute for the Study of Global Antisemitism and Policy alleged that Qatar had “substantial ownership” of weapons development rights and nuclear engineering research being developed at the Texas A&M campus. Texas A&M denies the allegation.

Nations form alliances and partnerships based on shared interests, not altruism or friendship. This is the reality of geopolitics and our relationship with Qatar — it’s got an awful human rights record and ties to Hamas and Iran, but it’s also home to the largest U.S. military base in the Middle East. It’s complicated.

American foreign policy needs Qatar; American universities don’t. Elite schools enjoy endowments worth billions and charge students roughly the equivalent of a luxury car for every year of tuition — they might miss Qatar’s money, but they don’t need it.

Patriotism

Nearly 300 UCLA graduates gave their lives during World War II. My alma mater isn’t unique. U.S. colleges coast to coast mobilized for war. Every school sent graduates to the front lines. The University of Maryland graduated students in three years to boost enlistment. Columbia University changed its curriculum to serve the war effort. By 1942 as many as 3,000 armed forces personnel were taking classes at Harvard. And, of course, America’s research universities provided the intellectual firepower, including the atomic bomb, that won the war. The Greatest Generation displayed a sense of duty and patriotism that we applaud today as exemplary. Their love of America helped them save America.

We’re less patriotic today, especially young Americans. That should be a clear and present danger to university administrators and faculty as autocrats threaten democracy in the U.S. and around the world. We armed the Greatest Generation with patriotism; we’re disarming today’s students with narcissism.

Tip of the Spear

Universities are the tip of the spear for America, shaping the next generation of leaders and innovators. Our purpose is to provide an environment where students can explore their passions, challenge their beliefs, and develop critical thinking skills. Trashing America might earn students and faculty clout online, but in the real world it’s stupid. (UC Berkeley Professor Carlo Cippolla identified “stupid” as people who hurt others while hurting themselves.) We’re on the road to stupid, and it’s paved with money from our adversaries.

Americans’ superpower is our optimism. However, the Achilles’ heel of this optimism is that it’s easier to fool Americans than convince them they’ve been fooled. This, coupled with money-obsessed, bloated universities have turned American values of intellectual freedom and free speech on itself. Cancer is when the host’s own cells turn on it, and America’s cancer is the coarsening of our discourse and the emergence of a white-hot fashion among university youth — hating America. Is the $14 billion that has poured into American universities an attempt to build bridges between us and other nations, or is it a long game being played by our adversaries to turn our cells (youth) against us? The answer is yes.

Is there a point where the risks outweigh the upside? As someone who’s given money to universities, I know that, no matter how benign, the donor expects something in return (e.g., influence over curriculum, who receives financial aid, faculty hires).

Campus leaders need to ask a simple question: What do foreign nations want in return for their billions, and what are they getting?

Life is so rich,

 

P.S. This week on Prof G Markets, Mark Mahaney, senior managing director and head of internet research at Evercore, joined me and Ed to discuss why the market’s freakout is an opportunity, not a crisis. Listen here on Spotify or here on Apple Podcasts.

P.P.S. Section released new research: The AI Proficiency Report. It finds that only 7% of people are really good at using AI — the rest of us need to catch up. Download here.

 

 

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Smaller

The Olympics used to be a slab of TV content. The internet has ground the Games into social media moments.

Things change. When I was a kid, the Summer Olympics were an iconic, quadrennial opportunity to rewatch the moon landing. Another chance to beat the Russians, this time in the medal count. But despite still commanding huge audiences, the five rings feel like a shadow of their former selves.

The Olympics have lost much of what made them the paramount sporting event. The key to an aspirational/luxury brand is the illusion of scarcity, and the Olympics feel less scarce. You no longer have to wait four years, now that the Summer and Winter Games alternate every two years. In 21 months, Comcast will begin marketing the Winter Games in Cortina d’Ampezzo (awesome name). A brand based on scarcity has effectively doubled its supply.

Also, while likely unavoidable, the presence of professionals in almost every sport has diluted the brand and the authenticity amateur athletes brought. The youth-focused events added in recent years, including skateboarding and BMX freestyle, cool as they are, don’t have the mystique of classic Olympic sports such as track and field. It feels as if the Olympics, like the rest of us, are desperately trying to look younger. To be fair, the Games have a history of adding and dropping new and/or weird sports going back to the first modern event in 1896. Firefighting, ballooning, and lifesaving were events in the early days.

Finally, the good guys vs. bad guys rush inspired by the Cold War has faded, and not just for us Americans. Athletes and fans are still proud to represent their countries, of course, but the nationalism seems less ferocious. The whole thing feels … smaller.

It’s a Business

Just before the start of the games, the International Olympic Committee said it was on track to hit its target of $1.2 billion in corporate sponsorships — the IOC says about 30% of its revenue comes from sponsorships; the rest comes from TV rights and licensing. LVMH paid about $163 million to be what the company calls a “creative partner.”

Watching the opening ceremony, two things struck me:

First, Paris isn’t a city, it’s the premier backdrop for any person/place/event trying to create a sense of elegance, sophistication, and exclusivity. The Olympics is the gangster travel ad for the host city, and no tourist destination is an easier sell than Paris.

The second thing: I am a Celine Dion fan.

I’d always dismissed her out of hand, but she gave what may be the performance of 2024. I just read that last sentence and realized I have officially become a senior citizen. Anyway, it was impossible to see her performing solo under the Eiffel Tower, despite the neurological problems that have derailed her career, without thinking of another Olympics moment, a Parkinson’s-wracked Muhammad Ali lighting the cauldron at the 1996 Atlanta Games.

Big Small Screens

The Olympics are — and always have been — about big, emotional moments. What’s changing is how we watch them. The TV audience has been shrinking for years. The opening ceremony this year brought a U.S. audience of 28.6 million viewers to NBC and its Peacock streaming service. That was significantly more than the 17.9 million who watched the Covid-hobbled 2020 Tokyo opening ceremony, but a steep drop from the peak 40.7 million who watched the London opening in 2012.

NBC paid $7.65 billion in 2014 for broadcast rights through 2032, and, looking at the TV viewership numbers, the IOC is on the better end of the deal. NBC, however, claims it booked $1.2 billion in Olympic ad revenue before the games and says it believes Paris will set a new ad revenue record.

A big engine of that ad revenue is streaming and other online distribution. While the overall viewership numbers are down, the digital share of Olympic viewership is up. NBC is using the Games to jumpstart Peacock, an also-ran in the streaming wars (33 million subscribers vs. Netflix’s 277 million). For the first time, Peacock plans to stream all 329 medal events — 5,000 hours worth of content — live. Streaming coverage of previous games was clunky.

NBC also wants to lock in a piece of the action on other digital platforms, specifically social media it doesn’t own. For the Paris Games, NBC has done digital partnership deals with Meta, Overtime, Roblox, Snapchat, YouTube, and TikTok, with which it is producing a daily one-hour TikTok Live show, Spotlight on Paris.

On its own, the network itself doesn’t seem to add much value. Watching the Games on linear (broadcast) TV is frustrating. Somebody else is deciding what you’re going to watch — a producer decides you’re going to see race-walking instead of surfing. On Peacock, you can be your own producer.

This year the technology caught up with the content. The shift toward streaming has cultivated more engaged audiences. Viewers actively choosing what and when to watch has led to greater engagement and more targeted advertising opportunities. I’d rather sit on the couch, let someone else decide, complain about it, and be pelted by ads about my restless legs or opioid-induced constipation. But I digress.

Linear TV used to be the entire story; now it’s just one of three ways to watch — broadcast, streaming, and social media. Increasingly, it’s becoming less of a distribution channel and more of a content generator that feeds video to the insatiable streaming and social media platforms.

Not One Story

Every sports organization on the planet from Formula 1 to the National Football League has turned its attention to digital distribution. The Olympics, though, may be better suited to the internet than any other sporting event. Unlike the SuperBowl or the World Cup Final, the Olympics is not an event people will watch from beginning to end. It is instead a huge collection of little stories, human moments.

We’ve watched best friends (Sarah Bacon and Kassidy Cook) win a medal in synchronized diving and Simon Biles take flight. We’ve watched the emotional TikTok of Filipino weightlifter Hidilyn Diaz winning her country’s first-ever gold medal. (Actually, this is from the 2020 Games, but never mind — go watch it.)

Other Paris moments: Ukrainian fencer Olga Kharlan dedicating her bronze medal to her country’s servicemen and women; French swimmer Léon Marchand crushing the competition in front of a home crowd; Brazilian surfer Gabriel Medina seeming to walk on air after an epic wave off Tahiti. The good-natured trash talk between members of the U.S. table tennis team and basketball star Anthony Edwards (Edwards refused to believe he wouldn’t win a single point) has been shared nearly 16 million times on X.

