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Episode 23, Michael Jordan wore number 23. Humans have twenty three pairs of chromosomes at age 23, you're likely one year out of college and are just beginning to recognize you will not be a senator or have a fragrance named after you. I just took the twenty three in me DNA tests and they came back and said they found some DNA in my Zakopane. Not true. I only eat chocolate edibles. My doctor says I'm risking diabetes. So inappropriate. But you'll forgive me because that's so twenty three.

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Go, go, go.

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Welcome to Episode twenty three of the Property Show and today's episode, we speak with Jim Tankersley, a New York Times reporter covering economic and tax policy. Jim gives us the state of play of the economy and discusses his new book, The Riches of This Land The Untold True Story of America's Middle Class. So the big news, the Democratic convention Democrat, if you could call it that. What deserves or what does reality TV governing look like? Will you respond with reality TV?

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And that's what last night was. What? A lot of slogans. A lot of infomercials. I thought it was actually pretty well done. So some inside baseball because, you know, kind of a player I was asked to a dinner that was hosted by a friend of mine, Tammy Haddad, in Washington, D.C. and Joe Solmonese was the guest and he asked everyone to go around the table and give suggestions on what to do at the DNC. And everyone was a future, you know, future, our vision, our story, blah, blah, blah.

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Let's go to the Wolk's bar. And I just had two pieces of advice, hot and young, actually, three pieces of advice and multiracial. Why? Because multiracial people are much better looking. I'm sure that's a hate crime. But as evidence of that, I'm on Nantucket and I can tell you everyone here looks like they came over on the Mayflower and they are really fucking ugly, by the way. I fit in. I fit in anyways.

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Hot, hot, hot, hot, young, multiracial. So they bring on Eva Longoria, who I thought was incredibly graceful and elegant. And people might say, well, she's not that young. Average age of a voter. Fifty six. Meaning for every thirty year old that votes or someone 80 to vote. OK, what a shocker. Social Security, capital gains tax reduction and no bonds for schools. No, that's that's where the demo and democracy has come in.

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And it was I thought the Democratic National Committee convention was pretty interesting and pretty powerful. But I'm biased. I'm biased.

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Let's get to other news. Otro news. Other news. What is the Spanish word for news? No, say no. Say anyway.

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So what's going on this week? The big news. The big news and I don't say that dog's been predicting this, but you know how most dogs can tell if there's an earthquake? Well, this dog can tell you when schools are going to open and then close again because they shouldn't have been opening in the first place, because every decision, every decision over the last twenty years made by university leadership in America has one aim, and that is to reduce their accountability and increase the compensation of tenured faculty and administrators.

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And that has led us to the same denial and trumpy and arrogance that we can reopen universities such that we can justify the ridiculous tuition we are now charging and pretend to welcome people back and hope that the virus receives the memo on the arrogance and self aggrandizement that indicates and marks higher education. And we have started opening schools. And what do you know, the schools with the most resources Stanford, Harvard, Princeton and likely the best epidemiology departments in the world.

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So what does it mean when you have a ton of resources, both financial and intellectual resources, to assess the risks of this virus? What do you decide to do? You decide not to open. You decide to go all remote because you don't have your head up your ass, and B, you haven't entered into consensual hallucination with your chief financial officer. But the majority of the universities, or at least increasingly fewer, but still too many have decided to open and welcome kids back to campus with all these ridiculous protocols, including no joke, Purdue has purchased over one mile of Plexiglas.

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And the latest, the first school that will open and close or the school for a school that open and close. And this is about to happen all across America. UNC Chapel Hill became the poster child for what's about to happen across American universities as they begin to draw students back to campus. The school announced they are moving all undergraduate classes online after get this. One hundred and thirty students tested positive for covid-19 during the first week of classes. These protocols are just so insane as we refuse to acknowledge.

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And I say we I mean academics and administrators that is on campus protocols are only as strong as off campus protocols. It has been a comedy of riches or riches of comedy and poor decision making, as evidenced by the fact UNC Chapel Hill USC is a fantastic public system, smart people. But they too have given in to these delusions to this consensual hallucination. The outbreaks are linked to three residence halls and one fraternity. According to the university's covid-19 dashboard, the number of positive cases rose from two point eight percent to 14 percent just in one week.

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OK, Chapel Hill, hope you have a fairly robust ICU. New York Times report found that at the end of July there were more than sixty six hundred covid-19 cases were tied to two hundred and seventy colleges. We are still in denial. Close all campuses now. Let's do the calculus.

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OK, what's the upside? We get a diminished experience and an excuse to hold the line on tuition. That is the only reason we are doing this. What's the down? Side, well, OK, universities become the third phase super spreaders, we become the cruise ships in the nursing homes of the fall, we infect community, we increase, spread, and perhaps even we overrun the health care systems of small college towns. We are the warriors against this virus, not the enablers.

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I've said that over and over. The New York Times also came out with a story over the weekend about families rebelling against the cost of higher tuition as classes go online. Well, no shit. The president of Chapman University explained that their brutal cost cutting efforts from their 400 million annual budget consisted of freezing hires, reducing expenses, canceling construction of a new gym, ending the retirement match to employees, and giving up 20 percent of his own. Seven hundred and twenty thousand dollar base salary.

