Kind: captions
Language: en
A young person, a young couple in
particular, cannot afford to buy a
house. They are statistically less
likely to get married, less likely to
have kids, have higher rates of alcohol
abuse, have lower rates of mental
health, and go down the list of those
problems. A level of the population is
going to become homeless.
>> Looking at history, you will see [music]
over and over there's just a cycle where
the inequality gets to the point where
people get so resentful
>> society wakes up and says, "Screw this."
What benefited one generation 50 years
ago has by and large been stalled out
today.
>> Why do you think that housing is the
single most important social problem
that we could solve right now?
>> The first I would say is there are so
many social problems that don't seem
connected to housing, but if you
actually dig into it, they are
downstream of housing. And so at the
high level, most of the evidence will
show that if a young person, a young
couple in particular, cannot afford to
buy a house, they are statistically less
likely to get married, less likely to
have kids, have higher rates of alcohol
abuse, have lower rates of mental
health, and go down the list of those
problems. Buying a house for better or
worse socially is a very important box
to check of I am stepping into
adulthood. And if you don't, if you're
unable to do that, you feel kind of like
you are just suppressed into a lower
level of of of not yet adulthood. And it
can kind of stem from there. But you
could take this in several different
directions.
>> Almost unavoidably, if housing gets very
expensive and some people can't afford
to buy a house, you're just pushing
people on the conveyor belt of you can't
afford it. A level of the population is
going to become homeless. It's un it's
unavoidable if there's not enough homes.
Of course, that's it's how it works.
>> What do so many people home homeless
people do for a little bit of pleasure
and comfort when they find themselves
homeless? Heroin. And so, you can draw a
straight line, a straight line
>> from housing affordability to drug
crisis to fertility crisis to decline in
marriage to all of these things from
there. And I think what can be so
aggravating about this problem, most
problems in economics are very
complicated. And so if we're talking
about how do we extract more oil from
the ground, like it's a hard problem. So
there there's a lot of variables in
there and there's technological
challenges that make things much more
difficult. How to bring down housing
affordability is the simplest thing in
the world. It's we don't build enough
homes and we need to build more and
we're probably short in America.
Something like 3 to 5 million homes that
we should have right now that we could
build. We have enough money to do it. We
have the supplies, the lumber, the the
windows to do it. we could get this done
and we don't. And so it's one of these
problems that like if you really get
down to it, it's a choice that
politicians and regulators and
communities at large have made that we
don't want to build more homes.
>> Why not?
>> I think if it comes down to it, uh there
is the battle between nimbies and
yimies. Yes, in my backyard, no in my
backyard. And I think it's not too
simplistic to say that the group of
current homeowners, particularly if
you've owned a home for a long time,
like it when the value of those homes go
up, makes you feel wealthier. I'll get
into a second why they're not actually
wealthier. And if you build more homes,
the price will go down. That's basic
supply and demand. And then if the
value, if your parents, your
grandparents own a house and the value's
gone up a lot and you build a lot of new
homes and the price declines, they don't
like it. And some of them, if they
bought recently, might find themselves
underwater and and potentially owe more
on the mortgage than the house is worth.
And people don't want to go down that
route. Now, I said people feel wealthy
when the value of the house goes up, but
they're not actually wealthier. And now
I'll I'll show you what I mean. Let's
say you buy a house for 300 grand and 10
years later it's worth 600 grand. A lot
of people in that situation would say,
"I I just made $300,000. I've never seen
that much money in my life. This is
amazing." But you didn't actually make
anything because if you sell that house
for 600 grand, you have to go buy
another house and the price of that
other house also doubled in value over
the last 10 years.
>> That other house, if it's an equivalent
house, also cost 600 grand. You didn't
make anything. And so it's this illusion
of getting wealthier uh of for existing
home homeowners getting wealthier. But
if you actually dig into it, it's just
kind of a psychological trick. They're
not actually getting wealthier. The only
exceptions to that is if you sell and
you relocate to a cheaper area or you
downsize,
>> then you can make money. But most people
do neither nor. They're not actually
doing that. And so I I think if you tie
that all together, we are inflating the
values of homes almost intentionally to
keep current home owner home owners
happy in a way that gives them the
impression of getting wealthier even if
they're not. And we're doing that at the
cost of younger generations who because
home prices have risen can't afford to
take their first step into it.
>> Yeah. To me, this is the nightmare of
all nightmares for all of the reasons
that you just said, but I think it also
plays into another thing that I become
increasingly obsessed with, which is
inflation is man-made. And inflation is
simply an unbalanced budget where the
government says, "Uh-oh, we have a
shortfall." And so, we're going to print
money. I won't get into the mechanisms
right now, but certainly my audience is
used to hearing me talk about that. Uh,
we're going to print money and that
causes the value of each dollar to go
down, which creates the illusion of
asset prices going up. Now, some asset
prices really do become or some assets
really do become more productive and
therefore actually are worth more. But I
would say on balance that you're really
tracking inflation.
>> Yeah.
>> And so you put people into this position
where
>> the K-shaped economy is born out of
people don't understand assets. They
don't understand asset ownership. Full
stop. Most people couldn't even tell you
what assets are. Yeah.
