State of Play: The Economy

Scott shares his thoughts on the Democratic National Convention and discusses the situation that unfolded at UNC-Chapel Hill and Epic Games suing Apple and Google. Then, Jim Tankersley, a New York Times reporter covering economic and tax policy, gives us a rundown on the state of the economy. Jim discusses his new book, “The Riches of This Land: The Untold, True Story of America's Middle Class,” and what economic policies we need to be most concerned with moving forward. Office Hours: applying a recurring revenue model to higher education, the future of consultant work, and why McDonald’s board deserves more credit for suing their former CEO. Please take our quick survey to tell us how we can improve The Prof G Show: https://forms.gle/xVRfqCKrrNr9xzor5 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 23, Michael Jordan wore number 23. Humans have 23 pairs of chromosomes. At age 23, you're likely one year out of college and are just beginning to recognize you will not be a senator or have a fragrance named after you. I just took the 23andMe DNA test and they came back and said they found some DNA in my zacapa. Not true. I only eat chocolate edibles. My doctor says I'm risking diabetes. So inappropriate, but you'll forgive me because that's episode 23. Go, go, go.

• 0:39Scott Galloway?

  Welcome to episode 23 of the Prop G Show. In today's episode, we speak with Jim Tankersley, a New York Times reporter covering economic and tax policy. Jim gives us the state of play of the economy and discusses his new book, The Riches of This Land: The Untold True Story of America's Middle Class. So the big news, the Democratic convention, Democrat, if you could call it that, what deserves or what does reality TV governing look like? Well, you respond with reality TV and that's what last night was with a lot of slogans, a lot of infomercials. I thought it was actually pretty well done. So some inside baseball because, you know, I'm kind of a player. I was asked to a dinner that was hosted by a friend of mine, Tammy Haddad, in Washington, DC.

• 1:20Scott Galloway?

  And Joe Solomonese was the guest and he asked everyone to go around the table and give suggestions on what to do at the DNC. And everyone was like, feature, you know, feature our vision, our story, blah, blah, blah. Let's go to the woke spa. And I just had two pieces of advice. Hot and young, actually three pieces of advice and multiracial. Why? Because multiracial people are much better looking. I'm sure that's a hate crime, but as evidence of that, I'm on Antucket and I can tell you everyone here looks like they came over on the Mayflower and they are really fucking ugly. By the way, I fit in. I fit in. Anyways, hot, hot, hot, hot, young, multiracial. So they bring on Eva Longoria, who I thought was incredibly...

• 2:02Scott Galloway?

  Graceful and elegant and people might say, well, she's not that young. Average age of a voter, 56, meaning for every 30 year old that votes, there's someone 82 voting. Okay. What a shocker. Social Security, capital against tax deduction and no bonds for schools. No, that's, that's where the demo and democracy has come in. Anyways, I thought the Democratic National Committee Convention was pretty interesting and pretty powerful, but I'm biased. I'm biased. Let's get to other news. Otro news, otro news. What is the Spanish word for news? No say, no say. Anyways, what's going on this week? The big news, the big news. And I don't want to say the dog's been predicting this, but you know how most dogs can tell if there's an earthquake? Well, this dog can tell you when schools are going to open and then close again because

• 2:46Scott Galloway?

  they shouldn't have been opening in the first place because every decision, every decision over the last 20 years made by university leadership in America has one aim, and that is to reduce their accountability and increase the compensation of tenured faculty and administrators. And that has led us to the same denial and Trumpian arrogance that we can reopen universities such that we can justify the ridiculous tuition we are now charging and pretend to welcome people back and hope that the virus receives the memo on the arrogance and self-aggrandizement that indicates and marks higher education. And we have started opening schools. And what do you know? The schools with the most resources, Stanford, Harvard, Princeton, and likely the best epidemiology departments in the world.

• 3:31Scott Galloway?

  So what does it mean when you have a ton of resources, both financial and intellectual resources to assess the risks of this virus? What do you decide to do? You decide not to open. You decide to go all remote, A, because you don't have your head up your ass and B, you haven't entered into consensual hallucination with your chief financial officer. But the majority of the universities, or at least increasingly fewer, but still too many, have decided to open and welcome kids back to campus with all these ridiculous protocols, including, no joke, Purdue has purchased over one mile of Plexiglas. And the latest, the first school that will open and close, or the school, first school that open and close, and this is about to happen all across America, UNC Chapel Hill

• 4:12Scott Galloway?

  became the poster child for what's about to happen across American universities as they begin to draw students back to campus. The school announced they are moving all undergraduate classes online. After, get this, 130 students tested positive for COVID-19 during the first week of classes. These protocols are just so insane as we refuse to acknowledge, and I say we, I mean academics and administrators, that these on-campus protocols are only as strong as off-campus protocols. It has been a comedy of riches or a riches of comedy and poor decision-making, as evidenced by the fact, UNC Chapel Hill. UNC is a fantastic public system, smart people, but they too have given in to these delusions,

• 4:56Scott Galloway?

  to this consensual hallucination. The outbreaks were linked to three residence halls and one fraternity. According to the university's COVID-19 dashboard, the number of positive cases rose from 2.8% to 14% just in one week. Okay, Chapel Hill, hope you have a fairly robust ICU. New York Times report found that at the end of July, there were more than 6,600 COVID-19 cases were tied to 270 colleges. We are still in denial. Close all campuses now. Let's do the calculus. Okay, what's the upside? We get a diminished experience and an excuse to hold the line on tuition. That is the only reason we are doing this. What's the downside?

• 5:38Scott Galloway?

