Inequality has grown so large that a number of pessimists believe America is lost. But Professor Scott Galloway argues that our nation is actually adrift, and in his latest book he explains what needs to be done to fix this imbalance and rebuild America’s foundations. Galloway joins Nick and Goldy for an honest conversation about age inequality, the middle class, corporate consolidation, and more.
Scott Galloway is Professor of Marketing at NYU Stern School of Business and a serial entrepreneur. He is the bestselling author of Post Corona, The Four, The Algebra of Happiness, and most recently Adrift.
Twitter: @profgalloway
Adrift: America in 100 Charts https://www.penguinrandomhouse.com/books/713560/adrift-by-scott-galloway
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
David Goldstein:
We’re working on another AMA, ask me anything. So if you have questions, please leave us a voicemail at 731-388-9334. The America we idolize is a consequence of creating the American middle class.
Nick Hanauer:
And I think it’s safe to say that our guest today on the podcast, professor Scott Galloway agrees emphatically.
Scott Galloway:
America needs to fall back in love with the unremarkables. America is not about identifying the top 1% and trying to turn them into billionaires, it’s about identifying the bottom 90% and saying, I’m going to give you a shot to be in the top 10%.
Speaker 4:
From the Home Offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer. The best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures. One of the interesting things about the work we do and the way we do it, Nick, is the convergence of ideas that come our way as we’re doing our work. For example, over the past now four, six weeks, we’ve been working on some chapters of a book and a lot of it was trying to work out this argument that middle classes are not born, they’re actually created. And in the 1950s and sixties and seventies when we created the largest, broadest, most inclusive, most prosperous, most powerful middle class the world has ever seen, that was the result of a specific set of political economic policy choices.
Nick Hanauer:
That’s right. That’s one of the biggest lies of market fundamentalism or neoliberalism, whatever you want to call it, is the idea that a thriving middle class is the consequence of economic progress and growth. That if you just let the economy do whatever it’s going to do, the sort of lez faire, free market approach, that a thriving middle class and a functioning democracy will just emerge spontaneously from it. And nothing could be farther from the truth. The truth is that middle classes are deliberate constructions and the policies that it take to create one are all aimed at decreasing the amount of concentration that occurs naturally, both of advantages and disadvantages in a market economy.
David Goldstein:
This is an argument about cause and effect. It’s not just that markets don’t create middle classes, democracies do, but that middle classes actually create growth and prosperity. The reason why our economy is so large and prosperous is because we have a large and prosperous middle class. That without that, the economy would not have grown as quickly and our standard of living would not have grown as quickly. The America we idolize is a consequence of creating the American middle class.
Nick Hanauer:
That’s right. And I think it’s safe to say that our guest today on the podcast, professor Scott Galloway agrees emphatically and he has a fantastic new book out called Drift America in 100 charts.
David Goldstein:
And these are largely economic charts.
Nick Hanauer:
Yeah.
Scott Galloway:
Scott Galloway, professor marketing, NYU Stern. And author of Adrift: America in a 100 Charts.
Nick Hanauer:
So what inspired your new book, Adrift, Scott?
Scott Galloway:
We spent a lot of time trying to highlight what we think are relevant issues affecting the economy and the bigger plumex in our society and try to do it or try to story tell with charts. And we thought it’d be interesting to try and pull together a narrative of the biggest issues facing our country and then move to solutions, having sort of a chart and then a narrative, a chart, and then a narrative. And that was fairly easy because everything we do involves charts. We process images six to 60 times faster with charts or visuals versus words. So we wanted to do something like that. What was harder was chunking it into a narrative, but we thought we could distill it down.
We started with 1100 charts that we would produce and we distilled it down to a hundred, chunked it into things like the world we built, middle class, income inequality, higher ed, failing young men, things that we thought were polarization that were impacting us, and then move to solutions. But we thought it was an innovative way to look at a problem and start talking about the issues. And we’re the second best selling business book in America right now so it’s working.
David Goldstein:
It’s an interesting approach. We focus a lot on economic narrative and how to tell a better story on the podcast. And you’re the author of previous books and generally when you’re writing a book, you have a narrative and then you might use some charts to help illustrate that narrative. This is completely the reverse. You actually started with the charts and then crafted the narrative around it.
