Pod Insights The Prof G Pod with Scott Galloway Behind the Scenes of SVB’s Collapse + A Vision for America — with Ro Khanna About this episode Representative Ro Khanna joins Scott to discuss several topics including TikTok, SVB, and his agendas for a “new economic patriotism.” Follow Ro on Twitter @RepRoKhanna.
Scott opens by discussing why distressed assets are a great buy, Twitter’s $20 billion valuation, and why Alibaba splitting into six separate businesses is a smart move for shareholders.
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:18 Scott Galloway? Episode 243. 243 is the country code for the Democratic Republic of the Congo. In 1943, the US government started the payroll withholding tax and nachos were invented. What do you call a row of trucks hauling nachos? A cheesy pickup line. Go, go, go!
1:45 Scott Galloway? Welcome to the 243rd episode of the Prop G Pod. In today's episode, we speak with Congressman Ro Khanna, who represents California's 17th Congressional District. We discuss with Ro... What it's like to be behind the scenes of the Silicon Valley Bank implosion, as well as his agenda for a, open quote, "a new economic patriotism," close quote. Okay, what's happening? Parts of Silicon Valley Bank finally have a home after collapsing about two weeks ago. Wow, it's been two weeks. First Citizen is taking over elements of SBB, including its deposits, loans, and 17 branches. The deal amounted to $56 billion in deposits and $72 billion in assets at a $16.5 billion discount. The acquisition doubles the size of First Citizens, bringing it to $219 billion in assets.
2:28 Scott Galloway? This isn't First Citizen's first rodeo with troubled banks. The firm has scooped up more than a dozen other failed banks with the help of the FDIC. First Citizen's shares jumped more than 45% during Monday morning trading. Reuters reported that First Citizens will not pick cash and instead granted equity appreciation rights in its stock to the FDIC that could be worth up to $500 million. That's a pretty good deal, right? I get this, I get these deposits, and I'll give you some upside if we all share on the upside. It's like buying a house and the person you buy it from just gets some equity participation in the appreciation of the house, but you own the house. Anyways, The Financial Times noted that following the deal, the FDIC said the failure of SBB could cost its deposit insurance fund about $20 billion, making SBB the most costly
3:13 Scott Galloway? failure in the history of the US Insurance Deposit Fund, which has been around since 1933. So, the lesson here, what's the takeaway? So, there's the obvious stuff. Poor risk management on behalf of Silicon Valley Bank management. This was not a bailout. The shareholders, the bondholders were wiped out. Probably need to revisit regulation around smaller banks, realizing they too present a contagion risk. There's also probably a need to examine regulation in an era of digital banking and social media, and that is, when you don't need to wait the day to go to the bank to get your money out, you can get it out in two minutes on your phone. A bank run can go from a standing start to a sprint in no time or zero flat.
3:55 Scott Galloway? In addition, in a social media world where the algorithms reward people who can be famous for being catastrophists, what does it mean to have individuals who appear to have a vested interest in undermining the banking system in order just to pose for the algorithms? There's definitely some learnings and some lessons here. What's the next lesson that we don't talk about? Is that, one, a certain number of failing banks that are ring-fenced is probably a good thing. We could have a very boring banking system, just make sure that massive liquidity ratio coverage, that would also lead to a very boring economy. And that is the reason that you can get a home mortgage with 5X leverage is that the bank loans out more money than has on hand. The reason that if you have a startup, you can get venture debt is because, again, see
4:40 Scott Galloway? above, the bank is loaning out more money than it has on hand. So if you want to tighten those regulations, get ready to not be able to borrow as much money for a house, get ready to not be able to get venture debt for your growing business. So there's a certain amount of leverage in bank failures you probably want to see happen. Now, do you want something that could potentially cause a bank run on all the banks? No, obviously not, and that's what regulation is for. The other big learning here is that there is always opportunity in distressed. I have invested across all different parts of the investment ecosystem or the cap stack, from angel to venture to growth to IPOs to publicly traded growth companies to mature to distressed.
5:23 Scott Galloway? On a risk-adjusted basis, I find that the best asset class or the best part of the cap structure to invest in or the life cycle of a company is distressed. Now, why is that? Everyone wants to hang out with the cool kids. Everyone wants to hang out with Tom Brady and Gisele Munchen. Probably not a good idea to hang out with them at the same time right now. Another story, another story. But the bottom line is we're attracted to hot, young, growing companies, and we pay a premium to be involved with these companies. And those are the companies that get constant press when their stock. Quintuples. Who do we not want to hang out with? Old people. And I know that sounds ageist, and it is ageist, but it's true. Right? They they aren't as attractive. They aren't as interesting usually. Maybe they are, maybe they aren't.
