The Great Grift

Lina Khan, an associate professor of law at Columbia Law School, joins Scott to discuss the latest around Big Tech’s unchecked power and the broader effects of monopolistic behavior on the economy. She shares her thoughts on how break ups could benefit the markets, why traditional antitrust laws aren’t necessarily suited for the digital market, and how the dynamics of antitrust have changed over the past couple of years. Follow Lina on Twitter, @linamkhan. (14:43) Scott begins by outlining how we could have used our $5 trillion stimulus effort to prop up Americans who needed the most help, rather than letting the rich get richer. Related Reading: The Great Grift. This Week’s Office Hours: why Big Tech probably won’t make a move into the DTC genetic testing market and how rundles increase a company's valuation. Have a question for Scott? Email a voice recording to [email protected]. (42:00) Algebra of Happiness: demonstrate more grace. (54:26) 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.

• 0:00Scott Galloway?

  Episode 45, the atomic number of rhodium. We're saying goodbye to the 45th president of the United States, who, as I'd like to call it, go fuck yourself. Partisan? Partisan? When I was 45, I felt awesome because a New York 45 is the new 30. For women, 30 is the new 60. Oh, my God. So inappropriate. Go, go, go.

• 0:32Scott Galloway?

  Welcome to the 45th episode of the Prop G Show. In today's episode, we speak with Lina Khan, an associate professor of law at Columbia Law School, where she teaches and writes about antitrust law, the anti-monopoly tradition, and law and the political economy. I am so bored reading that, but trust me, Lena is a gangster, and I think antitrust is actually quite interesting and insightful. Oh, my God, when did I get this fucking old that I find that shit interesting? Well, guess what? Guess what? Be old like me and get into antitrust. It's important, and it's an interesting discussion. It has huge ramifications on our society, technology, and the likes. We discuss with Lena the state of play around big tech's unchecked power and the broader

• 1:16Scott Galloway?

  effects of monopoly power on the economy. Okay, what's happening? Let me think, kind of a slow news week. Hmm, hmm, let's ponder. By the time you hear this, Joe Biden will have been sworn in as the 46th president of the United States of America, following an inauguration that was coupled with heightened levels of security because of the former president's violent supporters and safety precautions to avoid turning this into a COVID-19 super-spreader event. That kind of summarizes America. A mob takes over the Capitol, and it not only becomes a crime scene, but a super-spreader event. Welcome to America. And in other news, President Biden announces nearly $2 trillion American Rescue Plan that

• 1:59Scott Galloway?

  includes $400 billion for things, including expanding vaccinations and helping schools safely reopen, while the rest will be dispersed economic relief, such as $1 trillion indirect payments and billions of dollars for small businesses. Per the AP, Biden's plan will come from borrowed money, adding to trillions of dollars in debt the government has already collected in an attempt to tackle the pandemic. So let's be clear, our federal response to the pandemic has been massive with a capital M, a $5 trillion effort. It's also been a con. Under the cloud cover of COVID-19, the shareholder class has used its outsized influence over government to toss a few loaves of bread at those suffering, those that are most needy, all the while accruing trillions of dollars in wealth financed on

• 2:44Scott Galloway?

  the backs of younger and future generations. Why? Why are we able to do this? Simply, the demo in democracy is working too well, and that is the unborn don't vote, and either do young people, so let's fuck them. America used to be, America used to be about figuring out a way through public policy, capitalism, work, how do you get more people rich? And it has slowly but surely morphed to this corrupt gestalt of how do we keep the rich rich? Of the 5 trillion spent so far, around only 1.5 trillion came in the form of direct aid to individuals. A quarter of that funded 1,200 and 600 stimulus checks, many of which went to people who had not suffered financially.

• 3:26Scott Galloway?

  Get this, only 15% of recipients of the first round of checks said they planned to spend the money. That's right, more than 4 in 5 recipients of this stimulus borrowed from future generations, that is in the form of debt, do not urgently need it. Another 1 trillion or so went to pandemic response, medicine, PPE, medical services, and the like. And while this was necessary, I believe that much of this money ended up in the pockets of healthcare company shareholders. The remaining 2.5 trillion dollars came via mostly forgivable loans and handouts to businesses. Let's save Delta Airlines. The final tally is about 1 trillion dollars in direct aid to those who truly needed it. 1 trillion, or about 20% is going to get to the people who really needed it.

• 4:09Scott Galloway?

  1 trillion to the actual pandemic response, and the 3 trillion dollar wealth transfer to the rich and the powerful. We're calling it, or we should call it, what it really is. The great grift. So what happens? Three trillion in new money and historically low interest rates have been the nitro and the glycerin, respectively, of the stock markets melt up. The dirty secret is that there are two pandemics. While a quarter of America is food insecure and behind on rent, the shareholder class is experiencing an explosion, an explosion in net worth and spends less time commuting, more time with family and Netflix. The S and P 500 experienced the shortest downturn in history after hitting its March lows.

• 4:50Scott Galloway?

  And the Washington Post reported that the index was up 68% by the end of 2020. We don't like to admit this, but if you're in the top 10%, what does the pandemic mean? If you've been fortunate enough to escape COVID and the reality is most people who are wealthy have access to good healthcare, can distance. What does it mean? It means you're not commuting. It means more time with family. It means more time being a better mom or a better dad. And it also means, it also means you are wealthier, dramatically wealthier, as your stocks continue to accelerate and your house increases in value. Had COVID-19 preyed on wealthy white people and cut the NASDAQ in half, our response would have made the South Korean and Taiwanese responses appear amateur.

