Scott Galloway's Blog, page 9

Roe

Florida is now one of the most restrictive states in the country for abortion rights: The state’s supreme court reversed its own precedents on April 1 and upheld a ban on abortions after six weeks. Women in Florida, as in many states after the reversal of Roe v. Wade, now face harsh limits on their fundamental rights.

The same day, the court also allowed a proposal enshrining abortion rights in Florida’s constitution to appear on the ballot this November. There is a good chance it will pass, but it will be close — 60% will have to approve the amendment, and last fall, a poll found 62% of voters planned to vote for it. Nationwide, between 60% and 80% of Americans support a woman’s right to choose, depending on how the question is asked. The rest of the world is expanding the right of women to decide when and how they get pregnant and give birth. Yet in many states, a minority of Americans continue to impose their views on the rest of us. I say “us” because while this right is unique to women, it affects all of us. The right to terminate an unwanted pregnancy changed the course of my life, and my mother’s, even though I didn’t understand it at the time.

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An earlier version of this post was originally published on October 12, 2018.

“D and What?”

On a late summer afternoon, between my junior and senior years of high school, I was in the passenger seat of my mom’s lime-green Opel Manta on the way home from work. Mom had secured me a job in the mailroom of her employer, the Southwestern School of Law, where she managed the secretarial pool, and we carpooled back and forth. Headed west on I-10 (the Santa Monica Freeway), between the La Brea and Fairfax exits, she told me about her plans for later in the week.

“I’m having a procedure called a D&C on Wednesday and won’t be home that night. Are you fine to stay alone?”

I was 16, and only really heard the part of her question suggesting I wasn’t old enough to spend the night solo in our condo. “Yeah, sure.” I didn’t ask what a D&C was, but I had the sense it had something to do with the great unknown, women’s health, and didn’t ask for details. My mom likely wanted to have a meaningful conversation with me, but that didn’t happen. Meaningful dialogue with teenage boys happens … just not when you expect. The question must have found some purchase in my consciousness, as I remember exactly what I was wearing: brown Levi’s corduroys, a Bruce Springsteen concert T-shirt, and top-siders. Not Sperry top-siders, but knockoffs. A pair of real Sperrys cost $32.

I was 16, my mom 46. I loved her because she loved me, completely. But that’s not what this post is about. I also loved the U.S. because it, too, loved us — me and my mom — completely. My mother was a single immigrant raising her son on a secretary’s salary. But this isn’t a sob story. We had good lives. Sure, money was definitely a thing, but we lived in a nice place and took vacations to Niagara Falls and San Francisco, ate at Junior’s Deli every Sunday night, and went some weekends to the beach in Santa Monica, where parking was $2 for the whole day, just behind lifeguard station No. 9.

Our nation welcomed my mother with open arms. Despite her having no education or money, we helped her out in between jobs and loaned her money so she could go to night school and become a stenographer. The state of California loved her son: The vision and generosity of the regents of UCLA and California’s taxpayers gave her unremarkable son (this isn’t a humblebrag, I was seriously unimpressive) a remarkable opportunity. I received a world-class education at little cost: UCLA (my B.A.) and UC Berkeley (an MBA) for a total cost (tuition) of $7,000 for all seven years.

More than just affordable, it was accessible: UCLA had a 76% admissions rate when I applied, and Berkeley’s Haas School of Business accepted me with an undergraduate GPA of (no joke) 2.27. America is about the opportunities it provides the unremarkable, not the manufacture of a superclass of billionaires from the pool of preordained remarkables.

But the ultimate expression of our nation’s empathy and love for a single mother, in my view, was to grant, and protect, her domain over her reproductive system. In the U.S., 59% of women getting abortions are already moms. Twenty-four percent are Catholic, 17% mainline Protestant, 13% evangelical Protestant. Over a third of pregnancies in the U.S. are unintended.

Men and women create unwanted pregnancies. However, it’s often men’s lack of manhood that’s behind abortions. Half of women seeking an abortion cite the lack of a reliable partner as a reason for their choice. In many cases the partner is abusive. Among all abortion patients, 95% report that abortion was a good choice — they remain relieved several months after the procedure. Violence toward women declines precipitously after an abortion, because they can break ties with their abusers. The leading cause of death for women who are pregnant or have just given birth, by a factor of 2x, is homicide.

Alt Control

What is going on here? In my view, it has nothing to do with “life,” as the most staunch advocates of the “pro-life” movement are the first to advocate for cutting the child tax credit, executing criminals, or putting a pregnant woman in danger when a pregnancy becomes a health risk. Many argue that these folks are not obsessed with life, but birth. This also misses the mark — the same groups do not favor economic policies that would encourage people to have children. This is about control or, more specifically, retaking control and power back from women.

I write a lot about how far young men have fallen in America over the past several decades. Even more striking is the ascent of women, globally, over the same period. Women now outnumber men in tertiary education enrollment worldwide; and the number of women elected to parliamentary positions has doubled since 1990. Women’s wealth is growing faster than overall wealth. A static feature of a modern economy is women outpacing men in education and income growth.

However, this has stirred the ghoul that haunts the world … posing a greater threat to society than any autocrat or virus: extremism. The parabolic progress of women over the past several decades has inspired a gag reflex among the most conservative wings of many religions. The radical wings of Christian, Islamic, and Jewish sects have weaponized politics and blurred the lines between religion and legislation. In America, where there used to be a sharp distinction, as outlined in the Constitution, we’ve witnessed a first: the rollback of citizens’ rights with the overturn of Roe.

The backlash among Christian nationalists has been speedballed by the other great threat: loneliness. Two-thirds of women under the age of 30 have a romantic partner vs. just one-third of men the same age. Men have fewer friends than they once did. Unfortunately, men’s loneliness can turn toxic, as they have weaker social networks and consequent guardrails. Lonely young men are more prone to conspiracy theories, nationalism, and misogynistic content. In sum, they risk becoming shitty citizens. The most striking, and frightening, data re the abortion debate is the group that registers the least support for a women’s right to choose: Gen Z men (age 12 to 27). Do you think this reflects their love for the unborn, or resentment of the living (women) … who they feel shunned by? It’s simple: Radicalized and lonely American men want uppity women to sit down.

The weapon of choice among these groups is economic warfare. To deny someone bodily autonomy is analogous to defunding them; they lose power. The Turnaway Study followed 1,000 women who sought abortions (some successfully, some not), compiling over 8,000 interviews over five years. The women in the study who were denied an abortion on average had higher debt and a greater risk of bankruptcy, and they were more likely to be in poverty years after giving birth.

2nd Order

How did you get to where you are now? People tell themselves a story that credits their character and grit for success, while blaming outside forces for their failures. But small twists of fate, errant decisions, and sheer randomness put you in this place, at this moment. I’m in tech because I fell in love with a woman and followed her to the Haas School of Business — I’d initially enrolled at the University of Texas. It’s more likely, graduating in 1992 Austin, I would have ended up in the energy sector or back in banking vs. the clear and present choice of tech in (wait for it) Silicon Valley.

But going further back, if my mom, at 46, hadn’t had access to affordable family planning, our lives would have been changed dramatically. Not only did we lack the funds or connections to figure it out (a rich friend who knew a doctor or the resources to travel far and have the procedure), but we also didn’t have the confidence. Just as I didn’t apply to out-of-state colleges —  only rich kids did that. A lower-middle-class household headed by a single parent, neither remarkable, puts both of you on your heels instead of your toes.

If Roe v. Wade hadn’t been the law of the land, things could have been much different for me and my mom. An unwanted child at 46 would have been financially ruinous for our household. There was no maternity leave for secretaries in the eighties. I likely would have done what my father and mother did when their families were in financial distress, and left school to help out. I wouldn’t have enrolled at UCLA. Instead, I would have stayed in the job my father had secured for me after high school, installing shelving at $18/hour — a lot of money for us at the time.

Without my mom having that choice, there would have been no UCLA, no Berkeley grad school, no tech startups, no tens of millions in taxes paid, and … fewer children. I have always been worried about money and did not especially want kids. There’s no way I’d have opted for kids, later in life, if financially strained. We see evidence of this today, as a younger generation is having fewer children because they can’t afford them. My mom’s right to choose not to have a child she couldn’t afford gave me the choice to have children I could. All unbeknownst to me, at 16 years of age.

America is a mix of opportunity and acceptance, each being a force multiplier for the other. The reversal of Roe is about extremists and people who feel shunned trying to recapture control from a group that’s increasingly less suppliant to religion or men. The result is a lack of prosperity and a dangerous regression in the U.S., which used to illuminate a path forward for other nations. The suppression of abortion rights is yet another transfer of wealth from the poor to the rich — no child of a private equity partner is going to lose her right to choose. The economic assault against women, specifically poor women and their families, cripples opportunity and acceptance. It is wrong and un-American.

Life is so rich,

P.S. This week on the Prof G Pod I spoke with journalist Fareed Zakaria. My last conversation with Fareed is our most popular episode ever. Listen to the latest here.

P.P.S. Join Section’s free Intro to AI lecture to get your hands dirty with generative AI. You’ll learn prompting tips, use cases, and workflow audits in one hour.

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Prof K

I experienced ketamine therapy a few weeks ago and, after discussing it on Pivot and Prof G pods, I’ve received a great deal of inquiries from friends, strangers, and media. I wanted to let the experience settle as my perception continues to evolve/mature/unfurl (couldn’t find the right word), and to take advantage of Daniel Kahneman’s advice to employ our “slow thinking.” I was also inspired to do some research on the background and technology of the craft I traveled on, and the drug an increasing number of people are using … in a variety of settings. Anyway, here goes.

Anesthetic

Ketamine was developed as a surgical anesthetic. It replaced PCP — yes, that PCP — which was effective, but patients frequently emerged from unconsciousness confused and sometimes hallucinating, a state known as “emergence delirium.” Scientists modified the compound until they hit on a variation that had similar anesthetic properties but with less risk of psychedelic side effects. First synthesized in 1962 and tested on Michigan state prisoners in 1964, ketamine remains in widespread use as an anesthetic today.

Ketamine produces less emergence delirium than PCP, but it does have that effect, and in the 2000s, researchers started looking more closely at the unusual phenomenon. The “dissociative state” is characterized by a sense of detachment from reality and one’s physical self, or even consciousness. Dissociation can occur without drugs — psychotic hallucination is a type of dissociation — but the particular sense of detachment from the self that ketamine produces (and other psychedelics such as psilocybin and LSD can produce) turns out to be a potentially powerful tool. It can enable personal growth as well as enhance artistic and intellectual expression. Research interest in this phenomenon opened the door to a broader insight: While the mechanism is not yet fully understood, there is growing evidence that at sub-anesthetic doses, ketamine can help resolve serious mental health conditions, including anxiety, bipolar disorder, PTSD, and depression.

Depression

The most thoroughly studied and accepted therapeutic use of ketamine is for treating depression and, in particular, treatment-resistant depression. Depression is a modern scourge. It afflicts an estimated 280 million people worldwide, and nearly 18% of U.S. adults report they are currently in treatment for depression — up from just 10% a decade ago. Depression factors into two-thirds of suicides, killing over 30,000 Americans per year. Antidepressants are effective for many but are ineffective or bring major side effects for others — around a third of patients suffer from treatment-resistant depression. Over the last decade, dozens of studies have shown ketamine to be particularly effective for this cohort.