6:07 Scott Galloway? But for whatever reason, we avoid old people. And just the same way, we avoid distressed assets because they smell funny, these distressed assets. And they're going to be dead soon, and we don't like to be reminded that everything everywhere ends. However, however, because of that, there's an absence of capital, human and financial, that goes into distressed assets. Likely, one of the best investments I ever made was in a Yellow Pages company. And I made this investment about seven years ago, and we all knew that Yellow Pages were going away, as with this company. But you could pick up Yellow Pages companies for about two times EBITDA. So we know the business was going away, but we also knew it wasn't going to go away in two years. And what do you know, five years later, the company was smaller, but it was still doing the same amount of EBITDA
6:50 Scott Galloway? because we could go in and buy other Yellow Pages companies, cut costs and hold on to that EBITDA. This was a great investment. In 1997, everybody knew Blockbuster was going away. But you could, again, pick up Blockbuster franchises for two to three times cash flow. And it took them about another 12 years before they went out of business. Distressed is the best place in the cap structure. My biggest win so far, and I talked about this a couple of weeks ago. Or one of my biggest wins will be my investment in a firm called Enjoy, which is electronic nicotine delivery system, ends, call it vaping, I call it smoking cessation. Anyways, the reason why it's going to be such a big hit is because no one wanted near it about eight years ago, when we brought it out of bankruptcy.
7:34 Scott Galloway? When I, when I say we, I mean Mudra Capital, brought it out, I think at a valuation of 50 or 70 million. And it just signed an agreement to be acquired by Altria for 2.0, I believe, 2.75 billion. My point is, kind of the key, similar to the key to economic security, is not how much you make, but how much you save and invest. The key to investing is not only the company you're investing in, but the price that you get it at. So at some point, everything's a buy, and at some point, everything is, in fact, a sale. And what do we have here? We now are moving from defense and offense in the banking crisis. And that is probably, a lot of banks see opportunity here to come in and swoop up regional banks that are trading at a real discount because of the fear, because of everyone running for the doors.
8:19 Scott Galloway? There is opportunity in running into the fire.
8:24 Scott Galloway? Okay, what else is happening? Elon Musk has valued Twitter at $20 billion. In an email reviewed by several news sites, including The Information, The New York Times, and The Wall Street Journal, Elon believes this "low valuation" is an opportunity and that the company could eventually be worth $250 billion. Yeah, okay, that's fucking crazy, but you gotta give it to the guy who's pulled off some crazy before. Let's not forget that Twitter stock was pretty much anemic before Elon bought it for $44 billion in October 2022. Okay, let's look at the valuation. If you take an average multiple on revenues of the market capitalization of Snap, Alphabet, and Facebook, kind of its peer group, they trade at about four times, or their enterprise
9:08 Scott Galloway? value is about four times revenues. Now, let's apply that to Twitter. By the way, that's being generous to Twitter because all three of those companies are better companies than Twitter. But apply that, let's be generous, let's apply that 4X multiple. Twitter is supposedly now at a run rate of somewhere between $2 and $3 billion, valuing the company then generously at somewhere between $8 and $12 billion, meaning that with $13 billion in debt, this company has negative enterprise value. In other words, there is no equity value. Could it be worth more than $20 billion? Sure, but that is not a fair valuation. That is not an accurate valuation. That is not what people would be willing to invest in this company unless they were doing it for other reasons, they just wanted to be close to Elon, or they were fanatics. The company's headcount has been slashed from 8,000 employees before Elon took over
9:52 Scott Galloway? to roughly 2,000 employees. That is just staggering. And that action, that action is probably gonna have more impact on the business ecosystem, at least in tech, than anything else is here. While we're all excited about AI, we're all talking about supply chain, the bottom line is every CEO and every board in tech has looked at what Elon's done and said, "Well, could we hold on to, say, 80, 90, 100% of our revenues and not lay off 80% of the workforce, but maybe lay off 8, or 18, or 28% of the workforce?" And as we predicted earlier this year, we believe that technology companies will face headwinds in terms of growth, but many of them will report the most profitable quarters in history towards the back half of this year. Why? Why?
10:37 Scott Galloway? Because cutting costs is a great way... To create more profits, especially in a company that's had so many calories stepped down its esophagus, it has fatty deposits everywhere. And think of it this way, if a company has 40% operating margins, that means for every dollar in incremental revenue, 40 cents flows to the bottom line. So in this environment, you can either grow your revenues by two and a half bucks, or you can cut costs by a dollar. And the latter right now is much easier, given C-Above shoving calories down the esophagus. And the market loves it. Whenever people announce, or whenever these boards announce these employee layoffs, the stock goes up. That is the dominant business trend in 2023. It doesn't get headlines, it's not
11:19 Scott Galloway? aspirational, no CEO is going to brag about it. But you can bet the majority of board time right now around growth is not about growth, it's about cutting costs.
11:29 Speaker 02 Twitter, Facebook owner Meta, now Amazon, the big tech job cuts continue.
11:35 Scott Galloway? Okay, one last story before moving to our conversation with Representative O'Connell. Alibaba is splitting its business into six units. It plans on maintaining control of its juggernaut e-commerce entity, but allowing other units, including logistics and cloud, to split off an IPO separately. The FT reported that Goldman Sachs estimates the group's e-commerce business is worth about $103 a share, followed by Ali Cloud at $16 a share, and its international business at $12 of value per share. So, let's turn this back to, let me think, me, in 2000 and, when was it? I think it was 2007. Talk about bad timing. I raised $600 million and bought 18% of the New York Times, and then went on the board to quote-unquote unlock
12:19 Scott Galloway? value. And the thesis was very straightforward. They needed to double down on digital. Okay, that was pretty obvious. But also, this company had become a conglomerate with a bunch of good assets trapped inside of a newspaper company. When you have a conglomerate of disparate assets...
