The Great GriftThe Prof G Show with Scott Galloway
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- 21 Jan 2021
Lina Khan, an associate professor of law at Columbia Law School, joins Scott to discuss the latest around Big Tech’s unchecked power and the broader effects of monopolistic behavior on the economy. She shares her thoughts on how break ups could benefit the markets, why traditional antitrust laws aren’t necessarily suited for the digital market, and how the dynamics of antitrust have changed over the past couple of years. Follow Lina on Twitter, @linamkhan.
Scott begins by outlining how we could have used our $5 trillion stimulus effort to prop up Americans who needed the most help, rather than letting the rich get richer. Related Reading: The Great Grift.
This Week’s Office Hours: why Big Tech probably won’t make a move into the DTC genetic testing market and how rundles increase a company's valuation. Have a question for Scott? Email a voice recording to email@example.com.
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Episode 45, the atomic number of rhodium were saying goodbye to the 44th president of the United States, whereas I'd like to call it Go Fuck Yourself Partisan. Hardison, when I was forty five, I felt awesome because in New York, forty five is a new 30 for women. 30 is the new 60.
Oh, my God. So inappropriate. Go, go, go.
Welcome to the forty fifth episode of the Prop G Show and today's episode, we speak with Lina Kahn, an associate professor of law at Columbia Law School, where she teaches and writes about antitrust law, the antimonopoly tradition and law and the political economy. I am so bored reading that. But trust me, Lena is a gangster and I think antitrust is actually quite interesting and insightful.
Oh my God, what did I get this fucking old that I find that shit interesting? Well, guess what I guess would be odd like me and get into antitrust.
It's important and it's an interesting discussion as huge ramifications on our society, technology and the likes we discussed with the state of play around big tax, unchecked power and the broader effects of monopoly power on the economy. OK, what's happening? Let me think. Kind of a slow Newsweek. Hmm. Hmm. Let's ponder.
By the time you hear this, Joe Biden will have been sworn in as the 2006 president of the United States of America following an inauguration that was coupled with heightened levels of security because of the former president's violent supporters and safety precautions.
To avoid turning this into a covid-19 super spreader event that kind of summarizes America, a mob takes over the Capitol and it not only becomes a crime scene, but a super spreader of that. Welcome to America. And in other news, President Biden announced his nearly two trillion dollar American rescue plan that includes 400 billion for things, including expanding vaccinations and helping schools safely reopen while the rest will be dispersed. Economic relief, such as one trillion in direct payments and billions of dollars for small businesses per the AP.
Biden's plan will come from borrowed money, adding to trillions of dollars in debt the government has already collected in an attempt to tackle the pandemic. So let's be clear. Our federal response to the pandemic has been massive with a capital M a five trillion dollar effort. It's also been taken under the cloud cover of covid-19. The shareholder class has used its outsized influence over government to toss a few loaves of bread at those suffering, those that are most needy, all the while accruing trillions of dollars in wealth financed on the backs of younger and future generations.
Why? Why are we able to do this? Simply the demo and democracy is working too well and that is the unborn don't vote and either do young people. So let's fuck them. America used to be America used to be about figuring out a way through public policy, capitalism work. How do you get more people rich? And it is slowly but surely morphed to this corrupt gestalt of how do we keep the rich rich?
Of the five trillion spent so far around, only one and a half trillion came in the form of direct aid to individuals, a quarter of that fund to twelve hundred and six hundred dollars stimulus checks, many of which went to people who had not suffered financially. Get this, only 15 percent of recipients of the first round of checks said they plan to spend the money. That's right. More than four and five recipients of this stimulus borrowed from future generations that is in the form of debt, do not urgently need it.
Another one trillion or so went to pandemic response medicine, PPE, medical services and the like. And while this was necessary, I believe that much of this money ended up in the pockets of health care companies, shareholders, the remaining two and a half trillion dollars came via mostly forgivable loans and handouts to businesses. Let's save Delta Airlines. The final tally is about one trillion dollars in direct aid to those who truly needed it. One trillion or about 20 percent is going to get to the people who really needed it.
One trillion of the actual pandemic response and the three trillion dollar wealth transfer to the rich and the powerful, we're calling it, or we should call it what it really is, the great grift. So what happens? Three trillion in new money at historically low interest rates have been a nitro and glycerin, respectively, of the stock markets melt up. The dirty secret is that there are two pandemics. While a quarter of America's food insecure and behind on rent, the shareholder class has experienced an explosion, an explosion in net worth and spends less time commuting more time with family and Netflix.
The S&P 500 experienced the shortest downturn in history after hitting its March lows, and the Washington Post reported that the index was up sixty eight percent by the end of 2020. We don't like to admit this, but if you're in the top 10 percent, what is the pandemic meant if you've been fortunate enough to escape? Koven And the reality is most people who are wealthy have access to good health care and distance. What does it mean? It means you're not commuting.