  Well, okay, universities become the third-phase super-spreaders. We become the cruise ships in the nursing homes of the fall. We infect community, we increase spread, and perhaps even we overrun the healthcare systems of small college towns. We are the warriors against this virus, not the enablers. I've said that over and over. The New York Times also came out with a story over the weekend about families rebelling against the cost of higher tuition as classes go online. Well, no shit. The president of Chapman University explained that their brutal cost-cutting efforts from their 400 million annual budget consisted of freezing hires, reducing expenses, canceling construction of a new gym, ending the retirement match for employees, and giving up 20% of

• 6:21Scott Galloway?

  his own $720,000 base salary. Oh my God, not building the new gym? Oh, and the president is only going to make 550 grand this year? It's unthinkable. It's unthinkable what's happening in higher end. Anyways, a survey by the American Council on Education found that reopening would add 10% to a college's regular operating expenses. They're all... Bitching that their expenses are going up by reopening. Well, guess what? Do what every other industry is doing and start cutting other costs. Specifically, this guild, this overpaid union called tenure. Some of these facilities that reflect the Rolex-ification of our campuses. When I went to school, the building sucked and college was great and cheap.

• 7:03Scott Galloway?

  I'll take awful buildings and low tuition versus the Ritz Carlton Westwood and $25,000 a year or $45,000 a year for in-state and out-of-state residents at the great University of California of Los Angeles. If we had spent a fraction, a fraction of the time focusing on how to narrow the delta between offline and online learning, we would have made an investment that could yield benefits for decades. Instead, all we have done is stuck our head further and further up our assets and we're embarrassed to pull it out, but we're going to. The virus doesn't care about how noble, how many cardigans we have or how many episodes of PBS we watch or how self-important we think colleges are. College campuses should close now. Enough already.

• 7:46Scott Galloway?

  In other news, Fortnite developer Epic Games is suing Apple and Google. Apple and Google banned Fortnite after Epic Games implemented a tool, a tool, that allowed users to make in-app purchases. This was an attempt for Epic to avoid the 30% fee Apple and Google collect when using their payment options and also, to be blunt, to compete with the duopoly that is the App Store and Google's Play Store. And they were going to charge anyone who downloaded an app within the Epic app a lower price. That's called competition. Ultimately, the consumer benefits, ultimately more innovation, larger tax base, more venture capital funded companies, you know, good stuff. Good, kind of that whole economic growth thing. And in its lawsuit, this is what Epic said. "Apple has become what it once railed against,

• 8:31Scott Galloway?

  the behemoth seeking to control markets, block competition and stifle innovation. Apple is bigger, more powerful, more entrenched and more pernicious than the monopolists of yesteryear. At a market cap of nearly $2 trillion, Apple's size and reach far exceeds that of any technology monopolists in history." And then they ran an ad basically mocking the original 1984 ad. Epic. Game set a trap for Apple. They knew they would be banned and with the day they were banned, they immediately weighed in with their 10-ton lawsuit. The iOS Store or the App Store needs to be regulated. I don't see how you break it up, but good for Epic. This is long overdue. We're in an app economy. It's controlled by a duopoly, maybe even monopoly, as about two-thirds of the revenue goes to one place. That is Apple,

• 9:15Scott Galloway?

  which by the way, hit $2 trillion. I thought it was going to be Amazon. How did they get there? The Rundle, recurring revenue bundle, now almost a quarter of their income, comes from recurring revenue. And this is a company that hasn't increased its earnings, but has increased, has increased or doubled its market capitalization. And there's a learning here. There's a learning here. Turn up the volume. Stick in those AirPods. This is, this is the learning for corporate America right now. You should be focused on a recurring revenue business model. And what are the features of that? It's shit-ton expensive. It can't be an interesting feature. It has to be an IQ test. You have to say to your consumers, why wouldn't you do this? Panera? Panera Bread is offering unlimited coffee for $8.99, $8.99 a month. They've signed up a million people. Why? Because that's

• 9:58Scott Galloway?

  an IQ test. And they are going to reshape, they are going to reshape QSR. People are going to come out of this recession and say, if it's not a depression, and say, do I really need to spend $300 on, on lattes at Starbucks? No, I'll spend $9 on unlimited coffee that's 90% as good as Starbucks, maybe even as good as Starbucks. The recurring revenue business model has to be a massive investment. It has to be an IQ test. And you say, well, that's expensive? Well, yeah, it is expensive. But just like Apple, if it's the fastest-growing part of your business, if it's the fastest-growing part of your business, the market will recast your business. You're not in the business of increasing revenues. You're in the business of increasing stakeholder value. And the only way in a low-growth economy, you can

• 10:39Scott Galloway?

  double, triple your market capitalization, is by changing the complexion of your business model, and that is recasting it to subscription or recurring revenue bundle. You heard it here from the dog. Stay with us. We'll be right back for our conversation with Jim Tankersley.

• 10:56Scott Galloway?

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• 11:40Scott Galloway?

  and free shipping. Find out why Nutraful is the best-selling hair growth supplement brand at nutraful.com, spelled N-U-T-R-A-F-O-L dot com, promo code PROP G. That's nutraful.com promo code PROP G.

• 12:08Scott Galloway?

  Welcome back. Here's our conversation with Jim Tankersley, a New York Times reporter and author of The Riches of This Land: The Untold True Story of America's Middle Class. You'll like this. He has a very soothing voice, very practical, kind of easy demeanor. Anyways, our interview with Jim Tankersley. Jim, welcome to the podcast. Where do we find you?

• 12:28Speaker 02

  Thanks so much for having me. I'm actually in Western Pennsylvania for the next couple of days, so kind of a random spot.

• 12:35Scott Galloway?

  That is a random spot. Sheltering in place I trust. So let's broaden out from Western PA. Give us a state of play for the economy in the US in, what is it, August? I don't even know what date it is. August 18th. State of play. Where's the economy?

• 12:53Speaker 02

  So the economy is recovering from the worst depths of this crisis, but that recovery looks like it's stalled out a bit, both because of the second wave of the virus that started spreading this summer across the South and the West. And then also now increasingly, we're starting to see signs and fears that the cold turkey end to supplemental unemployment benefits is going to be dampening consumer spending through August. So between the reduced activity from the resurgence of the virus and the potential pullback because of stimulus crashing out, what we have is a recovery that is nowhere close to back to normal, the pre-crisis normal, and in some ways is kind of moving a little bit backwards.

