Do we have freeberg? You see, did he drop off?
Before here he is. Okay.
Freeberg's back. Three, two, I just had to take a leak.
I just, I, I go outside my office and I come back.
Oh, you like a nature. P you're a nature.
Yeah. Me too. I love a great nature.
I have this great office at home, which is like a building outside of my house.
So I like to go in the garden and take a breath of fresh air and just, yeah, you don't sit down to pee.
No, I'm serious. I'm not joking around.
Do you guys? I have so many jokes.
I'm not going there. That's a soy estrogen boy joke.
Is that no, we can cut this out.
But my pediatrician said to H.
Ma, I think it's really important to teach your boys to pee sitting down and even for you as you get older, I, what are you talking about?
It's good for the, it's good for the prostate and there's like a materially different percentage in terms of prostate cancer rates when you pee sitting down because you expel all the pee that just kind of gets caught there.
What's the little, the dribble?
Swared a God, bro. I swear to God.
You would have been good.
Shake, do it. Wait, wait.
What about a shake? Nick, you can cut all of this note.
The shake doesn't do it.
This is great. Sitting while you're needing aids and muscle relax in benefiting men with tight pelvic floor muscles or symptoms of an enlarged prostate.
Sitting to pee enhances stability.
Exactly. The risk of falls and minimizes messiness, especially for sex.
Sex has to be your own milk.
Whenever sex gets a new home, he puts your animals in.
That's how much of a man he is.
Sex is your staff. How does your staff hold your body while you pee?
Like do they hold you up like, this is the history of the world?
Mel Brooks. This study is like the vasectomy truck at the DNC.
I mean, it's meant to emasulate men.
That's the only interpretation of it.
Still nonsense. All right.
The paper department has revised down the job growth numbers as a number of members of this panel predicted the BLS updated its non-farm payroll stats, downgrading actual job growth to around 30% versus what was originally reported.
This means the US economy created around 818,000 fewer jobs over the 12 months leading up to March 2024.
Number was originally reported as 2.9 million new jobs created and it's more like 2.1.
The labor department updates and revises its stats frequently.
It gives disclaimers. But this is the largest and most significant revisions since 2009 after the great recession.
And so the biggest downgrade came in the field not surprisingly of professional and business services with 358,000 jobs lost over the last year.
We see that in all the stats of different tech companies and businesses, finance companies doing layoffs.
Other fields that revised their numbers, leisure hospitality, manufacturing retail, mixed sense, and a little bit of transportation.
Here's a couple charts for you before we go and get some feedback.
Civilian unemployment rate seasonally adjusted.
As you can see, since the great financial crisis, we went from 10% all the way down to well below four and that's where we sit today.
USA Today chart here of gains and losses since 1980.
Obviously that massive drop, you see there are minus 9.3 million jobs was COVID with the big quick rebound of 7.3.
So overall, the country's in great shape.
Sachs, your thoughts on the revision?
You obviously made note of this when we went through the numbers.
Well, yeah, I mean, I predicted this, this would happen.
And I didn't know exactly how we would get the correction, but now it's come out.
By the way, it's not just this 818,000 jobs.
If you look at the last 12 months and add up all the restatements, it's been something like 1.2 million.
I can share the chart on that, but this is quite remarkable.
About a year ago, I tweeted really fairly casually that there was a hot jobs report.
This was around June of 2023 that I didn't know where they're finding all these jobs.
I mean, all I see is layoffs.
That was my reaction based on not just what I was seeing in tech and all of us, especially last year, or seeing nothing but layoffs in tech.
It was also feedback from real estate investors that I knew.
I mean, all new real estate projects had basically stopped because the cost of borrowing was so high and there was a credit crunch.
So new construction projects had stopped.
Refires were very hard to get.
It's just that everywhere I was looking in the economy and the feedback I was getting from people, things looked pretty dismal.
Yet, the media was continuously putting out stories about hot jobs reports.
We've been getting this now for roughly a year.
Then what happens is that there's a revision.
The revisions have always gone in one direction.
They're always revision down.
I mean, if the revisions were completely neutral and arbitrary, you'd expect it to be like a coin flip.
You might have 10 revisions and 5 of you up and 5 of you down, but they've all been down.
Yeah. So what I saw was a pattern of revisions down.
Now we've seen the biggest one.
It's not altogether surprising to me.
And in hindsight, when I tweeted that a year ago, I got this hysterical reaction.
It was one of these tweets that all of us and everyone was like, quote, tweeting and telling me to stay in my lane.
I'm a VC and I don't know the numbers.
And it was like I hit some sort of nerve.
And whenever that happens, you're usually over the target in some way.
Yeah. It's generating, it's triggering people.
That's what you're saying.
Yeah. So the question is, why were they so triggered?
And I think the reason is that on some level, people were intuiting that the numbers didn't really make sense.
It didn't really match up with what was singing the economy.
And now a year later, we have the proof for that.
So, Chimoff, let me go to you next.
Could you point it out that these numbers seemed a little fugazi, fugazi.
But we have 162 million people record employed in the country.
This number, if it's 162, you take out 800s, 161.
This is what the Fed had been trying to do to cool off inflation.
Right? We needed to see a little bit less employment.
And that's part of it. So I guess the silver lining here is if we are revising these numbers down, that would give more of an indication that we've slowed the economy.
Correct? Yeah. I mean, I think the economy is a lot slower than what people thought.
Which to your point, the silver lining is that it probably now tips the balance of action in September to a cut.
And if it was 25 basis points, there's probably going to be a lot of folks lobbying the Fed to cut 50.
And I think that they probably have enough numerical justification now to cut 50.
Hmm. I think the bigger problem though is if you don't have an accurate sense of where employment really is, and Sachs did mention this, you will also then have an inaccurate sense of where GDP is.
And I think the one to punch could be very problematic.
I think what we're learning more than anything else is we have a very sophisticated economy.
We have a very sophisticated capital market system.
We have very sophisticated actors in those markets.
All of us included who can react to real-time data and make the right decisions.
The problem is we have bad data.
And the bad data, I think, is something that is fixable.
But we need to make an effort to do it because it's insane that the largest and most sophisticated economy in the world is this unpredictable.
And I think that's like the big question that I have.
Which is, how is it possible in 2024 that we haven't just made this a priority to fix this?
And with all of the systems that exist and all of the SaaS tools that exist, and everything that's used to like hire and fire and pay people, we don't have an accurate sense of this number.
And it could easily, Chema, that's a real head scratcher to me.
This could easily be crowdsourced or we could pull data from a lot of different places.
Obviously, pull some data from employment roles.
But I remember you had a startup.
I can't remember the name of it.
But you had crowdsourced.
People were going around and taking pictures of the price of tomatoes in different places and then putting it into a database and organizing it.
I think that's fun. And other folks, yeah.
So what that company did was it was an agent that you would download on your phone and we would task you to go and collect certain kinds of information.
And yeah, there was some socio-economic data that was collected.
A lot of it now is with three letter agencies and the like.
So without getting into details, that company is doing quite well.
But it's just moved in a different direction.
If you just created some kind of like a a DARPA challenge, like equivalent to this, give it to strike, give it to gusto, give it to a handful of these smart companies to give a guesstimate and see who accurately predicts this number over the course of a year or two.
That's more reliable and frankly more useful to the market than what the BLS is doing.
My first job out of college, by the way, was not in tech, but it was in finance.
I was a derivatives trader.
And what was so incredible is I remember sitting at my desk in front of my terminal on the trading floor when non-farm payrolls would hit.
And people would just go crazy.
There would just be literally tens or hundreds of billions of dollars that would start flying back and forth based on what that number was.
And now to think about that much velocity in a totally random way, because those numbers aren't reliable, it seems just crazy.
Okay, free bird. Here's a chart for you to comment on.
Maybe we open the aperture here.
