Melinda Gates, Ray Dalio, Bill Ackman, Scott Galloway are all great at spotting the inequality but any real sustainable solution needs to account laws of demand and supply.
America Needs a Reset. When Covid hit, people hoped that the silver lining would be a more fair and just society. That didn’t happen. We still talk a lot about nurses, teachers and front line workers – but haven’t really done much as a society to protect them.
Why Wall Street is More Detached from Main Street Than Ever
In fact, the wealth gap has soared, fuelled by a stock market that has had less and less to do with main street for decades. The main reason for this is of course the relative dominance and supremacy of big technology businesses who will of course benefit from the trends that Covid will accelerate. But a second, equally important reason is that government’s reaction to the pandemic has been to consider big, publicly-traded enterprises as essential, while smaller businesses not. It’s not that much more complicated than that.
Everyone from Ray Dalio, Mark Cuban, Jamie Dimon, to Melinda Gates is stating the obvious.
Scott Galloway’s makes this a central motif of his latest book:
“The toxic cocktail, however, is to combine the worst of both systems,” capitalism (on the way up) with socialism (on the way down).
"Crisis after crisis, our rationales vary: After 9/11 it was national security. In 2008 it was liquidity, and in 2020 it was protecting the vulnerable. But our response is always the same. Protect the shareholder class, protect the executive class. Keep these firms on life support so their owners and managers don’t suffer. Pay for it with debt, a burden to be borne by middle-class taxpayers and, ultimately, by our children. However, history tells us, nearly every bailout, whether it’s Chrysler or Long-Term Capital Management, only creates a moral hazard that results in a bigger failure and a more costly bailout. Every time, we’re told “this is different, historic, and requires intervention” and that taxpayers should bail out shareholders."
My perspective is that the problem is not blending elements of the two – which I think actually make sense if you look at Canada – but rather, when either is taken to the extreme, which was the nucleus of my 2019 documentary Fox in the Henhouse.
Various Approaches to UBI
First, an explanation of Universal Basic Income, or UBI. Via Insider: “The concept of UBI dates back to the 16th century but has picked up steam since the 1970s, notably in 2019, when former presidential candidate Andrew Yang proposed a “Freedom Dividend,” which consisted of guaranteed payments of $1,000 per month, or $12,000 per year, to all US citizens over the age of 18.”
I explained at the onset of Covid why UBI would likely become a norm as a result.
Billionaire Bill Ackman recently proposed Birthright in The New York Times’ DealBook a “way for those with no investment assets to participate in the success of capitalism: at historical rates of equity returns of 8% annually, a $6,750 at-birth retirement account would provide retirement assets of more than $1 million at age 65.” That plan is a form of UBI, which “guarantees a minimum income for citizens or residents, usually paid in the form of cash handouts by the government.” In Ackman’s case, it would be in the form of equity. “In addition to helping all Americans build wealth for retirement, Birthright would encourage greater financial literacy, and give all Americans the opportunity to participate in the success of capitalism.”
I am all for financial literacy, which is the whole raison d’etre of The Academy and this website.
The future of the Stock Market will be powered by individual investors, which is already the case in China. Thus, what I like about Ackman’s approach is to teach individuals to think about equity, investing, and financial literacy in general. But what I feel is missing from it is any help from the 40% of Americans who live pay check to pay check and can’t even imagine getting to 65, what with soaring suicide and addiction rates.
When Covid hit, UBI began to be implemented as a governmental policy across the world. Via Insider:
- In Spain, the country’s minister for economic affairs told the Spanish broadcaster La Sexta that the government was planning to introduce cash handouts to low-income Spaniards as a way to help people financially recover from the pandemic. She also said the government hoped it would become “a permanent instrument.”
- Scotland First Minister Nicola Sturgeon, who leads the government’s Cabinet, said “the time has come” to seriously consider a UBI policy that would guarantee a minimum income for every citizen in the form of cash handouts from the government, The Times reported.
- In Germany, researchers are giving 120 Germans approximately $1,400 every month for three years as part of a study conducted by the German Institute for Economic Research.
- And in the US, congress’ Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, passed in March gave qualifying Americans a onetime cash payment of up to $1,200. In April, House Democrats introduced the Emergency Money for the People Act, which would give $2,000 a month to Americans over the age of 16 who make less than $130,000 a year.
Band Aid Fix vs Sustainable Solution
However, while I definitely support the objective of a UBI, I don’t think it is truly sustainable, accounts for all possible externalities and even, to some extent, empathize with those who reject the notion (though I could care less for the mean-spiritedness said criticism comes with).
I don’t think solving for the growing wealth and income divide will be accomplished with one approach only. We need a total rethinking of socio-economic policy, followed with actions. If you want to address the divide between Black Americans and White Americans, for example, encourage ownership of businesses by the Black community.
It’s easy for billionaires to ask why the average American doesn’t care about stocks. It’s also easy for billionaires to tell people to follow their passion. Those things don’t take into account reality. And reality has always been rooted in demand versus supply.
The success for 99% of “normal people” (not people who inherit a fortune, or are crazy enough to pursue and succeed in entrepreneurship) is very simple:
1) Determine what is your Comparative Advantage, i.e. what you are good at or better than most,
2) Determine if the demand vs supply dynamics is in your favor, i.e. if 100 people can fill 1 job opening, that isn’t the best place to focus on,
3) Determine if that is something that you can get paid for (or build a business around, if you are in the 1% of insane people who want to be an entrepreneur).
4) Then as a “nice to have,” hopefully it’s something that you enjoy and/or are passionate about… if interested to hear more on that, you can watch the WatchMojo Lady and I discuss it here.
Thus, my solution would be for education and training costs to reflect demand in the economy and marketplace. For example, if tradespeople are in demand, subsidize that education or make its training free; if everyone wants to become an architect, make that more expensive, and so on.
A decade ago, I would see headlines about “journalism degrees being worthless.” Having hired a lot of graduates with journalism degrees, I would tell them to ignore those headlines, that journalism taught them storytelling which would only grow more valuable in a future where fragmentation would soar. However, I would caveat that by saying that with the democratization of content creation and the challenges of traditional media, the demand versus supply dynamics were not, indeed, in their favor, so they would need to marry their training with something to stand out and play with a stronger hand.
The problem right now is the cost of education is more or less the same when the demand (and thus wages) is different on the other side. It gives a false sense of hope and security to students who pursue collegiate studies and generally come out indebted on the other side. At all times, there are in fact two job markets. One job market is a glut of people with degrees and educations that are not really in demand, and on the other side, a job market with job openings that cannot be filled due to too few candidates capable of doing the job. Watch Fox in the Henhouse, to discuss the role of entrepreneurship in addressing the wealth gap: