The Week: The Death of the Old GOP, Housing’s Incumbent Problem, and the Numbers Anthropic is Hiding

George Hahn connects the dots across the week's biggest stories: why the most expensive midterm on record may prove political spending doesn’t work, how existing homeowners control what gets built, and why a “Big Short” investor isn’t buying Anthropic’s IPO. We’d love your feedback as we build this show! Let us know what you think: [email protected]. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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

• 0:01Speaker 00

  Support for the show comes from USA Facts. Income inequality, entitlements, housing costs? Want to really see what the government is up to? What it costs and who's benefiting? Check out a debate on the American dream between yours truly and conservative Ben Shapiro. It's not your typical soundbites from boring politicians reading talking points. The debate is framed by an informative set of government facts from USA Facts and then Ben and I get into it. There are sharp differences, some common ground, and data and facts that leave you knowing more. Check out the full debate now on the USA Facts YouTube channel.

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• 1:29George Hahn?

  Welcome to the week from Prof G Media, where we break down what mattered and what it all means. I'm George Hahn and it's Friday, October 30th. Today, Heather Cox Richardson on what history can tell us about the midterm elections on Tuesday. Then, why buying a home in America is so hard? And finally, the biggest IPO in history and the investors who aren't buying it.

• 2:05George Hahn?

  Let's get into it. The midterms are Tuesday. Nearly 30 million Americans have already voted. Historian Heather Cox Richardson, author of the newsletter Letters from an American, joined Scott for a live conversation on Substack this week. It aired Thursday on the Prof G Pod. She told him the Republican Party, as it was, no longer exists.

• 2:30Speaker 04

  It seems to me this is the kind of moment where, exactly as you say, there is plenty of room for a new Republican Party, which really is kind of an old Republican Party, and we can talk more about that. But I'm actually really interested on who's left. If MAGA has jumped off a cliff, who's left? And what you're seeing in this election is a number of Republicans who went along with Trump until very recently, suddenly jumping ship. And you're seeing that, of course, over the Amy Acton ad, for example, but you're also seeing it in South Carolina, where a Republican governor, former governor, just came out and endorsed the Darlene Graham's opponent because he said, "We just can't go this way." You're starting to see that split, again, very much like the 1850s, which we can talk

• 3:15Speaker 04

  about. But what you have left standing then on the people who haven't jumped off the cliff is an entire constituency, a huge constituency, that doesn't necessarily know what it stands for yet. And we have as well the injection of a whole bunch of new issues, like data centers, like climate change, like AI, like all these things that people actually don't have a position on necessarily, and they are willing to make common cause in ways that they haven't before. Again, very much like the 1850s. So I'm interested in what's happening with who's left on the table, because it looks again to me like, I'm so sorry to say it again, the 1850s, where you had a whole bunch

• 3:58Speaker 04

  of people jumping into the same swimming pool together and saying, "Listen, we don't agree on immigration, we don't agree on finances, we don't agree on internal improvements, but by God, we can agree that we don't want the elite enslavers to take over our country and turn the rest of us into serfs." And when that happened, you got the Republican Party rising, and then, of course, you also got the Democratic Party reforming in the North and coming up with a new approach to a bunch of older problems. And then, of course, we went forward with that system for a long time. And I think we did the same thing in the 1890s and again, in the 1920s, 1930s.

• 4:41George Hahn?

  These midterms are now the most expensive political advertising cycle on record. Ad spending has topped $11.2 billion, according to The New York Times, more than the entire 2024 presidential election. On Monday, Scott and Jessica Tarlov taped Raging Moderates live from the University of Virginia's Center for Politics. Scott was watching the money.

• 5:08Speaker 00

  If you look at what's happening in Texas, first off, we're spending more money. We're spending, I think, $11 billion versus $10 billion in this midterm. This is a midterm after a presidential election and spending has gone up. This is the full Local Television Station Employment Act, the amount of money that's being poured into this election. And I think this is going to have, I think this is going to be the biggest knock-on effect coming out of this election. And what do I mean by that? They're going to spend $850 million on a Texas Senate race. I believe they're spending almost $1 billion to tell people in Waco what they already know. I think this is going to be the election where the ROI on money drops off the face

• 5:49Speaker 00

  of a cliff, where you just, for the first time, and we all talk about, and I agree, Citizens United is terrible and we need to do away with it, but if you can't buy a senator in deep-red Texas for $850 million, I think, and I think this is a wonderful thing, I think the ROI on money is about to hit an absolute record low in this, in this race. And the broader picture is, I think we've spent the last 40 years trying to determine, talking a lot about how to build wealth. I think we're going to spend the next 10 years or the next few election cycles talking about what are the responsibilities of wealth. And when you have one person, I think it's, he said, 300 million so far at the midterms,

• 6:34Speaker 00

  these numbers are hard to wrap your head around. So let me help wrap our heads around that. Say you're worth $1 million and you're worried about potentially having your business go away, getting hauled in front of Congress. I mean, you have a real vested interest in keeping one party in power. If you had $1 million, what would you think of putting, and you had a real interest in getting Republicans elected? Would you put $300 into a campaign? That is the equivalent of what it means for Elon Musk to put $300 million into politics when he's worth a trillion dollars.