Total employment and unemployment here in the United States, as you can see, you know, since the 80s, population has grown and the number of people employed has continued to grow labor participation at kind of peaked in the 90s in the Clinton era.
And it's come down a bit since then.
But overall, what do you think of the health of the economy and employment?
I mean, I think the Fed target is 4%, which is kind of where we're at.
I think we're at 4.2 or 4.3 now.
And so the Fed tries to balance inflation, unemployment and rates.
That's kind of the three things that they're looking at.
So they make adjustments to rates.
Obviously, if you take rates too low too fast, you have an increase in inflation.
So they're targeting inflation is 2%, they're targeting on employment is 4%.
So if you take rates too high, you can certainly reduce inflation, but then the economy can can can track or slow down and job cuts start to come through.
So now with inflation kind of supposedly approaching 2%, and unemployment over 4%, the market, if you look at the trading markets, they are now estimating a 100% chance of a 3 quarter of a percent rate cut by the end of 2024, and a 70% chance of a one point rate cut by the end of 2024.
So the question is, are they going to do 3 quarter point cuts by the end of the year?
Or they're going to do a 50 basis point cut in the 25 or 50 in a 50.
The next couple of weeks will determine which direction and then obviously Chairman Powell has his big speech happening on Friday.
Fieberg, what is the what is the betting market say for specifically for September?
50 or 75% chance of a quarter point cut, 20% chance of a 50 basis point cut, and then 6% chance of no cut, which is kind of strange because the the trading markets, this is obviously a prediction market, but the trading markets are showing effectively a 100% chance of a 3 quarter point cut by the end of 24.
And SACS here is the traumatic fed.
We always talked about them kind of getting on this a little bit late, but you can see here, man, what a ramp up in 2022 where we were basically at a quarter point and they just added a quarter point and 50 BIPs all the way up to 5.33, where we've been flat, inflation obviously we have the two handle now.
So now we start the process of going down.
And I think people generally believe 25 BIPs at a time will be their pattern coming down.
You think that seems wise?
Well, I think the Fed isn't sure that inflation does a solve problem.
I mean, I think that Powell is a little bit reticent to start the rate cutting cycle because he doesn't know for sure if inflation could tick back up.
This first cut is in a way the most important one because it signals a regime change that we're beginning the rate cut cycle.
And what he doesn't want to do is cut any amount and then be proven wrong and we get a bad inflation report and then all of a sudden he has to raise it again.
So he doesn't want to be caught in that position.
But I do think that the economy is obviously showing significant weakness.
Inflation is not completely solved but it's down to 2.9% at least.
So it has a two-handle on it now.
And so yeah, I think the market is pricing in these rate cuts for a reason.
So either mission accomplished or we'll see if we have a soft landing, hard landing or something in between.
Most people feel like it's going to be soft with a little bit of bumps.
It seems to run pretty. And I think we're in I mean now that we know that the jobs picture was inflated by 1.2 million jobs over the last call it roughly a year or 14 months.
I think we know that this is not like a perfectly soft landing.
I mean I think that the economy is a little bit shaky and is being propped up by massive amounts of government spending like we talked about on a previous episode.
We're running unsustainably high levels of deficit and debt.
We're running what $2 trillion your deficits right now.
And what are we getting for that?
We're not getting a super robust economy.
We're getting an economy that's narrowly staying out of recession.
So it's a little bit of a scary picture I think that the economy is so shaky and we're spending so much money to prop it up.
We'll just have to see what happens.
Yeah and it doesn't seem like either of the incoming administrations really cares about spending.
It seems like we're going to be instilled big money spending mode.
Independent of who wins.
We'll see how long that can last as a country.
And then we talked a little bit about the spring court decision last year around affirmative action.
And it turns out now MIT has released their data.
It's getting a lot of buzz online.
Here's a chart. Basically what you can take from this chart.
And this is people self identifying at MIT.
And the buzz is that Asian Americans have gone from 41% to 47% and those gains came on a percentage basis from a decline in the number of black and Latino students coming in.
Here's the chart as you can see.
So people are wondering about I guess the fairness of this.
And I guess you could have either one or two positions.
Jamal Asian students were being penalized for a long time or now I guess you could believe that Latin and black students are being impacted negatively about this.
So I'm not sure what your take is but it's obviously moving to more of a meritocracy according to the people at MIT.
It's not even clear how they were making decisions before nor now.
But you know I tweeted about this yesterday.
I think the thing that matters more than anything else is to make sure that the people that they are letting in are in love and obsessed with the things that MIT is supposed to be great at.
So if you are a great creative thinker designer architect you should be at RISD.
I'm just giving an example.
If you are a great musician you should be a julien.
You should not be going to MIT because you think it's a checkmark.
You should be going there because you think that there are professors in organic chemistry, in physics, in these disciplines that are really important who are experts in their fields that you can learn from and become an expert yourself.
And I think the problem with all of this other stuff is once you make it a credential there are some folks that are only going to MIT because they could get in and because it's a great credential in their minds.
And they shouldn't go there either.
So I think the thing is you have to get back to what matters which is there are all of these industries that have not progressed that much.
And in order for those industries to advance you need really talented young people who can learn and apprentice and then take over.
And I think MIT is one of these rare places that focuses on this part of the physical world that hasn't had as much progress.
And so I just want to make sure that the people that go there actually want to be there for that reason.
Gender race, all that other stuff shouldn't matter.
And that is what the spring court decision did.
You cannot take race into account.
Harvard had some weird thing, Friedberg where personality was one of the vectors.
But sorry, Harvard would say that.
No offense to everybody at Harvard.
But like Harvard is more of a pure credential.
Like MIT I buy more that you go there for certain kinds of specializations.
Caltech you go there for certain specializations.
If you're really into wine you go to UC Davis.
My point is these schools exist for reasons other than just as a a collector coin that you put in your pocket.
I'm not sure Harvard is really known for anything other than for being quote unquote elite.
But even that's questionable now.
But in the technical areas, I really do think that MIT was an important place where people would go to train.
And I just want to make sure whoever they're letting in actually cares about the thing they're studying.
Friedberg what's your take on this?
You know moving back to a meritocracy and a colorblind application process.
Not being able to use race and admissions.
I don't think that someone's genetics should determine whether or not they go to a school.
And I think that their socioeconomic background experience set values successes failures are the things that they could have affected or that I think probably better to find whether we want to take a moral stance on giving other people opportunity.
So I think that that's a kind of good and reasonable place for us to end up.
Saxony thoughts for you from you on this?
Well, I mean I support the idea of colorblind meritocracy.
I mean I agree with Jamal and Friedberg that the traits that you're born with are not skills or qualifications.
They're just the accents to your birth.
And what we should try to create is a is a society where those things don't matter.
And everyone has the same ability and opportunities for advancement based on how hard they work and their skills and this concept of merit.
And I think that's from court decision gets as closer to that.
Remember that the reason why that Supreme Court decision happened or what the plaintiffs were arguing is that the previous regime on college campuses was unfairly discriminating against Asian Americans because whenever you try to engineer the classes to a certain proportion of the population, somebody has to win and somebody has to lose.
And the students who were losing were Asian Americans.
And in many cases these Asian Americans were first generation immigrants or they were coming from disadvantaged backgrounds.
And yet their population was engineered to a smaller number than merit would otherwise suggest.
And now you're seeing it in this new class at MIT, the percentage of Asian Americans has increased somewhat.
So I think it's good. I mean we're reducing a form of discrimination.
That discrimination may have originally started for good reasons to try and create a remedy against a different kind of historical discrimination.
Nonetheless it discriminated against talented Asian students.
And I think now that that's been fixed.
What do you guys think about creating a leg up for people that came from a disadvantaged socioeconomic background?
So put race aside. But an individual that grew up in a difficult circumstance that didn't have the privilege of going to a good school or having a good education worked hard tried but didn't end up with the best test scores or didn't end up with the best GPA because of the conditions they were born into.