>> And so they are in a position now where
there is a way to save yourself from
that unbalanced budget, from that
inflation to get into owning the stock
market or whatever. But as of right now,
10% of people own 93% of the assets. So
just the math tells you that the vast
majority of people don't put any
meaningful amount into their 401k or
whatever.
>> And the one asset that they intuitively
understand that they don't even need to
think of as an asset that their wife is
going to herang them to go buy is a
house.
>> Yes. To then it's not this nebulous
stock market thing. It's the thing you
can wrap your head around. Another
element to this, didn't mean to cut you
off and you're a great story you're
telling, but all wealth comes from
compounding and compounding takes time.
That's time is the magic sauce of
compound interest. And for a lot of
people, a house is the only asset, I'm
not going to say investment, it's the
only asset that they are willing to own
for 10 or 20 or 30 years and actually
give compounding a chance to work.
Whereas most people if they buy the
stock if if they invest in the stock
market, they're going to check it 90
days later and say, "Didn't do anything.
It's a scam. Didn't do." But they're
going to live in their house for 30
years. And if you live in it for 30
years, even if the value only goes up by
3% per year over 30 years, that's a lot.
And this is why you hear stories about
people who bought a house in the 1970s
for 70 grand and now it's worth 4
million or whatever it might be. Just
because like the average annual return
on that might not be that much, but if
you compound it for 50 years, it's a
lot. Mhm. Now, what do you think about
Trump putting a ban on investors being
able to go in or big companies being
able to go in and scoop up house after
house after house? Is it going to help?
>> No, I think it's I think it's entirely
symbolic. And no, I would from a
politician's point of view, I would not
discount symbolism that it's important
to do. But the idea that that's making a
meaningful change in supply, I I think I
think doesn't doesn't bear out
whatsoever. It's a, you know, it's a
it's a very small amount of supply
relative to what we need to create. And
if you, if you know, someone's going to
be owning those homes, whether it's an
institutional investor or a mom and pop
landlord or whatn not. So, I I I don't
think around the edges. I think the only
thing that makes a difference is that we
build more homes. And this is what
should be aggravating about it, too.
Every solution to the housing crisis is
how do we stimulate demand? How can we
lower interest rates? How can we let
people raid their 401ks for a down
payment? How can we give people housing
assistance? It's all stimulating demand
and almost nothing wanting to touch the
entire cause of the problem which is
supply. We just don't build enough
homes.
>> And that again is largely a choice. It's
I mean in lots of areas the areas where
by and large people want to live the big
cities in California and on the east
coast uh it's very difficult to build
particularly if you're a big builder and
you want to go build a hundred homes.
Well, you're gonna you're going to run
into roadblock after roadblock after
roadblock and and petition uh from from
neighbors who say it's going to hurt the
environment, it's going to hurt the
view, we're going to shut it down, we're
going to shut it down to where the
demand is there, the money is there, the
materials are there, and you can't build
a house. You can't get a permit for it.
>> We'll get back to the show in just a
second. But first, I want to talk about
energy, one of the most important things
in your life. Most high achievers run on
caffeine and willpower until their body
forces them to stop. But that is not a
strategy. It's just a countdown to being
tired all the time. Real energy comes
from cellular health. And that's exactly
what Nandica is [music] built to
deliver. This isn't another stimulant
disguises wellness. Peaks Nanda is a
ceremonial cacao neutropic built with
ingredients that actually fortify your
cells. Ceremonial grade cacao. Fermented
pooair tea from 250 [music] year old
trees. I'd heard so much about it. I
tried it myself. It is fantastic. Fullsp
spectrum reishi including spore powder.
Every ingredient is selected for maximum
bioavailability and cellular impact.
[music] The result is calm sustained
energy without the jitters or crash. Set
your longevity goals in motion. Get 20%
off at peaklife.com/impact.
And now let's get back to the show. We
know supply and demand. Like the person
on the street is going to understand
that concept at least at a high level.
Yeah. We're looking at housing. We're
grasping for solutions.
Why is it that instead of people going,
"Let's build more houses." Like even if
it's just young, disaffected people, why
aren't they banging that drum, but
instead they're gravitating towards
people like Mom Donnie who are like,
"Don't worry. I'm going to control from
the top down. I'm going to control the
prices of your rent." Why? Given that
you're the maestro of the psychology of
money and spending and all that, why do
people break in the direction of what
I'll call stupid policies instead of
breaking in the let's look at what
places do that actually have defeated
this? Whether it's Houston, whether it's
Tokyo.
>> I was going to say te Texas and Tokyo.
You're I can I can tell you've you've
dug into this topic because those are
pretty much the two major areas are
Texas and to Tokyo is an extremely large
city. There's no cities in America
anywhere near the size of Tokyo. and has
relatively cheap housing because they
build and build and build and build and
build.
>> So what's in the psychology that breaks
people towards socialism?
>> I think I think part of it just from the
psychology of politics, it's much more
appealing to people if you say you've
been screwed by that guy and I have a
fix that can help you tomorrow. That guy
screwed you and I can lower interest
rates tomorrow. That's appealing. I just
I I have a villain and I have an easy,
quick, short-term solution that you can
implement right now. It's much harder if
you say the villain here are millions
and millions of people across the
country who are by and large
well-meaning probably just didn't
understand the consequences of their
action. And the solution is even if we
start tomorrow is going to take years.
It's going to take years and years to
build homes. That's that's not very
you're not going to win any elections
with that argument, even if that's what
it is. Now, a good precedent for what
we're dealing with here was the end of
World War II when during the war, we by
and large didn't build a single house in
America because we were building tanks
and airplanes and guns and whatnot. And
so, we didn't build any homes. And then
the late 1940s, 16 million GIS come home
from Europe and and and and and
[clears throat]
Japan. And
>> the scale really is crazy.
>> I'm sorry.
>> The scale really is crazy.
>> 16 million. Huge. And and and by and
large, they were, you know, 20 to 30
years old. They wanted more than
anything stability. They had just been
in war for several years. The Great
Depression preceded that. They wanted
stability. Massive housing shortage.
Unbelievable housing shortages, more
than we have right now. And if you go to
like the late 1940s, it was that was a
top issue on everybody's minds. Uh
there's no homes. I can't even rent a
house. I'm I I came home. I I fought for
my country and served in Europe and
fought in the war and I came home and
I'm living in my mom's basement. And the
indignity of that huge issue and we
solved the issue very quickly. So late
1940s to early 1950s we built millions
and millions of hotels.
>> What does that mean though? Is it just
so my the drum that I beat to death is
leave it to the public market. So or let
let private citizens try their
entrepreneurial hand at something.
>> That was by and large what it was. And
so for example
>> regulating
>> it. It can get more complicated than
that. But I'll give you the the
well-known example. In the late 1940s,
the Levit brothers were homebuilders and
they saw this unprecedented demand from
GIS coming home and they said, "This is
the opportunity. We can make a fortune
by going out and buying a bunch of
abandoned farmland in Pennsylvania and
New York and building tens of thousands
of small cheap homes." And that's what
became Levittown.
>> And and and they were able to do that
and just throw them up very quickly. And
they had a lot of economies of scale.
They figured out how to build cheap
homes that people still liked and that a
GI and his family and his three kids
could move into and have a dignified
life and they did it very quickly. You
could never do that today. It would
never
>> because of regulations.
>> Yes. Yes. I mean, if you went to the
suburbs of Philadelphia right now and
said, "I want to build 20,000 homes in
the next year."
It it's it's going to take you five
years to try to get a permit. And then
and and your odds of even getting one
during that period are probably 50/50 at
best. and it's going to cost you
millions of dollars to get there. And so
this is why it's a and I'm not like I'm
not saying all permitting is bad. I want
to live in a world that is well thought
out. I care about the environment. So
this is I I understand this is not black
and white, but I think anyone who digs
into it knows that the pendulum is swung
so far into the area of it's virtually
illegal to build the most precious and
important asset in the world, which is
just somebody's house. Before we started
rolling, I was saying I'm always looking
for the mechanistic cause of something
like that. So, looking at why you can't
build a house right now, part of it is
uh nimism. So, not in my backyard.
People don't want to see they I won't
even say they don't want to see the
price of their house go down because it
wouldn't if you just match demand, it's
not going to go down. It's just going to
stay flat.
>> Yeah.
>> So, they want to see the property value
go up and I get that. But at some point,
you have to break the reliance on that.
Yeah.
>> Um, the other part for me is just this
increasingly psychotic nanny state
approach of we can't let anybody get
hurt.
>> And I when I say this out loud, I know
people hate it, but I'm like, you have
to create a situation where some people
can go broke. Yeah.
>> So that other people can claw their way
out of poverty. Like if you don't if you
>> if you break the conveyor belt and say
nobody can fall off the other end, then
nobody can climb on the other end. And I
don't understand how people don't see
that. So it's like uh as somebody who's
been very economically successful, I am
saying you have to make it possible for
me to fail.
>> I wonder if I agree with every word you
said, but I wonder if if you and I, and
I don't think we ever will, were
suddenly the governor of California
>> or the mayor of LA. I never will too,
but I wonder if you and I would say
>> I get it now.
>> We we So no, I I I would still believe
the principles. That's That's Oh, yes.
Let's say let's say we were magic wand.
I anoint you the mayor of LA tomorrow
and you say, "I'm going to eliminate all
zoning laws." There's probably a lot of
brick walls that you and I don't know
about.
>> There's a lot of brick walls that we
better run into because you would never
want to get rid of all zoning laws. To
your point, you want to live in a world
that is well
>> thought out. I don't want ferris wheels
next to my backyard.
>> This is one of those things where you
want to talk about a good use of
bringing people in, giving someone a
job. You get people paired up with AI to
say, "Go through the regulations. Which
ones make sense?" Put them in different
buckets. Then you have a human go
through and audit them and say, "These
ones just no longer make sense." Like,
we're going to focus on things that have
to do with safety. We're going to hold
ourselves accountable to you've got to
be able to make a certain number of
houses uh over a certain period of time.
