How Did America Go “Adrift?” Scott Galloway Explains

CHRISTIANE AMANPOUR, HOST: Now, while the current social and economic crisis in United States seemed complex, our next guest believes that it can be fixed. Marketing professor Scott Galloway examines the future of this America in his new book, and joins Hari Sreenivasan to discuss the dangers of a shrinking middle class.

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HARI SREENIVASAN, INTERNATIONAL CORRESPONDENT: Christiane, thanks. Scott Galloway, thanks again for joining us. My favorite kind of book, lots of pictures, lots of graphs, lots of charts. This is called “Adrift.” First of all, what’s the title about?

SCOTT GALLOWAY, AUTHOR, “ADRIFT: AMERICA IN 100 CHARTS”: Well, we are not lost, I would as a country, I would argue we are adrift, and that, as we can see, land I think all of the problems or most of the problems with ALS are fixable and we can see land, it’s just a function of all growing in unison and getting back to where we have been. So, I thought about the title. I would say we are adrift or a bit unmourn, unmoored, if we will, but I do not think that we are lost.

SREENIVASAN: You know, you kind of singled out a period in the early ’70s that you think was one of the points where we kind of turned. Why then?

GALLOWAY: There’s entire websites and studies around this. But essentially, wage growth and productivity were inextricably linked and wound up together pretty closely. And then, something happened in the 1970s where they disarticulated. And since then, over the last five decades, wage growth has essentially gone flat while productivity is up into the right. So, in between those two, that delta, you have trillions of dollars in surplus value that’s mostly been captured by shareholders. So, essentially, in the early ’70s where there was shareholder rights, activism or kind of an embrace of Milton Friedman economics where the shareholder kind of reign supreme, we have optimized almost everything we do for shareholder value. And there’s some benefit to that, we have the best capital markets in the world, companies have more access to more capital here. We’ve built amazing companies, but there’s just no getting around it. If minimum wage had kept pace with productivity, it would be $23 an hour right now.

SREENIVASAN: You know, your economic kind of pieces here isn’t a radical one, it is to say that we have done well, one we have invested in the middle class. And what has happened to our real middle class versus our perception? I mean, so many people, when you asked them, do you feel middle class? They say, yes. But when you actually look at what is the middle class versus what is the top and what’s the bottom, what is happening to the country?

GALLOWAY: So, we have lost several million, maybe like 10 or 20 million people from the middle class as the cohort, as defined by the middle three quintiles economically. But in contrast, if you look at China, they’ve brought half a billion people into the middle class over the last several decades, which is arguably one of the biggest feats in mankind. And I think a decent proxy for the power and health of a nation is how robust its middle class is. And what you’ve seen in the U.S. is that essentially, I would argue, that we are just optimize for the top 1 percent, for the first time, we have a regressive tax structure. What’s interesting about tax structure that’s a bit of an unknown is it’s convenient to say that while the poor and middle class are doing really poorly, and the rich are doing great, but it is the near rich or the workhorses that have actually been the big losers from a tax standpoint, and that is take the couple that is making say between $300,000 and $1 million a year. Played by the rules, great college degrees, who works really hard, super successful, mom is a partner in a law firm, dad is a chiropractor. They are actually playing upwards of 50, 53 percent in taxes now because they usually have to be in an urban area that’s usually in a blue state to maintain that type of income trajectory. And people don’t feel sorry for them, but it’s not until you make millions of dollars and then can invest and get the majority of your income from capital gains, where your tax rate plummets. So, it’s kind of 98 to 99 percentile are paying the highest tax rate. And once you get above the 99th, it drops. So, we truly do have a regressive tax system.

SREENIVASAN: One of the charts you have is income growth — or wage growth by income level, there’s a massive gap here in how the rich have seen in the last 25 or 30 years and how their wages are going up versus everyone else.

GALLOWAY: Yes, I think. So, what I’m trying to do with the book is there’s a lot of known knowns. And I think income inequality gets a lot of warranted attention. What doesn’t get as much attention is age inequality, and that is people over the age of 75 are 70 percent wealthier than they were several decades ago, and people under the age of 40 are 22 percent less wealthy. The percentage of GDP, as evidenced by the wealth, that people under the age of 40 command, has dropped from 19 percent of GDP to 9 percent. And a lot of people will throw up their arms, and typically, it’s the incumbents or people who are already rich and claim that these are forces beyond our control, which is just not true. There’s an illusion of complexity here and that is, if you look at the two largest tax deductions in America, capital gains and mortgage interest, who owns homes and owns stocks, people my age. Who rents and who gets majority of their income from current income and salary Young people. Social Security is the largest transfer payment in history of mankind. A trillion after a year, mostly funded by young people, is transferred to the wealthiest generation in the history of the planet, old people. So, whether it was PPP, the bailout programs, where the majority of money ended up in the older, wealthier households, whether it’s skyrocketing education, what we have seen is a concerted effort, and we have made these decisions, it is not network effects, to transfer wealth from young people to older people. And the result is for the first time in our nation’s history a 30-year-old man or woman isn’t doing as well as his or her parents were at the same age. And that is really the fundamental compact in any society, and that compact is broken down.