It means more time with family. It means more time being a better mom or a better dad. And it also means it also means you are wealthier, dramatically wealthier as your stocks continue to accelerate and your house increases in value. Had covid-19 preyed on wealthy white people and cut the nasty. I can have our response would have made the South Korean and Taiwanese responses appear amateur instead, the wealth of billionaires is correlated to infections and deaths, and we continue to see a death toll greater than 9/11 every 18 hours.
The three trillion dollars that went to PTP tax breaks and other handouts to the wealthy could have been spent cancelling student loan debt. By the way, I don't think that's a good idea. But I'm trying to give you a sense of the scale here. Entire student debt adds up to one point six trillion. We could have eliminated child poverty in the US, rebuild the transportation infrastructure, and moved one million families away from flood zones. I'm not advocating for all of these.
Cancelling all student loan debt, again, for example, would be another transfer of wealth from the poor to the rich.
Elizabeth Warren and Bernie Sanders advocating for cancellation of student debt. Who has student debt? Wealthy people who can afford to pay it back. But this shows the scale of the continued grifter, the gestalt around. Let's keep the rich people rich instead of figuring it out, a way to go to our American roots, our American DNA.
And that is how do we get more people wealthy anyway?
If these programs seem to be a government liberal, consider this. Instead of three trillion dollars in handouts to the wealthiest Americans, we could have given thirty thousand dollars to every single one of the hundred million Americans who reported pandemic related wage losses in twenty twenty thirty thousand dollars. Or we could have just given every American adult fifteen thousand dollars. This would have gone much further towards repairing the economy as more money would have ended up in the economy rather than in the markets.
And who better to determine which firms, which restaurants, which cupcake bakeries make it to the other end and survive? Then consumers? In a sense, our democracy is working too well as the mark of the great grift are people who don't vote young people and the unborn. In 1989, people under the age of 40 owns 13 percent of the wealth in this country. In twenty nineteen pre pandemic, they own just six percent. That's right. The share of wealth controlled by people under the age of 40 under the age of 40 has been cut in half in the last thirty years.
Yeah, I moved to Brooklyn. You're still fucked. Despite representing nearly the same share of the population, their wealth has been cut in half. Think about that. If you're young and you're pissed off, that's just common sense. The younger you are, the more you've been conned. So what should be done are pandemic response, including any additional stimulus packages should be limited to supporting people who are food and housing insecure. We're America. We protect people, not companies.
That's called capitalism. However, since we're already three trillion in the hole, we need to recover some of those losses that calls for. And I hate to say those taxes were quick to call everything exceptional and a once in a lifetime, once in a historic event that requires a bailout. But guess what? A pandemic is not historic. They happen every couple of decades. What's historic is the massive explosion of wealth among the top one percent. So I know that warrants a distinct response specifically.
We should end the favorable tax treatment of capital gains income, capital appreciation has been the primary vehicle of both our 40 year wealth transfer and of the great grift we should impose, in addition, a one time wealth tax.
I don't believe in Robin Hood and showing up and saying, OK, OK, you're going to have to pay a wealth tax for the next 20 or 30 years. Why? Because the wealthy are the most mobile people in the world and it's very hard for them and it's very hard for us to determine what wealth means. But history shows that wealth taxes do not work. But what does work as a one time tax? It's not worth moving from the US to Singapore.
It's not worth trying to hide all those assets for a one time tax. A two percent tax on the wealthiest five percent of households would raise up to one trillion dollars. Still, only 20 percent of the money we had borrowed on the UN Born's credit card and younger people's credit card. But still still a start and more importantly, more importantly, begins to align incentives. The initial stock market bump registered by the CARES Act's passage led to the wealthiest Americans stock owners accruing an additional two trillion dollars.
So that seems like a pretty good deal. You get two trillion dollars on the back of a pandemic's government response. We want one trillion of it back. These measures only address the symptoms. How do we address the ongoing wealth transfer and prevent the shareholder class from future grifting? By the way, the wealthiest 400 families are responsible for 50 percent of the financing of presidential campaigns. In addition to that 50 percent, it's speedballs by think tanks, PACs and media, which is largely owned by very wealthy families.
We must reduce the impact of money on politics. Money is not speech, and if we can't convince the grifter's on the Supreme Court of that, we should override them with a constitutional amendment. We need greater transparency from our elected representatives about who they meet with and where their money comes from.
If we don't align financial reward and penalties with the health of our Commonwealth and its citizenry, we are doomed to a pattern of failed responses to crises. The explosion of wealth among the already wealthy has created unprecedented moral hazard as the arbiters of policy haven't even really felt the real pain of this pandemic. Case in point, Jordache, a beneficiary of the explosion of meal delivery brought on by the pandemic, went public last month and now registers a stock market capitalization greater than Fed Ex at sixty eight billion dollars.