Like, we've been building houses for way
too long not to know which things make
sense and which ones don't make sense.
What we don't have is we don't have an
incentive structure for smart people to
go, "Oh, I can get rich doing this." If
you create right now, the incentive
structure to your point about California
and New York, the incentive structure is
come in as a developer, be the guy
that's so tenacious, you'll get the
houses made. Now, you know, you have it
on lock because no one else can get in.
>> Yeah.
>> So, what you've created is regulatory
capture. You've made it so that a small
number of large, very well-connected
people come in, they become the
builders, and they know that now there's
a moat around them of regulatory
compliance. What Yeah. What drives me
crazy is people don't understand when
you create those regulatory
environments, you are making it possible
for the incredibly shrewd,
well-connected, rich, elite guy that you
hate
>> to come in and monopolize that area
because you've made it so difficult. You
you are not helping the small person.
You are hurting the small person. What
you want to do is create a system where
the upand cominging entrepreneur ankle
biter who's 23 and like sees how he can
use 3D printing to build homes faster,
better, safer than anybody else. He's
not regulated into oblivion. So, he
actually does come do the thing that
everybody else thinks is crazy. And he
3D prints your house. And you're like,
"Holy hell, this is incredible." And
then that guy becomes stupid wealthy.
And then the goal is he gets replaced by
the next 23-year-old who sees something
he misses. But what actually ends up
happening is regulatory capture plays
out in the following way. A small group
of elite people who are well-connected
to each other end up going, "Hey, you
know what? Just put this regulation in
place because they know how to deal with
it." And then slowly but surely, all
those regulations go to the people that
make the campaign contributions. And
then the world is set to make it hard.
But they know how to get over those
hurdles and they might not even mind
that it goes more slowly because then
the assets that they do have just keep
going up in value. And it's like that is
so knowable, so predictable. And yet we
still find ourselves trapped there. It
drives me mad.
>> It drives me mad. It should drive
everybody mad. I'll give you a devil's
advocate.
>> Please.
>> And it is a devil's advocate because I
think you and I are in firm agreement.
We moved houses my my my family about a
year a year year and a half ago. And our
old house, which we loved, it was
awesome. Uh the backyard was this big
green belt backed up to a forest,
beautiful trees. Awesome. Loved it. Very
soon after we sold that house, we
learned that a developer is putting up
28 homes.
>> Uh just behind what used to be our
backyard. Now I am a Yimi build. We need
we need millions of homes. And so
there's half my brain that says, "Good,
we we need more homes." The other half
of my brain that used to enjoy this
beautiful green belt and now it's going
to be a ton of homes says, "So glad I
got out of there."
>> Yeah.
>> So glad I So there's part of me that's
like, "I get it. I get why if you own a
house and you don't and you like the
quaintness of your neighborhood and you
like your view and you don't want it to
change from what it is, people say, I
don't want that." And they're going to
use whatever regulatory power they have
to protest and put their foot down to
get it. Now, uh, so I I understand like
that incentive. I still think though it
is inadvertently evil. I think most
people who do it mean well, but it is
inadvertently evil to say when if if if
you're a baby boomer, when I was in my
20s, my parents' generation permitted
the house that I was able to buy for 70
grand and raise my family in. But I'm
not going to afford that opportunity to
the next generation. you know, if if the
previous generation helped you build and
grow. And by and large, that's what we
did in the 1950s and60s. We came
together and said, "We need millions of
homes. We're going to need hundreds of
thousands of schools around those homes
and fire stations and bridges and and
highways. Let's go build it." And we did
it. And by and large, I think we have uh
by choice stopped doing that. And what
benefited one generation 50 years ago
has by and large been stalled out today.
>> I think if you look back at that time
and you see altruistic behavior, um
you're not being cleareyed about what
actually happened. What I think actually
happened was you saw an economic
economic opportunity that somebody was
like, "Oh my god, I can go capitalize on
that." Which is exactly what we should
want. The only thing you can trust any
human to do is be selfish. Yes,
>> Mother Teresa would not help people if
it made her vomit and feel badly about
herself. She did it because it felt
awesome. It was good for the soul and it
made her feel uplifted and all the hard
work felt worth it. Awesome meaning and
purpose.
>> So, I'm entrepreneurship is a certain
personality trait and when it is
unleashed, it will create new things. is
it will push progress forward and then
if you don't have certain regulations it
will go absolutely pathological and it
will consume everything for the dollar.
So you want to put these bumpers in the
alley to keep it from going pathological
because humans absolutely will do that.
But if you don't open up the regulations
enough to go, I want these selfish
people that want to like figure out how
to get rich doing this thing. But the
fastest way to get rich is to add value
to somebody else's life such that they
look at the thing that you created and
we're like, whoa, you did the hard work
of making that so that I can actually
afford it. This is incredible. So it
somewhere along the way
>> and I'm 1913. Uh, we can certainly
derail down that if we need to, but
somewhere along the way, we got to the
point where we gave the mechanism by
which the elites could entrench
themselves and continue to siphon money
off of the average person. Yeah.
>> Through something called inflation. And
that mechanism has set up this flywheel
of destruction that has made it possible
for um a small group of people to
continue to get more and more wealthy
using people's desire for safety against
them. Hey, your bank is in trouble.
