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The Rise of Shareholder Primacy w/ Sean Delehanty | American Prestige · The Nation Podcasts

0:22
[SPEAKER_01]: Hello, Prestige heads and welcome to American Prestige.
0:24
[SPEAKER_01]: I'm Danny Bestner here as always with my friend in Comrade Derek Davison, and we're very excited to welcome to the podcast today.
0:30
[SPEAKER_01]: Sean Delohante, Sean is an independent historian and author of the recently released company men.
0:35
[SPEAKER_01]: The invention of shareholder value and the splintering of the American economy.
0:39
[SPEAKER_01]: So Sean, thank you very much for joining us.
0:42
[SPEAKER_02]: Absolutely.
0:43
[SPEAKER_01]: Thank you for having me and I just want to say, man, thank you so much for writing this book.
0:47
[SPEAKER_01]: I mean, this is, I think, one of the most important transformations in the history of American capitalism and it's something that people always reference and like I know Derek and I would both personally die for shareholder value, but I think this is the exact type of work that that really does need need to be done.
1:01
[SPEAKER_00]: So I mean, I would prefer that somebody else died from my shareholder.
1:05
[SPEAKER_00]: Quite frankly.
1:06
[SPEAKER_00]: No, dude.
1:07
[SPEAKER_01]: I would share.
1:07
[SPEAKER_01]: I will die on the shores of Greenland for the shareholder value of Americans, corporate stakeholders.
1:15
[SPEAKER_01]: But that's just me, I believe in things.
1:19
[SPEAKER_01]: But Sean, I don't always ask this, but I think it is important for this one.
1:23
[SPEAKER_01]: What made you want to write about shareholder value?
1:25
[SPEAKER_01]: And it might be useful to begin the conversation with just an explicit definition of what precisely shareholder value is, because it's a term that is thrown around a lot, but what
1:37
[SPEAKER_02]: sure so the term itself shareholder value as you said it can mean lots of different things in the case of the book and especially the theorists are learning about they actually meant it pretty simply in terms of just pushing your stock price up maximizing the economic value of your company so making it the most valuable thing that an investor could put their money in as opposed to the whole other range of alternatives presented to them.
2:04
[SPEAKER_02]: In terms of my own sort of journey with it, it comes out of a lot of like me trying to tell the history of what I had learned in school.
2:16
[SPEAKER_02]: So I went to the University of Rochester, as an undergraduate.
2:19
[SPEAKER_02]: I went to the University of Rochester's Business School and got an MBA from it.
2:23
[SPEAKER_02]: And then I decided that I was going to do a history PhD at Johns Hopkins actually went into my PhD thinking I was going to do the history of foreign aid.
2:32
[SPEAKER_02]: But I took a course on sort of neoliberalism and all of that.
2:37
[SPEAKER_02]: And it had some discussions of business schools role in that story.
2:41
[SPEAKER_02]: And I realized that business schools and business theory in general was underserved.
2:47
[SPEAKER_02]: by the historical profession, and that there was a room to tell sort of the history of what I was learning from my professor, what I learned from my professors at Rochester.
2:58
[SPEAKER_02]: And from there, it was kind of off to the races.
3:00
[SPEAKER_02]: I identifying this as a critical, like, undercovered part of this story of, you know, the transformation of American capitalism in the later half of the 20th century.
3:11
[SPEAKER_01]: So I think it's actually,
3:12
[SPEAKER_01]: worth it to really go through the history here because I think our generation of historians and people, you know, who came in the last 20 or so years, were all basically writing to some to a greater or less degree about the history of neoliberalism, which is really about the history of the stagnation of its century fortism.
3:30
[SPEAKER_01]: And I think that this is a crucial thing to understand because I think a lot of the political horizon that people have today is almost a return to a sort of mid-century fortist political economy.
3:42
[SPEAKER_01]: And so understanding that stagnation and the actual problems with it and why it gave rise to neoliberalism is, I think, crucial.
3:51
[SPEAKER_01]: So why do we start with Litton?
3:53
[SPEAKER_01]: and sort of the the failure of these conglomerates.
3:55
[SPEAKER_01]: And I think it's worth getting in the little bit into the weeds or what were these problems with these conglomerates and sort of the mid-century New Deal order slash Fortist slash military canesian system that we had going.
4:07
[SPEAKER_02]: Yeah, so you mentioned written industries which I highlight in the book is kind of like emblematic of a certain conception of what the post war American corporation would be and the word that's often used to describe it is conglomerate so just trying to unravel what all of that means since these terms get thrown around a lot.
4:29
[SPEAKER_02]: And what we can look at at the end of World War II, sort of the high point of American capitalism in the middle of the 20th century, the like ideal corporation is one that is growing really fast, maximizing its growth in terms of revenue growth and market share growth.
4:48
[SPEAKER_02]: So becoming really, really big.
4:50
[SPEAKER_02]: And as a function of that bigness, there were a lot of sort of political concerns about giant corporations, what their effect would be on American democracy.
5:01
[SPEAKER_02]: And a lot of this was in preceding couple of decades going through the New Deal, what do these giant big companies mean for American democracy?
5:11
[SPEAKER_02]: And the sort of solution that New Dealers came up with was an idea of corporate social
5:18
[SPEAKER_02]: Not in the way we think about it today of like green initiatives and like corporate charity, but rather that corporations were going to play roles as like leading citizens in American society.
5:29
[SPEAKER_02]: They would ensure labor peace, they would provide steady, reliable jobs for American workers, so that workers would be happy and would be contributing to American capitalism.
5:39
[SPEAKER_02]: They would support the military, they would be active in civic life and politics.
5:45
[SPEAKER_02]: So corporate social responsibility in this sense was not necessarily like warm and feely, warm and touchy, feely, but rather they were like pillars of this new deal order that the United States was going to be building on throughout the second world war.
6:01
[SPEAKER_01]: Which is an idea going back.
6:02
[SPEAKER_01]: I mean, your business historian, it's this is the classic idea of the 1920s.
6:06
[SPEAKER_01]: This is the Herbert Hoover idea that you're going to have corporate elements of American society coming together.
6:11
[SPEAKER_01]: And it gets incorporated under this like New Deal regulatory regime, and so like from a certain perspective, you could understand the problems that we have today with just like one one part of that stool of the corporatism, not in terms of corporation, but the idea that America's comprised of different corporate bodies like there is capital.
6:30
[SPEAKER_01]: There is labor, there is the church, et cetera, coming together, that one part of that equation has given up its, it's quote unquote, social responsibility, which of course raises larger questions about the long-dairy of capitalism.
6:44
[SPEAKER_01]: Is this inevitable in a capital of system which are orthogonal?
6:47
[SPEAKER_01]: But yeah, just making clear what is meant by corporatism here?
6:50
[SPEAKER_01]: Because there's corporations like a business,
6:53
[SPEAKER_01]: And then there's corporatism, which is this notion that there are different large elements of American society that need to work together to make the society function as sort of like a nationalist sense in a way.
7:05
[SPEAKER_02]: Exactly.
7:06
[SPEAKER_02]: Yeah.
7:06
[SPEAKER_02]: And in part of that bargain too, corporate executives.
7:09
[SPEAKER_02]: were expected to be like, they were expected to be good citizens and show restraint.
7:14
[SPEAKER_02]: So yes, they would be paid more than the average worker, but they weren't supposed to sort of take that to the hill and amass money like we see presently.
7:23
[SPEAKER_02]: And the story I tell is part of the reason why that changed.
7:27
[SPEAKER_02]: Now, getting back to written industries and those wave of conglomerates, post-World War II, conglomerate itself just means like,
7:36
[SPEAKER_02]: different kinds of businesses cobbled together.
7:39
[SPEAKER_02]: So conglomerates have existed for a long time.
7:41
[SPEAKER_02]: They still exist today.
7:43
[SPEAKER_02]: But in the post world war two moment, the like prototypical conglomerate company was this really high growing high tech company that was being put together by people like Robert McNamara.
7:56
[SPEAKER_02]: He himself worked at Ford, but the weirds kids that came up with him through the army and through, you know, sort of the application of statistics and control accounting into American business and American government started applying those things more broadly to businesses.
8:13
[SPEAKER_02]: and the idea was that they could basically tame capital markets, they could control finance in such a way that they could put together seemingly disparate businesses in synergistic ways.
8:26
[SPEAKER_02]: So by combining different kinds of supposedly high-tech businesses, they could create, you know, two plus two equaling five.
8:34
[SPEAKER_01]: And just to underline, just ideologically, they are progressive capital P. And I think that's really crucial because they're often criticized by the new left as conservative or rewing.
8:44
[SPEAKER_01]: And I think that is a, this is emergent from the progressive era movement.
8:48
[SPEAKER_01]: This is almost the apotheosis of this.
8:52
[SPEAKER_01]: turn of the century notion of corporate management, that only realizes itself 50 years after the progressive movement ends, but the valence is like very forward thinking Jetsons type thinking, basically.
9:04
[SPEAKER_02]: Absolutely, yeah, and like they would, while they were all, well, they're all committed capitalists, like they would not necessarily consider themselves free marketers, or at least not in the way that an economist would, because they're thinking that they're smarter and better than the market.
9:18
[SPEAKER_02]: So they have supplanted the market, they are the market now.
9:22
[SPEAKER_02]: So written industries is, you know, it emerges out of text Thornton who was dolled with his kid, he was their sort of mentor.
9:32
[SPEAKER_02]: And a merger with his business acumen and the emergence of Silicon Valley.
9:38
[SPEAKER_02]: So it starts with high tech companies in that space, but it keeps growing and growing and growing and growing to where it starts accumulating all sorts of different businesses.
9:49
[SPEAKER_02]: To the point where it's running motels, it runs a microwave company, it runs a cash register company, it runs microwave dinners,
10:01
[SPEAKER_02]: the high tech logic of things starts falling apart and you see a lot of kind of like empire building and sort of marketing speed and on what they're doing but somehow owning office chairs and microwave dinners and motels and companies and aerospace, somehow these things can all fit together and create value for everyone.
10:25
[SPEAKER_02]: They can continue to push forward growth.
10:28
[SPEAKER_02]: And for a while, as the American economy is expanding, it's working.
10:32
[SPEAKER_02]: The company is growing, growing, growing, growing, growing.
10:34
[SPEAKER_02]: Its managers are considered geniuses.
10:36
[SPEAKER_02]: They're wanted everywhere.
10:38
[SPEAKER_02]: The alumni of the company get to run other companies.