Similar to other antidepressants like Prozac, ketamine works by altering our brain chemistry — it increases the availability of substances the brain uses for internal communication. But beyond its direct chemical impact, ketamine (and other psychedelics) offers an additional dimension to treatment: the dissociative state and the greatly enhanced neuroplasticity that follows it. Depression and other disorders are so difficult to escape in part because they change not just our brains but also our minds. They influence how we see the world and ourselves, and directly interfere with our ability to change. The dissociative state induced by psychedelics allows us to see ourselves from a distance, to disentangle our disorders from our identities. Patients report being able to face deeply buried traumas without suffering and to acknowledge unhelpful patterns of behavior without defensiveness.

Over the past 15 years, interest in psychedelic-assisted therapy has renewed and accelerated. Michael Pollan’s 2018 book, How to Change Your Mind, catalyzed popular interest, but general awareness was just catching up with the science. Because ketamine can be more effective when combined with therapy, some doctors have opened specialized clinics where ketamine experiences are integrated with therapy and other treatments. A few weeks ago, I visited one.

Prof K

I’d been considering ketamine therapy for a while. I struggle with anger and depression, and thought it might help. Also, I was curious. Similar to Burning Man, ketamine therapy is something I’ve planned on doing for several years but I always find an excuse not to go “there.” I was wary that something unwelcome would surface. Whatever trauma or demons lie in my subconscious, I’ve managed to (mostly) suppress them. And I’m down with that — let sleeping dogs lie. But here we go.

At Kuya Wellness in Austin, the first step was a detailed interview about my medical history. The onboarding process was both comforting — they take this seriously — and a bit disconcerting (see above: This is serious). I was approaching the experience as a more cerebral form of the Space Mountain ride. Except, at Disney World, the screening is only that you be at least 3 feet 8 inches tall. If you had to meet with a doctor and go over your medical history at the beginning of the line, you’d be more pensive while you waited your turn to ride.

Birkenstock Austin

The clinic felt like the Austin regional office of Birkenstock or the HQ of a successful scented candle manufacturer — groovy but well funded. The first thing you encounter is a purposefully distressed shoe cubby that sets the tone, as everyone is barefoot. My guide, John, was out of central casting to lead a yoga retreat, or an angry professor’s ketamine trip. He was about as chill as one could be while still maintaining an air of competence. I had an additional intake with the medical director, an attractive woman in her 60s. I had trouble focusing for the first few minutes as she had a Tammy Wynette–like wig. It looked good, but she could have been the offspring of Sophia Loren and Beyoncé. I immediately summed her up as a rich housewife who, after the kids left, got bored/depressed, decided to get a degree, and convinced some rich investors to fund her adventures in ketamine.

But here’s the thing, I was wrong. Dr. Sheila Newsom was the captain of the baseball team at West Point, served her country for four years as a paratrooper, got a medical degree from the University of Texas, and built a hospital in Africa. At 63, Dr. Newsom underwent gender transformation and answered a call to help people suffering from suicidal ideation via ketamine therapy. Jesus Christ, an amazing athlete who served her country and later in life felt a calling to be her true self while helping others. So, the first “unlocks” from ketamine were before the ketamine: I am judgmental, and there are so many remarkable Americans. Just as grit is a combination of resilience and forgiveness, I’d like to think “American” is a mix of opportunity and acceptance. The two are force multipliers for one another. I worry that America, for the first time in our history, is becoming less accepting. Less American. But that’s another post.

The trip room was what you would expect to find in the home of a Gen-Xer who, after his kids are asleep, takes an edible and retreats to a room with an oversize sectional, a flat-screen, and no sharp edges (speaking for a friend). Dr. Newsom joined John and me in the opium den, grasped our hands, and prayed … which I found oddly comforting. For some reason I requested a weighted blanket. I’d never used one, nor really knew what it was … but it just felt right. John and I did some breath work and then Dr. Newsom injected me with 87 milligrams of ketamine.

Elevator Up

Shit got real, or unreal, pretty fast. I felt heavy but not uncomfortable. Wary but not anxious. With the blindfold on I was in the Sphere (Vegas immersive theater), only this was to the Sphere what the Sphere is to a black-and-white television. Walls of red numbers and symbols bumping into, and absorbing, each other as the sheets of imagery expanded and contracted as if they were breathing. The visuals took on a sentient feel and turned to emotion and experiences that then liquified and poured over my consciousness. I immediately felt a sense of wonder for a drug that could inspire this depth of hallucination, this fast, without the feeling of being out of control. Then things got weird.

Imagine your brain is a tightly wound knot of experiences, emotions, visuals, and neural pathways (your consciousness). Ketamine loosens the knot and unfurls everything, including material that’s there but not previously visible. The strands of the knot then separate from your physical self and all things. People have described it as floating through space. For me, it felt like a different dimension where there was nothing physical, just my being. My thoughts and perceptions were untethered from any organic or inorganic material. A friend who several years ago urged me to try K therapy described it best: It’s as if your life is an ocean. And you can see some stuff below the surface, but it’s not clear. K drains the ocean so you can walk along the floor and see everything in sharp relief.

Recognizing that my senses and emotions (i.e., perception) were the only “real” thing was overwhelming, and for a few moments unsettling. How was my perception formed? Jesus, this is me … and what does “me” really mean? Similar to when I was a kid on a long road trip with my mom, I’d ask myself over and over, “Who am I? Who am I?” and then feel faint. I’d tell my mom; she’d tell me to not think about that kind of thing. Ketamine doesn’t care what your mom says. Trying to wrap my conscience around itself and understand my being, my soul felt overwhelmed. Never panicked, like being too high (been there), just overwhelmed.

Bahne

A couple images kept resurfacing. First and foremost, I have specific pictures of my boys that I’m fond of and they appeared square in front of me. Except, they were in 4K, high def. I, similar to most parents, think my boys are the most beautiful things ever created. The depth of commitment and love I feel for them felt impossible. Impossible in a good way, as if it was a secret that would only be revealed to them when they had kids. The images were just so illuminant, and the emotion so strong.

Their mother appeared as well, and she produced entirely different emotions. At first, a surprise … who is this? Then a sense of relief and joy. When I was 10 my only hobby was skateboarding. I bought a skateboard at Big 5 for $3. It was a piece of pressed balsa wood with steel wheels. We had to check our skateboards in at the beginning of school to the principal’s office and then retrieve them when school was over. Anthony Fadale and friends would mock me and my board when he and his crew picked up their Dogtown and Zephyr boards.

My mom’s boyfriend, Terry, was leaving on Sunday and left a UPS box on the dining table. In the box was a new Bahne skateboard with AC500 trucks and KONA wheels. This board cost $45, which might have well meant $45 million for my mom and me. The feeling of surprise and joy when I realized this was mine was similar to the emotion that registered when the image of my wife came into view. This relationship is mine … really?

I also had some anxiety around things that were on my mind, bothering me. I don’t think K is good at sorting, and these things were only there as they were present at that moment. I’d said something stupid at a conference earlier in the week onstage and had been an asshole to someone the same week. They both kept coming up and confronting me.

No Free Lunch

There is an increasing body of research showing that ketamine therapy can do wonderful things for people suffering from trauma, depression, and addictions. However, I would not recommend doing this recreationally or outside a therapeutic environment. It is intense. What has struck me is the benefits of the session have mostly occurred well after the session as I process the experience and what to take from it. This is why several sessions done in a licensed clinic in conjunction with a therapist is a best practice. Recreational use is spiking, and while it will be a light diversion for most users, ketamine can be addictive and, when abused, can cause serious physical harm, including bladder infections and renal failure. Ketamine purchased from mail-order pharmacies or bought on the street is of uncertain provenance, and when sold in powdered form, is often cut with other substances including fentanyl.

Clarifying

During my trip, there was nothing new. No discovery, just clarification and illumination. I know I love my boys, and that their mom is impressive. But this was a chance to bask in those emotions and register real reward. Also, in the two weeks since the therapy I haven’t had a drink — first time I’ve gone this long since college. It’s not that I had a revelation that I drink too much (again, I knew that), I have just sort of lost the taste for it. We’ll see. Again, the majority of the benefit has been post-therapy processing the experience, what I take from it and how it will change my behavior and perspective moving forward. Some thoughts:

Feeling the depth of emotion for my boys gives me a sense of purpose. I love the notion of “surplus” value, that you become a man when you add more than you take. Sort of a spiritual profitability if you will. My purpose is to love my boys, and others, more than I’ve been loved. I’m almost there, and it gives me a sense of peace about aging and dying (note: not planning to do this anytime soon). I used to be terrified of death, and feeling purpose take shape — and that it’s within reach — provides comforting permission to leave. As they say in the Navy, “Fair winds and following seas, we have the watch.”I’ve also come to the conclusion that the quality of your relationships isn’t a function of that person but of you. Specifically, your willingness to lean into the relationship and not keep score. For most of my life, relationships have been transactional. And I was either on the right side of the ledger — getting more than I receive — or dissatisfied. I realize that my role is, among those close to me, to provide witness to their life. For them to know that I notice. To rescue them from any doubt that they matter, that when good or bad things happen to them … that I notice. Their life happens, and registers, as a decent man who loves them provides witness.

My son has a ring on a necklace inscribed with a quote from one of my favorite childhood movies, The Little Prince: “What is essential is invisible to the eye.” When I called my wife after the therapy and told her she was a skateboard, and why, there was a long silence on the other end. However, I knew what she was feeling. We didn’t need to hear or see each other. It didn’t matter, as the essential is invisible.

Life is so rich,

P.S. If this email was forwarded to you, you can receive No Mercy / No Malice in your inbox every Friday by subscribing here.

P.P.S. Missed my AMA on building wealth yesterday? We tackled real estate, retirement savings, raising kids, quitting toxic jobs, and what to do with $100,000 – watch the recording here.

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Mammal.ai

Within and across species, relationships are essential to surviving and thriving. Complex social arrangements between trees and fungi sustain forests, individual bees and ants cannot feed themselves, beavers work in groups of up to 10 to build their dams, and bald eagles mate for life. Crocodiles and orcas engage in coordinated hunting strategies reminiscent of those practiced by early humans.

Humans have speedballed the power of relationships. Physically we are weak, slow, and fragile, with mediocre senses and absurdly long infancies. Yet, thanks to our superpower of cooperation, we’ve dominated our environment and become the apex of apex predators. There are more birds in captivity than birds in the wild. (Hint: chicken.) In aggregate, humans outweigh all the wild mammals on planet Earth — and our domesticated livestock outweigh both groups combined. I just read the last sentence and hope, if there’s an afterlife, that judgment is not part of the process, as the cruelty we levy on animals is staggering. But that’s another post.

We are wired to seek and sustain relationships and cannot survive without them. The future of the human race won’t turn on space travel or climate tech, but on our ability to attach to others. A sense that we matter, that we can call on and be called upon by others to ease burdens and celebrate joy.

A study of Romanian orphanages, where babies received adequate nutrition but were deprived of affection, found they had smaller brains and reduced cognitive function. Videos of the “still face experiment” show how intensely babies crave not just affection, but also social connection with their parents. Among adults in the U.S., social isolation increases the risk of premature death by 29% — more than smoking 15 cigarettes per day. In sum, loneliness kills.