Do you think it's appropriate to give those individuals a leg up in the application process?
Putting race aside but just call it socioeconomic disadvantages?
To some degree I do. I mean look if you have a student who gets a four let's call it a 1450 on the SAT but they've got tutors and classes and they're growing up in the fireman.
And they went to school in afterton.
Right they're getting the best teachers, the best schools, the best environment.
Then you take a kid who grew up in I don't know like a dangerous part of the inner city where their shootings happening.
Or a rural district with no education.
Appalachia, Appalachia both are kind of equivalently disadvantaged or different differently but both disadvantaged.
Yeah. Right. They don't have access to the the best schools best or best funded schools best teachers.
And let's say that person gets a 1400 on their SAT which one is better.
I mean if certainly if they got a 1450 and you're comparing two equals sports it's really clear.
Yeah totally. That the disadvantaged student probably has more raw talent.
Totally. I 100% agree and I feel like I feel like we've used race as a heuristic for that conditional background.
And that's what makes it hard because race is not necessarily it's certainly there's a correlation but it's not necessarily indicative of the socioeconomic disadvantage that someone may have faced and had to overcome in order to perform and succeed at the level that they could have given their conditions.
And so I certainly think that the incorporation of ones socioeconomic background should be a critical part of the application process and certainly in the same in the job setting ultimately.
I think I think what would be much more valuable than all of this is for companies to hire from a whole bunch of different schools than they do today and to break the back of this elitist culture we have around certain schools.
All of the things that you guys are talking about to me sound kind of crazy.
And the reason is because you could go to Iowa State or you could go to Harvard and you could make a claim and I would buy it that in some random social science maybe there's an advantage in the people that you meet but there's not necessarily an advantage for studying physics at any of these two schools it's not like one's teaching you that gravity goes up and the other
teaches you that gravity goes down.
So I think the bigger problem is that we don't value enough these fundamentally important skills that we need for humanity to evolve.
And in number two we have fallen to this trap of saying that these schools, these highly credentialed schools that cost 60 and 70 and 80 thousand dollars a year, graduate the best kids and I don't think that that's true.
So the thing that we could all do because we're all hires we hire thousands of people is we should be going to all kinds of different schools today.
I just gave an offer to a guy that went to Virginia Tech and this kid seems awesome.
Kick ass and when we put out job postings for 1890 we veer towards these schools that are like hardcore technical places where none of all of this random credentialed nonsense gets in the way and so they're hungrier as a result they're more earnest and you can cut through the BS.
The other thing I would say is that it's even more capable now of getting through the filter of these credentials and knowing the quality of a person.
You can look at GitHub Reboes if you're a developer.
You can look at all of these things that allow you to understand.
So I don't know I disagree with your guys' thing of like let's go figure out all these other things.
How about we stop hiring and valuing random and non-specific degrees just because they come from a good school?
Well I think that would be true because we do still have a college application process.
So there are still going to be a set of criteria used to determine whether or not our kids end up getting into a specific school if we and they all kind of say hey it makes sense.
No but I'm saying if you're a son or daughter we're to go and study computer science at North Carolina State.
The biggest thing that that you could do is be okay with it.
Another example of a school that does a great job of recruiting from non-traditional places was I would have been okay with it.
No no this is my point. I think it's a decision.
I'm saying that I'm not saying that you are but I'm saying that if you make it a big deal that North Carolina State is somehow worse than some other credentialed school because our social cohort says that those other schools are better we're part of the problem.
Well in my work cohort North Carolina State is a great school we tire a ton of people from it so that's a great school actually.
To be honest I think schools like that are better I mean I think probably the attack is better.
The reason is because are less infected with the whole DIA ideology that now pervades these like top schools.
So the students are more likely to learn something.
Well you should stop saying top they're not top schools.
They're not top schools anymore.
They're not the smartest kids they're not the hardest working kids.
So we should stop saying top schools.
These Ivy League schools are not the top schools.
I agree with that. Yeah there might be the most notable schools historically but they're not necessarily the ones that are.
They're the biggest brands and they're not new brands.
They're old brands and we've seen that these old brands depreciate over time and people read way too much into them.
I think the structural monopoly is that they then get and have the most capital which they can then use to build and facilities and support staff that can come into core research and so you then get all these research staff in particularly in technical fields in science and medical fields and so on.
That want to come and be on campus and that then creates the network effect of undergrads getting a better education because they're getting exposed to the best talent in the kind of I don't honestly think that benefits the undergrads.
I mean first of all these campuses that you experience at Stanford I think you're the only Ivy Leagueer here.
Wait, you went to Berkeley.
That's part of Ivy League.
It's not in the Ivy League.
Ivy League is like an East Coast club where Stanford was kind of the West Coast Disruptor.
But did you get exposure?
I mean I know when I worked at Berkeley I worked at Lawrence Berkeley Labs.
I got to be exposed to Nobel laureates.
It was actually like I think particularly in my field like I made sure in astrophysics and physics.
That was a great school to get exposure and you actually had that opportunity.
I think that's part of the challenge.
Schools with really great graduate programs and research that goes on on campus actually can give a better educational experience to the undergrads.
It's almost like you're getting these internships and these fellowships and these TAs and professors.
Well that's a different thing.
I actually think what America needs is what I've benefited from at the University of Waterloo which is an active and vibrant co-op program.
Yeah that's great. Yeah.
I do really disagree with you.
I don't think that there is a incredibly better way to teach thermodynamics.
I think that's a bit of a joke.
Sure. I thought that's a lie.
I'm talking about applied work too much.
I'm talking about you go up to Lawrence Berkeley Lab and you work in an actual lab that does really interesting research.
Okay so my point is if we both agree that is very fundamental science is the key.
Definitely. Yeah. Yeah.
That's what I'm pointing out.
So then like the universities in America that have these co-op programs I think are incredible institutions.
Again they're not the typical ones.
They're places like Drexel and other places but now you allow these kids to be in the trenches with people building things and I just think that that's an incredible gift for them but it's also an incredible opportunity for these organizations to understand the quality of the person beyond some credential.
Well I do think in a digital era core education has commoditized and I think most people can get most of the way there without necessarily paying $60 to $80,000 a year and then being partnered in some way with that on the ground internship or integrated kind of program where you get actual hands-on experience.
So I don't know like I mean the university model maybe does not make sense from most fields.
Jake how do you think? Yeah it's very interesting.
Nicole. Where did you go to school?
Jake I went to Fordham University at night.
I got in three weeks before.
Did you get another degree from Fordham?
Yeah. Fordham. I was going to either I had taken the New York.
What was your degree? Yeah.
Psychology. I was going to go into the NYPD.
I had was about to get accepted at 18 years old, 17 years old, 18 years old and then I decided the last minute to go to Fordham at night.
I had to work in order to pay for it.
So it took me four and a half years but I did like almost a full credit load at night and then I was going to go into John J for criminal justice and get my forensic degree and then join the FBI.
So it was in the process of applying to the FBI and then the internet happened and I started magazine about the internet and it went in a totally different direction.
But the co-op stuff I remember when we went to Waterloo we did a speaking gig there years ago, Chimoff and I was very taken with the students there and like they're like drive and so I think that's the key piece and what I did in venture capital because I needed to have a team of about eight people screening all the companies we get and the applications.
So I just made my own training program and I hire a lot of people in Canada to do it and basically they do five meetings a day.
They write up coverage.
I made an entire framework and I'm doing professional development because I found a lot of the top people from these brand name schools were entitled.
They didn't want to do 25, 35 meetings a week with founders and I just found these other students from Waterloo and other colleges like that and I have trained them in my framework for these are the 13 qualities we look for in investing in a startup and these are the 25 red flags and I've now got seven people.
We did 110, 120 meetings one week recently and so it's just much better to train them ourselves and make your own training program I believe.
And so it's even like Malcolm.
Yeah. Didn't Malcolm Gladwell write something which is roughly the equivalent of like your better off getting the top 10 student at a non IV versus like the 50th student at an IV or something.