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Oh, my God. Not building the new gym. Oh, and the president is only going to make five hundred and fifty grand this year. It's unthinkable. It's unthinkable. What's happening in higher ed as a survey by the American Council on Education found that reopening would add 10 percent to a college's regular operating expenses. They're all bitching that their expenses are going up by reopening what gas to do it every other industry is doing and start cutting other costs, specifically this guild, this overpaid union called tenure.

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Some of these facilities that reflect the real expectation of our campuses. When I went to school, the building sucked and college was great and cheap. I'll take awful buildings and low tuition versus the Ritz Carlton, Westwood and twenty five thousand dollars a year or forty five thousand dollars a year for in-state and out-of-state residents at the great University of California of Los Angeles. If we had spent a fraction of a fraction of the time focusing on how to narrow the delta between offline and online learning, we would have made an investment that could yield benefits for decades.

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Instead, all we have done is stuck our head further and further up our assets and are embarrassed to pull it out. But we're going to. The virus doesn't care about how noble, how many cardigans we have or how many episodes of PBS we watch or how self-important we think colleges are. College campuses should close now. Enough already. In other news for knight, developer Epic Games is suing Apple and Google, Apple and Google banned fortnight after epic games implemented a tool, a tool that allowed users to make any purchases.

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This was an attempt for EPIC to avoid the thirty percent fee Apple and Google collect when using their payment options and also, to be blunt, to compete with the duopoly that is the App Store and Google's play store. And they were going to charge anyone who download an app within the epic app, a lower price that's called competition. Ultimately, the consumer benefits, ultimately more innovation, larger taxpayers, more venture capital funded companies. You know, good stuff, good kind of that whole economic growth thing.

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And in its lawsuit, this is what Epic said. Apple has become what it once railed against the behemoth seeking to control markets, block competition and stifle innovation. Apple is bigger, more powerful, more entrenched and more pernicious than the monopolists of yesteryear. At a market cap of nearly two trillion, apple size and reach far exceeds that of any technology monopolies in history. And then they ran an ad basically mocking the original nineteen eighty four at Epic Game, set a trap for Apple.

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They knew they would be banned and the day they were banned they immediately weighed in with their ten ton lawsuit. The store or the app store needs to be regulated. I don't see how you break it up, but good for epic. This is long overdue. We're in an app economy. It's controlled by a duopoly, maybe even monopoly, as about two thirds of the revenue goes to one place. That is Apple, which, by the way, had two trillion dollars.

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I thought it was going to be Amazon. How did they get there? The Rundell recurring revenue bundle. Now, almost a quarter of their income comes from recurring revenue. And this is a company that has increased its earnings but has increased, has increased or doubled its market capitalization. And there's a learning here. There's a learning here. Turn up the volume stick in those air pods. This is this is the learning for corporate America right now. You should be focused on a recurring revenue business model.

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And what are the features of that? It's a shit ton expensive. It can't be an interesting feature. It has to be an IQ test. You have to say to your consumers, why wouldn't you do this? Panera Panera Bread is offering unlimited coffee for eight ninety nine point ninety nine a month. They've signed up a million people. Why? Because that's an IQ test and they are going to reshape they are going to reshape QSR. People are going to come out of this recession and say, if it's not a depression, I say, do I really need to spend three hundred dollars on on lattes at Starbucks now I'll spend nine bucks on unlimited coffee.

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That's 90 percent as good as Starbucks, maybe even as good as Starbucks. The recurring revenue business model has to be a massive investment. It has to be an IQ test. And you said, well, that's expensive. Well, yeah, it is expensive. But just like Apple, if it's the fastest growing part of your business, if it's the fastest growing part of your business, the market will recast your business. You're not in the business of increasing revenues.

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You're in the business of increasing stakeholder value. And the only way in a low growth economy, you can double, triple your market capitalization is by changing the complexion of your business model, and that is recasting it to subscription or recurring revenue bundle. You heard it here from the dog. Stay with us. We'll be right back for a conversation with Jim Tankersley.

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Welcome back. Here's our conversation with Jim Tankersley, a New York Times reporter and author of The Riches of This Land The Untold True Story of America's Middle Class. Feel like this? He has a very soothing voice, very practical, kind of easy, easy demeanor. Anyways, our interview with Jim Tankersley. Jim, welcome to the podcast. Where do we find you? Thanks so much for having me.

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I'm actually in western Pennsylvania for the next couple of days, so kind of a random spot.

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That is a random spot sheltering, sheltering in place, I trust. So let's broaden out from western P.A. Give us a state of play for the economy in the U.S. and what is it? Augustan dated as August 18th state of play. Where is the economy?

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So the economy is recovering from the worst depths of this crisis, but that recovery looks like it's stalled out a bit, both because of the second wave of the virus that started spreading this summer across the south and the west. And then also now increasingly, we're starting to see signs and fears that the cold turkey and to supplemental unemployment benefits is going to be dampening consumer spending through August. So between the reduced activity from the resurgence of the virus and the potential pullback because of stimulus crashing out, what we have is a recovery that is nowhere close to back to normal.

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The precrisis normal and in some ways is kind of moving a little bit backwards. I was telling my students to try and find a role model, whether it's your company looking for role models, that there's very little new that needs to be implemented, that you just need to look around and find out who's doing it well and copy or learn from some of the attributes. What economy do you look at and think they did it right? I think for a lot of this, the South Korea is the one that people have been looking at and saying, wow, they really they really were very aggressive early on.

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They got control of the virus and they do have these much more extensive testing regimes in place. But you can look at a lot of other advanced economies right now and see how they really do seem to be doing better than that we have been doing. Germany seems to be doing better. Norway seems to be doing better.