Friendship Pays

Friendship is an economic accelerant. The economist Raj Chetty found that for people from lower socioeconomic backgrounds, having wealthier friends “is the single strongest predictor of upward mobility.” Unemployed people who volunteer are 27% more likely to find work than those who do not, aided by the “social capital” (economist-speak for “friends”) they accumulate through volunteering. Regions with greater civic engagement are more resistant to economic slowdowns, and communities to which the residents have a strong emotional attachment see higher rates of GDP growth. The flip side? The CDC estimates that loneliness costs the U.S. economy $406 billion a year — more than the combined GDP of Vermont, Wyoming, Alaska, Montana, South Dakota, and Rhode Island.

Politics of Loneliness

The political manifestation of weakening relationships is extremism. In the 2016 election, extreme candidates on both the left and right drew outsized support from disaffected, isolated voters. And there are more such voters than ever: A study during that election concluded: “Americans’ core [social] networks are significantly smaller and more politically homogeneous than at any other period.” Extremism is incompatible with legislative and judicial processes — witness the dysfunction in Congress and the rapidly eroding credibility of the Supreme Court — and can lead to violence.

Radical.ai

As social networks shrink, anxiety and polarization rise, and we become soft targets for bad actors and self-inflicted harms. Scams targeting lonely people are the go-to tactic for con artists. This month, former National Guardsman Jack Teixeira pled guilty to leaking military secrets over Discord. Teixera was showing off for his online friends — he only got caught because some of those “friends” circulated what he’d shared, drawing the attention of reporters at the New York Times. Teixeira’s motivations were personal, not political, and that’s what is so ominous — an adversary doesn’t need to find anti-American citizens, but lonely Americans seeking social status.

The military is justifiably concerned about a wave of lonely recruits betraying their country, and it’s relatively well positioned to monitor contacts. However, vulnerable people also work at nodes of critical infrastructure — power plants, data centers, hospitals, water treatment plants. It’s cinematic to worry about AI attacking humans, but a more likely threat is that humans will use AI to attack other humans. Well-intended companion bots like Replika have millions of users, but their privacy and security protocols are suspect. With the tech getting better and cheaper, it’s likely that Putin, Xi, and Biden have programs under development to produce bots that can establish deep relationships with lonely soldiers and technicians — and weaponize them.

Think of it as a consumer marketing funnel, but at the bottom is an act of terror vs. buying Nespresso pods. Using public records, a spy agency or terror group identifies thousands of people in sensitive posts, reaches out with AI girlfriends or boyfriends, and tests what activities (e.g., sharing articles and experiences, engaging in joint pursuits, sexual messages that feel personalized, etc.) move the target further down the path. Then, monitoring millions of signals per second (“turn on your webcam, I want to see you”) the AI identifies windows of opportunity (when the target seems especially tired, paranoid, angry, etc.) and activates (coaxing them to share a password so the bot can access a computer at work, not inspect a certain container, turn off the drone defense system, etc.). It’s a centuries-old espionage strategy, but, executed with AI avatars and tech, it can be done with a reach and scale that could radicalize hundreds, maybe thousands. Fallow cells of people in highly sensitive roles on warships, in nuclear power plants, or at ports could be waiting for activation.

007.ai

It’s not an Ian Fleming book, but reality. The KGB allegedly had a school to train female agents in the art of sexpionage. Islamic terrorists have been radicalizing Americans for years: The 2009 Fort Hood shooter, who killed 13 people, was an “isolated, lonely man” who “had difficulty making friends” and needed only minimal encouragement from a radical cleric (over email) to nudge him into terrorism. The 2015 San Bernardino shooters, who killed 13 in the name of Islam, were radicalized online. All that’s new is the power to do this at near-infinite scale. An army of highly intelligent, unsleeping agents who/that shift personalities and modalities at the speed of compute. And an ever-increasing population of people who lack the robust real-world social networks to inoculate them against online manipulation. Such as the troubled young man who broke into Windsor Castle armed with a crossbow in 2021, intending to kill the queen — after being encouraged by his Replika AI girlfriend.

Prevention

There’s nothing pithy or revelatory about the solution. We need to advocate for programs (after-school groups, athletic leagues, affordable education, public places, paid nonprofit work, national service, vocational training). And also, money — more of it. More economic support (e.g., a negative tax rate) that levels up young people who’ve seen their share of wealth leak to older Americans through a set of policies designed by old people elected by older people.

Every population segment has its vulnerabilities to loneliness and weaponized AI, but young men are ground zero. Young men need more friends. And older men need to take responsibility for getting more involved in their lives. The abundance of single-parent homes, a dearth of male teachers in primary school, and technology firms that invest billions in keeping kids sequestered from in-person friendships mean millions of boys are being raised with almost no male contact or relationships.

The single point of failure for a young man is when he loses a male role model. Boys need men, full stop. In my view, the ultimate expression of masculinity is to become irrationally passionate about the well-being of a young person who you are not biologically related to. But not enough of us are there for them and fighting for the resources they need. We are failing our brothers, sons, neighbors, and country. Being a man means making better men. We have adversaries, but our real enemy is loneliness.

Life is so rich,

P.S To resist my new book is futile. Order it here.

P.P.S. Last chance to register for my AMA on building personal wealth next Thursday. Bring your questions.

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Icebreaker

The market is shaped by psychology, not financials. And the psychology around IPOs has been in trauma since retail investors were run over by a semitrailer whose mud flaps read SPAC and Rate Hike. Winter came for IPOs, and we’re still waiting for the thaw. Despite a surplus of high-quality private companies and significant capital waiting to strike, new offerings are scant. With the broader market breaching all-time highs, the pent-up supply/demand of firms/capital is waiting for the green flag to drop. Specifically, a high-profile business whose first trade as a public company registers a healthy gain. I believe the icebreaker, due to price next week, will be Reddit. Note: Not financial advice.

The most valuable firms are a function of the resources and activities dominating the economy. We have evolved from an agrarian economy to an industrial one to one that runs on oil, then services and now … attention. U.S. Steel, Saudi Aramco, and Alphabet created unprecedented shareholder value as they commanded the seminal resource of their respective eras. Today the most valuable consumer companies monetize attention. And Reddit commands more attention in the U.S. than any company not owned by Alphabet. If attention is the new oil, then Reddit is Saudi Arabia, and resting beneath the platform is a sea of attention the size of the Ghawar oil field.

Calibrate

Fifteen years ago newspapers commanded three times their share of media dollars, relative to their share of attention, and digital one-third. The gangster investment thesis was the idea that the ratios would calibrate … and they did. The companies just ahead/behind Reddit’s U.S. attention reserves (Alphabet and Meta) have market capitalizations of $1.8 trillion and $1.3 trillion, respectively. Compared to its website traffic, Reddit is undervalued. This is a rough metric, since not all web visits are the same, and it doesn’t capture app traffic — but the brand also captures 850 million monthly users, more than Pinterest, LinkedIn, or Snap. The low valuation reflects Reddit’s modest revenue growth of 20%, the product of an inferior ad stack and business model. However, if/when it figures this out we’ll see the mother of all market calibrations. At an anticipated pricing that puts the valuation at $6.5 billion, Reddit is the only firm I can think of that has an opaque, but visible, path to a 100x return. Figuring out the monetization is hard. Developing a product that commands this level of attention is harder, and Reddit has done it.

Will Reddit figure out how to monetize its attention volcano? It’s doing the work. It restricted API access, akin to plugging leaks in its pipeline, and appears to have ridden out the controversy that caused. Now it is rolling out advertiser tools, taking advantage of its inherently contextual nature — advertisers don’t need to rely on mysterious algorithms or invasive trackers to target consumers interested in their category, they can simply buy ads in the appropriate subreddits. The site’s content is overwhelmingly in English, but non-English growth offers more upside opportunity, and for now it focuses the product and its costs on the most valuable consumers to most advertisers. Not making enough money from 7.5 billion visits per month is a good problem to have. The question not yet answered is whether Reddit is more like Digg and Vine or Alphabet and Meta. History — along with any recognition of just how difficult it is to build a global platform like Alphabet or Google — suggests the upside potential is asymmetric.

In addition, there are a couple chasers that could speedball Reddit’s market value. Its particular form of attention is desirable to the deepest-pocketed buyers of data on the planet: LLMs. Reddit conversations, which can be wide-ranging, in-depth, and extensive, are ideal training fodder for AI, and Reddit is starting to cash in. Starting. The company’s S-1 reports that it has had over 1 billion posts and 16 billion comments, and it’s booked more than $200 million in revenue from AI companies eager to train on that corpus. Interestingly, the investor with the second-largest voting stake, with 9.1% of the votes, is OpenAI CEO Sam Altman. It’s not AI “washing” per se, but AI remora — swimming next to (i.e., associating with) AI firms that have added the value of the global auto industry to their own market caps in the past 12 weeks. Oracle’s recent earnings call had more mentions of “Nvidia” and “AI” than “Oracle.”

One dark spot in Reddit’s profile is its governance structure: Thanks to dual-class shares and deals with the company’s two largest shareholders, CEO Steve Huffman has near-total control over the business as long as he remains in the job. That’s a bad system, regardless of the individuals within it. Finally, Reddit is the meme factory to the meme stock movement, and that’s not a sustainable engine for shareholder value. However, there is a non-zero probability we could see Reddit become the most talked about mid-cap firm in history, and thereby break the ice dam throttling the IPO market.

The Saudi Arabia of attention, a modest valuation, and option value as a meme stock: Champagne, cocaine, and disco.

Life is so rich,

P.S. You can preorder my latest book, The Algebra of Wealth, here and receive it on April 23.

P.P.S. Section’s AI for Business Mini-MBA closes enrollment for the April cohort soon. Use code SCOTT25 for 25% off while supplies last.

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

The Algebra of Wealth

 

 

 

My next book is the product of a lifetime spent as a founder, professor, parent, and mentor. The Algebra of Wealth contains 300 pages of insights and hard lessons drawn from experience, paired with the best research on the foundational question of prosperity: how to achieve financial security. The book comes out on April 23, and between now and then I’ll be sharing eight short excerpts and summaries of key points with our readers. We’re still writing No Mercy / No Malice every Friday; we’ll share Algebra of Wealth content on Mondays.

We started work on this book several years ago, inspired by a No Mercy / No Malice post about the difference between having money and being rich, and how to achieve the latter. It was one of our best-received pieces when we ran it in February 2021. In anticipation of the book it grew into, here’s that initial post.

[The following was originally published on February 12, 2021.]

I know a lot of people who make an extraordinary amount of money, but few people who are rich. Rich is having passive income greater than your burn. People on a path to money focus on their earnings; people on a path to wealth also focus on their burn. Joseph Heller said, “It takes brains not to make money.” (I think he was casting a favorable light on his starving artist friends.) This may be true, but it definitely takes brains to hold onto it (money).

My father receives $48,000 per year from Social Security and his Royal Navy pension (he was a frogman). He spends $40,000, and that’s enough to make him happy. He swims every day, watches a shit-ton of hockey (Leafs fan), and on Fridays goes to the Taco Stand (an actual restaurant in La Jolla) and orders something called a michelada. (Apparently it’s medicine delivered in a chilled, salt-rimmed glass — he claims his hair is regrowing and that he’s sleeping better. I believe half of that, so … I believe it.) Anyway, it’s not your income, but your income-to-expense ratio, that determines if you’re rich.