12:35 Scott Galloway? The market hates it. CEOs love it. Now, why do CEOs love it? Because CEOs want to sleep at night. They don't want the anxiety of a cyclical business. So they smooth out that cyclicality by acquiring all sorts of shit, unrelated shit. And that way, it smoothes out their earnings and they can sleep easier at night. But here's the thing. Investors don't need CEOs to diversify for them. If I want to own a cloud business, I'll go own a cloud business. If I want to own the international division of something, I'll go buy a foreign company of a company doing a similar business. I want my CEO of my stocks totally focused on one thing and held accountable for that one thing. So investors hate conglomerations. CEOs like it. Investors hate it. So what do investors do?
13:18 Scott Galloway? They find the shittiest part of the conglomerate and they assign that multiple to the entire business. Case in point, the New York Times Company and my thesis around why this company needed to be broken up. What did the New York Times Company own when we took this stake? They own their headquarters, which happened to be the seventh tallest building in America. Now, why does a newspaper company own the seventh tallest company in America? There is no good reason. As a matter of fact, at the company's low, the building was worth more than the entire company. So this wasn't a media company. It certainly wasn't a newspaper company. It was a REIT. So it was pretty obvious that they should sell the company. That doesn't mean they have to move out. They just sell it to a real estate investment trust and then lease it back through something called the sale leaseback.
14:00 Scott Galloway? We also own, get this, 17% of a baseball team. And not just 17% of any baseball team, but 17% of the New York Yankees enemy, the Boston Red Sox. And the CEO would give this bullshit rationale that we got special insight and coverage of Boston sports. What a, how fucking ridiculous. We didn't get any insight. We own 17% of the Red Sox, a company that produced negative cash flow, but had, like any sports team, huge asset value because there's no shortage of billionaires going through midlife crises that want to own a baseball team so they can take their friends to the owner's box. What else did they own? We owned about.com. Why? Because management wanted to accessorize their analog boring outfit with digital earrings and say that 17% of our revenue came from
14:44 Scott Galloway? Digital. So what happened? All of these assets that traded at a much higher multiple on EBITDA than a shitty newspaper business or a challenged newspaper business were all trading at the same multiple as a newspaper business. So the disposition of assets, the spin of assets was accretive to shareholders. And that's what we fought for. And eventually they did. They sold about.com way too late. They sold the building. And they started kind of doubling down on the New York Times company, which in my view was really the only the crown jewel and the property they should be focused on. And that is what is happening here at Alibaba. The stock has gotten beat up so badly, even with its recent recovery. By the way, it was one of our stock picks for 2023. And it's up about, I think about 70% since that call.
15:29 Scott Galloway? It is still undervalued relative to its peers in the United States or in other markets. When comparing its multiples to MercadoLibre or Amazon, it still trades at a substantial discount. So what are they doing? They realized that Ali Cloud, which is probably a fucking amazing business, would trade a higher multiple if it was released, if it was exonerated, if it was lifted, if if we rescued it from this conglomerate structure. So a split here or a divestiture of assets should be good for Alibaba shareholders in some, in some investors like focus and accountability. And this conglomeration of assets doesn't make any sense. The most valuable company in the world, in my view,
16:12 Scott Galloway? is AWS in 2027. I think at some point, if Amazon shares continue to go sideways, they will decide to spin what is the most profitable and biggest cloud company in the world, AWS, which will be the stock that you give little Rachel for her bat mitzvah and everyone has in their 401k. And the thing will trade at a rational multiple and be liberated from the confines of an e-commerce company that's growing, but not growing that fast any longer. Conglomerates, bad. Split ups accretive to shareholders. This is the right move for Alibaba.
16:47 Scott Galloway? We'll be right back to our conversation with Representative Ro Khanna.
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19:12 Scott Galloway? Welcome back. Here's our conversation with Congressman Ro Khanna, who represents California's 17th congressional district.
19:20 Scott Galloway? Representative Khanna, where does this podcast find you?
19:23 Speaker 03 I'm in Washington DC.
19:25 Scott Galloway? That would make sense. That was sort of a ridiculous question, wasn't it? You got the tie on. Where else would you be? So I gotta just, I'd love to just get your take on, before we bust into our regular scheduled program, what your take is on the House Energy Committee hearing on TikTok, your views on TikTok.
19:46 Speaker 03 Well, I think it's a mistake to have TikTok owned by ByteTense and that we should force the sale of TikTok. And I'll tell you a couple of reasons why. One, you could have the Chinese CCP at any point use the platform for subtle propaganda. So imagine there's an American candidate who has a more pro-China policy. Could they manipulate videos to have that come up first for the millions of users? Two, even though right now I don't believe that any of the data is compromised, at a future point, you could have Gigi Ping or someone compromise it. And three, I don't think we owe the Chinese much reciprocity. It's not like they allow Google or Facebook or Amazon to operate there.