In contrast, that to 125. An index of the hundred and twenty five largest companies in Israel was down for twenty twenty. And guess what? What happens when the stock market goes down? It changes in incentive. And what's the incentive here? Israel has vaccinated its citizens at seven times the rate of the U.S. if Amazon's stock had been halved versus accelerating 87 percent since March lows, the 82 percent of households who are prime members would be vaccinated by an Amazon delivery person and goddamn Chick fil A would offer to stick your arm at their drive thru.
Let's admit it. Let's admit it.
We've been conned. Stay with us. We'll be right back for our conversation with Professor Kohn. In print and online, The New Yorker stands apart for its commitment to truth and accuracy, quality writing and compelling reporting and storytelling, The New Yorker is considered by many to be one of the most influential publications in the world. You know, it influences me and makes me feel more attractive because intelligence is sexy. That's right. The dog is sexy with that New Yorker, with that bitch under his arm.
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Welcome back. Here's our conversation with Lina Khan, an associate professor of law at Columbia Law School. I started tracking Professor Cohen's work back when she wrote a paper as a law student at Yale talking about antitrust and Amazon. And she kind of set the world of antitrust on fire. I think she's an inspiration. I think she's a role model for young people that when you do great work and you're fearless and you back it up with rigor and thought leadership, that academia can be a fantastic place to have a real impact on the world.
She then went to work for the House Subcommittee on Antitrust, and I've been following her career, but she's just a clear blue flame thinker. Anyway, here's our conversation.
Professor Convertors, this podcast found you.
I'm currently in Dallas, Texas. Dallas.
Wow. I am totally indifferent to Dallas. Like Austin. I like Houston. I don't like Dallas. Neutral. You like Dallas.
You know, it's a very easy place to live. And we've been living quite close to Love Field Airport. So I was able to get to D.C. in New York quite easily. So overall, it's yeah, it's treated as well. Can't complain.
So give us some context here. Give us how the events of the last. Yes. Ten days now. How is it if it all changed or complimented your thinking around antitrust and the kind of the unfettered growth and power of these platforms?
Yeah, it's a pretty, pretty remarkable couple of weeks for everybody in the US, but in particular, I think for people who have been studying the outsized role that a very small number of tech platforms now play in structuring public commerce and communications. And so I think, you know, the platforming that we saw really underscored just the remarkable power that Google, Facebook and Twitter wield now over our public sphere. And I think also redirected attention anew to the fact that Facebook and Google have business models that are directly at odds with creating a safe communications infrastructure.
Their business models directly incentivize them to promote content that is hateful, promote disinformation. And so I think we've kind of seen the overlap of how their business model, coupled with their scale, has really created an unsustainable situation for our democracy.
So there's antitrust and the notion that a remedy would be a breakup, which I would argue would actually be good for the shareholders and the management of these companies.
Do you think this takes it to a new level? Do you think that we're going to see criminal investigations? Do you think there's potentially going to be a perp walk or something much more severe against the management and boards at these companies is a really interesting question.
I mean, on the tail end of of last year, right, we finally started seeing significant antitrust lawsuits being filed. Right. So we saw two filed against Facebook, one by the FTC, one by, you know, forty eight state AGs. And then we've also seen a handful of lawsuits now filed against Google by the DOJ and by two separate group of states. And those lawsuits, I think, really paint a compelling picture of rampant misconduct by Facebook and Google and underscore how in many key ways the dominance that these firms now enjoy, you know, in the early years may have been premised on innovation and on providing superior products and services to users, but that in key instances, actually, they've been able to maintain their monopoly through engaging in anti-competitive conduct.
Right. Not through competing on the merits.
I think in particular, the lawsuit filed by Texas and and a number of Republican states against Google isn't particularly interesting because it basically alleges criminal conduct, conduct that could be criminal implicating Google and Facebook.
And so, you know, whether that ultimately gets pursued as a criminal matter, I think will be important. But there's no there's no question in my mind that we're kind of past a turning point in terms of the shoe dropping. I think the key question now is going to be, a, is the government going to win these cases? Right. It's no secret that the judiciary in the United States has become very hostile to anti-trust plaintiffs and have made it very difficult for plaintiffs to win cases.
And second, if they do win, what's the remedy going to be? Right. I mean, Microsoft, the Microsoft case famously was one that the government won on the theory of liability, but ultimately they were not able to get their preferred remedy, which initially was a breakup. Right. And so Microsoft was able to kind of draw out the interoperability remedy and really just mess around with the remedy in ways that made people question, you know, was this lawsuit really effective?
So I think we're going to have to wait to see how that unfolds.
And how do you think things are going to change or if they're going to change or they coming? Biden Harris administration?
It's an interesting question. I mean, I think we're still waiting to get information about who they're going to appoint to a key antitrust leadership positions. So that would be both the head of the antitrust division as well as. The three Democratic commissioner spots at the FTC, so I think until we get more information there, it's going to be difficult to know. I do think that the dynamics in antitrust, though, have changed over the last couple of years, in particular, given the remarkably important role that the state attorneys generals played in really driving the ball forward with these lawsuits.