Scott Galloway:
Yeah, and it’s interesting, my publisher doesn’t like charts. My first book, The Four, I had a lot of charts and they said it’s not a textbook. People don’t like charts. They feel as if they’re not getting their money’s worth when you take a page up with a chart. And I would say about your publisher, listen to them but don’t always hear them. And I work with a great publisher, but this was, let’s do kind of man bites dog here and let’s make the visuals, because you see a chart and you sort of immediately get it. If there’s a line in the corner of the room, you know what to do, run. If someone sends you an email saying there’s a line at corner of the room you should run, you will move 10 times, it’ll take you 10 times as long to process what’s going on and to act on it.
David Goldstein:
Interesting. Did you learn anything as you created this book?
Scott Galloway:
Yeah, I would say that, well, the biggest shocker for me, or what I learned was if you really look at the data, I’m a glass half empty kind of guy. It’s just hard not to acknowledge our incredible achievements as a species, as the West and in America. In any given month, we’ll produce more output than we did in an entire year in the fifties. We wanted to cut abject poverty in half, the World Health Organization in 1990, over 20 years and it took 10 and then in the next 10 years that cut it in half again. We have eliminated diseases. We’ve effectively, I don’t want to say cured AIDS, would come up with a cocktail that mostly suppresses it and now they’re talking about a cure. We were able to address the pandemic while we registered huge losses. As they say, without the vaccine would’ve probably registered another 2 million losses.
People are freer than they’ve ever been, while there’s still a lot of work to do. Look at the pace of civil rights from the Emancipation Proclamation to the sixties. It didn’t really progress a lot. And then from when I was born in the sixties to now, we’ve made enormous progress. So it’s difficult not to acknowledge half the world’s philanthropy flows through an American organization. So there’s some incredible achievements that for me was personally the big eye opener. I would say the biggest surprise or observation around what ails us that I didn’t recognize was I think a lot about failing young men, think a lot about income inequality, age inequality. But what really shocked me was that if America’s problems for a horror movie, the call is coming from inside of that house.
And that is, if you look at America as a competitor relative to all of its other competitors in that as nations, we’re winning. We’re food independent, we’re energy independent. The brightest people in the world, most ambitious people in the world all want to come here. Our GDP growth hasn’t been as explosive, but it’s been more consistent. No one’s lining up for Chinese or Russian vaccines. We’re a fairly free nation. Democracy appears to be holding here. So the question is, whenever anyone complains, I’m like, where would you rather be that America right now? I would argue America is doing better than anyone. The downside of the threat is that a third of people in each political party see members of the other political party as their enemy. 54% of Democrats are worried their child’s going to marry a Republican. 20% of Americans would be comfortable with an autocrat as long as it was his or her autocrat.
So we don’t like each other and it just seems that we’re ignoring a basic truth in that is, Americans will never have greater allies than other Americans. And if I were an enemy, if I were Russia or China and had a vested interest in the diminishing our power geopolitically, I would hope for what is taking place and that we’re eating each other from the inside out. We used to do this when we wanted to fight Native Americans. We would plant rumors and get them warring against each other and then we’d come in and kill them, kind of weaken tribes. And that’s what’s happening here. The biggest threat to our democracy isn’t Russia invading us. It isn’t propaganda from Mexico. It’s social media platforms and in general, polarization in general, dislike we have for one another. And it’s just a shame because one, it’s just not true. Americans share a lot more beliefs and principles than divide us and it’s incredibly damaging. So we have an autoimmune disorder. Our immunities, are attacking our own cells right now.
Nick Hanauer:
We substantially agree and we named our podcast Pitchfork Economics because for some reasons similar to what you described in your book Adrift.
David Goldstein:
We see the pitchforks coming, not that we’re baring them, it’s a warning. Yeah.
Nick Hanauer:
All of what you say is true. Tell us more about what you think caused it.
David Goldstein:
Yeah, it’s a book about economics largely. So what left us vulnerable to this undermining of our cohesion?
Nick Hanauer:
Yeah.