10:41
[SPEAKER_02]: Everything seems to be working really well.
10:44
[SPEAKER_02]: But eventually things stop working really well.
10:48
[SPEAKER_02]: And part of it is just sort of the irony of like,
10:55
[SPEAKER_02]: Probably the reason why it puts forward this announcement that it's going to take a loss is because there was anger at a certain executive who would left and they felt like he had done a bad job and left a mess for them.
11:05
[SPEAKER_02]: So they wanted to try and pin it all on him, but that ends up not being, you know, that gets lost in just the idea of like, oh my God, these companies can stop growing.
11:16
[SPEAKER_02]: on that, that's off a panic, the stock price starts tanking and this is right around the same time that some of these other conglomerates start falling apart too and so it's suddenly this whole model, this whole idea of like we've beaten the market turns out maybe it's not true.
11:33
[SPEAKER_01]: Okay, so you could examine the sort of what was called at the time, the stagnation of mid-century fortism from different perspectives.
11:41
[SPEAKER_01]: But from this sort of like conglomeration perspective, I want to sit on it for a second because it's so critical.
11:48
[SPEAKER_01]: What do you think actually happened?
11:50
[SPEAKER_01]: Did they just reach the limits of empire building?
11:52
[SPEAKER_01]: Were they acquiring companies that weren't actually profitable?
11:56
[SPEAKER_01]: Was this a pre-financialized era?
11:58
[SPEAKER_01]: So they could
11:59
[SPEAKER_01]: couldn't just like borrow with low interest rates like what is why why this stagnation because this is the sort of material reality that engenders neoliberalism.
12:09
[SPEAKER_01]: So I'm curious as someone who's like been in the archives of these conglomerates, what do you think causes late 60s collapse essentially of sort of the 30s to the 60s compact between American capital and everyone else?
12:25
[SPEAKER_02]: Yeah, it's the macro story, I think it has been better told and that's the arrival of Stagflation at the end of the 60s into the 70s.
12:34
[SPEAKER_02]: As competition starts heating up from the places that it really suffered during World War II, as the sort of, you know,
12:44
[SPEAKER_02]: U.S. economy starts transitioning as inflation starts picking up as bad policy decisions, you know, in the Fed and from government, you know, shoveling more money into the economy at points when maybe it shouldn't have been.
12:59
[SPEAKER_02]: All of those things, the stuff that we know about, that creates challenging macro headwinds.
13:05
[SPEAKER_02]: But within these companies themselves, looking at someone
13:10
[SPEAKER_02]: really what happens is the cheap money that they were using to fuel these, a lot of this was being fueled by stock.
13:16
[SPEAKER_02]: All of that money starts to become more expensive and then the flaws that are baked into what they are doing start to become more apparent.
13:24
[SPEAKER_02]: So like in Litton's case, it acquired a lot of kind of crappy businesses.
13:28
[SPEAKER_02]: It acquired a cash register machine company that was making outdated models.
13:32
[SPEAKER_02]: It required a photo copy company that was making bad photocopiers.
13:37
[SPEAKER_02]: It acquired office manufacturing office chair manufacturers that were making bad chairs.
13:43
[SPEAKER_02]: A lot of it was they were able to put a gloss on these companies because
13:48
[SPEAKER_02]: Things were going so well, they had cheap money, they could borrow, they were well respected, etc.
13:54
[SPEAKER_02]: But the flaws start piling up and growth is tapping itself out and now they're being competed against by people who are doing a much better job at the things that they are supposedly the experts out.
14:07
[SPEAKER_01]: And what's really interesting to me is that you've just compared Litton to like Mehta, right?
14:13
[SPEAKER_01]: Mehta lost how much money on the Metaverse and it doesn't matter.
14:17
[SPEAKER_00]: Right?
14:17
[SPEAKER_01]: Like you could see like these are two like this was a moment when a capo like a bad company could be out-competed.
14:24
[SPEAKER_01]: You know, and I just want to like put a pin in that because it's just so clear, but difference between a Litton and a Mehta, like the transformation in American.
14:31
[SPEAKER_01]: capitalism, so just for listeners.
14:34
[SPEAKER_01]: All right, let's turn now to the 70s and you talk about these various groups that emerge because Litton is basically an example of these one of several conglomerates that just begins to collapse and this sort of notion like you already mentioned that you're going to be able to manage capitalism in a positive corporatist direction begins to come
15:01
[SPEAKER_02]: Right.
15:01
[SPEAKER_02]: So within the 70s, you do start seeing a shift towards a certain financialization of the American corporation with the same objectives in mind.
15:11
[SPEAKER_02]: So this is when like the Boston Consulting Group and their growth matrix comes out where they split all the companies into four and they say there are, you
15:20
[SPEAKER_02]: You know, emerging companies, those are your stars, investing them, your cash cows, you know, you milk them for all that they're worth.
15:26
[SPEAKER_02]: And then there are questionable ones, you know, bet on and what you will.
15:30
[SPEAKER_02]: And then there are dogs or pets as percentage and call them that, you know, you get rid of.
15:35
[SPEAKER_02]: Basically, these are companies low growth.
15:37
[SPEAKER_02]: They're dragging down your enterprise so you sell them.
15:41
[SPEAKER_02]: So this parks a merger boom.
15:42
[SPEAKER_02]: actually, in some ways, in terms of, I think just the number of mergers and investigators that happen, it's even bigger than the one in the 80s, which is more transformative.
15:53
[SPEAKER_02]: But it's still the same growth of companies are trying to find ways to maximize, maximize their revenue, maximize their market share.
15:59
[SPEAKER_02]: But now they're starting to trade up their breakup their companies and like trade them piece by piece.
16:05
[SPEAKER_02]: So there is a shift going on here where you start to see the company less as like a durable social institution.
16:11
[SPEAKER_02]: This thing that should be protected.
16:14
[SPEAKER_02]: And now it's this thing that I can kind of scramble to chop up.
16:19
[SPEAKER_02]: And on outside of companies, you start seeing people wanting more from corporate citizens.
16:27
[SPEAKER_02]: So you see people who you have your managers who want to continue with what they
16:33
[SPEAKER_02]: mid-century corporatism, that sort of down the middle, CSR, corporate social responsibility of like, look, I want to run my company, I want it to be as big as possible, I want to be powerful, I want to be respected in my community, I'll keep up the bargain, you know, labor piece, et cetera.
16:50
[SPEAKER_02]: then on the left you have sort of the new left in these emerging public advocacy groups that want something more from corporate social responsibility.
16:59
[SPEAKER_02]: Essentially they want to inject some actual political democracy into it.
17:04
[SPEAKER_02]: So this can be people like Ralph Nader who are looking to protect consumers, but you know also new life groups are saying like hey these things have a huge outsized role in our democracy, they were deeply involved in the war effort,
17:17
[SPEAKER_02]: and there should be some more democratic oversight or involvement with them.
17:23
[SPEAKER_02]: So there's that version of corporate social responsibility.
17:26
[SPEAKER_02]: And then on the right from people like, wait, you know, at the University of Chicago, and then at the University of Rochester as well, you start hiring voices saying, you know,
17:36
[SPEAKER_02]: This is all nonsense.
17:38
[SPEAKER_02]: Like these are economic institutions.
17:41
[SPEAKER_02]: They are, you know, these vehicles for investment.
17:43
[SPEAKER_02]: Stop bothering with this corporate social responsibility stuff.
17:47
[SPEAKER_02]: It's a distraction at best.
17:48
[SPEAKER_02]: It's socialism at worse.
17:50
[SPEAKER_02]: We need to rethink what companies should be in this more free market oriented direction.
17:56
[SPEAKER_02]: And for most of the 70s, at least in the political arena and in the popular press, it's the guys on the left who have a lot more space in that debate.
18:06
[SPEAKER_02]: I bring up surveys done by the American Management Association where executives are pretty clear of what they are pretty certain like, well, if we're not going to be able to do the way we want to do it, it's probably going to go with those lefty guys and we'll have to make more, you know,
18:23
[SPEAKER_02]: accommodations with society, this will have to be more democratic in some way.
18:27
[SPEAKER_02]: So it's certainly not a foregone conclusion that this is going to end up with, you know, maximization of shareholder value and the complete rejection of corporate social responsibilities that we do end up seeing.
18:39
[SPEAKER_01]: So that obviously raises a question, why do we end up seeing that and it might be worth talking about what you refer to as the fourth merger wave and this gets like a little in the weeds.
18:50
[SPEAKER_01]: So try to explain for people who aren't familiar with mergers and acquisitions.
18:55
[SPEAKER_01]: and like precisely what is happening in the 1970s that allows this notion of shareholder value to overtake the notion of this corporatist social responsibility model that rain during the fortest moment, this sort of transition to corporatist social responsibility of the fortism to the shareholder value neoliberal revolution.
19:16
[SPEAKER_02]: Absolutely.
19:17
[SPEAKER_02]: So I'll explain the sort of economic conditions that bring about the big merger boom of the 1980s.
19:25
[SPEAKER_02]: And then we can go back and look at sort of the theoretical work that's done that ends up kind of explaining that and helping not become eligible to managers and everyone else.
19:36
[SPEAKER_02]: So on the economic side of things, the seven uses terrible for business.
19:40
[SPEAKER_02]: the stagnation, falling profits, etc.
19:44
[SPEAKER_02]: So a lot of these companies are having their stock prices weighed down by very difficult, you know, macro conditions as well as still the bad decisions that they may have made over the past several decades.
19:56
[SPEAKER_02]: So companies stock is going down down
20:02
[SPEAKER_02]: You know, federal reserve eventually at the end of the 70s under Volker shoots interest rates way up making things very difficult for everyone.
20:10
[SPEAKER_02]: So you know capital kind of retreats eventually that breaks inflation in the early 80s Reagan comes in deregulation lot of sort of
20:21
[SPEAKER_02]: foot taken off the gas on overseeing how mergers and acquisitions are being done, tax cuts, so that by a couple of years into the 80s, you have primed for a big stock market boom where all the sudden investors are able to amass a lot of capital, often pretty cheap, and they're able to start using that capital to buy businesses, to threaten, you know,
20:50
[SPEAKER_02]: acquire their businesses and buy them or in the case of our more famous corporate raiders, you know, your cryolite jins, those types basically extort managers for money.
