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New York magazine|April 12-25, 2021
In a system rigged by the rich, outsiders have to make their own volatility.

Intelligencer’s Jebediah Reed spoke to Scott Galloway, a host of the New York and Vox Media podcasts Pivot and The Prof G Show, respectively, about the transformation of the economy.

One of the most valuable living artists is a guy who makes GIFs. A Reddit mob sent GameStop shares soaring. Meanwhile—in the midst of a once-in-a-century pandemic and an economic crisis—the stock market only goes up. Are these isolated things or part of something bigger?

I think it all comes back to one central theme: income inequality. Capitalism is sort of this gangster construct that leverages a species’ selfishness and creates all sorts of prosperity from that selfishness. But the key to successful capitalism has always been a middle class. At the turn of the millennium, America was the only superpower, and we had the most prosperous middle class in the world. In the past 20 years, the key feature of China’s rise into a superpower has been adding several hundred million people to its middle class. But for the past 50 years in America, we have decided to transfer wealth from the middle class to the shareholder class. The lower and middle classes haven’t done any worse, and they haven’t done any better but the share of income controlled by the top one percent has exploded. And I think that creates all sorts of externalities.

Externalities like GameStop.

GameStop was a mini-revolution. Young people want volatility. If you have assets and you’re already rich, you want to take volatility down. You want things to stay the way they are. But young people are willing to take risks because they can afford to lose everything. For the opportunity to double their money, they will risk losing everything. Imagine a person who has the least to lose: He’s in solitary confinement in a supermax-security prison. That person wants maximum volatility. He prays for such volatility, that there’s a revolution and they open the prison.

People under the age of 40 are fed up. They have less than half of the economic security, as measured by the ratio of wealth to income, that their parents did at their age. Their share of overall wealth has crashed. A lot of them are bored. A lot of them have some stimulus money in their pocket. And in the case of GameStop, they did what’s kind of a mob short squeeze. Normally, a short squeeze is where you force a person who is betting against a stock to buy it and the stock skyrockets. GameStop was being wildly overshorted by professional investors. What redditors found was that you could say to people, “Okay, this is a movement. This is an opportunity to stick it to the Man. If we all go buy some GameStop, this thing will scream upward.” This is a group of people saying, “Let’s go after baby-boomers, who continue to soak us,” and they create a narrative and a story.

What I think will emerge—what’s most tragic about the meme-stock movement—is that, sure, there are some people on Reddit who made some money, but when all this unwinds, we’re going to find out it was the same hedge funds and entrenched players who made the majority of the money. It’s ironic. It’s like trying to understand Trump voters who are voting for someone who’s going to take away their health care.

Still, the whole thing, the narrative of the movement, is that we have to stop this intergenerational wealth transfer from young to old. The meme-stock movement all comes down to one fact, and that is that for the first time in our nation’s history, a 30-year-old isn’t doing as well as his or her parents were at 30. That creates shame and rage.

So a phenomenon like GameStop is semi-disenfranchised young people with a little bit of money in their pockets finding a way to create volatility in a system that’s been rigged.

Creative destruction is good for young people and bad for the entrenched. The shedding of skin from existing players to new innovators—it’s a means of transferring wealth. Unless you let the winds of creative destruction blow, all you’re doing is cementing the wealth and status of the incumbents.

That brings us to COVID and the bailouts. The government pumping trillions of new dollars into the economy.

The shareholder class played the pandemic like a Stradivarius in order to expand its wealth. These people have weaponized our elected representatives. From what I’m told, the average billionaire talks to a senator once a month. They influence policy. One of the more insidious methods of mass entrenchment is complexity. The more complex the tax code gets, the more there’s a transfer from the poor to the rich because you need expensive people to navigate it.

I believe that the trillions in bailouts from both the Trump and Biden administrations will ultimately be judged in history as a crime against the middle class in America and future generations. Something like a third of that money has gone to people. The rest has gone to corporations and governments. We have fetishized corporations. We have decided that we should be more humane and empathetic and loving toward corporations and more Darwinistic and harsh with individuals.

In theory, bailouts are an effort to prevent a financial crisis. But what this bailout has done, what it’s meant to have done, is protect and entrench an existing wealthy class.

For example, the Paycheck Protection Program is nothing but a crime against the young. Some of the wealthiest people in America are small-business owners. Giving them nearly a trillion dollars is mostly a direct subsidy to rich people to keep them rich.

The Strand Book Store in New York? Got a $1 million or $2 million PPP loan, with a couple hundred employees. And in theory, it’s all about the employees: We need to keep our employees. Well, okay. The Strand Book Store is owned by a senator’s wife who has a personal net worth probably in the tens of millions. What the government should have done is instead of roughly a third of that stimulus money going to people, the majority should have gone to people. And you should have let people decide which restaurants and which companies stay in business post-pandemic. All we have done with these stimulus packages, these bailout packages, is try to reduce volatility and keep the existing rich rich.

Imagine a great little restaurant that goes out of business. You think, Well, that’s a shame. Yeah. It’s a shame for the current 50-year-old owners. But it also means that the real estate and the supplies—dishes, the stove—go down in cost, and it gives a 28-year-old, a recent graduate of a Brooklyn culinary academy, her shot at owning a restaurant. Closures mean layoffs, of course. But new ventures quickly take up the slack. And in an empathetic— or even sane—system, direct payments to anyone affected could carry them through the transition.

In the 2008 financial crisis, we did stimulus, but stocks were allowed to fall. We basically said, “All right, we’re going into a massive recession, but what we need to do is make sure it’s not a depression.” Now, with covid, that’s not enough. We decided that not only is a depression not tolerable but recessions aren’t tolerable. We threw trillions at the problem—so much stimulus that the markets went up.

Assets have never been higher because we keep printing money and doing more stimulus. Yet as a percentage of GDP, wages have tanked. How do young people make money? Wages. And then who owns assets? Old rich people. So all we said is, “Okay, people who get the majority of their income through wages, i.e., young people, get screwed. And people who have the majority of their earnings or wealth in assets like real estate and stocks do really well.”

Explicitly or implicitly, we are making it clear that if you’re over the age of 60 or own assets, America’s mission is to maintain your wealth. So, in many ways, while we talk a big game about not wanting to be European, we’ve decided that we want to create dynasties.

What would a healthy capitalist response to COVID have looked like?

In World War II, one Chrysler factory in Michigan punched out more tanks than the entire Third Reich. We have not had a fullthroated capitalist response because the reality is that the sense of urgency hasn’t been there. If Amazon stock had gone down 70 percent, and not up 70 percent, in the past 12 months? When a van with a smile on it delivers my espresso pods tomorrow morning, someone in a white lab coat would be jumping out and jabbing me. The full-throated capitalist response is not happening here in the United States because the people who control the government have just not endured that much pain. As a matter of fact, it’s more like, “Stop, stop, it hurts so good.”

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