Media can help fight misinformation, says Harvard’s Joan Donovan

THANKS TO GLOBE-SPANNING SOCIAL PLATFORMS like Facebook, YouTube, and Twitter, misinformation (any wrong information) and disinformation (intentional misinformation like propaganda) have never been able to spread so rapidly or so far, powered by algorithms and automated filters. But misinformation expert Joan Donovan, who runs the Technology and Social Change Research Project at Harvard’s Shorenstein Center, says social media platforms are not the only ones who play a critical role in perpetuating the misinformation problem. Journalists and media companies also do, Donovan says, because they often help to amplify misinformation when they cover it and the bad actors who create it, often without thinking about the impact of their coverage.

There is clearly more misinformation around than in previous eras, Donovan tells CJR in a recent interview on our Galley discussion platform, because there’s just a lot more media, and therefore a lot more opportunity to distribute it. “But quantity never really matters unless there is significant attention to the issue being manipulated,” she says. “So this is where my research is fundamentally about journalism and not about audiences. Trusted information brokers, like journalists and news organizations, are important targets for piggybacking misinformation campaigns into the public sphere.”

Donovan’s research looks at how trolls and others—whether they are government-backed or freelance—can use techniques including “social engineering” (lying to or manipulating someone to achieve a specific outcome) and low-level hacking to persuade journalists and news outlets of the newsworthiness of a specific campaign. “Once that story gets picked up by a reputable outlet, it’s game time,” she says. Donovan and other misinformation experts warned that the Christchurch shooter’s massive essay about his alleged justification for the incident in April was clearly designed to get as much media attention as possible, by playing on certain themes and popular topics, and they advised media outlets not to play into this strategy by quoting from it.

ICYMI: I went to prison for leaking state secrets. Now, I want to make sure sources are protected.

Before she joined the Shorenstein Center at Harvard last year, Donovan was a member of the research group Data & Society, where she led the Media Manipulation Initiative, mapping how interest groups, governments, and political operatives use the internet and the media to intentionally manipulate messages. Data & Society published an extensive report on the problem last year, written by Syracuse University media studies professor Whitney Phillips, entitled “The Oxygen of Amplification,” with advice on how to cover topics like white supremacy and the alt-right without giving them more credibility in the process.

“Sometimes, I want to throw my hands in the air and grumble, ‘We know what we know from history! Journalists are not outside of society. In fact, they are the most crucial way the public makes sense of the world,” Donovan writes in her Galley interview. “When journalists pay attention to a particular person or issue, we all do… and that has reverberating effects.’” As part of her postdoctoral research, Donovan looked at racial violence and media coverage in the 1960s and 1970s, when the Ku Klux Klan was active. “The Klan had a specific media strategy to cultivate journalists for positive coverage of their events,” Donovan says. “As journalists pivoted slowly to covering the civil rights movement with a sympathetic tone, Klan violence rises—but also public spectacles, torch marches, and cross burnings. These acts are often done with the potential for media coverage in mind.”

Sometimes, I want to throw my hands in the air and grumble, ‘We know what we know from history! Journalists are not outside of society. In fact, they are the most crucial way the public makes sense of the world.

While mass shootings are clearly newsworthy, Donovan says, the internet introduces a new dynamic where all stories on a topic are instantly available to virtually anyone anywhere around the globe. And the fact that they are shared and re-shared and commented on via half a dozen different social networks means that “journalists quickly lose control over the reception of their work,” she says. “This is why it is even more crucial that journalists frame stories clearly and avoid embedding and hyperlinking to known online spaces of radicalization.” Despite this kind of advice from Donovan and others, including sociologist Zeynep Tufekci, a number of media outlets linked to the Christchurch shooter’s writings, and at least one even included a clip from the live-streamed video of his attack.

When it comes to what the platforms themselves should do about mitigating the spread of misinformation and the amplification of extremists, Donovan says the obvious thing is that they should remove accounts that harass and use hate speech to silence others. This “would go a long way to stamping out the influencers who are providing organizing spaces for their fans to participate in networked harassment and bullying,” she says. On YouTube, some would-be “influencers” use hate speech as a way to attract new audiences and solicit donations, Donovan says, and these attempts are aided by the algorithms and the ad-driven model of the platforms. “These influencers would not have grown this popular without the platform’s consent,” she says. “Something can be done and the means to do it are already available.”

On the topic of the recent Christchurch Call—a commitment to take action on extremism signed by the governments of New Zealand, France, Canada, and a number of other nations, along with tech platforms like Google, Facebook, and Twitter—Donovan says that until there are tangible results, the agreement looks like just another pledge to do better. “These companies apologize and make no specific commitments to change. There are no benchmarks to track progress, no data trails to audit, no human rights abuses accounted for.” Something the Christchurch Call also doesn’t address, Donovan says, are the fundamental incentives behind how hate groups are financed and resourced online, “thanks to access to payment processIng and broadcast technologies at will.”

Capital structure substitution theory

The CSS theory hypothesizes that managements of public companies manipulate capital structure such that earnings per share (EPS) are maximized. Managements have an incentive to do so because shareholders and analysts value EPS growth.

.. The capital structure substitution theory has the potential to close these gaps. It predicts a negative relation between leverage and valuation (=reverse of earnings yield) which in turn can be linked to profitability. But it also predicts that high valued small growth firms will avoid the use of debt as especially for these companies the cost of borrowing ({\displaystyle R_{\text{x,t}}}) is higher than for large companies, which in turn has a negative effect on their EPS. This is consistent with the finding that “…firms with higher current stock prices (relative to their past stock prices, book values or earnings) are more likely to issue equity rather than debt and repurchase debt rather than equity”.[4]

.. In times when the market is under-priced, corporate buyback programs will allow companies to drive up earnings-per-share, and generate extra demand in the stock market. In times when the index was under-priced relative to the model equilibrium, repurchase programs will be stopped and demand is reduced.

Coronavirus May Kill Our Fracking Fever Dream

America’s energy independence was an illusion created by cheap debt. All that’s left to tally is the damage.

Ever since the oil shocks of the 1970s, the idea of energy independence, which in its grandest incarnation meant freedom from the world’s oil-rich trouble spots, has been a dream for Democrats and Republicans alike. It once seemed utterly unattainable — until the advent of fracking, which unleashed a torrent of oil. By early 2019, America was the world’s largest producer of crude oil, surpassing both Saudi Arabia and Russia. And President Trump reveled in the rhetoric: We hadn’t merely achieved independence, his administration said, but rather energy dominance.”

Then came Covid-19, and, on March 8, the sudden and vicious end to the truce between Saudi Arabia and Russia, under which both countries limited production to prop up prices. On March 9, the price of oil plunged by almost a third, its steepest one-day drop in almost 30 years.