• 5:35Scott Galloway?

  Instead, the wealth of billionaires is correlated to infections and deaths, and we continue to see a death toll greater than 9/11 every 18 hours. The $3 trillion that went to PPP tax breaks and other handouts to the wealthy could have been spent canceling student loan debt. By the way, I don't think that's a good idea, but I'm trying to give you a sense of the scale here. Entire student debt adds up to 1.6 trillion. We could have eliminated child poverty in the US, rebuilt the transportation infrastructure, and moved 1 million families away from flood zones. I'm not advocating for all of these. Canceling all student loan debt, again, for example, would be another transfer of wealth from the port of the rich. Elizabeth Warren and Bernie Sanders advocating for cancellation of student debt. Who has student debt?

• 6:19Scott Galloway?

  Wealthy people who can afford to pay it back. But this shows the scale of the continued grift, the gestalt around, let's keep the rich people rich instead of figuring out a way to go to our American roots, our American DNA, and that is how do we get more? People wealthy. Anyway, if these programs seem too big government liberal, consider this. Instead of $3 trillion in handouts to the wealthiest Americans, we could have given $30,000 to every single one of the 100 million Americans who reported pandemic-related wage losses in 2020. $30,000. Or we could have just given every American adult $15,000. This would have gone much further towards repairing the economy, as more money would have ended up in the economy rather than in the markets.

• 7:02Scott Galloway?

  And who better to determine which firms, which restaurants, which cupcake bakeries make it to the other end and survive than consumers? In a sense, our democracy is working too well. As the mark for the great grift are people who don't vote, young people and the unborn. In 1989, people under the age of 40 own 13% of the wealth in this country. In 2019, pre-pandemic, they own just 6%. That's right, the share of wealth controlled by people under the age of 40, under the age of 40, has been cut in half in the last 30 years. Yeah, move to Brooklyn, you're still fucked. Despite representing nearly the same share of the population, their wealth has been cut in half. Think about that.

• 7:45Scott Galloway?

  If you're young and you're pissed off, that's just common sense. The younger you are, the more you've been conned. So what should be done? Our pandemic response, including any additional stimulus packages, should be limited to supporting people who are food and housing insecure. We're America. We protect people, not companies. That's called capitalism. However, since we're already 3 trillion in the hole, we need to recover some of those losses. That calls for, and I hate to say this, taxes. We're quick to call everything exceptional in a once-in-a-lifetime, once-in-a-historic event that requires a bailout. But guess what? A pandemic is not historic. They happen every couple decades.

• 8:26Scott Galloway?

  What's historic is the massive explosion in wealth among the top 1%. So I know that warrants a distinct response, specifically...

• 8:36Scott Galloway?

  We should end the favorable tax treatment of capital gains income. Capital appreciation has been the primary vehicle of both our 40-year wealth transfer and of the great grift. We should impose, in addition, a one-time wealth tax. I don't believe in Robin Hood-ing and showing up and saying, "Okay, okay, you're gonna have to pay a wealth tax for the next 20 or 30 years." Why? Because the wealthy are the most mobile people in the world, and it's very hard for them, it's very hard for us to determine what wealth means. But history shows that wealth taxes do not work, but what does work is a one-time tax. It's not worth moving from the US to Singapore. It's not worth trying to hide all those assets for a one-time tax.

• 9:16Scott Galloway?

  A 2% tax on the wealthiest 5% of households would raise up to $1 trillion. Still, only 20% of the money we had borrowed on the unborn's credit card and younger people's credit card, but still, still a start. And more importantly, more importantly, begins to align incentives. The initial stock market bump, registered by the CARES Act's passage, led to the wealthiest American stock owners accruing an additional $2 trillion. So that seems like a pretty good deal. You get $2 trillion on the back of a pandemic's government response. We want $1 trillion of it back. These measures only address the symptoms. How do we arrest the ongoing wealth transfer and prevent the shareholder class from future grifting?

• 10:01Scott Galloway?

  By the way, the wealthiest 400 families are responsible for 50% of the financing of presidential campaigns. In addition to that 50%, it's speedballed by think tanks, PACs, and media, which is largely owned by very wealthy families. We must reduce the impact of money on politics. Money is not speech, and if we can't convince the grifters on the Supreme Court of that, we should override them with a constitutional amendment. We need greater transparency from our elected representatives about who they meet with and where their money comes from. If we don't align financial reward and penalties with the health of our commonwealth and its citizenry, we are doomed to a pattern of failed responses to crises. The explosion of wealth among the already wealthy has created unprecedented moral hazard,

• 10:46Scott Galloway?

  as the arbiters of policy haven't even really felt the real pain of this pandemic. Case in point, DoorDash, a beneficiary of the explosion of meal delivery bought on by the pandemic, went public last month. And now registers a stock market capitalization greater than FedEx at $68 billion. In contrast, the TA 125, an index of the 125 largest companies in Israel, was down for 2020. And guess what? What happens when the stock market goes down? It changes an incentive. And what's the incentive here? Israel has vaccinated its citizens at seven times the rate of the US. If Amazon's stock had been halved versus accelerating

• 11:28Scott Galloway?

