How Big Tech Offloaded The Risk Of AI

Scott Galloway and Ed Elson unpack why they think investors should be paying closer attention to the off-balance-sheet obligations behind Big Tech's AI buildout. Then, they examine how rising oil prices and a new wave of tariffs could keep inflation elevated and why they believe China has emerged as one of the biggest beneficiaries of the conflict with Iran. Finally, they break down the surge in new business applications and explain what they think is behind the apparent small-business boom. Subscribe to the Prof G Markets Youtube Channel Subscribe to the Prof G Markets newsletter Order "Notes on Being a Man," out now Note: We may earn revenue from some of the links we provide. Follow the podcast across socials @profgmarkets Follow Scott on Instagram Follow Ed on Instagram, X and Substack Send us your questions or comments by emailing [email protected] 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.

• 0:01Speaker 00

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• 1:20Scott Galloway?

  Today's number three. That's the number of hours Japan's prime minister says she gets per night. Ed, I don't know if you've heard about the new corduroy pillows. They're making headlines.

• 1:42Scott Galloway?

  How much sleep do you get every night, Ed?

• 1:44Ed Elson?

  Seven and a half to eight is my baseline. How much sleep do you get?

• 1:48Scott Galloway?

  It's weird. You think, so sleep is one of those things that just leaves you. When I was your age, I used to just, I was a great sleeper. And my amazing thing is my boys are at that age where they can sleep 12 hours now. And I'm like, let them sleep because they're growing. But I get, I would say I get six to seven hours now. I used to get eight. I don't think you need as much sleep when you're my age.

• 2:10Ed Elson?

  I'm jealous. I kind of lament the fact that I need so much sleep. I'll get eight hours and I'm still exhausted when I wake up in the morning. Drives me nuts.

• 2:19Scott Galloway?

  It's weird. Either that, or you're just grumpy and tired all the time because you can't sleep. But yeah, I go to bed, I usually go to bed around two and I wake up usually around nine and an hour of that.

• 2:34Ed Elson?

  I guess you gotta kind of work on US hours a little bit.

• 2:39Ed Elson?

  But the 2:00 AM sleep time is nuts to me.

• 2:42Scott Galloway?

  Yeah, but from 11:00 PM to 2:00 AM is when I get real work done. Like when I start actually riding well and I don't know. There's something about that nighttime. Morning people are more productive. Supposedly evening people are more creative. I'm neither.

• 2:57Scott Galloway?

  But from 11:00 PM to 2:00 AM, just me and the dogs and everyone's safe and I feel more asleep and I feel kind of at rest. And that's when I find I can really like do, I don't know, real work that'll stand out, if you will.

• 3:12Ed Elson?

  You know who else is like that? Margaret Thatcher. She would stay up till like four in the morning.

• 3:17Scott Galloway?

  Yeah, me and Margaret Thatcher.

• 3:19Ed Elson?

  And then you know who else is barely sleeps is President Trump. He supposedly gets around four or five hours a night, which is just astounding to me.

• 3:27Scott Galloway?

  He's a fucking fat slob that sleeps in and watches Fox.

• 3:30Ed Elson?

  No, I believe that actually. I believe he, I believe he watches Fox and he's got all of his other health.

• 3:36Scott Galloway?

  You really believe he sleeps four to five hours? That's what they said about Clinton. I think that's a myth. I don't think.

• 3:40Ed Elson?

  I think that's real. We've, so many people have reported it and it's not like, it's not like, I don't think they're necessarily bragging. I mean, maybe it is a brag. I don't know. I, I think it's real. I think it makes sense.

• 3:51Scott Galloway?

  Jeffrey Katzenberg said he doesn't, he only sleeps four to five hours a night. I said, next time I'm gonna take it. I think that's gotta be, I think that's gotta take a real toll on you over time.

• 4:01Ed Elson?

  I think there are certain people who are just genetically predisposed to being fine with low amounts of sleep. I think Trump is one of those people. And I'm very jealous. It basically just means that he gets like 20% more, more time in his life.

• 4:16Scott Galloway?

  Hmm, you die sooner. I think it, I think that catches up to you on the backend, although he seems to be not, not dying anytime soon. Do you know how many hours a day dogs sleep?

• 4:25Ed Elson?

  No, interesting.

• 4:27Scott Galloway?

  16 to 17 hours.

• 4:28Ed Elson?

  Wow.

• 4:29Scott Galloway?

  Yeah, they're all asleep now. Thank God. They'd just be constantly licking you like, it's snack time, isn't it? But anyways.

• 4:38Ed Elson?

  Scott, you also have some exciting news. Would you like to share it?

• 4:41Scott Galloway?

  I have no idea what you're talking about, Ed. I don't, I don't, I'm befuddled by your query.

• 4:48Ed Elson?

  I think that's something to do with a guy named Newsom.

• 4:52Scott Galloway?

  Well, thanks for asking, Ed. It's not like off, off mic, I had to prompt you to, to talk about it.

• 4:59Scott Galloway?

  Yeah, I've been, I've been appointed to the board of the Regents to the University of California.

• 5:04Ed Elson?

  Very exciting.

• 5:05Scott Galloway?

  Yeah, it is exciting. You seem very excited.

• 5:09Ed Elson?

  You're, you're more exciting for you.

• 5:12Scott Galloway?

  I really appreciate how you're investing in our relationship.

• 5:15Ed Elson?

  This is, why don't you talk about what it is and what it means to you?

• 5:19Scott Galloway?

  So what it is, is the governing body that decides the curriculum, the resources and, and you know, employment practices and where we invest and don't invest. It's a board that oversees what is, I would argue, the greatest innovation machine in history. 74 Nobel laureates, four to the five out of the last year, were faculty at the University of California, has produced more startups than, and created more economic value than I would argue any state and arguably any nation, with the exception of the US and China. And just on a personal level, changed the trajectory of my life. When you get to my age, you have an obligation to reverse engineer your blessings to the things that weren't your fault. And all those roads lead back to the University of California. They let me in with a 3.1 high school GPA and 1130 on the SAT,

• 6:04Scott Galloway?

  74% admissions rate, and then let me into graduate school at Berkeley, the hot school of business with a 2.27 undergraduate GPA. And then I got my shit together and I kind of locked in and have had registered some success because of the generosity of California taxpayers and the, you know, the vision of the Regents of UC. And when I got a text message from Governor Newsom, who I, people, the Post called me his pal. I've met him once. I shook his hand at Davos. That's, I don't even know how he got my fucking phone number. Anyways, and I spoke to, you know, I said, this makes no sense for me. I live in London. It's six times a year, two days. I'm super busy trying to build a business. Of course I'll do this. This is, this for me is a full circle moment.

• 6:49Scott Galloway?

  I'm really excited and my mission and aim is, can, just still down to one word, accessibility. If it hadn't been accessible for me, I wouldn't be here with you. And that's my mission. I want to figure out a way to grow freshman class size faster than population growth. But yeah, I'm, I'm boasting now, but this is a wonderful moment. I'm really, I'm super appreciative and reflective of the governor. And anyways, I'm, I'm just, I'm super excited to get to work.

• 7:20Ed Elson?

  Yeah, very exciting. Very happy for you. All right, let's get into our show.

• 7:27Scott Galloway?

  Now is the time to cry. I hope you have plenty of the well at all.

