Capitalism, Private Equity, and the Seven Deadly Sins — with Stephen Dubner

Stephen Dubner, the host of the Freakonomics Radio podcast and founder of the Freakonomics Radio Network, joins Scott to discuss the history of Adam Smith, the role of private equity in our society, and his thoughts on the Seven Deadly Sins. Scott opens by discussing the explosion in CEO pay and how it all trickles down to all sorts of inequality. Algebra of Happiness: are you living in the moment? Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

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• 0:48Speaker 01

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• 1:18Scott Galloway?

  Episode 246. 246 is the country code belonging to Barbados. 1946, UNICEF, the United Nations International Children's Emergency Phone was created, and the baby boomer generation kicked off. I'm technically a boomer, but I identify as Gen X.

• 1:36Scott Galloway?

  Go, go, go!

• 1:45Scott Galloway?

  Welcome to the 246 episode of the Prop G Pod. In today's episode, we speak with Stephen Dubner, the host of the Freakonomics Radio podcast and founder of the Freakonomics Radio Network. We discuss with Stephen a variety of topics, including the history of Adam Smith, the role of private equity in our society, and his thoughts on the seven deadly sins. Okay, what's happening? I am back from Japan. I did a vacation in Japan, two weeks, Tokyo, Kyoto, Osaka, and Ago Bay. I'm literally at the point in my life where I'm like, okay, I've worked my ass off. I have some flexibility and some economic security, so I am going to just vacation a shit ton whenever my kids have time off work. And the first day is

• 2:27Scott Galloway?

  amazing, and by the end of the vacation, the idea of them leaving the house and potentially getting into some sort of dysfunctional, relationship-driven fight with their father and never speaking to me again, sounds okay. Sounds okay. I don't mind. By the end of the vacation, I don't mind the concept of being estranged from my children. They are super difficult. Okay, enough about that. Let's move on to the news. Over in the land of CEO pay, the Financial Times reported that more than a third of S and P 500 companies' paid executives get this more in 2022 than in 2021, despite having negative shareholder returns in 2022. A few of those companies include Moderna, Summit Property Group, and Marriott. A Marriott representative told the FT that their CEOs' compensation actually

• 3:12Scott Galloway?

  paid was down 27% last year due to the drop in stock price, and that comparing traditional pay disclosures to total shareholder return in a single year does not paint a full picture. So this is what happens. This is why CEO pay has literally exploded over the last four years. It used to be that CEOs made about 16 or 20 times what the average worker in that company made. Now it's more like 300. Now, why is that? Proximity. And this is why you need to get into the office. When you're on a board, we all know Bob or we all know Lisa, the CEO. And what generally you find is that the CEOs or senior managers of a company are likable people. That's how they become senior managers. There's this

• 3:52Scott Galloway?

  cartoon of leaders in companies that they're Monty Burns and that they're, you know, Scrooges and clawed their way to the top, and they're kind of like a Rupert Murdoch-esque. Type person, that has not been my experience at all. They're generally very likeable and you spend time with them, right? And people like to be on boards. There's always this stuff around, well, if the, the board of a company that engaged in ridiculously fraudulent behavior had to actually pay back some of that money or potentially face penalties, that we couldn't find people to go on boards. What extraordinary bullshit. I get a call probably once a week from someone who wants advice on how to get on a board and thinks they would be great as a director on a board. There are so many people that want on boards. Why? Cause it's really

• 4:35Scott Galloway?

  good work. You get paid on average, a quarter of a million bucks less if it's a small company, more if it's a big company to kind of show up four times a year, have dinner and think big thoughts and kind of heckle from the cheap seats. And what happens is they get to know Bob or Lisa, the CEO, and they find out that Bob or Lisa is a really nice guy or gal. And then the compensation committee comes back with work done by Towers Perrin, a firm we pay a hundred to 200 grand a year to come back and say, this is how much the average CEO of the average firm of your revenue level, of the revenue level of the sector made. They made between X and Y. 50 percentile would be the average. The average would be, call it $7 million. But wait, we can't pay Bob average. We like Bob. I played golf with Bob just last weekend,

• 5:17Scott Galloway?

  or Lisa's trying really hard. And so we say, okay, let's pay him 60 or 70%. Let's pay him eight million or nine million. And you think, that's not that bad. Just a little bit above the average. The problem is, the problem is, when you pay someone 10 or 20% above the average, that means you are increasing compensation to 10 or 20% a year, or that you are doubling it every three and a half years, because those same consultants now take that data point of 10 or 20% above the mean. And that brings the mean up for everybody. And now, now the consultants come back with a much higher number that's 10% up for everyone in the industry, which means you gotta go 20% up the following year, because Bob or Lisa are such nice people. Now, what can you do about it? I'm not sure there is a lot you can

• 6:00Scott Galloway?

  do about it, other than be that board member that eventually gets kicked off the board, by occasionally saying, hey, you know what? This was not a great year for shareholders. We should not be paying this person a lot of money. And then what happens is slowly but surely, the CEO who has good relationships with everyone that they put on the board, such that they could cash a quarter of a million dollar check, decides after a little while that you should be booted off the board. By the way, that does not happen to me. I don't have sour grapes here. But it is difficult. It's much easier. When you know someone, to be nice to them, to err on the side of being generous. Now, that is why you need to be in the office. For every promotion, for every opportunity at work, there are two or three people who are qualified. The decider will pick the person who they have the strongest relationship with.

• 6:43Scott Galloway?