As a result, the stocks that make up the S.&P. 500 energy sector fell 20 percent, marking the sector’s largest drop on record. There were rumblings that shale companies would seek a federal lifeline. Whiting Petroleum, whose stock once traded for $150 a share, filed for bankruptcy. Tens of thousands of Texans are being laid off in the Permian Basin and other parts of the state, and the whole industry is bracing for worse. On the surface, it appears that two unforeseeable and random shocks are threatening our dream. In reality, the dream was always an illusion, and its collapse was already underway. That’s because oil fracking has never been financially viable. America’s energy independence was built on an industry that is the very definition of dependent — dependent on investors to keeping pouring billions upon billions in capital into money-losing companies to fund their drilling. Investors were willing to do this only as long as oil prices, which are not under America’s control, were high — and when they believed that one day, profits would materialize. Even before the coronavirus crisis, the spigot was drying up. Now, it has been shut off. The industry’s lack of profits wasn’t exactly a secret. In early 2015, the hedge fund manager David Einhorn announced at an investment conference that he had looked at the financial statements of 16 publicly traded shale producers and found that from 2006 to 2014, they spent$80 billion more than they received from selling oil. The basic reason is that the amount of oil coming out of a fracked well declines steeply after the first yearmore than 50 percent in year two. To keep growing, companies have to keep plowing billions back into the ground.

The industry’s boosters argue that technological gains, such as drilling ever bigger wells, and clustering wells more tightly together to reduce the cost of moving equipment, eventually would lead to a gusher of profits. Fracking, they said, was just manufacturing, in which process and human intelligence could reduce costs and conquer geology.

Actually, no. The key issue is the “parent child problem. When wells are clustered tightly together, with so-called child wells drilled around the parent, the wells interfere with one another, resulting in less oil, not more. (This may not surprise anyone who is attempting to be productive while working in close quarters with their children.)

The promised profits haven’t materialized. In the first half of 2019, when oil was around $55 a barrel, only a few top-tier companies were profitable. “By now, it should be abundantly clear that the current shale oil business model does not work — even for the very best companies in the industry,” the investment firm SailingStone Capital Partners explained in a recent note. Policymakers who wanted to tout energy independence disregarded all this, even as investors were starting to lose patience. As early as 2018, some investors had begun to tell companies that they wanted to see free cash flow, and that they were tired of compensation models that rewarded executives with rich paydays for increasing production, but failed to take profits into account. As a result, fracking stocks badly underperformed the market. But with super-low interest rates, investors in search of yield were still willing to buy debt. Over the past 10 years, the entire energy industry has issued over$400 billion in high-yield debt. “They subprimed the American energy ecosystem,” says a longtime energy market observer.

Even as the public equity and debt markets grew cautious, drilling continued. That’s because one big source of funding didn’t dry up: private equity. And why not? Private equity financiers typically get a 2 percent management fee on funds they can raise, so they are incentivized to take all the money that pension funds, desperate for returns to shore up their promises to retirees, have been willing to give them.

In the Haynesville and the Utica Shales, two major natural gas plays, over half of the drilling is being done by private equity-backed companies; in the oil-rich Permian Basin, it’s about a quarter of the drilling. From 2015 through 2019, private equity firms raised almost $80 billion in funds focused mostly on shale production, according to Barclays. Until the capital markets began to get suspicious, private equity investors could flip companies they had funded to larger, public companies, making a profitable exit regardless of whether or not the underlying business was making money. That, too, is ending, as investors in such funds have become disillusioned. You can see how all of this is playing out by looking at Occidental Petroleum. In 2019, Oxy, as it’s known, topped a competing bid from Chevron and paid$38 billion to take over Anadarko Petroleum, which is one of the major shale companies. Since that time, Oxy’s stock has plummeted almost 80 percent in part due to fears that the Anadarko acquisition is going to prove so wildly unprofitable that it sinks the company.

On March 10, the company announced that it would slash its dividend for the first time since the early 1990s, when Saddam Hussein’s invasion of Kuwait sent oil prices plummeting.

Occidental is just one piece of the puzzle. In April, the Energy Information Administration cut its forecast for U.S. oil production, estimating that it will fall both this year and next — suggesting that the days of huge growth in production from shale are over.

On March 10, Scott Sheffield, the chief executive of Pioneer Natural Resources, a major driller in the Permian Basin, told Bloomberg that U.S. oil output could fall by more than two million barrels per day by next year if prices remain where they are today.

“This is late ’80s bad,” a close observer of the industry says.

After the United States engaged in a high-stakes negotiation with Russia and Saudi Arabia to curtail production, a tentative deal was struck on Thursday. Certainly, President Trump, who has staked so much on the American shale industry, wants to save it. “We really need Trump to do something or he’s going to lose all the energy states in this election,” Mr. Sheffield told CNBC in late March.

A deal, and higher oil prices, might help the industry. But they won’t fix its fundamental problem with profitability. Energy independence was a fever dream, fed by cheap debt and frothy capital markets.

All that’s left to tally is the environmental and financial damage. In the five years ending in April, there were 215 bankruptcies for oil and gas companies, involving $130 billion in debt, according to the law firm Haynes and Boone. Moody’s, the rating agency, said that in the third quarter of 2019, 91 percent of defaulted U.S. corporate debt was due to oil and gas companies. And North American oil and gas drillers have almost$100 billion of debt that is set to mature in the next four years.

It’s still unclear where most of this debt is held. Some of it has been packaged into so-called collateralized loan obligations, pieces of which are held by hedge funds. Some of it may be on bank balance sheets. Investors in the equity of these companies have already seen the value of their holdings decimated. Pension funds that have poured money into private equity firms may take a hit soon, too. All we know for sure is that fracking company executives and private equity financiers have made a fortune by touting the myth of energy independence — and they won’t be the ones who have to pick up the pieces.

There is No Accountability on Social Media for Posting and Retweeting Bad Information

10:10
something that’s not about politics last
10:13
night was just so had it I can’t take it
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I don’t want it I have read that expense
10:20
office all of them and the short stories
10:22
I can’t take it don’t want it but it’s
10:24
not like that was the first time do you
10:25
guys remember 2018 do you remember
10:26
Kansas the night of that primary it was
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ridiculous or in 2016 California like
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how long it took for the results like oh
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it’s just where’s the way you and and
10:38
one of the things that made it even
10:39
worse was like I was tweeting about how
10:42
frustrated I was that people were just
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sharing like like whatever they they
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heard they don’t check it they don’t
10:47
Google it they just share it something
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pops into their head it sounds good like
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you have an inclination you want to
10:53
believe that something is true and so
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people are gonna like and they’re gonna
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retweet what says that they’re there
10:58
right like there was so much
11:00
misinformation and just people not
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caring enough about the material to
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like like all the
11:06
stuff going around about the
11:07
like obviously there’s problems with the
11:08
app but like the people who were like
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100% Budaj edge made the app
I got it
11:13
and and look we have the disclosures
11:16
that were coming out and and responsible
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people we’re talking about the
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disclosures that they had paid that app
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company okay now before you then take
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that and say and thus he made the app
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and presumably put in some sort of
11:31
backdoor where he could steal the
11:33
election
do just a little bit of
11:35
googling like that company makes other
11:37
apps political canvassing apps things
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for volunteers things that campaigns
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would use and so the fact that he paid
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money to that company does not mean that
11:46
he invested in the construction of that
11:48
app
he could be buying one of the
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political apps that they already have
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and in fact it turns out that over the
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past year I believe Klobuchar Biden and
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Gillibrand all of them gave money to
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this company presumably for one of the
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political canvassing apps
that they have
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sold for some time you know how I found
12:05
out that stuff by googling for like 90
12:08
seconds it was super simple but I
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noticed that when I started tweeting out
12:12
those I guess inconvenient truths nobody
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cared like the people who were like no
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no no Buddha judge definitely made the
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app he stole this thing a hundred times
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as many of retweets a hundred times as
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many likes
someone who’s like hey guys
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you know pump the brakes first of all it
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looks like Bernie’s Bernie’s still gonna
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win second of all it looks like this
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company actually has other apps nobody
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cares about that stuff nobody’s
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interested in that is really depressing
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you know because media is a big thing
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it’s not one thing it’s a lot of
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different voices in a lot of different
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forms but the fact that the people who
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are trying to be accurate and reasonable
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are always going to have to compete with
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people who are just their thing is I’m
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going to see what people want to hear
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what they desperately want to believe is
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true
and I’m just gonna tell admit I’m
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just gonna say that it’s true and nobody
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ever tweets you know um you know I just
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I want to apologize because I retweeted
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something last night you know sort of in
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the fervor of what was going on it turns
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out that it was untrue I apologize if I
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helped to misinform anyone
in the future
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I’m going to be
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but more careful
before I spread these
13:20
things and in particular I will not be
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spreading the the people who were
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spreading this misinformation I will be
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more critical of them in particular
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literally no one has ever said that you
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spread things that are false nobody
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cares nobody remembers even theirs the
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incentives are all wrong on social media