• 13:39Scott Galloway?

  I always tell my students to try and find a role model, whether it's your company looking for role models, that there's very little new that needs to be implemented, that you just need to look around and find out who's doing it well and copy or learn from some of the attributes. What economy do you look at and think they did it right?

• 13:58Speaker 02

  I think for a lot of this, that South Korea is the one that people have been looking at and saying, wow, they really, they really were very aggressive early on. They got control of the virus and they do have these like much more extensive testing regimes in place. But you can look at a lot of other advanced economies right now and see, hey, they really do seem to be doing better than that we have been doing. Germany seems to be doing better. Norway seems to be doing better. The issue here, I think, is that everybody, even the ones who did it well, took a big economic hit. So you could, you can delude yourself into thinking, oh, well, we did it better because, you know, our economy didn't shrink as badly as it could have. But it sure seems like those countries are poised for a faster recovery than we are

• 14:43Speaker 02

  and to maybe spare themselves some of the longer term economic damage you get from a lingering crisis. And so, yeah, I think if you're looking for role models, you look at the places that took the virus and its control much more seriously than we seem to have.

• 14:59Scott Galloway?

  What is your view of the stimulus and how it's been deployed? Is it, I mean, granted, we needed to do something fast. We needed to do something big. Has it had the desired effect? What do you think the upside and the downside of our approach to stimulus versus how other nations have handled it?

• 15:15Speaker 02

  I think the upside is that we did a lot of it and we got a lot of money out the door fast and the Fed did a lot fast. I mean, that's, that really is true. I mean, we, we also may not have done enough in some particular areas and not been nimble enough. I think, and that's the real downside. I think when it comes to small business help, I mean, I talk probably more to, to small business owners and groups than I do to almost anybody in the sort of charting the macro trends and the micro trends of this crisis. And it just, we definitely as a government did not get enough money right away to help bridge particularly small businesses in hearted areas or in, you know, minority owned businesses

• 15:58Speaker 02

  that didn't have traditional relationships with banking, large banks. I think we lost a lot of those businesses perhaps by not moving faster. And now there is a lot of talk about innovation and sort of if we do a second wave of small business help, what does that look like? It doesn't look different from the PPP program, which had some real successes, but certainly was not meant to be a, you know, a bridge that lasts, you know, for a year and a half as opposed to just a few weeks. And so I think, I think that was a real downside of, of what the stimulus was. I think we are learning more each week about the effectiveness of various parts of it. New research out just this week actually on the direct checks to families, you know, low and middle income families.

• 16:41Speaker 02

  Looks like a lot of that went to savings and less of it went to just direct spending to prop up the economy. Whereas the research we've seen so far on the supplemental unemployment benefits that expired in July is that when they were in place, they were sustaining consumer spending of people who were sort of living on the margins of the economy while they were waiting for their jobs to come back. So to the extent that we just wanted to keep people pumping money through the economy, the UI benefit seems to have worked better than the direct checks in that first wave.

• 17:09Scott Galloway?

  So let me put out a thesis and you tell me where I've got this right and wrong. Like everything we've done in federal government or most of the major. Fiscal stimulus, or even, I would argue, some of the tax deductions. Haven't we just ensured that rich people stay rich, borrowed against future generations, and put some of the money in the neediest, but wouldn't we have been better off just taking, say, the bottom median or bottom quartile of households and just cutting them a check as opposed to loaning, or basically granting hundreds of thousands of dollars to small businesses who, many of whom make up the wealthiest cohort in America? This feels to me like we've just flattened the curve for rich people and to smear Vaseline over the lens, put some money in the hands of the neediest.

• 17:55Speaker 02

  I think that may be a simpler story than I would tell about it, but I think there's, you directionally have things a lot that's correct there. I mean, you certainly look at the experience, it's just a bifurcated experience in this recession recovery so far. People who can work from home and who tend to be higher educated and higher earning just have had a, just an easier time. And in fact, many of them have just built up savings over time. Now, I think among business owners, you know, we've seen a variety of things, and I think it's true that a lot of business owners who are wealthy and didn't need help managed to get help, you know, pretty easily through this, and that I would

• 18:34Speaker 02

  argue that a lot of the sort of owners who are not rich people but operate very low-margin businesses were the ones who slipped through the cracks. But yeah, I mean, there definitely was an alternate scenario where, instead of trying to prop up payrolls through businesses, we had just found a way to just keep people whole until their jobs came back, whatever that was going to be. And we sort of chose this hybrid approach that had some success, but like you said, it's really going to exacerbate inequality. And I mean, it's also, it's not just the economic effects of this, the health effects are. We know that it is the people who are on the front lines, who have had to go to work in grocery stores and, you know,

• 19:16Speaker 02

  healthcare providers and everywhere else, who are more susceptible to contracting the disease and who live in communities, you know, black Americans, Latino Americans have been hit harder by this virus as the share of the population. So I think there have been massive inequalities of this crisis, and that the fiscal response has mitigated some of them but exacerbated others in the big ways you're talking about.

• 19:39Scott Galloway?

  Speaking of inequality, and you wrote in your book, The Riches of This Land, The Untold True Story of America's Middle Class. It feels as if COVID has been more, we say it's been more of an accelerant than a change agent, that we had some very unhealthy, frightening trends around income inequality, and this pandemic has taken us literally to a dystopia. Has income inequality just gone from unhealthy to parabolic in the last 16 weeks?

• 20:06Speaker 02

  Yeah, income and wealth inequality, both. I mean, I think that is the other big factor of this is that, you know, if you were, in the book, you know, I sort of lay out all the trends that have been difficult for the middle class over the last 30, 40 years. One of the big things are these still massive disparities by race in median wealth. And so if you were a typical black family, typical black worker entering this crisis, you had one-tenth the wealth of the typical white family. And then here comes this crisis where, you know, you may have lost income for five months or more at this point, and you just don't have the savings to keep consuming out of it. I mean, it's, I think, yeah, this is, this is absolutely an accelerant of those inequalities that have rocked the economy, you know, in the 21st century.