  And relationships are a function of proximity. There's been studies that show that people who are just good and hang out at headquarters or at headquarters have a better chance of being promoted than someone who's great, who's working in a regional office or an international office. Bottom line, proximity is really powerful. And the board member has real strong proximity with the CEO. And guess what? Numbers two, three, and four executives are CFO, the COO, the EVP of Operations, whatever it might be, the Chief Revenue Officer. They make a fraction, a fraction of what the CEO makes because they don't have the same proximity to the board, to the people who decide, as the CEO. And the CEO will decide to pay them well, but not the outrageous comp of the CEO.

• 7:28Scott Galloway?

  What can you do? I'm not sure there's a lot you can do. What you definitely should do, though, is we should do away with a regressive tax structure. The majority of compensation for CEOs comes in the form of equity. Equity compensation qualifies for long-term capital gains. What should we do? We should eliminate the tax deduction or the reduced taxation of long-term capital gains. All income should be taxed at the same rate. Forty years ago, was it forty years ago? I guess it was. Reagan decided that all income was just income. When did we decide that the money that money makes is more noble than the money that sweat makes? Actually, if you think about it, if you had a progressive tax structure, long-term capital gains would be taxed at a higher rate. Because who enjoys long-term capital gains?

• 8:13Scott Galloway?

  Old, rich people who own assets and trade those assets. Who makes their money from current income? Young people. So it is a regressive tax system to have current income taxed at a higher rate and long-term capital gains taxed at a lower rate. What was the excuse? Well, we need investment. Well, guess what, folks? There is not a dearth of investment capital. There's a dearth of good opportunities. What does that mean? It means we need to inspire the economy. We need to transform more money back to young people. And what's the great thing about young people and lower middle-income consumers? When you give them extra money, they spend it all. What do rich people do? What do rich people do? They invest it, driving up the market. So we've had unprecedented returns of shareholder gains, which is great for the top 1% who own 90% of homes and assets and stocks. And who's gotten fucked?

• 8:56Scott Galloway?

  The average 30-year-old, who for the first time in America's history is no longer making as much as his or her father was at the age of 30. What does this mean? It trickles down to a 21-year-old male who doesn't have the same opportunities as most young males. And the upper 10% of attractiveness of males get all of the mating opportunities, which doesn't encourage long-term relationships. If I'm offending everyone out there, good, that's my fucking job. But this is the reality. There is less and less motivation and third spaces and reasons for people to hook up and mate right now, because we are sending false signals to people around what it means to be in a long-term relationship. And the bottom half of attractiveness of men have absolutely no fucking opportunities with sons themselves, misogynistic content, nationalist content, and for them to distribute

• 9:38Scott Galloway?

  national security documents on a fucking online platform. Why? Why? Because we aren't giving young people the opportunity to be economically or emotionally viable. What does that result in? It results in a whole cadre, a whole cohort, a whole population of young men in our country that bottom line aren't attractive to women. What happens? What happens when the man is making less money than the woman? Twice as likely to get divorced. The guy's much more likely to use erectile dysfunction drugs. The woman is much more likely to file for divorce. Call it what you will. Call it primitive, call it 50s, call it a regression or back to the future. Women are not attracted to men who don't show the same economic, much less the same emotional viability as their fathers did. Should we change?

• 10:23Scott Galloway?

  Absolutely. Is that the way the world should be? No, it's the way the world is. If we don't start shoving a lot more economic opportunity to a younger generation, we are going to have increased nationalism, increased misogyny, lower household formation. Fewer and fewer economically and emotionally viable men who become shitty citizens and do really stupid things online, embrace nationalist content, embrace misogyny. I'm getting redundant here. You know who wants more economically and emotionally viable men? Women. And what do we do? Do we have affirmative action for men? No, because we've become too politicized. What we do is we level up all young people. Should we do anything to get in the way of the incredible progress women have made? Absolutely not. Good for you. Go, girl.

• 11:07Scott Galloway?

  Should we in any way somehow communicate that it is their responsibility to hook up with men or to service them or to be more engaged in relationships? No. They have every right to be as choosy as they should be. That is entirely their prerogative. But what we should also do is give more and more young people more economic opportunities such that we have more economically viable and emotionally viable men and women. And if we level up young people, there'll be a disproportionate advantage to men because they have fallen furthest fastest, more vocational programming. We have an absolute ridiculous rejectionist culture at colleges. We need to dramatically expand freshman seats. We need national service. We need more third spaces where people can

• 11:47Scott Galloway?

  meet and fall in love. We have got to get back to a point where there are more opportunities for young people, full stop, and more opportunities for people to meet and have smell and vibe and humor and body language and the magic and mystery of sexual attraction as opposed to just swiping fucking left or right. Jesus, that was a rant. How did we get to dating? Anyways, okay. Let's get back to CEO compensation. In addition to the aforementioned companies, the CEO of Southwest Airlines pay increased 75% last year despite the holiday travel meltdown that resulted in about $800 million in lost revenue. Exxon CEO got a 52% bump to $36 million while the median pay for an Exxon worker declined 9%.

• 12:32Scott Galloway?

  A hundred and seventy one thousand, that's still a pretty good coin amidst record profits. See, that's just fucking bullshit, right? The CEO gets a fifty two percent bump? There's nothing wrong with making a shit ton of money. I make a shit ton of money. And you know what I always think when I make a shit ton of money is that the people who work with me need to make really good money, maybe even a shit ton of money, given where they are in their career. That's what it means to be empathetic. That's what it means to be a leader. When I was growing up, one of my many flaws as a leader was I was always looking to get the best deal possible, the best deal possible from whoever was leasing me office space, the best deal possible from a vendor, the best deal possible from an employee, pay them as little as possible and get as much work out of them as possible. And guess what? That makes a bad fucking leader. Right now, some of that was just survival because I didn't have the capital to invest in my companies

• 13:16Scott Galloway?

  and I needed to throw nickels around like there were manhole covers. But at a fairly young age, I recognized, okay, if I don't have the cash to pay the market, I need to give them equity such that they start acting like owners. And guess what? You know what it means to be smart or a good leader? It means that occasionally, occasionally, maybe even on a regular basis, you overpay people. That's what it means to be successful. You overcompensate them. You give them more money than they could get somewhere else. It's not just a market transaction. When you have a supply and demand economy, you end up with one in five households have kids who are economically insecure. So you're the CEO and you get a fifty two percent bump in pay. Then it is unacceptable that your employees would make nine percent less. The firm garnered fifty six billion in net profit for twenty twenty two. Think about that.