Scott Galloway:
Well if you look at some of the darkest moments in history over the last hundred years, it usually begins with economic problems. In the twenties when Germany’s economy was doing fine, Hitler was jailed. In the thirties when the economy collapsed, he was elected chancellor. We on the left, I’m a Democrat mistake. We think people will vote for what offends them. And what we constantly fail to realize is the majority of people will vote for what affects them. And economics or economic hardship affect people immediately every day. When you have inflation and you don’t have subsequent wage growth every day you think, okay, we can’t afford to take the kids to Disneyland this year. I can’t pay for my kids college or I have to eat. I can’t afford beef or struggling to pay rent. My marriage is under a huge stress because of economic stress. So you get angry.
And then when you have young people who aren’t doing well, especially young men who are much more risk aggressive, it can lead to violence and revolution. And what you have here, if you were to try and reverse engineer it to a point in time, and I’m sure you guys have talked a lot about this, it was in the early seventies and that is, up until that point, productivity and wage growth were like two snakes intertwined. America got more productive, wages went up, America got a lot more productive, wages went way up. And then something happened in the early seventies and that is the two lines disarticulated and wage growth went sideways for 50 years while productivity continued to skyrocket. So the delta between flat wage growth and increased productivity in America is literally trillions of dollars in surplus values. The question is, who capture that value? And the answer is the shareholder class.
Every year the top 1% garner more and more of our prosperity and the incumbents, the entrenched, the people who are in office will claim that these are forces beyond our control. That it’s a function of globalization or network effects around technology. And quite frankly, it’s just bullshit. These were conscious decisions. When we took tax rates for the top people making over a million dollars from 80% to 22.8, if it’s capital gains, that’s a conscious decision. When you decide that the two largest tax breaks are mortgage interest in capital gains, who owns homes or owns assets and who makes their money from stocks? Older wealthy people. Who makes their money from current income and rents? Younger, poorer people. That’s right. There has been a conscious transfer of wealth from the bottom 90% and the young. And I’ll come back to this because I think it’s an important point to the incumbents.
And then when there’s disruption, typically disruption or crisis levels, the playing field, there’s a war, the factory gets bombed, the owner of the factory loses a lot of his or her wealth, I should say his, and so is a dude. But they need to rebuild the factory so labor has some currency in the marketplace. There’s a readjustment. This crisis came along. A lot of businesses should have gone out of business. A lot of shareholders should have lost the majority of their wealth, but we decided a million Americans would be dying, would be bad. But what would be profoundly tragic is if the Nastech went down and the wealthy got lost. Well, exactly. And we flooded the market with $7 trillion. And the dirty secret is a 60 to 80% of that ended up in the market. 85% of people received a stimulus check, said they weren’t going to spend it, they were going to save it, which means why not put it in Amazon stock or Apple stocks?
You saw real estate in the stock markets skyrocket. And who owns 90% of those by dollar value? The top 1%. So when you don’t let the gale force wins of disruption howl, you are robbing money from a younger generation to keep the in current entrenched generation when you have the PPP program. There was a cartoon of a cupcake bakery owner that just needed a loan to get to the other side. What extraordinary bullshit, the wealthiest cohort in the history of the planet are American entrepreneurs. The millionaire next door owns six car washes, and when you bail out a baby boomer who owns a restaurant, all you’re doing is robbing opportunity from the 26 year old graduate of Brooklyn Culinary Academy that wants her shot to come in and buy a restaurant on the cheap.
The reason I am economically secure is because while we bailed it out, banks in 08, we let stocks fall to their natural level. We weren’t going to bail out the entire economy. And I got to buy Apple and Amazon in about one 15th and one 40th of what they are now. But this time we said, no, no, no. The current rich need to stay rich, so we’re going to flood the economy with stimulus and all that is a transfer of power from a rising generation to the incumbent. So America used to be the best place to get rich. Now it’s the best place to stay rich.
Nick Hanauer:
Yeah. We agree with your conclusions, a 100%. I’d be interested in how you feel about our basic thesis, which is there’s a reason that we made all of these basic decisions to cut taxes for the rich, to suppress wages for working in middle class people to deregulate the powerful, to bail out giant corporations rather than people so on and so forth. And all of the decisions that ended up basically transferring $55 trillion over the last 40 years from the bottom 90% to the top 1% incrementally. Our basic thesis is that this is because of academic economics, that the people in charge, whether they were Republicans or Democrats, largely subscribed to this basic framework of economic cause and effect that said that you can have economic efficiency or you can have a just economy, but you can’t have both. That if you raise wages, it kills jobs. If you cut taxes for rich people, it creates growth. All of this nonsense, which is just demonstrably false, was accepted as effectively scientific truth, certainly by virtually every academic economist, but also all the policy makers.