My observation is that there are four variables in the algebra of wealth: focus, stoicism, time, and diversification.

People conflate a lack of focus with a lack of talent. Intelligence and talent are correlated with success, but the strongest signal of future success is your perseverance and resilience: what the books in airport bookstores call “grit.” Unless you are supremely disciplined, your career will have to be something that gives you some enjoyment. But don’t mistake focus for your “passion.” People who tell you to follow your passion are already rich. Follow your talent. The accoutrements that accompany being great at something (relevance, admiration, camaraderie, money) will make you passionate about whatever “it” is.

Focus on putting yourself in a position to be financially successful. Get certified: In a digital world, much of the corporate world decides whether to swipe right or left based on the logos (aspirational universities/firms, vocational certifications, etc.) on your LinkedIn page.

Sector dynamics will trump your talent. (I realize how awful that sounds.) However, someone of average talent at Google has done better over the past decade than someone great at General Motors. Be thoughtful … any opportunity you have when you’re young to choose among different paths is a profound blessing.

Look for the best wave to ride. Twenty-five years ago, I chose to paddle into the e-commerce wave. My first effort (Red Envelope) failed. Even worse, it failed slowly … over 10 years. I stuck with it and started a firm that helped other firms develop e-commerce strategies (L2) and have owned Amazon stock for 12 years. It took me a while, but the strength of the wave kept me moving, and carried me to the beach. I just read the last sentence and am fairly certain I will never be a truly great writer. Anyway.

Focus on your relationships. Family and friends are essential to long-term happiness, and the most important relationship is with your spouse. The most essential economic decision you make will be who you decide to partner with or, more specifically, who you decide to have kids with. The net worth of married people grows 77% larger than that of single people. Marry the right person, and then invest in that relationship every day. You’ve wagered 50%+ of your net worth, and your value in the marketplace, on that partnership. Don’t keep score, and bring forgiveness, generosity, and engagement. In sum, show up.

Determine what you can and can’t control. You can control your reactions to temptation — a lack of discipline is the antichrist to economic security. Our society of superabundance makes this difficult. Billions of dollars are spent every year on schemes to manipulate our natural impulses into spending more money, consuming more fat, and believing everyone around us is more successful than we are. The upgrade from economy to premium to business to first class to private jet can seem like an investment in yourself — it’s not. The most powerful forward-looking indicator of your financial freedom is not how much you earn, but how much you save.

A specific activity accelerates in a bull market, conflating luck with talent and dopamine with investing. Diabetes, high blood pressure, and sharing a screenshot of your Robinhood gains are maladies of industrial production that exceed our instincts. Trading — distinct from “investing” — can feel like work and productivity. It’s not. It’s gambling, but with worse odds and no free drinks. One study found that over a 12-year period, only 5% of active retail traders made any profit at all. This time around, apps including Robinhood, with its dopamine-triggering confetti, and 24-hour-a-day, volatile crypto trading are the drugs of choice. Most day traders will be fine, suffering affordable losses … most. However, for many there are darker outcomes. Young men are especially vulnerable, as they are more risk aggressive. Between 80% and 85% of day traders are men, and 23% of men who gamble become addicted (as opposed to 7% of women). Most of us can gamble without becoming addicted, just as most of us can drink without becoming an alcoholic — but know the risks.

Stoicism is not just about remaining calm in the face of temptation. It means having good character. Succeeding in life is much easier if other people want you to succeed. We have a mental cartoon image of rich people as grasping and cruel. The reality, in my experience, is that wealthy people, in general, demonstrate strength, acumen and … kindness. Economic security is in the agency of others, and you want others to want you to win.

I spent the first 40 years of my life chasing some form of Western relevance so I could register more dopamine surges. Nothing was ever enough. More, I want fucking more … now. The pursuit always managed to distract me, and I was unable to get the engines of success and fulfillment firing on all cylinders. This stage of my life was characterized by fits of progress, getting close, but never achieving anything resembling the potential my opportunities warranted. In one moment that all changed for me: When my first son came rotating out of my girlfriend 13 years ago. In sum, shit got real. I was young enough to be selfish, but old enough to recognize it and acknowledge that I needed to change. I decided at that moment (no joke) to bring more focus and discipline into my life.

“Time is the fire in which we burn,” says the poet. It is our most inflexible and valuable commodity, the one thing with which you should not be generous. Squander money, you may earn it back. Squander time, it is gone forever.

Re investing: The long term is our ally, the short term our nemesis. The gangster authority on time, Albert Einstein, supposedly remarked that compound interest is the eighth wonder of the world. Yet our brains are not wired to understand this. When I was 26, I thought of being 46 as the distant, irrelevant future. Now that I’ve reached that age (actually I’m 56 … ugh), 26 feels as if it was last year. But small investments I made a decade-plus ago have grown into the base of my economic security.

Compounding is not just a financial thing. The most important returns in life come from the compounded effects of our investments over time, whether in our finances, careers, hobbies, or relationships. Change the timescale of your life, and you change your life.

In your life, focus is key. Plan A for financial security is being great at doing something the market values highly, and leveraging that into income and/or equity in a business. But Plan A squared is investments. And with investments, focus is to be avoided. Diversify and, unless your plan is to be in the finance industry, be sure that your time spent tracking/trading does not distract you from what is/should be your source of income and savings.

Investing over the long term pays out, but there are always dips along the way. Diversification is kevlar — with it, bad decisions will still hurt, but they won’t prove fatal. Diversification, in other words, is your bulletproof vest.

A few of my many egregious investing errors:

Red Envelope: I was so emotionally involved (I co-founded the firm in 1997) that I kept putting money into the business and ended up losing 70% of my net worth when it declared Chapter 11 in 2008. I had no kevlar, as I was terribly concentrated in one asset.Netflix: Yes, Netflix. I believed in the company, respected its management, saw its potential, and bought a lot (for a professor) at $12/share. That’s the good news. The bad news is that I sold it six months later at $10/share to capture a tax loss and never re-bought. Today it’s at $558. Not that it doesn’t haunt me … every day. Nope, definitely not.

Most of my major mistakes in investing can be distilled down to two things: not diversifying, and trading.

Mistake No. 1 (Red Envelope): Almost fatal. I was 43 and outwardly successful.  But with the birth of my first son, I was feeling more economic anxiety than I had since I was a kid. (I grew up in a household with a single mother who worked as a secretary.) Mistake No. 2 (Netflix): Painful but nowhere near fatal. I had eggs in other baskets (i.e. Amazon, Apple, Nike, Oracle). In the end, my kevlar has been not allocating more than 10% of my net worth to any one investment. That doesn’t mean I don’t look for opportunities that offer asymmetric upside — I do. I just don’t ever take off my kevlar. You don’t need to be a hero to get to economic security.

Not Your Fault

These principles have served me well, especially as I’ve become more disciplined about following them. But while I wasn’t born into wealth, I did benefit immensely from the circumstance of my birth. My smartest move was to be born a white male in California in the sixties. An America that loved unremarkable kids presented me with a world-class education (at the time, UCLA had a 60% admissions rate and cost just $400 a semester), thrust me into the financial boom of the 1980s, and, through sheer luck, positioned me to catch the internet wave.

Since I set foot on the UCLA campus in the 1980s (feels like just last year) we’ve told ourselves we remain the Land of Opportunity, and that we’re making progress to remedy our historic imbalances. Yet as illustrated by one metric after another, economic security is harder to obtain, not easier, and is becoming less a person’s individual fault and more a result of circumstance … America is becoming less, well, American.

Are we headed for another revolution? I don’t know, but we are due for another righteous movement. What can you do in the face of a system that profits off you becoming overweight, indebted, divided, and addicted? Answer: Rebel.

Focus on what matters. Be a Stoic in the face of temptation. Use Time to your advantage. Diversify your investments.

In any economic climate, how do we build economic security, foster love, and find joy? How do we get rich?

Slowly.

Life is so rich,

P.S. You can pre-order The Algebra of Wealth here and receive it on April 23.

The post The Algebra of Wealth appeared first on No Mercy / No Malice.

Searching

Each year we pick a Big Tech stock we think will outperform its peers. In November 2022 we picked Meta as our stock of 2023. For 2024 our pick is Alphabet. I believe Alphabet has been over-punished for its flaccid response to AI, as Meta was for its stupidity regarding the Metaverse and headsets. Alphabet still sits on cash volcanoes (as does Meta), and if 2023 was AI Star Wars, 2024 will be AI The Empire Strikes Back. Note: Stock picking is fun, and you can learn by doing it, but the research is clear — buy low-cost index funds. Anyway …

Google Search is likely the best (most lucrative) business model of this millennium. The company’s monopoly on search garners a 24% net profit — on 91% of the $190 billion search business. Google redeploys some of these earnings to dig moats, offering free apps for email, word processing, videos, mobile OS, and mapping which protect the Red Keep (search) from marauders. Despite this, its parent company, Alphabet, is the cheapest stock (by PE ratio) in the Magnificent 7. Its shares have risen 144% in the past five years, bettering only Amazon, and behind Meta’s 198%, Microsoft’s 261%, Apple’s 313%, Tesla’s 964%, and Nvidia’s 1,900% increases. The market views businesses with a naked eye, and what it sees in Alphabet is a great company hamstrung by the Innovator’s Dilemma.

The thesis of Clayton Christensen’s The Innovator’s Dilemma, published in 1997, is based on a world of hard disk drives and film photography, but it’s stood the test of time. Christensen’s argument is successful companies doom themselves not by making mistakes, but by doing everything right: Incumbency is the most potent blessing a firm can enjoy, right up until the moment it becomes a curse. AI has pulled that moment forward for Alphabet.

Innovation

Google was once the innovator, offering markedly better search results. Early Search was part of a richly appointed “on-ramp” to the internet. Instead Google gave users a blinking cursor to type a query, and then 10 blue links to the most relevant webpages. When it offered advertising, it was similarly bare-bones, with only promoted links, no javascript “experiences” or animated characters wandering around the screen. This lo-fi experience was attractive to users, because the links were relevant, and to advertisers, because it was targeted. The company siphoned traffic from the more robust competitive offerings. By the time market leaders such as Yahoo!, Alta Vista, AOL, and Excite understood what was happening, Google had blown past them. And it kept iterating. The company’s culture has attracted what may be the greatest density of high IQs in business history. Google, until last year, felt unassailable. And then, suddenly, it was vulnerable.

Christensen foresaw this, in general terms, in his analysis of how an innovative firm succeeds at the expense of market leaders. Market leaders make their money providing customers with the best product, not by throwing half-baked, partially serviceable technology at them, even if in the long term that technology may become more popular. Their reputation for quality and reliability is among their most valuable assets, and their sales and marketing investments are made to attract and maintain the largest customers. This creates the opportunity for an innovator to operate on the fringes of an industry, with a product that’s subpar in some ways but has greater long-term potential. One of Christensen’s key insights was that this opportunity isn’t the result of any error by the market leader, but a function of market leadership itself.