SREENIVASAN: You know, we’ve had previous conversations about your views on higher education and education, and as a society, we feel like investing in ourselves, giving ourselves that education is a way to have that social mobility. And one of the charts that you point out is how — what you make with that college degree, it is just the return on investment is poorer and poorer.

GALLOWAY: Yes. So, 40 years ago, one in three jobs needed a college degree, now it’s two and three. And me and my colleagues and academic institutions all over the nation, we are capitalist, but I think for the most part you could argue that every morning we wake up and ask ourselves the question, and that is, how do I increase my compensation and reduce my accountability? And we found the perfect strategy. We’ve embraced this luxury brand positioning where we artificially constraint supply, deans get rewarded, alumni get very excited when we reject 70, 80, 90 percent of our applicants. And it is part of a larger problem across of America as led by universities where we’ve entered into this rejectionist, exclusionary nimbus culture. But once I have a degree, I don’t want other people getting into my alma mater. Once someone has a house, they show up to board meetings or local review boards and make sure that no one else can get a development approved. And once someone has a tech company that is working, they spent a lot of money on lobbying to try to ensure that there are no new insurance. And so, I think we need to go back to — I will call it the ’80s. When I applied to UCLA, the acceptance rate was 76 percent, this year, it will be 6 percent. So, we talk a lot about skyrocketing admissions — or skyrocketing tuition, but what about just plain accessibility? So, if you just make it harder and harder for people to fine on ramps into the middle class and then, you don’t have the same vocational infrastructure that Germany has where 50 percent of its citizens have vocational training and it’s less than 5 percent in the U.S., you are creating just fewer and fewer opportunities. America used to be about finding unremarkable kids who grew up in single parent households, and giving them unbelievable opportunities. Now, it’s about trying to identify the top 1 percent by income or by freakishly remarkable achievements and turn them into billionaires. That’s not American. We need to fall back and level the unremarkable.

SREENIVASAN: So, what happens then if this trend continues and you see — another one of your charts talks about how basically the world is investing more in R&D than they used to compare to us. I mean, we have enormous number of Nobel laureates in every sort of sector. But how long until everybody else starts to kind of reap the rewards of putting in that investment?

GALLOWAY: Well, you’re saying it. I mean, we referenced China. China spends per capita, as a percentage of its GDP, 10 times more on infrastructure. And where you’re seeing these things start to creep up in American life is that we have record levels of depression, we have record levels of deaths and despair among young people, especially young men. So, we’ve had tremendous prosperity but a lack of progress. I mean, you know, what’s the point of any of this? We get on the show and we talk about politics and the NASDAQ, but what’s the point of any of thisif our kids are depressed? Where if people aren’t finding partners and mating or finding jobs or attaching to work or school? So, America is becoming a very prosperous place with a lot of people who are very depressed. Yes. We’re also enduring a crisis of loneliness. The number of people or the number of high schoolers that see their friends every day has been cut in half. One in five people say they don’t have a single friend. We’re a social species. And we need to bump off of each other. And the really unfortunate thing here is if America — if you were to equate our problems to a horror movie, the calls is coming from inside the house. You could argue that relatively speaking, we’ve never been stronger. We’re food independently, we’re energy independent, we still attract the best and brightest, but a third of each party sees the other party as the mortal enemy. A quarter of Americans are — would accept an autocrat if it was their autocrat. 54 percent of Democrats are worried their kids are going to marry Republicans. And what Americans need to, I think, realize is that they have some of the most successful companies and brightest people who have a profit incentive to put us against each other, and I think some of those platforms are weaponized by bad actors outside of the United States. And that Americans will never have better allies than other Americans. We’re not each other’s enemy. Our enemies are pouring over the border in Ukraine. So, you know, just as I started the book before as a sort of a love letter and it turned out being a cautionary tale, I started this as the glass half empty. But I think all of these things can be fixed. And I think there’s an illusion of complexity put on us by tech leaders and incumbents and the people already rich pretending or imagining that these problems are intractable. We can fix absolutely all of this. We faced much bigger issues than any issues facing us today.

SREENIVASAN: So, how do we start? I mean, let’s kind of attack just the idea of a shared reality and a shared set of facts. And you have several charts in here about misinformation, and one that was fascinating to me is how fast a lie can spread on Twitter versus the actual truth.