I was, no joke, the worst D-1 athlete in UCLA’s history (crew). However, several friends went to the Olympics. These athletes put their life on hold to represent their country at the Games and — outside the romance sports — made huge sacrifices economically to be the best in the world, at something, at that moment. Greatness is in the agency of others, and at the Olympics athletes are competing for something bigger: national pride.

The Olympics do feel smaller than in the 1980s. It may be because we are consuming them now in smaller bites. Some of what made them feel important in the past — particularly the intense us vs. them nationalism of the Reagan era — is gone.

What is still there is the primal drive to compete and the hunger to feel something. In a world increasingly run by old people, it’s inspiring to watch young people pursue excellence for the sake of something bigger than themselves: one another and their countries.

I like Celine Dion, and the Olympics.

Life is so rich,

 

P.S. Every Wednesday on the Prof G Pod I answer listener questions. This week: Is the U.S. College Price Tag Still Worth It? and Why You Should Say Yes More Often. Listen on Apple or Spotify.

 

P.P.S. Join a free fireside chat on the Backlash to AI, featuring Blood in the Machine’s Brian Merchant. Bring your questions on copyright issues, job loss, data privacy, humanity’s imminent demise, and more.

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Brand Harris

A decent boot camp for marketing is to work on a campaign. In these contests, there are two brands with few differentiating attributes re the product that consumers discern. Would you know who is president, at any given time, if you didn’t know who is president? The race for president of the United States is a function of perception, whoever builds the better brand. The product is purchased on a single day, and whoever captures 51% market share is given the entire market for 4-8 years and the number 2 is out of business. Elections are full-body contact marketing.

It’s not who’s better, but who does a better job de-positioning (i.e., trashing) the other brand. Elections in America have become a contest between who you dislike least.

Mo Money/No Money

An e-commerce company’s most valuable asset is its customer database. Email drives sales. Too many emails increases unsubscribes/churn. There’s a sweet spot between growth and strangling the golden goose. My first clue that Red Envelope (the e-commerce company I founded and which had subsequently gone public) was in trouble came during the 2007 holiday season, when I started receiving four times the usual number of promotional emails. I saw the same signal during the final weeks of Joe Biden’s presidential campaign.

In June, Biden outspent Trump 6 to 1. Polls had Biden either treading water or losing ground. But the race between the septuagenarian and the octogenarian was always close. This wasn’t about polls. For Biden, the beginning of the end was when his big-money donors withheld $90 million.

Money talks in American politics, and it usually says the winner’s name. In the previous cycle, the better-financed campaign won 93% of House races and 82% of Senate races — typical win rates in the 21st century. In every election cycle since Citizens United, the money gets louder. While Democrats pretend Biden stepping down was about his love of country or believe the former speaker was the wizard behind the curtain, the reason Biden is headed for the exit is less romantic: Money didn’t talk, it swore at Biden and told him to fuck off. Specifically, fundraising ground to a halt after the debate.

The Smoke-Filled Room

As the curtain dropped, the spotlight shifted to Vice President Kamala Harris. There are tangible benefits to a Harris candidacy. Serving four years as VP is the best training for the presidency. She was on the ticket that won the Democratic primary. With less than four months until the election Harris starts the race at letter F, vs. A. Seamless access to Biden’s money and infrastructure is a big deal. She also raised $81 million in 24 hours; and half of that money came from small donors. Sixty percent of those were first-time donors. The day after his conviction, Trump raised $53 million, but $50 million came from one billionaire. Money appears to be serenading the former senator.

And yet, watching Democratic leaders quickly fall in line to endorse Harris before a challenger could emerge is a coronation, not a contest. If you thought party elites put their finger on the scale in 2016, how does 2024 feel? The bumper sticker is the same as it was a week ago, we’ve just swapped out names: “Get behind Biden Harris, or shut the fuck up.” While the elites may have picked the heir, it was the same elites who pretended there was nothing wrong and 75% percent of America told them to hold their beer and find another candidate.

Historically, party bosses picked the candidates in “smoke-filled rooms.” And there is something to be said for expertise. But after a disastrous 1968 Convention, Democrats  sped up a shift toward small-d democracy to pick their nominees. By 1976, Democrats selected 73% of convention delegates in primaries, while Republicans chose 68%. That year, Jimmy Carter beat Gerald Ford, the only person to become president without running for the office or being elected VP first. For the next three cycles, Democratic voters nominated sacrificial lambs: Carter (49 electoral votes), Walter Mondale (13 electoral votes), and Michael Dukakis (111 electoral votes). But that same system also gave us Bill Clinton and Barack Obama. There’s something to be said for a process where voters choose the nominees.

There’s no such thing as a perfect nominating process. This one is remarkably imperfect — the optics of a smoke-filled room and a candidate who won’t have the benefit of combat in the primaries. I believe the Democrats, and the Vice President, would have benefited from a Shark Tank-like series of debates in the weeks leading up to the convention. Specifically, down ballot candidates would have benefited from a media spectacle highlighting how strong the D bench is. This, in my view, could have buttressed the blue brand and made voters more likely to vote D when they weren’t familiar with a down ballot candidate. But angst and second-guessing are counterproductive at this point according to every fucking party elite… telling me several times a day. As my Pivot podcast partner Kara Swisher said, “Let’s get to work.”

Laddering

Laddering is an exercise that helps you zero in on the most effective messaging for your product. (It’s also the subject of Week 8 in my Brand Strategy course at Stern. Note: I invented the term for my course, vs. its original definition.) Messaging that doesn’t just highlight your brand’s strengths but de-positions a competitor, and illuminates a weakness. You cast yourself in a specific light that elevates your cheekbones while adding 15 lbs to your foe’s silhouette.

Apple CEO Tim Cook is a master at laddering. In the wake of the Cambridge Analytica scandal, he declared that “Privacy is a human right.” This was a clear jab at Facebook and Google, highlighting Apple’s commitment to privacy while contrasting it with its competitors’ weaknesses.

The George W. Bush campaign in 2004 executed one of the best laddering strategies in marketing history. They ran an ad titled “Whichever Way the Wind Blows,” showing John Kerry windsurfing as a metaphor for his flip-flopping on issues. This indirectly cast Bush as resolute and consistent, while painting Kerry as indecisive.

We have an easier time believing people are bad vs. good — it’s a survival mechanism to assume the person/animal in front of you is foe, not friend. With a 38% approval rating, Harris has work to do. She also has a lot to work with. Her identity, record, and personal story are disco from seventies laddering heaven.  Also she has a not-so-secret weapon; she’s not Donald Trump.

So, the contrasts the Harris campaign should illuminate:

Future/Past

A week ago, Trump looked relatively young, strong, and mentally fit. But that’s only because Biden was none of those things. It’s ironic that Trump’s age/vitality has morphed from his biggest strength to his biggest weakness in a weekend. Age will continue to be a big issue in the campaign.

The contrasts between Harris and Trump are stark. He’s an overweight 78-year-old white man with a spray-on tan; she’s an attractive, fit 59-year-old Black and South Asian woman. He rambles, swinging from dumb and dangerous to conspiracy theory. While Harris has found a better footing recently, her public orations as VP were best described as yogababble. However, I believe she’ll win the debate(s) just by showing up. As Kennedy and Reagan demonstrated, it’s not not what you say but how you look. Harris makes Trump look like Biden.

Good Economy/Bad Economy

We haven’t had a normal election in more than a decade. But even in abnormal elections, economic concerns — jobs, inflation, wealth, income inequality, etc. — top the list for voters. As the Ragin’ Cajun said, “It’s the economy, stupid.”

The bad news: Voters disapprove of Biden’s handling of the economy 51% to 39%. The good news: The Biden economy has a lot to celebrate. Impressive job growth. Markets touching record highs. The strongest GDP growth and lowest inflation in the G7. The VP needs to come armed with receipts re: job creation and growth, and be prepared to fact-check Trump’s lies in real time at a debate (if there is one) and on social media.  Her campaign will need to do a better job weaponizing surrogates to stay on message and pound home the strength of the economy. While it’s fun to mock J.D. Vance, and the cable networks love the outrage it foments, moderates vote on more boring shit (see above: the economy).