20:59
[SPEAKER_02]: And so for a lot of these corporate raiders, they get a lot of the headlines, they get a lot of the press, what they're actually doing is basically buying up stocks, saying, I'm going to, you know, take you out, Mr. corporate manager man unless you do all of these things, the managers might try to fight them back
21:20
[SPEAKER_02]: Pumped up or they'll take what's called green mail, which is basically give me extra money and I'll leave it all up So those are the corporate writers, but underneath that all you also do have companies that are able sometimes smaller companies who are able to borrow money or take a lots of debt and buy bigger ones
21:35
[SPEAKER_02]: So during the 1980s, what starts to happen is in trench corporate managers who have never really had to worry about like having a company bought out from under them, having somebody who's smaller than them, borrow money, go to their shareholders and say, hey shareholders of Revlon cosmetics, like I can do better than the managers you have, sell your money to sell your shares to me, I'll take over and we'll all get richer for it.
22:01
[SPEAKER_02]: Well, the sun in this is actually something that can happen.
22:04
[SPEAKER_02]: And this is deeply traumatic and confusing for corporate managers, for the business press, for politicians, for labor units, for everybody.
22:13
[SPEAKER_02]: This is something that they're not really used to seeing.
22:15
[SPEAKER_02]: Mergers and acquisitions happened all the time, but they take on this hostile tenor and all the sudden because money is so cheap, especially when you get into things like junk bonds with Michael Milkin, people can kind of come out of the woodwork,
22:29
[SPEAKER_02]: you know, suddenly writing an unbelievable amount of money and threatened to buy giant companies and they'll say, you know, I can break this company up, I can deconglomerize, I can do all of these sorts of things that will make it, you know, it'll make the stock price go up.
22:42
[SPEAKER_02]: So just a question.
22:43
[SPEAKER_01]: And this is just a question about this.
22:46
[SPEAKER_01]: So like I obviously come from a more Marxist historical materialist perspective, this seems to me like I'm going to use the lay person's term,
22:57
[SPEAKER_01]: you know like I just put it in like in like really like silly terms like these companies used to like make shit and now basically to deal with the crisis of foradism you essentially financialize the economy make it money very cheap make it cheap to borrow so you're essentially moving away from almost what I would term a philosophically real economy.
23:19
[SPEAKER_01]: where it's like, like, as prop Joe put it in the wire by for a dollar cell for two, right?
23:25
[SPEAKER_01]: Which is like the theory of capitalism to some degree, right, that you will be able to use your ingenuity, but this cheap money basically pushes the entire structure onto a super-obstracted ground.
23:40
[SPEAKER_01]: That is disconnected from, like, you make bad Xerox machines, your Xerox company fails,
23:47
[SPEAKER_01]: and now everyone's calling this facsimile machine is zerox.
23:50
[SPEAKER_01]: Does that make sense in sort of like a more like meta direction that the economy is becoming something different during this moment?
24:01
[SPEAKER_02]: I think so and you know it's it's almost like to kind of blend what we're saying here like there is the real economy of like stuff happening in these businesses that exist these managers
24:16
[SPEAKER_02]: they're now operating in this financialized environment that abstracts everything out.
24:22
[SPEAKER_02]: And the way I could maybe explain that a bit is, there's a concept that gets popularized in the 80s through the 90s called value-based management or like economic value added.
24:36
[SPEAKER_02]: And this is a different way of thinking about what your company is doing.
24:39
[SPEAKER_02]: So that it tells managers you should be focused on economic profits as opposed to accounting profits.
24:46
[SPEAKER_02]: And what that means is basically you have to compare how your business is performing to your cost of capital, what investors could get for their money otherwise.
24:58
[SPEAKER_02]: So I run a lawnmower manufacturer in company to pick an example that sort of
25:07
[SPEAKER_02]: comes in real life.
25:08
[SPEAKER_02]: And my company is profitable.
25:10
[SPEAKER_02]: I am doing fine.
25:12
[SPEAKER_02]: However, because I reinvest my money in my plant or my people or because I'm trying to expand it, you know, I'm not giving as much back to my shareholders.
25:22
[SPEAKER_02]: I'm not issuing as many dividends.
25:25
[SPEAKER_02]: an economic perspective, then my company may actually be a loser because if I am an investor with a hundred dollars, you know, they could put it in my lawnmower company and they'll get two dollars in dividends or whatever else.
25:37
[SPEAKER_02]: And the stock price is doing okay, but whatever, but they could go and go to any other kind of company in the world for that same hundred bucks.
25:44
[SPEAKER_02]: And maybe they could get more dividends.
25:46
[SPEAKER_02]: They could get shared by next.
25:47
[SPEAKER_02]: The company each stock could be shooting up even higher and higher and higher.
25:50
[SPEAKER_02]: So then again, as a manager, like you can see the sort of, you can see why this was so upsetting because for some of these people, it's like, I am running a business that is profitable, that is doing fine.
26:00
[SPEAKER_02]: Not all of them work.
26:02
[SPEAKER_02]: but like I'm doing everything right and I'm still being told that I'm wrong and my shareholders who I thought would be loyal to me, maybe mistakenly, because I don't really listen to them that much anyway, I thought there would be loyal to me, they're willing to fire me.
26:16
[SPEAKER_00]: Well, I mean, it feels like the platonic ideal of the corporationships, right, from an institution that makes a product that competes in a market against other companies making similar products.
26:29
[SPEAKER_00]: The ideal is you produce the best product.
26:34
[SPEAKER_00]: sell, stable, you continue to, you know, you, you're able to sustain this entity by winning that battle, you employ people, you do all the things that a good corporation is supposed to do.
26:49
[SPEAKER_00]: And you're a repository for shareholder value, but it's not, you know, now what we've
26:59
[SPEAKER_00]: is the platonic ideal of a company is it doesn't make anything it doesn't employ anybody but somehow the stock price just keeps going up like that's the shift like now that's what we want out of a corporation essentially.
27:09
[SPEAKER_01]: And then to piggyback off Derek, this always leads me back to the only time that capitalism functioned in the United States in the way that it's sort of utopian vision was in the wake of the massive world war, too.
27:24
[SPEAKER_01]: That when you had like a mass-based war of like Americans from different regions, different ethnicities, coming mostly why he put not at all, coming together in a
27:35
[SPEAKER_01]: that you were able to for a generation have a genuine corporate as social responsibility.
27:40
[SPEAKER_01]: But the further away you get from that, basically a pocket experience of World War II, capitalism just goes off the rails.
27:47
[SPEAKER_01]: It's sort of like to augment your story.
27:50
[SPEAKER_01]: That's what it always comes back to, is that it's really World War II, and that experience that allows this to function in a social responsibility way for 30 years.
28:01
[SPEAKER_01]: I was just wondering what you thought of that.
28:04
[SPEAKER_02]: Yeah, and I would also just add to, I mean, the other side of that is that there was limited competition because everybody else got blown up in World War II.
28:12
[SPEAKER_02]: And the Japanese are the Germans lost all their factories.
28:14
[SPEAKER_02]: So the Americans didn't have to compete.
28:17
[SPEAKER_02]: So in some way, they're playing it on easy mode.
28:19
[SPEAKER_01]: Right, right.
28:20
[SPEAKER_01]: And that's the Brenner thesis about the falling rate of profit.
28:22
[SPEAKER_01]: And that once these economies become online in the 1970s, you get the shift of financialization because the profit level needs the rate of profit growth needs to be maintained.
28:32
[SPEAKER_01]: But now there's serious competition.
28:35
[SPEAKER_01]: But I just, sorry, let's go.
28:37
[SPEAKER_02]: Oh, no.
28:37
[SPEAKER_02]: I was going to say this discussion of sort of the changing ideal of the company.
28:42
[SPEAKER_02]: Actually, I think couldn't bring us back pretty well to that sort of theoretical underpinnings of all this.
28:47
[SPEAKER_01]: That was my definition.
28:48
[SPEAKER_01]: Where does that come from?
28:49
[SPEAKER_01]: Yeah, let's talk about the intellectual underpinnings of shareholder value.
28:53
[SPEAKER_02]: Absolutely.
28:54
[SPEAKER_02]: And so it comes out of financial economics, which is a sort of upstart the ranch of the economics profession that comes out of the University of Chicago in the 50s and 60s.
29:08
[SPEAKER_02]: And it comes out of a lot of statisticians, some of the same kinds of people who, you know, if they were more business inclined would have been with kids except they want to be theorists, trying to
29:20
[SPEAKER_02]: And one of their big early breakthroughs is the efficient market type offices, which essentially boils down to the stock market is right and an accurate indicator of your business's health.
29:39
[SPEAKER_02]: The other side of it is where we get things like index funds from.
29:41
[SPEAKER_02]: You can't beat the stock market, you know, trying to game the stock market and day trading is a bad idea.
29:46
[SPEAKER_02]: If you just invest in the S&B 500, you don't make money.
29:49
[SPEAKER_02]: Cool, that's one half of it.
29:51
[SPEAKER_02]: The other half of it is that that means stocks are accurate reflections of the business's future prospects.
29:57
[SPEAKER_02]: If the stock price goes up, you're doing something good.
29:59
[SPEAKER_02]: If the stock price goes down, you're doing something bad.
30:02
[SPEAKER_02]: Then from that, that first generation of people at Chicago, they come up with that.
30:06
[SPEAKER_02]: They come up with a lot of important financial theory, and a lot of the graduate students who worked on that and helped power those things, a bunch of them ended up at the University of Rochester.
30:19
[SPEAKER_02]: which at the time was a smaller institution, but it was patronized by Joseph Wilson, the CEO of Xerox, who was like Mr. mid-century corporate social responsibility, and he wanted to build a really nice, great research university in Rochester, New York, and he hired the former dean of the business school in Chicago to work on the business school there with the intention of it basically being in a apprentice program for future Xerox managers.
30:46
[SPEAKER_02]: So deep irony, then, that ends up the people who take the job or like the people who would most poo poo Joseph Wilson's legacy, but
30:57
[SPEAKER_02]: Two of those people are there's a man named Michael Johnson and a man named William Meckling and they represent kind of like the two sides of this will you Meckling is like he is very much at the arrest like he wants to do theory work He wants to stay in academia.
31:12
[SPEAKER_02]: He's kind of disdainful of people who go off to become famous work in Policy eventually he's disdainful of Michael Johnson because Johnson chases fame You can see that even in like Chicago as much as he is in meshed in politics like
31:26
[SPEAKER_02]: Milton Friedman does not work for the Reagan administration, where some of these people will work in the Reagan administration.
31:32
[SPEAKER_02]: They will work for government.
31:33
[SPEAKER_02]: They will consult with businesses.