  87% since March lows, the 82% of households who are Prime members would be vaccinated by an Amazon delivery person and goddamn Chick-fil-A would offer to stick your arm at their drive-throughs. Let's admit it. Let's admit it. We've been conned. Stay with us. We'll be right back for our conversation with Professor Lina Khan. Support for the show comes from Superhuman. The pace of modern work can be relentless. You're getting a constant influx of messages from a ton of different apps. You haven't closed all your browser tabs in a year. Everything seems urgent and staying on top of it all feels like an impossible task. Superhuman Go is an AI chat that's always there when you need it, already aware of what you're doing and doesn't ask you to start from zero.

• 12:13Scott Galloway?

  Superhuman Go, from the makers of Grammarly, help you be the best version of yourself at work. It handles the repetitive stuff so you can focus on the work that only you can do. Whether you need to summarize an endless email thread or prep for a meeting that's happening in five minutes, Superhuman Go works inside the tools and sites you already use, your browser, inbox, docs, and your project tools. And its AI chat is available on the side of your browser and it's always ready. No new tabs, no switching apps, no losing your place. This is AI that works with you, not on top of you, so that you have the time and brain space to solve the problems that matter. Check it out. Find out more at superhuman.com.

• 12:55Scott Galloway?

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• 13:40Scott Galloway?

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• 14:15Scott Galloway?

  Welcome back. Here's our conversation with Lina Khan, an associate professor of law at Columbia Law School. I started tracking Professor Khan's work back when she wrote a paper as a law student at Yale, talking about antitrust and Amazon. And she kind of set the world of antitrust on fire. I think she's an inspiration. I think she's a role model for young people, that when you do great work and you're fearless and you back it up with rigor and thought leadership, that academia can be a fantastic place to have a real impact in the world. She then went to work for the House Subcommittee on Antitrust, and I've been following her career, but she's just a clear blue flame thinker. Anyway, here's our conversation. Professor Khan, where does this podcast find you?

• 14:56Speaker 02

  I'm currently in Dallas, Texas.

• 14:58Scott Galloway?

  Dallas, wow. I am totally indifferent to Dallas. Like, Austin, I like. Houston, I don't like. Dallas, neutral. You like Dallas.

• 15:07Speaker 02

  You know, it's a very easy place to live and we've been living quite close to Love Field Airport. So I was able to, you know, get to DC and New York quite easily. So overall, it's, yeah, it's treated as well. Can't complain.

• 15:18Scott Galloway?

  So, give us some context. Give us how the events of the last, I guess, 10 days now, how has it, if at all, changed or complimented your thinking around antitrust and the kind of the unfettered growth and power of these platforms?

• 15:35Speaker 02

  Yeah, it's a pretty remarkable couple of weeks for everybody in the US, but in particular, I think for people who have been studying the outsized role that a very small number of tech platforms now play in structuring, you know, public commerce and communications. And so I think, you know, the deplatforming that we saw really underscored just the remarkable power that Google, Facebook and Twitter wield now over our public sphere. And I think also redirected attention anew to the fact that Facebook and Google have business models that are directly at odds with creating a safe communications infrastructure, right?

• 16:14Speaker 02

  Their business models directly incentivize them to promote content that is hateful, promote disinformation. And so I think we've kind of seen the overlap of how their business model coupled with their scale has really created an unsustainable situation for our democracy.

• 16:33Scott Galloway?

  So there's antitrust and the notion that a remedy would be a breakup, which I would argue would actually be good for the shareholders and the management of these companies. Do you think this takes it to a new level? Do you think that we're going to see criminal investigations? Do you think there's potentially going to be a perp walk or something much more severe against the management and boards at these companies?

• 16:54Speaker 02

  It's a really interesting question. I mean, on the tail end of last year, right, we finally started seeing significant antitrust lawsuits being filed, right? So we saw two filed against Facebook, one by the FTC, one by, you know, 48 state AGs. And then we've also seen a handful of lawsuits now filed against Google by the DOJ and by two separate group of states. And those lawsuits, I think, really paint a compelling picture of rampant misconduct by Facebook and Google and underscore how, in many key ways, the dominance that these firms now enjoy, you know, in the early years may have been premised on innovation and on providing superior products and services to users, but that in key instances, actually,

• 17:39Speaker 02

  they've been able to maintain their monopoly through engaging in anti-competitive conduct, right, not through competing on the merits. I think in particular, the lawsuit filed by Texas and a number of Republican states against Google isn't particularly interesting because it basically alleges criminal conduct, a conduct that could be criminal, implicating Google and Facebook. And so, you know, whether that ultimately gets pursued as a criminal matter, I think, will be important. But there's no, there's no question in my mind that we're kind of past a turning point in terms of, you know, the shoe dropping. I think the key question now is going to be, A, is the government going to win these cases, right? It's no secret that the judiciary in the United States has become very hostile to

• 18:23Speaker 02

  antitrust plaintiffs and have made it very difficult for plaintiffs to win cases. And second, if they do win, what's the remedy going to be, right? I mean, Microsoft, the Microsoft case famously was one that the government won on the theory of liability, but ultimately, they were not able to get their preferred remedy, which initially was a breakup, right? And so, Microsoft was able to kind of draw out the interoperability remedy and really just mess around with the remedy in ways that made people question, you know, was this lawsuit really effective? So I think we're going to have to wait to see how that unfolds.

• 18:56Scott Galloway?

  And how do you think things are going to change, or if they're going to change, with the incoming Biden-Harris administration?