The Curse of Leadership

Thus, the dilemma forms when the innovator becomes the boss. A classic example is Kodak. Kodak dominated the photography industry for decades, delivering the highest-quality film and paper to the most demanding and profitable customers. It wasn’t ignorant of digital photography; the company actually pioneered the category, developing the first digital camera in the 1970s, and it offered a variety of digital cameras for sale throughout the 1990s — including one model that cost $20,000 and sold less than 1,000 units. Kodak didn’t go all-in on digital, however, because digital offered considerably lower-quality than film and had different virtues, and because the company’s business model was built around selling consumable film. Most discouraging, its best customers had no use for it. Kodak left the digital field to innovators who offered cameras that produced inferior images, but these firms found favor in other, neglected parts of the market.

As these companies innovated, the product got better, and Kodak was caught behind what Christensen describes as an S-curve of innovation. New technology is initially unreliable and of low quality, and many early improvements generate little consumer value. But if those improvements continue, like financial savings, they compound. The result is a better product that has so much momentum that the incumbent is caught flat-footed. This is the steep slope in the middle of the S-curve, and whoever gets there first has a huge advantage. Think people camping outside Apple stores to get the latest iPhone every year. Kodak couldn’t justify pivoting toward digital photography in the sluggish, flat part of the curve, since there was no ROI at that point. But Canon, Pentax, Nikon, and others with less to lose kept plugging away. In the late ’90s, they hit the acceleration phase of the S-curve and left Kodak behind. Kodak recorded revenue of $16 billion in 1996; in 2023, $1.2 billion.

And here’s the interesting part: Kodak management may not have been as dumb as we think. The military assesses officers after combat based on the quality of their decisions given the circumstances, and what the officer knew moment to moment. Skimping digital may have been Kodak’s best decision at that moment. Had it been more aggressive with digital cameras of the lousy quality that its competitors were manufacturing in the ’90s, it would have struggled to meet shareholder expectations for its margins, tarnished its brand reputation for quality, and risked losing core business market share to competitors. Sure, the move to digital cameras seems obvious … now.

Don’t Go Searchin’

Alphabet is in a strikingly similar situation as Kodak 30 years ago — its supremacy is under threat from a technology it developed but has failed to capitalize on. In 2017, Google researchers released a paper on AI titled “Attention Is All You Need,” proposing a neural network that could analyze unprecedented volumes of text and produce logical, comprehensible responses. Called a “transformer” model, this is the framework of modern generative AI — ChatGPT and most other major AI models are derived from insights developed at Google. Like Kodak, Google didn’t ignore the tech it had developed: It built AI into its search product, fleshing out the bare-bones results page with summaries of webpages, biographical capsules, and other features. But all of this was range-bound to the core paradigm of a search box and a results page.

That left a void in the market, a multitrillion-dollar black hole, which ChatGPT filled in 2022. Firms including Perplexity, Anthropic, and Inflection AI rushed in as well. Why search when you can just get there (i.e., the answer)? Why limit your dialog to one question when you can have a conversation? Why limit search to searching — why not include creativity, tasks, and communication?

The Dilemma

If Google had released the same ChatGPT product as OpenAI in early 2022, it would have been ridiculed and experienced a PR disaster. At launch, ChatGPT couldn’t solve simple math problems, was easily tricked into providing information about building bombs and making jokes about sexual assault, etc. Little-known OpenAI could get away with that; Google couldn’t. In fact, when Google launched Bard, Alphabet lost $100 billion in market cap because the chatbot gave incorrect answers in the promotional video. And the company has been ridiculed in the media for its fumbled Gemini rollout of an AI that’s so politically sensitive it returns images of black people when queried about Nazis, to reflect diversity. Pretty sure Nazis are (still) a group you can make stereotypes about.

The Steep Part

The multitrillion-dollar question is who gets to the steep part of the S-curve first — or whether OpenAI and its peers have already reached it. Because once ChatGPT (or Perplexity or Claude or a model we haven’t seen yet) hits escape velocity, the history of innovation tells us the race is over. A bad sign for Alphabet: Of the original eight researchers who wrote that AI “Attention” paper, only one still works at Google. Six others founded their own companies, and one joined OpenAI. Something that’s speed-balled Christensen’s theory in this era is the amount of capital available to the defectors. Generative AI and AI-related startups raised more than $50 billion in 2023, led by Open AI. Over 70 rounds of $100 million raises occurred last year. These companies aren’t immediately direct competitors of Google; they’re coming at the search game obliquely. ChatGPT doesn’t fill every role that Google’s product offers, but it begins to nibble at the periphery, just as Google has been gnawing at all media for two decades. A former Google employee who founded their own AI startup recently said, “The pirates have their boats in the ocean, and we are coming.”

Shareholders, Activate

What happens now? When a public company with these tectonic assets lags the stock returns of its peers, that’s the bat signal for an activist. Activists typically acquire 5% to 10% of a company’s shares and publicly advocate for board seats, proposing change. When it works, the outside perspective and energy invigorates management (sometimes by firing them) and stirs the giant from its slumber. Alphabet in many ways is a classic activist target — it’s still a dominant company with enormous growth potential but what feels like, almost overnight, an insular management team rendered flat-footed during a paradigm shift.

However, the gates an activist would need to breach are well fortified. Alphabet has a multiclass stock structure. As with many things Alphabet, it’s more complicated than it probably needs to be — three classes, including two that trade publicly. But the bottom line is that Larry and Sergey together control the company through their ownership of Class B shares, and no third party can acquire enough shares to override them. (Larry and Sergey were the first, in tech, to protect founders from the scrutiny of shareholders. And many have followed, unleashing a small yet devastating army of mendacious fucks who have no accountability and have done real damage to the commonwealth. But that’s another post.)

Da Plan, Da Plan

The lack of voting power is not an insurmountable obstacle. Ultimately, an activist investor gains influence based on the strength of their argument and plan, not the size of their stake. And Alphabet can be saved.

Thanks to the growth of two other members of the Magnificent 7, Nvidia and Microsoft, most of the attention is on AI hardware and AI models. These are important and have been lucrative for their makers. But the third leg of the AI stool — where I believe the war will be won/lost — is the data that LLMs have access to for their models and applications. Data used for training models, and data to feed them so they can find patterns and create value. Nobody — no government, no church, no supernatural being — has more data than Alphabet. Google Search crawls nearly the entire public internet and serves the majority of search results. YouTube hosts a billion videos and knows your viewing preferences. The post you’re reading right now was researched using Google Search and Google Chrome and written in Google Docs. An estimated 1.8 billion people use Gmail, a billion people use Google Maps, and 500 million store their schedule in Google Calendar.

This vast store of data is Alphabet’s deepest moat, and the company’s bridge to the future. This sort of data has become currency: Reddit, the Associated Press, Tumblr, WordPress — anyone with a full data center — have all monetized their (much smaller) pools of data for LLM training. Tesla will tell you that the biggest advantage it has in self-driving AI is the fleet — specifically, the years of real-world driving data that Teslas have sent back to HQ for processing by the company’s AI systems. But building better models isn’t how Alphabet can leapfrog OpenAI. It’s by customizing models that are purpose-built on its proprietary data sets. Alphabet’s data flex is not that it knows more about the world, but about you.

AI built on top of the Google suite could anticipate our needs and handle all the plumbing and bureaucracy to fulfill them. A quick scan of my Gmail and calendar yields that I am speaking at TED in April (my flex). A Gemini AI scan will reveal the airline, class, hotels, and activities I’ll engage in when I’m there on the West Coast. Google understands the patterns and preferences of my life, and all the income streams stemming from it. I’ll be at SXSW next week; Alphabet (again) knows when I’m going, where I like to stay in Austin, and that I’ve been considering ketamine therapy. It also knows, from public postings, who else will be there, so it could begin turning my calendar from a defensive weapon (don’t be late) to an offensive weapon (Alert: you have a two-hour window on Sunday; should we book ketamine therapy at Kuya or lunch with Scott Burns/Liz Plank/Chris Williamson, who will also be in Austin?). As with investing and careers, the real ROI for Gemini isn’t in sexy apps that produce video in the style of Kurosawa, but apps that make your life easier and less expensive. Pro tip: It’s the boring shit that makes you rich.

OpenAI can’t do this, nor can Microsoft. In fact, there’s only one other company on Earth that has anywhere close to this 360-degree data on its customers: Apple. And Apple’s AI entry, Siri, has been a dud. Opting for Google’s payola rather than building its own search engine may have been billions-wise and trillions-foolish. The team in Cupertino is likely well back on the flat part of the S-curve. On the other hand, another news item out of the Valley this week: Apple just shuttered its autonomous driving project and is redirecting the top people from that venture into AI. Gentlemen, start your S-curves.

In my first book, The Four, I equated Google to God. We no longer pray, but query. You trust Google more than any priest, rabbi, mentor, boss, or coach. Go(d)ogle knows if you’re thinking about terminating a pregnancy or considering hormone therapy. The market has focused on the infrastructure (Nvidia) and technology (OpenAI) of AI. Soon, it will turn its gaze to the differentiating feature of AI’s application, the content fed into LLMs. And, despite Google’s stumbles, the market will recognize that this sweet crude of data sits on what are still the most active cash volcanoes on the planet.

So … what happens? I don’t know. Perhaps I should pray/search/prompt on it.

Life is so rich,

P.S. My co-host Ed Elson and I are heading to Austin next week for our first-ever live recording of Prof G Markets. If you’re planning a trip to SXSW or are already in Texas, RSVP here for the March 8 show — or check out all the events happening on the Vox Media Podcast Stage.

P.P.S. Join my brutally honest AMA on building long-term wealth on March 28, and come with questions.

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

Corporate Ozempic

If you want to understand how AI is reshaping business, picture it as the other massive innovation of our time: GLP-1 drugs. Both shed weight by suppressing cravings; both exacerbate existing inequities (aka the rich get richer) before generating wider prosperity; and both are having a greater impact than projected as early adopters are hesitant to admit they’re using.

Secret Sauce

Nobody I know is on Ozempic. Yet, nearly everyone I know is on Ozempic. Either that, or gluten-free diets are suddenly delivering exponential results previously unheard of. People are hesitant to acknowledge they need a drug to lose those last 15 pounds — which doesn’t fit with our narrative that success is correlated to self-control. One of the most interesting, and discouraging, features of GLP-1 use is that the region with the greatest per-capita prescriptions is also (wait for it) the thinnest. This makes no sense … but it does. The Upper East Side of Manhattan is replete with people who can spend $1,000 a month to go from slim to skinny. In sum, GLP-1 drugs are not (yet) getting to the communities who really need them. I believe this will eventually happen, however, because the public health and economic benefits are just that staggering.

Corporate Ozempic

Similarly, my thesis is that firms (notably tech companies) have also discovered a weight loss drug and are also being coy about it. Recent financial news features two stories: layoffs and record profits. These are related. There’s no mystery to the surface narrative. A company lays off 5%, 10%, or even 25% of its workforce and, 6 to 12 months later, after severance pay and expenses are flushed through the P/L, its operating margin hits new heights. The ultimate peanut-butter-and-chocolate shareholder confection is Meta, which produced a singular Hall of Fame quarter in Q4.