I don't know there was like something like maybe maybe it was a catch up.
And what was his reason because of motivation?
Yeah it's like these kids are excellent when they're when they're achieving and they're excelling in things that are not subjective.
You want to go get those kids.
Yeah. You know. So they've performed.
Yeah. I mean I think one of the one of the problems with the whole DEI policy and whether you want to do it based on race or socioeomics or whatever it is that you're doing is it keeps happening at every layer of the stack and at some point you just need to say look we've made up for whatever it came before and now it just has to be about that person's performance.
We need to stop putting our thumb in the scale and just hire the best person.
My view is you can probably do that after undergrad like there's no need to keep artificially adjusting the weights of how you hire people after undergrad but yet you have all these like programs that keep trying to make the decision based on something other than merit.
And I think that that's the part that needs to stop.
I mean we had Coleman Hughes on and you know I think he had a very good perspective on it which is like maybe starting with earlier education is where you could probably solve some of these problems a little bit.
For sure. For sure. Effectively.
I will say I feel like my experience in the workplace is that one's college or university is completely decoupled from one's performance or ability to succeed in the workplace in an meritocratic workplace and when I say meritocratic I mean excluding nepotistic workplace settings and excluding demographically biased work.
And if you exclude those two it honestly does not matter what school someone went to they could be brilliant they could be hard working they could be passionate they could be a leader the school doesn't matter and in fact perhaps the corollary is true which is the people that went to the schools that determine success generally have a very hard time succeeding in the workplace
because anytime they face failure it is a challenging circumstance for them that they are unable to overcome and that's particularly true in entrepreneurship that's been my experience perhaps in the broader workplace setting they could work well where they're told all the time if you do this then you get that they do this they get that they feel good they succeed
in that model but in the real world that's not the model and I think that that's a like a really important fact that's colored my point of view on how the higher education system actually does perform with respect to improving the quality of our workforce in the US.
Separate that I will say that in technical fields the research environment on certain college campuses can be incredibly to Jamal's point opportunistic for getting exposure to hands on work that you might not otherwise get in technical field so.
And a lot of this comes down to motivation you know at a certain point a person has to be motivated to put in a lot of hours and become excellent at whatever their chosen profession is I think I talked about a previously when we started talking about macro economics here I took a macro economics course at MIT on their website or on YouTube rather right there's incredible
that this stuff is all out there and anybody can take any of these courses for.
That's what I mean by like the basic the basic education has been commoditized you know it's the hands-on experience that one gets that makes a huge difference.
MIT 1401 principles in micro economics supply and demand I mean it was like incredible and you know this is stuff I just didn't ever get exposed to and I was able to do it for free at listen to the course actually twice and I took notes on it I really got a lot out of it.
All right listen more stuff on the docket and anybody else have final dots here before we go into the election stuff and taxes let's all commit to hiring as many people as possible from non-traditional schools absolutely I mean that's what I do already minutes it's working.
All right decision 2024 get ready for a bit of chaos here folks the DNC is underway as we tape we tape on Thursday as you know I think Kamala will give her accepted speech tonight DNC pulled out all of their all-stars Michelle Obama Brock Hillary Bill Clinton Oprah and Tim was spoke last night most people felt he had a pretty strong showing our guy Nate Silver friend
of the pod has the election as essentially neck and neck we're in coin toss territory here I think it's going to be come down to the debates I'm interested to hear what my best he's think here is the silver bulletin his new publication he's not at 538 anymore just Kamala at 47 trumpet almost 45 and this all will come down to the swing states I think as we all know he's got
a really great interactive chart over there he's got Harris with clear leads and Pennsylvania Michigan Wisconsin Arizona and Virginia I think those are about 68 electoral college votes votes Trump with clear leads in Georgia Florida my Lord Florida's 29 or 30 electoral college votes that's a lot the toss up states Nevada with the tipping and no tax there but that's
only six North Carolina has been flip flopping back and forth from Harris to Trump those two are 24 so we swung from many paths to victory basically a certain victory for Trump with versus Biden to now a toss up this is an interesting chart here Saks I want to get your take on which is the polling averages I think you said last week or the week before that we would see the Harris bump
reverse and that's exactly what's happened the month over month change is dramatic I should see in this table but the week over week change so in the month change you have Democrats running the table in all the swing states and then you look at the weekly change the opposite in the last week the Republicans have not caught up but made significant gains all between a half
a percentage point and a point with the exception of North Carolina which as I stated earlier is a toss up your thoughts on the on the election right now Saks before we get into the issues just on the members here well the the election is going to be on the albiter and it's going to really come down to a few thousand votes or a few tens of thousands of votes in swing states
I think we've we've known that now for a while I would say since Biden abdicated and they did the hot swap I think the most interesting poll numbers over the past week is if you look at Polly market that it has swung back to Trump being in the lead over the past week as opposed to Harris last week I think Harris was favored to win by quite a bit and you have to ask the question well
how does this happen during her own Democratic convention which is supposed to be you know nothing but a four day infomercial for the Democrat candidate yes of course it's a coronation so she should be getting nothing but a bump and instead it seems to be the opposite and I think the reason is is because the more substance her campaign puts out the more policies it
reveals the where she does first they had her give that economic speech last Friday on price gouging and price controls and we spent a lot of time last week talking about why price controls would be a disastrous economic policy subsequent to that there were stories that came out about her campaign supporting these huge tax hikes that were in the the original Biden
Harris budget including a 25% unrealized gains tax which we can talk more about yeah just a boil it down I think the more the public learns the more we learn about what she would do as president the where she does and they've now got to run out the clock for another I don't know what 70 80 days in terms of running a campaign that substance free that's just completely on vibes
that's about joy without answering any questions without doing any press interviews and I think we predicted some time ago that this was not going to be sustainable that at some point they're gonna have to tell us what they think and as they do that the more they do that I think the more her polls will correct what do you think Jamal if you trust these betting markets
because there's so much at stake at this election right I mean people are pouring money into both campaigns it's really contentious people see it as existential on both sides and then you have you know these prediction markets that you know have low tens of millions or hundreds of millions of dollars being bet could these not be you know influenced you trust them
because we are seeing this is the first time these prediction markets have become a major discussion point because their business is obviously but people are really getting into them and I wonder if they could be manipulated or if you think you trust them I guess is the way I'm asking you because we've had this discussion a bit offline I mean I think these are really
good businesses but they are some combination of entertainment and gambling I don't think that these things are as useful directional indicators as they are just really interesting businesses that allow people to bet and wager on all kinds of random things so I would not look to these sites for that necessarily okay I think that people like Nate Silver do a pretty
reasonable job in his specific case I think he does a very good job of writing together and doing this meta analysis of polls but I think we've learned that this polling is pretty brittle and not super reliable so the betting markets are exactly that they're just like it's like sports betting but just wasn't a betting market we talked about this two weeks ago Shapiro
was like 80% or something so yeah it's fairly obvious freeberg that maybe these betting markets are a little bit entertainment but maybe directly correct because they also did start to predict the hot swap you know so what do you think freeberg about these betting markets I think you and we keep everyone keeps trying to reduce this down to some deterministic binary