31:35
[SPEAKER_02]: Michael Johnson is like the, if this book has a central character and there's been a lot written about him, it would kind of be him because he's at every step of the way, you know, along the path of this development.
31:45
[SPEAKER_02]: And he's, he's like a, he's kind of a slippery character to get a hold of as one of his former colleagues said he was a man of strong opinions loosely held,
31:56
[SPEAKER_02]: he was a contrarian.
31:57
[SPEAKER_02]: He was deliberately provocative.
32:01
[SPEAKER_02]: He starts off when he's in Chicago saying he's going to be at the aris just like everyone else.
32:07
[SPEAKER_02]: You know, on track, maybe when a Nobel Prize if he was less of a jerk by his own admission.
32:12
[SPEAKER_02]: But he, you know, decides he wants to become famous and by the end of his life, he's with Werner Erhard saying stuff that I can't possibly parse what they were up to.
32:23
[SPEAKER_02]: So an interesting character, but in the 70s, him and McLean, under that sort of like
32:35
[SPEAKER_02]: Brenner decide that they're going to tackle the issue of capitalism and democracy.
32:41
[SPEAKER_02]: And they are going to write a book about it.
32:43
[SPEAKER_02]: That never gets published, but sort of a law of their efforts all about trying to figure out his capitalism, compatible with democracy.
32:49
[SPEAKER_02]: Their answer is very much no.
32:51
[SPEAKER_02]: Capitalism is not compatible with democracy, because it alienates property rights.
32:57
[SPEAKER_02]: It just time and time again, you know, everything comes down to basically like freedom of contract, you know, democracy, the expansion of the franchise, always undercutpinning this is the Civil Rights Act and the Voting Rights Act in 1965.
33:12
[SPEAKER_02]: So the expansion of the franchise, the growth of American democracy has led to people making claims on private property via the government.
33:21
[SPEAKER_02]: That's in a nutshell, kind of their argument.
33:24
[SPEAKER_02]: And Jensen, as I said, is deliberately provocative.
33:26
[SPEAKER_02]: He writes on that say about how like the nuclear family is anti-capitalist because parents do nice things for their children without expecting anything in return.
33:34
[SPEAKER_02]: gives you a sense of kind of like the intellectual environment that he's operating in in the 1970s and Rochester and he's he's not within the mainstream really like he can be sort of bomb throwing.
33:47
[SPEAKER_02]: But inspired by Milton Friedman's essay in the New York Times about how the social responsibility of business is to increase their profits.
33:54
[SPEAKER_02]: Him and Mechling decide, okay, we're going to put some theoretical bones behind this.
33:58
[SPEAKER_02]: And they come up with their paper called The Theory of the Firm, which it may still be the most cited paper.
34:06
[SPEAKER_01]: It's the most famous paper in the history of economics.
34:08
[SPEAKER_01]: It is people should read it.
34:12
[SPEAKER_01]: It's wild.
34:13
[SPEAKER_01]: Yeah, it's like the argument is just like the last 50 years.
34:18
[SPEAKER_01]: Yep.
34:19
[SPEAKER_02]: And so the argument they come up with is basically they start off very simply corporations do not exist.
34:25
[SPEAKER_02]: Here's the shift in the bow ideal of corporations.
34:27
[SPEAKER_02]: They're not institutions.
34:28
[SPEAKER_02]: They're not anything.
34:29
[SPEAKER_02]: They're legal fictions that exist to provide a vehicle for contracting.
34:34
[SPEAKER_02]: Corporations are in their telling a nexus of contracts.
34:37
[SPEAKER_02]: Everyone enters into a contract to be a part of a corporation.
34:41
[SPEAKER_02]: Those contacts are constantly renegotiated.
34:43
[SPEAKER_02]: They can be torn up.
34:44
[SPEAKER_02]: They can be amended, whatever.
34:47
[SPEAKER_02]: So you contract with the guy who brings pens to the office, just as you contract with the CEO, just as you contract with the entry level guy working on the factory lines, all the same.
34:57
[SPEAKER_02]: And you can change your pens, your CEO, your worker, whatever.
35:02
[SPEAKER_02]: That's their depiction of the corporation.
35:06
[SPEAKER_02]: And they argue that the corporation's been doing badly in the 1970s.
35:10
[SPEAKER_02]: Why has it been doing badly in the 1970s?
35:12
[SPEAKER_02]: They explain it through an economic concept called agency costs.
35:16
[SPEAKER_02]: That and this is something that had been written about, you know, Berlin means right about in the 1930s, other economists have written about it.
35:23
[SPEAKER_02]: That corporations are owned by their shareholders.
35:27
[SPEAKER_02]: They're the principals.
35:28
[SPEAKER_02]: They own the company.
35:29
[SPEAKER_02]: They put the money in.
35:30
[SPEAKER_02]: They have the pieces of paper
35:35
[SPEAKER_02]: the CEO and his management team and I should say like as I'm sure we've you've picked up on from this conversation.
35:43
[SPEAKER_02]: This is a very elitist, very like blanket view of the corporation of like there are 10 people at the top usually white dudes who run it and then there's like all of their underlings and this is very much focused on those 10 dudes at the top.
35:56
[SPEAKER_01]: It's sure enough any sort of nationalist idea.
36:00
[SPEAKER_01]: that like America is a project to which Americans corporations provide Americans with jobs and benefits and reinvest in their company and reinvest in labor.
36:10
[SPEAKER_01]: It's just absolutely absolutely absent that.
36:12
[SPEAKER_01]: It's a very diseased way in my opinion of looking at society.
36:17
[SPEAKER_02]: I mean yes, in my opinion, to like if you take their vision to the farthest, it's a pretty depressing
36:22
[SPEAKER_01]: It's horrible, there's no responsibility to other people.
36:26
[SPEAKER_01]: It's the ultimate alienated labor.
36:30
[SPEAKER_01]: It's ultimate alienated everything.
36:32
[SPEAKER_02]: Exactly.
36:33
[SPEAKER_02]: And so within the corporation itself, it's owner's higher agents, the executives to run it.
36:40
[SPEAKER_02]: And the problem is, as we've all experienced throughout our lives, sometimes you hire people and they have their own incentives or their own interests.
36:47
[SPEAKER_02]: And maybe they won't do the best job for you in the world.
36:49
[SPEAKER_02]: You hire someone to mode your lawn,
36:51
[SPEAKER_02]: maybe they don't do a great job at it, you know, they take your money, but you know, they they slack whatever.
36:57
[SPEAKER_02]: So, Gents have been metling argue that the reason why stock prices have been low in the 70s is because the agents, people in charge of companies, have been pursuing their own interests.
37:06
[SPEAKER_02]: They're paying themselves too much easy money, they're buying airplanes, they're buying fancy offices, they're buying perks,
37:15
[SPEAKER_02]: they're spending their money employing people who should be like, go, they're advertising for causes that they care about, et cetera, et cetera, et cetera.
37:24
[SPEAKER_02]: And they argue that this is an economic cost that investors factor in to their investing decisions.
37:31
[SPEAKER_02]: And so it's actually born out in stock prices.
37:33
[SPEAKER_02]: and if you could solve these principal agent problems, imagine a world in which the owner is the founder is the manager, then the price would be higher.
37:43
[SPEAKER_02]: And so, the central challenge that they put to, you know, at this point they're writing to the economics profession, but management profession, et cetera, is how do we solve the principal agent problem?
37:53
[SPEAKER_02]: How do you get the managers to do only what the shareholders want to focus on that?
37:58
[SPEAKER_02]: That's their job.
37:59
[SPEAKER_02]: How do you solve this problem?
38:02
[SPEAKER_02]: And they end the paper, basically saying, well, we've brought this up and the way things are going, we think it's pretty bad and it's likely to get worse and American capitalism's probably not in good shape.
38:14
[SPEAKER_02]: And so that's really how they end it.
38:16
[SPEAKER_02]: They don't have a solution and they're pretty pessimistic in keeping with the tenure of the mid-delight 70s where everyone's kind of pessimistic.
38:25
[SPEAKER_02]: So that's the theory, and then the 1980s happens.
38:29
[SPEAKER_02]: All the sudden stockholders are buying out managers.
38:33
[SPEAKER_02]: They're doing it because it's cheap and because they're able to do so, all the macro reasons we've talked about, but this is incredibly controversial.
38:40
[SPEAKER_02]: It's one of the few situations you can think of.
38:42
[SPEAKER_02]: We're like the National Association of Manufacturers and the AFLCIO are both testifying in front of Congress saying, please, please protect us.
38:50
[SPEAKER_02]: We're in this together.
38:52
[SPEAKER_01]: And right, the corporateist bodies are essentially coming together and being like this this concordot that we've had since the new deal is being destroyed with this.
39:02
[SPEAKER_02]: Yes, yes, and it makes a lot of noise about trying to regulate these things trying to regulate mergers trying to regulate takeover is trying to put a stop to all of this the Reagan administration is kind of like ambivalent at first and I talk about within the SEC.
39:17
[SPEAKER_02]: you have a chairman of the SEC who's from like an older generation of like respectability politics and like respectable business.
39:24
[SPEAKER_02]: And then you have people like Greg Gerald below him who was a Rochester who was a Chicago product.
39:28
[SPEAKER_02]: He ends up working at Rochester who's his chief economist who's very much like, no, no, let's go on this.
39:33
[SPEAKER_02]: And so there are like ideologues within the Reagan administration who are trying to come up the works of the regulatory process or always pushing their own superiors to let this go.
39:45
[SPEAKER_01]: I have a question, this is more of a social historical, or a prosapag or f**k call question.
39:51
[SPEAKER_01]: Why do you think these people had such a jondist view of life?
39:55
[SPEAKER_01]: Because it's, it's a really like,
39:58
[SPEAKER_01]: Like I already said like disease, but it's like very anti social almost like that that's more of like a social historical question, but you've read all their stuff, so I'm sure you have thoughts like what leads to this anti social ethos amongst the people who create the shareholder value revolution.
40:14
[SPEAKER_02]: I mean, I think it's in some ways it's like a mirror image of.
40:21
[SPEAKER_02]: Well there's a couple reasons.
40:22
[SPEAKER_02]: I mean, the movement that they're part of, you can think of is almost like a mere image of the new left of the 1960s and 1970s of like they're very unhappy with American society as it exists in the 50s and 60s.
40:35
[SPEAKER_02]: They see the flaws in it too.
40:38
[SPEAKER_02]: But their definition of the flaws, obviously there's a different intonation and their solution is much different.