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The issue here, I think, is that everybody, even the ones who did it well, took a big economic hit. So you could you can delude yourself into thinking, oh, we did it better because our economy didn't shrink as badly as it could have. But it sure seems like those countries are poised for a faster recovery than we are and to maybe spare themselves some of the longer term economic damage you get from a lingering crisis. And so, yeah, I think if you're looking for role models, you look at the places that took the virus and its control much more seriously than we seem to have.

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What is your view of the stimulus and how it's been deployed as it. I mean, granted, we needed to do something fast. We need to do something big. Hasn't had the desired effect. What do you think the upside and the downside of our approach to stimulus versus how other nations have handled it?

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I think the upside is that we did a lot of it and we got a lot of money out of there fast. And the Fed did a lot fast. I mean, that's that really is true. I mean, we we also may not have done enough in some particular areas and not been nimble enough, I think. And that's the real downside. I think when it comes to small business help, I mean, I talk probably more to small business owners and groups than I do to almost anybody in the sort of charting the macro trends of the micro trends of this crisis.

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And it just we definitely, as a government did not get enough money right away to help bridge particularly small businesses in hard hit areas or, you know, minority owned businesses that didn't have traditional relationships with banking large banks. I think we lost a lot of those businesses, perhaps by not moving faster. And now there is a lot of talk about innovation and sort of if we do a second wave of small business help, what does that look like?

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It does look different from the program, which had some real successes, but certainly was not meant to be a bridge that lasts for a year and a half as opposed to just a few weeks. And so I think I think that was a real downside of what the stimulus was. I think we are learning more each week about the effectiveness of various parts of it. New research out just this week, actually, on the direct checks to families, low and middle income families.

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Looks like a lot of that went to savings and less of it went to just direct spending to prop up the economy. Whereas the research we've seen so far on the supplemental unemployment benefits that expired in July is that when they were in place, they were sustaining consumer spending of people who were sort of living on the margins of the economy while they were waiting for their jobs to come back. So to the extent that we just wanted to keep people pumping money through the economy, the UI benefits seems to have worked better than the direct checks in that first wave.

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So let me put out a thesis and you tell me where I've got this right and wrong. Like everything we've done in federal government or most of the major fiscal stimulus or even I would argue some of the tax deductions haven't. We just ensured that rich people stay rich, borrowed against future generations and put some of the money in the neediest. But wouldn't we have been better off just taking, say, the bottom median or bottom quartile of households and just cutting them a check as opposed to loaning or basically granting hundreds of thousands of dollars to small businesses who many of whom make up the wealthiest cohort in America?

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This feels to me like we've just flat in the curve for rich people and to smear Vaseline over the lens, put some money in the hands of the neediest.

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I think I think that may be a simpler story than I would tell about it. But I think there's directionally have things a lot. That's correct there. I mean, you certainly look at the experience. It's just a bifurcated experience in this recession recovery so far. People who can work from home and who who tend to be higher educated and higher earning just have had a just an easier time. And in fact, many of them have just built up savings over time.

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Now, I think among business owners, we've we've seen a variety of things. And I think it's true that a lot of business owners who are wealthy and didn't need help manage to get help pretty easily through this and that I would argue that a lot of the sort of owners who are not rich people but operate very low margin businesses were the ones who slipped through the cracks. But, yeah, I mean, there definitely was an alternate scenario where instead of trying to prop up payrolls through businesses, we had just found a way to just keep people whole until their jobs came back, whatever, whatever that was going to be.

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And we sort of chose this hybrid approach that had some success, but like you said, is really going to exacerbate inequality. And I mean, it's also it's not just the economic effects of this. The health effects are. We know that it is the people who are on the front lines who have had to go to work in grocery stores and health care providers and everywhere else who are more susceptible to contracting the disease and who live in communities. You know, black Americans, Latino Americans have been hit harder by this virus as a share of the population.

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So I think there have been massive inequalities of this crisis and and that the fiscal response has mitigated some of them, but exacerbated others in the big ways you're talking about.

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Speaking of inequality, and you wrote in your book, The Riches of This Land, The Untold True Story of America's Middle Class. It feels as if covid has been more. We say it's been more of an accelerant than a change agent, that we had some very unhealthy, frightening trends around income inequality. And this pandemic has taken us literally. A dystopia has income inequality just gone from unhealthy to parabolic in the last 16 weeks?

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Yeah, income and wealth inequality both. I mean, I think that is the other big factor of this, is that if you were in the book, I sort of lay out all the trends that have been difficult for the middle class for the last 30, 40 years. One of the big things are these still massive disparities by race in median wealth. And so if you were a typical black family, typical black worker entering this crisis, you had one tenth the wealth of the typical white family.

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And then here comes this crisis where you may have lost income for five months or more at this point and you just don't have the savings to keep consuming out of it.

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It's I think, yeah, this is this is absolutely an accelerant of those inequalities that have rocked the economy in the twenty first century.

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So household wealth as an outcome, what what are the trends or what are the things that you look at when you mentioned that there are several things, unhealthy trends since World War Two that have increased inequality. What are some of those?

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So I think it's first, it's it's helpful to look really quickly at what were the helpful trends after World War Two. So we had this big boom in the middle class after World War two, which I kind of retell that story and toss in something that I think a lot of Americans haven't considered, which is that a large driver of that I'm arguing a primary driver of that boom was the progression of women and black men and other non-white men, workers and the economy into better economic opportunity.