All told, tech companies fired 165,000 people in 2022 and 260,000 in 2023, and they’re on pace for 270,000 in 2024. The media narrative is that these firms are shedding the excess weight they put on during the pandemic. The collision of remote work, stimulus, and social isolation triggered a historic revenue acceleration and a reflexive hiring binge in tech. And we’re now seeing the course correction. This phenomena is undeniable: Between 2019 and 2022, Amazon doubled its headcount — it tripled its corporate headcount in five years. Amazon’s pandemic hiring may be the greatest non-war scaling up of a private employee base in history. But every major tech player bulked up. Even prudent Apple grew its ranks 20%.

Overdone pandemic hiring was a reasonable explanation for the tech layoffs in late 2022. But 18 months later, there’s been sufficient time to reduce headcount. There’s no incentive for a company to slow-roll this process — a drip feed of layoffs drains company morale. There is something else going on.

Business results also don’t explain the deeper cuts. These companies are killing it. Meta’s revenue was up 16% in 2023; Alphabet’s, 9%. Microsoft’s most recent quarter registered 72% greater revenue than the like quarter in 2020, which (until then) was its highest-grossing quarter to date. Accordingly, Big Tech’s stock prices are at all-time highs, and the magnificent seven were responsible for 70% of the S&P’s Macho Libre year (up 24%). Based on the numbers, the pandemic hiring binge wasn’t a mistake, but the correct response to a step-change in business. They needed these people … until they didn’t. The layoffs are no longer a signal of economic conditions, but innovation.

It’s not just tech. While the broader economy is enjoying steady job growth and low unemployment (the longest period of sub-4% unemployment in 50 years), many firms have let large numbers of employees go — UPS, CVS, and Hasbro are among the  companies that have announced layoffs of 1,000+ people in the past six months.

What’s really going on? I believe AI is playing a larger role in layoffs than CEOs are willing to admit. There have been hints: IBM’s chief said the company plans to pause hiring for positions that could be replaced by AI, and UPS acknowledged that AI factored into its recent layoffs. But as a general rule, expect a CEO to be reluctant to state on an earnings call that the fastest-growing technology in history is already giving her “the ability to lay off people without any impact on the top-line.”

That creates a messaging maze no Investor Relations or Corporate Comms group has faced before. Shortly after UPS’s CEO mentioned AI in the context of layoffs, a spokesperson clarified that “AI is not replacing workers.” A similar post-earnings call two-step occurred at IBM. It’s rare that growth and the size of your employee base are inversely correlated. And it doesn’t make for a good all-hands narrative: “We’ve had a record quarter, and we’re going to need fewer of you.”

It’s the denials that first raised my antennae: “We’re not restructuring because AI is taking away roles,” Alphabet’s Chief Business Officer Philipp Schindler told analysts on the company’s most recent earnings call. That’s the “I gave up gluten” of tech.

Craving Suppression

Ozempic and other GLP-1 drugs work by suppressing the brain chemistry that rewards us for eating. It doesn’t make us thinner directly, but reduces our cravings for food. Because the same neurochemicals drive other cravings, GLP-1 drugs hold tremendous promise for addressing many of the societal ills that flow from our superabundance. AI can have a similar effect on corporate cravings. And if consumers are willing to pay $1,000 a month to lose weight without cravings, what would a corporation pay to achieve the previously unthinkable: reducing costs while growing revenue?

As I write this, Nvidia is valued at nearly $2 trillion, up 16% after reporting its earnings on February 21. Put another way, in the 60 minutes following its earnings release, Nvidia added the value of Ford, Ferrari, and GM to its market cap. Maybe even more impressive, the company has added the value of Tesla in the past six weeks. Nvidia GPUs are legal performance enhancing drugs for corporations. Add “1980s East German Olympian” to one of the monikers assigned to Meta, as it’s tied with Microsoft for largest corporate buyer of these PEDs (Nvidia GPUs).

We Are Everything

There is a piece of every star in all of us — we are the universe, and the fundamental imperative of the universe is to expand. The rookie move I keep making as an operator is overhiring. And most CEOs I’ve known make the same mistake. It’s the siren call of the cosmos … just grow. And new employees provide the illusion that you are expanding. You can see them in the halls of HQ. They build out individual fiefdoms of senior managers and produce more products, features, sales calls, and revenue. More of everything feels like … growth.

The hard part is to build a business whose output is greater than the inputs. But as long as the output is visible and increasing, you feel you are playing your role making the universe a better place.  Now, as a board director, I’m usually the person pushing back on ambitious (i.e., bat-shit crazy) hiring plans, and I’m the first to suggest cutting costs. That may be why many/most of my startups survived, but I was also never able to build a $1 billion company. To be clear, there’s definitely opportunities for outsized value creation (sometimes) in the pursuit of crazy growth. It produced a new generation of businesses (AMZN, NFLX, etc.). But, as I tell CEOs: Assume you are not Amazon.

AI by Another Name

The media portrays the impact of AI as a one-for-one proposition — Mary the copywriter losing her job to ChatGPT. But that’s not how AI is trimming corporate America. Instead, it’s picking off individual tasks and augmenting teams with more capabilities. Goldman Sachs estimates that AI could perform about one-fourth of the work done by humans today, but that two-thirds of jobs are exposed to some degree of AI automation. That automation is taking many different forms. UPS is using AI to determine pricing for contract proposals. Allstate’s AI is developing internal training programs, doing in a day what once took three weeks.

Jobs are being lost, but augmentation will be the broader story. Rather than copywriter Mary losing her job, Mary’s firm will train her on an AI tool that generates first drafts, takes approved product copy and converts it for catalog, web, and social use, and streamlines other tasks. Accordingly, Mary’s manager will expect her to generate three times the copy in the same time.

Managers can take on new initiatives and domains without the headache of hiring more humans. It’s growth without calories. I’ve founded two strategy firms (Prophet and L2) and loved everything about them, except for the clients and the employees — every additional hire creates complexity and thus increases risk. The AI revolution will inspire a golden age of startups with lower infant mortality, as there will be fewer people (i.e., less risk) required to get to sustainability.

Coy

CEOs are being coy about this, at least in public, because there’s a sense of fear surrounding the brave new world of AI. The illusionist’s trick in the Valley right now is getting the media to look over there (trimming fat) while they’re stuffing the rabbit into the hat here (replacing it with AI). In the next several quarters, however, I believe CEOs will come out in  earnings calls and put it bluntly: “We’re going to be a smaller company that does more business thanks to AI.” Pundits will clutch their pearls for a hot minute until the stock explodes, and the secret hiding in plain sight will be visible to everyone. It’s corporate Ozempic. It’s not about less bread, but less craving for bread. Read: hiring people.

This will, correctly, raise concerns about a dystopia where nobody can find work. But AI will ultimately create jobs, as there will be new windows of attack against corporate titans. AI is currently a hormone therapy for mature companies looking to feel young again. Soon enough, though, a new generation of firms raised on the mother’s milk of AI will create an army of supersoldiers ready to attack bigger armies who are still fighting on horseback. I’m here for it.

Life is so rich,

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Dopa Bowl

Other than AI, gambling may be the fastest-growing $10-billion-plus industry in the U.S. A record 43 million Americans (1 in 6 people over the age of 18) bet on this year’s Super Bowl, wagering a total of $23 billion, a 35% jump from last year’s total. Next month, twice that many could bet on the NCAA men’s basketball tournament.

The media loves to catastrophize about AI, but, relative to the upside, the risks may be greater with gambling. There’s little chance gambling will make health care and education more accessible. And while the potential downsides of AI make for better clickbait, the risks of gambling are known and serious. However, the externalities feel less urgent. Why? Because the costs are (mostly) levied on young men and (mostly) tallied in isolation. Our nation has decided that problems facing almost every special interest group are, correctly, deemed issues that warrant study, empathy, and investment. But the issues affecting young men are viewed as a function of their lack of character that could be solved if they just “got their act together” or “were more in touch with their feelings.”

Leaving Las Vegas

In 2018 the Supreme Court struck down the federal ban on sports gambling, and 38 states have now legalized some form of it. It’s now an industry with annual revenue of $7.5 billion. Other online forms of gambling, operating in a legal gray area, are also growing quickly. But this hasn’t led to an upsurge in local business activity. Who has swallowed all this revenue? One guess: the tech industry. If you’ve watched any televised sports in the past few years, you’ve probably caught Kevin Hart, Jamie Foxx, and Charles Barkley hawking online gambling apps. They’re earning their money. DraftKings and BetMGM have seen their revenue increase 5x and 11x since 2020. FanDuel’s Irish parent, Flutter, listed on the NYSE last month, where it garnered a $37 billion valuation — more than Kia or Kroger.

Gambling has moved from something you do in isolation — at a geographically remote casino, using an illegal bookie, or socially in the context of a special event — to something available 24/7 on your phone. That has predictably accelerated the gambling business’s growth and brought billions into the sector. Just as banking’s move to smartphones morphed a tech-bro incel panic room into a bank run, our frictionless proximity to wagering is having effects we haven’t fully witnessed … yet.

The Las Vegas of … Las Vegas (Wall Street)

In truth, online gambling is larger than these figures suggest. Because there’s another industry we don’t list as “gambling” that we should. Online stock trading was a $10.7 billion industry in 2023. A meaningful portion of that is people managing long-term investments and providing growth capital for companies. However, the bulk of revenue generation comes from churn/trading. Customers use these apps to get in and out of stocks and buy elaborate, high-leverage derivative instruments. Online stock trading app Robinhood built its business on a stack of illegal and suspect business practices, paying fine after fine on the way to its IPO. Studies show that 97% of day traders lose money, but the house wins 100% of the time: Robinhood “crushed earnings and revenue estimates” for Q4, reporting $471 million in revenue on February 13, a 24% year-over-year increase. In the press release touting the results, the company said it was “building features for active traders.” There is upside here: Robinhood has introduced a new cohort to the markets, a good thing, and the best regulation is life lessons. But let’s call this what it is, a gambling app.

Wired for Risk

Gambling apps are not successful because they help their customers establish economic security. Bet long enough and you always lose — the house has a built-in edge, in both sports and day trading, because it skims off every wager, one way or another. Gambling is entertainment, but it’s a particular type of entertainment, having more in common with alcohol and recreational drugs than Netflix or Nascar. Its draw is dopamine, the reward hormone. Pro tip: If your daughter is dating a guy who, before prison, was a drug dealer and is now a day trader … encourage him to get back into drugs. But I digress.

The dopamine response isn’t as simple as a chemical making us feel good. It’s more powerful than that. When we win a bet, or our stock goes up, our brain marks the occasion by releasing dopamine, and we feel a rush of pleasure. The dopamine release is triggered not by the winning, but by the anticipation of winning — the wager itself. Losing is essential to the experience, in fact, because the uncertainty of the outcome makes the wager more exciting, leading to greater dopamine releases. If we won every time, we’d still play, because we want the money, but we wouldn’t enjoy it so much. It would be that increasingly perverse thing you do for guaranteed reward … work. Gambling is our brain tricking us into thinking losing money is pleasurable. There’s an episode of The Twilight Zone (aka the best Black Mirror episodes) about a criminal who is shot, dies, and ends up in heaven. In heaven, he can’t lose a bet. And that’s the rub, he’s not in heaven … but hell.