system which is like it works or it doesn't and the truth is that the conditions of the world are changing all the time the news is changing all the time people are taking action all the time there's a shift in current events all the time as a result the forecast is changing all the time and so what a betting market or a poll does is provide a probabilistic forecast of the future
there is a probability of something happening it is not trying to say I as a poll or I as a market I'm right 100% of the time or not it is saying here's the estimated distribution of outcomes in the future so there's a 20% chance or an 80% chance of Shapiro 20% chance of him not being the case turns out that that 20% is where Harris ended up going based on some meetings she
had in some room with some group of people that we aren't privy to and that the market in that case was not privy to what Nate Silver does and I think people need to understand this a little bit when you gather polling data that poll has some predictive power based on how the pollster is conduct their poll who they call how they screen candidates for the poll etc etc so different
polling companies it turns out are better or worse at making that directional probability bet than others and what Nate's models do is they account for the historical performance of different pollsters and wake them differently to create a basically a multiple prediction and so that's what his system is set up and remember he similarly doesn't give you one outcome
he gives you a distribution of outcomes I think his simulation model has probably a thousand or 10,000 simulations that come out of it and those simulations he says look there's a 29% chance of this happening 70% he's not trying to say here's what's going to happen he's trying to give everyone a point of view on the distribution of things happening in the future just
like whether forecasting is not perfectly predictable it's very predictable for tomorrow it's less predictable for three days for now and it's very unpredictable 12 days for now and that's how these polls also work out and that's also how these massive mega models of polls and it's also prediction markets work and freeberg people have a lot of emotion in these
models when it comes to politics whereas if you were looking at gambling or the odds of winning a poker hand we all would be like oh you have a 30% chance of winning or a 10% or an 8% you're going to hit two others there's a motions both way jcal so basically when I read those polls or I read the summary of the polls I have a bias based on my interest in the outcome that says that thing
is BS that thing is right oh look at this and everyone points to the stuff for confirmation bias of their opinion yeah and to denounce the other side and so it all gets caught up it's kind of a media angle when people use polling data and and also fundamentally when people kind of get involved in polls and create polls there's also the risk of bias and part of what Nate
Silver and others try and do is figure out does that bias come out in the polling performance historically and that's how they kind of wait whether or not this poll is going to be a better or worse indicator than other polls of the distribution of things that might happen in the future and sack if people were to lose you know a poker hand that they you know we're 60% to
win or two thirds to win you know they would be like okay that makes no sense when Hillary Clinton lost to Trump the first time people lost their mind and he was pretty clear right he was I think 65 35 and people are like wait you said it 65% yeah your thoughts on just the accuracy of polls generally and then what you heard here in terms of the betting markets how do you look
at these two things that are taking up a lot of space right now so well I would consider prediction markets to be an additional tool that we should consider side by side with polls and they both have their pluses of minuses the advantage of polls is that you're actually talking to real people as opposed to better however they're very dependent on sampling and getting
the sampling correct I mean most these polls talk to maybe a thousand respondents these are people are willing to pick up the phone from a unknown number that right there is probably a huge source of bias because I don't do that and then based on that sample they're going to predict how millions and millions of people are going to vote well everything depends on the composition of that sample
which thousand voters do you talk to do you wait them based on likelihood of voting or demographic characteristics and so on so the polls can be notoriously inaccurate we've seen that many times and that's why there's a margin of error sometimes a margin of error is even wrong so in any event it's a tool but it's a tool that almost by definition is going to be wrong because of sampling
problems you look at prediction markets and it's a totally different type of voting mechanism where betterers are willing to put their money where their mouth is and they've got real skin of the game and they're able to make a prediction based on their willingness to lose money now there can be problems with that too number one the betting market can be very thin you
know sometimes there's not a lot of money that's trading hands so I think with a lot of those VP picks you can move the VP market by putting just a very small amount of money because the market wasn't very liquid so you have to kind of look at how deep and liquid the prediction market is and then I'd say second the issue with prediction markets is they and this could be an advantage
is they move a lot based on small things because people are just constantly updating their forecast I would argue that maybe that's an advantage is that you could see the trend more easily in a prediction market so for example yeah have some numbers if you want to hear them $653 million in political bets are currently being placed across the top 10 betting markets
and all of the markets on polymarket which includes things outside of politics are 320 million so they are the big fish and as I think they're the leader but it's still a very thin amount of money to your point sex yeah I would mostly use the betting markets as a measure of house sentiment is shifting so for example on election night the betting market is going to converge
to 100% in favor of one candidate or another whereas the actual votes are not going to converge to 100% you could have an election in say Pennsylvania where one candidate gets 50.1% of the vote the other candidate gets 49.9 the betting market is going to converge to 100 zero because it's predicting who's going to win it's a binary yes or no as opposed to where the actual
vote tools come out the polling is trying to approximate where the vote tools are going to come out right with a huge margin of error so the polls are just are never going to give you as prism decisive an answer as the prediction markets but the prediction markets can also be wrong as we've seen they're only as good as the people making the bets.
Shem off where do you put the third category here which would be the odds makers in Vegas because they're looking at everything what do you think about the odds makers in Vegas would you give them any credence not even know why I need this matter so why are we talking about this well I mean because people are looking at the tea leaves but there are there are reasons it
matters you know the these markets do have an impact on the voting public because the media covers them donors cover them voter turnout is impacted by the polls and then there's these like you know various psychological phenomenon like the the underdog impacts or bam wagon so you could have if people perceive at one point Trump is the underdog maybe more people
turn out and then people who you know if Trump was winning versus Biden so much they might become complacent and you get some sort of surprise there so they do have actual impact on the voting public I suspect though that I suspect that a lot of that is really at the edges the I read an article recently that just talked about the enormity of the investment that built the Democrats
and the Republicans are making to get to these critical areas in these five critical states and if you live in one of these zip codes that really matter I think that there's just no room for anything but what each side is saying I don't think you're looking at a betting market or a poll or any of this stuff and I think the reason why these places have become so critical
is that they are very balanced they are people that have a good way of making sense of the world and they change their minds a lot right otherwise they're there people that underwrite and re-underwrite their decisions and to me that's actually a really wonderful thing to know that there are these call it million people in these zip codes in five states that are actually
quite thoughtful and I'm I'm actually okay that in the end that those folks will decide I would be much more worried if it was hyper partisan and set up in a way where none of these lies whoever tells them are uncovered the way that it's set up today all of the crazy ideas get run to the ground all of the lies get uncovered and I think that that's a really healthy place and I
think it's a much better place so I'm generally like really glad that things look like quote unquote a question mark because I think it creates much more pressure for the candidates to be precise and I think that that's very important so I'd love to talk about some of these crazy policy things as well.
Yeah I want to write a policy SACS I wanted to get your take on this Trump's VP pick JD Vance is now the least popular VP pick in mountain history people said the same thing also about walls that was a terrible pick here's your chart on JD and here's the historical chart John Edwards and I remember him uh he was plus two in net rating Tim Walls plus five Mike Pence plus five
Kamala when she was VP plus three but JD Vance is absolutely uh he's below Sarah Palin which I guess takes everything what's your take on the VP picks and the impact they're having here because it's the major topic of discussion.