• 14:00Scott Galloway?

  Jesus, fifty six billion dollars. And also, by the way, I'm now believing we should have additional taxation for all the companies over a certain amount. Notice how everyone wanted to move in and bail out these companies because of COVID. Well, now we're in a period of exceptional profits for sectors, but no one's talking about additional taxes for that. No, no, no. According to the AFL-CIO, the average S and P five hundred company CEO to worker pay ratio is three hundred and twenty four to one. Give me a fucking break. Three hundred and twenty four to one. We can't limit compensation then as part of capitalism. What we can do is have a tax policy that is progressive. The tax rate for senior level executives is lower for their employees because the majority of their compensation is recognized and see above long term capital gains. That is total bullshit. It's a regressive tax structure.

• 14:45Scott Galloway?

  It creates resentment. It creates less opportunity for young people. In twenty twenty one, CEO pay rose eighteen percent, whereas US workers' wages rose only four point seven percent. The inflation rate was seven percent. Or put another way, Life just got worse for the majority of workers. Their lifestyle, their purchasing power has gone down. That's the whole point of a nation. That's the whole point. What is the most remarkable innovation in the history of the West? Is it the microchip? Is it the iPhone? Give me a fucking break. And it's not Netflix either. It's the middle class. They fight our wars. They're responsible for the majority of our discoveries. Look at, show me a Nobel Prize winner. I'll show you someone who came out of the middle class. Show me a great officer in the armed services or someone who puts their boots on the ground.

• 15:29Scott Galloway?

  I'll show you someone from a military family in the middle class. Show me teachers. Show me scientists. Show me people who get elected to Congress. And I'm going to show you mostly, mostly people from the middle class. People who fight our wars, people who pay our taxes. You can't have a healthy society without having a robust, healthy middle class. And how do we, how do we level up the middle class? By giving them more purchase power, by raising minimum wage, by giving more opportunity to young people? And most importantly, going back to the good old days when we had something called a progressive tax structure. What was the tax rate after World War II for the top 1%? It was 92%. Was that overkill? Yeah. What was it during the Carter years in the 70s? 70%. What is it now? It's in the 20s. It keeps going down. Why? Why?

• 16:14Scott Galloway?

  Because of Citizens United. Money has washed over Washington and both Democrats hold their, cross their arms and shake their heads. Bernie Sanders and Elizabeth Warren, the rich should pay their taxes. Well, do your fucking job, Senators Warren and Sanders. You controlled all three houses of government for several years. Now you control two of three and you can't figure out a way to restore a progressive tax structure right off the Republicans. They're there for the top 1%. They have somehow pulled off the ultimate Houdini trick and convinced the lower 99% that they aren't in fact just representing the 1%, which they are. But the Democrats have done a shitty job. They have let their donors co-opt them into just sitting around and complaining all the time while we have an increasingly regressive tax structure that crowds more and more opportunity, more and more prosperity,

• 16:58Scott Galloway?

  more and more money into the top 1%. So what do we have? We have a middle class that is barely holding on despite what is unprecedented prosperity. That's the most obscene thing about all of this. We have remarkable prosperity in the United States over the last 50 years. What we lack is progress.

• 17:18Scott Galloway?

  We'll be right back for our conversation with Stephen Dubner.

• 17:24Scott Galloway?

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• 18:08Scott Galloway?

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• 18:41Scott Galloway?

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• 20:01Scott Galloway?

  Welcome back. Here's our conversation with Stephen Dubner, the host of the Freakonomics Radio podcast and founder of Freakonomics Radio Network. Stephen, where does this podcast find you?

• 20:12Speaker 02

  Finds me in New York City.

• 20:13Scott Galloway?

  So let's bust right into it. You recently explored the history of Adam Smith on your show Freakonomics. I'm curious what you learned about Mr. Smith and how did he become known as the father of capitalism and the father of economics?

• 20:26Speaker 02

  Yeah, I mean, it's not without reason that we call him that. What I think is the most interesting development in his whatever, he was born 300 years ago, I think this year, is that the most common image, I think, of Adam Smith these days, among people who care about Adam Smith and have heard of Adam Smith, is sort of the Milton Friedman, George Stigler, University of Chicago version that they helped popularize in the middle of the 20th century. And that was, you know, the invisible hand, the dominance of the free market above all, and a trust in the free market to sort things out, and a distrust in governments to regulate, intervene, and so on.

• 21:09Speaker 02

  And so while there's plenty of that in Smith, there was just a whole, whole, whole lot more in Smith. So in other words, Smith became known as an economist, even though there wasn't really a school of economics at that time. He, his second book, The Wealth of Nations, that's a short name of it, which many people know, established that reputation. But 17 years, I think, before that, he'd written his first book. He only completed two, and that was called Theory of Moral Sentiments. And That exhibited what Adam Smith was, which was a moral philosopher. And so, you know, I think like most people in history, their reputations, if they last at all, I mean, how many, what share of people have a reputation in the last 300 years, right? Almost, almost zero.