Prosecutor/Convicted Felon

Hours after being released from prison, former Trump adviser Peter Navarro spoke at the RNC. Steve Bannon couldn’t be there, as he’s serving a four-month sentence. Paul Manafort, Trump’s 2016 campaign chair, did time before Trump pardoned him. But wait, there’s more. George Papadopoulos, Rick Gates, Michael Cohen, Roger Stone, Allen Weisselberg, and 700-plus Jan. 6 defendants have either been convicted of crimes or pleaded guilty.

Harris began her career as a prosecutor and served as the attorney general of California. She prosecuted sex offenders; 26 women have accused Trump of sexual misconduct, and in E. Jean Carroll’s defamation case against Trump, the judge concluded that he had committed rape. Harris shut down predatory for-profit colleges; Trump University was a scam. After the housing crisis, she took on the banks and got back $25 billion for California taxpayers; Trump was a slumlord who was found liable in civil court for defrauding banks.

She’s running for president. He is running from prison.

Reproductive Freedom/The Handmaid’s Tale

For decades, the religious right worked to erode the separation of church and state and overturn Roe. Trump and his Supreme Court justices ultimately delivered on that promise in Dobbs. The decision restricts reproductive freedom and endangers lives. It’s also deeply unpopular across the political spectrum. I moved to London two years ago. In that time, the most shameful shift in America is that 1 in 5 women must now travel outside their state to terminate a pregnancy. It will never be 5 in 5 — this isn’t a war on women, but a war on poor women, and wealthy people will always have access to family planning. If age will be the implicit issue in the campaign, bodily autonomy should be the explicit issue for Harris.

Harris’s best moment in the Senate was when she asked Supreme Court nominee Brett Kavanaugh if he could think of any law that gives the government the power to make decisions about the male body. Go back and watch the exchange. It’s a perfect ad that should run in every market nonstop.

Harris fights for reproductive freedom, Trump fights for White Christian nationalists.

Glass Ceiling

In 1960 the conventional wisdom held that America wasn’t ready for a Catholic president. In 2008, America wasn’t ready for a Black president, especially one named Barack Hussein Obama. In 2020 we weren’t ready for a Black South Asian woman to be VP. In hindsight, historic breakthroughs feel like destiny. But before you break one, doing so feels risky.

We’ve come a long way on gender. Geraldine Ferraro threw a rock at the glass ceiling when she ran for VP in 1984. In her first campaign for Congress, her slogan was: “Finally, a tough Democrat.” She won. But in the 1984 presidential race she frequently faced questions like, “Are you tough enough to be president?” Thirty-two years later, Trump didn’t attack Hillary Clinton for being weak. He called her “Crooked Hillary.” She cracked the glass ceiling, winning the popular vote. Meanwhile, America continues to normalize female leadership as it spreads across the world. Also, many moderates likely look back to 2016 and realize the woman would have been the better choice.

Project 2025

Harris should wrap Trump in Project 2025, intertwining his presidency with the manifesto for what the country would look like under his leadership. Haven’t heard of Project 2025? Only 20% of voters say they know about the 900-page Heritage Foundation plan to dramatically rewrite life in America. A few of its greatest hits: purging civil servants and staffing the federal bureaucracy with loyalists, eliminating the Department of Education, using the military to round up and deport millions of people, banning porn. This isn’t a policy agenda, it’s a blueprint for White Christian Nationalism. Even the Kremlin and the Stasi allowed weather reports.

Harris will face her own challenges after the honeymoon period comes to an abrupt end in the next week. Trump will position her as an überliberal, a failed border czar who has yet to receive a single vote or delegate for president. I imagine the Trump campaign running — and they’d be smart to — a 24/7 media loop of footage of the Zombie Apocalypse of Useful Idiots on campuses after Oct. 7. In addition, live footage from the downtowns across democratically controlled cities on the West Coast. In sum, de-position of the Democratic party and show the underbelly of institutions/metros controlled by Democrats.

Free Gift

A free gift w/purchase, or the only thing I worry the Harris campaign will miss in their messaging is even more boring.  A surprising number of young voters highlighted the growing deficit as an area of concern. Harris stating “we need to get our fiscal house in order” with tough talk re cauterizing reckless spending would piss off the far-left while warming her to moderates. The former are in her ear every day, the latter will decide the election. It would also have a nice ring to it (i.e., true) as Harris is more moderate on economic issues than the perception.

Democrat’s strength is their weakness — idealism. However, the quest and vision for a better world often strays into a mix of indignance and denial. If Democrats were solely focused on beating Trump, they’d pick Mitt Romney as VP (after throwing up in your mouth, think about it) and Biden would step down to let Harris run as the incumbent.

And one final thing: Donald Trump is a rapist and an insurrectionist.

Life is so rich,

P.S. Brian Merchant, author of Blood in the Machine, will sit down with Section on Aug. 14 to discuss the backlash to AI — what’s legitimate and what’s overblown. RSVP here (it’s free).

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Misdirects

Narratives surrounding the attempt on Trump’s life were being shaped as the event was unfolding. Most of them are misdirects from the real story — the crisis facing young American men.

Moments after he was shot by 20-year-old Thomas Matthew Crooks and swarmed by Secret Service agents, Donald Trump had the instinct, and physical courage, to pump his fist for the crowd and shout “Fight!” That image of him, defiant with blood running down his face, may help him recapture the White House and mark the year — possibly the decade.

Soon after, anyone with an internet connection rushed to vomit out an explanation of events that rendered their perceived enemies as un- American, dangerous even. Republican Congressman Mike Collins of Georgia announced on X: “Joe Biden sent the orders,” equating Biden’s clumsy shooting metaphor — “It’s time to put Trump in a bull’s-eye” — to instructions to carry out a hit.

Elsewhere, conspiracy and misinformation from the left speculated the shooting had been a false flag staged by the Trump campaign itself. People on the far right declared that the Secret Service’s failure to prevent the shooting was caused by the DEI assignment of incompetent female agents. Spoiler alert: More White men protecting White men from other White men isn’t the solution.

There’s also an understandable raft of questions wondering why, if attendees at the rally could see the shooter on the roof, the Secret Service did not. Thus far, it appears this was a story of incompetence vs. a conspiracy. Regardless of your politics, there are few people who deserve to be relieved of their duties more than Director Kimberly Cheatle.

When President Biden addressed the nation on Sunday he highlighted the need to “cool down” the temperature of American politics. This is a reasonable request — and has zero chance of happening.

All of these narratives are an effort to get you to look away. We knew who the perpetrator was before knowing who he was: a lonely young man with access to weapons of war trying to recapture social status with a (perceived) heroic act of violence.

Lost Boys

I’ve written and spoken a lot about the obstacles — financial, educational, social, sexual, spiritual — facing young men today, so I won’t relitigate my case. If you’re interested, read more here or here or check out my TED talk.

The CliffsNotes: Over the past generation there’s been a deliberate transfer of wealth from the young to the old. Among other things, the result is unaffordable and indefensible costs for education and housing. Things are especially bad for boys and young men.

Algorithmically generated content on social media contributes to — and profits from — young men’s increasing social isolation, boredom, and ignorance. With the deepest-pocketed firms in history attempting to convince them they can have a reasonable facsimile of life on a screen, they grow up without acquiring the skills to build social capital or create wealth. They face an educational system biased against them and enter a workforce where the minimum wage is below the poverty line. Many boys grow up with nearly no male role models. The results include loneliness, depression, suicide, and an increased susceptibility to radicalization and belief in conspiracies.

Alienation and disaffection drive depression 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. One in seven men reports having no friends, and 3 of every 4 deaths of despair in America — suicides and drug overdoses — are among men. We’re facing declining household formation, reduced birth rates, and slowing economic growth just as the baby boomers are entering decades of nonproductive retirement.

There is, to put it simply, a cohort of young people in our country who are denied the same opportunity presented to my generation: the chance to live a meaningful life.

12 Years

A generation of alienated young men can quickly thrust a nation into darkness. I spent last week in Germany for the European Championship. In between football matches, we did bike tours, learning about the history of Deutschland. For most of its centuries-long history, Germany has been a progressive society, tolerant of diverse religions, nationalities, and sexual orientations. Central to its 12-year descent into fascist totalitarianism was the same incendiary that inspired the Russian Revolution, the Arab Spring, and the fall of the Roman Empire: struggling young men.

The Great Depression left many young men in Germany unemployed and without prospects. The National Socialist Party capitalized on this desperation by promising jobs, economic stability, and a return to national greatness. For young men from lower socio-economic backgrounds, the Nazis offered unprecedented opportunities for social mobility. By joining the party or its affiliated organizations, men could gain power, status, and influence that were otherwise unattainable in the rigid class structure of Weimar Germany. These recruits made up the 2-million-strong Hitler Youth, and then the Sturmabteilung, or SA, also known as the Brownshirts.