I think what history shows the VP pick doesn't matter that much fuel vote for what's happening at the top of the ticket and I would argue the reason why JD has the poll he does is because there's a couple of reasons number one is just media bias and there was an interesting report showing that the media's coverage of the Harris campaign was 84% positive whereas the coverage
of the Trump campaign was 89% negative that actually seems to understate the bias that I see out there but look this is the number one reason why JD has a negative rating is because the media is defining him I would say furthermore JD is out there talking about ideas and I give him credit for that but because he is an idea man and he's also a writer and he's said interesting
things in the past and also sometimes occasionally a sarcastic thing or two in the past the media has been able to take those things out of context and harp on them relentlessly on the other hand you take someone like Tim Walts and he's out there he's not really talking about ideas I mean every time he goes up there and speaks it's like a pep talk I mean if I wanted to hire
a guy to give the half time speech to my team he'd be the guy you know if I wanted him out there puffing up a team talking about we got it all give 110% he's the guy for that but he's not really talking about ideas he's not going on the Sunday shows you look at JD I mean I've watched a couple of his campaign stops I mean the guy is really sharp and when he goes on the Sunday show
they are pitching nothing but fastballs at him and he's hitting it out of the park every time and Harris and Walts are just not doing that they're not even appearing on those shows I don't think they could survive 20 minutes of harsh questioning the way that the media pitches at JD every time he goes on a campaign stop and takes questions or he goes on a Sunday show I love
the JD pick you know venture capital's business guy well written well spoken you're picking up on something that I think is really important that I think has been under reported it really is a tale of two different tickets the Republican ticket whether you like them or not are very financially astute actors and if you look at the Democratic ticket they are under invested
to not invested at all in anything that would normally resemble the United States economy and I find that the very odd distinction meaning the way that I would think people would want to see their candidates is folks who have a very sophisticated understanding of the parts that they're going to govern and in this case if you're going to sit atop the economy one would hope
that you're invested in the economy in some way so that you know how it works and it's a little surprising to be that nobody's really questions how how under invested the Democratic ticket is and it's almost as if the the Republican ticket for their financial sophistication his look down upon it to unpack what you're saying here there was a report Tim Walst has no financial
holdings he has no stocks no bonds no mutual funds don't really say nothing no cryptocurrency this is what you're referring to yet you're talking about the level of like literally owning nothing and I guess free bird to your I'll let you take it from there so I think it's actually a step a little bit deeper than that Kable Harris and Tim Walst have only ever worked for government
Trump and Vance have worked in private industry it's not just their perspective being colored by the the lack of participation in the private economy but the lack of employment in the private economy they've never worked for a private business they've never been employees of a private business they've never built a private business I'm not trying to be disparaging
but I do think I'm just trying to underline the point here to moth which is the voters choice is do you want candidates that are not typically government operatives or do you want candidates that have spent their whole career as government operatives and that is effectively what the voters are going to be voting for and they're going to make a decision they may want
to have someone that's going to lead the biggest government in history because they've spent their whole careers in government or they're going to say you know what the biggest government in history needs to be significantly altered and we want to bring someone in from the outside that's worked in private industry and that is the voters choice that's one way to
view the voters choice here that's an interesting framing and another framing might be free bird I love that's a love that's an interesting framing here's another framing I don't you're a young person I can't own a home they're too expensive I don't have any equity I'm getting ground down I own a bunch of student loans Tim Walls feels more like the experience I'm
having as a millennial where I can't afford a home where I don't have equity where I'm constantly trying to pay off my bills and the finance what we'll say is like hey this guy's not very fine can't you be a student but that could be because he's never it could be because he's never maybe it maybe it's because he's never had a private sector job well he's been a teacher
right so maybe people say you know what I feel I identify more with Tim Walls and I think that's actually what might be happening here public school teacher yeah but I yeah right which is a noble thing to be and I think there's probably a large percentage of the country who feels like they're not part of the equity economy they don't own a home they don't own equities
and they have been shut out from this and all these rich people like Trump and JD Vans and venture capitalists are running the table on them and I think that might be why we're seeing even if the four of us disagree with it we might be seeing someone like Tim Walls actually being a feature it might be a feature to their to their team and and I think that there's a perception of experience
in government that is deemed to make a government leader more appropriately suited to be a government leader because of one politician yeah well not even a politician just career experience started being employed by or working within the government within a government local state or federal and remember Scott was started her career at the DA's office in Alameda County
before moving over to San Francisco DA's office and then she was DA of San Francisco and then Attorney General and so on and so forth.
Sex what do you think of this framing you have two candidates who are career civil servants who have dedicated their life to that but who in one case has doesn't own his home doesn't own any equities in the other case Kamala does that move a bunch of equity and and some private wealth versus the capitalist it looks like this actually is an interesting framing socialism
versus capitalism what do you put your thought on that frame?
Well I think just because someone has serving government doesn't mean that they truly even understand what the problems are or that they're even the master of government I mean you saw this over the past week we talked about the eight hundred eighteen thousand jobs that didn't exist they asked Gina Ramondo the secretary of commerce about this and she just said
that's a Trump lie and they said no actually it's a bureau of labor statistics report that like is under you a secretary of commerce she's not not familiar with that so you have people running the government who don't even know what their own departments are doing.
Now I think it's a function of the fact that government is so big and out of control that no one even understands what it does I think it's more important to have someone who at least has some experience in the private sector who truly understands how jobs are created how wealth is created what causes inflation okay we've talked about this before yeah what causes inflation is the printing
of too much money its government spending too much yeah shocking it is not corporate greed because corporate greed is a constant it's not price gouging and how the free market incentivizes the creation of improved productivity which over time translates into improved prosperity for the society within which that is taking place that is so critical and we saw
that happen even in China in the last thirty years when the government allowed entrepreneurship to flourish in certain parts of the country as a result there were significant productivity gains and they brought a billion people out of poverty they created a middle class I mean they created every class never had a middle class I think it's important to not color this as
because you worked in government you can't be invested or you can't own a home or you can't actually have built the nest egg right because that's also not true and we have there's some extreme examples of people who've been policy essentially yeah a career civil servants essentially and it built multi hundred million dollar per foot in we can we can question in specifically
in the case of all house representatives whether they're getting access to a kind of information that other people don't get access to but taking that off the table I think that there are people in all kinds of jobs who are able to save and invest and then acquire things that they believe will give them security for themselves and their children in the future and I
don't think that it is because of a kind of job that you do I think it's a kind of mindset that you have and I think it's very important to make sure that whoever we pick we understand the mindset I really believe that like you know there are a couple of things that are really critical to thinking about the future and wanting to make the future better I think one obvious
one is when you have kids when you have kids you're making sacrifices every day you know you're you're for going things today because whether it's saving for college saving for school saving for a class saving for a sports thing that you want to get to go to musical whatever it is you're always finding ways of thinking about what is better for in the future for that other
person not me and the second is I think being an investor actually makes you care about the future in a really productive way because you're for going often cases when we all invest we're for going short term gains on the hope that we can help shape a much longer term outcome in the future that makes all of that worthwhile and so I like it when I can see people that have those
things at play and that day even in whatever small way they can are manifesting that and I always have a question mark like how is it possible that at no point you have tried to be invested in your own in your children's future that way since the it's just the question mark for me 58% of American zone equities and that includes like retirement accounts so it's not like
they're actively day trading and so you know that that does actually sacks paint an interesting picture where maybe the Democratic Party now which they referred to themselves Bernie and Elizabeth Warren as a socialist as socialist Democrats maybe this is like part of their feature is to appeal to that large lot of people who don't own their homes who don't have kids
and you know to J.D.s point about cat ladies and to you know who don't own homes don't have kids and don't have equities where your thoughts on that sacks is that maybe how these parties are starting to shape up in the modern era yeah actually I think that's right I mean I think that Elizabeth Warren and Bernie Sanders are now the thought leaders and really the beating
heart of the Democrat Party I think what's happened is the Republican Party has moved to right wing populism and the Democrats in response to that have concluded that they need to basically move to left wing populism in order to compete with that as of both parties are becoming fairly populist now what is what is left wing populism mean it basically means soak the rich
right it's a strong element of class warfare to it we're going to make the rich pay for everything and the rich are the problem it's this fundamental and fairness of the economy that's causing all these problems and I think you've heard that over and over again at the DNC I mean just the clips that I've seen this has been a recurring theme is the hatred towards you know
billionaires and and rich people attacks the rich is a recurring theme and that's actually a great jump off point here because the big news in our circles this week and on social media was and some of the group chats is that Harris has reportedly backed some of Biden's really out there tax plans which include a proposed 25 percent wealth tax on people with over a hundred
million dollars in assets important to note that this would be very hard to pass because getting these tax increases you'd have to get through congress etc but let's just talk about what the proposal is because it's out there in Biden's 2025 tax plan which the campaign has said to semi-four which is a niche publication like a newsletter company that and I'll just
give the quote in a little notice portion of its Friday analysis of Harris's new economic plans the committee for a responsible federal budget wrote that her campaign said it endorsed the suite of revenue options included in president Joe's recent budget and that's the FRB report said quote the campaign has communicated to us that vice president Harris continues
to support all of the revenue raising provisions in the president's 2025 budget so there is continuity confirmed between Harris and Biden's plans I'll just explain as simply as I can what this extreme plan says and then I'll get traumatic on it Biden's proposed 2025 tax plan includes the following 25 percent are realized capgain tax on those with over 100 million assets
28 percent corporate tax rate right now it's 21 Trump had proposed a 15 percent rate and quadrupling the stock buyback tax to 4 percent that's when a company buys their own shares as opposed to putting it to work in the market the stock buyback tax was created as Biden's inflation reduction act 2022 it's just 1 percent if you want to buy back your shares like Apple and some
other companies do but let's unpack the 25 percent and realize capgains because that seems to be you know the most let's say I don't want to say triggering but the one that's triggered the most number of people there's 5,000 people who fit into that category what do you think Shemaugh of this proposal fair unfair crazy social women's American it's less about fair
or unfair but I think that we are in the part of the cycle where enough people don't feel the positive aspects of capitalism that they want to push back against it I just put a little image in here Nick if you want to just throw it up in the chat but when you look from 1913 onto today the reality is we've had many different forms of political philosophy that have governed
the country and what you can see is that tax rates have very wildly at the federal level and I think it's because that at certain times there was the political will to go to extremes and this may be a moment where we are going to explore the extremes that we had in the 40s and the 50s and I think the reality is that if that does happen you're going to see people behave in ways
that weren't possible in the 40s and 50s in the 40s and 50s everybody was more geopolitically constrained I don't think that that's the case anymore and the way that people start companies where they start companies the flexibility of citizenship have changed really dramatically so if it's the will of the people that they want to explore these mechanisms I think
other people will react in kind and you know the dialogue will be cast so you know I don't have much of an opinion of you're referring to removing your I think you're implying people might be able to move to other places and create companies there is is that what I'm reading?