• 7:34Ed Elson?

  An investigation from Nikkei Asia reveals something concerning about some of the world's biggest companies. Alphabet, Microsoft, Amazon, Meta, and Oracle are carrying more debt off their balance sheets than on them. The companies have roughly $1.65 trillion in off-balance-sheet obligations compared with the roughly $1.35 trillion in debt that they officially report. The situation with Meta is particularly concerning with an off-balance-sheet debt load of $420 billion, roughly three times its reported debt. So Scott, this was a really interesting investigation from Nikkei. And I want to just add some detail and some color to it.

• 8:17Ed Elson?

  So, you know, there's one point, we've been asking this question about the AI bubble for a long time. It's like, it's gonna be bad if we see huge amounts of leverage. And this is what Andrew Ross Sorkin has talked about in his book, 1929. That's how bubbles are really built, not with equity, but with debt. And we have long been saying, you know, so far, the debt has been relatively contained. Oracle is an outlier and we've seen that reflected in the stock price, which has been obliterated in the past year. But the companies that we really care about, like Meta, Google, Microsoft, et cetera, those companies have been, generally speaking, they've been managing their debt in a responsible way.

• 9:00Ed Elson?

  So we can look at the amount of debt that we know exists that's on their balance sheets, it's around $1.4 trillion. Nikkei says, we've gone and found that there's a lot of debt off the balance sheets that is worth $1.7 trillion. Bloomberg estimates it might be even higher. They think it's gonna, it's around $1.8 trillion. And essentially what is happening here is the big tech companies, instead of issuing their own debt, they are creating what are known as data center SPVs, special purpose vehicles. And these special purpose vehicles are basically these shell companies where the data center financing isn't provided through the bond sales of the tech company,

• 9:42Ed Elson?

  but it's provided through someone else, in most cases, private credit funds. So instead of Google going out and making a bond sale, which would have major implications for its own borrowing costs and its own financial health, see above Oracle, they slice and dice that debt, they offload it into the SPV and the, the private credit fund, they provide the financing and Google rents the compute from the data center. That's how it works.

• 10:13Ed Elson?

  Now we should get into whether that's bad, if we should be worried.

• 10:21Ed Elson?

  I have some thoughts, but I'll throw it over to you and see what you make of all this.

• 10:25Scott Galloway?

  There is a sweet spot of leverage in the economy, both in the banking system and corporate debt, and even personally, a certain amount of leverage. But wait, big tech's 1.7 trillion in off balance sheet debt versus 1.4 trillion reported.

• 10:44Scott Galloway?

  That gap is sort of a story because when you're hiding a bigger number than what you're reporting, that's not accounting, it's concealment. And Meta's off balance debt is $420 billion, which is 3X what they report. That's not a rounding error, that's the second company hiding liabilities inside of the first company. And the mechanism is that shell companies will fund the data centers. Private credit funds the shell companies and pension funds and insurance annuities fund the private credit. If you reach far enough into the barrel, where you reverse engineer far enough, what you find is that a teacher's retirement account is underwriting Zuckerberg's GPU bill.

• 11:29Scott Galloway?

  And, you know, Bernanke always said this, we're obsessed, 90% of the airtime on this show or on CNBC is about equities because they're more interesting and they have a daily scorecard and the movements are more dramatic. We're just in stocks, stocks are just more fun, they have more personality, they're more interesting to track. But whether it's, whether it's the depression, whether it's a great financial recession, whether it's a dot com implosion, nothing rings the bell of a beginning of a crisis like leverage.

• 11:58Ed Elson?

  I just want to clarify for our listeners, like where the risk actually is here because, you know, the way we're talking about it, 1.7 trillion dollars of, maybe 1.8 trillion dollars of hidden debt. It makes it sound like, you know, big tech still is taking on that risk. It's just that they've buried it somewhere else, but they're still accountable for it. That's not really the case. What they've done with that, that 1.8 trillion dollars is they have offloaded the risk onto someone else, specifically the private credit fund. So they create the SPV with the private credit fund. The private credit fund borrows the money to the SPV to build the data center.

• 12:43Ed Elson?

  Google, as an example, then rents the compute from the, from the SPV. And the income that is generated by that rental agreement is paid back to the private credit fund. So when you think about who's taking on the risk here, it's actually Google, Meta, Amazon, they're offloading the risk. They're saying, we don't want to, we don't want to take on this risk. And you can say that that's a good thing, or you can say it's a bad thing because you can say, why don't you want to take on this risk? I thought these data centers were a sure thing. But the whole business, the whole calculation rests on the assumption that the data center will pay back way more money than the cost of building it. That is the assumption.

• 13:23Ed Elson?

  And the, the people, the entity that is responsible for accurately modeling out that assumption and pricing in all of the risks and thinking about the depreciation costs of the GPUs and thinking about the demand, all of that stuff. The guy responsible for that isn't big tech, it isn't Nvidia, it's the private credit funds. It's all of the guys who are lending the money to the SPVs. And that's what this entire data center AI build out is essentially predicated on at this point. Because as we've seen, the financing that's happening off the balance sheets of the tech companies is larger than the financing that's happening on the balance sheet.

• 14:07Ed Elson?

  So the question you have to ask yourself, if you want to believe that we are not in a bubble, is the following. Do you trust the private credit funds? Do you think that they are accurately projecting the risks associated with building these data centers? And do you believe that they are motivated not by this AI data center gold rush? Where everyone seems to think that if you build a data center at Prince Money, that they are actually accurately and responsibly issuing this lending and this debt financing? That is the question. My view, probably not. Because we've seen a lot of weirdness in the private credit industry.

• 14:50Ed Elson?

  Probably the most obvious and scary example was the collapse of First Brands. This was back in September 2025. I don't know if you remember, but First Brands, this company, they filed for Chapter 11 bankruptcy. And it turns out they were in this very, very murky and bad financial situation. And they had been financed primarily by the private credit funds. And then it exploded and the private credit funds got burned. And that was when Jamie Dimon issued his famous warning about private credit. He said, when you see one cockroach, there are probably more. This is where he called the private credit industry cockroaches. And that was its own thing. And now we're seeing it's extended to the data center industry.

• 15:32Ed Elson?

  Those same guys are the same guys who are underwriting these data centers. And the question you have to ask yourself is, do you think they're doing it properly? Do you think that they are underwriting these data centers in a responsible way? I, I think it's definitely up for debate. I think it's very, very precarious. And the fact that it's so opaque and the fact that this industry has little to no regulation, again, a blunder of the administration. That makes me think that we are headed for potentially a very ugly situation.

• 16:06Scott Galloway?

  I'm torn on this because I think there's a lot of nuance here when we talk about when we're reductive and just use the term debt. So I think our national debt and a bipartisan agreement to just consistently spend more than we take in in terms of tax receipts. I think that is irresponsible and leads to a bad place. I think a surge in credit card debt among households who can't afford to pay their bills. I think that leads nowhere good and is a signal of, of irresponsible behavior or a poor economic environment.

• 16:39Scott Galloway?

  I think that working with a lot of private credit funds.

• 16:44Scott Galloway?