One Man

Sometimes it takes just one disaffected young man to change the course of history. Gavrilo Princip was born on July 25, 1894, in the village of Obljaj in Bosnia, at the time part of the Austro-Hungarian Empire. He was the second of nine children in a poor Serb peasant family. Only three of his siblings survived infancy​. Think about the last sentence and the impact on your perspective had you been raised in an environment where only one-third of your brothers and sisters survived.

Gavrilo moved to Belgrade in 1912, where he joined a Serbian nationalist organization, the Black Hand, a secret military society known for its use of terrorism to achieve political aims. Princip’s assassination of Archduke Franz Ferdinand and his wife set off the chain of events that led to World War I and set the stage for World War II. He was 19.

Sometimes It’s Darkest Before It’s Pitch Black

There have actually been only 231 documented acts of political violence between 2010 and 2020 in the U.S. However, with 40,000+ gun deaths each year, and 10 mass shootings a week, it’s naive to think large, frequent gatherings such as political rallies won’t eventually be subjected to random violence. What makes it more likely — the glycerin to the nitro of struggling young men — is access to weapons of war.

The AR-15-style semiautomatic rifle Crooks apparently used is not a weapon for hunting, target shooting, or self-defense outside of a war zone. (Cue the dull comments from gun violence apologists.)

Investigation finds Secret Service failed to account for nation’s 393 million guns —The Onion

The original AR-15 was designed in the 1950s because U.S. combat soldiers needed an accurate weapon that fired multiple rounds at the enemy fast. The AR-15’s descendants, once banned by President Clinton, are now the bestselling guns in America. When Trump was president, he considered reinstating the ban until the NRA talked him out of it.

We Knew Who He Was

We knew who Thomas Crooks was before we ever heard his name. As my Pivot podcast partner Kara Swisher put it, he was “that kid,” somebody none of us had any trouble imagining. A kid with little social capital, connection to others. We know that kid, some of us were that kid.

A classmate told the New York Times about Crooks being mocked as a freshman for his dorky Spongebob T-shirt and poor hygiene. “Those other kids would always say, ‘Hey, look at the school shooter over there!’” she said.

The coarsening of our discourse, income inequality, and political polarization are problems that warrant our attention and resources. But the accelerant poured on almost every serious problem in our society is a generation of young men who lead increasingly bleak, lonely lives. We don’t have a monopoly on struggling young men. But we do have a monopoly on struggling young men who have access to weapons of war.

We need more empathy, as well as programs that restore connection: investments in third places, vocational programs, expanded freshman seats at colleges, child tax credits, negative income tax credits, a $25 minimum wage, a culture of mentorship, more men teaching in primary schools, age-gating of social media, mandatory national service, and fiscal/tax policies that stop the transfer of opportunity and prosperity from young to old.

Each side wants to blame the other’s rhetoric, or find a novel conspiracy. The issue is more boring and hiding in plain sight: The most dangerous person in the world is a lonely young man, and we are producing too many of them. Worse, we arm them with weapons that every other developed nation recognizes are instruments of war.

The U.S. is nearly impervious to foreign threats, but it’s waging war on itself. The front line of this war is on our own soil, raging, and largely ignored: the struggle of young men.

Life is so rich,

P.S. On the Prof G Pod this week I spoke to Jessica Tarlov, reporting live from the RNC, and with Reid Hoffman about the decision facing Biden. Listen here on Apple or here on Spotify.

P.P.S. Get on the waitlist for Section’s Build an AI Product bootcamp, and design and prototype an AI-powered product in eight weeks. Waitlist members get a discount.

 

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The Financial Frontier

When Dr. Doug Ross (George Clooney) changes the direction of our world, it’s a sign I should return to my knitting and discuss business. I don’t know if it’s age or common sense, but it feels as if this world is getting increasingly unstable. So let’s take a break, and venture to space.

Space Spoils

We won the space race. Our Nazi scientists were smarter than their Nazi scientists. Getting to the moon first and planting our flag was a cosmic branding event — literally and figuratively. It wasn’t cheap: Between 1960 and 1973, NASA spent more than half of its budget, about $28 billion ($280 billion adjusted for inflation), on the project. Spending on NASA at the peak of the space race accounted for more than 4% of the total U.S. budget. 

Spacecraft vs. Griftvessel

The worst branding events for space were the Challenger disaster and Virgin Galactic. Space tourism hasn’t yet transported consumers to space, but it did shuttle retail investors’ capital (SPCE has shed 98% of its value) to Richard Branson’s cruises and airline and Chamath Palihapitiya’s bank account.

Today many believe there’s a space race between the U.S. and China. While our return trip to the moon has been delayed, China successfully retrieved soil from its far side. And this new space race has given way to space spoils. Instead of bragging rights, the stakes are profits and power here on the moon’s billion-year sibling, Earth.

PR Stunts, Profit Motives

Businesses are either supply-constrained (e.g., rare earth minerals, 1945 Château Mouton) or demand-constrained (pretty much everything else). Space tourism is both, which is why it isn’t a business. Jeff Bezos is not my astronaut, and Virgin Galactic is (see above) stupid. As stupid as space tourism is, the space business is rational. Valued at $630 billion in 2023, the space economy is projected to reach $1.8 trillion by 2035. But describing space as a business sector is similar to using “Europe” as a descriptor. There’s a big difference between Ireland and Greece.

Satellite

Satellites are, at this point, ground zero of the space economy. Your television signal, nearly everything on your phone, and anything that relies on GPS all depend on satellites. Just as machinery and IP were the source materials for the modern economy on Earth, satellites will likely be the backbone of the space economy.

What’s driving the growth in satellites? One company: Starlink. The number of active satellites increases weekly, so it’s difficult to get up-to-the-minute data. At the end of 2022, the Union of Concerned Scientists was tracking 6,718 operational satellites — roughly half, 3,394, belonged to the SpaceX subsidiary.

And more are on the way. The FCC approved SpaceX’s bid to deploy up to 7,500 satellites for now. Starlink has plans to launch 30,000 more. The idea of one man controlling the world’s high-speed internet access is unsettling. Hawaiian Airlines and T-Mobile have already partnered with Starlink. The Texas firm is on the verge of becoming this generation’s ultimate ingredient brand (e.g., Intel, Nutrasweet, Nvidia). 

The addressable market is cosmic in size. Currently, Starlink beams internet access to 2.7 million subscribers in 75 countries. It has kits for residences, boats, and RVs. Monthly plans range from $120 to $5,000; the basic hardware costs between $499 and $2,500. There are hundreds of millions of people on Earth who can afford Starlink, and many are already paying for internet service that’s tied to their home.

Starlink has a moat the width of Saturn’s rings (see above: 51% of satellites). Its network already outperforms Hughesnet and Viasat. The reviews are getting better as the network scales. The 20th century saw the manufacturing age cede ground to the brand and service era. This millennium, thus far, could best be described as the “10x” era, where products that leverage digital technologies are rendering current offerings defunct. Profits, and their potential, attract more competitors to the water’s edge to try to cross the river. The water level of Starlink’s moat, however, is rising, and there appear to be crocodiles, too — evidenced by Amazon delaying the launch of Kuiper to next year. 

One pillar of the 10x economy is verticalization — lowering costs — and SpaceX’s Crane Kick is mundane yet dramatic. In 2010 the company drove down launch costs, with its own Falcon 9, to $2,500/kg, and it went further still with the Falcon Heavy in 2018, to $1,500/kg. The requisite expenditure is 30 times lower (adjusted for inflation) than NASA’s space shuttle in 1981 and 11 times less than the average launch costs from 1970 to 2010. 

Nolan Ryan

In his 27-year career, Nolan Ryan threw approximately 250,000 pitches in exchange for $25 million, costing his various team owners $100/pitch. If the Los Angeles Dodgers started Shohei Ohtani at pitcher, they’d pay him $23,000/pitch. The “Ryan Express” was the SpaceX of his era; propelling things into the atmosphere for less. Fun fact: I named my youngest son after the fastballer.

Business Beyond Starlink

Last year the world launched seven objects per day into space, with SpaceX accounting  for a staggering 73% of the global total. Note: The most valuable company in the world (NVDA) has an 80% share of AI GPUs. Does SpaceX have a 73% share of … space? The remaining 27% of launches are a mix of non-SpaceX telecommunications satellites, defense, navigation, and scientific research satellites, as well as craft that monitor the weather, observe the oceans, and track wildfires. Not everything in this miscellaneous category is a business, but hauling stuff into space is.