Let's put it this way we have a we have a small microcosm of this going on within the 50 states which is if you said California was the United States and Texas and Florida were I'll make up two different countries Malta and Dubai well what happens when taxation goes beyond the pill and what happens when budget deficits and spending go beyond the pill and when the government
plays too large of a hand in the economy people leave with their feet companies leave so we don't need to guess what's going to happen because if it can happen between California and Texas it probably stands to reason it can happen between the United States and UAE as an example.
Yeah you already have a bunch of hedge fund manners moving over there right Shema I have people are starting to buy apartments and there's there's golden visas in some great countries Portugal has a golden visa the UAE has a golden visa Italy has a golden visa the UK had this great program what was called non-doms for a long time so the the point is that all of these took
advantage of countries that went to extremes and they lost citizens as a result and I suspect that if what the US voting population wants to do is explore that extreme these policies will get enacted and then people will act in kind the only thing that I would just again reinforce is unlike when taxes went to 90% in the 40s and 50s people are much much more mobile than they
were then and that was during World War II and the post-war era freeberg your thoughts on this proposal specifically which impacts a very small number of people although maybe a high percentage here yeah so just just to give a little more detail to it Jake how please you and you can actually see it I think if you want to pull up the page 82 83 in the document so the wealth
tax is 25% of your unrealized capital gains if your network is above 100 million and the first time this happens you can split up the payments over nine years you have nine years to kind of pay down the assets or sell the assets or borrow the money you need to make those tax payments after that you can actually make those payments over five years those payments are ultimately
treated as prepayments on taxes that will be due when you realize the capital gains every year you have to report to the IRS separated by asset class the cost basis and the estimated value of every asset you have you then have to determine your taxes that you owe because of the difference from last year you start out with tradable assets of stocks those are just valued
at the end of year illiquid assets like private companies or real estate you don't have to get a valuation if there is a financing event or some other sort of major revaluation you have to use that value and if there isn't the number goes up every year by some nominal rate that will be set by the treasury so the treasury is basically going to tell you what they think the value
of your company has gone up on an annual basis and that's the determination of valuation you can file an appeal so for all the entrepreneurs and startup people listening there's a process that they're proposing that is basically the government saying if you didn't get a new financing round done the price goes up and if you disagree with the price going up you go back
and you appeal it let's pause there for a second freeberg because this is super important I think to the audience here somebody has a startup company it becomes worth ten billion dollars it has a hundred million in revenue it's doing well it's losing money for our nine valuation comes in founder owns 25% co-founders own 25% each they own two three billion dollars
in stock now you've got an illiquid founder who owns three billion dollars in stock companies not going public there's no secondary market what would happen to that founder would so they've addressed this and that's the final provision and what they said is that if a taxpayer is treated as what they're calling illiquid meaning that they're tradable assets the stocks
that they own or the cash that they have is less than 20% of their total wealth then they may elect to include only the unrealized gain in their tradable assets to determine their tax liability however if you do this you will actually have a deferral charge which means you'll ultimately pay a higher tax on the capital gains on your illiquid asset when you do have a have a realized
capital gain on it so they're trying to cover the fact that people might have all their assets tied up in real estate or all their assets tied up in private company stock and again I feel like we're we're kind of shouting into it a bus here because this is only going to reflect such a small number of people but they've really tried to write this in a way that ultimately
covers the kind of pushback that you're highlighting I'll say one of their piece of pushback that's been received and tested in the Supreme Court a lot of people have said that the 16th Amendment prohibits this taxation a ruling from the Supreme Court was published June of this year and in that particular case there was a repatriation tax for folks that left the country
it's the more versus United States tax case and when people left the country the government under the tax and job's act which was passed under the Trump administration the government had a right to go after people's assets and tax them on their unrealized gains even after they give up their US citizenry this was challenged to the Supreme Court and there was a number
of Amicus breaks filed on this case that said the government does not have the authority and Congress doesn't have the authority to actually tax on unrealized capital gains and at the end of the day the Supreme Court agreed to hear the case and they did not overturn on the position that the government actually did not overstep their authority to be able to tax unrealized
capital gains so there is some Supreme Court case precedent here that indicates that this will not get thrown out on an unconstitutional ground basis so there is a lot of conversation that this might actually become a real case I'll pause there and I actually have a theory I want to talk about in a minute but it's a little bit of an extension from this point but that's
a seizure of assets in your mind is it constitutional in your mind two questions there it's certainly a confiscation I mean basically this this tax is directed at centimillionaires and billionaires to basically take 25% of what they have I mean that's basically what this is about there's a good reason why realization is one of the core concepts of our tax code what realization gives
you two really important things number one you have a sale price right you realization means that you sell the asset so we know exactly how much you made number two you have the liquidity to pay the tax bill because you've just sold the asset the problem with the unrealized gains tax is both those issues number one we don't know what the assets really worth you know
it's easier to to put a value on a publicly traded asset but a private asset it's very hard to know exactly how much it's worth the valuations bouncing around all the time what this bill would do is create I guess a whole new process and bureaucracy to try and put a value on that but it's going to be really complicated to comply with all this are going to need to hire a whole
new legion of lawyers and accountants so I mean you're talking about a whole new essentially tax bureaucracy that's going to spring up around this concept on the liquidity part you're being taxed a huge amount without having the cash to pay the tax bill and you know yes they've tried to mitigate that by creating the system plan but you're still going to need to go
out and sell large chunks of your company every time you get an up-round in order to pay the tax bill and that means that you're losing ownership of your your company all these assets are going to be dumped on the market and you're basically starving the market of capital actually right because all these people who who are owners that are company are going to have to
go out and sell a big chunk of them this is going to put so much cold water on the entrepreneurial market it's going to make people just have less liquidity to invest in things I think this is going to be disastrous it's going to be a lot of people to retire early because they just don't want to deal with all this well freeberg what's your theory okay I've got a theory oh
theory here we go I was trying to figure out why we seem to be like embracing socialist principles what why I keep seeing more of this stuff become mainstream and almost become normalized and I was looking at the total GDP of the United States is $25 trillion the federal budget for next year is proposed to be 7.2 trillion and state and local budgets combined is about 4
trillion so if you look at government spending it's about half of GDP now state local and federal which roughly equates to about half of people in the United States are employed directly by government or indirectly because the government is the primary revenue source of their business and I think that that's why this this set of policies and I'm not talking about the tax
on the centa millionaires as much as a simple disregard for the fact that the United States over time the prosperity that we've realized has been driven by a free market economy by enterprising individuals going out and saying there are people that are asking for things I'm going to figure out a way to build those things and make it for them and sell it to them people
will pay for it they will work hard to do it and the incentive structure in a free market has enabled productivity improvements and enabled ultimately prosperity but we've reached the tipping point and the tipping point is when half or more of the population begins to be employed by the government at which point that concept is lost because now it is the government
that is the employer not one's own individual liberties and ability to go out and be enterprising and so I think that the budget of government tipping to 50% of GDP is the reason why these policies become mainstream that's my theory and so it's a relationship of government spending as a percent of total GDP which translates into employment you guys are a reasonable