20:29 Scott Galloway? Yeah, it's just shocking about it. Watching the hearing, it's like TikTok did what Putin couldn't do, and that is unify Republicans and Democrats. I've never seen this sort of bipartisan agreement. I've just, it's almost sort of a pleasure to watch. Let's move on. I'd love to just, and also just current news. I know you were intimately involved in the actions last week or kind of behind the scenes around Silicon Valley Bank. I'd be curious to get your sense of, it's kind of where you think the state of the US banking system is, what you learned dealing with this crisis, and any general thoughts about the Valley's response to this, SVB, and the risks it presents around contagion.
21:13 Speaker 03 Well, the biggest thing takeaway is we need to protect regional banks and community banks. We don't want just four banks operating in the United States, Citibank, JP Morgan, Wells Fargo, and Bank of America.
21:28 Speaker 03 And the challenge is that one of the things I was surprised about is how many people had money in the bank over 250,000 and weren't in sweep accounts. A sweep account is basically where they take your money and they distribute it across many banks so that no number is over 250. But they had all these companies that just had their money in this bank with large accounts. And as a country, we've almost always, if you look at the history, guaranteed the depositors. So we end up doing this anyway. So what I say is we've got all these people basically driving a car without insurance. And when they hurt someone, it's the US government that ends up saying, okay, no, no, we're going to pay for that accident.
22:09 Speaker 03 I've said what we ought to do is have a higher bank premium, but have a mandatory fee on any account over 250,000 so that you're mandatory paying for insurance in case there's something that goes off with the bank. And I'm working actually with a couple Republicans to try to get that proposal through.
22:26 Scott Galloway? I'd love to put forward a thesis here and have you push back on it or validate it. So let's just acknowledge really poor risk management on behalf of the senior executives of the bank. Terrible communications around how they announced the equity raise, just, you know, kind of clown car and clown car. And as a result, the shareholders got wiped out. As a result, the unsecured debtors got wiped out. As a result, management got fired and the equity value, I would argue, there'll probably be a clawback here, but their equity value's gone to zero. And the depositors got backstopped. So in addition to poor credit management or risk controls, in addition to kind of an
23:06 Scott Galloway? unprecedented increase in interest rates, what role, if any, do you think there's sort of what I call this emerging vein of what I call venture catastrophes who seem to get some sort of compensation or post to the social media platforms to make a bad situation worse? Am I being hyperbolic here? Do these individuals in Silicon Valley have more of an obligation to the Commonwealth to not stoke this type of fear? Because at the end of the day, isn't this just a, isn't the panic really a function of trust or lack thereof? What role did these individuals play in fomenting a crisis that could have been potentially averted? Do you agree with that? Or am I not zeroing in on the correct issues here?
23:51 Speaker 03 I think it remains to be seen if there were individuals who were actually. Shorting the stock or fomenting the crisis and fomenting a run. And there are allegations out there, several people who have done that. But I think what is more certainly plausible, I'm not ruling that out, is just the herd mentality of Silicon Valley. I've seen this firsthand when I was first running for office against a very powerful incumbent and was at 3% in the polls. Someone said, "Don't worry, if you get one or two venture capitalists, everyone else will come behind you and all the tech leaders will go behind you." And so I think what you saw is one or two people tweeting out and everyone just following that judgment and not stopping to think independently.
24:34 Speaker 03 I mean, there's this herd movement in the valley that creates often bubbles and can create panic and that that moves very fast. Everyone is also way too on Twitter, more than even politicians or people in Silicon Valley. So you have one tweet that goes viral, it gets shared and money moves very fast. Now, whether there was something malicious about it by one or two actors, I think that remains to be seen and the facts need to come out.
25:00 Scott Galloway? Can you give us any inside baseball here? Your name's been mentioned as someone who is trying to play a productive role behind the scenes, trying to be constructive and get things done. Can you give us any sense for what the mood was like last weekend? I know you were working with individuals, but put us into the room.
25:17 Speaker 03 Well, I got called starting Thursday night that there was a problem. Friday, I said, "Let me hear from my district." We sent out an email, "We're going to have a webinar at 4:00 PM Eastern Time." At 7 o'clock Eastern Time, 600 people were on the call. They were on the call for three hours. They said, "Look, this is going to be a disaster. If you don't have a guarantee on the depositors, you're going to have a run on regional banks across the country and you've got 50,000 of these companies, some of them that are making payroll and a lot of companies that will go under." And so they said, "Look, some of the venture capitalists, we may fund with bridge loans the best companies, but you're going to have significant layoffs and significant movement out of..."