• 20:51Scott Galloway?

  So, household wealth as an outcome, what, what are the trends or what are the things that you look at? When you mentioned that there are several things, unhealthy trends since World War II that have increased inequality, what are, what are some of those?

• 21:05Speaker 02

  So I think it's first, it's, it's helpful to look really quickly at the, what were the helpful trends after World War II? So we had this big boom in the middle class after World War II, which I kind of retell that story and toss in something that I think a lot of Americans haven't considered, which is that a large driver of, and I'm arguing a primary driver of that boom, was the progression of women and black men and other non-white men, workers in the economy, into better economic opportunity. Basically, before the war, it was an economy that was largely closed off at the top end to anyone who wasn't a white guy. And first by necessity of the war, and then by the, the hard work of civil rights, starts to open up and provide more opportunities for talented people to deploy their skills in more efficient ways. And what do you

• 21:49Speaker 02

  You know, that that brings us a more productive economy, which produces benefits for everyone. It generates the growth and income growth that pull millions of people in the middle class. And that's a a big success story. I argue sort of the the biggest middle class success story in the history of capitalism. But I, you know, in the last forty years, a couple of things have happened. We've we've had barriers to opportunity arise anew for those workers, whether it's overt discrimination, which still exists and and persists, or things like the war on drugs, which disproportionately incarcerates black men. Or then there's just changes in the economy that make it more difficult for certain workers to supply, you know, their skills to the economy. And and perhaps the biggest one is is the shift to service work,

• 22:34Speaker 02

  which coincides with a kind of inability of the country to figure out how to provide abundant, low cost childcare. And so that holds women back from, especially at the top, you know, rising to, you know, the highest levels that they could and and the and the pay and the productivity that they could. And so all those things add up to an economy where these workers whose liberation, so to speak, economically fueled the middle class boom have instead been blocked or in some cases moved backwards over the last forty years. And and I think that has led to the lower growth, less productive and smaller middle class outcomes that we've seen.

• 23:13Scott Galloway?

  Do you think my industry has played a role in that as we used to be? We used to be this incredible upward lubricant of income mobility. And I, you know, you always go to your own experience, right? And state sponsored education changed my life. It's the reason I'm here speaking to you right now. And I worry that over the last thirty or forty years, that administrators and tenured faculty have starched all the surplus good by raising tuition such that they can pay themselves more while decreasing their own accountability. And we've ended up in a situation where college, which still is 90%, only a third of Americans

• 23:52Scott Galloway?

  have college degrees, but it's 90% of our economy, culture, and government are run by people with college degrees. And that those opportunities have largely been sequestered to two cohorts, the children of rich kids and what I'll call freakishly remarkable 15 to 17 year olds. And that we haven't been able to, we've kind of reversed the trend. What was this great upward lubricant has become the new casting agent. Do you think that essentially higher ed's exploding costs have played a role in our regression as an economy?

• 24:27Speaker 02

  Clearly. I mean, I think clearly the, the, the cost and the barriers to higher education are there. I mean, I, I want to be super clear that, that I think education is a crucial part of the story, although not the be all end all. I mean, there are still massive racial pay disparities for college graduates, you know, black men with college degrees get paid far less than white men with college degrees with otherwise identical resumes. But, I mean, we know that education has been historically just this huge driver of, of economic opportunity. And yeah, I think, I think the, the barriers of, of cost have been extraordinary to four year degrees. I also would argue that just the barriers to completion for low income students are high and difficult. And, you know,

• 25:10Speaker 02

  cost is one of those. Even community college is very difficult for low income students to finish over a course of six years because it's just so difficult to juggle the demands of, you know, paying for tuition and going to school and doing well and working a job and, you know, potentially raising children or whatever else you're doing. And, you know, the research is pretty clear that, that, that even at the two-year level, the outcomes really vary depending on, you know, where you start on the income ladder as opposed to the potential ladder. And I think we've all seen these stats about how easier, it's easier to graduate from college to or four years for a low performing, uh, rich kid in high school than for a high performing, low income kid

• 25:52Speaker 02

  in high school. Again, I mean, may, maybe there's some silver lining in this pandemic that we could get some innovation that, that reduces the cost and allows for more parity in this. But I also worry that there's a, there's a flip side that, that it could get worse, that right now, low income kids are the ones particularly in. Elementary and secondary education who are being hurt most by the sort of fumbling nature of the initial remote learning attempts.

• 26:17Scott Galloway?

  Yeah, amen, brother. The, um, let's talk a little bit about the markets. So I think like a lot of people in mid-March, I was panicked. I saw this pandemic is just getting worse. It felt like our superpower, our traditional superpower as a nation, our optimism was actually a comorbidity and things were just getting worse. And I thought, okay, if you have a global pandemic and an administration with no leadership that's in denial, it's not a great forward-looking indicator of the markets. And I came very close to selling kind of everything and just sitting on cash. And because I'm lazy, I never got around to it. And thank God, I'm lazy because the markets have ripped back. It feels as if the markets have totally disarticulated from the underlying economy. And I, I, I think

• 27:02Scott Galloway?

  I understand why, or I have a thesis, but I want to hear your viewpoint on how we can be in what is the worst economic crisis, or it looks like the worst economic crisis since the Great Depression. Every metric other than the markets looks ridiculously ugly, and the markets are at all-time highs. Isn't the markets telling us that innovation's going to be pulled forward? What's going on here?