scary but reasonable well you know who says something similar back when Mitt Romney ran for president he was caught on tape saying something to the effect that 47% of Americans were net government recipients and if that number ever got to 51% then basically the free market system would be finished because it'd be more that's where we are that's where we are the makers
tipping more takers than makers and he was forced to apologize for that but there is a fundamental logic to it I wouldn't use the term taker sacks because there are hard working people that work for the government it so it's not necessarily about just taking a free check or there's certainly that an aspect of that to some degree but it is about the government becoming
the primary supporter of individuals in this country through employment or through subsidies or through checks or through through through what have you yeah I think that's fair yeah I think that's totally fair I'm not disparaging the efforts of legitimate government workers because you do need a government and some more private company workers that just happen
to have the government as their only customer right but the point the point is that when you become a government employee you have a vested interest in government you should have a vested interest in the private sector as well because that's what generates the tax revenue to fund the government but as a practical matter government workers vote massively in a block
for the democratic party and in many ways the democratic party is the the party of government workers you look in california for example the the various government workers unions are the most powerful players in california politics what's the political affiliation of like has there ever been surveys done of employees at the federal level and what their political
affiliations are yeah that vastly vastly more democrat I mean is it really look the democrats of the party of government absolutely I'm surprised by that because I would think that within the ranks of the military if you look at the enlisted military there's a lot of republicans in there a lot of military families especially republican but you look at this government
workers vastly more democrat I think there's other things happening as well I mean look American capitalism requires a robust middle class and in many ways I think globalization has hollowed out the middle class there used to be a large middle class in this country of blue collar workers who worked with their hands they were not knowledge workers and they worked
in factories and they did kind of blue collar work and they could still make a middle class living and I think that over the last 20 to 30 years as result of globalization millions and millions of those jobs went away and millions of factories shut down so the middle class of america that's not you know the again that's not knowledge workers were really pressured by basically
throwing open American markets to foreign goods now you could argue that that lower price is and that created consumer surplus and the benefits of trade do you support the trump tariffs as a solution there sacks because those are fundamentally going to be inflationary which is going to make the cost go up for everyone well I don't know but I'm just I'm just pointing
out that there was a real price in terms of having this free trade that led to huge trade draft toughsets which is this vast American middle class a few will worked with their hands got put out of work and I think that removes a huge incentive for people to be invested in to have invested interest in the free market system sacks let me ask you one more question do you think
that the Biden administration bills the inflation reduction act in the chips act both of which were meant to revitalize that middle class kind of industrial economy through government funding of developing new facilities in the US to ensure manufacturing is that not a good reasonable solution to that problem well those are two very different bills I mean the inflation reduction act
just the name itself should tell you that it doesn't I was joking you should have been reading the inflation maximization act the eye look who benefited from that our friends who are energy investors who you know who I'm talking about well he's easy strangeness everywhere no take it easy over there take it easy it's taken a strange but his nickname is state but but he's
an energy investor he said that this bill was the biggest bananza that they've ever seen he says these guys were running around like like you know it was like the Beverly Hillbillies where they've struck a gusher and they're they're running around with cans trying to collect the oil that's what he said this was because a bunch of energy investors like a diamond mine
and that's the man the man was coming down from from heaven and they're just like collect as much of it that was a huge boondoggle and payoff for these green energy investors that's who it went to it did not benefit what about the chips at all what about the chips act the chip act is more complicated because it does create incentives for a manufacturing in America and moreover
there is a national security element because because we need these advanced chips we can't be totally dependent on chip makers who are in foreign places within 100 miles of the Chinese mainland right so that that one's a little more complicated meanwhile Intel is imploding you know they can't manufacture so well just to finish the thought I mean the the issue with the chips
act is that there's a lot of good reasons to believe that even if we incentivize this we're still hopelessly behind and the chipfabs that we're building are just there's still years behind what they have in Taiwan for example so it's not clear it's going to work as my point but but I think the motivations make a lot more sense all right everybody this has been another
amazing episode of the all in podcast socialism is garbage and it turns into communism I'm exacerbated I mean if Kamala doesn't get out there and start doing some interviews and explaining herself I'm out I mean I'm making news at the end of the show I'm literally going to smash this black talk and with right back with jk was about to become said to me she shut the fuck
I mean it may have already happened anyway that's so funny yeah you were rallied to what's the what's the price now 80 bucks is a little bit more 60 you're gonna get a bunch different answer what needs to generate we need to want to generate a meme jcal at $40 a share that is very different $80 a share very different no I mean I just we need to get Kamala on this program
here face the music let's go you want to run for president come on all in and let's talk about it if she's not going to answer basic questions is disqualifying for me who's trying to get her is anyone trying to shoot lots on it I mean try it but I mean we love to have her on we'd love to have JD on we'd love to have wall song let's go let's have some real conversations about this stuff
by the way can I say one final point that'll hold on all these games tax is fast-connissary what the CBO estimated is that would raise about 400 billion a year for all these taxis that's only 20% of the deficit we're running right now we don't get anywhere close to closing the deficit with all these taxis what that means is you have to cut spending more over she's got
a bunch of new programs to increase that deficit and we know that that 400 billion number is an optimistic scenario because like Jamal was saying the rich people are gonna flee they're gonna try and move their wealth into structures or places where it's hard to tax I think it's actually more than that I think what'll happen is funds governments etc for the right entrepreneurs
with the right assets will help you pay the exit tax so that you can just leave the United States and that's going to be an investment class that's going to emerge in my opinion which is these organizations that will pool capital sovereign wall fund specifically and when an entrepreneur shows up and they have you know 50 a hundred a billion dollar tax bill to expatriate
from the United States they will pay it for you and the reason is they'll bring the jobs and they'll bring the know how and they'll bring the future capital investment into that country it's a very easy investment to underwrite actually so I would I would just pay a lot of close attention to the fact that capital flows are very fungible in 2024 and they'll only become
more fungible over time when was there is anyways beautiful beautiful this happened in far the way this happened in France I mean they happened in France they literally did this they tried it a lot of French citizens all the time I think it's important though you have to now go to the logic if this is what people want I think it's important for people to see the impact
of it and then for them to have to change their mind or stay with what they're doing because it's working yeah it's not going to work you're right Jake L in France in Norway this was tried there every time wealth taxes get tried it what happens is the wealth fleas and you never raise as much as you think you're going to and then what happens is in order to raise that money
they have to apply it to more people Elizabeth Warren already wants to apply it to Americans with a net worth of 50 million not a hundred million so this whole idea that well this won't affect me because I'm not one of those rich people and the IRS was created and they when they created the income tax it was originally only supposed to apply to less than the top 1% okay
I gotta go love you guys so everybody thanks for coming to the all-in-pork as episode 193 we'll see you next time bye bye take care oh we should all just get a room and just have one big huge or two because they're all just like this like sexual tension but we just need to release the album and now the plugs the all-in-submit is taking place in Los Angeles September 8 9 10
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next time bye bye