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Basically, before the war, it was an economy that was largely closed off at the top end to anyone who wasn't a white guy. And first, by necessity of the war and then by the hard work of civil rights, starts to open up and provide more opportunities for talented people to deploy their skills in more efficient ways. And what do you know that that brings us a more productive economy which produces benefits for everyone. It generates the growth and income growth that pull millions of people in the middle class.

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And that's a big success story. I argue sort of the biggest middle class success story in the history of capitalism. But, you know, in the last 40 years, a couple of things have happened. We've had barriers to opportunity arise anew for those workers, whether it's overt discrimination, which still exists and persists, or things like the war on drugs, which disproportionately incarcerates black men, or then there's just changes in the economy that make it more difficult for certain workers to supply their skills to the economy.

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And perhaps biggest one is the shift to service work, which coincides with a kind of inability of the country to figure out how to provide abundant, low cost child care. And so that holds women back from, especially at the top, rising to the highest levels that they could and the pay and the productivity that they could. And so all those things add up to an economy where these workers whose liberation, so to speak, economically fueled the middle class boom, have instead been blocked or in some cases moved backwards over the last 40 years.

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And I think that has led to the lower growth, less productive and small and middle class outcomes that we've seen.

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Do you think my industry has played a role and that is we used to be we used to be this incredible upward lubricant of income mobility. And, you know, you always go to your own experience. Right. And state sponsored education changed my life. It's the reason I'm here speaking to you right now. And I worry that over the last 30 or 40 years that administrators and tenured faculty have starched all the surplus good by raising tuition so that they can pay themselves more, all the while decreasing their own accountability.

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And we've ended up in a situation where college, which still is 90 percent, only a third of Americans have college degrees, but it's 90 percent of our economy, culture and government are run by people with college degrees and that those opportunities have largely been sequestered to two cohorts, the children of rich kids and what I'll call freakishly remarkable, 15 to 17 year olds, and that we haven't been able to we've kind of reverse the trend. What was this great upward lubricant has become the new casting agent.

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Do you think that essentially higher ads, exploding costs have played a role in our regression as a as an economy? Clearly, I mean, I think clearly the the the cost and the barriers to higher education are there. I mean, I want to be super clear that that I think education is a crucial part of the story, although you have not the be all end all. I mean, there are still massive racial disparities for college graduates. Black men with college degrees get paid far less than white college degrees with otherwise identical resumes.

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But I mean, we know that education has been historically just this huge driver of economic opportunity.

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And yeah, I think I think the barriers of cost have been extraordinary to four year degrees. I also would argue that just the barriers to completion for low income students are high and difficult and cost is one of those. Even community college is very difficult for low income students to finish over a course of six years because it's just so difficult to juggle the demands of paying for tuition and going to school and doing well and working a job and potentially raising children or whatever else you're doing.

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And the research is pretty clear that even at the two year level, the outcomes really vary depending on where you start on the income ladder as opposed to the potential ladder. And I think we've all seen these stats about how easier it's easier to graduate from college to work for years for a low performing rich kid in high school than for a high performing, low income kid in high school. Again, I mean, maybe there's some silver lining in this pandemic that we could get some innovation that reduces the cost and allows for more parity in this.

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But I also worry that there's a there's a flip side that that it could get worse, that right now low income kids are the ones, particularly in elementary and secondary education, who are being hurt most by this sort of fumbling nature of the initial remote learning attempts.

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Yeah, I remember the let's talk a little bit about the markets. So I think like a lot of people, in mid-March, I was panicked. I saw this pandemic is just getting worse. It felt like our superpower, our traditional superpower as a nation. Our optimism was actually a comorbidity and things were just getting worse. And I thought, OK, if you have a global pandemic and an administration with no leadership, that's in denial. It's not a great forward looking indicator of the markets.

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And I came very close to selling kind of everything and just sitting on cash. And because I'm lazy, I never got around to it. And thank God I'm lazy because the markets have ripped back. It feels as if the markets have totally disarticulated from the underlying economy. And I think I understand why or I have a thesis, but I want to hear your viewpoint on how we can be and what is the worst economic crisis or what looks like the worst economic crisis since the Great Depression.

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Every metric other than the markets looks ridiculously ugly and the markets are at all time highs. Isn't the markets telling us that innovation is going to be pulled forward? What's going on here?

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I want to hear your theory very badly, but I think I have a few my colleagues and I kick this around all the time. I mean, one is that is that this this is a crisis that's been very good for for certain big businesses. And the market is reflecting that that they're gobbling up. Wal-Mart is taking market share from smaller competitors who weren't able to operate during the crisis. And so that's been good for their stock price and it's up to the markets.

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Another is that the market is just far more optimistic about people in Washington coming together on some sort of continued fiscal rescue than those of us who cover Congress are at the moment.

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And, you know, and a third big thing is just this thought that perhaps, you know, all of the extraordinary efforts that the Fed is making to prop up the economy have done much more to prop up to prop up that what I might call the stock market end of the economy than than the the main street end.

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And then there's I think the first thing that I would toss in there is the fact that market participants are much more likely. I mean, investors and traders are much more likely to be insulated from these most dire effects right now. And they are seeing economies that are, you know, more or less still functioning pretty well around them. It's not the same. They're not taking as many business trips, but they still have a lot of disposable income and the people around them do.