25:58 Speaker 03 Banks. At that point, I called the White House, I called the Treasury Department. I said, what we really need to do is have the secretary or someone come out and say the depositors will be guaranteed, that we will guarantee deposits. And I said, look, Powell himself did this in Bank of New England in 1991. This is not unprecedented. We do this actually often. By Saturday, there was still not clarity, and I was on a call late Saturday night with the FDIC, and they were saying, well, we're going to do these advanced deposits. People can get their money for the payroll, but we're not going to do the guarantee. And I said, look, you're still going to have massive capital flight out of these regional banks
26:39 Speaker 03 into the big four. That's not strong enough. I talked to the number two person, Wally, at Treasury, right before I was going on after Janet Yellen on Sunday morning. And I said, she's got to come out and just say depositors will be guaranteed. And he said, no, we're not there yet. You need all these votes. You need procedural votes. And I said, look, Janet Yellen is far smarter than I am when it comes to economics. But I'm telling you, what the country really needs right now is a leadership that assures folks that the depositors will be protected. And I'm going to respectfully have to push back and face the nation and say that she needs to be stronger and more decisive, which is what I did. And by Sunday evening, fortunately, they got there and guaranteed deposits. And
27:20 Speaker 03 so you can't, in my view, criticize the administration, given that they did it before the Asian markets opened. I also had conversations with Steve Rochetti, who's very close to the president. One of the points that I made to my tech friends is the fact that it was Silicon Valley Bank was not a positive. It was a negative. It made the politics much harder than if it was named Omaha Bank. And I think this has been sobering for some of these tech folks who think they used to walk on water, that actually it was a political liability to be saying these were Silicon Valley tech companies.
27:52 Scott Galloway? So the idea that any class of banks could be subject to a run, to me, just the logic is pretty straightforward. You're basically moving to a two-tier bank system, where too big to fail becomes a feature, not a bug, a massive outpouring of funds from, you know, every other bank other than the four you'd mentioned. It seems to me your logic is bulletproof. But in addition to your logic being sound, it's established precedence. I'm an investor in, director, founder of four companies that had about $20, $25 million in total in SVB. And I wasn't worried. And the reason I wasn't worried is that if you go to the FDIC site, it has a section on failed banks that is organized really well. Seventy-three banks
28:34 Scott Galloway? have failed in the last 10 years by my analysis, and 73 have had their depositors backstopped 100 cents on the dollar. So it just, it shocks me that there was even any sort of hand wringing over this.
28:47 Speaker 03 And this is why I don't think it's a problem for Secretary Yellen to say, we're going to guarantee depositors in this country. We do that, as you pointed out, for the top four banks. I mean, no one thinks that Citibank isn't going to be, isn't going to have that. And we did it in 2008 temporarily, at least for transaction accounts. We did it in the CARES Act, actually. There was a provision in the CARES Act that guaranteed depositors. We could talk about how you have higher premiums for people or fees for accounts over 250,000. But I don't think people know all of the details that you're talking about. And what would be interesting in the banks in the situation you outlined, what we were hearing from FDIC is they wanted to do advanced deposits for 50%, and they eventually get
29:32 Speaker 03 it to full protection probably. But I don't know in those 73 cases whether they start out with something short of full, full protection and then get there, or whether it's day one you have access to your full account.
29:43 Scott Galloway? My sense is if you were to layer in rationale for this sort of reticence and then saying, okay, at the end of the day, we'll give you 100 cents on the dollar, is it creates some doubt and some, I guess, they want to encourage some scrutiny on behalf of depositors. They don't want the blanket security that they don't even worry about it, that they do want them to investigate the creditworthiness of the bank. I think it's, I think it's fascinating, but I will say that in everything I've read, there was two groups of people. There were people screaming in all caps on Twitter, or telling all of their companies to get their money out in sort of a panic fashion, or telling all their portfolio companies to get their money out. And then there were a group of people who were working behind the scenes quietly just to try and get, you know, things done, try to, try to get this problem solved. And your name always comes up in that. So thank you for your service there. Let's
30:29 Scott Galloway? Let's move on. You have an economic vision you refer to as a new economic patriotism. What do you mean by that?
30:36 Speaker 03 I mean, we made a mistake in this country by letting so much of our production go offshore and particularly to China after China's ascension to the World Trade Organization. I mean, we used to make most of the world's steel, 20% in the global markets. That's down to 4% of the world's steel, 32% of aluminum down to 2%. We used to make paper. We didn't make it in the COVID. We didn't make masks in this country. We didn't make baby formula in this country. And we now realize that production is linked to innovation. When we lost semiconductor production, TSMC, we also lost some of the innovation to make the most advanced chips. And so what I say is, look, we need to have a revitalization of production in this country. It's not anything we haven't done before.
31:21 Speaker 03 This is how Hamilton and FDR built the country. We need the private sector. We need government. We need educational institutions, labor to come together to create a production renaissance in different industries and to create economic revitalization beyond production, which may involve tech and services. But we have to be intentional about doing it across the country. And we have to make the basic investments in people so that they can participate in that. And that's what I define as a new economic patriotism. The only new part is that we can use the tools of digital technology and some of our productivity to actually bring the production back, because I think it gives us a productivity advantage.
32:00 Scott Galloway? So that sounds like tariffs. The consumers or the lobbyists will say just raises costs on all Americans. How do you respond to that?