• 19:01Speaker 02

  It's an interesting question. I mean, I think we're still waiting to get information about who they're going to appoint to key antitrust leadership positions. So that would be both the head of the antitrust division, as well as the three Democratic commissioner spots at the FTC. So I think until we get more information there, it's going to be difficult to know. I do think that the dynamics in antitrust, though, have changed over the last couple of years, in particular, given the

• 19:31Speaker 02

  Remarkably important role that the state attorneys generals played in really driving the ball forward with these lawsuits. I think that created an important source of pressure on the federal enforcers, right? If the FTC and DOJ were going to decide not to file lawsuits here, they were going to get shown up by the states. I also think Congress and lawmakers are much more engaged on these questions and are much smarter about these questions than they were a few years ago. And so that's going to be another source of pressure. So unlike previous administrations, I don't think the decision is purely going to be in the hands of the FTC and DOJ. I think just the, you know, increased attention and increased pressure and increased stakes of these questions means that, you know,

• 20:16Speaker 02

  sitting on their hands is not going to be a viable strategy in the way that it was previously.

• 20:21Scott Galloway?

  So you referenced the Texas AG's case against, I think it's cartel pricing between Facebook and Google. Is that accurate?

• 20:29Speaker 02

  It effectively alleges that there was bid rigging. So that Google gave Facebook preferential terms and services and, you know, perhaps even rigged big bids, which again is like, you know, in the real estate context, for example, bid rigging is treated as a criminal matter. So it's pretty serious.

• 20:46Scott Galloway?

  But that's, that's the key word, criminal, because my sense is people start dropping dimes when they face prison time. And it's one thing to go after a company and the downside is a fine, even a multi-billion dollar fine. And if you're worth 500, if your market cap is $500 billion, the prospect of a $5 billion fine after two years of fighting it is bad or meaningful, but it's not profound. But the thought that you might go to jail is profound. And I would imagine that the levers or the hammer of criminal prosecution has a tendency to be much more effective in terms of getting people to cop to stuff or say what's going on. Isn't that really a game changer, what's going on in Texas?

• 21:26Speaker 02

  I think it really could be. I think we're going to still have to wait and see whether they pursue it as a criminal matter and you know what what types of charges ultimately and are on the table. But I think, you know, I think it's no secret that we have two systems of justice in this country. And I think that's also the case within, you know, enforcement against businesses. I think oftentimes enforcers are more than willing to really bring down the hammer when they're dealing with, you know, small time frauds, small time scammers. But it's really the the big companies, the powerful companies that oftentimes are able to get much, much lighter penalties and much less severe penalties. I think one example of this frankly was, you know, around a decade ago, some of the

• 22:11Speaker 02

  tech companies, including Apple and Google, were found to be engaging in a no poach agreement, right? So basically, they called each other up, Steve Jobs, Eric Schmidt, they kind of agreed that they were not going to try and hire each other's workers. This type of no poach conspiracy is also, you know, potentially a criminal, it could have been pursued as a criminal matter. The Justice Department chose not to pursue it as a criminal matter. And these companies really, you know, got away without any significant remedies from the government. There was a separate class action where they ended up having to pay off, you know, a few million dollars. But that was a moment where if we had, you know, government servants that had wanted to, they could have pursued that potentially

• 22:53Speaker 02

  as a criminal matter. And I think the kind of culture of lawlessness that we see in corporate America, particularly by companies that have enormous market power, partly stems from the fact that these executives have not really faced any meaningful ramifications for their lawlessness and instead have really been able to treat these fines as a cost of business, which I think is particularly true in in the tech context, right, given that several years of rampant privacy violations would give Google or Facebook enough data such that it would actually be profitable to pay out the fine for that privacy violation. And right. And so I would hope that in addition to seeing these antitrust lawsuits, we're

• 23:34Speaker 02

  going to see a shift in the culture of enforcement that is really intent on ensuring that big companies are also, you know, held to account in a serious way.

• 23:45Scott Galloway?

  So you worked on the House Subcommittee on Antitrust hearing, which by the way, I thought that was the most productive, rigorous, and I don't know, thoughtful hearing we've had in a while. And now that you're no longer working with Congress, you're freed up to make, or I hope you're freed up to respond to my theses or make some predictions. So what do you think is the likelihood that one or more of these companies has broken up in the next, call it 24 months?

• 24:15Speaker 02

  I would say there was upwards of 50% chance. I would say maybe around 70, 75% chance that at least one of them has broken up, specifically given the strong lawsuits.

• 24:26Scott Galloway?

  Stack rank them in terms of most likely to least likely.

• 24:30Speaker 02

  Most likely is Facebook. Second, I would say Google. Third, Amazon. And fourth, Apple.

• 24:40Scott Galloway?

  Yeah, it would be hard to break up Apple, right? Who gets the brand, et cetera? It feels like Apple's more about regulation than antitrust.

• 24:47Speaker 02

  Yeah, I mean, I also think, you know, stepping back, it's important to think about what is the problem that we're trying to solve through breakups, right? I think in certain instances, the problem is really one of law enforcement, that anti-competitive transactions occurred and we need to unwind them. And so I think, you know, separating Facebook from Instagram, separating that from WhatsApp, that would be, you know, a remedy for that, those unlawful transactions that happen. There's also the problem of this kind of intrinsic conflict of interest that arises when you have a firm, you know, both serving as a core platform, but also competing with firms that are dependent on that platform, and then also extending into all sorts of ancillary lines of business, right?

• 25:29Speaker 02

  So one thing we repeatedly encountered in the House investigation was the way in which Amazon in particular was able to use its market power in the retail sector as leverage against businesses when it was negotiating in a totally separate line of business, right? So think about, you know, the voice assistant space. And so there, I think you would want to do breakups in order to, you know, prevent this conflict of interest and prevent a firm from using its market power in one line of business to kind of cascade into all these other lines of businesses. I think what we are facing frankly right now is the kind of combination of structurally uncompetitive markets with structurally competitive markets.