• 27:23Speaker 02

  I want to hear your theory very badly, but I think I, I have a few. My colleagues and I kick this around all the time. I mean, one is that, um, is that this, this is a crisis that's been very good for, for certain big businesses and that market is reflecting that, that they're gobbling, you know, Walmart is taking market share from smaller competitors who, who weren't able to operate during the crisis. And so that's been good for their stock price and it's lifted the markets. Another is that the market is just far more optimistic about people in Washington coming together on some sort of continued fiscal rescue than those of us who cover Congress are at the moment. And the, you know, and a third big thing is just this thought that perhaps, you know, all of the extraordinary

• 28:07Speaker 02

  efforts that the Fed is making to prop up the economy have done much more to pop up that, prop up that, what I might call the stock market end of the economy than, than the, uh, the Main Street end. And then there's, and I, I, I think the fourth thing that I would toss in there is the fact that market participants are much more likely, I mean, investors and traders are much more likely to be insulated from these most dire effects right now. They are seeing economies that are, you know, more or less still functioning pretty well around them. It's not the same. They're not taking as many business trips, but they still have a lot of disposable income and, and the people around them do. And so you could really see sort of an optimism bias to the recovery that way, just because of where people perceive their local economy.

• 28:52Scott Galloway?

  Yeah, I'm curious of you also. The only thing I would add to that is we have this entire generation of mostly young men at home who are taking their stimulus checks, who didn't need them to survive and are levering them up with these nuclear weapons of trading options offered by platforms like Robinhood. And all of a sudden, we have this entire swath of capital and aggressive trading into the market, which is pushing up kind of the famous names faster. I mean, I think 99% of the market recovery can be allocated to just seven stocks. I mean, it's, it's not that the markets are up, it's just that the companies that the indices are heavily weighted to are up. The, the other, the other thing, and I want to get your viewpoint

• 29:36Scott Galloway?

  on this is, people don't like to say this out loud, but the top 1%, if not the top 10%, are living their best lives. And that is, if you make of $100,000 a year, you probably can work from home. Your stocks, your wealth is at an all time high. You're spending more time with your kids. You're watching Netflix. You're saving an hour to two hours or five to 10 hours a week on commuting. And most of your costs have gone down. You're not eating out as much. You're eating more at home. You're eating healthier. Your expenses are going down because most of the things in your life have declined in cost. So your savings are up, your stock portfolio is up, your lifestyle is better in the midst of a raging pandemic.

• 30:18Scott Galloway?

  Those are the investors, right? That's, what is it, the top 10% own 93% of the stocks? So they're feeling as optimistic as ever, to your point. Do you think, if you look at economic history, are we at a point of income inequality that leads to revolution, that leads to just incredible social unrest?

• 30:37Speaker 02

  I mean, I think we're at the point of, we're at the point right now that where that leads to Donald Trump, right? It sort of did. And I know, I know that economic explanations of Trump's election are a little bit out of vogue, but I square that circle by saying, you know, in the book, that I don't think there is a real material, you can't separate sort of the racial and cultural and economic explanations for Trump right now. They're all part of the same package for his voters. And, and he was a guy who promised to shake up the system and re-empower people who felt disempowered, particularly working-class white people in the industrial Midwest. So to some degree, we've already had this revolution. And what's weird is that it's a revolution that combines some of the winners of the

• 31:18Speaker 02

  trends you just described, the people who, you know, who are doing the boat parades, with some of the people who are, who are not winners. It is hard to see things getting more stable from here, especially if we have another closely contested, possibly disputed when it's all over, election. And if anything, I think that, you know, you're going to see more politicians like Trump, like Bernie Sanders, who are calling for big, sweeping, either, you know, policy changes or cultural changes, as more and more Americans feel disempowered, whatever that means to them. And I think this is why, I mean, history shows us why the middle class is so important. I mean, it's, it's a stabilizing force. When

• 32:01Speaker 02

  you have a strong group of people who feel economically stable, but not necessarily like above everyone else, that tends to breed political stability. It's good for democracy, and it's actually good for the functioning of the economy. So, yeah, I worry about that a lot. And I think the trend right now, as we're seeing in the country, is, in this crisis, that it looks more likely we'll have the kind of chaos that you're describing, if not overt revolution, than less.

• 32:32Scott Galloway?

  And you're at the helm of the bobsled here, seeing data left and right, seeing what's ahead. Are you comfortable making some predictions around what you think happens in the next six months in America as it relates to our economy, the markets, our society? What, recognizing, no one gets this right, because there's so many X factors, but if you have to try and guess, you have to try and guide the bobsled, what do you think's in store for us?

• 32:59Speaker 02

  If I had to guess, I would start with the fall, which is that I would guess it's going to be a much rockier recovery in the fall than a lot of the market might hope, because there's just this, well, there's two big things. One, there's, the virus is still not under control, and so long as it's not under control, we are really looking at a bumpy road. But two is childcare. I mean, I just think if you look at schools not being open, there's going to be this labor supply effect that cascades, and we're going to have, I think, a much harder time getting people back to work and getting the full restoration of the economy, particularly in that sort of low middle end, when you have working moms having to choose between

• 33:43Speaker 02

  being at home with young children who are doing school virtually, or going into their work, which they can't do from home. And it's been staring us in the face this whole time, but I think it is the number one reason to be pessimistic about a recovery. I also think, I mean, to play a little more of a pundit hat here, there's a real chance that there, someone is going to roll out what is called a vaccine in the fall, and how the country responds to that is going to be really interesting.

• 34:10Scott Galloway?

  Yeah.

• 34:11Speaker 02

  Whether it's like, fully embraced, even if it's not fully, you know, gone through all the trials that you normally would do for a vaccine, or whether people view it skeptically, or do we see more like, certain places rush to open back up again and others don't? I mean, the actual way to put all this together would be to say, I think there's a real chance we have just rolling flare-ups of the virus, which each time coincides with a rolling plunge in economic activity of, you know, some degree or another, and that is not a particularly good or stable place to be in.

• 34:45Scott Galloway?