13:39
and that is on top of all of the other
13:41
problems of last night that is so
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incredibly frustrating I’m not having a
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stroke down that’ll come later based on
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diet have you seen the Saga comics I
13:54
have not just be reasonable like it’s
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why I’m never gonna be a success
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honestly there’s no there’s no reason
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why would you why would you be
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reasonable yeah nobody at nobody admits
14:06
that they’re wrong that’s where I don’t
14:08
know if you were watching the coverage
14:09
last night but I wanted to add on to
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they were there every conversation they
14:13
were saying no one on TV in political
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media ever pays any sort of price for
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being dead wrong and I wanted to add on
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say you’re right but it ain’t just TV

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nobody in any form of media ever pays
14:26
any sort of price for being wrong not if
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they were wrong in a way that reassured
14:30
their followers their audience that
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things were gonna be okay who who ever
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gets mad at a person for a horrible
14:39
prediction a prediction that when it was
14:40
made was obviously not true nobody cares
14:42
about that they want I want you to be
14:45
wrong in a way that makes me feel warm
14:47
and cozy I want you to tell me the sort
14:49
of things that are a verbal light
14:51
stroking of my head to make me feel a
14:53
little bit better that’s that’s all
14:54
really anyway the reason I talk about
14:58
this now is we were on night one we have
15:01
got a bunch of these nights to go and
15:03
unfortunately I don’t I don’t think that
15:05
any are gonna be as bad as Iowa but
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there’s gonna be a lot of bad nights and
15:08
that’s really unfortunate okay everybody
15:12
I would love to talk longer but we do
15:14
have a show coming up and on it I’m
15:16
gonna be joined by Jordan you’ll as I am
15:18
every other Tuesday you know me also
15:20
were to talk about last night but also
15:21
author podcaster and founder of Vox Ezra
15:25
Klein is also going to be in studio to
15:26
15:29
which seems especially relevant this
15:33
both of last night and with the State of
15:35
the Union so should be an awesome
15:37
conversation there we’ve got so much
15:39
we’re gonna talk about I have read do
15:41
and I read the first one I wasn’t a huge
15:43
fan maybe I need to read more of them
15:45
but anyway thank you as always for
15:47
joining me this a little live live video
15:48
in ten minutes the full show starts so
15:51
definitely tune in there I’ll see you on
15:53
the other side

The Secret Sauce Behind Pop-Music Hits

In their new book, ‘Switched on Pop,’ two podcast hosts discuss why songs by Rihanna, Drake and others break out

Why did Rihanna and Calvin Harris’s “We Found Love” top the charts for 10 weeks? Partly because of the song’s unconventional structure, say podcasters Nate Sloan and Charlie Harding. The two examine “We Found Love”—and more than a dozen other 21st-century hits—in their book, “Switched on Pop,” which comes out Friday.

The volume borrows its title from the podcast the two 33-year-old friends began five years ago about the subtle techniques shaping today’s Top 40 hits. Mr. Sloan is a University of Southern California musicologist and Mr. Harding is a songwriter and musician who plays the guitar, drums and keyboards, as well as other instruments. Their podcast and book are filled with sophisticated but accessible discussions of pop hits from the 2000s and 2010s, from the catchy hook of Ariana Grande’s “Break Free” to Drake’s use of simple rhymes in “God’s Plan.”

In addition to offering a theory-driven take on what the authors call “the bubbliest of bubblegum pop,” the “Switched on Pop” book provides a toolkit for appreciating popular music. The authors delve into musical building blocks like melody, rhyme and sampling.

Messrs. Sloan and Harding spoke with the Journal about how streaming and hip-hop are transforming pop music. An edited transcript:

Charlie Harding, left, and Nate Sloan turned their podcast about popular music into a book. PHOTO: ELLYN JAMESON
You already have a podcast. Why a book?

Mr. Harding: Listeners were saying, “I learned a lot from the show, but I want a comprehensive guide to how to listen more thoughtfully.” That knowledge sits in music-theory textbooks. So we saw an opportunity.

Mr. Sloan: When we’re doing the podcast, we’re responding quickly to what’s happening in the fast-changing world of popular music, which is a great exercise. Forcing yourself to listen to pop makes you confront your own calcifying biases. But the book allows us to think about the things we’ve learned and put them in historical context.

There’s surprisingly little discussion of actual music in the music media. Are you guys an alternative?

Mr. Sloan: People tend to focus on the lyrics of songs and the artist’s personal life. Adding music to that discussion gives even more depth and nuance to how you can think about pop’s role in our culture. There are probably people who think Taylor Swift could release anything and it would be a hit, because of her celebrity. We’d say no. These songs are popular for a reason. You may not like that reason, but there is a reason.

Older listeners often say music isn’t as good as it was. What’s your response?

Mr. Sloan: Pop music reflects the time in which it is made and may not be as relevant to you as you age. But at the same time, what’s been revealing about doing this podcast and book is finding out how pop is changing. One thing we track is how timbre [the quality that lets us distinguish different artists or instruments] and tone are becoming such important elements of pop. Things that might have been privileged in the past—complex harmonies, lyrical creativity, guitar solos—aren’t as privileged now. That can be disorienting, but it doesn’t mean music is bad. The hope is, when you do have to listen to, say, Skrillex, you can at least say, “I don’t like this, but I kind of understand why someone would.”

Mr. Harding: It’s OK to like the things you like, but I also feel strongly that it’s not OK to think other kinds of music are outright bad. By expanding your palette of hearing, you can be more inquisitive.

Are older fans looking for things that are no longer there and then ignoring the innovation? Music, over time, becomes like a foreign language.

Mr. Sloan: I agree. It’s hard to listen to something that doesn’t follow the musical criteria we’ve established. But new music is complex in different ways.

Mr. Harding: Part of Drake’s brilliance, for example, is he is able to say something that sounds utterly familiar—as if you’ve heard it a thousand times—and yet no one has quite put those words together in that way.

Mr. Sloan: It’s a gift, being able to write those catchy nursery rhymes. The way Drake uses rhyme is masterful. One thing he does in the song “God’s Plan” is give you the same phrase, but at different points in the rhythm—keeping it fresh.