• 26:12Speaker 02

  And that's why you're able to see, you know, a company like Google use its monopoly in search and search advertising to extend into dozens and dozens of adjacent lines of business and also monopolize, you know, the browser also monopolize, you know, the display ad market also monopolize the the mobile operating system, right? And so I think we actually need to step back, look at these markets on a case by case basis, understand what are the underlying properties here? What are the underlying technological features? Is this really a market that is somewhat of a natural monopoly situation such that it actually makes sense to have one company dominate? And if so, what are the rules that should accompany that natural monopoly situation?

• 26:56Speaker 02

  Or is this a market where actually we should be able to see competition, but it's the fact that the platform has already monopolized the natural monopoly market that's allowing it to also monopolize the structurally, what should be a structurally competitive market? Right? And so I think that kind of case by case assessment will let us make a more coherent plan for, you know, how to break these companies up ultimately.

• 27:20Scott Galloway?

  And do you think that there's a recognition, or are we moving to acknowledgement that it would be very oxygenating for the economy to go through not only big tech, but big pharma, big food, big ag, and just sort of deconcentrate the marketplace at the FTC and the DOJ? Someone, I think I read somewhere that for every buck additional incremental dollar you give the IRS, they return $12 back for obvious reasons. But isn't the same true of the DOJ or the FTC at this point, that it would be incredibly, what's the term, a boost to the economy to let these guys go at it and kind of unwind some of the incredible concentration of power that's taken place over the last 30 years?

• 27:57Speaker 02

  I think there's really solid reasons to think that. I mean, I think historical precedent suggests that, you know, injecting more competition would really be a big boon to the economy. I also think we're at a stage where, you know, concentration of economic power and monopoly power is now a systemic problem in our economy, right? It's not just isolated to tech. Tech is a particularly salient example, but it's no way unique, right? So think about major sectors like, yeah, food and agriculture, healthcare, airlines, telecom, right? But also much more, you know, obscure industries, be it waste management, right? Funeral caskets, eyeglasses. I mean, we're really looking at a systemic problem.

• 28:39Speaker 02

  And I think this type of excessive concentration and market power is a problem that now sits upstream from a host of other problems that we're facing, many of which have become deadly apparent during the pandemic in particular, right? So, so take agriculture, right? Four poultry firms control the nation's chicken supply. Four firms control the nation's beef supply. Consolidation throughout the food and agriculture system has meant that supply chain seized up throughout COVID. And overall, our food system is much more fragile and far less resilient, right? Or, or look at the healthcare system, where hospital consolidation has reduced the number of hospital beds, right? The US had 1.5 million hospital beds

• 29:24Speaker 02

  back in 1975, and now we're down to under a million, right? Close to 900,000. And this reduction of capacity is a direct result of consolidation that has led to a very concentrated health system, where hospitals are, you know, primarily located in wealthy cities and suburbs, right? Expansive, extensive healthcare systems, and have created hospital deserts in rural areas, right? Or, and we're actually, we've been seeing major shortages, right? A few years ago, there was a shortage of saline, right? IV bags, an essential medical supply, because consolidation in healthcare had meant that half of all saline in the United States is produced by one company that was using facilities

• 30:07Speaker 02

  In Puerto Rico, which were crippled during Hurricane Maria. And so after that hurricane in Puerto Rico, you had saline shortages across the US, right? And so I think we've just reached a stage where concentration is so extreme and is really leading to cascading problems across the board, which oftentimes can be deadly, such that ignoring this is no longer really a choice that we have.

• 30:29Scott Galloway?

  How do you think the markets would react in more aggressive? Let's assume antitrust, the complexion from the Biden and Harris administration is much more aggressive. Do you think the markets say, well, this is anti-capitalist and it takes the markets down? I realize it's impossible to predict the markets, but typically speaking, these things are really positive for the market. I'm shocked that the markets seem to have adopted this narrative that it's bad for these companies. You know, when there's a case announced against Google and Facebook, granted, their stocks don't go down a lot, but they do go down. Do you think the market fundamentally misunderstands antitrust?

• 31:07Speaker 02

  I'm not sure. I mean, I think it's difficult to answer in the general case, right? I mean, I do think with firms like Google and Facebook, which have enjoyed, you know, super normal profit margins, that an antitrust case and a meaningful remedy could lead to those margins falling. But I also think that what the markets are perhaps not pricing is the way in which breakups and divestitures could actually ultimately lead to more wealth and more value creation, right? And so I think they're kind of perhaps more focused on the downside and not as much thinking about the potential upside, not just for these companies and their offshoots, but for the market as a whole, right? I mean, as part of our investigation, we interviewed mentor capitalists and interviewed, you know,

• 31:51Speaker 02

  many in the business community that overall thought that there was less opportunity in some of these markets because of the dominance of these four platforms and their predatory conduct. And so I do think that overall, we could see more oxygen and more opportunity in the long term if we see serious antitrust actions.

• 32:11Scott Galloway?

  And whenever I hear people talk, knowledgeable people talk about antitrust, they say that if we're going to implement the level of antitrust that's needed, we're going to have to change the laws. And we've done that before. We have this kind of consumer test, or BORC, or whatever they want to call it, which is difficult to apply to an economy where the most dominant companies offer a product that's for free. Can you give us a brief history lesson and tell us where the laws might go? Sort of a more, I think the term is Brandeisian?