• 7:15Speaker 00

  And whereas before, why I've become much more progressive on tax structure, I generally think the biggest threat, we talk about Citizens United, the biggest threat to democracy is that power corrupts and absolute power absolutely corrupts. In a capitalist society with no campaign spending limits, a trillionaire can basically decide, "I'm going to spend $300 to swing an election," and that we need progressive tax rates to, quite frankly, protect us from the tyranny of power. Because when someone can take a small amount of money and pour hundreds of millions of dollars into an electorate, an election, and you realize just how this means nothing to him. It means, literally means nothing to him.

• 8:00Speaker 00

  That's a millionaire going out for a nice dinner is what $300 million from Elon Musk spends. So one, I think the biggest outcome or the most navel-gazing as a society we're going to do is, one, the election experts are going to go, "Wow, the ROI on money has just fallen off a cliff here," which I think is a wonderful thing. But also, what does it mean when you have individuals who, for the price of a nice dinner of a millionaire, can pour a quarter, a half a billion dollars into a campaign?

• 8:33George Hahn?

  Back in his conversation with historian Heather Cox Richardson, Scott asked about the 1850s and whether there's a modern equivalent to the question that defined that era.

• 8:44Speaker 00

  The 1850s sort of ended in a war that settled one question. And today, it feels as if we don't have one defining issue. We have immigration, trade, AI, bodily autonomy. But I'll put forward a thesis to you. Do you think there is one central question that is being asked and potentially answered across the West? And I think that France is sort of the canary in the coal mine. And that is, in France, a third of the spending on education is going to teachers who are no longer teaching. Retirees are of greater incomes on average than working French, Frenchmen and French women.

• 9:27Speaker 00

  And it feels as if young people have been served a bill for a party or a dinner they never got to attend. And it is bubbling up everywhere in terms of a lack of trust in institution, a propensity to riot over, whether the match is Me Too or Black Lives Matter or George Floyd, which were all righteous movements, the kerosene we're knee deep in is the fact that the entrants feel like the incumbents continue to vote themselves more money. I see that as the central issue. If there was one issue to be answered or fought over in the, similar to the one question that was answered in the 1850s, that it would be entrants versus incumbents, young versus old. React to that thesis.

• 10:12Speaker 04

  I'm going to react by starting with the 1850s. The question that was answered was not human enslavement. The question that was answered was whether or not the government should protect property that privileged a very few people, or whether it protected the good of the community, whether it protected everybody else. And that's where we get and why it becomes such a big deal, that the Gettysburg Address in November of 1863 talks about a new birth of freedom and the protection of a government of the people, by the people and for the people. Because remember, before that, the elite enslavers who controlled the White House, the Supreme Court and the Senate were very clear that no matter what people wanted, there's

• 10:54Speaker 04

  a very famous speech, it doesn't matter if 99% of American voters want something, they can't have it because the Constitution very explicitly prevents the government from doing anything but protecting property. So what Lincoln is really doing is he's bringing white voters, the white male voters in those days, of course, on board, not by saying, we're going to get rid of human enslavement on any moral issues, but rather, we're going to get rid of the power of that small group of elite Southern enslavers to control the American political system and make you end up working for them. And then if you redefine that, then I think you look at this moment and you see a very similar question. And I won't speak to France because I'm not a specialist in France.

• 11:34Speaker 04

  And it has its own history, of course, including of very public displays of disaffection with the government. But I think you are seeing in any number of issues in the United States today. And I think the fight against data centers is the symbol of that. This idea that we do not want a government that reacts only to a very few people in power. Because what we're seeing is more pushing back against billionaires than pushing back against retirees, for example, who in fact, many of whom in fact, aren't really hurting with the potential cuts to Social Security and Medicare and Medicaid and so on. So I think if you switch that lens a little bit, it's just always the same story.

• 12:18Speaker 04

  A few people want everything and the rest of us would like a government that actually serves our needs as well.

• 12:24George Hahn?

  We'll be right back.

• 12:33Speaker 00

  Support for the show comes from USA Facts. I've interviewed countless politicians, and if there's one thing we all find disconcerting is when they butcher the facts with some biased half-truth. Give us a break already. So when I had the chance to debate conservative podcaster Ben Shapiro, our natural response was bring it on. Why? Because it was sponsored by USA Facts. And each debate segment started with a presentation of government data and [BLEEP] facts. Employment, government spending, income data, housing and more. The topic? The American dream. Is it still within reach? We argued, we found some common ground, we actually debated, and there were no personal attacks. Watch the full debate on the USA Facts YouTube channel. We think you'll find it unlike any other debate.

• 13:17Speaker 00

  That is entertaining and informative. We hope you check it out.

• 13:25Speaker 05

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• 13:45Speaker 00

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• 14:56George Hahn?

  Welcome back. Scott's entrance versus incumbents argument has a very obvious test case in housing. We talk a lot about how housing is one of the clearest indicators of the separation between earners versus owners in our economy. On Tuesday's bonus episode of Conversations, Aziz Sundarji, author of The Home Economics Substack, and Kyla Scanlon, economic commentator and host of the new podcast Best of Luck with Kyla Scanlon, explained to Scott where young people are getting pushed out the most.

• 15:33Speaker 06

  Yeah, I mean, I think America does have a really complicated relationship with housing because, you know, Derek Thompson has talked about this before, housing has to be both a speculative asset and a place to live. And I think for a lot of people, a lot of their wealth is wrapped up in the house. So they're going to push back against anything that they think can threaten that. And increasingly, that's turning towards the stock market. Stock market wealth is becoming more and more of people's total net worth. But I think that for younger folks, like when they look at the refusal to build, and when they look at older folks, you know, just saying like, no, you can't build near us, like, we don't want this housing near us. I think it can feel like everything is sort of working against you because what you've

• 16:18Speaker 06

  been told from, since you were little, is that in order to be a successful person, in order to reach this American dream, you have to buy a house. And, you know, I'm 29 and I don't know when I'm going to be able to buy a house. And I know a lot of people in the situation, and more and more people are starting to lean on their parents for financing a home, or leaning on some sort of outside help. And I think that's the really hard part, is that housing is the foundation of the economic ladder. And if people feel like they can't climb up of it, they're just going to be like, well, you know, maybe it doesn't make sense for me to work really hard at my job, and it doesn't make sense for me to get married, it doesn't make sense for me to build this economic future because I don't feel stable.

• 16:59Speaker 06

  And I think for older folks, they were able to benefit from the post-World War II boom, you know, like, there was just so much policy that worked in their favor. And that's why people over the age of 55 have so much wealth in the United States.

• 17:14George Hahn?

  Aziz spent 15 years in research at Barclays and later worked as a data journalist at the Wall Street Journal. He wanted to put the current crisis in perspective, so he read the group an article from the New York Times.

• 17:27Speaker 00

  The article is called "High Rents." This is the season of the year when the people of New York break out in loud complaints about the rise of rents, the scarcity of houses, and the impossibility of making both ends meet while landlords demand such exorbitant rates for their tenements. So that last word might give you a clue about when this is from. This is from 1856. So aside from the word tenements, you could kind of just copy and paste that.

• 17:54Speaker 05

  On to New York Times today and it would read pretty accurately.

• 17:59Speaker 05

  So my point is that this is like, this is a big, this is a big crisis. It's happening around the world, especially in these big productive cities where the economic opportunities are, and it's been happening for a long time. So I think we should stay very humble about our ability to influence this. I think if I could choose one thing that is driving it that we don't talk about enough, it's income inequality. You know, the fact is that you have some people like Scott, as you were, working at a bank. And when I moved to New York, I was also working at an investment bank. They come to the city and they earn these high salaries and they're competing with everybody else, teachers and, you know, all kinds of people who don't earn high incomes for the same parcels of land. Housing is a positional good. We're all competing for it.

• 18:43Speaker 05

  And I think inequality is a huge engine explaining the fact that we've been in a housing crisis around the world and clearly for like hundreds of years. So I, you know, it's, I don't know if there's any like silver bullet for it.

• 18:57George Hahn?

  Earlier in the week, a listener wrote into Office Hours asking what it would take to actually make housing more affordable. Scott started with the permits.