40:44
[SPEAKER_02]: But they do see some of these same flaws of, you know, for them, it's stifling and it's restricting individual enterprise and it's sort of homogeneous.
40:58
[SPEAKER_02]: They see themselves as outsiders.
40:59
[SPEAKER_02]: That's why they went to the University of Chicago.
41:01
[SPEAKER_02]: Like, they didn't like the Harvard et cetera types.
41:04
[SPEAKER_02]: They don't really like big business.
41:06
[SPEAKER_02]: and they're gravitating against that.
41:09
[SPEAKER_02]: You know, even with Johnson, too, he said he was a natural contrarian.
41:13
[SPEAKER_02]: I think that there's something to that.
41:15
[SPEAKER_02]: Like, he was a Midwesterner.
41:17
[SPEAKER_02]: His father was in a union.
41:18
[SPEAKER_02]: You know, his family was deeper religious.
41:23
[SPEAKER_02]: He dumps religion.
41:24
[SPEAKER_02]: He nettles his father constantly about being in a union.
41:27
[SPEAKER_02]: He actually worked in, I think he actually worked in union labor to start to pay for some of his school as a printmaker, as an apprenticeship.
41:35
[SPEAKER_02]: But, you know, just the sense of like shaping it at the established order, which I think a lot of people were chafing at.
41:42
[SPEAKER_02]: So, because there were real problems with that order, I think it produces, you know.
41:47
[SPEAKER_02]: interesting and disparate responses to it.
41:49
[SPEAKER_02]: And this is one of those.
41:52
[SPEAKER_02]: Yeah, that's that's that's kind of my take on it.
41:55
[SPEAKER_02]: And I'll say that like the theorists themselves are definitely different than the people who like want to get more in the muck with this.
42:04
[SPEAKER_02]: Like I said, like met mechling.
42:06
[SPEAKER_02]: He believes these same things.
42:08
[SPEAKER_02]: He actually probably believe them stronger than Johnson.
42:09
[SPEAKER_02]: But like he gets mad at Johnson because Johnson eventually takes a job at Harvard Business School, which he thinks is like a fake school for getting famous.
42:16
[SPEAKER_02]: And he just, he stays at Rochester and is pretty well-liked, you know, among the people who remember that time.
42:23
[SPEAKER_02]: So there is definitely like a person out of the difference.
42:33
[SPEAKER_01]: Let's turn back to Reagan, and then let's talk about leverage by outs.
42:36
[SPEAKER_01]: So what happens under Reagan that allows this sort of shareholder revolution to really be institutionalized?
42:44
[SPEAKER_01]: We already mentioned like the big macro things, but what's the story more on the ground, the level of the conglomerate, the level of the theorist?
42:51
[SPEAKER_02]: So on the ground, what happens is key figures within the Reagan administration start citing Jensen's work.
42:58
[SPEAKER_02]: They start citing legal theorists who are picking up on this.
43:01
[SPEAKER_02]: So it starts like entering into government documents, just as corporate raiders start citing it.
43:05
[SPEAKER_02]: So like it's suddenly becoming an explanation for what's going on.
43:09
[SPEAKER_02]: You could offer what I think is the real explanation that we had like the macro version of the things, but that's hard to see in the moment and it's kind of boring and confusing.
43:17
[SPEAKER_02]: Whereas like this is like it's a populist uprising against entrenched fat cat managers who have been taking advantage of investors.
43:25
[SPEAKER_02]: And that starts to become something that the Reagan administration starts putting out there.
43:30
[SPEAKER_02]: The other thing the Reagan administration starts doing is basically stopping governmental action, governmental regulation.
43:38
[SPEAKER_02]: They put pressure on Congress on various points, you know, let Congress know that like you can, you're not going to be able to pass.
43:45
[SPEAKER_02]: anything that stopped these takeovers.
43:46
[SPEAKER_02]: You're not going to be able to regulate these things.
43:50
[SPEAKER_02]: We're going to let this play out.
43:52
[SPEAKER_02]: Similarly, at Reagan's SEC, you know, they're the ones who have enforcement authority over all of this, but despite a lot of having and hiring, they don't take action.
44:03
[SPEAKER_02]: And so what Reagan does is he creates the macro space, but he also
44:12
[SPEAKER_02]: And that can be just as important as passing laws or putting something forward, stopping things from happening.
44:19
[SPEAKER_01]: And so I know this from the media perspective, a lot of this is also like DOJ and FCC and SEC rules.
44:26
[SPEAKER_01]: Right, a lot of it is not legislation.
44:28
[SPEAKER_01]: So at points, Reagan could be like, don't enforce that rule.
44:31
[SPEAKER_01]: And you stop enforcing that rule.
44:33
[SPEAKER_01]: Because a lot of the things that my understanding is that what Lena Khan is trying to do is basically encourage the enforcement of rules that are on the books because it's really in the 80s and under Clinton in the 90s that these regulatory agencies are essentially told
44:48
[SPEAKER_01]: rules, which are much weaker than actual legislation.
44:50
[SPEAKER_01]: Is that correct?
44:52
[SPEAKER_02]: Yeah.
44:52
[SPEAKER_02]: And there's a shift in focus to give them whatever do you want to give them of like they shift insider trading and like price fixing.
44:59
[SPEAKER_02]: Essentially the stuff that could ruin the free market.
45:02
[SPEAKER_02]: They take a free market approach to rule enforcement.
45:04
[SPEAKER_01]: Right, consumer focus consumer centered approach.
45:07
[SPEAKER_02]: Exactly.
45:07
[SPEAKER_02]: Yeah.
45:08
[SPEAKER_02]: So you may not even be ignoring as much as just like we only have so many people and we got to we got to focus on something so we're going to focus on this.
45:14
[SPEAKER_01]: got it.
45:15
[SPEAKER_01]: So let's talk about leveraged buyouts.
45:18
[SPEAKER_01]: And again, another term, another complicated term, that is thrown around a lot.
45:23
[SPEAKER_01]: Maybe you could explain very simply what it is, but how does the leveraged buyout fit into the story of the shareholder revolution?
45:29
[SPEAKER_02]: Yep, so the leverage buyout is one like solution to the principal agent problem.
45:34
[SPEAKER_02]: And it's Jensen's preferred solution to the principal agent problem.
45:38
[SPEAKER_02]: Leverage buyout in its simplest term is essentially you borrow a lot of money at, usually high interest rates to purchase a company, purchase all of its shares, so that you've removed it from the stock market.
45:53
[SPEAKER_02]: You've bought the company now, you own it,
45:56
[SPEAKER_02]: you're going to set up new management for that company and the thing that you have to do now is you have huge debt bills to pay so you bought the company you've removed it from the stock market you run it now the banks are going to come and they say okay pay us all the money that you know you borrowed from us to buy this company how do you do that well in theory you as the
46:18
[SPEAKER_02]: smart guy who bought this can find efficiencies.
46:21
[SPEAKER_02]: You will find a way to run this company more efficiently pump cash out of it, give it to those banks and you'll leave it better than before and you'll sell it off, you know, in a few years on an IPO and everybody will make money and be happy.
46:35
[SPEAKER_02]: In reality, the other thing you can do is just strip the company, just cut everything to the bone, cut, cut, cut, cut, cut, money, money, money, money, money, get the cash, get the cash, pay off the debt,
46:45
[SPEAKER_01]: leave.
46:47
[SPEAKER_02]: The other thing, you know, if leverage buyouts are structured like venture capital, so you're taking fees for pulling off a deal, you're taking fees for managing the people's money that you have.
46:58
[SPEAKER_02]: I should mention it's not your money.
47:00
[SPEAKER_02]: You borrow, you convince people to give you money.
47:03
[SPEAKER_02]: They invest in your fund.
47:04
[SPEAKER_01]: And you get data.
47:05
[SPEAKER_01]: You go for that.
47:07
[SPEAKER_02]: and then you take fees on profits made, you know, all of these sorts of things.
47:11
[SPEAKER_02]: So it's a great, and you're being taxed at capital gains or it's as opposed to interest and come rates.
47:15
[SPEAKER_02]: Great business if you can get it.
47:17
[SPEAKER_02]: If you can convince rich people to give you lots of money and buy companies, great business.
47:21
[SPEAKER_02]: Not so great always for the companies that get purchased.
47:25
[SPEAKER_01]: So or the workers crucially, right?
47:27
[SPEAKER_01]: This is a great, the greatest of everyone getting fired.
47:30
[SPEAKER_01]: Yeah.
47:31
[SPEAKER_02]: Yes.
47:31
[SPEAKER_02]: And this is,
47:32
[SPEAKER_02]: private equity, you know, it takes off in the 80s, but obviously this is something that we deal with now even more than I think they could have imagined.
47:40
[SPEAKER_02]: So in the 80s, you know, KKR, COVID-19 Crabbit Trobberts is the most famous private equity company.
47:46
[SPEAKER_02]: They're still out there, they're huge, very secret is, and it started, you know, as sort of this mixture between respectability, old school business and new, you know,
47:56
[SPEAKER_02]: knife you and the gut kind of business.
47:58
[SPEAKER_02]: They partner with Michael Milkin to sell to buy lots of companies, you know, they sell junk bonds, which is basically just high interest rate debt.
48:07
[SPEAKER_02]: So a lot to that, take out lots of debt.
48:09
[SPEAKER_02]: Use that to get money.
48:10
[SPEAKER_02]: They buy companies.
48:11
[SPEAKER_02]: Those companies, you know, can then get stripped or or if made efficient and you can make a ton of money with that.
48:18
[SPEAKER_02]: The other thing that the private equity guys do is thanks to quirks in the tax code, you may not end up having to pay very much money or you can even get money from the government in terms of doing these sorts of things.
48:28
[SPEAKER_02]: So that's private equity kind of in like a very simple nutshell.
48:32
[SPEAKER_01]: And just maybe just be explicit about how that fits into the shareholder revolution.
48:37
[SPEAKER_02]: Yeah.
48:37
[SPEAKER_02]: So the reason why this fits into the shareholder revolution is because as I mentioned earlier, it eliminates the principal agent problem.
48:45
[SPEAKER_02]: When you're a private equity guy and you acquire a company, you become the principal and the agent.
48:50
[SPEAKER_02]: So no longer is this company external shareholders put money into a pot that they hire a CEO to manage.
48:57
[SPEAKER_02]: Instead, I reach into my fund, take my money that I control.
49:04
[SPEAKER_02]: By the company, the company becomes mine, I run the company.