David Goldstein:
Essentially Scott, all the policy makers believe in that chart in principles of economics and their ECON 101 textbook that shows you that if wages go up, jobs go down. And there’s literally a chart that shows that.
Scott Galloway:
Yeah, right. Look, we’re all brothers from another mother here. And you look at the eighties, whether it was Milton Freeman or what I call sociopathic economics, there’s just a variety of things that created a perfect storm to result in an erosion in middle class. We wave our finger at China for human rights violations, but the reality is China has pulled a half a billion people out of poverty over the last 50 years. That’s an extraordinary accomplishment. I think we have lost 10 to 20 million people from the middle class and some have graduated in the top fifth. But the middle class has mostly gone stagnant here in terms of its purchasing power and its living in its wages. We have massive prosperity in the US, we just don’t have subsequent progress. And these are all conscious decisions. We decided that kind of this Reagan Thatcher notion that take your most productive citizens and give them more capital and they will invest and grow it because they’re smarter or more productive.
I think that is a rational argument. The problem is it’s not true, it doesn’t bear out. What rich people do when they get money is they invest it and you need some of that. And it takes interest rates down and it takes stocks up. And it probably in the seventies you would argue that after 20 years of flat stock market returns and really lazy fat management and a conglomeration of America that got fat with no having no competition because German and Japan had been leveled, you could argue there was a reason to reemphasize and give more power to shareholders. I buy that capital and labor will always have attention. Labor was probably winning. Labor strength is at an all time high. A lot of companies just weren’t returning a lot to shareholders. It has swung way too far to the other.
David Goldstein:
Right. It’s not the 1970s anymore.
Scott Galloway:
No, Look, CEOs used to make 21 times what the average annual salary was of their workers, now it’s 350 times. Everyone’s hair on fire because minimum wage people, because people don’t want to bring you your cob salad and take your bullshit that you don’t want to put on your mask for 12 bucks an hour. And then there’s a fraction of the number of the articles highlighting that CEO wage growth in the last year is up 23%. If your wages grow 23%, that means every three and a half years your salary’s doubling. We now have four guys who are worth more than five states. The six wealthiest people in the world control more money than the southern hemisphere plus India. So we have made conscious decisions. There’s been a variety of factors. One is our fault and it’s the public. We have this idolatry of innovators and the dollar.
So if you’re a tech billionaire, there’s a one in three chance you’ll be named times person of the year. And we’ve decided that okay, once you get to the gold metal podium, we’re going to grab the bronze and the silver metal and we’re going to give them to you. So we have a progressive tax structure until we get to about 99% and then it starts to go down. So I’ll use myself as an example. I’ve started and sold businesses my whole life. Some have worked, some have not worked. My last business was sold for $158 million. I was the largest shareholder. The first $10 million of the proceeds were tax free. That just makes no sense. And they say, well Scott, you’re an innovator. I’m like, okay, if you didn’t have those tax rates, you wouldn’t start companies. And we need people, I get to start companies. That is just such a, no entrepreneur knows tax rates when they start a company. That is not why you start a company.
Well, what’s happened is, it’s a variety. Idolatry of the dollar, weaponization of government through a complex tax code. I can hire really smart people that can navigate this 4,000 page tax code that went from 400 pages to 4,020 years. That’s a chart in the book. And what you have is when you can race by Starlight or navigate by Starlight, you want to run races at night. And so the wealthy have made such an incredibly complex tax code with all sorts of loopholes that the people who can afford a Sherpa are just have a greater likelihood of surviving the ascent on Everest than people who don’t. And what you end up with is… If you think about what tax rates could be, people say, well Scott, you want to raise taxes? No I don’t. I want to lower taxes.