I think that created an important source of pressure on the federal enforcers. Right. If the FTC and DOJ were going to decide not to file lawsuits here, they were going to get shown up by the states. I also think Congress and lawmakers are much more engaged on these questions and are much smarter about these questions than they were a few years ago. And so that's going to be another source of pressure. So unlike previous administrations, I don't think the decision is purely going to be in the hands of the FTC and DOJ.
I think just the increased attention and increased pressure and increased stakes of these questions means that, you know, sitting on their hands is not going to be a viable strategy in the way that it was previously.
So you referenced the Texas Agee's case against I think it's cartel pricing between Facebook and Google. Is that accurate?
It effectively alleges that there was bid rigging so that Google gave Facebook preferential terms and services and perhaps even rigged big bids, which again, is like, you know, in the real estate context, for example, bid rigging is treated as a criminal matter. So it's pretty serious.
But that's that's the key word criminal, because my sense is people start dropping dimes when they face prison time. And it's one thing to go after a company. And the the downside is a fine, even a multibillion dollar fine. And if you're worth 500, your market cap is 500 billion dollars. The prospect of a five billion dollar fine after two years of fighting it is bad or meaningful, but it's not profound. But the thought that you might go to jail is profound.
And I would imagine that the levers or the hammer of criminal prosecution has a tendency to be much more effective in terms of getting people to cop to stuff or say what's going on. Isn't that really a game changer? What's going on in Texas? I think it really could be.
I think we're going to still have to wait and see whether they pursue it as a criminal matter and what what types of charges ultimately and are on the table.
But I think, you know, I think it's no secret that we have two systems of justice in this country. And I think that's also the case within, you know, enforcement against businesses. I think oftentimes enforcers are more than willing to really bring down the hammer when they're dealing with, you know, small time fraud, small time scammers. But it's really the big companies, the powerful companies that oftentimes are able to get much, much lighter penalties and much less severe penalties.
I think one example of this, frankly, was, you know, around a decade ago, some of the tech companies, including Apple and Google, were found to be engaging in a no potch agreement. Right. So basically, they called each other up, Steve Jobs, Eric Schmidt, they kind of agreed that they were not going to try and hire each other's workers. This type of no conspiracy is also, you know, potentially a criminal.
It could have been pursued as a criminal matter. The Justice Department chose not to pursue it as a criminal matter. And these companies really got away without any significant remedies from the government. There was a separate class action where they ended up having to pay off a few million dollars. But that was a moment where if we had a government servants that had wanted to, they could have pursued that potentially as a criminal matter. And I think the kind of culture of lawlessness that we see in corporate America, particularly by companies that have enormous market power, partly stems from the fact that these executives have not really faced any meaningful ramifications for their lawlessness and instead have really been able to treat these fines as a cost of business, which I think is particularly true in in the tech context.
Right. Given that several years of rampant privacy violations would give Google or Facebook enough data such that it would actually be profitable to pay out the fine for that privacy violation and. Right. And so I would hope that in addition to seeing these antitrust lawsuits, we're going to see a shift in the culture of enforcement that is really intent on ensuring that big companies are also held to account in a serious way. So you worked on the House Subcommittee on antitrust hearing, which, by the way, I thought that was the most productive, rigorous and, I don't know, thoughtful hearing we've had we've had in a while.
And now that you're no longer working with Congress, you're freed up. And to make ah, I hope you're freed up to respond to my thesis or make some predictions. So what do you think is the likelihood that one or more of these companies is broken up in the next 24 months?
I would say there was a upwards of 50 percent chance, I would say maybe around 70, 75 percent chance that at least one of them is broken up, specifically, given the strong lawsuits stack rank them in terms of most likely to least likely, most likely is Facebook.
Second, I would say Google, third Amazon and fourth Apple. Yeah, it would be hard to break up Apple.
Right. Who gets the brand, et cetera. Those like apples. More about regulation and antitrust. Yeah.
I mean, I also think, you know, stepping back, it's important to think about what is the problem that we're trying to solve through breakups. Right. I think in certain instances, the problem is really one of law enforcement that's anti-competitive. Transactions occurred and we need to unwind them. And so I think, you know, separating Facebook from Instagram, separating that from WhatsApp, that would be a remedy for that, those unlawful transactions that happen. There's also the problem of this kind of intrinsic conflict of interest that arises when you have a firm both serving as a core platform, but also competing with firms that are dependent on that platform and then also extending into all sorts of ancillary lines of business.
Right. So one thing we repeatedly encountered in the House investigation was the way in which Amazon in particular was able to use its market power in the retail sector as leverage against businesses when it was negotiating in a totally separate line of business. Right. So think about, you know, the voice assistant space. And so there I think you would want to do break ups in order to prevent this conflict of interest and prevent a firm from using its market power in one line of business to kind of cascade into all these other lines of businesses.