  Keep in mind, and I, when these companies take out debt, you know, the people looking, assessing the risk are very smart people. And they look at the security against that debt. And in the case of someone like Meta, I would imagine that if that debt's going to get paid, I, I believe, if they default on it, is it secured by the data center itself? Is it secure? I mean, the, the question is, what is the credit here? And if they're trying to offload the, if they're trying to hide it, fine, as long as they're on the hook for it. If they're not, then buyer beware, and these credit funds are subjecting their LPs to risk. And the, that risk is paid off for the most part.

• 17:27Scott Galloway?

  For the, for the last 17 years, those funds,

• 17:34Scott Galloway?

  they haven't delivered above market returns, but they've delivered, you know, the returns of the market minus their fees, which has been exceptional returns for the last 17 years. The, that, I do think that leverage and debt, I'll use banks as an example. Banks loan out 120 or 130 dollars on 100 dollars in assets, that's a form of leverage. Elizabeth Warren wants to move it to where for every hundred dollars you take in, you, you, you lend out to people, you have to take out and one for one, a hundred dollars in deposits. Responsible, makes sense, but here's the thing. Leverage also equates to growth.

• 18:17Scott Galloway?

  When you have 20 different depositors giving you that hundred dollars and you loan it out to 30 different people and you loan out four bucks or whatever it is to get 120 dollars in loans on 100 dollars in equity, you grow the economy faster. And as long as you're lending to different people, that leverage results in greater economic growth. And so a certain number of bank failures, a certain amount of debt failure reflects that the economy is taking a certain amount of risk that results in growth that is better for the country.

• 18:55Scott Galloway?

  So it's, it's easy to say all leverage is bad and these private credit companies are way out over their skis. I get it. And there's some truth to the notion that we're due for a recession and a likely start in the credit markets. Having said that, one of the amazing things about America and why our GDP is up 40% more than the GDP of Europe, which was approximately the same per capita 95, and now we're 40% above them, is because those same private credit analysts, those same VCs are more comfortable with risk than the private credit analysts in Europe.

• 19:32Ed Elson?

  I think that's true, but I think the problem comes when you start taking on risks without all of the facts properly lined up in your head.

• 19:40Scott Galloway?

  Without transparency, sure.

• 19:41Ed Elson?

  Yeah. And, and, and that's where you run into problems, where people start levering up, taking on risk. And they're making these decisions based on data that is telling them one story, but in reality, it's actually another story. And that's how I feel about the circular financing stuff. Where you have companies investing in each other's companies and then reporting all of this, buying each other's stuff, which is creating incredible revenues, the same thing we're seeing, I mean, the Google earnings, cloud revenue up 82%. Bang, what a quarter, they crushed it. And then you dig a little deeper and you start to realize, hold on, roughly half of that, we think,

• 20:20Ed Elson?

  because we have to make estimates because there's a lot of opacity to this, is coming from two companies, OpenAI and Anthropic. It's like the, the whole thing is being built off of this one little leg in the stool. And all of that money is coming from the venture investors. And so if that implodes for whatever reason, and the likelihood is pretty high, then you've got a real problem. And the question is, when people underwrite these deals? Because remember, a lot of people seem very certain about the economic prospects of these data centers and the returns that they're going to get.

• 20:54Ed Elson?

  The question is, when people underwrite those deals, are they operating with all of the facts straight? Do they recognize the fragility of the revenues that are being registered right now? Do they recognize the circular nature of those revenues? Because of one thing I can tell you is a lot of these companies are doing a lot of work to not let you understand that, to obfuscate and complexify the numbers, to make you think that it is healthy diversified revenue growth, when in reality it is unbelievably concentrated into a handful, less than a handful, two companies who are in very, very poor financial standing when it comes to their financial health, when it comes to how much they spend versus how much they make.

• 21:37Ed Elson?

  And so my concern is that you have a lot of people who have, you know, have probably a healthy appetite for risk, who are like, yeah, let's do it. It's a gold rush, data centers, AI, everything's happening. Look at the numbers, it went up 80%, it's doubling, it's huge. And then they forget to do the deeper digging here of recognizing that actually this is a lot more vulnerable than it really is. And, and this is how bubbles grow. It's through that complexity. It's, I mean, this is what the CDOs were all about. It was the slicing and the dicing and, and taking all of these financial instruments and then putting them into another financial instrument so that the whole thing was too complicated to even pass out. And I, I do worry that that is the road that we are headed down,

• 22:20Ed Elson?

  where we're just making things more complicated than they need to be, forming these SPVs, offloading the risk over to the private credit guy over here and this one over here and this one. Why don't you just do it, the debt yourself? Why don't you just do it, Meta? You think it's too risky? Well, then why, why are we comfortable if one person provides the financing, but, but not comfortable if the other does?

• 22:43Scott Galloway?

  Well, they're being, to be fair, if they can find cheap capital and for people to absorb the risk, they're, they have a fiduciary obligation to let other people absorb irrational risk. And what you're suggesting, I think, is that there needs to be better mandatory disclosure rules, such that people on the other side of the trade at least have transparency into the risk. And keep in mind, you know, you, it's easy to say, people, do your homework, do your diligence. Investors aren't going to dig into the debt structure of Meta and what's disclosed and what isn't. And that's

• 23:13Ed Elson?

  Exactly.

• 23:14Scott Galloway?

  Meta has so much, Meta is such a cash volcano that I'm not as worried about the debt at Meta. If shit got real there, they could probably figure it out. It's these other organizations that don't have, sit on top of the cash volcano and quite frankly are cash flow negative, such as almost every AI adjacent company right now. That, keep in mind, I think the only way you protect against this, again, is my favorite word, diversification. Because, because if you're looking for the big investment banks to, to disclose to you what's going on here in a thoughtful way, keep in mind that, you know, JP Morgan and Morgan Stanley have 205 and $300 price targets on SpaceX. And also keep in mind that

• 23:57Ed Elson?

  Which is down to 112.

• 24:00Scott Galloway?

  Yeah, what, a couple, three weeks after the IPO? But worse than that, okay, how, how yours truly got sort of famous? When I read the S1, I think JP Morgan, I forget, and Goldman were taking WeWork public? They approved, they decided to take a company public and were selling it to their investors based on a disclosure document. You don't want to talk about the SEC not, not being your friend, that had something called community adjusted EBITDA. They were allowed to come up with a term called community adjusted EBITDA. What did that mean? They got to exclude their real estate costs from their costs.

• 24:42Scott Galloway?

  I called it, I called it EBITDA before everything else. So we're in a podcast company. If we're trying to raise money or, or, or we build a data room for someone to potentially acquire us, imagine me saying that our profitability is profits, revenue before I pay you guys. That's podcast adjusted EBITDA. And this was a financial disclosure document approved by the SEC and the investment banks who have the smartest analysts in the world. They let them come out with an S1 that claimed they had EBITDA that was quote unquote, community adjusted, that didn't include the cost of the real estate

• 25:26Scott Galloway?

  for a company subleasing one floor in a building, but they don't have to include that cost when calculating some derivative of profit. So again, I would not trust investment banks. There are some smart analysts. I do think that some of these blog posts, there's some, the creator economy, I actually think is doing a pretty good job here, holding these people's feet to the fire. But the institutions we used to trust to do this shit, you cannot trust. And I think the only way, unless you're a financial analyst yourself, is to diversify. Because folks, everybody thought Cisco was, you know, impenetrable. Everyone thought the people putting together these subprime mortgages and packaging them into

• 26:08Ed Elson?