• 21:53Speaker 02

  And when they do, it usually gets truncated and narrowed to something like a thumbnail or a slogan. And so we were trying to unbury the complete Adam Smith. And to do so, we went to Scotland, to Kirkcaldy, the town where he was born and spent a lot of his time, to Glasgow and Edinburgh. And so, yeah, unearthed, or I shouldn't say, we were hardly the first people to have ever reexamined Adam Smith. And I was inspired to do this series by a book called Adam Smith: America by Glory Liu, who's a political scientist at Harvard. And honestly, I don't know how much listeners cared and loved it. I hope they did. I mean, the numbers were fine, but I had a blast, Scott.

• 22:37Speaker 02

  So, I mean, I don't know about you, but the main reason I do what I do is because it's exciting and fun and interesting for me. And I feel like if you approach your work that way and you do it with some form of energy and integrity, then, you know, other people might like it, but it's always taking a chance.

• 22:54Scott Galloway?

  I do it for the money. So I've always thought, if our founding fathers could see how the Constitution or how society puts to their original intentions, what they would say they got right or wrong with the Constitution or their general viewpoint, because they couldn't have predicted how the world was going to evolve. Do you have any sense, after kind of getting to know Adam Smith, what you think he would think of sort of modern day capitalism?

• 23:22Speaker 02

  It might sound a little bit presumptuous to say that I do, but yeah, I feel like I have at least some opinions. So I'll be honest with you. I could see him, I don't know about fitting in to today's debates about politics and economics and so on, but I think he'd be really useful. I wish there were more people like him who were polymathic and rounded and also very good. Like he was not an angry person. His, his big influence was David Hume, the Scottish philosopher who was known as being like one of the jolliest philosophers or people ever. I think the two things that Smith would say today would land really well.

• 24:04Speaker 02

  Number one, governments mess things up a lot, even when well intentioned. And therefore, when it comes to economic matters, it is wise to be reluctant to overinvolve them. But very related, I mean, it's the flip side of the coin. Number two, wealthy, powerful individuals and corporations, especially corporations, will do everything they can to capture the leverage of government. It's really all about that balance. And he identified that, you know, 250 years ago. When you read Smith on the, the English East India Company, you know, the English East India Company was bigger than England, had a bigger army. It was richer, had more subjects under its rule, believe it or not.

• 24:47Speaker 02

  And Smith, like a few critics of the time, and not the majority, argued that it was the worst of both worlds. It was a corporation who had leverage because the government gave it so much leverage. And it essentially captured so much leverage in sync with the government that it was acting as a sort of state outside the state. And yet, when they finally began to go under, because they were so overextended, overleveraged and, and made so many bad decisions, the state had to bail them out. So I think Smith right now would be a tiny bit Bernie Sanders, Elizabeth Warren, whatever.

• 25:25Speaker 02

  Mostly, however, kind of old school economic centrist-ish on the Bill Clinton channel, maybe. And a little bit of, you know, let's say the Friedman range in terms of understanding how the world works at a very deep level in a way that a lot of, in a way that a lot of sloganeering people don't.

• 25:49Scott Galloway?

  It seems as if a lot of young people have lost confidence in capitalism. What do you think they get right and wrong?

• 25:56Speaker 02

  That's a very good question. I would also just say, I mean, probably nobody cares about this, but I would say as a personal note, I would say that I have lost a little bit more faith over the last 10 or 15 years as well. I think there's a lot of reason to do so.

• 26:11Speaker 02

  You know, on the arcane academic side, I think of this outfit called Opportunity Insights, run by some really smart economists at Harvard, Nathan Hendren and Raj Chetty, who try to figure out, you know, the American dream, true or false, or, you know, valid or not. And their data shows that income mobility has really decreased a lot in this country. And I don't know many people who are going to argue that's a very good thing. So, you know, that's one strike against. I think government capture, as I mentioned in talking about Adam Smith, is also a really big problem. We did an episode a couple of years ago with a political scientist named Yu-Yin Ang,

• 26:52Speaker 02

  who wrote a book about Chinese corruption and comparing, honestly, Chinese corruption to American corruption. It's just, they're just different flavors. The degree to which our corporate friends and overlords have captured the way government is created, or the way politicians at least operate, is really severe. We're working on a piece right now about the state of Delaware. I mean, it's a bizarre story. So I think for us to tell ourselves that we have this kind of well-balanced capitalist system that works hand in glove with our democratic system, and that it still rewards

• 27:36Speaker 02

  people who are honest and work hard and are creative, et cetera, et cetera, and pay attention to all the important things, I think it's becoming a little bit less true every day over the past, whatever, 30, 40, 50 years. So I don't blame people who think that. On the other hand, I think there's an awful lot of naivete that goes along with it. People like stuff, people like getting around, people like having air Conditioning people like having smartphones in their pocket. And all those things are created by this set of people who participate in our system by using, you know, all the rules and then some. So I hate to give the standard, it's complicated answer, but yeah, it's complicated. But I would also argue that because it's complicated, it's fun. It's fun to figure it out. It's fun to figure out what's real and what's an illusion.

• 28:19Speaker 02

  When you hear politicians talking, it's fun to say, are they just sloganeering to try to get some votes from people who don't know any better? And maybe even telling a bunch of lies along the way? Or do they actually understand this stuff? And are they trying to educate us? And I'm, I'm fairly unenthusiastic about the level of intellect, especially when it comes to economics in our political class. I wish that was different.

• 28:42Scott Galloway?

  So doesn't history sort of repeat itself here? And I'll give the, you know, the off off Broadway version of, of history. And that is capitalism. I think the genius of capitalism is it leverages this incredibly powerful force and that is self-interest. And this notion of the collective and, you know, kind of the communist man fighting and working his ass off for the better of the collective, that they just ignored human nature. And that it's always, it's like dictators always start benevolent. It seems like capitalism to me is always the best way to go for a long, long time. The question is, does it collapse on itself? And that is, and I think we've seen this play out over and over. People demonstrate extraordinary ingenuity and innovation and take risks.