I think what we are facing, frankly, right now is the kind of combination of structurally uncompetitive markets with structurally competitive markets. And that's why you're able to see, you know, a company like Google use its monopoly in search and search advertising to extend into dozens and dozens of of adjacent lines of business and also monopolize the browser. Also monopolize the you know, the display ad market, also monopolize the mobile operating system. Right. And so I think we actually need to step back, look at these markets on a case by case basis, understand what are the underlying properties here?
What are the underlying technological features? Is this really a market that is somewhat of a natural monopoly situation such that it actually makes sense to have one company dominate? And if so, what are the rules that should accompany that natural monopoly situation? Or is this a market where actually we should be able to see competition? But it's the fact that the platform has already monopolized the natural monopoly market that's allowing it to also monopolize the structurally what should be a structurally competitive market.
Right. And so I think that kind of case by case assessment will let us make a more coherent plan for how to break these companies up ultimately.
And do you think that there's a recognition or are we moving to acknowledgement that it would be very oxygenating for the economy to go through not only big tech, but Big Pharma, big food, big ag and just sort of concentrate the marketplace at the FTC and the DOJ, someone I think I read somewhere that for every buck, additional incremental dollar you give the IRS, they return 12 dollars back for obvious reasons. But isn't the same true the DOJ and the FTC at this point that it would be incredibly what's the term, a boost to the economy to let these guys go at it and kind of unwind some of the incredible concentration of power that's taken place over the last 30 years?
I think there's really solid reasons to think that. I mean, I think historical precedents suggest that, you know, injecting more competition would really be a big boon to the economy. I also think we're at a stage where, you know, concentration of economic power and monopoly power is now a systemic problem in our economy. Right. It's not just isolated to tech. Tech is a particularly salient example, but it's nowhere unique. Right. So think about major sectors like food and agriculture, health care, airlines, telecom, freight, but also much more obscure industries, be it waste management.
Right. Funeral casket's eyeglasses. I mean, we're really looking at a systemic problem. And I think this type of excessive concentration and market power is a problem that now sits upstream from a host of other problems that we're facing, many of which have become deadly apparent during the pandemic in particular. Right. So so take agriculture right for poultry firms, control the nation's chicken supply for firms, control the nation's beef supply. Consolidation throughout the food and agriculture system has meant that supply chains seized up throughout covid.
And overall, our food system is much more fragile and far less resilient. Right. Or look at. The health care system where hospital consolidation has reduced the number of hospital beds, the U.S. had one point five million hospital beds back in nineteen seventy five, and now we're down to under a million, right close to nine hundred thousand. And this reduction of capacity is a direct result of consolidation that has led to a very concentrated health system where hospitals are primarily located in wealthy cities and suburbs, expensive extensive health care systems, and have created hospital deserts in rural areas.
Right. Or and we're actually been seeing major shortages. Right. A few years ago, there was a shortage of sailin IV bags and essential medical supply because consolidation in health care had meant that half of all staling in the United States is produced by one company that was using facilities in Puerto Rico, which were crippled during Hurricane Maria. And so after that hurricane in Puerto Rico, you had to say you sailing shortages across the U.S.. Right. And so I think we've just reached a stage where concentration is so extreme and is really leading to cascading problems across the board, which oftentimes can be deadly such that, you know, ignoring this is no longer really a choice that we have.
How do you think the markets would react tomorrow? Let's assume antitrust, the complexion from the Biden and Harris administration is much more aggressive. Do you think the markets say, well, this is anticapitalist and it takes the markets down? I realized impossible to predict the markets, but typically speaking, these things are really positive for the market. I'm shocked that the markets seem to have adopted this narrative that it's bad for these companies. You know, that when there's a case announced against Google and Facebook, granted, their stocks don't go down a lot.
But they do. They do go down. Do you think the market fundamentally misunderstands antitrust?
I'm not sure.
I mean, I think it's difficult to answer in a general case, right? I mean, I do think with firms like Google and Facebook, which have enjoyed, you know, supernormal profit margins, that antitrust case and a, you know, meaningful remedy could lead to those margins falling. But I also think that what the markets are perhaps not pricing is the way in which ups and divestitures could actually ultimately lead to more wealth and more value creation. Right.
And so I think there kind of perhaps more focused on the downside and not as much thinking about the potential upside, not just for these companies and their offshoots, but for the market as a whole. Right. I mean, as part of our investigation, we interviewed venture capitalists and interviewed many in the business community that overall thought that there was less opportunity in some of these markets because of the dominance of these four platforms in their predatory conduct. And so I do think that overall we could see more oxygen and more opportunity in the long term if we see serious antitrust actions and whatever.
When I hear people talk, knowledgeable people talk about antitrust, they say that if we're going to implement the level of antitrust that's needed, we're going to have to change the laws. And we've done that before. We have this kind of consumer, Towcester, Bork, or whatever they want to call it, which is difficult to apply to an economy where the most dominant companies offer a product that's for free. Can you give us a brief history lesson and tell us where the laws might go?