• 32:39Speaker 02

  Sure. So, yeah, the US antitrust laws, you know, passed over 100 years ago, fundamentally designed to prevent concentrations of economic power. Because lawmakers understood that in the same ways that concentrations of political power threaten our democracy, the concentrations of economic power would also threaten our democracy. And so, you know, you had periods of strong enforcement, some periods of low enforcement, but overall, through the 1960s, you had these antitrust laws being enforced with a broader look at the underlying market structure and a look at the power that any dominant firm had amassed and was exercising.

• 33:19Speaker 02

  In the 70s and 80s, we saw a growing acceptance of the Chicago School of economists' view of antitrust, which was to argue that this broader focus on power was really harmful for the business community, it was creating uncertainty, and instead, we needed to reorient antitrust around what they called consumer welfare, which basically, they used as a proxy for efficiency, for allocative efficiency. When Reagan came into power, you know, this Chicago School view was basically stamped into law, both through judicial appointments that Reagan made, as well as through appointments that Reagan made to the FTC and DOJ. And so that's been an approach that has been continued through Republican and Democratic administrations alike.

• 34:04Speaker 02

  And so there's been this narrow focus on consumer welfare, on economic efficiency, and enforcers have really just, you know, taken their, yeah, have allowed decades and decades of mergers and consolidations across industries, because under this consumer welfare standard, you know, companies that were merging could always at least argue, somewhere credibly, that merging would lead to efficiencies that, of course, they would pass on to consumers. And so there's just been, you know, institutional permissiveness when it came to antitrust for several decades now. Over the last few years, there's been growing criticism of this consumer welfare-focused

• 34:46Speaker 02

  approach to antitrust on the grounds that even on consumer welfare metrics, this extreme consolidation has not actually served consumers. You actually see market power across the economy be used against consumers. And then also, we've seen enormous problems when it comes to, you know, labor markets, monopsony, concentration of employer power, a reduction in new business formation. And so there are just a systemic set of problems that have derived from concentration across the board. And so that's given more popularity to what's been called the neo Brandeisian view of antitrust, which is really looking to reorient antitrust,

• 35:27Speaker 02

  again, around this question of concentration of economic power, so that we look more at the underlying market structure, rather than, you know, neoclassical economics that is not really tethered to market realities. And I think, you know, grounding our analysis of market power is particularly important in these digital markets, where a lot of the traditional neoclassical theories no longer apply. So one example is when it comes to predatory pricing. The Chicago School says that predatory pricing is an irrational business strategy, because no company would, you know, undertake losses in the short term. What we've seen, of course, we know that that's not true, right? Companies across the economy

• 36:09Speaker 02

  engage in predatory pricing. But this is least true in the context of digital markets, right? Where in some cases, you have winner-take-all markets. And so of course, companies will have an incentive to undercut on prices so that they can capture the market, right? Chasing market share over short-term profits is the whole game. And so I do think that these digital markets are really showing the failure and the hollowness of some of the traditional Chicago theories in a way that is giving new energy to some of these alternative approaches.

• 36:40Scott Galloway?

  I usually wrap up these interviews asking what advice you would give to your 25-year-old self. But given that you're just north of 25, I'll ask you, what advice do you have for other young women and men, just say, coming out of college, thinking about a career in law, thinking about a career in public service? Any thoughts or advice?

• 36:58Speaker 02

  I think for me, studying history was really important. I mean, the way I actually got into all of this, you know, antitrust work was through reading the legislative history and the debates of the early 1900s when, you know, policymakers were trying to tackle the monopolies of the first Gilded Age, right? And what I saw there was just the entire way of talking about corporate power and of talking about economic power was so different from the more technocratic way that we'd been talking about economic power, at least post, you know, financial crisis 2010, 2011. And I think more generally, you know, our history is so rich and there have just been

• 37:37Speaker 02

  so many moments of crisis, so many moments of really delivering massive progress that I think studying history has been, for me, really important to just expand my imagination and conception of what we can do and what is possible beyond the kind of narrow confines of the current debate in any given moment.

• 37:56Scott Galloway?

  And do you feel hopeful when you come out, when you, after serving in Congress, do you come out thinking, wow, there are some very bright people, when the chips are down, they come together, or do you come out feeling more discouraged about the state of our elected officials in our government?

• 38:15Speaker 02

  Listen, I think there's no doubt that, again, we're in a very trying period. And so I think, you know, the perception of what seems possible can be quite dimmed by the fact that, yeah, we're talking about, you know, whether members are kind of aiding a mob that's trying to dig down the Capitol. But I think to step back and look at, even just focusing narrowly on the question of big tech's power, the speed with which that debate has evolved over the last few years is really remarkable, right? I mean, at the tail end of the Obama administration, these companies were so respected and so vaunted that the, you know, one of the top things for Obama alums was to go work for them, right? I mean, I think that just the public perception and the dynamic around these issues has changed so much.

• 39:00Speaker 02

  And I do think Congress is, you know, kind of keeping up with that and helping drive it forward. I think our institutions are remarkably resilient. They've been in the past. And I'm hopeful that if we get right these core questions around market power, around business model, around how to ensure that the kind of structure of our public sphere is not at the whims of what Mark Zuckerberg wakes up any morning wanting to do. I think that will help put us on the path to recovery and resilience again.

• 39:30Scott Galloway?