And you could, if everybody paid them. The government needs 23% of GDP to operate and sometimes it goes to 22, sometimes it goes to 24 on war, it goes up to a third whatever. And because we borrow money, we do deficits spending to fund a lot of it, and that’s another conversation. Loosely speaking, we need 21% taxes. If you had corporate taxes at 30%, if you had personal income taxes do away with capital gains or current income, it’s just all money. Go back to the rate, it’s all money, it’s all income. And you had over a million, people earn over a million at 30%. I think the average tax rate would be 14% for everybody else. But here’s the thing, everybody has to pay. FedEx and Nike have to pay taxes. Scott Galloway, when he sells a business, can’t get his first 10 million where he sells a business, can’t get his first 10 million free.
Apple computer cannot offshore all its profits, license its IP to Ireland and then charge America and Ohio tax domain $10 billion for the brand name. I mean all of this is just such extraordinary bullshit. It just attacks the middle class and people who can’t afford to hire expensive, really skilled tax avoidance experts. And by the way, you flatten the tax code, you would unleash a remarkable number of incredibly bright people who were spending money solving problems of our own making. So I would like to see taxes lowered. The only way you can do that though when you could do it is everybody’s got to pay their taxes. And I’m not talking about taxing rich people at 80%. I don’t think that’s a good idea. The myth or the piece that people find interesting or I was surprised at is that, everybody assumes that it’s lower in the middle class have been really screwed in terms of taxes.
And there’s some truth to that because of consumption taxes and sales tax. But the people who’ve really gotten screwed the most in terms of our tax code over the last 40 years or what I call the work horses. And that is a couple, play by the rules, super smart, super hardworking, super successful. Mom’s a partner in a law firm, dad’s a chiropractor. They live in Chicago or New York or Los Angeles. Between the two of them, they’re killing it. They make like 800 grand a year. They’re probably paying 52% taxes because they make enough money. In order to make that kind of money you just usually have to live in an urban environment that’s pretty expensive. You’re usually in a blue state and they pay all current income. So they pay 37%, 38%. If they’re in California, they pay 12 to 14, same as New York.
And they make a lot of money, but they live in a high cost area. They maybe send their kids to private school, live well, not large, but live well and they spend most of it. And they’re never really able to make the jump to light speed. What’s the jump to light speed? You make enough money such that you can start investing in assets that spin off dividends or long term capital gains and then their tax rate plummets. It’s the workhorses that are paying more of their money in taxes. They’re the ones that are getting screwed. But here’s the thing, no one feels sorry for them because the majority of the people would kill to have those tax-
David Goldstein:
800 grand.
Scott Galloway:
Yeah. But they’re giving half of their money to the government.
David Goldstein:
You make a really important distinction there because we have two economies. There’s the economy where your income comes from labor, comes from work and the economy where the bulk of your income comes from.
Scott Galloway:
Well, why have we decided that the money sweat earns is less noble than the money earns?
David Goldstein:
Neoliberal hasn’t.
Scott Galloway:
How when we have 350 million people and only 150 million people are working and we’re losing young men out of the labor force and mostly because of the pandemic, female labor participation has gone back a couple decades. Shouldn’t we be incentivizing work, instead we’re incentivizing venture capitalists and for you to go buy assets and dogecoin and buy stocks and it’s like, you need that, but why on earth is the money I make selling Apple stock at a profit taxed at a lower rate? Then the guy who’s or gal who’s cleaning offices at Apple. Again, it’s a transfer of wealth from the bottom 90 to the top 90. It’s also a transfer of wealth. And what we don’t talk a lot about, we talk a lot about income quality and inequality and it’s a warranted conversation but what we don’t talk about is age inequality.
And that is, in the last 40 years, people over the age of 70 on average are 72% wealthier. And people under the age of 40 are on average, 22% less wealthy. The percentage of GDP is registered by their wealth, by people under the age of 40 has gone from 19% of GDP to 9%. Their wealth has literally been cut in half. And we throw up our arms, the incumbents and the already rich and the old and go, well it’s all these effects. Isn’t that a shame? Fuck you. You’ve done this. You’ve done this to the younger generation. It’s been a concerted, our elected officials are the oldest in the world and every year that they get older, the average age is 62. The speaker of the house is 81, the Senate minority leader is 82, the Senate majority leader is 71. 50% of America is under the age of 38. And yet only 5% of our elected leaders are under the age of 38. Everything we do as one objective, how do we upgrade Nana and Pop Pop from Carnival to Crystal cruises?