49:08
[SPEAKER_02]: Therefore, the incentives of the owner, me and the manager, me are perfectly aligned.
49:14
[SPEAKER_02]: I will manage the company according only to economic interests because it is my incentive to do so.
49:22
[SPEAKER_01]: One imagines that this should be illegal.
49:23
[SPEAKER_01]: It's so obvious, it's really when historians, I mean, you're already doing it now, but it's so obviously conflict of interest.
49:33
[SPEAKER_01]: It is wild that this is loud.
49:35
[SPEAKER_01]: It is absolutely wild.
49:37
[SPEAKER_02]: And so in the 80s, there are still a lot of those conglomerate hanging around who are looking to get rid of parts of their company that aren't very useful.
49:53
[SPEAKER_02]: I'm running a company, there's this, I run a technology company, but I own a microwave dinners company.
50:00
[SPEAKER_02]: And there's no reason for me to really own that.
50:02
[SPEAKER_02]: I could run a leverage by out on it, essentially shove it all it off, make it its own thing.
50:07
[SPEAKER_02]: And maybe if that microwave dinner company is actually a good company and I pick good partners, they'll run it.
50:12
[SPEAKER_02]: And maybe people won't get fired or many people who get fired and it can go off and do it today.
50:17
[SPEAKER_02]: So that's one flavor.
50:18
[SPEAKER_02]: But then there are like hostile leveraged bios and just people who are like, I want that company.
50:23
[SPEAKER_02]: It's making a lot of money.
50:25
[SPEAKER_02]: It's not growing very much.
50:26
[SPEAKER_02]: I can get in there.
50:28
[SPEAKER_02]: Yeah, now, loot it and take off.
50:31
[SPEAKER_02]: And that's the ones that are the most controversial.
50:34
[SPEAKER_02]: But these flavors both exist.
50:36
[SPEAKER_02]: And people like Michael Johnson says, this is the future of capitalism.
50:41
[SPEAKER_02]: He declares, the public corporation is done.
50:43
[SPEAKER_02]: no more.
50:44
[SPEAKER_02]: No more companies.
50:45
[SPEAKER_02]: Instead, it's just going to be leveraged by us.
50:47
[SPEAKER_02]: Everything will be leveraged by someone who will buy a, they'll manage it and then they'll just spin it off, you know, go on to the next thing.
50:55
[SPEAKER_02]: And he believes this is the future of capitalism.
50:57
[SPEAKER_02]: And he thinks,
50:58
[SPEAKER_02]: And some of the other ideologues think that people like KKR, this is what they want, that they are these ideological actors like them, these fellow travelers, who are going to destroy the corporation, no more enduring public institutions, etc.
51:12
[SPEAKER_02]: What they discover is, eventually even KKR goes public.
51:16
[SPEAKER_02]: They become a public company.
51:18
[SPEAKER_02]: The leverage by out guys don't care about solving the principal
51:26
[SPEAKER_02]: without as much risk to them as you'd like to think.
51:28
[SPEAKER_02]: And there's even a point where, you know, they're they're talking to, I think they're talking to a parallel Schwab media figure who like had really bought into this and he's talking about how you're creating efficiencies.
51:39
[SPEAKER_02]: You're you're breaking down the public corporation.
51:41
[SPEAKER_02]: You're changing capitalism.
51:43
[SPEAKER_02]: And I can't remember which partner KKR says this, but the Chuck, that's not why we do it.
51:48
[SPEAKER_02]: They do it to make money.
51:49
[SPEAKER_02]: And so that's this like really crushing moment for Jensen of realizing like, oh, private equity is just another way to make money.
51:56
[SPEAKER_02]: It's just another way for managers to actually maximize their own individual value and suppose to re-doing capitalism.
52:06
[SPEAKER_01]: What a shock.
52:08
[SPEAKER_01]: It's so like, the naivete is, I mean, absolutely.
52:09
[SPEAKER_01]: That's what we do.
52:09
[SPEAKER_01]: That's what we do.
52:10
[SPEAKER_01]: That's what we do.
52:11
[SPEAKER_01]: That's what we do.
52:11
[SPEAKER_01]: That's what we do.
52:12
[SPEAKER_01]: That's what we do.
52:13
[SPEAKER_01]: That's what we do.
52:13
[SPEAKER_01]: That's what we do.
52:14
[SPEAKER_01]: That's what we do.
52:14
[SPEAKER_01]: That's what we do.
52:15
[SPEAKER_01]: That's what we do.
52:17
[SPEAKER_01]: That's what we do.
52:17
[SPEAKER_01]: That's what we do.
52:18
[SPEAKER_01]: That's what we do.
52:18
[SPEAKER_01]: That's what we do.
52:19
[SPEAKER_01]: That's what we do.
52:19
[SPEAKER_01]: That's what we do.
52:20
[SPEAKER_01]: That's what we do.
52:21
[SPEAKER_01]: That's what we do.
52:22
[SPEAKER_01]: That's what we do.
52:22
[SPEAKER_01]: That's what we do.
52:23
[SPEAKER_01]: That's what we do.
52:23
[SPEAKER_01]: That's what we do.
52:24
[SPEAKER_01]: That's what we do.
52:24
[SPEAKER_01]: And this is also when the shift in democratic party like totally away from the New Deal coalition, which was premise on labor to a sort of new coalition of professional managerial class people that that currently defines it.
52:38
[SPEAKER_01]: So what happens in the 90s to basically solidify this shareholder
52:45
[SPEAKER_02]: What happens is the tension focuses away from hostile takeovers, which kind of get curtailed at the end of the 80s, and it shifts to executive pay.
52:54
[SPEAKER_02]: And executive pay is the lynch pin that solidifies not only the bipartisan nature of this, but it also solidifies an alliance between investors and managers.
53:05
[SPEAKER_02]: Throughout the 80s, investors and managers were not happy with each other, because it was a lot of investors buying out managers, managers trying to figure out what the heck is going on.
53:14
[SPEAKER_02]: The 90s gives managers a reason to be into this, and that is executive compensation, and that's specifically as stock options.
53:23
[SPEAKER_02]: So at the beginning of the decade, the backlash to hostile takeover seems like it's gaining steam.
53:31
[SPEAKER_02]: in famously George H. W. Bush in that trip to Japan where he pukes on the Japanese prime minister.
53:36
[SPEAKER_02]: That was a bad trip for a lot of reasons because the other thing he did was he brought a bunch of super-highly paid American auto executives to go to Japan and half bags half bully the Japanese to stop sending so many nice cars to America so that the American auto companies could do better.
53:53
[SPEAKER_02]: horrible political optics because he sent a bunch of highly paid not very good at their job guys over to yell at the Japanese guys who weren't as highly paid and were better at their jobs.
54:02
[SPEAKER_02]: So horrible optics and it injects the issue of executive pay into the 1992 presidential election.
54:09
[SPEAKER_02]: Bill Clinton is doing some version of like new Democrat, bit of populism, bit of business, friendlyness, and there becomes like a three part attempt to regulate executive pay.
54:24
[SPEAKER_02]: First part is disclose it, which is a pretty easy fight.
54:27
[SPEAKER_02]: Like it was before that early 90s, you couldn't really figure out how much money executives were making.
54:33
[SPEAKER_02]: They could do all sorts of accounting and like difficult things to try and hide that.
54:37
[SPEAKER_02]: There's a little bit of a fight, but like disclosure is pretty central to like how America regulates things.
54:44
[SPEAKER_02]: So pay gets disclosed, not that big of a fight.
54:48
[SPEAKER_02]: Second part of the fight becomes a plank in Clinton's economic plan, which is the idea of taxing excessive executive compensation.
54:57
[SPEAKER_02]: And at first it's going to be anything over a million dollars is going to be taxed.
55:02
[SPEAKER_02]: and Clinton wins the election, saying that anything over a million bucks is going to be taxed.
55:08
[SPEAKER_02]: The business community has lots of feelings about this, and said it Clinton's economic advisors, pretty much everybody bit labor, secretary labor, you know, or like, hey, don't do it this way.
55:18
[SPEAKER_02]: Yeah, this is not a Larry summer is a Robert Rubin or Lloyd Benson approved idea, and so Clinton as a new Democrat, you know, his thing is like, okay.
55:30
[SPEAKER_02]: Everyone agrees that just paying, you know, a flat salary of $100 million bucks to make that good ever, whatever, that's no good.
55:38
[SPEAKER_02]: Because you could suck at your job and still get your salary.
55:41
[SPEAKER_02]: So it should be performance based.
55:43
[SPEAKER_02]: And this is where everything comes in.
55:46
[SPEAKER_02]: This is where that efficient market type of thesis, all that finance talk comes in.
55:50
[SPEAKER_02]: Because what is the efficient market's tell us?
55:52
[SPEAKER_02]: A efficient market type of thesis tell us.
55:54
[SPEAKER_02]: How do you judge a company's performance?
55:56
[SPEAKER_02]: Stock price.
55:57
[SPEAKER_02]: So, stock price goes up, company must be doing something right.
56:01
[SPEAKER_02]: Start price goes down, company must be doing something wrong.
56:03
[SPEAKER_02]: Well, how can we tie executive pay to performance?
56:08
[SPEAKER_02]: Stock!
56:10
[SPEAKER_02]: We can pay people in stock or give them stock options.
56:15
[SPEAKER_02]: And that becomes the compromise for Clinton's tax bill.
56:18
[SPEAKER_02]: That, okay, straight salary over a million bucks.
56:22
[SPEAKER_02]: That's excessive in its tax.
56:24
[SPEAKER_02]: performance based pay over a million bucks.
56:26
[SPEAKER_02]: That's good.
56:27
[SPEAKER_02]: We want you to do that.
56:29
[SPEAKER_02]: Go for it, not taxed.
56:32
[SPEAKER_02]: It gets passed.
56:33
[SPEAKER_02]: And immediately what happens is two things.
56:35
[SPEAKER_02]: One, executive pay ratchets up to 999, 999.
56:38
[SPEAKER_02]: You know, every executive pays themselves just under the threshold.
56:44
[SPEAKER_02]: And stock options dumped on them because it's performance based pay, which will theoretically reward them for good performance and align the incentives of the stockholders and the managers make a manager a stockholder and other sudden he will want to think like a stockholder so that's how the second plank plays out.
57:06
[SPEAKER_02]: Then there's the third plank, which is changing the accounting standards for stock options, which I know sounds dry and boring, but is by far the most controversial and consequential part of all of this.