  Lena Khan is an associate professor of law at Columbia Law School, where she teaches and writes about antitrust law, the anti-monopoly tradition, and law and the political economy. She joins us from her home in Dallas. Professor Khan, stay well.

• 39:45Speaker 02

  Thank you. You too.

• 39:47Scott Galloway?

  We'll be right back.

• 39:50Scott Galloway?

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• 40:35Scott Galloway?

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• 41:07Scott Galloway?

  Welcome back. It's time for Office Hours, a part of the show where we answer your questions about the business world, big tech, higher education, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to [email protected]. Question one, Jerry Ann from West Palm Beach.

• 41:24Speaker 03

  Hey Prof G, this is Jerry Ann from West Palm Beach, Florida. During your 2021 predictions, I was expecting you to say that Amazon would seek to acquire a genetics data company like 23andMe, but you didn't say that. So what am I missing here? Thanks.

• 41:41Scott Galloway?

  Jerry Ann from West Palm Beach, about 20 minutes north of where I live in Delray Beach, PBI Palm Beach. Interesting. First off, West Palm Beach, best airport, best commercial airport in the nation. It used to be Burbank Bob Hope, but it's a little rundown. I can be dropped off in an Uber at PBI and at the gate in seven minutes. Siete minutos for the dog to get to his form of transportation. It's a fantastic airport. Anyways, you might be right. I don't understand the direct to consumer genetic testing market. The global market is projected to reach six and a half billion by 2028, according to

• 42:22Scott Galloway?

  market intelligence firm BIS Research. And the MIT review from January 2020 entitled "Is the Consumer Genetics Fad Over?" They claim that in 2018, the total number of people who have ever bought the test doubled, bringing the databases of 23andMe Ancestry and several smaller companies to a total of over 26 million people. MIT's calculation suggests that during 2019, the largest company sold only four to six million tests, meaning the databases would have grown by just 20%. That would have been the slowest growth rate for the DNA test industry ever. So I'm not entirely sure what the value proposition is. I guess being able to understand more about

• 43:03Scott Galloway?

  Yourself, it's never really appealed to me, so I've never really looked into it. I think the reason, though, that Amazon is not likely to acquire, Big Tech isn't likely to acquire, I think that they probably look at this and think, okay, it might make business sense, they could probably add scale, they have consumer relationships. I think they're worried about the heckling from the cheap seats, that people are immediately going to freak out and say, well, what happens when Amazon knows whether I'm about to get cancer? There's just a level of mistrust of these platforms about the amount of consumer data that they're gathering on us. And I think that they probably correctly assume that the amount of shit and articles

• 43:42Scott Galloway?

  around, okay, great, now Facebook knows if I have a cancer gene, it's just not information that people probably want these platforms dealing with. And I think they probably think that the business isn't big enough to warrant just the amount of brain damage and second guessing they would get. But Jeri Ann from West Palm Beach, it's a good question and not something I have a good answer for. Maybe, maybe we'll see, but I think the optics here would be pretty, pretty ugly. Thank you for the question. Question number two.

• 44:11Speaker 04

  Hey Scott, CH Danil here from London. Rundles increase a company's valuation. Am I correctly assuming that the increase in value is only applying if A, you run a public company, or B, you plan to sell your company? Consider my case, I don't plan to sell my company nor take it public. Besides a better sleep at night, now that the revenue is more predictable, thanks to the monogamous relationship with my customers, is there anything else a founder is getting in exchange for a hit in revenue which would make the Rundle compelling? Believe I'm missing something. Thanks and love your content.

• 44:44Scott Galloway?

  Hey CH, thanks for the thoughtful question. And that's a great question, because in addition to just the valuation on the company, why go to Rundle? And there's a lot of reasons. The markets are If you think about the markets as an organism that absorb millions of pieces of information and then spit back an emotional reaction in the form of evaluation, a lot of people would say that the market is the best arbiter, that it takes into account everything about this company and says, "All right, this is a better business model." And the reason why, the reason why it's valuing recurring revenue, SaaS-like business model companies in a multiple of revenue versus multiple of EBITDA, is it is a better way to operate your business. When you're in the business of being a transactional business,

• 45:26Scott Galloway?

  you're so focused on getting the next day's revenue that you spend more money on sales and you're not willing to make long-term investments and you also, as you said, can't predict your revenue. So it's much more difficult to plan hiring, much more difficult to plan investments based on the cadence of that investment. And also, you're not in the business constantly of putting on a red dress and blow drying your hair and saying, you know, every day, "Look at me, come back into my store. Look at me, sign up for more consulting services. Look at me, spend more on media." And you end up spending less time on sales and more time on the actual product, less time on marketing and more time on innovation and also being able to more consistently plan your capital allocation. "Oh no, sales

• 46:07Scott Galloway?

  are down. We'll call the ad agency and run promotions." Well, okay, get more people, put everything on sale. It's, "All right, we want to enter into this long-term relationship and we want there to be sustainable value. We want to be Adobe. We want to build a package that is so great that for 25 bucks a month, they get a suite of software and great customer service," as opposed to coming out with a big bang product and a huge marketing team and a bunch of money on sales and a big event and push as much of that shit as possible through channels and then start working on the next one. It's a day-by-day focus on the customer and the product that is supported by more consistent, thoughtful investment.

• 46:47Scott Galloway?

  It's just a better way to build a business. Why? Why it's similar to biology. Think about how taxing it is to date. Households that build wealth are typically...

• 46:59Scott Galloway?