  The CDOs.

• 26:09Scott Galloway?

  Everyone assumes you could trust them. They're going to do whatever gets them an additional nickel in investment banking or, or money management fees. They will craft their narrative. I would love to see the 300, the analyst who wrote the $300 price target, I think at Morgan Stanley, that person should be writing fiction. That person should be writing romantic comedies, where people bump into each other at the grocery store and in aisle eight decide they're in love.

• 26:38Ed Elson?

  Well, don't forget Brian Segal is at Raymond James's price target of 800. He thinks the company is worth $10.4 trillion. He should really be writing the fiction. By the way, just on your community adjusted EBITDA point, Semi Analysis put together some research on Anthropic and they talked about, not ironically, by the way, the new community adjusted EBITDA, which is called EBTIT, which is earnings before training, interest and taxes. This is, quote, "The new default metric for laboratory investment and the best source of truth of where cash economics sit for the inference business." So it's happening. That wasn't in an SEC report.

• 27:23Ed Elson?

  And to be clear, I'm not, I don't want to throw shade at them because I actually like a lot of those guys and I enjoy having them on the podcast to hear about what they think about things. But EBTIT, reinventing accounting metrics to make inference and training make sense? Come on, enough of this shit. I mean, we've, we've seen this before. No one's buying it.

• 27:48Ed Elson?

  We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify, or wherever you get your podcasts.

• 28:05Speaker 00

  This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration blog, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses, setup required. Compatibility and availability varies, 18 plus.

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• 29:29Ed Elson?

  We're back with Prof. Markets. Two of the biggest contributors to inflation appear to be getting worse. Tariffs and oil prices. Last week, President Trump announced a new slate of tariffs, reigniting concerns about a broader trade war. First, he imposed a new 25% tariff on exports from Brazil that went into effect on Wednesday. And then he also announced a 50% tariff on Canadian goods, which will go into effect on August 19th. At the same time, the Iran war is not showing any signs of slowing down. Last week, oil prices hit $100 a barrel as the Houthis attacked two Saudi Arabian tankers in the Red Sea.

• 30:11Ed Elson?

  Meanwhile, traffic in the Strait of Hormuz remains extremely low, and the US has continued its strikes on the country. So, Scott, we have here tariffs ramping back up, which we can get into. And obviously, that's going to be a problem when we're thinking about inflation, because we've already seen the inflationary impacts, because of course, US consumers are paying close to 90% of the costs of those tariffs. It isn't these foreign countries that Trump seems to think that he's punishing every time that he slaps these tariffs on them. But I think probably the more significant news when it comes to the economy and its impact on inflation would have to be the price of oil. Brent crude surged up to beyond $100 a barrel last week.

• 30:56Ed Elson?

  It's up 30% since the beginning of July. Goldman Sachs says if these disruptions in the Strait of Hormuz don't ease up, then oil could surpass $120 a barrel by next quarter, at which point we have to start thinking about the implications that we'd see in the CPI and in overall inflation. I mean, last month, we had 4.2% when oil prices were where they're at basically right now. It came down to 3.5%, which is still bad, by the way, but seems like it'll just go up again. Your reactions to what seems to be the continuous shooting of our feet when it comes to economic policy?

• 31:40Scott Galloway?

  I think you can make an argument that the investment in the war on Iran will be the best investment of the last 50 years. Unfortunately, the entity registering the return on the investment is China. And that is, we're trying to manage our own inflation while China quietly banks the geopolitical dividend here. And Fareed Zakaria nailed this. China's gained more from this crisis than any in three decades. You have a Middle East hedging away from us, a world more dependent on Chinese tech. And then every nation in the world is thinking, we not only can't afford to be dependent

• 32:20Scott Galloway?

  on fossil fuels economically, geopolitically, it presents a defense risk to be so dependent on other countries that can, for whatever reason, have the artery of flow into our nation of this fossil fuels have a boot stepped on it. So what do we do? We move to renewables and clean energy. And oh, who dominates clean energy? Who has 91% of solar manufacturing, 89% of lithium ion battery capacity, 70% of clean energy tech production, 70% production of EVs globally? You guessed it, China. So we're hemorrhaging credibility and our treasury on tariffs and strikes, and China's

• 33:05Scott Galloway?

  spending nothing and picking up the reputation for being the adult in the room. The, I mean, this, this stat is so upsetting. Pew reports that more people globally think that China is a force of good in the world than the United States. In some, we're spending money to buttress China's reputation.

• 33:28Ed Elson?

  Yeah, just to expand on that data, China is now viewed more favorably than the US. This is according to Pew Research. More favorably than the US across the globe, across 20 different countries between 2023 and today, the favorability of America has fallen from 58% to 35%. And China's favorability has risen from 32% to 46%. So we've seen a flat out flipping when it comes to the favorability of both China and the US, and then also just Donald Trump and Xi Jinping. And I think it's hard to say that that doesn't have to do with what we've seen on the tariff

• 34:13Ed Elson?

  front. I mean, these new tariffs, it seems like this is his way of just trying to bully other countries. That's basically what it is. I mean, this Canada tariff, 50% tariffs on Canada, supposedly Canada is discriminating against the US. That is the argument. So he's putting these tariffs on Canada. Obviously, he's not accounting for the fact that it actually is self-defeating, because it ultimately makes prices higher in America. And we had Peter Harrell on the podcast earlier in the week, and he made the point that he thinks that maybe the Trump actually just doesn't really realize that, or doesn't know that, or at least his advisors are just kind of intentionally ignoring that fact in order to just do whatever he wants and to just play the sick of fancy game, which sounds

• 34:58Ed Elson?

  absurd, but I think that it actually is a genuinely possible scenario that is playing out right now. And yeah, you have to ask what that, what that does to an economy long term. You have to ask yourself if we can maintain any semblance of a relationship with any of these other nations and trading partners. And increasingly, it seems like, I don't know, that's not possible anymore.

• 35:26Scott Galloway?

  So you want to know my theory on Trump?

• 35:28Ed Elson?

  Yeah.

• 35:28Scott Galloway?

  He's a fucking idiot. And surrounds himself, opts for fealty over competence, gets very poorly advised, and makes just a series of poor decisions that the CCP and the GRU couldn't have dreamt of in the wildest. I mean, they just, whether it's taking oil up such that Russia can further escalate or continue this fight, whether it's hemorrhaging credibility to the IRGC from the US, whether it's giving the CCP just an unbelievable layup across the world, whether it's dividing, taking 66% of GDP that used to be sitting on the operating system that is American

• 36:12Scott Galloway?

  law, economy, our navy, our military, our bases, our trade agreements, wanting us to win, generally feeling good about us, and dividing it in half by giving comfort to our enemies and then alienating our allies such that they begin working with some of our adversaries or with each other, creating a, you know, a tri polar world where we're now in the minority. The real costs of the Trump administration aren't going to be felt for 20 or 30 years. I think when you are, you know, when you are, have kids, when you're thinking about your kids in college, you're going to have just ridiculously high interest rates and inflation trying to pay off the extraordinary debt that an irresponsible boomer generation,

• 36:57Scott Galloway?

  of which I'm part of, technically, I'm Gen X, but anyways, everyone calls me boomer online, so I'll just lean into it. You're going to continue to pay the debts off or for the mistakes of my generation in this administration. And you're going to see an inability to form great alliances, defense threats, more terrorism, more insecurity, more nuclear proliferation, a reduction in our growth rates because other nations don't want to trade with us or don't trust us, a lack of human capital flowing into the US because people no longer feel the goodwill towards us. We're going to be paying the price. We're going to be paying off the extraordinary debt that this administration is registering,

• 37:41Scott Galloway?

  both literally economically, but also reputationally. We're going to be paying off that debt for decades.