Nick Hanauer:
No, it’s so true. The thing about avoiding a meltdown in the housing sector is that it keeps the already rich, rich. But of course a meltdown in the housing sector is the best thing ever for younger people who now finally have a shot at buying a house.
Scott Galloway:
If you’re a young web designer making, let’s call you live in Brooklyn, let’s say you’re doing really well, making $120,000 a year. You live with a partner, here she’s making a hundred, you got $220,000. But Brooklyn real estate is 2200 bucks a square foot. Young people want their shot at disruption, they need volatility. And we’ve decided, no, no, no, we got to keep the current rich, rich. You need churn, you need income mobility.
Nick Hanauer:
What are your views on corporate consolidation? What should we do with these big companies? Because that’s another big part of the problem. It’s the same incumbent existing power structure.
Scott Galloway:
So four million people hit the Ticketmaster website hoping to get tickets to go see Taylor Swift. But here’s the reality. Ticketmaster has no incentive to make big investments in technology and infrastructure because you have no fucking choice. They own 70% of the market. And we all talk about Google, Amazon, Apple, and that’s where my focus is. Those companies, in my view, I’ve been talking about this for a long time, should be broken up. But it’s not monopolies that are legal. It’s monopoly behavior that either kills companies in the crib as Amazon does, or it results in consumer prices getting much higher. Buy a ticket to the Elton John farewell, buy a ticket to anything and look at all the fees that are added in. Look how shitty their websites are. And why would they spend the tens or hundreds of millions of dollars on technology infrastructure, they don’t have any competition.
Because here’s the thing, when they announce on Thursday, we figured out the sites backup. You’re back there because you can’t go to another competitor who has Taylor Swift playing at their venue. She has one choice and that is to go through Live Nation, in 2010 was allowed to merge with Ticketmaster. And they have 70% of the market, which basically means they have it all because that means the other 30 are a little indie. You want to see a big name, you’re going to one entity. We have 93% of searches controlled by one company, 50% of e-commerce, two thirds social media. And I’m not even talking about, those are the high profile ones. Look at the prices of chicken. There’s big chicken. There’s big pharma.
Nick Hanauer:
big beef.
Scott Galloway:
Big everything, right. And we have lost our proud like a sea of antitrust. We used to break up companies all the time. We need class traders. Teddy Roosevelt was struck, I think it was elected by the aluminum guys and he said, guys, I love you, but you’re too powerful. I need to break your ass up. And AT&T, when we broke up AT&T into the seven bells, each of those seven companies within a decade was worth more than the original AT&T because what they found out was fiber, cell, data, optics were all lying fallow at Bell Labs because their attitude is, why should we do this? Why on earth would we want to disrupt our traditional business? We want eight year olds going into their dad’s office in downtown Chicago traveling for an hour so he could call his mom on the Watts line.
That’s what I used to do. I used to go into my dad’s office on the weekends so I could call my mom on the Watts line, the one 800 number. So we absolutely need to oxygenate the economy by going in and breaking up a variety of sectors.
David Goldstein:
We didn’t just stop breaking them up. We allowed all of those baby bells to eat each other and reconsolidate.
Scott Galloway:
That’s fair.
David Goldstein:
But before we go, well we’ve drifted off. I wanted to get something at the very top of the book that is really important to us. You refer to the American middle class as a broad, strong and inclusive middle class as the ballast of, well not just the economy but of our democracy. Explain what you mean by that. And also we’ve talked about the choices we made that have undermined the middle class. If you could talk a little bit about the choices we made that created the middle class.
Scott Galloway:
Well, the first is you have to acknowledge that the middle class is an accident and it’s not self-sustaining. There’s another myth that conservative economists and the rich will foment and that is that just let the economy do its thing and the middle class will heal. The middle class should not exist. If you just let the market run wild, powerful people become rich, they use their money to weaponize government and they become wealthier and the wheel turns and then eventually the self-correcting mechanism is revolution, war or famine. Those are the three mechanisms of self-correction around income inequality. Recognizing that, we have always made massive investments. Traditionally in the middle class we said, okay, Scott Galloway raised by a single mother is a secretary, upper lower middle class, we’re going to give you Pell grants, we’re going to invest billions of dollars in this amazing thing called the University of California. And you get to go get a degree at UCLA for a thousand dollars a year.