The book discusses big hits. Any recent ones you don’t like?

Mr. Sloan: A song we find vexing is “I’m the One,” by DJ Khaled. This is a song we will not redeem. We think it’s derivative, offensive and boring. And yet it was a No. 1 hit. You still have an opportunity to ask why.

Let’s talk Rihanna.

Mr. Harding: Rihanna’s “We Found Love” with Calvin Harris came out in 2011, and while it might seem like any other pop song, it’s upsetting a long-held tradition. Since the 1950s, one thing that’s stayed relatively stable is song form—the verse-chorus form of songs. What this song does is take the structure of electronic-dance-music songs, which is different, and superimpose it on pop.

Mr. Sloan: And now it’s hip-hop that is pushing the verse-chorus form to its breaking point. Take “Sicko Mode” by Travis Scott. It doesn’t have a verse or a chorus. It’s this stitched-together collage of song fragments that seems more at home in the work of an experimental composer.

Will music streaming lead to shorter, simpler songs?

Mr. Harding: The economics of streaming incentivizes songs to be shorter because you get paid per song. We’re also seeing more choruses at the start of songs to hook you in. Listeners have more choices than in the past. It’s forcing producers and songwriters to think intensely about never having a dull moment. But I think there’s always been anxiety about technological change. Songwriters have long paid attention to the medium, from the limits of the vinyl record to the CD.

Mr. Sloan: These developments always circle back to something much older. It’s easy to feel a certain panic about streaming. But “Old Town Road” is still 15 seconds longer than the shortest No. 1 hit ever, in 1960. What’s past is prologue.

The Last Chance to Defeat China and Win Back the Cyber Domain?

Two months ago, when Zooming In did a story on Huawei and global 5G deployment, Huawei was poised to take control of much of the world’s cyber domain. We talked about the national security implications of that prospect. And we observed the U.S. efforts to raise awareness of that risk. Two months later, when we did another story on this topic, we realized the world knows Huawei a lot better through these efforts, but Huawei’s momentum has not stopped. In fact, Huawei and China are playing a grander game. They have a brilliant strategy that is working well with the very nature of a crony capitalism. Can this battle still be won by the free world? And what does it take to win? Let’s find out in this edition of Zooming In.
F

Steven Pearlstein, “Can American Capitalism Survive?”