Sort of a more I think the term brand is in. Sure.
So, yeah, the U.S. antitrust laws, you know, passed over 100 years ago, fundamentally designed to prevent concentrations of economic power because lawmakers understood that in the same ways that concentrations of political power threaten our democracy, the concentrations of economic power would also threaten our democracy. And so, you know, you had periods of strong enforcement, some periods of low enforcement. But but overall, through the 1960s, you had these antitrust laws being enforced with with a broader look at the underlying market structure and a look at the power that any dominant firm had amassed and was exercising in the 70s and 80s, we saw a growing acceptance of the Chicago School of Economists view of antitrust, which was to argue that this broader focus on power was really harmful for the business community.
It was creating uncertainty and instead we needed to reorient antitrust around what they called consumer welfare, which basically they used as a proxy for for efficiency, for allocative efficiency. When Reagan came into power, the Chicago school of you was basically stamped into law, though, through judicial appointments that Reagan made, as well as through appointments that Reagan made to the FTC and DOJ. And so that's been an approach that has been continued through Republican and Democratic administrations alike.
And so there's been this narrow focus on consumer welfare, on economic efficiency, and enforcers have really just taken their opposite. They'll have allowed decades and. Decades of mergers and consolidations across industries because under this consumer welfare standard, companies that were merging could always at least argue somewhat credibly that merging would lead to efficiencies. That, of course, they would pass on to consumers. And so there's just been an institutional permissiveness when it comes to antitrust for for several decades now.
Over the last few years, there's been growing criticism of this consumer welfare focused approach to antitrust on the grounds that even on consumer welfare metrics, this extreme consolidation has not actually served consumers. You actually see market power across the economy be used against consumers. And then also we've seen enormous problems when it comes to labor markets, monopsony concentration of employer power, a reduction in new business formation. And so there are just a systemic set of problems that have derived from concentration across the board.
And so that's given more popularity to what's been called the neo brandeis's in view of antitrust, which is really looking to reorient antitrust again around this question of concentration of economic power so that we look more at the underlying market structure rather than neoclassical economics that is not really tethered to market realities. And I think grounding our analysis of market power is particularly important in these digital markets where a lot of the traditional neoclassical theories no longer apply. So one example is when it comes to predatory pricing, the Chicago school says that predatory pricing is an irrational business strategy because no company would undertake losses in the short term.
What we've seen, of course, we know that that's not true. Right. Companies across the economy engage in predatory pricing, but this is least true in the context of digital markets. Right. Where in some cases you have winner take all markets. And so, of course, companies will have an incentive to undercut on prices so that they can capture the market rate. Chasing market share over short term profits is the whole game. And so I do think that these digital markets are really showing the failure in the hollowness of some of the traditional Chicago theories in a way that is giving new energy to some of these alternative approaches.
I usually wrap up these interviews asking you what advice you would give to your 25 year old self or given that you're just north of 25, I'll ask you, what advice do you have for other young women and men to say, coming out of college, thinking about a career in law, thinking about a career in public service?
Any thoughts or advice?
I think for me, studying history was really important.
I mean, the way I actually got into all of this, you know, antitrust work was through reading the legislative history and the debates of the early nineteen hundreds when, you know, policymakers were trying to tackle the monopolies of the first Gilded Age. Right. And what I saw there was just the entire way of talking about corporate power and of talking about economic power was so different from the more technocratic way that we'd been talking about economic power at least post, you know, financial crisis, 2010, 2011.
And I think more generally, you know, our history is so rich and there have just been so many moments of crisis, so many moments of really delivering massive progress that I think studying history has been, for me, really important to just expand my imagination and conception of what we can do and what is possible beyond the kind of narrow confines of the current debate in any given moment.
And do you feel hopeful when you come out after serving in Congress? You come out thinking, wow, there are some very bright people. When the chips are down, they come together, or do you come out feeling more discouraged about the state of our elected officials in our government?
And I think there's no doubt that, again, we were in a very trying period. And so I think, you know, the perception of what seems possible can be quite dimmed by the fact that, yeah, we're talking about, you know, whether members are kind of aiding a mob or trying to dig down the capital.
But I think to step back and look at even just focusing narrowly on the question of big tax power, the speed with which that debate has evolved over the last few years is really remarkable. Right? I mean, at the tail end of the Obama administration, these companies were so respected and so wanted that the you know, one of the top things for Obama alums was to go work for them. Right. I mean, I think that just the public perception and the dynamic around these issues has changed so much.
And I do think Congress is kind of keeping up with that and helping drive it forward. So I think our institutions are remarkably resilient. They've been in the past. And I'm hopeful that if we get right, these core questions around market power, around business model, around how to ensure that the kind of structure of our public sphere is not at the whims of what Mark Zuckerberg wakes up in the morning wanting to do, I think that will help put us on the path to kind of recovery and resilience.