• 37:48Ed Elson?

  A lot of people would hear what you said, a lot of people would agree with you, and then a lot of people would disagree with you and say that you have Trump derangement syndrome and that your hatred of Trump is clouding your understanding of what's really happening to the economy. I know that people will say that, but I can also tell those same people, there is a very important group of people who agree with your comments right now, and that is the bond markets. So we can look at the 10-year yield right now. It's above 4.7%. He's higher than the yields we saw after the Liberation Day crisis. The 30-year yield, and that's the timeframe you're talking about, is above 5%. It's been stuck above 5% for 27 days this year. It's been stuck above 5% for 12 days in a row.

• 38:34Ed Elson?

  That is the longest consecutive run of more than 5% yield on the 30-year treasury since 2007, which is of course, right as we were gearing up for the great financial crisis. But even compared to 2007, bond investors right now are pricing in more long-term risk as it relates to America and its financial standing than they did at the beginning of the financial crisis. This is according to the bond markets. One of the riskiest positions that the United States of America has ever been in. And you ask yourself, okay, why is that? Like, is it the AI concerns, maybe? Is it Iran? Is it inflation?

• 39:19Ed Elson?

  Yeah, it's kind of all of these things together. But to your point, I think the biggest concern is the fact that we have almost $40 trillion of debt. We've got a nearly $2 trillion annual deficit that seems to be growing every year. We've got annual interest costs of more than $1 trillion, also seems to be growing every year. And all of these decisions that contribute to those deficits and that overall debt load, they're all being commandeered by an administration that appears to have actually lost its mind. Not just the president, but all of the people who are enabling his decisions, who are enabling the decisions on tariffs, which are contributing to higher inflation, enabling the decisions on Iran.

• 40:03Ed Elson?

  And Hillary Clinton, in our conversation, brought up a great point. She questioned whether they had even considered the possibility that the Strait of Hormuz might even be blockaded. That was their big what if that they had talked about and strategized about for decades. They just go ahead and bomb the thing. They don't make any contingency plan. They come out with this memorandum of understanding, which we said was BS from the get-go. And back then, that was, that was a month ago. And we saw oil prices go down to 70, as everyone, for whatever reason, believed that there was actually a deal to be had here. And then when we said that wasn't a deal, people again said, TDS, TDS, TDS. We're back to no deal, and we're back to 100 on the price of oil, which means that inflation's going back up above 4.

• 40:50Ed Elson?

  And that's a runaway train at that point.

• 40:52Scott Galloway?

  I thought what you said was really an interesting means of communicating the issue when you reverse engineered and made a solid cogent argument for, okay, 4% inflation, about 1% of that can be attributed to the war in Iran and the spike in energy prices and about 1% can be reverse engineered to inflation, or excuse me, to tariffs. Now, people don't realize, societies fall because of inflation. If the Fed is the key entity in terms of a society's economic health, they're there to manage two things: job growth and keep inflation in check. And by the way, that is in reverse order of importance. If you

• 41:33Scott Galloway?

  said to the Fed, okay, the Board of Governors, you can either have weak job growth, right? Or you can have inflation with strong job growth, they would pick weak job growth and low inflation. Societies crumble, not when people are unemployed, but when people have two jobs and can't afford their rent. And let's just talk a little bit about inflation. And the numbers are misleading because when you hear 3% or 4%, you're like, oh, there's no difference. No, there's a big difference. Let's talk about the G7, the inflation rates. Japan, 1.5%, France, 1.8%, Italy, 2.4%, Canada, also 2.4%, Germany, also 2.4%, the

• 42:13Scott Galloway?

  United Kingdom, 2.6%. And the highest inflation rate among the G7, which is supposed to have the most robust economy and the most competitive economy, which should keep prices low, we come in at the highest inflation rate of any G7 nation at 3.5%, and that's down from 4% because of the temporary decline in the price of oil. Now, what does that mean? Let's keep it, let's, let's be optimistic and say it doesn't go back to 4, it sticks at 3.5. That means, say, wages go up 3% a year. Optimistic, but let's say it across the entire G7 because of demographic growth and productivity gains. That means in 10 years, Japan's going to

• 42:56Scott Galloway?

  register prosperity increases of wages above inflation of about 20%, 25%. That means in 10 years, you're not going to be able to take your kid to Disneyland, Tokyo Disneyland, once every four years, but once every two years. That means you're going to be able to borrow or need to borrow a quarter less to send your kid to college. It means you're going to be able to eat out, you know, four times a month instead of, of, of three times a month. This has a material impact on your well-being and your prosperity. And because of own goals, we are dramatically reducing the prosperity of Americans. And this is

• 43:39Scott Galloway?

  when they're going to get angry. And again, we can manage, and the American public can manage a 4.5% or 4% inflation rate in the short term, sure, it's hard for them, they see it. But in 10 years, if this shit keeps compounding because of the poor fiscal policies and structural shifts in our economy and our alliances that result in stubborn inflation, including the massive debt problem we have because of irresponsible spending on both sides of the aisle, you just end up with a society where, I mean, the reason my parents came here was not for religious freedom. It wasn't to express their First Amendment rights. They weren't escape, they weren't fleeing religious prosecution from Glasgow

• 44:24Scott Galloway?

  and London. They came here because they wanted, as a middle-class household, to be able to buy home in Laguna Niguel. And when they stood on their tippy toes on the second floor, they could actually see the ocean. That was a life they just never dreamt of. And, and be able to go to this amazing restaurant called The Sizzler, hashtag awesome, you don't remember it, incredible restaurant. And they had just this, my dad could join a country club. I mean, that, I remember him saying to me, I used to play, go watch and play golf. And he was like, he's like, you don't understand, this is a dream of mine to be able to join a country club. I just, the idea, he played golf growing up. But

• 45:04Scott Galloway?

  every year that wages cannot keep pace with this inflation, you're going to see a compounding of a decline in the prosperity of Americans.

• 45:14Ed Elson?