Don't worry, we're going to come in and
deal with it. Hey, 2008 financial
crisis, don't worry. We're going to save
it all. Not realizing that that is just
furthering that K-shaped economy. And
for people that have never heard that
before, our economy right now is split
between people that own assets. 2025 was
an extraordinary year, people that don't
own assets. The last 5 years have been
so brutal. You've lost approximately 25%
of your wealth.
>> So if you want to know why such a small
percentage of people have gotten so
wealthy while everybody else has been
moving backwards, it is very simple. The
people that have gotten wealthy
understand assets and the people that
have gotten behind don't understand
assets. Now, the thing that I'm trying
to get people to understand is, okay,
there's only one asset that you
understand intuitively. That's a home.
Once you make that impossible for people
to afford, you you have shot entire
generations in the face because they're
just never going to be able to get
ahead.
>> And so, the other thing is that to your
point, all of these problems are
man-made. Therefore, we can unmake them.
>> Yes. This is not a this is not a a
problem of physics. Correct. That
there's a law of nature that prevents us
from doing this and are proof of that as
you pointed out areas such as Tennessee,
Texas, Tokyo that have done I I what I
think is a much more sane approach of
letting the demand fulfill itself rather
than
>> they let entrepreneurs take the risk
because if an entrepreneur can go broke
by building too many houses, it's like
yeah, tough break luck. That's how it
works 100%.
>> Do a better job next time. Part of the
issue of why I think this persists is
because the problem is out of sight, out
of mind. And I I'll I'll show you what I
mean. If you build a nuclear power plant
and it melts down in the middle of town,
>> you see that, you notice it. You don't
notice the homes that were not built.
>> You don't notice it. You don't notice
the communities that never got developed
because right now it's just a forest. It
shouldn't be a forest. It should be a
big beautiful community, but it's not.
So, you don't it's hard it's harder to
wrap your head around what wasn't done.
we pay attention to the things that were
done that we can look at and that's one
of the reasons that it persists. The
other thing I would say is I think um
back to a lot of social problems being
downstream of housing. I noticed this
that when I when I was a renter, I had
no interest in local politics at all. I
was just I'm transient. I might live
here for a year or two and then I'm
going to move to the next city. Whatever
happens, I I don't really care. I'm just
a tourist in the city basically. As soon
as I owned a bought a house and owned a
house, I felt a much more profound and I
think really good sense of being part of
the community. I'm literally invested in
this now. And I think to the extent that
there are more extreme political views
in either direction these days, at least
part of that puzzle comes from a young
generation basically feeling like
they're tourists in their own lives
without any sense of ownership of what
they have.
>> That's right.
>> And then another element of this is
look, there has always been inequality.
There's always been at times extreme
inequality if you go back to the 1920s
about equal to what it was today, but it
was much more out of sight, out of mind.
You really didn't see how how other
people were doing. And so if you lived
in uh you know, you shared a bedroom
with your three siblings in your house,
didn't have air conditioning, and didn't
have didn't have much of anything, you
still felt like you lived a great life
because by and large that's what your
neighbors were doing. But now that
person in that you sharing a bedroom
with their siblings in a very modest
house is on Instagram and Tik Tok all
day. And your view into how the other
half lives is very extreme. And that's a
very new phenomenon. I always talk about
the show MTB Cribs. We all grew up
watching it. It's a great show.
>> And that was our view into how the other
half lives. That was pretty much one of
the only views into how the other half
lives. But you knew those were not
peers. That's Master P. He's not a peer.
That's Shaq. I'm not supposed to be like
him. And so you could watch that and
you're like, "Wow, that's cool, but I
know I'm not supposed to have that." But
now with social media, you are you are
drowning in a feed of people who you
think should be peers. And so you scroll
through and you're like, "They're all
prettier than me. They're all happier
than me. They're all richer than me.
They're all having more fun than I am.
And these are supposed to be peers." And
then you immediately, no matter how well
you're doing, even if like objectively
you're doing pretty well, it's so easy
to feel like you're falling behind by
comparison.
>> Yeah. No doubt. Okay. So right now I
feel like the K-shaped economy the um
very important for people to distinguish
between inequality is um God tested God
approved like for whatever reason
whatever you believe in nature.
>> Yeah. Like it it just
>> the Discovery Channel shows on the the
Hunter Prey things. There's inequality
in nature.
>> Yeah. Not only that, look at uh Michael
Jordan's physical abilities and mine.
It's like they are very or more
contemporary LeBron or whoever is big
right now. It's like you see people that
are capable of doing things you're just
not capable of. There's no amount of
training that's going to make me as good
as Michael Jordan at basketball or
LeBron. It's there. We just all get
dealt a different hand of cards. And as
long as you have an unequal distribution
of potential, you're going to have an
unequal distribution of outcome. that
that is just people need to get over
that one cuz you create so much more
madness when you try to get an unequal
distribution of talent and potential to
have the same outcome. You crush all the
things that make us human. The desire uh
for pursuit to chase dreams to try to
become more. You've said something which
I think is incredible which is life
really is a competition for scarce
resources. Yes.