57:17
[SPEAKER_02]: So to try and explain all of this briefly, the way a stock option works is essentially just you get the right to purchase a set amount of stock for your company.
57:29
[SPEAKER_02]: at, you know, $x dollars at a given day.
57:32
[SPEAKER_02]: So if on January 1st, I have a stock option that says next year, you can buy 100 shares of stock in our company at $10.
57:41
[SPEAKER_02]: If in one year, my company stock is trading at $20, I just made a lot of money because I can buy it for cheap and then I can immediately sell it and I just made a bunch of free money.
57:52
[SPEAKER_02]: That's how these stock options work.
57:54
[SPEAKER_02]: And thankfully for me and for historians, those are the stock options that are awarded.
57:59
[SPEAKER_02]: They're just very plain, simple stock options.
58:03
[SPEAKER_02]: No matter what happens, you get to buy it at this rate if the stock goes up for any reason.
58:08
[SPEAKER_02]: Say a bull market that you have nothing to do with, you still get to make money.
58:12
[SPEAKER_02]: Thanks to lots of quirks in American accounting standards and law, those stock options do not have to be expense on a company's balance sheet.
58:21
[SPEAKER_02]: Instead, you can deduct them as a compensation expense.
58:24
[SPEAKER_02]: So on a balance sheet for legal purposes, those stock options can theoretically make your company money.
58:34
[SPEAKER_02]: because you're deducting them from your taxes as compensation expense.
58:38
[SPEAKER_01]: And you don't have to have any sort of, yeah, you know, this is why companies pay zero dollar, you know, this is why you get the Amazon paid $100 in taxes last year essentially.
58:46
[SPEAKER_01]: Exactly.
58:47
[SPEAKER_01]: Yeah, it does work, yeah.
58:48
[SPEAKER_02]: You know, it's all those things.
58:49
[SPEAKER_02]: You can deduct losses, you can deduct compensation expenses, all of those sorts of things.
58:53
[SPEAKER_02]: So in only the world of accounting, which anyone who is being honest, will admit as a fraud, is a fraud,
59:00
[SPEAKER_02]: This costs nothing and you can give your executives almost infinite money in front of it upside zero downside.
59:08
[SPEAKER_01]: So companies are all in on this, but the executives who are essentially functioning as management principles, who are essentially like even though they're not like private equity in the way they come in, it's like that's essentially what they're functioning as.
59:22
[SPEAKER_01]: Exactly.
59:22
[SPEAKER_02]: Because now it's like, okay, now you're getting them to think like an owner because now they own a bunch of the stock, you know, they're, they're, they're, they're, they're dollar pay is, they're not managers and manager owners, right.
59:33
[SPEAKER_02]: Exactly.
59:34
[SPEAKER_02]: They're dollar pay is capped.
59:36
[SPEAKER_02]: So now they got a really focus on stock.
59:38
[SPEAKER_02]: And here again, Jensen is all about this, you know, he takes the contrarian point of like managers are underpaid, but the way we pay them is wrong.
59:47
[SPEAKER_02]: We should be paying them more, but it should all be in stock.
59:50
[SPEAKER_02]: And he wants, he wants truly pay them all in stock, which would actually put some actual risk onto them.
59:59
[SPEAKER_02]: But they decide we're gonna be paid in stock options.
1:00:02
[SPEAKER_02]: So we're still gonna get our pay and we're gonna get paid in options.
1:00:05
[SPEAKER_01]: Well, it's also a moment where America is a Unipole.
1:00:08
[SPEAKER_01]: So it's another like macro historical moment where the United, it's not, it doesn't face no competition.
1:00:13
[SPEAKER_01]: But at the end of the Soviet Union, it is like in a different space than it was in the 70s when Japan and Germany are coming back online.
1:00:20
[SPEAKER_01]: It is like there's also stagnation in Japan, there's also stagnation in Germany from what I remember.
1:00:25
[SPEAKER_02]: And so it's like the perfect moment to basically link yourself to this fake stock market where you're going to get real money.
1:00:43
[SPEAKER_02]: complicated and the associated quantity with it, they decide they're going to change the accounting rules and say like, okay, you have to expense stock options.
1:00:50
[SPEAKER_02]: They cost money, like this is money, you have to expense it.
1:00:54
[SPEAKER_02]: And they go through the rule making process to try and do that.
1:00:57
[SPEAKER_02]: And they think it's going to be pretty simple.
1:00:59
[SPEAKER_02]: And it launches a enormous political controversy, a huge firestorm.
1:01:04
[SPEAKER_02]: And the locus of that firestorm is,
1:01:07
[SPEAKER_02]: the emerging monster that will eat the economy, Silicon Valley.
1:01:11
[SPEAKER_02]: Because in the 1990s, Silicon Valley is really, you know, it's a startup culture.
1:01:16
[SPEAKER_02]: People get paid in stock options.
1:01:17
[SPEAKER_02]: The whole thing runs on stock options.
1:01:20
[SPEAKER_02]: If you expense the stock options, that hurts the valuation of the companies at least in theory, and they lose their minds.
1:01:28
[SPEAKER_02]: Other executives lose their minds, too, but Silicon Valley in particular losing their minds is really important because they win over the California congressional delegation really quickly.
1:01:38
[SPEAKER_02]: They win over a lot of these new Democrats, the Atari Democrats, whatever you want to call them, who are really becoming a big part of the Clinton administration, and will continue
1:01:50
[SPEAKER_02]: And they suddenly like, they declare that like stock options are not just a way to make money.
1:01:55
[SPEAKER_02]: It is Silicon Valley.
1:01:57
[SPEAKER_02]: It is the future.
1:01:57
[SPEAKER_02]: Like this is the economy.
1:02:00
[SPEAKER_02]: If you take these things for us, you're going to destroy the economy.
1:02:02
[SPEAKER_02]: These things are so important in gassing them up, in defending them.
1:02:06
[SPEAKER_02]: They just raise the salience of them.
1:02:07
[SPEAKER_02]: They just raise the importance of them.
1:02:09
[SPEAKER_02]: where you will have, you know, by the end of it, you have like 88 senators, I think passing a sense of the Senate resolution saying like stock options are super important and corporate executives are protesting about an important stock options are and if you spend all your time saying how important something is you're probably going to.
1:02:25
[SPEAKER_02]: use it more and more.
1:02:26
[SPEAKER_02]: And so companies just keep pouring and pouring stock options onto these executives, investors like it, because it gets them to think like investors.
1:02:36
[SPEAKER_02]: Theoretically, there's a populist notion to like, this is performance space.
1:02:41
[SPEAKER_02]: If they do a bad job, maybe they won't make money.
1:02:44
[SPEAKER_02]: But as I talked about it a little bit, and for all sorts of reasons,
1:02:48
[SPEAKER_02]: That's not really true because the stock options they're giving are so simple and easy to game that this is not really super hardcore performance based pay that's you can you can find a way to get this and in the 1990s you also have the rise of the quarterly earnings projections and the quarterly earnings reports so now everything gets shrunk down to quarter by quarter trying to meet your stock earning your earnings projection.
1:03:17
[SPEAKER_02]: If you meet it, stock price goes up, you make more money.
1:03:19
[SPEAKER_02]: If you fall short of it, stock price goes down, you make less money.
1:03:22
[SPEAKER_02]: So suddenly, managers jobs become more and more about meeting quarterly earning expectations.
1:03:28
[SPEAKER_02]: And their jobs are now shifting away from managing corporations, running the day-to-day operations.
1:03:35
[SPEAKER_02]: There are people who do that, but more and more, the guys at the very top, their job is the stock market now.
1:03:41
[SPEAKER_02]: It's not running the corporation necessarily.
1:03:44
[SPEAKER_02]: Their job is running the stock market.
1:03:45
[SPEAKER_02]: And then the other guys who are usually less important will run the corporation itself.
1:03:50
[SPEAKER_02]: And that they defeat FASB, they fight all of this off.
1:03:54
[SPEAKER_02]: People pour into stock market compensation.
1:03:57
[SPEAKER_02]: And that is the fuel on the fire that leads to what I call in the conclusion of the book, The Bifurcation of the American Economy.
1:04:04
[SPEAKER_02]: People with stock.
1:04:05
[SPEAKER_02]: do well, though are always stressed.
1:04:08
[SPEAKER_02]: The people who don't have stock do bad and are also stressed, but for different reasons.
1:04:14
[SPEAKER_01]: Right.
1:04:14
[SPEAKER_01]: And Melinda Cooper's book.
1:04:15
[SPEAKER_01]: I think also like augment sort of focusing on the regulatory regime of asset holders of which stock is a type.
1:04:22
[SPEAKER_01]: And I think these books are very complimentary in a good way.
1:04:24
[SPEAKER_01]: So, the bifurcation of the American economy and other way to frame that as the oligarchization of the American economy, increasing income inequality, and to my end, the reason that Trump was able to win twice.
1:04:36
[SPEAKER_01]: So, what do we do?
1:04:39
[SPEAKER_01]: Because this is the problem, right?
1:04:40
[SPEAKER_01]: In some sense, like if you read my friend Andrew D'Words book, there's like some pretty simple things, one could do to regulate this, but there just seems like there's no
1:04:53
[SPEAKER_01]: Maybe there will be, I don't know if there's an AOC, or if there's like a genuinely FDR, like a Reagan-like transformative figure who's able to do this, but right now, it seems like we know the story, we know the perverse social effects.
1:05:05
[SPEAKER_01]: We also know what to do to change it, but there's nothing to be done politically about it.
1:05:12
[SPEAKER_01]: And I think also that's one of the reasons everyone feels crazy right now is because,
1:05:18
[SPEAKER_01]: everything is there but there's no way to sort of reach that goal.
1:05:21
[SPEAKER_01]: I'm just curious you're a thoughts on that whole political question.
1:05:25
[SPEAKER_02]: Yeah, um...
1:05:27
[SPEAKER_02]: I'm not going to have a great answer for you because I think we're probably thinking similarly.
1:05:31
[SPEAKER_02]: I'll say just to clap off the story, post and run and post when a lot of shareholder maximizing companies, reveal themselves to be massive frauds and go bankrupt.
1:05:39
[SPEAKER_02]: That's when Jensen sort of has his like wrote to Damascus moment and he disfares and says, okay, the problem isn't markets, it's human beings and we need to remake humanity and that's when he teams up with Werner Airhart to do like self-help stuff.
1:05:52
[SPEAKER_02]: So it even confounded the guy who like popularized this.
1:05:56
[SPEAKER_02]: He basically was like, oh, human beings lack character.