  That's how economies stumble and then fall and then fail, is your wage growth doesn't keep up with inflation. That's happening right now. We, we just learned that that is the trajectory that we are on because of, crucially, not things, exogenous events that happened to America, but actual decisions that were made in Washington that created this inflation, that created that lack of prosperity and that declining, that decline in wages, in wage growth. So that's the thing that, that drives me nuts here, is that we're not talking about things, you know, tragedies happen. Like COVID happened, and

• 45:57Ed Elson?

  that was really bad for a lot of countries and a lot of economies. And it was, it was the contributor to inflation. That is why we saw such insane inflation back in 2022 that was a real problem for a lot of people. They put huge economic pressure on millions of Americans. But again, that was an exogenous event. Now, you can argue as to whether the Biden administration did a good job of dealing with that exogenous event, whether they should have made different decisions, how they handled it, have at it, blame them all you want. But that wasn't a situation where we invented a problem out of thin air based on the decisions that came out of Washington. And as you've pointed out, and as I've said, we've had

• 46:41Ed Elson?

  those two big decisions. One was the tariffs, boom, percentage point. And the other is Iran, boom, another percentage point. And it seems like that's not going away. I know a lot of traders keep on trying to be optimistic, and that's what we saw last month. But again, we're seeing what's happening here. We're seeing that the strikes are continuing. This is not, this is not getting better. And I want to just add one other very important decision that actively has harmed our economy. And it's, it's kind of hard to do that. It's kind of hard to make a decision that specifically makes things worse. You have to make a pretty bold and stupid decision to do that. But here's one that I've got for you, which is crazy. As you know, our emergency oil reserves have been massively depleted because of

• 47:26Ed Elson?

  the oil shortage that we're experiencing because of the war. Reserves have hit their lowest level since 1983. We're down to 311 million barrels. The operational minimum is 200 million. So we're, we're getting into very precarious territory here when it comes to our oil reserves in America. Great time to have a big, bolstered and sophisticated clean energy industry, but Trump has canceled or delayed $83 billion worth of clean energy projects in the US so far. Why? Because he thinks that clean energy is woke and lame. And he'd rather be drilling for oil. And in fact, the administration is now actually

• 48:11Ed Elson?

  paying companies to not build renewable energy projects. There's this company, Total Energies, a French energy company. They had planned to build a wind farm on the East Coast. Trump forced them to cancel that project and then paid them $1 billion in compensation because he had canceled it. And he had to now pay them. So we're actually paying money to companies to not build this stuff. And to your point about China, who is building clean energy faster than any other nation in the world? China. They're responsible for 55% of global clean energy investments over the past seven years. They are ramping up their clean energy investment, ramping up their spending. They're responsible for

• 48:54Ed Elson?

  80% of the solar energy investment in the world. So they're speeding way ahead of us and they're accelerating. They're increasing the amount that they are investing into renewable energies each year. We're decreasing ours because we think that it's woke.

• 49:10Scott Galloway?

  A myth on the right, they have somehow associated renewables with a woke ideology, the go woke, go broke, that somehow renewables are non-economic. You know the number, you know what state is the number one producer of wind energy?

• 49:23Ed Elson?

  I mean, it's Texas?

• 49:25Scott Galloway?

  Ding, ding, ding, 100%, 100%. And do you think it's because Texas leadership is woke? No, it's because economically, at a given point, on a summer's day in Texas, 60% of the electricity is being produced by wind. And they're not doing it because they're granola or kale-eating, Birkenstock-wearing progressives. They're doing it because it makes sense economically. So again, we have attached, we have politicized economics here to an unhealthy extent where we've said, okay, renewables, and also, again, to both

• 50:05Scott Galloway?

  sides of it, Europe has probably gone too far in terms of politicizing nuclear power, politicizing fossil fuels, and the energy costs in Europe have been a real, real dampening or registered a real dampening in economic growth because it has become energy, fossil fuels and nuclear have become too politicized from the left. But both sides tend to do this, and this is an example of the right attaching an ideology that is just non-economic and irrational.

• 50:37Ed Elson?

  On the both sides, I mean, I kind of agree, but part of me wonders if it's, I mean, you, you made this point, like, you want to be balanced here. I don't know why you even need to do, say that at this point, because the, the extent to which the mythologies on the right are damaging the lives of millions to a degree that is like, unlike anything we've seen in a long time, the extent to which these very stupid mythologies, and to be clear, I agree with you that mythologies have existed on the left and they've caused problems before. But I don't think we've any, we've, we've seen anything like the mythologies that we're seeing on the right, specifically the anti-woke mythologies.

• 51:22Scott Galloway?

  That's fair.

• 51:23Ed Elson?

  That are creating these ridiculous decisions. So Paul, I mean, it's kind of like, why, why even spend an iota of energy trying to be like balanced on it when it's so clear the size of the problem of the mythology on this one side? And I, I don't know if Republicans even necessarily unanimously agree with the decisions that he's making. It's basically just him and his close circle. And that's the damage, that's the, that's what we need to get angry about.

• 51:58Ed Elson?

  We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com.

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• 53:39Ed Elson?

  We're back with Prof G Markets. At first glance, it appears that we may be in the middle of a small business boom. According to the Census Bureau, Americans filed nearly 6 million applications last year to start new businesses. That is the most on record. But the data doesn't tell the whole story. Only 1.7 million of those applications were identified as high propensity businesses, meaning that they intend to hire paid employees. The vast majority of the applications were for entrepreneurs with no plans to hire people. So Scott, this really grabbed my attention because I've been seeing this argument

• 54:21Ed Elson?

  that we're seeing this small business boom, which I was down to run with. It's a reason to be optimistic. The fact that small business applications, new business applications have exploded last year. They were up 10% year over year, hit a record. It's continued into the first half of this year. But most of those businesses are, quote, likely non-employer businesses. So these are businesses with a very low likelihood of producing actual payrolls. And this is a methodology that the Census uses. They include things like, have you indicated that you're hiring? Have you provided a first wages paid date? Are you in an industry with strong employment demand, et cetera?

• 55:06Ed Elson?

  And it turns out that more than 70% of these new businesses that we're supposed to be celebrating are likely non-employers. So this seems like a little bit of a fake boom.

• 55:18Scott Galloway?

  This blew me away. So just in terms of how the sausage gets made here, we do editorial calls where the analyst pitched stories and Ed comments on them and I comment on them and we decide and our producer decides what stories we're going to do or not do. And this just blew my mind because I have this whole AI optimist rap. And one of the stats I just love is that new business formation is at a record high. And this just punctured that argument because again, numbers can be misleading, right? 6 million new business applications, you know, which is a record. It sounds like a renaissance of the American entrepreneurial spirit. But as you guys pointed out, it isn't.

• 55:58Scott Galloway?

  Only 1.7 million, or about 30% of them, were, quote unquote, high propensity, meaning they have any intention to hire people. The other 4 million plus are one person, a laptop and an LLC. So it's, when you try and start a restaurant, you're going to hire 10, 20, 30 people. When you're starting a food blog as a side hustle, that's not great for the employment market. I mean, what the data shows is this isn't a small business boom. It's a side hustle economy dressed up in Census Bureau language. And it probably in some ways reflects something unhealthy about the economy. One in three adults say they're planning a business or side hustle in 2026, and that's up 94%, you know, year over year, which is okay.

• 56:43Scott Galloway?

  There's something very good about that. But the question is, is it entrepreneurial confidence or economic anxiety wearing a founder's hoodie? And people aren't starting companies because times are good. They're hedging because they can't afford to pay their rent with their main hustle. So this is one of those many times where I realized like, I don't know what I don't know. And this, quote unquote, new business boom, as supported by new business applications, isn't really a new business boom.

• 57:15Ed Elson?

  Yeah, I think this is a really important data point. And I just want to just clarify for everyone. So as I said, 70% of these new businesses are likely non-employers. According to the Census, you compare this to the mid 2000s. The share of likely non-employer businesses, so businesses that are probably not going to employ anyone, that share has doubled. So yeah, we're seeing new businesses, but most of them are not really contributing to the economy. Now, the question is, why is this happening? What's actually going on here? So one theory is that you're seeing like the rise of the AI-enabled solopreneur, that AI can sort of allow you to kind of form your own thing and you start your own business. That might be it.