19:43
well I’d like to illustrate why it’s not
19:45
with a simple a simple analogy or a
19:47
simple story it’s a made-up story but
19:49
not really and it’s about a barrel of
19:51
tobacco now in the 18th century the
19:58
person who owned a plantation on the
20:00
James River and produced that tobacco
20:02
and sold it in barrels and used the
20:07
proceeds of those sales to pay all of
20:10
the expenses associated with the
20:12
plantation Shirley felt that at the end
20:15
of that process the money that he had
20:16
leftover was his just dessert he earned
20:19
it he earned it in a competitive
20:21
marketplace and it was his and anyone
20:25
who would take it away from him would be
20:27
stealing but over time the profits from
20:35
that barrel changed
20:36
they changed when we got rid of slavery
20:40
of course they changed when we passed
20:44
laws that says that sharecroppers had
20:46
certain rights relative to the owners of
20:49
the land they changed again when we
20:52
changed the minimum wage they changed
20:55
when it made possible for the workers on
20:58
that plantation to have unions every
21:01
time we change the rules the marginal
21:04
productivity of the market income of
21:07
both the people who planted and picked
21:10
the tobacco and the guy who owned the
21:12
plantation they changed and we can see
21:17
from that little example that all
21:19
markets operate within a set of rules
21:21
and norms and that those rules and norms
21:24
are highly subjective they are not
21:26
objective they’re political they’re
21:29
socially determined
21:31
and the implication of that is that if
21:34
market incomes are in fact subjective
21:36
and contingent and they can change when
21:40
you change the rules then in fact there
21:43
is nothing objective about what we earn
21:45
I could change the rules and instead of
21:50
earning eight hundred million dollars a
21:51
year Steve Schwarzman could earn you
21:54
know a mere four hundred and twenty five
21:56
million dollars a year and each of the
21:59
three hundred and seventy-five thousand
22:01
employees in the firms that he controls
22:03
could each earn a thousand dollars more
22:06
and that would still be market income so
22:10
it’s pretty clear that markets by
22:12
themselves are not an objective
22:15
determinant of your economic
22:17
contribution if I can monkey around with
22:19
it that much then there’s some there’s
22:22
some some part of that that is
22:25
subjective and not objective and once
22:29
you accept that then from a moral point
22:31
of view there really is no distinction
22:35
between what I’d call pre distribution
22:38
which is monkeying around with the rules
22:41
and the norms that change market incomes
22:44
and redistribution which is let’s leave
22:47
the norms ‘el and the rules of law alone
22:49
and we’ll just redistribute it
22:51
afterwards through taxes and transfers
22:53
morally there’s really no difference you
22:56
might prefer to do it one way or the
22:57
other but neither of them is theft
23:00
they’re both ways that we might want to
23:03
respond to things that we don’t like
23:05
about our system the third pillar is
23:09
that we don’t we shouldn’t care about
23:12
income inequality all that matters is
23:14
equality of opportunity at least from a
23:16
from a moral standpoint and you hear
23:19
that a lot from defenders of markets the
23:24
reality is and I think we all know this
23:27
equality of opportunity is unachievable
23:30
the data from social science it gets
23:34
complicated I read a lot of it and I’m
23:37
going to summarize it really simply at
23:40
least half the difference in the market
23:42
income between you
23:45
and you I picked you randomly cuz that’s
23:51
sort of statistically the way I had to
23:53
place it is explained by the result of
23:56
who your parents were both in terms of
23:59
your jeans and i know that’s
24:01
controversial but also in terms of
24:04
upbringing in terms of nature as well as
24:06
nurture yes we have gone a long way to
24:10
removing legal barriers that determined
24:14
wealth and income based on birth order
24:16
or title or class or race or gender yet
24:20
even the most well-funded and meaning
24:25
and well-meaning institutions can’t
24:27
close this this irreducible gap and I’ll
24:31
give you the example of Harvard
24:33
University which a few years ago had so
24:37
much money in its endowment not so much
24:41
anymore but in those days so much more
24:43
money that they decided to go to needs
24:46
blind admission which means that they
24:49
would admit the best class of students
24:51
that they could irrespective of who
24:53
needed what because they had so much
24:55
money it didn’t matter and in fact if
24:59
you had to if you had income below your
25:01
family had income below $65,000 and that 25:04 was back a few years ago you paid no 25:07 tuition at all and that no family would 25:09 be required to pay tuition of more than 25:11 ten percent of income and what was the 25:14 result of that basically that’s a 25:17 perfect meritocratic set up for the 25:20 arguably the best university in the 25:22 country 25:25 only 5% of those admitted came from the 25:30 bottom quintile the bottom 20% of 25:33 households by income and 21% only 21% 25:37 came from the bottom 60% me and Harvard 25:41 actually is now better than other elite 25:44 schools on that matter typically at 25:45 those other elite schools there are more 25:48 students from the top 1% than there are 25:50 from the bottom 50% despite all that 25:54 scholarship and all that meritocracy 25:57 education once the great equalizer of 26:00 opportunity has in fact now become an 26:04 instrument of inequality indeed and this 26:09 actually is not an original idea of mine 26:13 it’s actually 40 50 year old idea as as 26:19 the economy becomes more meritocratic as 26:23 barriers for race or gender or class 26:28 fall away in a competitive market that 26:31 only increases the importance of the 26:34 distinguishing factors that remain 26:37 factors like natural talent factors like 26:42 personality traits which are often 26:45 inherited or developed early in 26:49 childhood so we need to acknowledge the 26:53 limit of how much we can or even want to 26:56 equalize opportunity maybe some of you 26:59 have heard of Kurt Vonnegut’s dystopic 27:02 satire Harrison Bergeron which I don’t 27:04 think you have on sale here nobody reads 27:08 it anymore but it’s about a society 27:10 that’s fixated on equality of 27:12 opportunity and it’s an equality of 27:16 opportunity is enforced by a handicapper 27:19 general and the handicapper general 27:22 insists that all News announcers who are 27:25 hired have a lisp 27:28 and that smart people all smart people 27:31 have to go around wearing headphones 27:33 with music blaring in their ears to 27:35 distract them which by the way I think 27:37 has happened and people who are athletic 27:45 would have to walk around with backpacks 27:48 with weights on their back what Veronica 27:51 chose is that you know you want to 27:54 equalize opportunity you can get pretty 27:55 absurd of course if we want to try to 27:58 equalize things in terms of upbringing 28:00 we could take all children away from 28:02 their parents at birth and send them to 28:04 state-run boarding schools until they’re 28:07 17 and that would certainly equalize 28:10 that but we probably don’t want to do 28:13 that either 28:13 and so we’re left with a sort of 28:16 unpleasant conclusion which is equality 28:19 of opportunity is is neither possible 28:22 nor in fact desirable and if that’s the 28:24 case and if we are morally uncomfortable 28:27 with the fact that Steve Schwarzman 28:29 earns the same income as 15,000 28:33 elementary school teachers then we can’t 28:36 rely on equal opportunity to solve the 28:39 problem we have to address the problem 28:41 directly the final argument from free 28:44 marketeers is that it’s 28:46 counterproductive to slice the economic 28:49 pie into more equal slices because we’ll 28:52 only get a smaller pie that there’s an 28:56 absolute trade-off between equality and 28:58 economic efficiency and growth so I’m 29:03 going to ask you to think about a 29:04 thought experiment imagine the world in 29:07 imagine an economy closed economy in 29:11 which all the income is divided 29:14 perfectly evenly everyone gets exactly 29:16 the same now imagine another world in 29:22 which all the output all the income of 29:26 the economy goes basically to three guys 29:31 and everyone else has a subsistence 29:34 living 29:35 [Music] 29:37 we know that at either of those extreme 29:41 the 29:42 I gets pretty small you can ask anyone 29:45 from Soviet Russia about that first one 29:48 it’s pretty small but on the other side 29:55 you can imagine that it would be pretty 29:57 small too why would anybody actually 29:58 work harder take risks or share a new 30:04 idea with the owner if they were not 30:07 going to get anything from it if the 30:09 three guys who control everything 30:11 [Music] 30:14 continue to get everything so 30:16 intuitively we understand that at the 30:20 extremes it’s true there’s less growth 30:23 and that as you go away from those 30:25 extremes you probably get more growth 30:28 and there’s probably some sweet spot in 30:30 the middle of this curve at the top 30:33 that’s the nice balance between too much 30:38 and too little 30:39 equality there’s a lot of economic 30:41 literature on this and too much to 