  You mentioned one thing that I've been thinking a lot about, and that is, and I'm definitely a glass half-empty kind of guy. But like you, I have school aged children and I worry, Jim, that literally America, in addition to the economy, but just America, falls apart in the fall when tens of millions of households can't send their kids to school where they become dependent upon nutrition, some sort of socialization, social structure, developmental disabilities skyrocket, depression. Households can no longer depend on their grandparents because they're vulnerable to watch the kids and single parents literally can't go to work and can't make a living.

• 35:28Scott Galloway?

  And that we might see just a level of collapse in our society that we haven't seen in a long time. And I actually think the epicenter is going to be the kind of the shit show that is K through 12 right now. Do you agree that that is the hotspot? That is the, that is the really scary part right now? I mean, tell me.

• 35:47Speaker 02

  Yeah, I do. I think the scariest parts right now are the thought of exactly what you described with schools. And it's the one thing that everyone up and down the distribution that I talk to worries about, talks about. And it's just, again, rich Americans have more ability to, you know, wall their kids off in education pods and try to compensate for their lost learning. And that is the only thing I would add to your fears, although I am not quite as pessimistic as you. But I would say that I think there's this possibility of growing resentment of, you know, a year or two after this, if God willing, we get

• 36:27Speaker 02

  through it. Suddenly people being like, hey, wait, why did your kids get to keep racking up more advantages over my kids that'll make it easier for them to get into college? Like, if you're a college admissions officer in five years, how do you possibly adjudicate between a kid who was in a pod for a year because their parents could afford a tutor to come live with them, basically, and a kid who basically got no instruction at a public school in person for a year? That is, that is a really hard thing to do. And those are, those are decisions that affect the future of the economy and the future of the sort of class and race sort of distinctions that, you know, you and I have been talking about this whole time, the disparities.

• 37:08Scott Galloway?

  Yeah. And one scored 1400 on the SAT and the other 900. It's just. Yeah, it really is. It's frightening to think about. So give me, if you had a magic wand and you could implement or remove one economic policy in America, what would that policy be?

• 37:24Speaker 02

  What, I mean, obviously, I think right now, the economic policy that I would most want to do is just like a completely comprehensive test and trace system where you really felt like you had control of the virus.

• 37:34Scott Galloway?

  That's interesting. Most people see that as healthcare policy, but you think it's inextricably linked to economic policy?

• 37:40Speaker 02

  I mean, I do think it's a healthcare policy, obviously, but I think it is the most important economic policy in America right now. I just, I just do.

• 37:48Scott Galloway?

  Yeah. No, I think that, I think there's a ton of insight there that, that the best way to restore the economy is to kill the virus, right? It's just, I'll pass lead to the same place, and that the real enemy isn't flattening the curve for rich people, it's, it's eliminating the virus. It just strikes me as so strange. It feels as if we haven't acknowledged the virus hasn't received the memo regarding our optimism.

• 38:12Speaker 02

  Right. Yeah, it's like, we have this nostalgia for just getting back to the way things were, which, I mean, hey, look, I get it. I am upset that it's only a 60-game baseball season, too. I am upset that my child doesn't have in-person instruction in the fall, but you can't just sort of wish that back. And, you know, long-term, there are all these big structural things we need to do in the economy. We need to rip down the discrimination that holds back women and workers of color. We need to invest in wealth building for everybody. We need to unleash a new generation of entrepreneurs, but we can't do any of that if this virus is raging and we're just pretending like it's going to go away.

• 38:50Scott Galloway?

  Jim Tankersley covers economic and tax policy for The New York Times. His book, The Riches of This Land: The Untold True Story of America's Middle Class, is out now. Jim joins us from Western Pennsylvania. Jim, thanks for your time and stay safe.

• 39:05Speaker 02

  Thank you so much.

• 39:06Scott Galloway?

  We'll be right back.

• 39:09Scott Galloway?

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• 39:52Scott Galloway?

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• 40:20Scott Galloway?

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• 41:05Scott Galloway?

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• 41:34Scott Galloway?

  Okay, it's time for Office Hours. As a reminder, you can ask us anything. If you'd like to submit a question, please email us a voice recording to [email protected]. Roll question one.

• 41:46Speaker 03

  Hey, Prof G. This is Matt in New York City. So I went to a small liberal arts college in the Pacific Northwest. It's the exact type of school that should get absolutely rocked by COVID-19. And recently, the school announced that all students who attend full-time this year will get two additional semesters of school free of charge the year after they graduate. So basically, they're letting all students take a mulligan as long as you show up in the fall and send your tuition money. My question for you is, what do you make of the strategy? Do you think it will work? Thanks.

• 42:17Scott Galloway?

  Matt, thanks for the question. I not only think this is the right thing to do, I think it's gangster with a capital G. And that is, first off, I think universities need to acknowledge this will be a deeply impaired experience and have an adult conversation with parents. First, they have to have it with themselves and get out of this consensual hallucination, which I ran into at the beginning of the show. But an adult conversation with the students and the parents say, "This is a deeply impaired semester, if not year. And as a result, we're going to cut your tuition." All right, that kind of makes sense. "The product sucks. The product isn't as good, so we're giving you a discount." When I'm on Delta and the wireless doesn't work, if I take the time to email them, they give me 50 bucks off or a coupon for a free drink. I'll take the coupon, thanks. Anyways, that is just a basic, I don't know, it seems kind of logical.

• 43:01Scott Galloway?

  "The experience is going to suck. We're going to give you a discount or not going to charge the same." But nobody wants to do that in higher ed. As a matter of fact, in the mother of all tone-deaf decisions, NYU decided to raise tuition 3.5%. Yeah, that makes sense. Anyways, there's a bigger implication here. Not only are they being smart, not only are they saying, "Okay, we're going to reduce tuition by giving you more." By the way, that's the best discount in business. You say, "We're going to give you kind of a free gift with purchase." The entire beauty industry was based on free gift with purchase. They got into sort of this unhealthy cycle of giving away what felt like 50 bucks in beauty or color products if you bought a $49 sunscreen or moisturizer. If I sound like I don't know what I'm talking about, trust your instincts. Anyways, you get, you get the point.