1:05:59
[SPEAKER_02]: And they need to be trained in moral character, et cetera.
1:06:02
[SPEAKER_02]: So
1:06:04
[SPEAKER_02]: I don't think that's the answer.
1:06:06
[SPEAKER_02]: I don't think EST is the answer, but in terms of what happens, it's interesting.
1:06:12
[SPEAKER_02]: I wrote the book, a lot of the research and stuff was being done.
1:06:15
[SPEAKER_02]: It like the heyday of like Woke Capitalism for a black-about-better term, which was like the business roundtable is like shareholder value is bad.
1:06:23
[SPEAKER_01]: We didn't know what were the different things a different form of corporate social responsibility, the green washing, essentially.
1:06:28
[SPEAKER_01]: Yes, you know, or like, city bank is gonna have a pride flag during June.
1:06:33
[SPEAKER_01]: as they destroy your credit.
1:06:35
[SPEAKER_02]: And like this is the kind of thing we're like, sometimes, you know, when I talk about this with folks like they get hung up on like this, this new corporate social responsibility is like, oh, that's what they're arguing against.
1:06:46
[SPEAKER_02]: And then I have to be like, investors don't care.
1:06:49
[SPEAKER_02]: They don't care if they change the logo if they spend money on it.
1:06:53
[SPEAKER_01]: Yeah.
1:06:54
[SPEAKER_02]: So like,
1:06:55
[SPEAKER_02]: The new CEO, what capitalism and the new CSR is just not, that's not an alternative.
1:07:00
[SPEAKER_02]: And businesses said they were going to be, you know, they were going to change their values.
1:07:04
[SPEAKER_02]: They declared shareholder privacy to be dead, but they never said what they were going to change it to.
1:07:09
[SPEAKER_02]: And they revealed themselves on the COVID pandemic.
1:07:11
[SPEAKER_02]: When the stock market went crazy, while everyone else suffered, that no, they're actually going to keep doing the same thing.
1:07:16
[SPEAKER_02]: And now with the backlash to bulk or whatever, you know, with Trump to, they've dropped even that.
1:07:23
[SPEAKER_02]: That's instructive for us, I think, in just showing that it's not going to come from within corporations.
1:07:29
[SPEAKER_02]: The arrangement that investors and managers made is so unbelievably profitable and successful for them.
1:07:37
[SPEAKER_02]: Until that golden goose dies, they're not going to give it up.
1:07:41
[SPEAKER_01]: Until like Golden goose is killed, because it's not going to die.
1:07:44
[SPEAKER_01]: Exactly.
1:07:44
[SPEAKER_01]: Unless the Chinese century, you know, like some giant macro shift, which is not predictable by any way, shape or form, it's going to need to be killed by a politician.
1:07:54
[SPEAKER_02]: Exactly.
1:07:54
[SPEAKER_02]: That is my answer to.
1:07:57
[SPEAKER_02]: Political action is the only thing that will change.
1:07:59
[SPEAKER_02]: It's what changed it in the New Deal.
1:08:02
[SPEAKER_02]: And I don't know what form that political action will take.
1:08:05
[SPEAKER_02]: We often think of it as coming from the left, you see, Bernie, et cetera.
1:08:09
[SPEAKER_02]: But it could equally come from the right.
1:08:12
[SPEAKER_02]: Trump, 2.0, there's a movement towards some sort of weird version of state capitalism.
1:08:17
[SPEAKER_02]: Um, but there's still shareholder primacy seems to be ingrained, but because of the purchasing of Intel and the companies, right?
1:08:24
[SPEAKER_01]: So it's like, you get this weird thing.
1:08:26
[SPEAKER_01]: I mean, you get like the tariffs on goods, but not on financial transactions.
1:08:30
[SPEAKER_01]: It's like not attacking the thing.
1:08:32
[SPEAKER_01]: You know, you get like, you get the purchase of Intel, but you get no anti conglomerate law.
1:08:37
[SPEAKER_01]: You know, or anti conglomerate enforcement.
1:08:39
[SPEAKER_01]: So it's like, to me, it's all fake with Trump.
1:08:42
[SPEAKER_02]: Yeah.
1:08:42
[SPEAKER_01]: And you can see on the further ends of the right, on like the alt right and the like national socialist right of like the call to confiscate wealth from the globalists right, but they're not going to do the socialism right my mind really that people might my line of the people that people have heard this before it's like they're not going to do the socialism part of the national socialism they're just going to do these like fake things and they're not going to actually do the redistribution which is just going to to my mind increase the crisis.
1:09:11
[SPEAKER_01]: It's just going to get increased increase increase.
1:09:14
[SPEAKER_02]: And even if they did, it would only be to their definition of the Volker, whatever.
1:09:19
[SPEAKER_01]: Right.
1:09:19
[SPEAKER_01]: Which is going to be a huge definition.
1:09:21
[SPEAKER_01]: Yeah.
1:09:21
[SPEAKER_01]: Yeah.
1:09:22
[SPEAKER_01]: Some like word thing.
1:09:23
[SPEAKER_01]: But they're not even going to do it.
1:09:25
[SPEAKER_01]: You know, this is the thing.
1:09:26
[SPEAKER_01]: Trump is doing these like 50 year mortgages or the barring of 401k's.
1:09:30
[SPEAKER_01]: Basically like band-aid stuff.
1:09:32
[SPEAKER_01]: Right.
1:09:32
[SPEAKER_01]: They're not going to do like the fucking Nazi like strained through joy thing where they actually do redistribution.
1:09:40
[SPEAKER_01]: So you have this language of sort of volkish nationalism without any of the fucking policy of it.
1:09:46
[SPEAKER_01]: So it's going to just like increasingly, I think radicalize people who are going to go even more nuts because like the savior isn't doing the thing that the savior said they were going to do.
1:09:56
[SPEAKER_02]: Yep.
1:09:56
[SPEAKER_02]: And you know, I think I think the
1:09:59
[SPEAKER_02]: the impending things that could bring about political action or could bring about the kind of stagnation that would prompt action, you know, we'll see as the Silicon Valley companies get more and more entrenched and as they start to become the things that they supposedly dethroned and they sort of become the things that we saw in mid-century.
1:10:19
[SPEAKER_02]: We'll see
1:10:21
[SPEAKER_02]: what the response to that might be.
1:10:23
[SPEAKER_02]: But it has to be some combination of politics or a failure of this model.
1:10:30
[SPEAKER_02]: And honestly, I think the model is proven to be incredibly resilient because it's a lot.
1:10:35
[SPEAKER_01]: This is my question, right?
1:10:36
[SPEAKER_01]: Like, meta could lose everything on the metaverse.
1:10:39
[SPEAKER_01]: They rename their company and unlike Litton, it doesn't matter.
1:10:43
[SPEAKER_02]: Yeah, you know, so they always they always come up with little because, you know, they did they not lose everything on the universe.
1:10:50
[SPEAKER_00]: They're they're shifting to AI now.
1:10:52
[SPEAKER_00]: Yeah, they're not exactly on the meta universe.
1:10:54
[SPEAKER_02]: They're just they have like they have the next thing to shift to.
1:10:57
[SPEAKER_02]: We're going to be what happens when you run out of things.
1:11:01
[SPEAKER_02]: If AI doesn't pan out, what's next?
1:11:04
[SPEAKER_02]: And eventually do you run out of shiny objects that you can
1:11:14
[SPEAKER_02]: Right, those aren't great stories for us as regular people because it's like, well, we get a lot of people or economic collapse.
1:11:23
[SPEAKER_02]: I think we're going to keep doing what we're doing.
1:11:26
[SPEAKER_01]: Right.
1:11:26
[SPEAKER_01]: And increasing inequality.
1:11:27
[SPEAKER_01]: I was looking at it chart the other day where I think like inequality, according to this chart, at least was like three times so it was at the height of the guilt of age.
1:11:34
[SPEAKER_01]: You know, it's it's like really bad.
1:11:37
[SPEAKER_01]: It's social crisis bad, but nothing seems to change.
1:11:40
[SPEAKER_01]: And Chuck Schumer and Hawkeam Jeffries are just making sure that ISIS better training.
1:11:45
[SPEAKER_01]: I mean, like, it's wild.
1:11:47
[SPEAKER_01]: It's just, it really does seem like I do not like being a doomer, but it's just to me, it's just looking at the world.
1:11:55
[SPEAKER_01]: And what it is right now and hopefully things will change.
1:11:58
[SPEAKER_01]: But that's like we ride view.
1:12:00
[SPEAKER_02]: Yeah, and in one note, I think, and I'm sure you coming from your perspective would share this too, but I think that sometimes get lost in the political debates about this between 1% versus everyone else is really it's like a
1:12:12
[SPEAKER_02]: And there's a larger percentage of people who have materially benefited from the share of the other.
1:12:18
[SPEAKER_01]: It's like 80%, right?
1:12:19
[SPEAKER_01]: It's 70%, I remember, it's higher than the one percent.
1:12:22
[SPEAKER_02]: I mean, for us, for myself, as a knowledge worker and everything else, like, if I can get stock options and I can do these sort, like, I too can share in this.
1:12:31
[SPEAKER_02]: I don't get to be Jeff Bezos, but there is a class of people who do get to share in the material rewards of this at the cost of increased precarity.
1:12:41
[SPEAKER_02]: that make them anxious and kind of crazy, but, you know, there's then that much much much larger group of people who don't get to share in those forms.
1:12:50
[SPEAKER_01]: Someone could argue for one K you're sharing in this, such as some degree, because your stock price constantly goes up and you're a 401 K constantly increases, you're never going to be a basis or a Zuckerberg, but you're like part of this.
1:13:04
[SPEAKER_01]: PMC world of capital management as such.
1:13:07
[SPEAKER_02]: Yes, it's it's, you know, that's just to say that like sometimes I think in the story it can seem like, you know, a very small group of people
1:13:18
[SPEAKER_02]: than kind of crap on everyone else, which is kind of true, but like there is a broader group of people who have benefited from it, at least in some sense.
1:13:26
[SPEAKER_02]: And that's by the 401k and, you know, the the inlayer of folks who have investment capital at the top.
1:13:36
[SPEAKER_01]: Well, Sean, thank you so much for joining us.
1:13:39
[SPEAKER_01]: Everyone, check out the book.
1:13:40
[SPEAKER_01]: It's really excellent, and we'd love to have you back again soon.
1:13:43
[SPEAKER_02]: I have some, thank you very much.
1:14:05
[UNKNOWN]: You