30:44 recall here but I wanted to share with 30:45 you a an experiment done by an economist 30:51 named Richard Friedman Freeman he misses 30:53 years ago he divided groups of graduate 30:56 students you for some reason 30:57 experimental economics is always done 30:59 with graduate students for reasons that 31:01 may be self-evident into three groups 31:05 and they were each group was told that 31:08 they were they was supposed to solve 31:09 some puzzles but the only indifferent 31:14 about the groups they were random was 31:15 that how they were going to be 31:16 compensated in terms of the prize money 31:18 and in won the prize money would be 31:22 distributed perfectly evenly everyone 31:24 will get the same to the winning team 31:26 and in the other it would be a 31:29 winner-take-all whoever on the team 31:32 solved the most would get the entire 31:35 prize and the third group was some mix 31:38 of the two everyone would get a minimum 31:40 and then there would be some sort of 31:42 bonuses for those who solved the most 31:45 well I think you probably know where 31:47 this is going hands down the group 31:50 repeatedly they did this experiment 31:52 repeatedly that did the best was the 31:54 group 31:54 that where everyone gets a minimum and 31:57 there were bonuses in other words some 31:59 sort of mixture now why is that the case 32:07 why is it that organizations like the 32:12 IMF which is not exactly known as a 32:15 hotbed of radical economic thinking has 32:18 concluded that the United States and 32:21 Britain are probably on the wrong side 32:24 of the sweet spot that we have much more 32:27 we have more room to be more equal 32:30 without going to the other side of the 32:32 curve and getting a smaller pie there 32:36 are several reasons they give and 32:38 there’s one that they sort of mentioned 32:40 in passing which I think actually is the 32:42 most important and that is that rising 32:46 inequality depletes the trust that we 32:50 have in each other and our willingness 32:52 to cooperate and the trust that we have 32:54 in institutions the willingness to 32:57 sacrifice what’s good for me in the 32:59 short run for what’s good for us 33:01 in the long run what creates and 33:04 sustains trust and cooperation as I said 33:07 before is our moral instincts there 33:10 simply aren’t enough police and courts 33:13 and lawyers although in Washington you 33:16 wouldn’t know that and auditors to 33:19 enforce honesty reliability cooperative 33:23 behavior we need social socially 33:29 enforced norms in order for a system to 33:33 work well we need to know that when we 33:35 stand at an ATM machine that the guy 33:38 behind me is not going to rob me we need 33:40 to know that when you go out in the 33:41 morning to get our newspaper that it’s 33:43 going to be there we need to know that 33:46 people line up at the cash register of 33:50 politics and prose and don’t cut in line 33:53 if there’s a line trust and cooperation 33:59 provides the grease to an increasingly 34:01 complex machinery of capitalism it gives 34:05 us the confidence to make investments 34:07 with people who 34:08 don’t know and don’t control to take 34:12 risks to buy products that we’ve never 34:14 tried before from people that we don’t 34:17 know trust and cooperation also grease 34:20 the increasingly contentious machinery 34:23 of democracy that allows government to 34:26 mediate between competing interests and 34:28 allows government policy to respond to 34:32 rapidly changing economic conditions now 34:35 we don’t have great measures of social 34:38 capital of trust but we have some the 34:43 most famous actually I don’t know 34:44 whether you’ve heard about this is the 34:46 old trick that Reader’s Digest did they 34:49 took wallets and they put some money in 34:51 and along with an address of the so 34:52 called owner of the wallets and they 34:54 left them on the streets in different 34:58 cities and and it had the address and 35:01 the phone number to see how many people 35:03 actually returned them called up and 35:05 returned the money and that’s one 35:07 measure of social capital you can do 35:08 that over time and you can do it over 35:10 and different different distances we 35:12 have another measure which is called the 35:14 General Social Survey this question is 35:16 asked of literally tens of thousands of 35:19 people around the world every year and 35:21 it’s a simple question agree or disagree 35:24 most people can be trusted maybe or 35:28 maybe you won’t be surprised to know 35:30 that in the United States measures of 35:33 social capital have been going down for 35:35 the last 30 years and are among the 35:37 lowest in the advanced countries though 35:40 not as low as they are in Italy I might 35:43 add we know that societies with high 35:47 social capital are healthier they’re 35:49 happier and it turns out they’re also 35:51 wealthier and the erosion of social 35:54 capital now puts us on the wrong side of 35:57 that sweet spot it means that if we want 36:00 to have faster growth we need to move 36:03 toward more equality not less so can 36:07 American capitalism survive it’s a nice 36:10 title wasn’t my choice but anyway 36:15 what was your choice 36:18 why greed is not good opportunity is not 36:21 equal in fairness won’t make us poor but 36:23 I got the smaller type 36:24 I think I’d answer the question this way 36:29 the story of the last three decades is a 36:32 story about a meaning of the moral and 36:35 ethical norms by which we establish 36:38 trust that encourage cooperation and 36:44 we’ve had a serious erosion of social 36:47 capital because of our embrace of this 36:49 kind of market fundamentalism the 36:51 delicate balance between selfish 36:54 individualism and cooperative altruism 36:57 that was identified by Adam Smith and 37:00 Charles Darwin as the key to human 37:02 progress that balance has been lost and 37:06 the result now manifests itself in a 37:09 skewed economy a polarized politics and 37:13 a dysfunctional a dysfunctional 37:15 government and a social fabric that is 37:18 torn and frayed and it’s been bad for 37:21 our economy it’s been bad for our 37:24 politics and it’s been bad for our souls 37:28 Thanks so if you have any questions I 37:37 think I’m supposed to tell you to line 37:39 up at those microphones and and and 37:42 we’re looking for questions not speeches 37:46 do you have an opinion on what senator 37:50 Sanders has proposed I believe he named 37:52 it after one of your employers the besos 37:55 Act yeah that would require certain 37:58 large corporations to reimburse the 38:00 government for public benefits that are 38:03 given to their imprint on their 38:05 employees in general my response to 38:10 things like that is it’s sort of a nice 38:12 instinct it’s a nice idea I don’t think 38:14 it would be very easy to do that and I 38:16 don’t think we have to do that that’s 38:19 sort of a that’s it’s sort of punitive 38:24 and it it it 38:28 you know I’m a market guy you know I 38:30 want capitalism to work I want markets 38:33 to work and that’s a little there are 38:39 better ways to do that we need a safety 38:41 net and we need to pay for that in a 38:43 progressive way and it may be that we 38:47 need to have laws that say you do some 38:49 things or you know a company has to do 38:51 some things or other things but this 38:53 notion of trying to figure out what the 38:56 employee what benefits the employees get 38:58 and then calculate that and then send 39:00 the bill to the to the employer I for 39:04 one thing it discourages people from 39:05 hiring low wage workers so yeah I don’t 39:09 think the incentive structure is a good 39:11 idea is is right for that yes even most 39:15 of your talk has been about individual 39:17 and group methodologies to do natural 39:21 things but what happens how is 39:24 government regulation how is the 39:27 president how is the Congress affecting 39:30 this what things should we well they’re 39:32 affecting it a lot they’re affecting it 39:35 a lot yeah you know you want to talk 39:38 about labor law you want to talk about 39:39 antitrust law you want to want to talk 39:41 about securities law all of those things 39:43 affect all of these things that we’re 39:46 talking about but for those of you who 39:49 will have this instinct that government 39:51 is going to solve this I would tell you 39:54 that it’s much more important that the 39:57 intellectual part of it which is that we 39:59 conceive of this differently and that we 40:02 come up with a set of you know social 40:05 norms where the social norms come from 40:07 they don’t come from the government and 40:09 and in the answers I don’t know where 40:11 they come from that’s sort of magical 40:13 it’s some one of the things that 40:14 actually academics are looking at quite 40:18 quite seriously now which is where does 40:20 social norms come from you know we had a 40:22 social norm that to be to be married you 40:24 had to be heterosexual and then you know 40:26 one day we turned around and that wasn’t 40:29 a social norm that changed very fast but 40:31 there are other social norms that take a 40:32 long time to change so I can’t tell you 40:34 how we change them but it’s much more 40:36 important to change the norms it’s much 40:39 more important for this 40:41 teve Schwartzman’s of the world to be 40:43 embarrassed by their thing because we 40:46 can’t write enough laws to make Steve 40:49 Schwarzman behave the right