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And so you could really see sort of an optimism bias to the recovery that way just because of where people perceive their local economy.

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Yeah, I'm curious if you also the only thing I would add to that is we have this entire generation of mostly young men at home who are taking their stimulus checks, who didn't need them to survive and are levering them up with these nuclear weapons and trading options offered by platforms like Robin Hood. And all of a sudden, we have this entire swath of capital and aggressive trading into the market, which is pushing up kind of the famous names faster. I mean, I think ninety nine percent of the market recovery can be allocated to just seven.

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Stocks, I mean, it's not that the markets are up, it's just that the companies that the indices are heavily weighted to are up. The other the other thing and I want to get your viewpoint on this is people don't like to say this out loud, but the top one percent, if not the top 10 percent, are living their best lives. And that is if you make of one hundred thousand dollars a year, you probably can work from home.

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Your stocks, your wealth is at an all time high. You're spending more time with your kids. You're watching Netflix, you're saving an hour to two hours or five to 10 hours a week on commuting. And most of your costs have gone down. You're not eating out as much. You're eating more at home. You're eating healthier. Your expenses are going down because most of the things in your life have declined in cost. So your savings are up, your stock portfolios up, your lifestyle is better in the midst of a raging pandemic.

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Those are the investors, right? That's what is it, the top 10 percent of ninety three percent of the stocks. So they're feeling as optimistic as ever. To your point, do you think if you look at economic history, are we at a point of income inequality that leads to revolution, that leads to just incredible social unrest?

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I mean, I think we're at the point of where the point right now that where that leads to Donald Trump. Right? It sort of did. And I know I know that economic explanations of Trump's election are a little bit out of vogue. But I square that circle by saying in the book that I don't think there is a real materi. You can't separate sort of the racial and cultural and economic explanations for Trump right now. They're all part of the same package for his voters.

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And he was a guy who promised to shake up the system and re empower people who felt disempowered, particularly working class white people in the industrial Midwest. So to some degree, we've already had this revolution. And what's weird is that it's a revolution that combines some of the winners of the trends you just described, the people who, you know, who are doing the boat parades with some of the people who are who are not winners. It is hard to see things getting more stable from here, especially if we have another closely contested, possibly disputed when it's all over election.

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And if anything, I think that you're going to see more politicians like Trump, like Bernie Sanders, who are calling for big sweeping either policy changes or cultural changes as more and more Americans feel disempowered, whatever that means to them. And I think this is why I mean, history shows us why the middle class is so important. I mean, it's it's a stabilizing force when you have a strong group of people who feel economically stable, but not necessarily like above everyone else, that tends to breed political stability.

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It's good for democracy and it's actually good for the functioning of the economy. So, yeah, I worry about that a lot. And I think the trend right now, as we're seeing in the country, is in this crisis that it looks more likely we'll have the kind of chaos that you're describing, if not overt revolution, then less. And here you're at the helm of the bobsled harassing data left and right, saying what's ahead? Are you comfortable making some predictions around what you think happens in the next six months in America as it relates to our economy, the markets, our society?

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What recognizing no one gets this right, because there's so many factors. But if you have to try and guess, you have to try and guide the bobsled. What do you think's in store for us?

[00:32:53]

If I had to guess, I would start with the fall, which is that I would guess it's going to be a much rockier recovery in the fall than a lot of the market might hope, because there's just this well, there's two big things. One, there's the virus is still not under control. And so long as it's not under control, we are really looking at a bumpy road. But two is child care. I mean, I just think if you look at schools not being open, there's going to be this labor supply effect that cascades.

[00:33:23]

And we're going to have, I think, a much harder time getting people back to work and getting the full restoration of the economy, particularly in that sort of low middle end. When you have working moms having to choose between being at home with young children who are doing school virtually or going into their work, which they can't do from home. And it's been staring us in the face this whole time. But I think it is the number one reason to be pessimistic about a better recovery.

[00:33:51]

I also think I mean, to play a little more of a pundit hat here, there's a real chance that there someone is going to roll out what is called a vaccine in the fall. And how the country responds to that is going to be really interesting, whether it's like fully embraced, even if it's not fully gone through all the trials that you normally would do for a vaccine or whether people view it skeptically or do we see more like certain places rush to open back up again and others don't?

[00:34:20]

I mean, the actual way to put all this together would be to say, I think there's a real chance we have just rolling flare ups of the virus, which each time coincides with a rolling plunge in economic activity of some degree or another, and that that is not a particularly good or stable place to be.

[00:34:39]

You mentioned one thing that I've been thinking a lot about, and that is and I'm definitely a glass half empty kind of guy, but I like you. I have school aged children. And I worry, Jim, that literally America, in addition to the economy, but just America, falls apart in the fall when tens of millions of households can't send their kids to school, where they become dependent upon nutrition, some sort of socialization, social structure, developmental disabilities skyrocket.

[00:35:11]

Depression households can no longer depend on their grandparents because they're vulnerable to watch. The kids and single parents literally can't go to work and can't make a living and that we might see a just a level of collapse in our society that we haven't seen in a long time. And I actually think the epicenter is going to be the kind of the shit show that is K through 12 right now. Do you agree that that is the hot spot? That is the that is the really scary part right now.

[00:35:41]

And tell me. You know, I do.