There’s real competition for reusable rockets. The European consortium Arianespace is testing its Ariane 6 rocket to reduce its reliance on SpaceX. Blue Origin, SpaceX, and ULA (a joint venture between Lockheed Martin and Boeing) each garnered a piece of a Pentagon contract worth $5.6 billion. The startup Relativity is developing a way to use 3D printing to speed manufacturing. Stoke, another startup focused on building clean-fueled, rapidly reusable rockets, raised $100 million at the end of last year. Then there’s Rocket Lab’s Electron rocket, which recently celebrated its 50th launch after seven years and one month in service — a record for a commercial launch vehicle.

There’s also a related business in de-orbiting old satellites and space stations. NASA just awarded SpaceX an $843 million contract to safely de-orbit the International Space Station in 2030. There may even be a business in removing the 170 million pieces of space junk. That number will only grow as we continue to commercialize space. The FTC has already issued its first fine for space junk.

East India Company Redux

By treaty, nobody owns space, and the moon belongs to everyone. That’s a problem. Geopolitical competition, a growing private space economy, and the relative absence of rules make space the new Wild West/North/East/South.

Low Earth orbit, where Starlink is scaling its network, is congested and getting worse. Even a small object can do a lot of damage if it hits a satellite or space station. We’ve already had some near misses. A SpaceX satellite almost hit a manned Chinese space station. A Russian anti-satellite test sent debris hurtling toward the International Space Station, forcing astronauts on board to take shelter. This is the plot line of the movie Gravity, which starred Sandra Bullock and president-slayer George Clooney. 

What happens when someone takes out a satellite on purpose or an adversary puts nukes in orbit? When I was a kid, this happened in the James Bond movie You Only Live Twice. The axiom of all sci-fi eventually becoming reality holds: We now have a Space Force, though it’s not a budgetary priority for the Defense Department.

The fight over space isn’t limited to geopolitics. It’s also about commerce. As business booms and resources are unlocked in new regions, private companies will enter the fight. It’s happened before. We call it colonialism. At its height, the British East India Company had its own 250,000-man army and the right to wage war. The corporation ruled India. Its competitor, the Dutch East India Company, had a charter that empowered it to raise armies, build forts, and make treaties. 

Question: If someone threatens a Starlink satellite, does Elon Musk call the U.S. government to fight his battles, or does he arm his satellites with tiny projectiles that can neutralize the threat? Follow-up: If two companies claim the same spot on the moon, do they call lawyers, or does someone go all Nolan Ryan and throw a moon rock at a fragile piece of equipment and claim the resources for their shareholders? My prediction: The next battlefield for proxy wars between the West and its adversaries will be in space. The armies fighting this war will be well-paid mercenaries disguised as corporations.

Future Spoils?

Two asteroids sped by Earth recently. The smaller one passed between us and the moon at a distance of about 180,200 miles. (The moon is 238,900 miles away.) Practically a near-miss for space travel. All we could do was watch the rocks zoom by. But as the cost of space hauling decreases, new business categories will emerge. 

One possible commercial opportunity is mining asteroids and the moon. This is still a ways off, but the spoils could be galactic. The industry brings new meaning to the term “wildcatting.” It would be highly speculative and driven by the prospect of abundant booty — if you can reach it, mine it, and bring it back. Last year, NASA launched a probe to an asteroid that supposedly has a valuation of $10 quintillion. Note: That makes no sense, as any minable material of that quantity/value would result in a crash in value. But I digress.  

If asteroid mining is possible — a big if — it could leverage cheaper space-hauling costs to meet demand on Earth for the critical metals (cobalt, iron, nickel, platinum, and other goodies) used in electronics, electric car batteries, and solar and wind power. 

Creating energy off-planet is another compelling idea. Isaac Asimov first wrote about “space solar” in his 1941 short story “Reason.” But a recent NASA study concluded that it is feasible to generate solar energy in space and transport it to Earth. Last year, Caltech launched a prototype that demonstrated the ability to wirelessly transmit power in space, beaming a tiny amount of detectable power to Earth. This year, U.K.-based startup Space Solar tested a way to collect solar 24/7. On Earth, solar collection is limited to daylight hours. 

Finally, there’s the idea of relocating manufacturing — and the pollution that comes with it — to space. “This sounds fantastical,” Jeff Bezos told CBS This Morning, “but it will happen.” He’s right. It sounds fantastical. But if the choice is between shifting manufacturing to space or colonizing Mars, let’s hear the pitch for space factories. 

Tang®

At the height of the space race, NASA scientists realized that pens couldn’t function in space. To boldly write where no man had written before, they spent millions developing implements that worked in zero gravity. Soviet Scientists had a simpler, cheaper solution: pencils. Actually, the space pen story is a myth. Pencils aren’t great in space. They’re flammable, and the tips break off and drift away in microgravity, risking harm to the equipment and astronauts. The real story: In 1965 the Fisher Space Pen Co. patented a pen that could write upside down, in extreme heat and cold, and even underwater. They sold pens to the U.S. and Soviet space programs. Fisher is still selling pens to this day — about a million per year, ranging from $5 to $150 a pen. 

Fisher Space Pen found a business in the stars by serving a market on Earth. Anyone who wants to reap the spoils of space will have to do the same thing. Space is the collision of the business trends that have defined the last century: manufacturing, branding, 10x, and unexpected externalities. On a recent flight from Miami to New York, I was able to try Starlink. My phone rang — it was my son Facetiming me. The sound and resolution were flawless. During the call, our pilot announced that, peering out of the left side of the plane, you could see a SpaceX launch. It was one of those tech aha moments (e.g., the first time you called someone from a car, bought something from your phone, took a picture of a check to deposit it). It was also a moment to reflect on the teen depression, propaganda from bad actors, and coarsening of our discourse that technology has washed up on our shores.

It feels less than bold to posit that, if we aren’t more thoughtful about the externalities of the commercial development of space, it won’t be “the final frontier” … but our last.

Life is so rich,

P.S. On Prof G Markets this week, Ed Elson and I spoke with Anthony Scaramucci. Listen on Spotify or Apple Podcasts.

P.P.S. Section is sitting down with Every founder Dan Shipper next week to discuss his top 10 AI use cases. RSVP here — it’s free.

 

The post The Financial Frontier appeared first on No Mercy / No Malice.

Time to Leave

Not If, When

I believe President Biden will announce he is withdrawing from the 2024 race imminently. Just as anybody who’s seen a commercial or a logo believes they’re an expert in advertising and design, I’ve convinced myself I have insights into the inner workings of the Beltway. I don’t. However, I do understand the male ego, family dynamics, and scenario planning.

The story the Biden camp has been telling is: “Things are better than they feel, and Joe is the best available option. It’s him or chaos.”

Any narrative has a life of its own, and last week the narrative rear-ended reality so violently that, after the airbags deflated, there was a stunned pause that crisply turned to panic. And panic was the correct emotion. Laid bare in front of us were our worst fears — plus a feeling of embarrassment, having let the media and handlers manipulate us.

But communication is with the listener, and, despite evidence everywhere, we Democrats had entered a self-imposed exile from the truth.

Biden has engaged in fewer media appearances and press conferences than any president in recent history. The fewest since Reagan, who, at 74, began to show signs of Alzheimer’s. The last three presidents to win reelection (Clinton, Bush, Obama) were an average age of 52 at the beginning of their second terms. Three decades younger than Biden, should he return to Pennsylvania Avenue. Democrats and the media wrote indignant open letters to biology re: ageism. Biology’s response: Hold my beer.

How could we be this fucking stupid?

Current Narrative

The narrative now stands at “I am an old man and, worse, another malignant narcissist who won’t get out of the way.”

It’s the political equivalent of turning on the radio and hearing John Legend’s “All of Me” again. And again and again. The result? In the last week, Trump’s lead among likely voters has increased from 3% to 6% — a substantial shift in a race where the majority have already made up their minds.

Democrats have been saying for years (correctly) that Trump is not fit to be president. “OK, now do Biden,” said the universe. Yes, an impaired Biden would still make a better second-term president, but we’ll probably never know. The polls now say moderates and young voters will opt for criminality over senility. The real tell is how quiet Trump has been about Biden’s debate performance. Trump desperately wants Biden to stay in the race. If/when Biden is nominated, and there is no turning back, the Trump media machine will turn him into a vegetable.

Ambition

Ambition is not in itself a bad thing. It’s where innovation, wealth creation, and a lot of the other good things in life come from. It can turn pathological, though, when it overwhelms our (feeble) ability to make decisions and act in accordance with facts and not emotion.