GALLOWAY: I think there’s some basic things we could do. The first is, Americans need more connective tissue again. And the reason why we had so much great legislation in the ’50s and ’60s and ’70s was that our elected leaders had served in the same uniform and saw themselves as Americans well before they saw themselves as Democrats or Republicans. I believe we should implement some sort of natural service. Especially for young men who, quite frankly, need to register and probably sit out a year in between high school and college, a chance to meet each other, a chance to build something American with other people, with other strangers, meet people from different ethnic, demographic and income backgrounds. I think we need to dramatically expand freshman seats that are great public universities to provide more opportunities. And also, demand that these universities implement nontraditional one and two-year degrees that fit into our economy, whether it’s cybersecurity or construction. Recognizing that a lot of kids just don’t want to or not cut out for college. 33 of every thousand workers in Germany and the United Kingdom are called the prenosis (ph). In the U.S. it’s three. So, we need to break out of this. We have a notion that you failed as a parent if your kid isn’t at MIT or going to work for Google and KKR and start creating many more on ramps in the middle class and also, just a massive investment in leveling up young people who have seen their wealth dramatically decline at the — kind of what I’ll call the weaponization of government and tax system by baby boomers.

SREENIVASAN: You also point out in several different ways how our heroes have changed and who we look up to has changed and how they make their money and what we see as acceptable.

GALLOWAY: I think there’s a basic phenomenon, and that is, as nations become wealthier and more educated, their reliance on a super bing (ph) and church attendance goes down. But we need new idols. And into that void has stepped in tech innovators. And it’s understandable because technology is the closest thing we have to mysticism or magic or religion as, you know, we have an iPhone, we don’t understand how it works. And I would argue that Jesus Christ of our information with Steve Jobs and perhaps Elon Musk, and that is they aggregate incredible wealth, they build unbelievable things that it’s hard to understand. But the downside is they end up not being held to the same standards as previous leaders or previous companies. If you are the wealthiest tax person in the world, Hari, that would mean there’s a one in three chances a year you would be at times person of the year. So, I think this idolatry of innovators has infected us. And I think the tech community has a terrible virus, and that is they conflate talent with luck. It’s no accident that Elon Musk didn’t start an EV company in South Africa or begin shooting rockets out of Vancouver. The moment you leave U.S. borders the likelihood you’re going to be able to establish this type extraordinary wealth or technological traction, diminishes dramatically. And yet, these individuals are the ones that are most likely to criticize the government or just say that the government should get out of the way. So, I find it hardening that are most patriotic citizens or our veterans, because they’ve invested the most and anybody who has kids knows what it’s like to be invested in someone because of your investment. But the people who are most fortunate, our technology community tend to be the least patriotic or the least appreciative or sober of their blessings.

SREENIVASAN: So, how we do change our own focus here? It’s kind of both a supply and demand side question, I guess. The people who are creating the news and information for others to see. How do you change their focus on saying, you need to be paying attention to bigger picture things and not just the shiny object? And at the same time, how do we change our expectations where, you know, our most pressing question is not who Trevor Noah is or not dating?

GALLOWAY: Yes, I don’t know. I think it’s difficult to try arbiter or be an arbiter of what people find interesting. What I think you can do though is say, all right, if you have misinformation on election or vaccine in misinformation, yes, the dissenter voice is important. What is dangerous about our current media environment is that through technology, the dissenter — the dissenting opinion that creates the most enragement, gets the most sunlight. So, should you be able to say that the vaccine alters your DNA? I believe, yes. I think one of the hallmarks of a democratic society is that pretty much anyone can say pretty much anything about pretty much anybody. But should these companies have a profit incentive to give more sunlight, more circulation, more oxygen to the most enraging things, because as a species were like a tyrannosaurus rex, were drawn to movement and violence? So, these conspiracy theories would just not organically get this kind of interest or legitimacy unless they enraged people. And unfortunately, we now have a profit incentive around enragement because enragement equals engagement. So, I think certain carveouts to Section 230 around medical information or election misinformation that would make these platforms subject to the same viability that you and I are subject to when we do a podcast or write a book makes a lot of sense. But in terms of telling people what they should or shouldn’t be interested in, I think just as parents we need to do a better job of telling the history of the U.S., exposing more people to more civic workers to stop being so critical of our government. I believe the U.S. government is the most noble organization in history. And just telling better stories to our children about just how America is responsible for 50 percent of philanthropy globally. It starts here. The most important product over the last hundred years isn’t their iPhone or TikTok, it’s the vaccines that have saved 1 to 2 million Americans. And by the way, no one is lining up to get a Chinese or a Russian vaccine. So, I think it’s incumbent upon us to tell the stories. And I do think we have to do something to ensure that the most incendiary misinformation does not get unnatural organic reach.

SREENIVASAN: The book is called “Adrift.” Scott Galloway, thank you so much.

GALLOWAY: Thank you, Hari. Good to see you.