32:08 Speaker 03 Well, what I think if we increase productivity, that doesn't have to be the case. Since 1970 to 2000, productivity increased 20%. Production increased about 20%. Job state stayed the same. But the productivity increases and can allow us to actually have. Prices be reasonable. And the second thing I'd say is, look, we made a bargain in this country for cheap labor and cheap consumer prices to offshore a lot of our production and for cheap and for low regulations. I think that was a mistake. I don't think it was worth it to have the hollowing out of factory town after factory town in this country. I described China and the United States in some ways as addicted to a bad model of
32:51 Speaker 03 each other. We were fine with cheap consumer products and hollowed out our middle class. They were basically so dependent on export production model that they don't have domestic production and they didn't develop any of the truly wealth generating service industries in finance or tech to the extent they could have. And so what I've said is, look, we need to rebalancing. We've got to bring some of the production back in this country. Now, I'm not saying every single thing is going to be cheaper, but we can have it be cost competitive with new technology and financing and I care ultimately about having communities have access to the American dream.
33:32 Scott Galloway? What is your thought around, I mean, we talk a lot about this, creating more on-ramps into the middle class and obviously manufacturing or the offshoring of a lot of our manufacturing has done away with a lot of those, a lot of those jobs and on-ramps to the middle class economy. What do you think the if and what role vocational training might play and how do we get to a point where similar to other countries, we have more formal apprenticeships and vocational training?
33:57 Speaker 03 I think it's huge. I think it's been a total miss in this country that we didn't think about the 60% of people who don't go to college and what they're going to do. And partly we need the vocational training in high school. We need credentialing for vocational training after high school that both is free and that is working with the private sector to do it. But we need more than the courses and the training. We also need the jobs. I mean, one of the reasons people started to look down on vocational training unfairly is because they said, look, all the jobs are going offshore. What Bruce Springsteen sung on my hometown, "The jobs aren't coming back." And so you're a parent, you're a community member, you're saying, well, why are we doing the vocational education when the jobs aren't coming back? And so we need the emphasis on production plus the vocational education.
34:42 Speaker 03 The one thing, though, Scott, I will say is I hate the folks who put vocational education and pit it against the elite college educated folks. I mean, can't we just be reasonable and say we need both? Like, you're not going to build the Intel factories in Ohio without the PhDs or the engineers. And you also need the electricians and the plumbers and sort of having this fake populism to say, well, we're against college degrees or we're against PhDs is not helpful. And having a blind spot to the true value and dignity of people in vocational skills is not helpful. And so I wish we could have a more rational conversation on it.
35:22 Scott Galloway? We'll be right back.
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37:04 Scott Galloway? Social Security has been in the news recently, and you have a proposal that people making over $250,000 should pay a social security tax on their whole income.
37:15 Scott Galloway? By the way, the fact that it's not, that it tops out is in itself, I would argue, a regressive tax, right? That the people who make less pay more of their income than people who are very wealthy. What kind of support or pushback have you received around this proposal? And make the case for it.
37:33 Speaker 03 The proposal is pretty simple. It says that you should over $250,000 pay a social security tax on your entire income. By the way, you do this on Medicare, right? The Medicare tax is in cap. So why shouldn't you pay it on social security? The pushback people say as well, it's a savings program, not a program of tax, and that you should only pay for what you're going to get back. I have no problem saying that it's a program that helps people in retirement that should be paid with progressive taxation. I guess the question I often ask for Republicans, at least Paul Ryan was honest, right? I mean, Paul Ryan said, "I have a problem with social security not being solvent, and so I want to raise some of the retirement age.
38:17 Speaker 03 We want to taper out some of the benefits." And he had the math work. You could do that. I disagree with that. What you can't do is stand up and cheer for Joe Biden, saying, "We're not going to do anything to cut social security or raise the retirement age, and give him a standing ovation, and then say, 'Well, we're not for any tax to pay for it.'" I mean, that just doesn't make sense. So if you disagree with my proposal to increase the tax on over $250,000, and have people pay the tax over $250,000, then offer some other alternative that makes sense.
38:51 Scott Galloway? My understanding is it's called the social security tax, not the social security pension fund. I mean, and don't most recipients take out two to three times what they actually put in?
39:01 Speaker 03 Most do, and you know, one of the other ways I say to my Republican friends would say, well, let's means test social security. I said, this is a form of means testing in reverse. I mean, basically, if you're rich, you're not going to get it back as much as you put in. You're going to be putting in a lot more, and you're not going to be getting back the same benefit. So they should actually be for it. And, you know, when we look at the extraordinary wealth generation in this country, which I'm for, I'm for wealth generation, I'm for innovation, why can't we do the basics of making sure people have a secure retirement? We have the ability to do that just by having people pay the tax above $250,000.
39:41 Scott Galloway? Shouldn't we hit it from both sides, and that is reduce the costs and increase the revenues? And you're talking about increasing the revenues by lifting the cap on the taxation limit. But why wouldn't we, when social security was first envisioned, most people never saw it because they died before they were 60 or 65. Life expectancy has gone up substantially, or at least until the last 10 years. Doesn't that just naturally indicate that we should have, we should raise the age at which you start getting social security?