>> I think that's a wonderful admission.
The other thing is a lot of that
inequality of talent is cultural. And
China's better at manufacturing simple
items than Americans are. They just are.
They're better at it. They're much more
efficient at it. They're much more
culturally adept at doing it. America's
much better at technology and
entrepreneurism than China is. We're
just we're just better at it. It's more
in the culture. So, a lot of that isn't
even the Michael Jordan, LeBron inborn
talent.
>> That's just what it is. It's a there's a
cultural aspect to it. And New York is
better at finance than Alabama and and
Ohio is better at agriculture than than
Oregon. You know, there's a there's a
there's some of that is natural
resources, but some of it's cultural,
too. It's cultural knowhow. And my
family's been doing this for for 70
years. And so, it's kind of in the
blood. So, that exists, too. But,
invariably in that, you're going to have
differences in outcomes. When you're
going through a financial bubble, New
York's going to be crushing it. When
you're going through an agricultural
boom, Iowa's going to be crushing it.
Technology boom, California is going to
be crushing it. um at the expense at
least by comparison of other people.
>> No doubt. So if we can get people on
board with that that it is going to
happen. I also want them to understand
but there is such a thing as toxic
inequality where it gets to the point
that it is truly intolerable. Going
looking at history you will see over and
over there's just a cycle where the
inequality gets to the point where
people get so resentful.
>> A third of society wakes up and says
screw this. I I don't I I I don't care
about your talents. I don't care that
you're that you're LeBron. I don't care.
It's not fair. I'm not putting up with
it anymore. And those people in big
enough numbers can cause successful
revolts and have
>> Yeah. Successful violent revolts.
>> Violent and sometimes and sometimes less
than violent. The 1950s was by and large
that amazing inequality in the 1920s.
The Great Depression burns everything
down. Tremendous amount of anger, a lot
of it rightful. And then World War II
kind of brought everyone together with a
shared sacrifice. And in the 1950s, it
was kind of like, no, we're not going to
go back to what it was. It's it was it
was a brief era of togetherness. Now,
there was also a lot of overt racism and
whatnot. It was not perfect by any
means, but relative to what existed
before or since, there was a sense of
the pendulum had swung way too far and
on its way to swinging in the other
direction, it found a happy medium for a
period of time. I think that's that
tends to be true. And if there is any
legitimacy to people having nostalgia
for that era, I think it it it tends to
be that.
>> H that's really interesting. We will be
right [music] back to the show. But
first, let's talk about the choice
you're being forced to make in every
meeting. And I'm going to guess you're
in backto-back meetings all day. Client
calls, team [music] check-ins, strategy
sessions, whatever. One after another,
you're scrambling trying to remember
what was said, what you promised, who's
responsible for what. Plaude solves
this. It's a dedicated AI assistant for
conversations. It captures meetings and
calls without having to pull out a
notebook. Plaude records everything,
then automatically delivers transcripts,
summaries, and action items. Over 1.5
million people have already made the
jump. Right now, listeners can get 10%
off or more by using the code tom 10.
Just type p l a u d.ai/ AI/tom
into Google or simply search plaude on
Google [music] and use the code tom10 to
get started today. These things are
incredible. You can wear it, can hold
it, whatever works best for you. All
right, now let's get back to the show.
All right, so if we agree that right now
is not that moment of togetherness, that
we are in toxic inequality,
uh what do we do? So, I look at the
Democrat party being co-opted by um
left-leaning fascism. So, you've got
them headed down the socialism route and
then you've got the Republican party
being co-opted by the rightle leaning
conservative flavor of fascism. And it's
like they're just spiraling away from
each other.
>> The horseshoe theory that the extremes
of either party actually like it's a
horseshoe and they meet together at the
end of kind of very similar policies.
>> They they are both soda. They're just
different flavors of soda. So and and
sometimes it's Coke Pepsi. It's barely a
different flavor.
>> Exactly. Too true. So we're in that
reality. I will be interested to see by
the end of the interview if you I don't
think you share my level of paranoia.
>> Um so it'll be good to uh navigate
through that. But what do you see as the
way to begin backing out of that? What I
see as really increasingly racing away
from each other um getting into civil
war territory. Um, yeah. How do we back
out of it?
>> In modern American history, there have
been two distinct points where things
got real bad and real nasty. And I think
in many ways much worse and nastier than
they are right now, which are the 1930s
and kind of the 1970s era where a lot of
people, you know, you probably had
during those eras, you had a third or
more of the country waking up every
morning saying to hell with this. This
sucks. I'm really upset about this.
1930s everything collapses. Interesting
about the 1930s is that fascism was not
the dirty word that it is today. You
know, we learned that it's a dirty word
after Hitler in World War II, but back
then people are like,
>> "Let's give it a shot. Sounds sounds
good. Democracy, capitalism didn't
work."
>> In 1932, most people would have agreed
with that, even if we have a different
view in hindsight. But in 1932, most
people woke up and are like, "Fascism,
let's give it a shot. Let's give it a
whirl." And people were so upset with
the current system that they're willing
to try anything. And we tried a lot the
New Deal and I mean there was a lot of
new trying new things in that era. But I
you know but a lot of of uh extreme
views and a lot of anger and whatnot and
it would have sounded preposterous if in
1932 I said hey I'm from the future and
by the 1950s you guys are all going to
love each other and have amazing faith
in government and it's going to be very
calm and peaceful. people said, "You're
out of your mind." And in the 1950s, if
I said, "I'm from the future, and by the
the 1970s,
uh, between Vietnam and Watergate, trust
in government is going to collapse, and
we're going to be hanging on by our
fingernails to a shred of legitimate
government." And people would have said,
"What? No federal government?" That that
would have sounded preposterous. If in
the 1970s I said, "Hey, I'm from the
future. By the 1990s, we're gonna have
balanced budgets and peace and
tranquility." Said, "You're full of it."
That's but that's what happened. And in
the 1990s, if I said by 2026, we're
going to be in whatever we describe this
era as today, maybe back to hanging on
by our fingernails, that would have
seemed preposterous.
>> Pretty fair.
>> And so, I think if you become familiar
with the cycles of politics now, that's
not I I just gave you, you know, four
examples. This is not a very deep
history, so it's a small sample size,
but politics is cyclical. And this is
more of a hope than a forecast. I'm not
a forecaster, but it would not surprise
me historically on that cycle trend that
if in 20 years we look back at this era
as an era that we a generational bottom
from which we grew out of and I think a
lot of these things are self-correcting
and it stems from the fact that when
times are good you become complacent and
nobody cares about good governance. You
just think the system runs itself. You
don't really care anymore. And when
times are bad people say the hell with
this we don't have to put up with this.
This is democracy. we can we can vote
other people in to do this. We can kick
these bums out and do it. And that's
what happens. And so, look, the the
nightmare scenarios that maybe you are
more more tuned into are possibilities.
I would never discount that. And you
can't because it's happened to a lot of
countries that really went over the
edge. Uh Germany, Italy that really
latched onto it and went straight over
the edge uh and destroyed themselves in
the process. That's happened. It could
happen here, of course. It would not be
my first guess of what's most likely to
happen. I think what's most likely to
happen are
several more years of this kind of
[ __ ] However you want to define
that and whatever side you're on, you're
unhappy about it. Uh and in 20 years,
you look back and say, "Look, we
actually kind of got our act together
after that." And things calm down a
little bit. I could think of several
examples of why that would not happen.
Social media makes it much more
difficult to happen now than it did in
the 1970s, etc. In the 1970s, everybody
got their information from Walter
Kankite. Now everybody gets their
information from their own little custom
bubble. So it's a very different era,
right?
>> And so or impact theory.
>> So [clears throat] it's a very different
era.
>> But I think the general idea that it's
very difficult to foresee that the same
forces that are causing a lot of
problems plant the seeds of their own
demise, plant the seeds of pushing in
the other direction to move things in
the other direction. Uh that's a that's
a powerful trend over history. You say
that these things are self-correcting,
but every self-correcting mechanism has
a mechanism.
>> There's Yeah.
>> FDR was a mover.
>> So what when I look at this moment right
now, the thing that I would just point
everybody to is look at the debt to GDP
ratio. So every country with the
exception of Japan, Japan as we record
this is in extreme trouble. But every
country with the exception of Japan that
has spent more than I think 18 months
over 130% debt to GDP has gone into
internal strife so severe that they
basically have some sort of economic
collapse.
>> Yeah.
>> Uh or they just tear the country apart.
So
we are
123 and climbing. So given our debt,
what do you see as the mechanism for
this to self-correct?
>> It'll get to a point where I think
what's important is that in financial
markets, the stock market, and
importantly, the bond market, you can't
threaten the bond market, you can't
scare the bond market, you can't arrest
the bond market. It's it's it's its own
beast that's going to do whatever it
wants to do. Even outside the control of
the Federal Reserve, the bond market is
a very gigantic market and it's going to
react however it wants to react. The
mechan the reason why deficits have
gotten this bad and persisted for so
long is because the bond market has not
pushed back at all by and large. And so
politicians will run any deficit that
the bond market will tolerate. And I
think there's virtually no exceptions to
that. And so the correcting mechanism
will be when interest rates rise to a to
a meaningful degree and politicians are
forced. They will never act until
they're forced to do it, but they will
eventually. And so what does that mean?
It could mean catastrophe. It could mean
interest rates go to 20% and it gets
it's great depression, too. That could
happen. It could also mean that interest
rates, you know, the interest rate on
the 10-year bond if it's, you know, 4%.
If it went to 7%. That's worse. It's not
catastrophic. It'd be a bad recession.
People would lose their job. Inflation
would go up. All that's true. But
interest rates were 7 8% in the 1990s.
you know, we got and the last interest
rates have been so preposterously low
for the last 25 years that we forget
what any sense of normal is. So, right
now, I think we kind of have a view that
like if interest rates go to 5 or 6%.
That's terrible. I mean, they from the
1960s
to the 1990s, they they they were never
anywhere near that low. And the 1970s,
early 1980s, they were 15%, 17%. And it
sucked, but we survived and we had a lot
less debt than we did back then. But
there are scenarios in which you muddle
through that are not catastrophic. And
we actually did that at the end of World
War II when debt was about as high as it
is right now. I think we're a little bit
higher right now, but as a percentage of
GDP about what it is right now. And if
you go back and you read what they said
about that in 1945, 1946, they were
[ __ ] their pants about it. And true
to your your uh forecast, the prevailing
view was there's nothing we can do about
this. It's it's just it's just too much
and this is the end of the empire. That
was the prevailing view. And you mix
that with you had a tremendous amount of
stimulus from World War II that was
immediately being withdrawn. And so tons
of debt and the economy is going to slow
no matter what. Not a good scenario.
Everyone's freaking out. Well, in
hindsight, we know how the story end,
which is what the story ended pretty
well. Like there there were recessions
in 1946 and 1952. Like there were it
wasn't pure pure roses back then, but by
and large we did pretty well. And we
didn't pay the debt off. And this is one
uh you know quirk that I think people
get get wrong. Individuals have to pay
their debt off. There will come a time
in the future whether that time is death
or before that when you have to pay your
debt off. Uh countries are not like
that. Countries can be in debt for
perpetuity. They can be in debt forever.
And what matters is that you can afford
the carrying cost of that debt. You can
afford the interest on that debt. But
the US is never going to have zero debt.
They just keep issuing more to pay off
the old stuff. You know, Ford Motor has
been in debt for a hundred some odd
years and it'll it'll be in debt 100
years from now if it's still around.
It's a perpetual company. And so the way
that we did it after World War II and
the way that we could do it now, whether
we will or not, I'm not saying we will,
but the way you could do it now, I don't
want to get too technical here, but if
the the deficit as a percentage of GDP
is smaller than the growth rate of the
economy, then debt to GDP goes down. The
amount of debt you have goes up every
year, but debt to GDP goes down. So, for
example, if the economy were growing by
5% per year, the government could run a
deficit of 4% per year and debt to GDP
would go down. So, when people talk
about paying off the debt and balancing
the budget, you don't have to and we
probably never will. And you can still
come to a scenario where it gets much
more manageable. Now, it could also be
catastrophe and you mentioned there's
numerous examples of that. So you you
that's that's always the case. But all
of this is like what are the odds?
Catastrophe is a is a is a chance. Is it
the highest is it the most likely
outcome? I don't think so. I think the
most likely outcome is muddle through.
And what muddle [clears throat] through
means are periods of very high interest
rates and very high inflation that
people are sick of and tired of and
hurts a lot of people.
>> Okay. I'm going to give you my full
argument in the hopes that you can pull
me back to your side. Okay.
>> Uh so heard wonderful things you put
forward. Here's why I think they will
not work this time and we're going to
need a different solution. So after
World War II, we become the world's
reserve currency. We are among the
developed world. We're essentially the
only untouched country. So everybody
else has been thrashed. We're going to
be first of all, they owe us a ton of
money and we're going to help them
rebuild and we become the world's
reserve currency. So now we can print
our money like crazy and tax the entire
world or anybody that holds our reserve
currency through inflation. And so that
switch alone is massive.
And so we also haven't done um the waves
and waves and waves of money printing
that we have now done. So yes, we're
coming out bad debt to GDP after the
war, but the war stops. And so now
you're not having to pull all that debt.
world owes you a ton of money. They're
starting to pay that off. You start to
export inflation. Way better scenario.
Now you're in a position where the
number of transaction or the dollar
transactions
uh taking place. It used to be I think
72% in the late 90s of all transactions
globally were settled in dollars. That
number is now in the 50s. So we've been
steadily declining now for 25 plus
years. The world is actively moving away
from the dollar.
For the first time in more than 30
years, there's central banks globally
now hold more reserves in gold than they
do in dollars. And they are specifically
migrating towards that. You now have a
true competitor economically, which is
China, which we didn't have before.
Russia sort of made it look like they
did smoke and mirrors at the end of
World War II, but they obviously didn't.
They end up collapsing. China really is
a pure competitor. Um, I think you said
this on camera, but we China is better
at making things than we are currently.
So, that puts them in the position that
we were in at the end of World War II.
Yes.
>> And they are actively trying to get the
world to move away from the dollar and
move on to the digital yuan. They're
building a gold corridor so that people
can hold the gold if they don't trust
China because China understands we're
authoritarian. So, some of you guys are
going to be a little bit skeptical that
we won't confiscate your wealth. So,
we'll store the gold in your country.
We'll decentralize it. all of that. Our
goal is just to get you guys off the
dollar. So, we are we haven't lost it
yet, but we are rapidly losing the um
ability to export our inflation
>> given the wild things that Trump is
doing from an international perspective.
Maybe it all settles down, but it could
also escalate. Europe is talking about
using what they call their economic
bazooka, which is to dump the debt that
they own from America. And for anybody
that doesn't understand the whole debt
thing, it's if the US if there's no
appetite for US debt, the credit markets
freeze. That brings us to the meaning
that US can't raise money to pay off its
debt. Now you're in crisis. If the US
were to