way and you 40:51 know what as soon as you write them 40:53 they’ll figure out a way around them and 40:55 then we’ll get really be in a 40:56 cat-and-mouse game it’s it’s sort of 40:58 more important to think a little more 41:00 intellectually about you know what this 41:02 thing is called capitalism and what we 41:04 like about it when we don’t and talk 41:06 about it and use social pressure you 41:09 know the me to movement is probably done 41:12 a lot more for protecting women from 41:16 harassment and worse than any laws that 41:20 we pass and and I think it’s more 41:22 important that we not jump to a 41:24 government solution for everything being 41:26 not because I’m against regulation I 41:28 actually am NOT but that’s probably 41:30 those should be the last things we think 41:33 about not the first things I completely 41:37 disagree I figured you would I remember 41:41 I I’m old enough to remember when we had 41:44 norms and we had social democracy and it 41:48 was called the New Deal and it worked 41:50 and we talked about Keynes and the idea 41:54 that to have an economy grow you had to 41:59 have you didn’t give the investors of 42:00 money you made sure that people had 42:02 enough money to buy things I mean they 42:05 had spent ten years in the depression so 42:07 people understood that and what changed 42:12 was government the the New Deal the 42:15 labor laws Social Security so older 42:18 people have money securities regulation 42:22 and with it came norms so that George 42:28 Romney made$300,000 a year running a
42:31
real company that made real stuff and
42:33
Mitt Romney made millions of dollars a
42:36
trading company so what is anything
42:39
that’s your question and I’m gonna
42:41
answer it really succinctly okay which
42:43
is that I’m almost as old as you are
42:52
if if CEOs in the 1950s and 60s had
42:57
wanted to beef jerkey had wanted to pay
42:59
himself more 300 million rather than
43:02
nine three million or whatever three
43:04
hundred thousand he actually had the
43:06
power to do that the boards were more
43:09
captive back then than they are today
43:10
and he couldn’t he could have done that
43:13
toward whatever was equivalent back then
43:15
he didn’t do it and the reason he didn’t
43:18
do it is if he did it he would have felt
43:21
guilty and he would have been socially
43:23
shamed and I’m not saying just socially
43:25
shamed by his workers he would have been
43:28
shamed if he went to this if he went to
43:31
the Country Club in the locker room the
43:35
other CEOs would have said George that’s
43:38
very piggy of you and it makes all the
43:41
rest of us look bad and anyway we’re
43:43
trying to feat fight socialism and
43:46
you’re going off and paying yourself 300
43:48
Millions so it was a social norm that
43:51
prevented George Romney not the New Deal
43:53
from paying himself 300 million dollars
43:55
and his 50% or 60% or ninety percent
43:58
income tax yeah nobody paid that and
44:02
that’s that’s a sort of left-wing sort
44:04
of urban myth that people paid ninety
44:07
percent taxes they didn’t no one was
44:10
that stupid anyone who made that much
44:12
money was not that stupid to pay ninety
44:14
percent taxes but that’s what the
44:16
official tax rate was but that’s not
44:19
what people pay though they they did pay
44:21
more than they do now rich people but
44:23
they didn’t pay ninety percent had you
44:26
asked me my reaction to your first
44:29
example of presumably bad corporate
44:32
behavior a New York life’s decision to
44:35
outsource its IT services to India my
44:38
response would have been that’s
44:40
globalization and I’m surprised that you
44:44
used that example to illustrate the what
44:48
you believe the flaws are in American
44:51
corporate behavior do you in fact think
44:55
we should start slowing the process of
44:58
globalization its impacts on the US
45:00
economy and if so
45:01
don’t you go about it I don’t and and I
45:04
gave that example to emphasize the
45:06
second part of it which is in order to
45:09
get your severance you have to train
45:10
these guys that’s that’s what that’s
45:14
what gets us angry okay it’s not the
45:16
first thing okay it’s the second thing
45:19
that’s not the way you treat a human
45:22
being who has been your loyal employee
45:24
for thirty years now it may be you you
45:27
know you have to you have to you have to
45:29
move your IT operation for competitive
45:32
reasons there so I’m not against that I
45:34
said to you when I started that these
45:36
were useful ideas in the 1980s and one
45:38
of those was rearranging where work was
45:41
done so that it could be done in the
45:42
most cheap and efficient way but there
45:45
are ways to treat people and there are
45:48
other ways to treat people and that was
45:50
my that’s the example and that has to do
45:52
with maximizing shareholder value I
45:55
think if that’s taken things too far
45:58
[Music]
46:00
hello what I what I want to ask you
46:08
about is what you’re saying
46:11
I agree with most of it but nevertheless
46:14
at this point I think we have to make
46:17
like giant steps and what I’m suggesting
46:20
is is that we have to have a public
46:24
discussion on how we want to format what
46:29
we do to move forward in other words
46:31
what are the economic factors we have to
46:34
look at cash flow what it takes to live
46:37
what the distribution is where the
46:39
aggregates are mm-hmm
46:41
and we haven’t in my opinion started as
46:45
a culture either nationally or
46:47
internationally to start to do that
46:49
because if we never get rid of the
46:50
aggregates in our culture that’s power
46:53
the aggregates meaning what aggregates
46:56
of wealth aggregates of power control
47:00
universities I mean look at everything
47:02
that goes through Yale you cannot you
47:05
cannot suggest somebody for anything I
47:08
mean I’m being exaggerating here but it
47:11
comes up over no
47:12
over and over again now what’s the
47:13
reason are the all the smart people
47:15
there I am not sure about that but my
47:19
point is we’re not analyzing it at my in
47:23
my opinion quickly enough to project
47:27
what it might look like where we want to
47:29
go because this is a big big deal I
47:32
guess what I would say to that is we
47:36
first have to have a functional politics
47:40
and in order to do that we have to learn
47:44
to trust each other a little more and
47:46
learn to compromise and learn to
47:48
cooperate and until we can do that you
47:52
really can’t fix anything it’s not that
47:56
we don’t don’t have ideas for how we can
47:59
make things better but we actually now
48:01
have very little process to do that and
48:04
to sort of have the conversation that
48:07
you’re talking about we talk past each
48:09
other now or I don’t know but when we’re
48:13
you know I for the last 30 years have
48:16
been writing about economic policy
48:18
you know that’s my life it’s not worth
48:22
my time to write about economic policy
48:23
anymore Who am I writing it for you know
48:26
who’s who’s gonna do anything it’s a
48:30
waste of time
48:30
so until we fix the plumbing which
48:34
includes sort of having a different
48:37
perspective on these things and talking
48:40
more about virtues and a little less
48:43
about income shares I don’t think we can
48:47
really address this thing we need to fix
48:49
the plumbing first well the guys Dave I
48:54
thought this was the Kate Atkinson talk
48:56
but I guess right so I walked in here
48:59
and here we are in a very high micro
49:01
economic plane I hadn’t expected so yeah
49:04
pardon my question is this guy this guy
49:07
by the way it was my college roommate so
49:11
it wasn’t hard I try to introduce myself
49:13
as Steve Schwarzman but I didn’t think
49:15
that would fly so I’ve been exposed but
49:19
I’m gonna ask you a very specific
49:21
microeconomic question I don’t know if
49:23
it’s discussed in a book of such high on
49:27
such a high philosophical plane but
49:30
where do you where do you come down on
49:32
minimum wage laws especially national
49:35
minimum wage laws as opposed to
49:38
collective bargaining established rates
49:41
of wages
49:42
well I if you can comment also on on how
49:47
you feel about that most recent local
49:49
product of that DC tipped wage Act
49:54
that’s because so the last thing is I
49:56
don’t really understand the tip wait I’m
49:58
not smart enough to understand what that
50:00
bill did so I think we can talk about
50:02
that afterward but minimum wage Earned
50:05
Income Tax Credit and and a greater a
50:09
greater possibility of unionization are
50:14
all part of what we would need to do I
50:17
think to change the rules so that the
50:21
market incomes come out a little more
50:23
equal all of those some people by the
50:25
way I don’t know I’m not going to go too
50:27
much into this think Earned Income Tax
50:28
Credit is all you need to do you don’t
50:30
need to do minimum wage
50:31
some people think \$15 minimum wage is
50:34
what you should do and you don’t need to
50:35
spend so much tax dollars on earned
50:37
income tax credits I think actually a
50:39
combination they each have different
50:41
perverse incentives and disincentives
50:42
and so if you had both of them working
50:45
together it would be better and it would
50:47
also be better if the possibility of
50:51
organizing a union were much more
50:53
realistic right now any company that
50:56
wants to prevent a union from being