Again, Lina Khan is an associate professor of law at Columbia Law School, where she teaches and writes about antitrust law at the antimonopoly tradition and law and the political economy. She joins us from her home in Dallas. Professor, can't stay.
Well, thank you. You too. We'll be right back. Welcome back. It's time for Office Hours, a part of the show where we answer your questions about the business world, big tech, higher education and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officers at Section four dotcom question one Gerri. And from West Palm Beach.
Hey, everybody. Gee, this is Jerry from West Palm Beach, Florida. During your 20 21 predictions, I was expecting you to say that Amazon would seek to acquire a genetic data company like 23 and me. But you didn't say that. So what am I missing here?
Thanks, Jerry. And from West Palm Beach, about 20 minutes north of where I live in Delray Beach, PBI Palm Beach. Interesting. First off, West Palm Beach, best airport, best commercial airport in the nation. It used to be Burbank, Bob Hope, but it's a little rundown. I can be dropped off in a at PBI and at the gate in seven minutes. Siete minutos for the dog to get to his form of transportation. It's a fantastic airport.
Anyways, you might be right. I don't understand the direct to consumer genetic testing market. The global market is projected to reach six and 1/2 billion by 2028, according to market intelligence firm Beiste Research and the MIT Review from January 2020 entitled Is the Consumer Genetics Fad Over? They claim that in twenty eighteen, the total number of people who have ever bought the test doubled, bringing the databases of 23 and ME ancestry and several smaller companies to a total of over twenty six million people.
MIT's calculations suggests that during 2019, the largest companies sold only four to six million tests, meaning the databases would have grown by just 20 percent. That would have been the slowest growth rate for the DNA test industry ever.
So I'm not entirely sure what the value proposition is. I guess being able to understand more about yourself, it's never really appealed to me, so I never really looked into it. I think the reason, though, that Amazon is not likely acquirer, big tech isn't likely acquirer. I think that they probably look at this and think, OK, I make business sense. They could probably add scale. They have consumer relationships. I think they're worried about the heckling from the cheap seats, that people are merely going to freak out and say, well, what happens when Amazon knows whether I'm about to get cancer or there's just a level of mistrust of these platforms about the amount of consumer data that they're gathering on us.
And I think that they probably correctly assume that the amount of shit and articles around. OK, great. Now Facebook knows if I have a cancer gene, it's just not just not information that people probably want these platforms dealing with. And I think they probably think that the business isn't big enough to warrant just the amount of brain damage and second guessing they would get. But Geryon from West Palm Beach, it's a good question and not something I have a good answer for.
Maybe, maybe we'll see. But I think the optics here would be pretty, pretty ugly. Thank you for the question.
Question number two faced court decision to hear from London. Rondos increase a company's valuation. Am I correctly assuming that the increasing value is only applying if A you run a public company or B, you plan to sell your company? Consider my case. I don't plan to sell my company. No, I take it public besides a bed to sleep at night. Now that the revenue is more predictable, thanks to monogamous relationship with my customers, is there anything else of founders getting in exchange for hitting revenue which would make the Rondeau compelling?
Believe I'm missing something. Thanks and love your content hayseeds.
Thanks for the thoughtful question and that's a great question, because in addition to just the valuation on the company, why go to Rundell?
And there's a lot of reasons the markets are if you think about the markets as an organism that absorb millions of pieces of information and then spit back an emotional reaction in the form of a valuation, a lot of people would say that the market is the best arbiter, that it takes into account everything about this company and says, all right, this is a better business model. And the reason why, the reason why it's valuing recurring revenue sasy business model companies that a multiple of revenue versus multiple EBITA is it is a better way to operate your business when you're in the business of being a transactional business, you're so focused on getting the next day's revenue that you spend more money on sales and you're not willing to make long term investments.
And you also, as you said, can't predict your revenues. So it's much more difficult to plan hiring, much more difficult to plan investments based on the cadence of that investment. And also, you're not in the business constantly putting on a red dress and blow drying your hair and saying, you know, every day, look at me, come back into my store, look at me, sign up for our consulting services, look at me, spend more on media, and you end up spending less time on sales and more time on the actual product, less time on marketing and more time on innovation.
And also being able to more consistently plan your. Capital allocation, auto sales are down, we'll call the ad agency and run promotions. Well, OK, get more people, put everything on sale. It's all right. We want to enter into this long term relationship and we want there to be sustainable value. We want to be adobe. We want to build a package that is so great that for 25 bucks a month they get a suite of software and great customer service as opposed to coming out with a Big Bang product and a huge marketing team and a bunch of money on sales and a big event and push as much of that shit as possible through channels and then start working on the next one.
It's a day by day focus on the customer and the product that is supported by more consistent, thoughtful investment. It's just a better way to build a business. Why? Why? It's similar to Buyology. Think about how taxing it is to date. Households that build wealth are typically monogamous in a monogamous relationship. Single being single is hard. It's hard to build wealth when you're single. Why? Because you spend money on stupid shit like clothes and cologne and plastic surgery and going out and getting fucked up.