40:11 Speaker 03 If we had a strong, vibrant middle class and working class in this country, one could make that argument. But given the devastation of globalization and the fact you and I, we both know people in their 50s were laid off, lose their jobs, what are you supposed to do if you're 57, 58, you'll lose your job, you don't have much prospects for employment at the same time? You're almost counting the years till you can get to social security. You're maybe at 62, taking the early social security and paying the penalty because that's how you keep your house. And I just think the working class and the middle class has been too hard hit with the challenges of globalization and with policies that haven't helped them in our country over
40:52 Speaker 03 the last 40 years for us now to be talking about raising the retirement age or lowering the benefits. We can maybe have that conversation if we were in a place where the working class and middle class was stronger.
41:04 Scott Galloway? I think your argument is a really compelling one. And if you look at the data, there's just a shocking number of baby boomers who haven't saved a lot of money. And the argument you make, you're 62, you're really holding, you're just holding on till you start getting that payment. The flip side of that is people over the age of 60 versus 40 years ago have seen their, on average, their wealth expand dramatically. And people under the age of 40 have seen their wealth go down by, I think, 24%. They've seen their percentage of wealth go from 12% to 6%. And it is a zero-sum game. If we spend more on social security, and my understanding is 40% of our government spending are now going directly to the support of seniors, it does begin to crowd out other
41:46 Scott Galloway? investments, such as a child tax credit or R and D that might create economic growth or our ability to subsidize, create subsidies for manufacturing companies for those on-ramps. I mean, at the end of the day, isn't this the most blessed generation in American history? And at what point do we say, all right, these are tough decisions, but we need to start reinvesting in young people? Because it just strikes me as business as usual when social security recipients get the greatest cost of living adjustment in history and the child tax credit gets stripped out of the infrastructure bill. Don't we need to start investing more in young people?
42:21 Speaker 03 We do. And it's actually a compelling point about the skewed prioritization to people who are older. And it's no secret, I mean, people who are older vote, and they vote regularly. And, you know, I think we have to be candid about why they have, their legitimate needs are paid more attention to than the legitimate needs of young kids who don't vote or young parents who don't vote in the same numbers. I guess, though, the statistic I also would cite, and this is Thomas Piketty, even that you can, people can disagree with all his conclusions, and I don't agree with all his conclusions, but he has this statistic that I thought was staggering that
43:02 Speaker 03 People between the thirty and seventy percentile of American wealth in America, basically the middle, have lost twenty-five percent of their wealth since nineteen eighty. And you've basically had the hollowing out of a lot of the working and middle class. And so I guess what I would say is you have the social security tax go beyond two or fifty thousand, but you also have tax the capital gains, I mean, carried interest. You take away some of the deductions on the estate tax where you have a step up in basis. Figure out some way of taxing stock trading that on a transaction tax of some kind.
43:46 Speaker 03 There are other ways that we can get about taxing the extraordinary wealth generation to also pay for some of the other policies. And, you know, that means, yes, I'm arguing for higher taxes on the affluent. But, you know, we're one of the very, very low tax countries. I think we're the second lowest in the OECD, which is basically Western nations. So we can afford to have those who have done very, very well pay a little bit more.
44:16 Scott Galloway? So the big topic that I would argue doesn't get the attention it probably warrants is obviously the war in Ukraine. What is your view on, I mean, should we, for example, are you comfortable with the current level of support? Do you worry that it's getting too expensive? Should we be doing more and sending F-15s and increasing our support? And what do you think the mood is like in Congress for continued support?
44:40 Speaker 03 I think this is an area that the president has handled well. He has been thoughtful with Blinken in getting the entire NATO and Western world behind this. It would have been better to get a few more countries like India. We've tried, it's been difficult though, and I don't think it's for a lack of Biden's efforts that we haven't been able to do that. And I voted for every aid package and I will continue to do so. And I'm open if the president thinks that let's get F-16s to Ukraine, I'd vote for it. And I'd give them the weapons they need to try to hold the territory. I think it's a challenging sense though, because they are getting
45:23 Speaker 03 Totally outmanned with with number of troops and also with artillery. So, you know, we need to give Ukraine the the support that that we can. And then move towards some kind of a just peace. But it's going to be a brutal war and Russia, in my view, is fighting a war of attrition.
45:45 Scott Galloway? So, last question here, because I know, obviously, a lot going on today. If I think of America geopolitically, competitively relative to our competitive set, I think an honest, sober look at the data is that America is relatively strong. We our economy is growing, our inflation is bad, but not as bad as it is in many Western countries. We're food independent, we're energy independent, no one is lining up for Chinese or Russian vaccines. And yet, we really don't like each other and we really don't feel good about America. There seems to be a fraying in our connective tissue. People seem to be more worried about the other party than they are about Xi or Putin, or more concerned about a transgender swimmer than Russian soldiers pouring over the border in Ukraine.
46:29 Scott Galloway? It seems as if America is a horror movie, the call is coming from inside of the house. So, assuming you believe, and I know you do, because you work with, you take pride in being bipartisan and working with people from across the aisle. How do we restore that connective tissue? What are the big, bold ideas to get Americans again to recognize that they'll never have greater allies than other Americans?