• 29:25Scott Galloway?

  And with the right economic environment and the right political environment, you know, erring on the side of a lack of regulation, they, they do amazing things and register and create a ton of stakeholder value. They then understandably take a lot of that wealth and in a nation like ours, weaponize government to make sure they're entrenched, reducing what you mentioned churn. And slowly but surely, we end up with a lot of income inequality. And once income inequality gets to a certain point and you have three people who are worth more than the bottom half, at some point, the bottom half go the easiest way to double our income is to take all the shit away of the top three people. And we have to press the reset button. Where do I have this wrong? Doesn't it just keep happening?

• 30:07Speaker 02

  I guess so, but I mean, if you also look at the the bigger macro trends about life generally, humankind generally, you know, this, whether it's Steve Pinker, the Hans Rosling data, I mean, you know, there's tons of stuff on this, it's easy to see, you know, it's hard to argue that the world has gotten overall worse.

• 30:24Scott Galloway?

  Yeah, agreed.

• 30:25Speaker 02

  It's easy to argue that progress and prosperity and all those words, I mean, it's funny, even prosperity becomes a dirty word at some point, which which I think is absurd.

• 30:33Scott Galloway?

  Billionaire class, yeah.

• 30:35Speaker 02

  Yeah, yeah. Here, here's where I think part of the problem or maybe disconnect lies. So I like economics and I like economists. I'm not an economist, just to be clear. I've hung out with a lot of economists for a long time. They are often very brilliant. These days, to get a PhD in econ from a good or even so-so program, you have to be extremely smart and really good at math because econ got extremely mathematized in about the middle of the 20th century. That attracts a cohort of people who, on average, and historically, although this is changing, have been, you know, to be that smart and good at math and able to perform

• 31:17Speaker 02

  economics, you know, a certain kind of economics and econometrics and so on, you are often going to belong to a cohort that isn't really very good with people. You don't really understand that humans are the input in those formulas. And so what I think has been a really healthy development, and I'm sure you know a ton about this, is the behavioral economics movement, which was really birthed by a couple of Israeli psychologists, Amos Tversky and Danny Kahneman, Kahneman's still alive, Tversky died, Kahneman won a Nobel in economics, even though he's a psychologist. And then Richard Thaler was one of the economists who came along and turned it into behavioral economics. I think now we are starting to remember that people are part of the equation. And honestly, for a long time, that wasn't the case.

• 32:02Speaker 02

  If you start to look at our economic structure, capitalism, politics, with the smarts and the analytical abilities and the ability to work with huge data sets that economists have, and you blend that with the insights That psychologists have, then I think you may begin to make some real progress. I think one concept from psychology that most of us overlook almost all the time is what they call habituation, which is just you get used to something that's good or bad, and then you want to move on to the next thing. So I think a big problem is that here in the whatever we are, 21st century, we all walk around now, the cliche is with more computing power in our pockets

• 32:45Speaker 02

  than NASA had to. I don't know if that's actually true per se, but I think that's part of the problem. And then the other part is, I can't remember, you probably know who said this, I can't remember, "Comparison is the thief of joy." And now comparison is so easy that it's easy to make yourself miserable, even though you are observationally very, very, very sound. You have enough food, you have shelter, all those things. I don't blame people for being frustrated. What frustrates me is when their frustration doesn't lead to anything positive, because I think a lot of excellent developments over the history of the world have come out of frustration. It's a natural human condition, but I don't like how we often give in to it, honestly.

• 33:29Scott Galloway?

  Yeah, Theodore Roosevelt said it, but I think Mark Zuckerberg decided that comparison is the root of all shareholder value. So you wrote, you did a series on private equity. What surprised you about the industry and what do you think people get wrong or right about the industry?

• 33:43Speaker 02

  Yeah, so, you know, big question. Our, we did a two-part series on it, and we focused on just one sector of the economy, which is pet care, because it's too big. I mean, it's huge. You'd have to, I mean, there have been many books written about private equity and so on. I think one people, one thing people get wrong is that there's any one size fits all. So there are some industries and even some sectors within industries that really, really, really benefit from having an infusion, just having money, money and good management. You know, there are some of the more technical sectors of, let's say, even pet care, where you want to open, you know, a surgical

• 34:29Speaker 02

  outfit, where you just need resources and you need organization, and in a lot of cases, that can be a benefit. On the other hand, when you're dealing with an industry like pet care with human healthcare, where private equity has also been extraordinarily active.

• 34:44Speaker 02

  You are gonna, you're gonna lose some connections. You're gonna lose connections between the founder and/or manager and the patients and/or customers. I can make an argument either way. I can make an argument that private equity is a fantastic and brave application of capital. And I can make an argument that if you work in a sector or own a business that private equity is coming to knock on your door, I'm not saying you should run, but your customers may want to run eventually because of course it's gonna work out well for you, but not necessarily for them. But again, the findings vary a lot from sector to sector. One thing that we found in pet care, there was this interesting knock-on effect.

• 35:29Speaker 02

  It used to be, until pretty recently, the majority of pet care facilities, vet practices, surgical suites, et cetera, et cetera, were owned by small owners. Yeah, mom and pop. Right. And in the last about 10 years, the roll-up has been really intense. And at the top of the pyramid, the more expensive procedural stuff, surgical things and so on, the roll-up is very intensive. I think something like 75% of that revenue is now owned by or run by private equity. One thing that we saw that facilitated the change is it used to be that if you were a young veterinarian who joined a practice and then your senior partner or boss, whatever, was wanting to sell out, you would have made enough money by then to buy it.