And by the way, the expense of going out and getting drunk, such a you have have the confidence to go up and talk to that strange guy or gal is super expensive. And the fact that the next day you are a chocolate mess and you can't be as productive at work. So so the marketplace also rewards companies that enter into a monogamous relationship. Why? Because they can focus on the value add of the relationship. They can focus on partnering with their customers to build a better product.
They can say to their customers, all right, you're in for a year. How do I make this product better for the next 364 days? How do we make this relationship better as opposed to, hey, don't go for the bigger, better deal tomorrow night. Love me. Check out how hot I am today. That's no way to live your life. It's a great way to live your life in your 20s. It's a real upside in your 20s.
Some real, you know, very much dating in New York is very much what I find an empty and empty experience. But as far as empty experiences go, it's pretty fucking good. Anyway, from London. That's right. The valuation is higher, but it's for a reason. You can focus long term on the relationship, focus more on the product, focus more on innovation as opposed to sales and promotion.
London, London calling the dog wants to move to London. Follow twenty twenty two. I'm going to move there. If my kid can get a shit together and score well in these tests, we're going to go there. He wants to go to boarding school. I think he's a little drunk on Harry Potter. Again, not really relevant to this conversation, but I love London. It's by far, by far. Hands down, hands down the number two city in the world.
Guess which one is number one?
Spread the new anyways. Love London. Thank you for the question. Algebra of happiness, I give the same toast at every wedding first, first, always express affection and sexual desire. It states your relationship is singular. I think we all want to be wanted. And I think every time you feel that passion, every time you feel affection for your spouse, your lover, your girlfriend, your boyfriend, whatever, you should express it.
I think it's healthy and wonderful to to never let your wife or your girlfriend be hungry or cold. Ever, ever. Two thirds of the really terrible fights you're going to have, somebody hasn't eaten or somebody is cold. So I always carry a blanket and protein bars. You're welcome. And finally, and this is the most important thing, don't keep score. Decide in your relationships what kind of friend you want to be, what kind of son you want to be, what kind of husband, what kind of wife you want to be and pursue that and put the scorecard away.
Unfortunately, keeping score got in the way of a lot of my relationships, especially with my dad. My dad, I don't think was a wonderful father. So I always thought, well, I'm not going to be a wonderful son. And then I realized at a certain age, will I want to be a wonderful son because I enjoy his company. And I also looked at his life and how he was raised. He was abused, grew up in Depression era Scotland, and he was much better dad to me than his father was to him.
And that's enough for me to decide that I wanted to be a wonderful son and not keep score, but just be the man, be the brother, be the the husband, the friend that you want to be. I'm trying to keep score out and about now. What does that mean? I think people are really suffering right now. And for my whole life, I have always kept score in that, in that if I was in a parking lot and someone backed up and then haunted me and flipped me off, I was willing to get out of my car and point out how ridiculous that was.
If somebody at a ticket counter at Delta Airlines was rude or not attentive and didn't treat me with the respect I deserve, given how much I flew and how much money I spent, I reminded them early and often about what an important customer I was. And what you have to realize is that it's not about you and it's not necessarily the the world isn't going to come to an end. We are not going to die in a supernova explosion if occasionally you go through your day and you come out on the negative side of the ledger, and that is people are upset, people give you shed people honkey, you people flip you off.
You don't get the customer service that you as a master of the universe deserve. Because you know what? Other people have really bad days, too. And so I'm trying to not only keep not keep score Mekki relationships, but occasionally just say there by the grace of God, go I I'm trying, especially with my kids in the car, to say, wow, that guy must be having a bad day. Or when someone melts down in front of me at the checkout line at kvas, I ask her, I say, is there anything I can do to help as opposed to getting in her face as I used to do as a younger man and remind her what a fucking idiot she's being recognized to have some grace.
The people are suffering. Maybe who knows? Who knows what they're struggling with? Maybe they're struggling with mental illness. Maybe they've lost someone. Maybe they've been fired. It's OK to rack up some losses. And the score card with people you've never met with strangers, show some grace, show some dignity. Think of it as you're not losing. You're going home and you're demonstrating grace. You're demonstrating dignity. What would Jesus Christ have done? I don't believe in Jesus or I believe Jesus was a man, but I don't buy into his lineage.
But I constantly reminding myself, what would Jesus have done in that line at CBS? First, I'm not sure I would have been in a CBS, but what would he have done? Because I have been what's the term hero, such a warrior of the scorecard? That's kind of a polite way of saying I have been a real asshole. And you know what? That's just no way to live your life. We all need to demonstrate more grace.
Our producers are Caroline Chagrinned and Drew Burrow's, if you like what you heard, please follow, download and subscribe. Thanks for listening.
We'll catch you next week with another episode of the Prop G Show from Section four and the Westwood One podcast network.
I'll have some Mentos with my cops or, oh, my God, it's Jesus Christ, J.C., what are you doing here at the CVS?