46:53 Speaker 03 That's really well put. I come to it from my personal story. I mean, when I was growing up, my parents, who were immigrants from India, said to my brother and I, "You won the lottery. You were born in America. Go make something of yourself, go work hard, go get a good education. This is the place where anything is possible." I still genuinely, deeply believe that we are the greatest nation in the world. I believe that we are an aspirational hope for people around the world, that ultimately, this is a good, decent country, and that we're trying to do something, Scott, that has never been done in world history. We're trying to become a multiracial, multi-ethnic democracy.
47:36 Speaker 03 The Canadians always get upset when I make this point, but they're eighty-some percent white. So are the Australians, so are the British. We're sixty percent white, not Hispanic. We've got every religion, every person in the world, in the United States. And to think that we'd somehow have a linear line from Barack Obama on to this achievement that no nation has ever done, I think was naive. And a lot of the discussion we're having are, in my view, over two fundamental things. One is the economic dislocation. While some places have done really well, other places have been hollowed out. The economic revitalization of our country, I think, can be a common theme and connective tissue.
48:20 Speaker 03 I often joke, I said, look, Barack Obama, the most talented person of his generation, wanted to unify us with Lincoln-esque rhetoric. And he succeeded in a lot of things. I think he himself would say that the country was divided after he left. Cory Booker, who I love, wants us to love each other. And I said, let's just talk to each other, let's just make money together, let's just work together, let's rebuild America's economy, let's rebuild our productive capacity. That is, I think, unifying. And a lot of our debates about how do we navigate this? How do we have some tradition, some sense of community, some sense of understanding of a way of life, and yet make room for the new traditions, the new ideas, the new people?
49:03 Speaker 03 How do we have that, still have a common fabric? And in some ways, Barack Obama was saying, there's a place for someone like me, and Donald Trump was saying, well, what about all these other folks? Where's their place in America? Some of them fought in the wars, and they don't see the America that their grandparents had. And I think we have to treat each other with respect to understand that this is a conversation we have to have about what the common culture is. And I'll end with this poet, the person who understood this the most and had the most visionary view of America becoming this composite nation, respecting tradition and yet embracing the new, was Frederick Douglass, " Composite Nation," his speech in 1869. And I just wish if every American kid just read that speech.
49:46 Speaker 03 I don't care about all the other debates, just read that speech, and I think that's the vision of America.
49:52 Scott Galloway? Congressman Ro Khanna represents California's 17th congressional district and is serving his fourth term. Representative Khanna serves on the House Armed Services Committee as ranking member of the Subcommittee on Cyber, Innovative Technologies and Information Systems. He's also the co-chair of the Congressional Caucus on India and Indian-Americans, a member of the Select Committee on the Strategic Competition Between the United States and Chinese Communist Party, and on the Oversight and Accountability Committee where he previously chaired the Environmental Subcommittee. He joins us from our nation's capital. Representative Khanna, thank you for your time and your service.
50:23 Speaker 03 Thank you for having me on.
50:34 Scott Galloway? Out of happiness, everybody needs a stage that strangers applaud for them. I was on Bill Maher this weekend, or Friday. It's my third time on the show. It's not even a humble brag, it's just a brag. That is the Super Bowl for me, or Wimbledon. And that is, if you're a tennis player, you dream about going out on center court at the US Open. If you're playing for the Brazilian team, you dream of being in the World Cup, in the finals. I've literally dreamt about being on Bill Maher. It's just, they try and catalyze a conversation. I think Bill is fearless, and they try to be funny. And these are all things that I aspire to professionally.
51:15 Scott Galloway? And it's just hugely important to me, or gratifying, rewarding, and really just bask in the moment and enjoy it. But what you also realize is that it's not all about you, that everybody needs those moments. And part of those moments is some people aren't going to have the opportunity to go on television, or go out on center court, or play in the World Cup. But so much of it is just about the people in your life recognizing how proud of you they are, or how impressed they are. And this is something I wish I had.
51:53 Scott Galloway? Adopted earlier in my life, and that is, you don't have to wait until someone does something of some sort of, I don't know, huge public recognition. You need to create those moments for the people you love and for your kids. And it can happen a lot of different ways, whether it's their, their work at school, whether it's achievements, small achievements, or what might appear to outsiders as small achievements. It's your job as a father, as a husband, as a brother, as a friend, to create those moments for other people and to recognize their achievement. Everybody needs applause. Everybody needs applause. And the key is not necessarily the size of
52:38 Scott Galloway? their achievement, but that people in their life that love them and they love, you know, give them a standing ovation and recognize their efforts. So if you're fortunate enough to get to that point, enjoy it, bask in it, and then recognize it's not all about you. And you have to create some reasonable facsimile of that type of stage and applause for people in your life that mean something to you.
53:06 Scott Galloway? This episode was produced by Caroline Shager. Jennifer Sanchez is our associate producer, and Drew Burrows is our technical director. If you like what you heard, please follow, download, and subscribe. Thank you for listening to the Prof G Pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn, and on Monday with our weekly market show.
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Previous Office Hours: Where Do Companies Keep Their Cash? Dealing With Burnout in the Workplace, and Advice on Reentering the Workforce After Having Children Next No Mercy / No Malice: Fame Page updated September 30, 2026 · transcript and summary are machine-generated