[00:35:44]

I mean, I think the scariest parts right now or the thought of exactly what you describe with schools. And it's the one thing that everyone up and down the distribution that I talk to or is about talks about. And it's just again, rich Americans have more ability to walk their kids off in education pods and try to compensate for their lost learning. And that is the only thing I would add to your fears, although I am not quite as pessimistic as you.

[00:36:14]

But I would say that I think there's this possibility of growing resentment of, you know, a year or two after this, if, God willing, we get through it.

[00:36:23]

And suddenly people being like, hey, wait, why did your kids get to keep racking up more advantages over my kids that will make it easier for them to get into college. Like if you're a college admissions officer in five years, how do you possibly adjudicate between a kid who was in a pod for a year because their parents could afford a tutor to come live with them, basically, and a kid who basically got no instruction in a public school in person for a year, that is that is a really hard thing to do.

[00:36:52]

And those are decisions that affect the future of the economy in the future of this sort of class and race sort of distinctions that you and I have been talking about this whole time, the disparities and one and one scored fourteen hundred on the S.A.T. and the other nine hundred.

[00:37:07]

It's just. Yeah, it really is. It's frightening to think about. So give me if you had a magic wand and you could implement or remove one economic policy in America, what would that possibly what I mean, obviously I think right now the economic policy that I would most want to do is just like a completely comprehensive test and antiracist.

[00:37:26]

And where you really felt like you had control of the virus, that's what you're saying, that most people see that as health care policy, but you think it's inextricably linked to economic policy?

[00:37:35]

I mean, I do think it's a health care policy, obviously, but I think it is the most important economic policy in America. I just I just do. Yeah. Now, I think that I think there's a ton of insight there that the best way to restore the economy is to kill the virus. Right. It's just partially to the same place and that the real enemy is in flattening the curve for rich people. It's it's eliminating the virus.

[00:38:00]

It just strikes me as so strange. It feels as if we haven't acknowledged the virus hasn't received the memo regarding our optimism.

[00:38:07]

Right. Yeah. It's like we have this nostalgia for just getting back to the way things were, which I mean, hey, look, I get it. I'm upset that it's only a 60 game baseball season, too. I'm upset that my child doesn't have in-person instruction in the fall. But you can't just sort of wish that back. And, you know, long term, there are all these big structural things we need to do in the economy.

[00:38:29]

We need to rip down the discrimination that holds back women and workers of color. We need to invest in wealth building for everybody. We need to unleash a new generation of entrepreneurs. But we can't do any of that if this virus is raging and we're just pretending like it's going to go away.

[00:38:45]

Jim Tankersley covers economic and tax policy for The New York Times. His book, The Riches of this Land The Untold True Story of America's Middle Class is out now. Jim joins us from western Pennsylvania. Jim, thanks for your time and stay safe. Thank you so much. We'll be right back.

[00:39:04]

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OK, it's time for office hours as a reminder, you can ask us anything, if you'd like to submit a question, please email us a voice recording to office hours at Section four. Dotcom, real question one, a prop..

[00:42:00]

This is Matt in New York City. So I went to a small liberal arts college in the Pacific Northwest. It's the exact type of school that should get absolutely rocked by covid-19. And recently the school announced that all students who attend full time this year will get two additional semesters of school free of charge the year after the graduate. So basically, they're letting all students take a mulligan as long as you show up in the fall and send your tuition money.

[00:42:26]

My question for you is, what do you make of the strategy? Do you think it will work? Thanks. Matt, thanks for the question. I not only think this is the right thing to do, I think it's gangster with a capital G and that is first of I think universities need to acknowledge this will be a deeply impaired experience and have an adult conversation with parents. First, they have to have it with themselves and get out of this consensual hallucination, which I ran into at the beginning of the show.

[00:42:48]

But an adult conversation with the students and the parents say this is a deeply impaired semester, if not year. And as a result, we're going to cut your tuition. All right. That kind of makes sense. The product sucks. The product isn't as good. So we're giving you a discount when I'm on Delta and the wireless doesn't work. If I take the time to email them, they give me 50 bucks off or a coupon for a free drink.

[00:43:08]

I'll take the coupon. Thanks anyways. That is just a basic I don't know, it seems kind of logical. The experience is going to suck. We're going to give you a discount or we're not going to charge the same. But nobody wants to do that in higher ed. As a matter of fact, in the mother of all Tone-Deaf decisions and why you decided to raise tuition three and a half percent. Yeah, that makes sense. Anyways, there's a bigger implication here.

[00:43:29]

Not only are they being smart, not only are they saying, OK, we're going to reduce tuition by giving you more. By the way, that's the best discount in business. You say we're going to give you kind of a free gift with purchase. The entire beauty industry was based on free gift with purchase. It got into sort of this unhealthy cycle of giving away what felt like 50 bucks in beauty or color products if you bought a forty nine dollar sunscreen or moisturizer.

[00:43:53]

If I sound like I don't know what I'm talking about, trust your instincts anyways. You get you get the point. It's much better to to offer value add as a means of discounting versus chopping the price. And that is what they're doing. But there's a bigger story here. There's a bigger story here m a double T, and that is that is back to recurring revenue bundle, the first university that successfully makes the investments and shifts their business model to lifelong learning and says, OK, we've got to bust out of this model where we try and charge people way too much money, a shit ton of money over two or four years, and then wait twenty years and hope they get rich and ask them to give a bunch of money back.