• 36:14Speaker 02

  And now so many people come out of veterinarian school with so much debt that they just don't start earning enough money until way, way later. And so the people who want to cash out can't do anything except take the big check from the private equity fund. And so, you know, for every one of those stories, there's 10,000 others in dental practices, in car washes, in pawn shops over and over and over again. And I don't know, maybe this is personal preference, but I, or maybe it's just that I'm old enough, but I like that living in a world... Where you knew who did the stuff that you are interacting with. And when you feel you don't, I think there's something a little bit dehumanizing about that. On the other hand, I think that capital can do amazing things and that the venture

• 36:58Speaker 02

  capital industries and private equity industries have produced products and goods and services that we're all grateful for. So I think anybody who tries to wipe it off or put their mark on the pro or con side of the ledger without thinking through the specifics of it and trying to find some data, I think is making a mistake. That was, that was a really wimpy answer, but I believe it.

• 37:20Scott Galloway?

  Coming up after the break.

• 37:22Speaker 02

  Some of the smartest people I know are some of the laziest, self-professed, laziest people I know because they're smart enough to know that unless something gets inside your cranium and really, really agitates it in a good way or bad way, you should not pursue it. You're just going to waste your, you're going to waste your brain cells.

• 37:44Scott Galloway?

  Stay with us.

• 37:48Scott Galloway?

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• 38:33Scott Galloway?

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• 38:54Speaker 03

  Bonjour, compadre. It's the

• 38:58Speaker 03

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• 39:26Scott Galloway?

  My favorite series that you guys have put out recently was on the seven deadly sins. And you basically said that they're not deadly nor sins. This is how I, how I kind of interpreted it. You did it with Angela Duckworth. Talk a little bit about why some of these things are in fact friend, not foe.

• 39:44Speaker 02

  Yeah, so, yeah, so this is for a separate show we have called No Stupid Questions with Angela Duckworth, who's brilliant and fun. She's a research psychologist at University of Pennsylvania. She wrote the book called Grit. And, you know, she was into this idea because she studies self-control. That's what grit really is, is, you know, having a lot of self-control. And so she wanted to explore the seven deadly sins as basically failures of self-control. And it was funny because we had different perspectives on it. She would use examples of people like Elliot Spitzer or Tiger Woods. Like, how can people who are so disciplined and successful in one area of their lives have so little self-control?

• 40:26Scott Galloway?

  Not keep their putter in their bag?

• 40:27Speaker 02

  Yeah. Exactly. And to me, I mean, that's what being a human is. Like, what kind of freak has self-control everywhere? Like, nobody that I've ever come across personally. So, anyway, we did, so we did go back and we examined the seven deadly sins. And the thing to know about the seven deadly sins is they were from the church. They were a Catholic church doctrine, essentially. And they were primarily geared not towards civilians, but toward the clergy. Like, here's what you need to do to be the perfect conduit from God to the humans. And so lust, you know, anger, envy. The idea was really, it's a little bit more of a monastic pursuit of being anti-sinful because the idea was literally

• 41:12Speaker 02

  to not participate in these things so that you could keep your mind and your conscience and your soul free. Considering that big caveat, in other words, they weren't written for the 21st century and they weren't written for people like you and me. We did go back and examine them and we found that, yeah, they're like, if you subscribe to the seven deadly sins as a doctrine for your life, you're gonna have a miserable life and not very productive either. And so we also started to talk, you know, sloth, is sloth really a sin? I mean, some of the smartest people I know are some of the laziest, self-professed laziest people I know, because they're smart enough to know that unless something gets inside

• 41:53Speaker 02

  your cranium and really, really agitates it in a good way or bad way, you should not pursue it. You're just gonna waste your, you're gonna waste your brain cells. Wait until you have the thing that makes you go. And so that can look like laziness. With lust, we did look at, we did look at why sex has become less popular, which is kind of interesting and weird. There's, it's different in different places, but overall, there's a lot less sex going on. And then we, and then we wanted to look at what might be a good eighth deadly sin, something that we should nominate that isn't on the list and maybe is even better than all the other seven. So Scott, if you had to nominate an eighth, what would it be?

• 42:37Scott Galloway?

  I don't know, being desperate for other people's affirmation.

• 42:40Speaker 02

  Okay, I think that's a pretty good one. Is that, are you describing yourself to, I've heard you say that before.

• 42:46Scott Galloway?

  Yeah, that's my addiction.

• 42:47Speaker 02

  And you're real, that's real. You're not kidding when you say that.

• 42:50Scott Galloway?

  Oh, no, no, it's, it's my addiction. I think of an addiction as something you continue to engage in despite it damaging your life.

• 42:57Speaker 02

  Yeah, yeah. Do you try, do you, do you work hard to curtail or diminish it or not really?

• 43:03Scott Galloway?

  Well, I'm conscious of it and I'm trying to modulate my time on screens, my time on social media platforms, and I'm trying to shrink. How much criticism or a lack of affirmation from, I mean, you must get some of this. When you get to a certain level of followers, presence, footprint, there becomes a cottage industry and, you know, tearing you down and when you say mean things about Putin, and I know this sounds paranoid, but it doesn't mean I'm wrong, or you insult the portfolio of business venture capitalists, there's just thousands of fake accounts that will say very vile things about you. And it's hard to let it roll off you. But anyways, and trust me, my favorite thing is to talk about me, but I want to go back to this notion of lust.

• 43:46Speaker 02

  Yeah.

• 43:47Scott Galloway?