• 19:06Speaker 00

  What do we get wrong around housing? Probably the worst thing we've done in housing is everyone complains about bureaucrats. The worst thing to happen to the housing market, especially for entrance, is we took power around housing permits out of the hands of bureaucrats, local civic officials, and we put it into the hands of homeowners. Now, what are the incentives of a homeowner? They live in a neighborhood. They like the fact there's not traffic. They like the fact there's not construction and free gift with purchase. And everyone, this is the atmospherics, is they know that the less housing that is built, there's, the greater the scarcity of housing, which creates their primary asset or incentivizes or fuels their, an increase in value of their primary asset.

• 19:51Speaker 00

  So the people in charge of issuing permits for economic growth and to provide more housing to meet the needs of new entrants who want to have their own house, the incentives of the people issuing permits is totally contrary to the needs of entrance. And that is a larger metaphor for the country the last 40 years. And that is the incentives have created regulatory capture such that the incumbents deny admission to the club such that their membership goes in value. This is a supply problem, not a demand problem. And the way we approach it and actually end up making things worse is the government provides tens of billions of dollars in what is a good intention, and that is creating

• 20:32Speaker 00

  more demand, low income housing tax credits, tax advantage on mortgage interest rate, which is tax deductible, right? First time home buyers credit. All this does is create more demand when we don't address the supply side and maintain a national kind of NIMBYism as a, as a, as a public policy. We just again further escalate the price of housing. We need to address the supply side. We need federal legislation and local legislation that says, look, you cannot access federal funds if you do not, or if you create a NIMBY like situation where it's very hard to issue permits.

• 21:13Speaker 00

  We need to provide tax credits to developers such that they have greater incentives to build.

• 21:19George Hahn?

  Anthropic, the company behind the AI model Claude, filed its S1 with the SEC this week, the last major step before a public listing. It's expected to go public at a valuation of as much as $2 trillion. That would make it the largest IPO in history and one of the dozen most valuable companies in the world on its first day of trading. The filing shows $16.3 billion in revenue for the first half of the year, up from 1.2 billion a year earlier and an operating loss that narrowed to around $700 million.

• 22:02George Hahn?

  Ed ended Wednesday's Prop G Markets by looking past the income statement to the numbers on the very back of the filing.

• 22:11Speaker 00

  The most important numbers in the filing came at the end of the document where we learned that Anthropic has signed more than $800 billion in future compute commitments, none of which are reflected in the current income statement, but all of which eventually will be. That includes a $110 billion contract with Amazon, a $115 billion contract with Google, a $161 billion contract with Broadcom. What it doesn't include, however, are the billions of dollars in capital expenditures, which they are about to register probably to build out their own compute. That's not something I believe because I have a hunch about it. I believe that because they literally told us that in the S1. In other words, that $800 billion number is actually probably going to be a lot higher.

• 22:56Speaker 00

  And as a result, this company's losses are about to explode. Now, did they time this IPO so that we wouldn't have to look at those losses on the income statement? Possibly, but that's a theory. It's not a fact. And this segment is specifically devoted to things that we know for sure. The truth about the Anthropic S1 is that the income statement doesn't tell you the full story. It doesn't mean it's a bad company. It doesn't mean they don't have an incredible product. They do. But it does mean that there is still a lot of risk. The business model hasn't been figured out yet. And until it is, we must treat Anthropic with the appropriate level of caution. It's still a highly risky venture bet. Things could still go spectacularly wrong.

• 23:40Speaker 00

  What it certainly isn't is a proven, safe corporate investment, something that it's potentially $2 trillion valuation might suggest. In sum, not much has changed. But whatever picture the profitability is painting right now, all I can tell you is that next year, that picture is going to look drastically different.

• 24:02George Hahn?

  Earlier in that episode, Ed asked legendary Big Short investor Steve Iceman the bottom line question.

• 24:09Speaker 00

  The question for investors, the ultimate question is, do you invest in this thing?

• 24:13George Hahn?

  Oh, I have an answer for that.

• 24:18George Hahn?

  That I can answer you.

• 24:19Speaker 00

  Tell me.

• 24:20George Hahn?

  No.

• 24:24Speaker 00

  I was going to ask you, are those, I was gonna, you kind of got to the point quickly. I was going to ask you, would you need to know the answers to the questions that you just brought up before investing? I assume the answer is yes, you would.

• 24:40George Hahn?

  Oh, yes. But I think, look, to me, the bigger, the bigger, bigger, bigger question is, it just seems, you know, that there are no moats around this business. I mean, if it's the case that they actually did cut prices by 50%, that would reinforce the concept that there are no moats and that the only way you're going to gain shares is price. Being in a business where you are committed to spend $800 billion, where your entire franchise is just simply based on price, is dangerous. That's it for the week. I'm George Hahn. We'll see you next Friday.