[00:44:29]

That's not a great business model. A better business model would be say, hey, for the rest of your life, we're going to ask you to spend two or three grand a year and we're going to offer so much in the way of ongoing learning, so much in the way of certification, career counseling, networking, cultural events, fantastic opportunities for you and your family to engage in the community and in this lifelong learning. And what is an unbelievable culture?

[00:44:53]

How many of us don't want to go back to campus? It's this wonderful culture. Would it be expensive? Would it take a ton of a rethink of the notion? Yeah, absolutely. In the first university that pulls it off is going to revolutionize education or specifically is going to massively increase their stakeholder value, because instead of spending all this money on recruiting and bullshit marketing and orientation and trying to figure out how to get kids, estimate how many kids will will come to their school through these complicated algorithms of yield and how many high school kids are coming out, they will enter and they will be able to predict the lifetime value and their cash flows.

[00:45:29]

And that is the reason why software companies are valued at a multiple of revenue versus transactional companies are valued at a multiple of EBITA. This is the opportunity to take what Pacific Lutheran University is doing and absolutely pour fuel on those flames and not only move to two additional semesters, but then move to another fifty or sixty years of learning, lifelong learning. Thanks for the question. Next question.

[00:45:51]

Hi, my name is Barack Obama. I live in Bangalore, where I work at a large consulting firm. I've been a huge fan since I discovered your insightful videos on YouTube a few years ago. I want to thank you for your generosity as you continue to put such great content out there. Please continue to tell it like it is, the world is a much better place for it. Now, for my question. I would love to know your thoughts on the future of knowledge, work and consulting.

[00:46:18]

How do you see the court offering and consulting and the delivery model transforming the future? And do you see the fall ever come into that space in a huge way and threaten the highly entrenched consulting firms? Abbi, thanks so much for that. And if you'd say, OK, I'm going to call you Abe because I don't want to mangle your name. That's a very thoughtful question. Deloitte serves nearly 90 percent of the Fortune 500 and more than 7000 private companies.

[00:46:43]

TWC serves 85 percent of the global five hundred ninety three percent of the companies on the S&P Europe, three list, 86 percent of the Fortune 500. And we also have incredible companies in the consulting field. Deloitte, Accenture have just kind of consolidated the market. Why? Because knowledge work or answering questions. I mean, there's Google. The answer is ninety eight or ninety nine percent of our simple questions. We want our questions get really difficult, like, OK, what do I do to stave off the incumbents?

[00:47:13]

I'm General Motors and I have Tesla with incredibly cheap capital and union problems or union expenses and regulation and changing marketplace. What do I do? Google can't answer those questions. So instead, instead of being served up, ads are paying the tax of having to listen to or be taken to places that are the best place, but a place a Google could further monetize. They would rather pay millions of dollars to incredibly bright people, usually from India. It's racist for me to say that, but I do think Indians over index and consulting firms to try and thoughtfully go away and assess the marketplace and then come back and provide an answer are reasonably thoughtful answer.

[00:47:54]

Most of the time the client knows the answer. They just want third party validation. I think that field is only going to explode. So the question is what can the industry do? And I know I sound like a broken record here. I think it's going to move from a transaction or project based model to a retainer model. And that is a company that's over, say, a billion to less than five billion will pay X dollars per month for its accounting, X dollars a month for its creative services and X dollars a month for its strategy services.

[00:48:26]

And this will take the business model to a much better place, because typically the dirty secret of consulting and it's not that much of a secret is when I would get a consulting engagement and Williams-Sonoma would pay my firm profit a half a million dollars to do their Internet strategy. About halfway through the project, the majority of my efforts would be trying to invent new problems that only we could solve, such that I could write another proposal in week ten of a twelve week process to get bigger and bigger, basically to kind of go in and affect the organization with a lot of uncertainty and questions that only we can answer because we knew the company and we were outside the organization and hopefully had done some good work such that we can continue to sell more and more.

[00:49:03]

So the best people in consulting and services often spend a lot of time spending the majority of their efforts on selling and specifically developing relationships. I found that the majority of my time was spent on developing kind of these father son relationships with the CEO or the CMO of my client. And I like these guys. They like me. But that leads a it's kind of unproductive and knowing that my first wife did not, I first see above first wife did not enjoy vacationing with clients all the time.

[00:49:32]

And to it's fairly inefficient. It's also in its own way, leads to a lot of discrimination and a reduction in opportunities for people with kids, for people of color or for people who don't look, feel and smell like the CEO who wants to hang out with people to look, feel and smell and play golf like him, which I did after my twenties and thirties. I fucking hate golf, by the way. Anyways, that's neither here nor there.

[00:49:54]

Consulting needs to move to retainer versus Project-Based. I think it needs to be more data driven. My second quote unquote consulting firm L2, although it is more data driven. I said I want to out of the business of selling and out of the business of having to establish relationships. I want to have intellectual property, I think indices and that is tracking data, whether it's the number of searches done on a company by a certain consumer set, whether it's assessing their mentions on Instagram, they're just there are so many.

[00:50:23]

Everyone says data is the new oil. No, it's not. Data is everywhere. You need to refine that oil and turn it into petroleum. And that is you need scrapers. You need ways of distilling that data down to rich formats that you can present. And then and then you need the gangster processor in all of human history. And that is a gray matter in between your ears to translate that data into information and and recommendations. And your recommendations can be wrong.