  Something that really struck me because we think a lot about young men and specifically how much young men are struggling. And I talk a lot about this decline in romantic relationships and sex. And you cited some stats in the episode between 2009 and 2018, the proportion of adolescents reporting no sexual activity, either alone or with partners, rose from 28.8% to 44% among young, among young men, and from 49.5% to 74% among young women. Is it that we're not supposed to express lust or romantic interest? Is it because we're in our homes because of the pandemic and on screens? What do you think it is that has, I mean, if you wouldn't have thought in

• 44:32Scott Galloway?

  the seventies, eighties, nineties, if you had to bet whether sexual activity among young people and teens is going to go up, the same or down, I bet the majority of the good money would have been on up. And it's gone down substantially. I think this is one of the most shocking things about our society. We've become more liberal, we've become more open, we've become more progressive, yet young people are having less sex. Did you get to any reasons why?

• 44:56Speaker 02

  So I think some of what you named are contributors for sure, not the pandemic, though, because those data were from before the pandemic. So that that trend was already moving hard in that direction. Screens for sure. I think there's a lot of evidence that Between, I mean, there are many different channels of distraction. There are things to do like video games. There are relationships to maintain that are virtual that may, in the old days, not have been possible at all. You couldn't be friendly with someone a thousand miles away, 5,000 miles away. Now you can, but you can't have sex with them. I think the relationship between men and women is a constantly shifting set of social mores and permissions and lack of permissions and so on. And so it ebbs and flows.

• 45:39Speaker 02

  I think there was a period there where, when women became more sexually liberated, some of them were having a lot more sex. And for men who wanted to have sex, especially before marriage or outside of marriage, that was a bounty. I think women's, you know, demand for sex has changed a lot over time in a lot of different directions. So I think that's, that's part of it. It could also be that men's demand for sex has changed, although being a man, it's hard for me to imagine that that change could be as steep as it might be the change for women. I think perhaps one of the big overlooked contributors to the decline in sex generally, and I don't have data on this, I've tried, I hope people are working on this, but I

• 46:24Speaker 02

  haven't seen it, is that I think for a period there, maybe 30, 40, 50, 60 years, there was a sort of attitude towards sex in this country where it was decoupled almost entirely from what we used to call love, right? Or relationship even, to some degree. And I think that decoupling has begun to become coupled again. I think there is a greater appreciation, and this, this is really mostly an opinion, so I could be totally wrong. I think a lot of young men also feel that society is stacked against them for a variety of reasons, many of which I think are good reasons. And I think that the old fashioned casual sex machine or industry really took a big

• 47:06Speaker 02

  hit, in part because of that, and in part because a lot of people, male and female, decided that just going out and having sex because it's fun is maybe not the best idea, that it seems like a relatively costless activity, but in fact, there are costs, whether it's self-esteem, whatever. And so I think that may be a contributor that we haven't been able to put any statistics around yet.

• 47:32Scott Galloway?

  So I'm curious, have you looked at all at population decline or population trends?

• 47:37Speaker 02

  A little bit, yeah. I mean, All the predictions are always wrong. That's number one. I mean, you know, the, the, I can't even remember which branch of the UN now or the WHO, whoever it is, but the predictions are constantly being defined downward. And the last report I saw showed that it was in the countries with the highest birth rates that are where the decline is going fastest, which is not surprising. I mean, they're starting from a high base. But in this country, it is very surprising. I think that the fertility rate fell so much. It fell a lot. We are starting, there are parts of this country that are starting to look a lot like the parts of the world, what some Western Europe, Japan and so on, where the, the rate is so, so low that it starts to become troubling.

• 48:20Speaker 02

  So before I hung out with economists a lot, I was, I always wondered like, what, what is, what's the deal? Like, why does, what does population and GDP need to grow? Like, what's wrong? Like, we're happy now, right? And I always thought I was wrong and naive for thinking that, but I think maybe that's not totally wrong and totally naive. And then there are economists like Kate Rayworth, a British economist who wrote a book called Donut Economics. Donut is her sort of image metaphor for a functioning economy where you don't want to fall in the hole and you don't want to go outside of it. And so basically it's how do you balance resources against the natural environment and so on?

• 49:01Speaker 02

  And so her argument is that we need to really engage with not necessarily degrowth, which is a really dirty word to a lot of people who like capitalism, and I can see why, but at least to understand that resources are finite and that growth in and of itself should not be a goal. And I think there's a lot of value in people reading at least that argument. There's another economist also in Britain, actually, named Mariana Mazzicato, who's written a lot of interesting things. Her newest book is about how management consultants have basically screwed over the world. And like all critiques of, you know, mainstream culture, society, econ, politics, whatever, they have some views that a lot of people might think are extreme.

• 49:44Speaker 02

  But what I would encourage, like the people who listen to you, you know, they're smart on the hardcore econ, the hardcore capitalism stuff. And I think we can make our capitalism better by incorporating some of these critiques.

• 49:59Scott Galloway?

  And you have literally, I mean, one of the things I love about your work is that you try to ignore the social narrative. You see everyone barking up the same tree and say, okay, let's look at the data. And I find that really refreshing. You see so much data, you look at so many societal, economic, political trends. What would you say to people who say, okay, this guy is at the helm of the bobsled. He, he has a bird's eye view into the economy and where it might be heading. And any two or three pieces of wisdom you'd want to offer young people?

• 50:31Speaker 02

  Wow, that's such a good question, really hard. I don't think I have an answer to that, but I have something that it makes me think of, which is, you know, you're familiar, I'm sure, with the, the book Bowling Alone by Bob Putnam years ago. And I always thought that like, it's an incredibly evocative title. I actually think it's kind of wrong. It's like, I think nobody goes bowling alone. They just don't bowl anymore.

• 50:52Scott Galloway?