That dopamine reward cycle is also the same biologically addictive pattern experienced with drugs — not metaphorically the same, but literally. It’s the same chemicals, the same receptors. Indeed, understanding gambling addiction has improved our understanding of drug addiction. An addict is not addicted to cocaine or day trading itself, but to the chemical processes they trigger in their brain. There’s a silver lining to this similarity — research into treatment can be leveraged across categories, and breakthroughs in drug design hold hope. I’ve written before about Ozempic and the other GLP-1 drugs; part of what’s so exciting about them is that they appear to reduce not just obesity but also the cravings of addiction.

Strong but Weak

Treatments hold promise, but addiction remains a scourge. Young men are especially susceptible to gambling addiction. Games of chance hold more initial appeal for them, because men are wired to be more risk-seeking than women and less averse to potential losses. (Note: There are upsides to this — men are more likely to take heroic risks in battle or start a company.) However, once they play, young men are less able to resist the addictive cycle, because their prefrontal cortex develops more slowly. Think of the prefrontal cortex as the adult in the room, someone with common sense who can see beyond the next dopamine hit. When boys reach adolescence, they experience greater muscle growth than girls do, but behind the eyes, girls are making more important gains: Their prefrontal cortexes mature sooner, giving them greater ability to overcome the reward circuits with rational thought. Every study I’ve read on adolescent development can best be summarized as: While boys are physically stronger, girls are emotionally and mentally stronger.

Sports betting and stock trading are tailor-made to exploit these systems, and they’re particularly attractive to young men, as they don’t present as games of pure chance but tests of skill. In a cover story on sports betting, Newsweek recently explained, “Many sports bettors tend to see their wagers as safer and more informed than other kinds of gambling, researchers say; they think they know the game, the players and the teams, and are being guided by their own expertise and skill rather than luck. This may give them an illusion of control over the outcome.” There’s a similar dynamic with day trading. And gambling addiction is worse than substance addiction in some ways. It’s easier to hide, so friends and family may not realize a person has a serious problem until they are deep in debt and emotionally damaged. Problem gambling is associated with greater suicide risk than substance addiction.

Making this addictive product more widely available has had the predictable result of increasing the number of addicts. It’s a difficult problem to track (see above: easy to hide), but at least 6 million to 8 million U.S. adults are estimated to have a mild to severe gambling problem, costing the economy $7 billion, and many experts believe those are undercounts. Whatever the number is, it is going to go up, fast. Calls to gambling addiction hotlines are doubling every year in states that have legalized sports betting. In Michigan calls doubled in the first two months of legal wagers.

While all gambling addictions may not end in bankruptcy, they can have dangerous long-term effects on the health of an individual. Pathological gamblers are more likely to develop stress-related conditions like hypertension, sleep deprivation, and cardiovascular disease. These people are likely to lose focus on their jobs and relationships, all while feeling an immense sense of guilt and shame.

Prevention

Legalizing sports betting has unleashed problem gambling, but I don’t believe pushing it back into the shadows is the answer. We aren’t going to outlaw day trading, and the responses to the risks involve their own risks. Many addictive substances are illegal, and they still ruin lives. Plus, many more people enjoy gambling as entertainment than suffer from it. Finally, I believe people have the right to consume ice cream and alcohol, sequester from society, day trade, and kill themselves slowly. However, we also have the obligation to educate our youth about the risks. Virginia is leading the way here, with a new law requiring schools to cover gambling and its addictive potential. Education can change behavior: We’ve halved drunk driving deaths since the 1980s, in part thanks to safer cars and tighter enforcement, but also because we’ve increased the understanding of the risks. We can pay for these and other programs by taxing the gambling companies in a way that reflects the externalities they create.

There are also clear benefits from legalization. It starves organized crime of a valuable revenue stream: By one estimate, illegal gambling is down 60% since 2018. And it creates revenue for investing in addiction services: $3 billion in gambling taxes since 2018. Regulated gambling ads include prominent messages about “responsible gambling” and, more important, links and phone numbers for gambling hotlines. More people are accessing these resources, which is evidence of an increasing problem, but also proof that these mandated messages are routing people toward help.

But something more insidious is going on here. Specifically, tech, media, and an infirm Congress have granted permits rendering it open season on young people, and especially on young men. Our elected officials are in a crossover episode of The Golden Girls and The Walking Dead. And there’s a survivor’s bias — few of our legislators have engaged in self-harm due to Instagram, and none has taken their life as they felt useless. As a result, we have the best-funded pension plan and free health care for seniors but a disastrous lack of empathy, focus, and resources for issues facing our youth and in particular young men.

Disposable

Minority rule by seniors is speedballed by a hard truth. Men, historically, are disposable. If a village of 50 men and 50 women were to lose 25 of the women to combat deaths or suicide, the village would not survive. If half the men died, the village would persevere. For all the progress we’ve made on women’s rights, and it was overdue, we haven’t come to grips with just how poorly young men are doing today. Last year, 96% of the 1,150 people shot by police were men. Men represent 93% of people who are incarcerated and 77% of those who kill themselves.

Now, scan your emotions after reading the last sentence. It would be understandable to reflexively think that these statistics are a function of men being more violent and antisocial. And that explains some of it. Some. We just don’t bring the same empathy to young men. Why? See above: disposable.

Life is so rich,

Scott

P.S. In my new book, The Algebra of Wealth, I talk about the importance of character and discipline. You can preorder it here.

P.P.S. Join Section for a free event on What I Wish I’d Known in the First 10 Years of My Career, featuring execs from Meta and Western Union.

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METAstasis

Last week’s quarterly flogging of tech executives made for good theater. It’s a show meant to make us feel something before we return to our lives. American media soon pivoted to something more important and more American, money. Meta announced earnings on Feb. 1, posting one of the most impressive quarters in business history. Some year-over-year numbers, vs. last year’s 4th quarter:

In the past year, Meta has added three Netflixes to its market cap. On Friday alone, it added the value of Shell Oil — the biggest one-day increase in market capitalization in history.

When GPT-4 Is GLP1

The most impressive feature of the results isn’t the top-line growth, but the company’s headcount. Specifically, the reduction in headcount. Meta has laid off nearly one-fourth of its workforce, a disruptive and costly process. General Motors, in an effort to stave off bankruptcy in 2008, laid off a third of its workforce. Obviously, any firm laying off a quarter of its employees is desperate, right? Wrong. Instead of declining, Meta exploded, adding the value of 30 (2008) General Motors in one day. To the best of my knowledge, no business of this size has ever increased revenue by 25% while shedding 25% of its employees. As it paid only 17% in taxes on the quarter, the company’s earnings per share tripled from $1.76 to $5.33. Meta, suddenly having more money than management knew what to do with, announced a 50¢ quarterly dividend and a $50 billion stock buyback.

Meta was able to simultaneously slim down and muscle up in part because its pandemic weight gain was so large. The empty calories of 2020-21 resulted in fatty deposits forming firm-wide. That’s been obvious, but the more interesting question is whether we are witnessing Meta go Black Mirror. Is AI the firm’s Ozempic? Preorders of Nvidia enterprise GPUs are a decent proxy for a firm’s investment in AI, and Meta has ordered more than any company in the world. (Tied with MSFT.) Does this mean the companies in the chart below are about to shed 10% to 25% of their weight/workforce while maintaining revenue growth?

The Ozemping of Meta unlocked its operating margin, which increased from a respectable 20% to a staggering 41%. Meta exemplifies an “asset-light” model. Don’t own the car, apartment, chip plant, or content (the creators’ salaries) — build a thick layer of software on top of other people’s assets. Shein, which owns no stores, factories, warehouses, or even distribution centers, is using this strategy to become the fastest retailer to $1 billion in history. Meta speedballs this with an addictive product in an unregulated market. Now, years of investment in AI might be adding another leg to the stool — virtual workers who don’t expect pet-bereavement leave.

Hate Machine

However, there’s a glitch in the Matrix. At first unwittingly and then undeniably, Meta’s products have become the most elegant and powerful hate machine known to man. A machine unfettered by the friction of humans deciding if the firm should send images of nooses and razors to a 14-year-old girl consuming videos on self-harm. AI, as instructed by the Zuck, will likely make things worse, not better. Like by like, and comment by comment, the machine divides us and makes us despise others and ourselves.

The Wright brothers invented flight, but Boeing scaled it. Enragement was not invented by Mark Zuckerberg and Sheryl Sandberg, but they scaled it … to over half the planet. Nearly 4 billion people use a Meta service over the course of a month, so in any 30-day period, almost half the planet loses a friend over politics on Facebook, gets taken by a crypto scheme on WhatsApp, or learns how to induce post-meal vomiting on Instagram.

The negative effects of social media are well documented, and I’ve written about them before. The most concerning problem is what these platforms do to our children. When the mobile phone put Facebook and IG into every teen’s hands 24/7, loneliness and suicide data began a steady march upward. In a survey of 1,024 young people, almost half “have become withdrawn, started exercising excessively, stopped socializing completely, or self-harmed because they are regularly bullied or trolled online about their physical appearance.”

The suicide rate among 13- to 17-year-olds has doubled since the iPhone put social in their pockets. If Julia Roberts, one of the most beautiful women in the world, posts a picture of her with her niece and receives hundreds of comments disparaging her looks, what chance does a teen girl have to get through adolescence unscathed?

Apologists

A few days before Meta released historic quarterly numbers, Zuckerberg was in D.C. Social media CEOs on Capitol Hill are not the novelty they were a few years ago. So, to liven things up, Missouri Senator Josh Hawley asked Zuck to stand and face a contingent of grieving parents who’d come to the hearing, many holding pictures of their deceased children, and apologize.

It was a cathartic moment for anyone angry at Zuck, but the truth is, the wrong person was apologizing. Meta is a bad company run by amoral people who do strange things, but we keep hoping that shaming executives will force their better angels to show up and protect our children. They haven’t, and they won’t. The lion doesn’t care what the lamb thinks. That’s why we have laws and, ostensibly, lawmakers. Meta has done little to protect children from its products — but it’s done more than Congress, which has done nothing. Senator Hawley and his 99 partners in failure owe those parents the apology. The problem isn’t Meta, so much as our inability to do anything about Meta.

Guns, Cars, and Social

The two leading reported causes of death among young Americans are guns and cars. You can make the argument that social is more dangerous to our children than guns or cars. Since 2007 the suicide rate among young Americans has gone up by 60-70%, meaning an additional 2,000 lives lost annually in the social media era. That approximates, and overlaps with, the 2,571 young people killed by guns in 2021. And suicides are just the tip of the social media spear. Most kids negatively affected by social media will survive, but they’ll suffer to varying degrees. Millions of children are bullied online, develop eating and/or sleep disorders, suffer academically, engage in self-harm, and sequester from friends and social events. These are all human costs, in the shape of a profound public health crisis.

Yet social media doesn’t appear on this chart because its harms are more diffuse, and its causality harder to pin down. Zuck can tell Congress, “Mental health is a complex issue, and the existing body of scientific work has not shown a causal link between using social media and young people having worse mental health outcomes.” Which is not true, but just defensible enough that Meta’s comms army can coach their CEO to repeat it without their boss committing a clear felony. Whereas gun violence is widely recognized as a national scourge, even by people who think the answer is more guns.

Of these three public health threats, we’ve made large strides against just one of them. Car accidents now kill fewer people under 18 than guns. Just 25 years ago, three times as many kids died on the roads as from guns. What’s changed? Cars. Airbags, crumple zones, and electronic stability control have reduced crashes and serious injuries. (Note: Cars still kill far too many pedestrians and cyclists.)