50:58
organized can do so basically he’s a
51:02
labor lawyer so he knows that you can
51:04
fire all the people who try to unionize
51:05
and they will punish you but that they
51:07
will punish you but that 15 years later
51:09
it’s illegal but they’ll punish you 15
51:11
years later what’s more important and
51:14
what used to be true is that companies
51:16
that treated employees like that were
51:18
shunned in fact one of the most hopeful
51:22
things that I
51:23
see happening in the area of companies
51:27
that sort of ruthless and always trying
51:29
to maximize shareholder value is that
51:31
those companies actually are now having
51:33
trouble attracting young employees who
51:36
won’t tolerate it and they won’t get
51:39
good young employees if you if you
51:41
behave in that ruthless manner and and I
51:44
think that actually is the most hopeful
51:46
thing that I have seen and by the way
51:48
that’s not a law that’s social norm
51:51
whereas employees won’t work for
51:53
companies they think are disloyal and
51:55
ruthless or environmentally
51:58
irresponsible or treat other employees
52:03
you know and in that way so that to me
52:08
is is is a more important way to go and
52:12
to think about how we encourage that
52:14
yeah I I’d submit to you that what we’re
52:16
upset about is that wealthy people in
52:19
our society don’t play by the same rules
52:21
as we do and we’re not as upset about
52:24
Steve Schwarzman making 820 million
52:26
dollars what we’re upset about is that
52:28
he’d lot he likely pays the income tax
52:31
rate at the carried interest rate that’s
52:32
where upset about well that’s something
52:34
that’s obviously a big that is writing
52:36
deal like that but you know I I hate to
52:38
do this but I want to put your employer
52:39
the employer up it as as Exhibit B yeah
52:43
which is you know my employer X okay but
52:46
you’re who owns the company and that is
52:48
here you have a company that’s asking
52:50
for public subsidies and rumor has it
52:52
that one of them is we want to keep the
52:55
withholding tax from the state that
52:57
that’s part of what’s on the block that
52:59
rubs this is on that rubs me is very on
53:02
good that’s good okay right that that’s
53:04
alright so I submit to you that it’s
53:06
really a fairness thing not a not a
53:09
social norm
53:10
well fairness is a social well okay you
53:20
know there are some communities that
53:23
offered him a lot of money or offered
53:25
Amazon a lot of money where the
53:27
politicians had to go back and say I’m
53:28
sorry we were drawing our offer and why
53:31
did they do that well they heard from
53:32
their constituents who were offended by
53:34
it right but what I’m saying is that
53:36
they their men
53:36
populating the laws – for example have
53:38
carried interest tax rates and and so
53:41
therefore what therefore make things
53:44
transparent so that you don’t mind if he
53:46
makes eight hundred and twenty eight
53:47
hundred twenty million dollars as long
53:49
as he pays thirty seven point four
53:51
percent or whatever the tax rate is on
53:52
all amounts above 1.2 million that’s my
53:55
point
53:56
well let me just respond to that by
53:57
saying you’re worried about the carried
53:59
into hit the tax rate that he pays I
54:01
worry more about the fact that his firm
54:04
earned so much profit above what is a
54:09
normal profit that the markets he
54:13
operates in are uncompetitive and that’s
54:15
a bigger thing to be concerned about and
54:17
it does have to do with securities laws
54:19
and other kinds of laws then worrying
54:22
about his carried interest benefit which
54:24
is which is outrageous
54:26
also but the bigger problem is why does
54:30
his firm earn enough to pay him that
54:32
much and that’s the bigger problem for
54:36
not adding that much to the economy I
54:39
mean he’s not like he’s you know it’s
54:41
not like his Bill Gates and he invented
54:42
some great thing that improves all of
54:44
our lives or something like that or
54:45
Facebook if you think that did but um
54:48
but he didn’t do it he didn’t invent
54:50
anything he didn’t improve you know he
54:52
didn’t even write a good book yeah so
54:57
this might be a utopian question or just
55:00
a stupid question but I’ll ask it anyway
55:01
so it seems like the the nature of work
55:06
is evolving that there are factories
55:08
that are being designed with no human
55:09
work at all and so with artificial
55:12
intelligence so given all of those
55:14
trends how does any of that impact on
55:17
what you’re talking about that that work
55:19
will be defined differently or who does
55:21
work will be done differently so there’s
55:25
in economic these days is sort of two
55:28
camps one camp worries a lot about
55:33
artificial intelligence taking all the
55:35
jobs away and there’s not going to be
55:38
anything for the everybody to do and it
55:42
will make inequality worse I am just not
55:45
in that camp the sweep of history and
55:50
economic history
55:51
that we’ve had those kind of advances
55:53
they’re lumpy they do they do it’s not
55:55
like it’s a nice steady curve they do
55:57
come in waves and the transitions can
56:00
sometimes be hard but you know it’s sort
56:03
of what I teach in in economic
56:06
principles if you make the economy more
56:08
productive
56:10
it makes the pie bigger and you might
56:13
have some issues about how you divide
56:15
the pie but you know there won’t be
56:19
people in those in those factories doing
56:21
those things but I’ll give you a little
56:25
example I don’t know 20 years ago if you
56:29
said I had a personal trainer everyone
56:32
was in now
56:36
I don’t know there’s a lot of personal
56:37
trainers around so you know when we have
56:40
more money and when we’re richer we find
56:43
things to do with it and that often
56:44
involves service and that often involves
56:46
people and not robots and you know we go
56:49
out to more restaurant meals so there’s
56:50
gonna be more people working in
56:51
restaurants yeah III just you know is it
56:56
possible that this is this is a sort of
56:58
this this is the one time where it won’t
57:02
work it’s possible but III don’t think
57:04
so
57:06
one more says boss
57:12
I remember reading got the rise of the
57:15
meritocracy by Michael Young yes forty
57:17
years ago forty year he warned about
57:19
meritocracy he was the one any point any
57:22
coined the term meritocracy do you have
57:25
that book I’ve been trying to get my
57:32
book club to read it for 20 years you
57:34
know I I just I just reread it you don’t
57:37
want your book club reading it why not
57:39
it’s really hard to read well yeah but
57:42
it’s cool it’s very dated and easy brick
57:48
right he’s a boozer breathless he’s sir
57:51
Michael yelling well anyway someone
57:53
57:55
was gonna be about Earned Income Tax
57:58
Credit yeah and a basic perhaps a naked
58:01
a negative income tax a guaranteed
58:03
income for everybody
58:05
for that if you in the last chapter I
58:06
talked about my version of the ubi but
58:09
and it’s more like a negative income tax
58:11
and it is the others but which guess who
58:13
came up with that right Brit anyway but
58:23
so suppose you did that yeah do you
58:28
would you agree I think that a large
58:33
part of what’s going wrong for us now is
58:35
that people are self segregating by
58:36
income because our schools are paid for
58:38
by real estate taxes have you read the
58:41
book because you you know that’s exactly
58:44
what I think is a big problem oh I think
58:50
so you know geographic segregation in
58:54
terms of equality of opportunity the
58:56
biggest challenge is this you know sort
58:59
of geographic segregation by class and
59:01
you know it was in 1954 how many years
59:04
ago was that fifty four years ago that
59:07
the Supreme Court said segregation by
59:09
race was unconstitutional and we need
59:13
new law now and you know I don’t think
59:16
we’re moving in that direction this week
59:17
in the Supreme Court but we need a court
59:22
to say segregation by class is also
59:26
unconstitutional
59:31
we didn’t we were a classless society
59:34
remember everybody if you were stinking
59:36
rich you assumed you’re gonna try to do
59:38
something useful well I don’t at least
59:40
that I I don’t I don’t I don’t think
59:43
necessarily rich people are any more
59:46
evil than necessarily they used to but
59:50
anyway but you made a very good point
59:54
which is that that selves first of all
59:57
the big sort there’s a book called the
59:59
big sort that probably is here and you
60:01
should read it it’s a great book but we
60:03
are sorting ourselves by education and
60:05
income and and that gets reflected in
60:08
where we live and that gets reflected in
60:10
where our kids go to school here’s a
60:11
little data point the socio-economic
60:18
the average socioeconomic status of the
60:23
kids in a class is a better predictor of
60:28
the kids educational performance than
60:32
his own or her own economic situation in
60:35
other words if you send rich kids to
60:37
poor schools they don’t do as well if
60:40
you send poor kids to rich schools they
60:43
do better that the class that they’re in
60:46
the socio-economic makeup of the class
60:48
they’re in is a better determinant is a
60:50
more is a better predictor of their
60:53
educational performance than their own
60:55
families and that tells you that you
61:00