Total undergraduate and graduate tuition of $7,000. UCLA and Berkeley MBA. Oh, and by the way, we’re going to let you into UCLA with a two point… I’m sorry. We’re going to let you into graduate school with a 2.27 GPA. The acceptance rate of UCLA when I applied was 76%. It’s going to be 11 this year. We made big investments to lift up the unremarkable. Now we have morphed to a place that says, okay, and I think higher education sort of embodies America. Let’s try and identify the top 1%. And the 1% in our view is one of two things. Someone from a top 1% income earning household, a rich kid whose dad might know someone on the board of Brown or the freakishly remarkable. You’ve built wells, have patents pending for a pharmaceutical. And our captain of lacrosse team at the age of 17. And I can prove to each of us that 99% of our children are not on the top 1%.
And you know who doesn’t need college? The top 1%.
David Goldstein:
Those kids.
Scott Galloway:
They already have contacts by the time they get out of their private schools, they have better educations than I did after UCLA. And they have emotional security, economic security. America needs to fall back in love with the unremarkables. America is not about identifying the top 1% and trying to turn them into billionaires. It’s about identifying the bottom 90% and saying, I’m going to give you a shot to be in the top 10%. And so when I call my book adrift, we’re not lost in America. We know what we need to do. We need to invest in infrastructure, highways, schools, parks, easier ways to get to work, family leave that gets people dignity. Why on earth all this that bullshit, minimum wage increases, destroyed jobs. Every state that has increased minimum wage has seen job growth.
There needs to be one union in the United States. I think unions have been the perfect enemy for corporations because I think they’re largely ineffective. There needs to be one union, it should be the United States government and it should be 25 bucks an hour. And everyone’s here. Guess what? If you’re a talkier that can’t survive, you shouldn’t be in business. We need to get more people into the labor force. Americans are generous, brave, innovative people. But another thing, we also work, we’re the hardest working people in the world. And if you don’t create incentives, specifically dignity around work, we’re just going to lose ourselves. We work, it’s wonderful to work hard, it’s wonderful to make and spend money. That’s part of what it means to be America. Be we have to restore the dignity there. Anyways, a bit of a word salad, but we need to move back in some loving the unremarkable.
Nick Hanauer:
I could not agree more. I just think that this idolatry of the wealthy and it’s just a racket aimed at advancing the few and excluding the many and it just permeates the culture. It’s maddening, absolutely maddening.
Scott Galloway:
Just to close on it. So in our economy we have income inequality. When technology comes in, it does create a winner take most environment. Where one company establishes themselves as the leader is able to attract a ton of cheap capital because they’ve established themselves as a leader and make unprecedented investments no one can keep up with and you upward spiral.
David Goldstein:
You want to ask the final question, Nick?
Nick Hanauer:
Yes. Why do you do this work? We have finally stumped him.
Scott Galloway:
Fear of death, narcissism, wanting other people’s approval, wanting to be relevant, wanting to be economically secure, wanting to impress my kids, wanting to be attractive and affirmed by people I’ve never met. A lot of good reasons, a lot of bad reasons.
David Goldstein:
That seems like a very honest answer. I want to ask you though, you talked about how we need class traders. I consider certainly Nick as a class trader. It sounds like you are a class trader. Where does that leave you with your cohort?
Scott Galloway:
Well, I bite the hand that feeds me. I talk a lot about, I’ll say Andy Hamilton, who’s the president of NYU, it’s ridiculous that he makes $5 million a year and anyone who would demand $5 million a year to be president of university, not $1 million, shouldn’t be the president of a university. I constantly revel against.
Nick Hanauer:
He makes $5 million a year running a university?
Scott Galloway:
Yeah, $5 million.
Nick Hanauer:
Holy shit.
Scott Galloway:
But also the level of waste, the level of incompetence at universities that directly translates to student debt, I rail on that. They have been very good to me though, they protect me. They say academic freedom is important and we want to have a provocative conversation. That’s the whole point. But people, there’s a lot of wealthy people who understand and are pretty civic minded and have respect for the commonwealth. But here’s the bottom line, we’re not going to disarm unilaterally. People call me and say, well Scott, just write a check to the government if you think it’s so terrible. I’m going to take advantage of every tax loop all possible as long as it’s legal. But I will vote for people who will shore it up and I’ll try and pay it forward. But it has become, I just see… You look back. And I look back on and you relate to look back.