• 43:44Scott Galloway?

  It's much better to, to offer value add as a means of discounting versus chopping the price. And that is what they're doing. But there's a bigger story here. There's a bigger story here, M-A-double-T, and that is, that is... Back to recurring revenue bundle, the first university that successfully makes the investments and shifts their business model to lifelong learning and says, okay, we got to bust out of this model where we try and charge people way too much money, a shit ton of money over two or four years, and then wait 20 years and hope they get rich and ask them to give a bunch of money back. That's not a great business model. A better business model would be say, hey, for the rest of your life, we're going to ask you to spend two or three grand a year, and we're going to offer so much in the way

• 44:25Scott Galloway?

  of ongoing learning, so much in the way of certification, career counseling, networking, cultural events, fantastic opportunities for you and your family to engage in the community and in this lifelong learning and what is an unbelievable culture. How many of us don't want to go back to campus? It's this wonderful culture. Would it be expensive? Would it take a ton of a rethink of the notion? Yeah, absolutely. And the first university that pulls it off is going to revolutionize education, or specifically is going to massively increase their stakeholder value. Because instead of spending all this money on recruiting and bullshit marketing and orientation and trying to figure out how to get kids estimate how many kids will will come to their school through these complicated algorithms of yield

• 45:10Scott Galloway?

  and how many high school kids are coming out, they will enter and they will be able to predict the lifetime value and their cash flows. And that is the reason why software companies are valued at a multiple of revenue versus transactional companies are valued at a multiple of EBITDA. This is the opportunity to take what Pacific Lutheran University is doing and absolutely pour fuel on those flames and not only move to two additional semesters, but to move to another 50 or 60 years of learning, lifelong learning. Thanks for the question, Matt. Next question.

• 45:38Speaker 04

  Hi, Prof. G. My name is Abhijit Bharat Kumar. I live in Bangalore, where I work at a large consulting firm. I've been a huge fan since I discovered your insightful videos on YouTube a few years ago. I want to thank you for your generosity as you continue to put such great content out there. Please continue to tell it like it is. The world is a much richer place for it. Now for my question. I would love to know your thoughts on the future of knowledge work like consulting. How do you see the core offering in consulting and the delivery model transform in the future? And do you see the four ever come into that space in a huge way and threaten the highly entrenched consulting firms?

• 46:18Scott Galloway?

  AB, thanks so much for that. And if it's okay, I'm gonna call you AB because I don't want to mangle your name. That's a very thoughtful question. Deloitte serves nearly 90% of the Fortune 500 and more than 7,000 private companies. PWC serves 85% of the Global 500, 93% of the companies on the S&P, Europe 350 less, 86% of the Fortune 500. And we also have incredible companies in the consulting field. Deloitte, Accenture have just consolidated the market. Why? Because knowledge work or answering questions, I mean, there's Google that answers 98 or 99% of our simple questions. When our questions get really difficult, like, okay, what do I do to stave off the incumbents?

• 47:00Scott Galloway?

  I'm General Motors and I have Tesla with incredibly cheap capital and union problems or union expenses and regulation and changing marketplace. What do I do? Google can't answer those questions. So instead, instead of being served up ads or paying the tax of having to listen to or be taken to places that aren't the best place, but a place that Google could further monetize, they would rather pay millions of dollars to incredibly bright people, usually from India. Pretty sure it's racist for me to say that, but I do think Indians over index and consulting firms to try and thoughtfully go away and assess the marketplace and then come back and provide an answer or a reasonably thoughtful answer. Most of the time, the client knows the answer.

• 47:44Scott Galloway?

  They just want third-party validation. I think that field is only going to explode. So the question is, what can the industry do? And I know I sound like a broken record here. I think it's going to move from a transaction or a project-based model to a retainer model. And that is a company that's over, say, a billion to less than 5 billion will pay X dollars per month for its accounting, X dollars a month for its creative services, and X dollars a month for its strategy services. And this will take the business model to a much better place because typically, the dirty secret of consulting, and it's not that much of a secret, is when I would get a consulting engagement and Williams-Sonoma would pay my firm profit a half a million dollars to do their internet strategy about halfway through

• 48:27Scott Galloway?

  the project, the majority of my efforts would be trying to invent new problems that only we could solve, such that I could write another proposal in week 10 of a 12-week process to get bigger and bigger, basically to kind of go in and affect the organization with a lot of uncertainty and questions that only we can answer because we knew the company and we were outside the organization and hopefully had done some good work. Such that we can continue to sell more and more. So the best people in consulting and services often spend a lot of time spending the majority of their efforts on selling and specifically developing relationships. I found that the majority of my time was spent on developing kind of these father-son relationships with the CEO or the CMO of my client. And I like these guys, they like me, but that leads, A, it's kind of unproductive. And not only

• 49:12Scott Galloway?

  that, my first wife did not, I first, you have a first wife, did not enjoy vacationing with clients all the time. And two, it's fairly inefficient. It's also in its own way, leads to a lot of discrimination and a reduction in opportunities for people with kids, for people of color, or for people who don't look, feel, and smell like the CEO, who wants to hang out with people that look, feel, and smell and play golf like him, which I did all through my twenties and thirties. I fucking hate golf, by the way. Anyways, that's neither here nor there. Consulting needs to move to retainer versus project-based. I think it needs to be more data-driven. My second quote-unquote consulting firm, L2, although it was more data-driven, I said, I want it out of the business of selling

• 49:54Scott Galloway?

  and out of the business of having to establish relationships. I want to have intellectual property. I think indices, and that is tracking data, whether it's the number of searches done on a company by a certain consumer set, whether it's assessing their mentions on Instagram, there are just, there are so many, everyone says, data's the new oil. No, it's not. Data's everywhere. You need to refine that oil and turn it into petroleum. And that is, you need scrapers, you need ways of distilling that data down to rich formats that you can present. And then, and then you need the gangster processor in all of human history, and that is a gray matter in between your ears, to translate that data into information and, and recommendations. And your recommendations can be wrong, but as long as they catalyze

• 50:37Scott Galloway?

  a debate that interrogates the truth and leads to better decisions across a variety of outcomes, you have done a great job and you will justify and receive hundreds of thousands, if not millions of dollars in high-margin revenue. In sum, retainer recurring revenue relationships and more and more reliable sources of data sets, which give you the ability and the source of truth and the confidence to make more and more provocative, incredible recommendations and provide better answers to your clients. Thanks for the question. Next question.