Estes Kefauver, a senator best remembered now for his Mafia probes, famously quipped, “Presidential ambition is a disease which can only be cured by embalming fluid.” Joe Biden has had a bad case for a long time.

In What It Takes, his classic account of the 1988 presidential race, journalist Richard Ben Cramer quoted an aide warning a 46-year-old Biden that running meant sacrificing friends, family, his entire life: “You’re going to want this worse than anything, and it’s going to take over.” Biden’s answer, essentially, was, “I am willing to take that gamble.”

At a campaign stop in 2020, Biden said, “I view myself as a bridge, not as anything else. There’s an entire generation of leaders you saw standing behind me. They are the future of this country.” But since then, he’s convinced himself that he, at age 81, is the future. The actuarial charts suggest he doesn’t have much of it (future) left. Let’s ignore cognitive decline — something else makes it even harder to govern: death. According to actuarial tables, there is a greater than 1 in 3 chance he’d die in office before the end of his second term. Note: It’s not much better for Trump, but (cue the indignant/denial machine) he appears much more robust.

Having the grace to leave is a gift, and many otherwise superb people don’t have it. Ruth Bader Ginsburg set back women’s rights by her refusal, in the face of all the medical and political evidence, to retire from the Supreme Court when a Democrat could name her successor. Despite all the good she did, her ultimate legacy is that she enabled the overturning of Roe v. Wade. Likewise, if Biden loses to Trump this November, that is the only thing anyone will remember about him.

Too Soon

An underrated superpower socially and professionally — and something great brands do — is creating a sense of scarcity. The easiest way to achieve this is to leave too soon instead of too late.

Why do smart people ignore such common sense advice? There is a great deal of research on humans’ capacity for self-deception. William S. Burroughs, who divided humanity into hustlers and marks, put it bluntly: “Hustlers of the world, there is one mark you cannot beat: the mark inside.”

Imagine

We can’t imagine our own end. Try to picture what it’s like to be dead. You can’t, not really. You might think of darkness or sleep, things you’ve actually experienced in this life, but your brain has no meaningful point of reference for the real thing. As a result, we believe decline and death are things reserved for other people.

If we’re badly designed for the task of conceiving of and accepting our cosmic sell-by dates, we’re even less apt to recognize the smaller endings that come along the way.

Politicians and CEOs are particularly bad at this. Washington is a large assisted living community full of rich people who believe the world can’t get along without them and will never have to. The result has been a disastrous transfer of prosperity from young to old as old people keep voting themselves more money. As I have written before, we need more ageism, specifically churn.

Ranjay Gulati, a professor at Harvard Business School, recently told the New York Times, “Most leaders, left to their own devices, will not recognize the right time to leave. It’s really hard to stay grounded and humble when everyone is telling you you’re right.”

Think

Which brings us back to the possibility that Trump, a genuinely bad person, may be reelected. Biden, a genuinely decent person, has let his ego wager all our futures. His willingness to do so reflects a common, human failing. That doesn’t make it any less wrong or selfish. He, and his family, have put their own hopes/wishes ahead of the country’s. However, I believe his catastrophic performance in the debate has catalyzed a conversation and a reckoning that will, likely this weekend, result in the Biden family deciding he should withdraw.

Why? The dam has broken. Post-debate, the most powerful voices in tech/media/Congress/party (i.e., Reid Hoffman, the NYT, South Carolina Rep. James Clyburn, Pelosi, Obama) have all — as gently as possible — started suggesting he should withdraw. Like a teen boy or girl who senses they’re about to be dumped and can’t stop sending text messages, the Biden camp has sent me eight emails in the past 24 hours assuring me they’re “in it to win it.” The most fucked-up part is the lame attempt by loyalists to shame people online into sticking their heads back up their asses — “Take a breath, sit down, 90 minutes doesn’t define a presidency,” etc.

Seriously … Wake. The. Fuck. Up.

The Replacements

The two most likely candidates to replace Biden are Vice President Harris and California Governor Newsom. Nobody else has the name recognition.

Either would be up, substantially, in the polls within a week of the baton being passed. Branding is about differentiation, and the contrast with Trump would be stark. Neither has been involved in an insurrection, been found liable for sexual abuse, nor forced 1 in 5 women who needed to terminate a pregnancy to leave their state. And, most distinctly, both were born when Trump had already graduated from college and was working for his father.

Harris would be the most seamless, as the quarter of a billion dollars Biden has raised is technically also hers. In addition, the nation appears to be finally ready for a woman president, and she seems to have found her voice since the deba(te)cle. Finally, though she hasn’t distinguished herself as VP, she was a strong AG and senator. This indicates she’s probably better in an executive role.

Newsom is straight out of central casting, built in a factory with parts from lesser candidates. He’s already the president of a nation larger (economically) than India, France, or the U.K. He’s a great debater. Lastly, he’s hot — and people are more likely to vote, and canvas, for a candidate they’d like to have sex with. Newsom is the candidate who scares Trump.

Scenario Planning

Scenario planning is not an attempt to predict the future, but to imagine several possible futures and determine a course of action that has the best outcomes across several futures. And, in my view, most/all roads lead to President Biden stepping down. The polls suggest that the status quo will lead to a Trump victory – below are three alternate scenarios and speculation on what each would mean for the Biden family:

 1. Biden Withdraws, Trump Defeated

Biden cements his legacy as one of the great presidents and receives a standing ovation upon entering any room. The remainder of his life is the mother of all victory laps. He is on the short list when polls are taken about who should be added to Mount Rushmore.

2. Biden Withdraws, Trump Wins

I don’t see this as a realistic scenario. Or more specifically, I don’t want to think about it. (These are MY scenarios.) Regardless, if this came to pass, nobody would hold Biden responsible for trying to do the right thing.

3. Biden Remains/Wins

This is the one that makes me believe he will withdraw in the coming days. Joseph Biden, and his family, have experienced staggering loss. It’s difficult to know the specific dynamics of a family, but it’s a safe bet his family loves him a great deal. The worst outcome for their husband/dad/brother wouldn’t be losing to Trump — it would be a second term. His life would become an awkwardly choreographed dance, family and aides trying to sequester him from public view. He’d experience an infinite number of small private and public humiliations every day as he succumbs to a foe that cannot be defeated. (See above: biology.)

Staying in may be what he wants, and what the Bidens believe they want. But, with some distance, his loved ones will recognize that remaining in the race presents two outcomes: bad and worse. Seriously, for those of us who’ve cared for a parent in their eighties … imagine his life, should he win, for the next four and a half years. I don’t believe his family will let that happen to him.

I think love wins here.

Life is so rich,

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Age Gating

I’m in a dark place. I just watched democracy collapsing as a con man abused an old man. I haven’t hit rock bottom yet, so let’s discuss social media and age-gating.

Addiction & Reach

Social media is unprecedented in its reach and addictive potential — a bottomless dopa bag that fits in your pocket. For kids it poses heightened risks. The evidence is overwhelming and has been for a while. It just took a beat to absorb how brazen the lies were — “We’re proud of our progress.” Social media can be dangerous. That doesn’t make it net “bad” — there’s plenty of good things about it. But similar to automobiles, alcohol, and AK-47s, it has a mixed impact on our lives. It presents dangers. And one of the things a healthy society does is limit the availability of dangerous products to children, who lack the capacity to use them safely. Yet, two decades into the social media era, we permit unlimited, all-ages access to this dangerous, addictive product. The reason: incentives. Specifically, the platforms, dis-incentivized to age-gate their products, throw sand in the gears of any effort to limit access. To change the outcome, we must change the incentives.

Adult Swim

I’m a better person when I drink, more interesting and more interested. One of the reasons I work out so much is so I can continue to drink — muscle absorbs alcohol better than fat does. Kids are different, and we’ve long been comfortable treating them differently. In 1838, Wisconsin forbid the selling of liquor to minors without parental consent, and, by 1900, state laws setting minimum drinking ages were common. There’s a good case to be made that the U.S. alcohol limit of 21 is too high, but nobody would argue we should dispense with age-gating booze altogether.

That trend has paralleled laws restricting childhood access to other things. The right to bear arms is enshrined in the Constitution, yet courts don’t blink at keeping guns out of the hands of children, even as they dismantle every other limitation on gun ownership. If there’s a lobbying group trying to give driver’s licenses to 13-year-olds, I can’t find it. Age of consent laws make sex with children a crime; minors are not permitted to enter into contracts; we limit the hours and conditions in which they can work; they cannot serve in the military or on juries, nor are they allowed to vote. (That last one we may want to reconsider.) These are not trivial things. On the contrary, we exclude children from or substantially limit their participation in many core activities of society.