• 57:59Ed Elson?

  But when you look at the data, this trend began way before AI. This happened, it exploded in COVID. So this was a COVID development where suddenly all of these kind of like non-employee businesses just skyrocketed. There's another theory, maybe it's just a lot more people are self-employed now. People quit their jobs and now they're doing their own solo companies. But if you look at the self-employment rate and the number of self-employed Americans today, it is actually down. It has fallen quite significantly over the past few years. So that leads me to one conclusion that makes a lot of sense, which is that these are all kind of bullshit side gigs.

• 58:42Ed Elson?

  This is, I'm bored at work. I'm still employed at work, but I work remotely and I kind of want to start like a lifestyle brand. And I'm going to make an Instagram account and maybe I'm going to make a Substack. And maybe if I'm feeling really excited about it, I'll also create an LLC because I'm interested in doing that. But to be clear, that's not a business that is actually contributing to the economy. It's basically like, it's basically a hobby. It's basically like a more legit vehicle to express yourself based out of the boredom that you feel in your real job.

• 59:24Ed Elson?

  And I think that this is becoming a real trend here, especially among young people. Because I think young people are so disillusioned by the notion of traditional work, by the notion of being an employee and receiving a salary and receiving a wage. I mean, this is part of sort of the Andrew Tate philosophy of, don't be a wagey, don't be a wage slave. You need to start your own business. You need to be an entrepreneur. You need to be a hustler. The entrepreneurship mindset has become such a hot thing, especially among young people who are living in an increasingly digital and social media-driven world, to the point where I think we are all fantasizing about that

• 1:00:05Ed Elson?

  by creating these little bullshit side hustles and saying, I'm an entrepreneur now. But in reality, you're not because you still work for a company and you're not generating a livable income off of your side hustle, off of your business that you're saying makes you a founder. And I think that that is the problem that we're running into. And it's being reflected in the data.

• 1:00:27Scott Galloway?

  In my 30-year career, 40, I've only worked for another organization or a company for two of those years. And I was right out of UCLA and was Morgan Stanley in the analyst program. And the rest, it's been me starting my own businesses. And so when kids, when I say kids, students come to me in my office hours, they don't want to talk about strategy or brand strategy. They want to talk about, they want career advice. And typically, the most common thing I get is I have an offer from Google and JP Morgan, but I'm thinking about maybe trying to start my own business. And they come to me because I'm an entrepreneur that's registered some success and they think I'm going to encourage them to start a business. And my answer is universally, don't be a fucking idiot. Go to work for Google.

• 1:01:14Scott Galloway?

  Entrepreneurship is romanticized. Six out of seven startups fail. There has never been a wealth creation machine like the American corporation. It's not as sexy. It's not as romantic. There's a lot of bullshit. There's a lot of politics, but they will remove that mole on your back. And it is the best way to get rich slowly in history. And these platforms, the American corporation are the, the most unbelievable platforms. If you're, so many of these dudes who work at the alphabets, the JP Morgans, the Goldman's,

• 1:01:53Scott Galloway?

  the snowflakes, the, you know, the, I mean, the sales forces of the world think they're so badass and they should start their own company. And for most of them, I can look at them and say, fucking call Marc Benioff and say, thank you, because you have had access to a platform that has created millions of dollars in economic security. And guess what, boss? You are not that talented. You attached your card to a fucking thoroughbred because you live in America and you have the right certification and you're probably very talented, but nothing leverages talent like the US corporation. Some people aren't cut out for it.

• 1:02:35Scott Galloway?

  I didn't have the skills, not because I'm such a baller and needed to do my own thing, but I literally was too insecure to work at a corporation. I was, every time people went into a conference room, I thought they were talking about me. I was constantly in a state of anxiety because I just didn't know how to navigate the politics of an organization. I was too immature and I resented people who I thought were not as smart as me, making more money than me. I hated not understanding why decisions were being made without my input. Okay, folks, that is a small price to pay for what is, with a great company, an unbelievable

• 1:03:18Scott Galloway?

  chance to increase your skills, have an HR organization trying to invest in you. I find most big companies have a certain paternal feel. I do think that most of them try to take good care of their employees for not only shareholder reasons, but they generally try to be good citizens. But everybody wants to be an entrepreneur. And then let me act like a real boomer here. My companies, I've always been, I think I have, I can rightfully say I'm great at working with young people and I appreciate and love working with young people. The average, I think the median age at property markets is 26. And the creativity and dynamism of this generation, this youngest generation is unparalleled.

• 1:04:01Scott Galloway?

  It's the most, I've worked with every 20 something, you know, that, that, that our economy has spit out since 1980, 1990, when I started my first company. This is the most talented generation of 20 somethings in history. Their facility with technology, their social responsibility, their willingness to work hard amongst a cohort of this cohort. What worries me is that when I was coming out of college, it was a given that you were going to have to put on a suit, that you were going to have to wake up at 7:00 AM, that you were going to have to commute downtown, that you were going to have to navigate a corporation, that you were going to have to behave a certain way, that you were going

• 1:04:44Scott Galloway?

  to have to not go out on a Wednesday night because you had to be up at oh, dark 100 hours on Thursday morning. And I needed that discipline and it served me well the rest of my life. And I worry that a lot of people of your generation never developed that level of discipline because of remote work, because of sometimes parents who indulge their quote unquote, passion of pursuing a food blog or starting a jewelry line. And that we have a larger portion of young men and women in this cohort that are in for a bit of a rude awakening because they haven't been exposed to the requisite discipline of being really successful in this economy.

• 1:05:28Scott Galloway?

  Having said that, I appreciate how many young people have started their own business, worked their asses off and are building something great. Entrepreneurship has served me well, but I think this is a double edged sword and a younger generation that has some of the most talented people in the history of the economy, that I worry that some of the Gestalt or the zeitgeist is setting them up for failure.

• 1:05:50Ed Elson?

  The trouble to me isn't the idea of someone thinking, I'm going to take a risk and I'm going to take a swing and I'm going to leave my job and start a company. You know, maybe they'll be right, maybe they'll be wrong, but they're assessing the risk and they're deciding to take the risk. And I kind of respect that. The thing that I don't respect is what we're increasingly seeing based on this data, which is you actually don't leave your job. You stick around as an employee and then over on the side, you start your little company because, not because you're actually like trying to, to, to change your life, but because you like the idea of being a founder. You like the idea of being a business owner. And if we look at the data, the way Gen Z thinks about this stuff, it's really striking.

• 1:06:35Ed Elson?

  More than half of Gen Zers say they have seriously considered starting a business in the past 12 months. So one in two Gen Zers on the street, they want to start a business. 70% of them say that business ownership is part of the American dream. And if you believe that most of us are trying to pursue the American dream, that means most of us think that the only way to be fulfilled and to live a successful life and have a successful career is to own your own business and to be an entrepreneur. But here is my favorite stat. Last year on LinkedIn, there was a 69% jump in LinkedIn profiles who added the title founder to their bio. And this is the problem.

• 1:07:16Ed Elson?