• 51:09Speaker 05

  Hi, Scott. This is Deb from Toronto and Cape Cod.

• 51:15Speaker 05

  I was wondering what your insights were on the McDonald's CEO, this Easterbrook guy. Do you think the board is at fault for not having done more of their due diligence before letting him go with a big severance package? As an experienced board member, I'd like your thoughts on what kind of repercussions this should be for the board. Thanks.

• 51:43Scott Galloway?

  Deb from Toronto and Cape Cod. Thanks for the question. So just a little bit of backstory for our listeners that don't know some of the context. Steve Easterbrook, McDonald's former CEO, was fired last November for having a consensual relationship with an employee that violated company policy. The board fired him without cause. Easterbrook received a severance package worth more than 40 million bucks. And now McDonald's is suing Easterbrook over his severance package alleging that he lied to the board about his numerous sexual relationships with employees. I actually think the board, so you can fault the board for not doing the due diligence upfront, but I actually think the board deserves some credit here because the board has said, okay, lied to us, it's worse than what we thought. And what would have been the easy way out would have been for the board to just bury it and try and move on.

• 52:28Scott Galloway?

  And that's what a lot of companies do. Okay, bad behavior, we don't want to be in the press, we don't want a lawsuit, an extended lawsuit with this individual, so just pay him or her off and let's just put it behind us and move on. And the board has said, no, this is a unique time, or a better time, or an evolved time, where corporations and society has said that they are done with people, i.e. men, leveraging their power to put people in incredibly uncomfortable, terrible situations. They have said, rightfully said no to that, and there's been a huge calling out of this cohort. When you have a relationship with someone at work, the bottom line is, you gotta be

• 53:09Scott Galloway?

  very careful there's not a power imbalance there because it can lead to abuse. And it's essentially a different set of rules as you get senior, and that is, once you become an executive in the company, I believe, as someone who serves on board, it's just verboten. And that is, you gotta find people to have sex with somewhere else.

• 53:30Scott Galloway?

  There are so many upside benefits to being an executive in a company, specifically ridiculous compensation, power, respect. People laugh at your jokes and they're not funny. But one of the things you lose is you are no longer in the dating game. You are no longer part of that ecosystem where if you meet somebody, you can have a relationship with them. It just above a certain level in a company, it's no. And if you violate that policy, you are summarily fired for cause. This guy really had shit for brains and was getting or exchanging very provocative texts and emails and getting them to his corporate email and then forwarding them to a private email. So this guy, Mr. Easterbrook, is, he's going to get hard in court.

• 54:14Scott Galloway?

  It'll be very interesting to see what happens here. But the question around the board's fault here, yeah, the board should have done more due diligence, but good on them for having the balls to say, we're not going to sweep this under the rug. We're going to go after this guy who abused his position. It sends a very positive and strong signal to other CEOs and other executives. Keep your fly up and locked, boss. We love your questions. Keep sending them in. Again, if you'd like to submit one, please email a voice recording to [email protected].

• 54:51Scott Galloway?

  Okay, algebra of happiness. So I have two people in my life that are suffering from early onset dementia. One is my closest friend's mother, who didn't raise me, but I was over at their house probably too much for their liking as a young man or not a young man as a boy. And my father turns 90 in about two weeks. And when I speak to him on the phone, it is getting increasingly challenging as he never seems to have his hearing aids charged or in the right way. And I find myself yelling and he is, as dementia is taking him to kind of an ugly place where he's making up situations that create stress on him, he'll start getting

• 55:35Scott Galloway?

  very emotional on the phone and apologizing for whatever he did to make me angry at him. And here's the thing, I'm not angry at him. And I end up having to say over and over, we have a wonderful relationship. I am not angry. You love me, I love you, everything is fine. Unfortunately, with these damn hearing aids, I find I have to go outside because I usually call my dad at night. And I am literally screaming this over and over and over until the neighbor's lights go on when they wonder what the fuck is going on next door. And he'll finally hear me and he'll say, okay. And then he just deflates and says, this dementia thing, I'm just so lost, is what

• 56:19Scott Galloway?

  he keeps saying, I'm just so lost. He's there enough to know what's going on, but obviously the dementia restricts his ability to do anything about it. And I find myself being more generous around being much more forthcoming around my emotions and saying positive things about our relationship and expressing my concern and regard and admiration and love for him because I know I'm losing him. Or specifically, he's losing his ability to absorb and register those emotions and those communications or those words from me. And I wish I'd started doing it earlier.

• 56:59Scott Galloway?

  I wish we'd started talking about, I wish I'd started sharing with him some of the things I felt about him, asking him more about his life while he was still kind of 100% there. And I guess the question is, if you knew it was going to happen to your parents and your loved ones, and you do know it, but you don't believe it, but if you knew it and you tried harder to recognize or absorb that sooner, what would you want to say to people? What would you want to discuss with them? Because biology wins, and this is waiting for all of us, it's waiting for all of our loved ones. And so, advice to my younger self, I won't give advice to you, but advice to my younger

• 57:42Scott Galloway?

  self is I wish I had said more of these things more often earlier.

• 57:50Scott 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 Prof G Show from Section 4 and the Westwood One Podcast Network.

• 58:13Scott Galloway?

  There's a kid crying in the background, can you hear that?

• 58:21Scott Galloway?

  Kids are awful. I mean, they're just awful.