Car companies didn’t upgrade their product with safety features out of concern for our well-being — airbags were commercially viable in the 1970s, but automakers lobbied against requiring them for decades, until Congress mandated them in 1991. Cars are safer and kill fewer people, in substantial part, because government regulations, government safety standards, and exposure to personal injury litigation forced manufacturers to make changes.

The same is not true of guns or social. Both industries are insulated from the dangers of their products; they haven’t been forced to adopt available technologies equivalent to air bags and antilock brakes: trigger locks and safe storage requirements for guns, age limits and proper moderation on social.

Limits on social media would in fact be a Buy One Get One Free deal. The gun lobby has a point that “guns don’t kill people, people do.” Gun control puts more barriers between intent and weaponry. Regulating social media would reduce intent, as it increasingly plays a central role in the shooter’s path to murder and suicide.

Look in the Mirror

This Congress has been historically unproductive, but when it comes to regulating social media, inaction is par. In the late 1990s, before tech had a major presence in D.C., Congress established limits on online services to children under 13 and the distribution of potentially harmful content. Those days are gone. Since 2017, Congress has held 40 hearings on children and social media and passed nothing. Democrats and Republicans have introduced legislation, including to age-gate social and to reform Section 230 (which immunizes internet platforms from most litigation), but nothing gets done. Senator Durbin had it right: “The tech industry alone is not to blame for the situation we’re in. Those of us in Congress need to look in the mirror.”

What Is Money?

Money is a mechanism for the transfer of time, work, and services. It’s a wonderful thing. You can pay your kids with housing and food so they are freed up to go to school and play. You can pay for your husband’s living expenses so he has the time to take care of the kids. And you can pay someone to do things that would take you more time to do yourself. Meta and the rest of the Big Tech companies create extraordinary economic value. This is important and can justify some externalities. Some. In America, however, we have chosen prosperity over progress.

Meta’s earnings last week were singular, as is the platform. Unlike the rest of Big Tech, however, Meta is a net negative for the world. Depression and despair are costly, and we are spending more time worrying about our kids than a $200 billion increase in market cap can assuage or buy back. Many equity analysts argue that at $470/share, META is too expensive. They miss the larger point. Meta Inc. has become too costly.

Life is so rich,

P.S. Every Wednesday on the Prof G Pod I answer your questions. This week: job hopping, paternity leave, and starting a business. Listen here.

P.P.S. Join a free event, Where’s the Money in AI?, featuring Exponential View’s Azeem Azhar.

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Rot

Eight of the country’s elite colleges settled a lawsuit last week, agreeing to pay $118 million for colluding to match financial aid offers — price fixing. The schools deny any wrongdoing, but writing checks for $118 million does not signal innocence. The complaint lays out a strong case. In fact, nobody disputes the collusion. It was done in the light of day, through an organization called the 568 Presidents Group. To collude lawfully, the colleges were required to practice need-blind admissions … and they didn’t. These schools are forking over close to the city budget of Irvine, California, to avoid discovering what a jury of their peers might decide when presented with the facts. The lawsuit is emblematic of the rot that’s infected higher ed over the past several decades.

Rot whose stench wafted into our living rooms when America witnessed the cloddish response to campus unrest following the October 7 Hamas attack. Rot evident in the metastasizing cancer of administrative bloat at elite schools, which has dwarfed investments in actual education. Rot that has hamstrug the financial future of a generation of college graduates by burdening them with absurd debt. All because university leadership asks one question when they look out a window and see themselves: How can I increase my compensation while reducing my accountability? A: Create artificial scarcity so we can raise prices faster than inflation to fund our bloat. The good news: This can be fixed.

High-Water Mark

A decent high-water mark for American higher education is 1983 — the year Columbia became the last Ivy League school to admit women to its undergraduate program. Applications jumped 56%, and the school’s “sex-blind” admission policy resulted in a freshman class that was 45% female. By the early 1980s, 6% of Ivy League undergrads were Black; gay student organizations were recognized on campuses; and financial aid was bringing elite diplomas within reach of the broader populace. America’s top colleges morphed from finishing schools for the wealthy into a lubricant for upward mobility — put another way, American universities began to define what was great about America.

I matriculated as a freshman at UCLA the same year, 1983, and benefitted from a 76% admissions rate and $1,350 annual tuition. It’s been downhill since. What’s changed? The education hasn’t — if my 18-year-old self were to walk into a UCLA classroom today, he’d perceive only surface differences. The ROI has declined — an elite school degree can still quadruple your expected income, but your purchasing power has declined as tuition has exploded. Progress in representation has been unequal — Asian students and women are overrepresented (compared to the population at large), but Black students remain underrepresented. (Their enrollment actually declined at many schools in the late 1980s and ’90s.)

In addition, the battle over getting the “right” mix remains a misdirect. As we’ve written before, affirmative action affirms its mission by advancing kids based on income, not race. Letting in a rich Indian student who played lacrosse at Choate is not furthering diversity. Harvard’s freshman class is 51% non-white. However, 67% come from the upper fifth of families by income — the same portion as in 1983. We’re simply reshuffling the elites. In today’s America, you’re better off being born wealthy and non-white or gay than poor. This represents progress, but we need to update our thinking about who needs a hand up.

Stasis

The stasis comes at a massive cost. College is more expensive than ever and, relative to the number of qualified students, less accessible. The tsunami of capital generated by increasing tuition has not gone toward the mission. Instead, it’s funded an army of high-paid administrators, and academic programs and centers with no measurable outcomes. These arrogant attempts at social engineering are immune from scrutiny — you are clearly a racist or don’t “get it” if you question the return on DEI, ethics, leadership, ESG, or campus Rolexification (such as lazy rivers and climbing walls). The top tier of higher education is steadily regressing (again) to become the domain of the ultra-wealthy, salted with some freakishly remarkable kids to wallpaper over its transition from a lubricant to a coronation.

Support System

Some of the increase in administrative spending is warranted. Expanding access to kids from different backgrounds requires more resources. However, it does not explain the 10:1 ratio of MIT employees to faculty who (gasp) actually teach.

Between 1976 and 2018, the number of “other professionals” employed at colleges increased 452%, while full-time faculty grew just 92%. Senior administrators in diversity and inclusion positions make double or triple what teaching faculty make: Michigan pays its vice provost for equity and inclusion $431,000 a year (equivalent to $938,107 in New York City), and UVA pays its DEI VP $340,000 ($753,783 in NYC). My experience serving on the boards of organizations ranging from the New York Times Co. to the Berkeley Haas School of Business is that having a DEI position, much less a department, means you are already one of the most diverse and inclusive places on Earth. DEI on a university campus is a fire station in the ocean — expensive and redundant.

This administrative growth is parasitic, and the parasites know it. A poll of administrative staff found that 38% responded “false” to the statement, “my work makes the world a better place.” Another found that bureaucrats at universities were much less likely to believe their job benefited society than faculty members. They’re right. Administration begets more administration; it is the nature of the disease.

Surgery

How do we reverse this reversal? There are two forces to contend with: The metastasizing bureaucracy, which sees every problem as an excuse to hire more bureaucrats; and incentives. University presidents are pitted against middle-class households, as they receive psychic and economic compensation for creating artificial scarcity, the low admission rates that result in faux prestige and pricing power. This turns springtime, in households all over America, into a season of despair. The rejection of tens of thousands of good kids fuels university leadership, alumni ego, and student debt. As the lawsuit reveals, rich kids and international students who pay full freight get preference. In sum, the kids who would benefit most from college are denied it.

The emotionally charged, divisive fight over who gets in is a head fake. It’s not about who, but how many. Outside of the top 10% of universities there is no need for DEI, because most schools have more supply than demand. As I’ve argued before, we need a grand bargain. The federal government should offer the largest 500 public universities (approximately the top third) an average of $1 billion per school (adjusted by size) over 10 years.

The Biden administration allocated just about that sum, $500 billion, for student debt relief before the Supreme Court blocked it. Despite the White House’s good intentions, I do not believe you can ask the two-thirds of Americans who didn’t go to college to bail out the third who did. In addition, loan bailouts are primitive chemotherapy — they shrink the tumor but make the cancer worse, as they also bail out universities who have less pressure to address the underlying disease: cost.

In exchange for this $1 billion, over a decade, schools must:

Reduce tuition by 2% a year;expand enrollments 6% a year via investments in technology and infrastructure; andincrease vocational/certificate programs to 20% of degrees granted.

The net result, in 10 years, would be a doubling of freshman seats and a halving of cost (inflation adjusted). The investment would offer greater access — and a step-change in opportunity for kids who do not have the money, skill, or desire to pursue a traditional four-year degree. Nearly 50% of Germans receive some sort of vocational certification; in the U.S. it’s 5%. Pro tip: Forgive yourself and your kid, and reject the shame, if your son/daughter does not get a four-year liberal arts degree.

Note: Spare me the bullshit about an erosion in brand equity if our best universities broaden admissions standards. As I said, when I attended UCLA it had a 76% admissions rate, and the brand was outstanding. Scarcity is a concern for a luxury brand, not a school. Rejectionist Nimbyism is only continuing the transfer of wealth from the young/poor to the incumbent old/rich. If we can scale our most valuable firms 30% per year, then we can expand enrollments at our great public universities 6% per year. The system is ready. Increasing the amount of remote learning and utilizing campuses during non-peak periods (summers, nights, weekends) could double capacity. We can continue to produce poets and philosophers, but also nurses, plumbers, and cybersecurity technicians.

Reckoning

A reckoning is inevitable. Demographics are destiny. And destiny is coming for higher ed. The declining birth rates in the aughts mean there will be fewer undergrads starting in 2025. And the appeal of college to this dwindling cohort is fading. The most bloated industry in America is about to face a perfect storm: There are fewer customers, and the ones remaining are losing interest in the product.

This problem won’t affect elite institutions, as they receive 10 to 20 times more applications than they have freshman seats. Harvard sitting on a $52 billion endowment while limiting freshman seats to 1,500 defines what it is to be a for-profit firm. Any university that doesn’t increase the size of its freshman class faster than population growth should lose its tax-free status on the return from its endowment. At some of these colleges, the endowments have surpassed the GDP of a Central American nation. We (faculty and administrators) are public servants, not fucking Birkin bags.

Most

Why do we have a nation? Why fund a government and institutions? At the core, I believe, is the desire for our children to have access to a better life than we had. Isn’t that the whole shooting match? And we’re failing. Despite historic prosperity over the past several decades, we’ve registered less progress. We have produced the most anxious, depressed generation of young adults in our history. They must navigate algorithms and platforms that assault their self-esteem only to then face the rejection and debt higher ed levies on them.

America’s optimism, in this instance, is our weakness. We all believe our kid is the remarkable one. Well, I can prove that 99% of our kids are not in the top 1%. No institution or admissions director can predict greatness in a 17-year-old, nor should they. Our mission should be to offer as many decent/good 17-year-olds as we can a shot at greatness.

I will be accused of catastrophizing. And admittedly, despite all the challenges, most of our kids will be fine. Most.

Life is so rich,

P.S. Please add to the comments: your school; year of graduation; tuition; and what you received in exchange. I’ll go first.

P.P.S. Section’s AI Crash Course (Feb. 12-23) closes enrollment next week. Enroll here.

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