  They just live alone.

• 50:53Speaker 02

  Right, exactly.

• 50:54Scott Galloway?

  Living alone.

• 50:55Speaker 02

  And or game alone, maybe at least, right? So the argument that he was making, Robert Putnam, who I believe is a sociologist, who I believe is still at Harvard, but I could be wrong in both of those. He was making the argument that one of the most important pieces of a society, of a civilization, is what we call social trust. And as an example of social trust, I like to think of, let's just say you're on the street with a baby somewhere. It's your baby. Let's say it's one year old. It's in a carriage and it's sleeping. And you need to run inside some store to pick something up. And there's someone on the sidewalk. Will you leave your baby with that person for 60 seconds or two minutes? So that's one example of it. And it turns out that social trust in this country has declined quite a bit since the 60s. It's declined in many places, although

• 51:39Speaker 02

  some places, it's quite high. In Scandinavia, we might not be surprised, in Australia and so on. So if you look at how you generate or create social trust, the scholars who study it, the guy that I like is named David Halperin in the, in the UK. He argues that there are some institutions that do it incredibly well. Sports teams, the military, universities to some degree, and so on. And what they have in common is they bring together people, often of very different backgrounds, opinions, political orientation, and so on. And they engage them in a common goal. Well, that kind of describes what the US was in a way.

• 52:22Scott Galloway?

  Yeah, country's supposed to do that, right?

• 52:23Speaker 02

  Yeah, if you squint maybe a little bit. And so I would encourage people to look at their abilities, look at their passion. What are you really good at? What do you really love to do? And then say, well, how selfish do I want to be? How profit maximizing do I want to be? In other words, do I want to go into one of the money harvesting industries because I want to make money? That's fine. I don't mean, I don't mean to sound so judgy, but I would encourage people to think about going into a field where at least a component of it has to do with building social trust. And maybe it's just social trust between your customers and your firm or whatnot. But I think we all individually and certainly collectively would benefit a crap load by

• 53:07Speaker 02

  collectively increasing our social trust. And so I would encourage you to sort along those dimensions.

• 53:14Scott Galloway?

  I like that. Stephen Dubner is an award winning author, journalist and TV and radio personality. In addition to Freakonomics, Super Freakonomics, Think Like a Freak and When to Rob a Bank. His books include Turbulent Souls, Choosing My Religion, Confessions of a Hero Worshipper, and the children's book, The Boy with Two Belly Buttons. He joins us from his home in New York City. Stephen, love your work, really appreciate your time.

• 53:38Speaker 02

  Thank you, Scott. I loved this conversation. Thanks for having me.

• 53:51Scott Galloway?

  How to Have Happiness. So being in the moment, and we say that a lot, how to be in the moment. And it helps me to sort of break it down and acknowledge why it has been so hard for me and people like me to be in the moment. And that is if you're thoughtful, if you want to learn, if you want to understand how to be better at what you do, if you want to be a better person, a better man, a better spouse, a better student, a better teacher, you are in the past. You focus a lot on history, you focus a lot on your learnings, you try and draw on your experiences. So you are in the past a lot, trying to understand what happened, trying to process things. If you are successful. You are in the future a lot. Why?

• 54:35Scott Galloway?

  Because the key to success, or one key to success, or absolutely almost requisite for success, is that you are able to live so much in the future that you delay gratification. That you trade off the moment. You don't play more video games. You don't spend money on going to Coachella. You save money, you study, you work that extra few hours instead of going to the pub with your buddies because you are delaying gratification. You're not as in the moment. Such that you can think about the future constantly and you give up on the only thing we own. And the only thing we truly own is this moment. That's it. The past is immutable. It's done.

• 55:16Scott Galloway?

  There's, literally, the past is the most immutable thing ever. There's absolutely nothing we can do about it. The future is literally the most mutable thing ever. It's so mutable that in fact, no one person has control over it. Everything can be going great and you can find out you have severe leukemia, which happened to one of my friends recently. Everything can be going shitty and then you meet someone wonderful or you get some luck and things turn around. It's incredibly mutable. You have no control over it. The only thing we own, really own, is this moment. And here's the fear. The fear is you go through life and you're in the past effectively. You learn from your mistakes. You take your education.

• 56:01Scott Galloway?

  You take your relationships. You learn from them. You apply them to the present, which you trade off as a successful person for the future and you end up at the end of your life and you were never really in the moment. You were in the past or you were in the future, but the series of moments called now that were your life, you were never really there. You were never really there. So what do you need to do? You need to try and recognize you can't control the past. That's it. It's done. The definition, or one definition of depression is being too focused on the past and anxiety is too worried about a highly mutable, uncontrollable future. So what can you do? You can slow down and say, okay.

• 56:44Scott Galloway?

  I'm going to smell the flowers. I'm going to appreciate how good a person this is. I'm going to appreciate how lucky I am that I have economic viability. I'm going to appreciate how wonderful it is to live in America. I'm going to appreciate how fucking awesome this food is. I'm going to appreciate how nice I feel, how nice I feel after I work out. I'm going to appreciate how awesome it is to be physical with someone else, whether, whether it's affection, whether it's sex, whether it's holding your kid's hand, whether it's having your dogs lay on you on the couch. I'm going to be in the moment. That is all we have. That's the only thing we own, is these moments. And what you want to make

• 57:27Scott Galloway?

  sure of is you don't live a wonderful life that you never really owned. You were never in those moments. This is all we have. Stop, stop. The past is done. The future you can't control. What you own is the here and the now.

• 57:47Scott Galloway?

  This episode was produced by Caroline Shager and Jennifer Sanchez is our associate producer and Drew Burrows is our technical director. Thank you for listening to the Prop 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.