[00:50:49]

But as long as that catalyze a debate that interrogates the truth and leads to better decisions across a variety of outcomes, you have done a great job and you will justify and receive hundreds of thousands, if not millions of dollars in high margin revenue, in some retainer recurring revenue relationships and more and more reliable sources of data set which give you the ability and the source of truth in the confidence to make more and more provocative and credible recommendations and provide better answers to your clients.

[00:51:20]

Thanks for the question. Next question.

[00:51:23]

Hi, Scott. This is Deb from Toronto and Cape Cod. I was wondering what you're in. It's where on the McDonald's CEO, this Esterbrook guy, do you think the board is at fault for not having done more of their due diligence before letting him go with a big severance package as an experienced board member? I'd like your thoughts on what kind of repercussions it should be for the board.

[00:51:55]

Thanks, Deb, from Toronto on Cape Cod. Thanks for the question. So just a little bit of back story for our listeners that don't know some of the context of Easterbrook. McDonald's former CEO was fired last November for having a consensual relationship with an employee that violated company policy. The board fired him without cause. Easterbrook received a severance package worth more than 40 million bucks. And now McDonald's is suing Esterbrook over a severance package alleging that he lied to the board about his numerous sexual relationships with employees.

[00:52:25]

I actually think the board so you can fault the board for not doing the due diligence up front. But I think the board deserves some credit here because the board has said, OK, they lied to us. It's worse than what we thought. And what would have been the easy way out would have been for the board to just bury it and try and move on. And that's what a lot of companies do. OK, bad behavior. We don't want to be in the press.

[00:52:46]

We don't want a lawsuit, an extended lawsuit with this individual. So just pay him or her off and let's just put it behind us and move on. And the board said, no, this is a unique time or a better time or an evolved time where corporations and society have said that they are done with people, i.e. men leveraging their power to put people in incredibly uncomfortable, terrible situations. They have said rightfully said no to that. And there's been a huge calling out of this cohort.

[00:53:18]

When you have a relationship with someone at work, the bottom line is you got to be very careful. There's not a power imbalance there because it can lead to abuse. And it's essentially a different set of rules as you get senior. And that is once you become an executive in the company. I believe as someone who serves on board, it's just verboten. And that is you got to find people to have sex with somewhere else. There are so many upside benefits to being an executive in a company, specifically ridiculous compensation, power, respect, people laugh at your jokes and they're not funny.

[00:53:53]

But one of the things you lose is you are no longer in the dating game. You are no longer part of that ecosystem where if you meet somebody, you can have a relationship with them. It just above a certain level and a company. It's no and if you violate that policy, you are summarily fired for cause this guy really had shit for brains and was getting or exchanging very provocative texts and emails and getting them to his corporate email and then forwarding them to a private email.

[00:54:23]

So this guy, Mr. Easterbrook, is he's going to get hard in court. That'll be very interesting to see what happens here. But the question around the board's fault here. Yeah, the virtually no due diligence, but good on them for having the balls to say we're not going to sweep this under the rug. We're going to go after this guy who abused his position. It sends a very positive and strong signal to other CEOs and other executives.

[00:54:45]

Keep your fly up and locked, boss. We love your questions, keep sending them in again, if you'd like to submit one, please email a voice recording to office hours at Section four dotcom. OK, I'll of happiness, so I have two people in my life that are suffering from early onset dementia. One is my closest friends, mother, who didn't raise me, but I was over at their house probably too much for their liking as a young man or not a young man as a boy.

[00:55:21]

And my father, who turns 90 in about two weeks and when I speak to him on the phone, is getting increasingly challenging as. He never seems to have his hearing aids charged or in the right way, and I find myself yelling and he is as dementia is taking him to kind of an ugly place where he's making up situations that create stress on him. He'll start getting very emotional on the phone and apologizing for whatever he did to make me angry at him.

[00:55:54]

And here's the thing. I'm not angry at him. And I end up having to say over and over, we have a wonderful relationship. I am not angry. You love me. I love you. Everything is fine. Unfortunately, with these damn hearing aids, I find I have to go outside because I usually call my dad at night and I am literally screaming this over and over and over until the neighbor's lights go on when they wonder what the fuck is going on next door.

[00:56:22]

And he'll finally hear me and he'll say, OK. And then he just inflates and says, this dementia thing I'm just so lost is what he keeps saying. I'm just so lost. He he's there enough to know what's going on. But obviously the dementia restricts his ability to do anything about it. And I find myself being more generous around being much more forthcoming around my emotions and saying positive things about our relationship and expressing my concern and regard and admiration and love for him, because I know I'm losing him or specifically he's losing his ability to absorb and register those emotions and those communications or those words from me.

[00:57:09]

And I wish I'd started doing it earlier. I wish we'd started talking about I wish I'd started sharing with him some of the things I felt about him, asking him more about his life while he was still kind of 100 percent there. And I guess the question is, if you knew it was going to happen to your parents and your loved ones and you do know it, you don't believe it. But if you knew it and you tried harder to recognize or absorb that sooner, what would you want to say to people?

[00:57:41]

What would you want to discuss with them? Because biology wins and this is waiting for all of us. It's waiting for all of our loved ones. And so advice to my younger self. I won't give advice to you, but advice to my younger self is I wish I had said more of these things more often earlier. Our producers are Caroline Chagrinned and Drew Burrowes, if you like what you heard, please follow, download and subscribe. Thanks for listening.

[00:58:10]

We'll catch you next week with another episode of The Prophet you show from Section four and the Westwood One podcast network. There's a kid crying in the background, can you hear that? Because are awful. I mean, they're just awful.