  Monogamous, in a monogamous relationship. Single, being single is hard. It's hard to build wealth when you're single. Why? Because you spend money on stupid shit like clothes and cologne and plastic surgery and going out and getting fucked up. And by the way, the expense of going out and getting drunk such that you have, have the confidence to go up and talk to that strange guy or gal is super expensive. And the fact that the next day, you are a chocolate mess and you can't be as productive at work. So, so the marketplace also rewards companies that enter into a monogamous relationship. Why? Because they can focus on the value add of the relationship. They can focus on partnering with their customers to build a better product. They can say to their customers, all right, you're in for a year.

• 47:42Scott Galloway?

  How do I make this product better for the next 364 days? How do we make this relationship better? As opposed to, hey, don't go for the bigger, better deal tomorrow night. Love me. Check out how hot I am today. That's no way to live your life. It's a great way to live your life in your twenties. Some real upside in your twenties, some real, you know, very much, dating in New York is very much what I find an empty, an empty experience, but as far as empty experiences go, it's pretty fucking good. Anyway, CH from London, that's right. The valuation is higher, but it's for a reason. You can focus long-term on the relationship, focus more on the product, focus more on innovation as opposed to sales and promotion. London, London calling. The dog wants to move to London. Fall of 2022, I'm going to move there if my kid can get his shit together and score

• 48:27Scott Galloway?

  well in these tests, we're going to go there. He wants to go to boarding school. I think he's a little drunk on Harry Potter. Again, not really relevant to this conversation, but I love London. It's by far, by far, hands down, hands down, the number two city in the world. Guess which one is number one? Anyways, love London. CH, thank you for the question.

• 48:58Scott Galloway?

  Algebra of happiness. I give the same toast at every wedding. First, first, always express affection and sexual desire. It states your relationship is singular. I think we all want to be wanted. And I think every time you feel that passion, every time you feel affectionate for your spouse, your lover, your girlfriend, your boyfriend, whatever, you should express it. I think it's healthy and wonderful. Two, two, never let your wife or your girlfriend be hungry or cold. Ever, ever. Two thirds of the really terrible fights you're gonna have, somebody hasn't eaten or somebody is cold. So always carry a blanket and protein bars. You're welcome. And finally, and this is the most important thing, don't keep score.

• 49:43Scott Galloway?

  Decide in your relationships, what kind of friend you want to be, what kind of son you want to be, what kind of husband, what kind of wife you want to be, and pursue that and put the scorecard away. Unfortunately, keeping score got in the way of a lot of my relationships, especially with my dad. My dad, I don't think was a wonderful father. So I always thought, well, I'm not gonna be a wonderful son. And then I realized at a certain age, well, I want to be a wonderful son because I enjoy his company. And I also looked at his life and how he was raised. He was abused, grew up in Depression era Scotland, and he was a much better dad to me than his father was to him. And that's enough for me to decide that I wanted to be a wonderful son and not keep score, but just be the man, be the brother, be the husband, the friend that you want to be.

• 50:28Scott Galloway?

  I'm trying to keep less score out and about. Now, what does that mean? I think people are really suffering right now. And for my whole life, I have always kept score in that, in that. If I was in a parking lot and someone backed up and then honked at me and flipped me off, I was willing to get out of my car and point out how ridiculous that was. If somebody at a ticket counter at Delta Airlines was rude or not attentive and didn't treat me with the respect I deserve, given how much I flew and how much money I spent, I reminded them early and often about what an important customer I was. And what you have to realize is that it's not about you, and it's not necessarily the world isn't gonna come to an end.

• 51:13Scott Galloway?

  We are not going to die in a supernova explosion. If occasionally you go through your day... And you come out on the negative side of the ledger, and that is, people are upset, people give you shit, people honk at you, people flip you off, you don't get the customer service that you as a master of the universe deserve, because you know what? Other people have really bad days too. And so I'm trying to not only not keep score in my key relationships, but occasionally just say, there by the grace of God go I. I'm trying, especially with my kids in the car, to say, wow, that guy must be having a bad day. Or when someone melts down in front of me at the checkout line at CVS, I ask her, I say, is there anything I can do to help, as opposed to getting in her face, as I used to do as a younger

• 51:57Scott Galloway?

  man, and remind her what a fucking idiot she's being, to recognize, to have some grace, that people are suffering, maybe, who knows? Who knows what they're struggling with? Maybe they're struggling with mental illness, maybe they've lost someone, maybe they've been fired. It's okay to rack up some losses in the scorecard with people you've never met, with strangers. Show some grace, show some dignity. Think of it as you're not losing, you're going home, and you're demonstrating grace, you're demonstrating dignity. What would Jesus Christ have done? I don't believe in Jesus, or I believe Jesus was a man, but I don't buy into his lineage, but I constantly am reminding myself, what would Jesus have done in that line at CVS? First, I'm not sure he would have been at a CVS, but what would he have done? Because I have been, what's the term here, such a warrior of the scorecard. That's

• 52:42Scott Galloway?

  kind of a polite way of saying, I have been a real asshole. And you know what? That's just no way to live your life. We all need to demonstrate more grace.

• 52:53Scott Galloway?

  Our producers are Caroline Shagrin and Drew Burrows. If you like what you heard, please follow, download, and subscribe. Thanks for listening. We'll catch you next week with another episode of The Prop G Show from Section 4 and the Westwood One Podcast Network.

• 53:15Scott Galloway?

  I'll have some Mentos with my Cobser. Oh my God, it's Jesus Christ. J.C., what are you doing here at the CVS?

• 53:22Speaker 05

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