Late Night With the Dawg

The only time I have appeared on late-night TV was when Jimmy Fallon mocked me — showing a CNN video clip where I said “I’d rather give my 16-year-old a bottle of Jack and weed than Instagram.” Four thousand likes and 265,000 views later, it appears America agrees. My now almost 17-year-old son has engaged with all three substances. Alcohol and Instagram make him feel worse afterward — not sure about weed. However, he is restricted from carrying a bottle of Jack in his pocket, and his parents would ask for a word if his face was hermetically sealed to a bong. Note: Spare me any bullshit parenting advice from nonparents or therapists whose kids don’t come home for the holidays.

He, we, and society restrict his access to these substances. And, when he abstains from drinking/smoking, he isn’t sequestered from all social contact and the connective tissue of his peer group. We freaked out when we found (as you will if you have boys) porn on one of his devices. But the research is clear: We should be more alarmed when we find Instagram/Snap/TikTok on his phone. Mark Zuckerberg and Sheryl Sandberg are the pornographers of our global economy. Actually, that’s unfair to pornographers.

Peer Pressure

Age-gating social media is hugely popular. Over 80% of adults believe parental consent should be required for social media, and almost 70% want platforms to limit the time minors spend on them.

Those numbers are from last fall, before my NYU colleague Jonathan Haidt published The Anxious Generation, which builds on the work of Jean Twenge and others, making the most forceful case yet that social media is hurting our children. Reviewing the shocking increase in depression, self-harm, and general suffering our children are experiencing and the explanations offered by the platform apologists, Professor Haidt highlights the twin specters of social media and mobile devices and the lasting damage they’re doing to a generation. Unconstrained smartphone use, Haidt observes, has been “the largest uncontrolled experiment humanity has ever performed on its own children.” And the results are in.

Legislatures are responding. States from California to Utah to Louisiana have passed laws that limit access to social media based on age. If you haven’t noticed any change in the behavior of the platforms, however, that’s because courts have blocked nearly all of them. A social media and digital commerce trade group called NetChoice is quick to sue any state that interferes with its members’ ability to exploit children for maximum profit.

“Complicated”

Judges are siding with the platforms, and probably not because they enjoy seeing depressed teenagers fed content glorifying self-harm, or teenage boys committing suicide after being sextorted. The platforms and other opponents of these laws, such as the ACLU, make two main points: First, they claim that verifying age online is too complicated, requiring the collection of all sorts of information about users, and won’t work in all cases. Second, requiring users to collect this information creates free speech, privacy, and security concerns. (The platforms also deny their products are harmful to children.)

On their face, these points are valid. It is more difficult to confirm age online, where there’s no clerk at the counter who can ask to see your driver’s license and reference your face. And these platforms have proven reckless with personal data. It’s sort of a “they’re so irresponsible, but we can’t take action” dilemma.

But these objections are not about age verification, children’s rights, free speech, or privacy. They are concerns about the platform companies’ capabilities. Their arguments boil down to the assertion that these multibillion-dollar organizations, who’ve assembled vast pools of human capital that wield godlike technology, can’t figure out how to build effective, efficient, constitutionally compliant age-verification systems to protect children. If this sounds like bullshit, trust your instincts.

Illusion of Complexity

This isn’t a conversation re the realm of the possible, but the profitable. When you pay an industry not to understand something, it will never figure it out. (Just look at the tobacco industry’s inability to see a link with cancer.) What’s more challenging, figuring out if someone is younger than 16, or building a global real-time communication network that stores a near-infinite amount of text, video, and audio retrievable by billions of simultaneous users in milliseconds with 24/7 uptime? The social media giants know where you are, what you’re doing, how you’re feeling, and if you’re experiencing suicidal ideation … but they can’t figure out your age. You can’t make this shit up.

The platforms could design technology that reliably collects sufficient information to confirm a user’s age, then wipes the information from its servers. They could create a private or public entity that processes age verification anonymously. Remember the blockchain? Isn’t this exactly the kind of problem it was supposed to solve? They could deploy AI to estimate when a user is likely underage based on their online behaviors, and seek age verification from at-risk people. If device manufacturers (or just the device OS duopoly of Apple and Alphabet) were properly incentivized, they could implement age verification on the device itself. (This is what Meta says it wants, when it isn’t fighting age-verification requirements.) Or, crazy idea, they could stop glorifying suicide and pushing pornography to everyone.

The reason Zuck and the other Axis powers haven’t built age verification into their platforms is it will reduce their profits (because they will serve fewer ads to kids), which will suppress their stock prices, and the job of a public company CEO is to increase the stock price. Period, full stop, end of strategic plan. So long as the negative impact to the stock price caused by the bad PR of teen suicide and depression is less than the positive impact of the incremental ad revenue obtained through unrestricted algorithmic manipulation of those teens, the rational, shareholder-driven thing to do is fight age-verification requirements.

Flip the Script

If we want the platforms to make their products safe for children, we need to change the incentives — force them to bear the cost of their damage. Internalize the externalities, in economist-speak. There are three forces powerful enough to do this: the market, plaintiff lawyers, and the government. The market solution would be to let consumers decide if they want to be exploited and manipulated. And by consumers, I mean “teenagers.” One big shortcoming of this approach is that teenagers are idiots. I have proof here, as I’m raising two and used to be one. My job as their dad is to be their prefrontal cortex until it shows up. I told my son on a Thursday it was Thursday, and he disagreed.

The next approach is to let the platforms do whatever they want, but if they harm someone, let that person sue them for damages. This is how we police product safety in almost all contexts. Did your car’s air bag explode shrapnel into your neck? Sue Takata. Did talcum powder give you cancer? Sue J&J. Did your phone burn the skin off your leg? Sue Samsung. People don’t like plaintiff lawyers, but lawsuits are a big part of the reason that more products don’t give you cancer or scald you. Nobody can successfully sue social media platforms, however, because of a 28-year-old law, known as Section 230, which gives them blanket protection against litigation.

I’ve written about the need to limit Section 230 before, and whenever I do, a zombie apocalypse of free-speech absolutists is unleashed. The proposition remains unchanged, however: If social media platforms believe they’ve done everything reasonable to protect children from the dangers of their product, then let them prove it in court. Or, better yet, let the fear of tobacco/asbestos-shaped litigation gorging on their profits motivate them to age-gate their products.

Finally, the government can go after companies whose products harm consumers. The Federal Trade Commission has fined Meta $5 billion over privacy violations to no apparent effect. This was perfect, except it was missing a 0. For these firms, $5 billion is a nuisance, not a deterrent. There’s a bill in the Senate right now, the Kids Online Safety Act, which would give the FTC new authority to go after platforms which fail to build guardrails for kids. It’s not without risk — some right-wing groups are supporting it because they believe it can be used to suppress LGBT content or anything else the patriarchy deems undesirable. But I have more faith in Congress’s ability to refine a law than I do in the social platforms’ willingness to change without one.

Until we change the incentives and put the costs of these platforms where they belong, on the platforms themselves, they will not change. Legislators trying to design age-gating systems or craft detailed policies for platforms are playing a fool’s game. The social media companies can just shoot holes in every piece of legislation, fund endless lawsuits, and deploy their armies of lobbyists and faux heat shields (Lean In), all the while making their systems ever more addictive and exploitative.

Or maybe we have it wrong, and we should let our kids drink, drive, and join the military at 12. After slitting their wrists, survivors often get tattoos to cover the scars. Maybe teens should skip social media and just get tattoos. I warned you … dark.

Life is so rich,

P.S. We will be taking a break next week for the 4th of July holiday.

P.P.S. Join a free event on July 16, where Dan Shipper from Every will share his top 10 AI use cases from hundreds of executive interviews. RSVP here.

 

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AI Laundromat

AI Laundromat

I’m at Cannes, hungover, as I went to Yahoo Beach and saw the Chainsmokers. Cannes is everything I wanted in my twenties and thirties but didn’t have access to, since I was working all the fucking time and had no money or influence. Better late, I guess. Anyway, the two biggest stories of this year’s Cannes advertising conference will be:

1. The Musk/Yaccarino apology tour, which received a slightly cooler reception than if Milli Vanilli showed up at Spotify Beach.

“No Elon, really, you can go fuck YOURself.” –The Ad Community

2. My friend Michael Kassan hosting the kickoff dinner for C3, his new firm, on the terrace overlooking the party for MediaLink, his former firm. Pro tip: CEOs with ovaries don’t do this shit. The definition of a “dick” move. I said this (verbatim) on a panel with Michael yesterday and he responded “You mean, a big dick move.”