I look again, I was the son of a single immigrant mother who lived and died a secretary. And America was wonderful to us, gave us a good life, gave me enormous opportunities. And it’s like, America’s just less wonderful to those same kids. And it’s like, okay, we know how to get back there. This isn’t impossible. We know what we need to do. Let’s get on it.
Nick Hanauer:
No, and my answer to that question, and I get it all the time, is actually I’m going to use my wealth and influence to force you to do the right thing. Because I could donate $10 million to whatever soup kitchen, or I could use that same money to raise the minimum wage to $15 an hour nationally and move 450 billion a year. And that’s where the leverage is and that’s where I think people like you and me can make a big difference. So that’s our program. Anyway, well thank you so much for being with us. We’re big fans of your work and we wish you the best of luck with the book.
Scott Galloway:
Yeah, well thanks gentlemen and keep fighting the good fight.
Nick Hanauer:
It’s interesting. He comes at these issues slightly differently than we do. I think we’re in violent agreement with virtually everything that he says with the caveat that I think we take it one click deeper in terms of our reading of the causes of the debacle, which is modern America. And that the economic ideas that caused us to create the policies that are doing so much damage. Do you agree with that, Goldie?
David Goldstein:
Yeah. In reading through the book, first of all, I suggest people go get the book. We talked about it, America in 100 Charts. I tried to listen to it and couldn’t because it’s a very visual book. But these charts are really well, eyeopening. That’s what charts are supposed to do. We are definitely in strong agreement on most of the things. I think we may disagree a little bit on some of the solutions, but I think it’s important what he does in the book is it’s, he asks us to question a lot of our assumptions. And that’s what we do on the podcast. That’s what we do in our daily work, Nick. And I think it’s really important we talked about the tax system. Republicans love to talk about flattening the tax system. They want to flatten the tax system. When they talk about that, they mean to just go to one flat tax rate.
It’s too complicated because we have different tax brackets and that is such bullshit. It’s not the progressivity that complicates it. It’s how complicated the tax code is in terms of all the loopholes and all of the deductions and the exemptions and so forth. I know I’ve said this before, Nick, I think we should eliminate all deductions, but the standard deduction. I think that already 75% of filers don’t itemize. So just take away every deduction, including the charitable deduction. There’s no reason to have that. Those 75% of people who don’t itemize still contribute to charity and they don’t get deductions for it. So just eliminate everything. All income is income. And again, he mentioned this in passing. I was going to bring it up. We were talking about the difference in tax rates on income versus capital gains.
I’m old enough to remember Nick, when we used to talk about this as earned income versus unearned income, right? Earned income was what you got from wages and unearned income, they call it capital gains, dividends, interests, capital gains. It’s unearned income. It’s income that comes from money. It’s money making money, not work making money, not labor making money, not imagination, creativity, innovation, risk taking, entrepreneurship making money. It’s not what we do every day that makes money. It’s our investments-
Nick Hanauer:
It’s money making money.
David Goldstein:
It’s money making money. And we tax unearned income at a lower rate than earned income. And that is outrageous. It is immoral. And because we no longer use that type of language, we don’t realize how wrong it is.
Nick Hanauer:
No, it’s true. It’s absolutely true. The other really interesting point that he made was the way in which we have bent our policies and our culture to advantage only the extraordinarily exceptional, right? I think that that is really at the heart of part of the problem. And by the way, but it’s interesting because even he, he’s thought about this very, very deeply, described high productivity individuals in this neoclassical, unthinking way as if the people who earn the most per hour are by definition the most productive, which is just not true. Somebody who securitizes his imaginary assets on Wall Street and earns a hundred million bucks a year is in no way a more productive member of the society than a very skilled algebra teacher in a public school.
David Goldstein:
Exactly. And in fact, we’ll actually get into this on next week’s podcast when we talk with journalist, Mark Kreidler about overcompensated corporate titans.
Speaker 4:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer, follow our writing on media at Civic Skunkworks and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always, from our team at Civic Ventures, thanks for listening. See you next week.