  This is the thing that I take issue with, where you like the idea of being a founder. You like the ethos and the culture and you like to be able to call yourself a founder because founders are cool and they go on podcasts and they have interesting lives and maybe they have large social media followings and they're kind of something of an influencer at this point, but you're not willing to take the actual risks that it takes to actually build a business, which as you say, six out of seven times fails because it's really, really hard. And it's actually quite grueling and not very sexy when you live the actual life that is required to make that business successful.

• 1:07:57Ed Elson?

  So we're just living in this limbo period, this like paralysis of like, oh, I kind of, I have my job, but I kind of want to be a founder. And then you end up just living your life without actually doing anything with it.

• 1:08:08Scott Galloway?

  So the notion that entrepreneurship takes a toll on you. Ed, let me just prove that. Look at me, Ed. Seriously, come closer. Look at me. Okay, I have a real bee in my bonnet around the whole founder thing. And let me, if you typed in the name on LinkedIn of every company I've started, you're going to find there are 30 or 40 co-founders of all these companies. Everyone has decided they're a co-founder of Red Envelope, of Profit. And people would call themselves co-founders and I'd be like, fine, have at it. Titles are cheap. Have at it. But here's what a founder is.

• 1:08:49Scott Galloway?

  A founder signs the front of checks, not the back of checks. And the reality is the vast majority of people are not willing to put their own money. Here's what it means. You know, L2, amazing, great company, smart people. We sold for 160 million. I got very lucky, extraordinary, all the moons lined up. The first two years of L2 was me going home and telling my girlfriend, who were just giving birth to our second son in about 36 months. Oh, business is good. And I apologize, I can't be home for bath time. I am working 14 fucking hours a day and I've got to work all day Sunday and just go in on Sunday to be emotionally supportive of the people who showed up on Sunday.

• 1:09:33Scott Galloway?

  And in exchange for that, on the first or the 31st of every month, we've got to take a hundred thousand dollars out of our savings and put it into the company. And my girlfriend would literally look at me with this look of fear, like what the fuck are you doing to our family? And I would have to sit there for an hour and explain to her why hopefully it was going to pay off. And not once, but twice, I came within a hair of losing it all, couldn't pay my, my, my lease on my office, was going to have to shut the whole thing down and go home and not only lay off a bunch of people, but go home and tell my girlfriend and the mother

• 1:10:14Scott Galloway?

  of my children, oh, the 1.2 million dollars or basically the majority of our savings is gone. That's what entrepreneurship is, folks. And sometime, and by the way, that's a good story. It worked out. So, but back to this notion, people love to call themselves a founder. Have at it. Let me give you the sweet spot. If you think of going to work for a company, there's employee zero, the founder. There's employee 200,000 at IBM, right? Where's the sweet spot? My experience is the sweet spot is somewhere between employee 10 and employee, like call

• 1:10:59Scott Galloway?

  it. A hundred at a fast growing, great firm with great founders. Because the founder risk is so immense. It's like infant mortality in the 1500s. You just don't know what's going to take the baby out. You just don't know. Right? They could catch typhoid, malnourished. You just don't know what's going to kill this thing. It's kind of macabre. Anyways, once that risk has been starched out, if you're, if you find Mark Benioff and you got this guy worked at Oracle, this company's raising a shit ton of money. It's a great product and I could be the 300th employee and be the VP of Marketing and get a quarter of a point. That's the sweet spot.

• 1:11:40Scott Galloway?

  Because you will, every one of the first one, two, 3,000 people at Alphabet, at any of these companies, even the companies you don't think of, like a Palantir, they're worth tens of millions of dollars and they registered a fraction of the risk and the psychic damage. The sweet spot is kind of employee 10 to 100 or 10 to 1,000 if it's Amazon. If it's Amazon on a series B and you meet Jeff Bezos and you're going to be the 1,200th employee managing their fulfillment centers and you're going to get millions of options, go all in. That's an unbelievable.

• 1:12:19Scott Galloway?

  And then as an investor, I find that the sweet spot is actually way late when basically the most successful businesses, the lowest failure rate of any startup is nursing homes because they're unsexy. I find the greatest returns I've registered and the greatest place to invest is in distrust, is in companies that have gotten the shit beaten out of it and everyone's written them off for dead, both in equities and in distressed debt. I find from an investor's standpoint, from your own human capital, you want to be at letters B and C, not letter A, not letter D or E. And from an investment standpoint, you want to be, you want to invest in a nursing home.

• 1:12:56Ed Elson?

  All right. Let's take a look at the week ahead. We'll see earnings from Microsoft, Meta, Apple and Amazon. We'll also get the Federal Reserve's interest rate decision for July. Scott, do you have any predictions?

• 1:13:09Scott Galloway?

  So the, the number that is the number of the month is 58. And that is in January of 2025, the token usage from Chinese L L Ms was 10%. In July, it's 58%. So there are now, there's now more token use, usage of Chinese AI firms than frontier models in the US. Now, the dollar volume is still much greater because get this, Anthropic and ChatGPT are 35 times more expensive than DeepSeek. So what you're seeing here is a bifurcation in the market. I'm not going to, I'm not catastrophizing that frontier models are going to go out of business. I think they're great businesses. I think their valuations are going to get crushed, but they're still amazing businesses.

• 1:13:53Scott Galloway?

  What's happening in the AI market is what happened in the automobile market and we're becoming Germany. We have very high end aspirational luxury brands that are the best cars on the road that are be higher margin, higher price tag. But Chinese models are basically Honda, Hyundai, BYD. They're offering 80% of frontier models for 10% of the price. And the reality is, and I hate to say this, I think China is winning the AI race because it's not about having the most expensive or even the best product. It's about putting the most AI in the most people's hands. And that's what China is doing. The AI market is turning into Germany versus Japan and Toyota is the most valuable automobile company in the world, except for a meme stock called Tesla.

• 1:14:37Scott Galloway?

  That's what people will fill up the comments. Well, what about Tesla?

• 1:14:39Ed Elson?

  Well, it's down 15% in a week.

• 1:14:42Scott Galloway?

  AI is becoming bifurcated into frontier models and into the models that get in everyone's hands. And I would argue that if you look at the low cost automobile producers, they're more relevant than the high end guys.

• 1:14:55Ed Elson?

  All right. I like it. My quick prediction, we had inflation at 4.2, it went down to 3.5. People seem to think that's going to be the trajectory of inflation that's going to keep going down. I don't think so. I think we're going to go up above four. We're going to be hovering around 4.5 for the rest of the year. And I've said it before, but I'll say it again. I, I don't think we're getting out of this situation anytime soon. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Corte. Our research team is Dan Shalun, Kristen O'Donoghue and Mias Verio. Jake McPherson is our social producer. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Profy Markets from Profy Media.

• 1:15:39Ed Elson?

  If you liked what you heard, give us a follow and tune in tomorrow for a fresh take on the markets.

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• 1:16:45Speaker 08

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• 1:17:15Speaker 09

  I'm Glenn Washington from Snap Judgment, the storytelling podcast from KQED. Imagine an iconic piece of paradise overrun by one of the most horrific fires in recent memory. Everyone flees, everyone, except one person who decides to fight the flames alone. The moment when nature, institutions and technology fail at the exact same time. That's all systems down and new Snap Judgment mini series from KQED. Tap to listen now.