But. I. Digress.

Vision Thing

The best founders articulate a vision of the future and put their company’s business model at the heart of it. It’s no different from Hollywood — the sets and costumes change, but the promise of a utopian/dystopian future is a constant. BTW, the headline that best depicts our world would be “On Average, Things Modestly Better Today, Globally.” But that’s click repellent. Ironically, the hot movie trend seems to be biopics about business, specifically successful products. Studio execs recently greenlit movies about Blackberry, Tetris, the Air Jordan, and, presumably after edibles, spicy Cheetos and Pop-Tarts. As the financialization of everything, which has CEOs signing breasts, becomes a Category 7 hurricane, expect an onslaught of movies about AI as übervillain.

In the latest Mission: Impossible installment (Dead Reckoning Part One), the villain is a sentient AI entity called … wait for it … “the Entity.” I’m working on a film myself, and, given my Hollywood career, it will be in theaters soon. Maybe.

AI Rewrite

In America, money is relevance — and the most relevant thing in the world is now a firm that designs GPUs. Nvidia has registered the greatest market cap growth in history ($2 trillion in the past year alone), becoming briefly the most valuable company in the world, as its chips are the literal heart of the AI revolution. No storytelling required. I appreciate that the folks from NVDA don’t come to Cannes, unlike GOOG/META, to run their fingers through the hair of media execs before shooting them in the face. My favorite Cannes moment: Sheryl’s 2013 book-signing, which attracted hundreds of female execs even as her firm was depressing millions of teen girls.

Back to NVDA. Think about this: One company has added the value of the global auto industry and the GDP of Sweden in 12 months. OpenAI, and by extension its sugar daddy, Microsoft, are similarly benefitting. But investor hunger for AI stories can’t be sated by a few businesses. CNBC makes an annual list of the 50 most disruptive companies, and two-thirds of the entrants on the 2024 list “describe artificial intelligence as ‘critical’ to their businesses.” The key word in that sentence is “describe.” Every comms exec and CEO who can spell “AI” (i.e., all of them) has decided Ai is the protagonist of their company’s story. However, similar to Game of Thrones, a lot of these leading men and women aren’t going to make it to Season 2.

Which brings me to Tempus. I mean … Tempus AI.

Tempus is a genomic testing and data company. Doctors take blood or tissue samples from patients and send them to a Tempus lab, and Tempus sends back information about the genes it finds in those samples. In addition to testing, Tempus licenses the data it collects to pharmaceutical companies, who use it to develop drugs. Tempus specializes in cancer, which is a great business, as fighting cancer is a noble thing. AI, healthcare, cancer … disco. I emailed the CEO — whom I (sort of) know; strikes me as an impressive guy — and asked if I could invest. He said they are only letting institutions invest (makes sense). I was still interested, however, so I looked further into the firm (read: I asked my team to look into the firm), and here’s what we found:

It’s not such a great business in the sense of making money. Tempus doesn’t make money, it burns it. Since its founding in 2015, the company has raised $1.5 billion in venture money and spent almost all of it. According to its IPO filing, Tempus had $80 million left in the bank on March 31. And it was burning $8 million per week, suggesting it would run out of cash … last week. The company raised an additional $200 million from Softbank in late April, otherwise it might not have made it to the IPO. I’m wondering when the CIA is going to plant Softbank, Chamath Palihapitiya, and Cathie Wood in Moscow to take the Russian economy down.

Tempus AI stumbled across the IPO finish line and fell into a pile of money. It priced at $37, opened at $40, and hit $44 before settling at $38, giving the company a $6 billion market cap after a day of trading. A respectable IPO bump, and a check for $411 million (aka a year of burn). The valuation was down from Tempus’s private market valuation of $8 billion, but an 11x revenue multiple is still greater than that afforded its competitors, such as Guardant and NeoGenomics, which trade at 6x and 2.7x, respectively. (Guardant welcomed Tempus to the public markets with a patent lawsuit three days before the IPO. See above: dick move.)

How did a money-losing business facing a patent lawsuit in a competitive market, run by a guy whose previous company, Groupon, trades at 6% of its IPO valuation after burning through $1.5 billion of investor capital, garner a multiple nearly double that of its most richly valued competitor? A: Never underestimate the market’s ability to provide a product/story when people have cash in hand. In this instance it will likely (again) be investors who get beaned in the face.

Tempus refers to AI 228 times in its IPO paperwork, even tacking those letters onto the end of its name last year. Notably, the company first filed for an IPO in 2021, and back then it mentioned AI 78 times. The AI hype refers to the third leg of Tempus’s stool, its “AI Applications” product line. The idea is that Tempus will combine its lab testing with a comprehensive review of a patient’s entire record — other test results, physician’s notes, family history, medications, etc. — and provide recommendations for patient care. An AI doctor. Which sounds amazing, but is also sci-fi (i.e., fantasy). Which it is, because the AI Applications segment currently provides 2% of the company’s revenue. Tempus hasn’t had time to add “AI” to its logo, and the only part of its website that incorporates the new name is the Investor Relations section. The S-1 reads like a venture capital pitch deck written by an LLM with the following prompt: “Pull together a 30-minute slide presentation for an IPO roadshow that positions us as an AI firm.” Second Prompt: “More cowbell,” if cowbell is AI.

Spin Cycle

I can’t decide if I should criticize Tempus or commend it. The market wants AI companies, Tempus wants the market’s capital, and it pairs the trade via AI washing. Everybody’s doing it, and the company’s ability to attract cheap capital may provide the steroids to turn it from Carl Lewis to Ben Johnson. Tempus AI isn’t the first company to play the name game: C3.ai started life as regular “C3,” had a cup of coffee as “C3 Energy,” and jumped on the “internet-of-things” bandwagon as “C3IoT” before going public as C3.ai.

In the U.K., the largest domestic energy company, Octopus, has jacked its valuation nearly 2x since 2001, and its CEO can’t stop talking about AI. Starbucks is using AI to “nurture the human spirit,” Kellog awards an “MBAi” business school degree. At my online ed startup, Section, we offer an AI Academy, but we haven’t changed the name to Section.ai. (Although GoDaddy is selling the URL for just $798,888 … a small price for a 2x valuation bump.) Even actual washing machines are in on the game: LG introduced an AI-powered washing machine in 2020. Goldman bankers bring a washing machine to every road show.

We’ve been here before, and the cycle always turns. Most recently it was crypto, and the NFTification of everything. The dot-com boom in the late ’90s saw the launch of businesses including DrKoop.com, the website of former Surgeon General C. Everett Koop, which popped 38% on its Nasdaq IPO before going under in 2001.

There are some signs the golden age of AI washing is slowing from the spin cycle — coming to an end. Regulators are paying attention. The SEC hit two investment advisers with six-figure fines for falsely claiming to use AI in their financial forecasts. And the agency’s enforcement head made it clear this was a warning shot for publicly traded companies: “Public issuers making claims about their AI adoption must also remain vigilant about similar misstatements that may be material to individuals’ investing decisions.”

The SEC also brought fraud charges against defunct recruiter Joonko, which claimed to use AI to identify diverse applicants, but flamed out last year when its founder was revealed to have inflated its numbers and concocted fake testimonials. The FTC wants companies to know that it’s watching their AI claims, and the FDA is looking into regulating the use of AI models in healthcare. The market’s favorite citizen-sheriff, Hindenburg Research, recently pointed its short-selling guns at Equinix, accusing the data center provider of selling an “AI pipe dream.”

Tempus AI’s IPO may be the latest signal that the AI washing cycle is ending, as its modest, pre-orchestrated pop has evaporated. And C3.ai’s stock is already off 80% from its post-IPO high in 2021.

Air Dry

The line between AI opportunity and AI washing is neither clear nor fixed. Sure, it’s obvious for the outliers — Nvidia will continue to register upside powering  AI, and shady brokers who claim to use AI to pick stocks will not. But for most firms, clarity will only come with hindsight. Ironically, a year ago the big story was how to detect if someone was using AI (news stories, student papers, lawyers). Today, we’re attempting to discern if a firm is not using AI.

Life is so rich,

P.S. This week on Prof G Markets, Ed and I spoke with Ray Dalio, founder of the largest hedge fund in the world, Bridgewater Associates. Listen and subscribe here.

P.P.S. Want another take on The Science of Success? Section’s CEO is sitting down with Amherst professor Catherine Sanderson to discuss it on July 10. RSVP here.

 

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