Chamath Palihapitiya, the CEO of Social Capital and chairman of Virgin Galactic, talks about a wide range of issues, including Bitcoin, COVID, civil unrest, and broad economic trends and forecasts. We discuss:
- Whether his economic forecasts have shifted throughout COVID
- Why he believes a debt crisis will occur
- How he views the success of BTC as a hedge against the ruling class
- How the economic pendulum will swing back toward consumers
- Why he doesn’t mind if big corporations and hedge funds get wiped out
- Whether he subscribes to the thesis that Bitcoin is uncorrelated
- Why the pandemic has not spurred institutional adoption of crypto
- Why he sees no merit in Ethereum
- How the economy will become more decentralized in the future and whether blockchain will be a part of it
- Why he prefers SPACs over ICOs
- Why he started capital as a service
- Why he believes the government should bust up large corporations
The marshmallow test is a famous psychological experiment that tests children’s willingness to delay gratification. Children are offered a marshmallow, but told that they can have a second marshmallow if they’re willing to wait 15 minutes before eating the first one. Claims that children with the willpower to hold out do much better in life haven’t held up well, but the experiment is still a useful metaphor for many choices in life, both by individuals and by larger groups.
One way to think about the Covid-19 pandemic is that it poses a kind of marshmallow test for society.
At this point, there have been enough international success stories in dealing with the coronavirus to leave us with a clear sense of what beating the pandemic takes. First, you have to impose strict social distancing long enough to reduce the number of infected people to a small fraction of the population. Then you have to implement a regime of testing, tracing and isolating: quickly identifying any new outbreak, finding everyone exposed, and quarantining them until the danger is past.
This strategy is workable. South Korea has done it. New Zealand has done it.
But you have to be strict and you have to be patient, staying the course until the pandemic is over, not giving in to the temptation to return to normal life while the virus is still widespread. So it is, as I said, a kind of marshmallow test.
And America is failing that test.
New U.S. cases and deaths have declined since early April, but that’s almost entirely because the greater New York area, after a horrific outbreak, has achieved huge progress. In many parts of the country — including our most populous states, California, Texas, and Florida — the disease is still spreading. Overall, new cases are plateauing and may be starting to rise. Yet state governments are moving to reopen anyway.
This is a very different story from what’s happening in other advanced countries, even hard-hit nations like Italy and Spain, where new cases have fallen dramatically. It now looks likely that by late summer we’ll be the only major wealthy nation where large numbers of people are still dying from Covid-19.
Why are we failing the test? It’s easy to blame Donald Trump, a man-child who would surely gobble down that first marshmallow, then try to steal marshmallows from other kids. But America’s impatience, its unwillingness to do what it takes to deal with a threat that can’t be beaten with threats of violence, runs much deeper than one man.
It doesn’t help that Republicans are ideologically opposed to government safety-net programs, which are what make the economic consequences of social distancing tolerable; as I explain in today’s column, they seem determined to let crucial emergency relief expire far too soon. Nor does it help that even low-cost measures to limit the spread of Covid-19, above all wearing face masks (which mainly protect other people), have been caught up in our culture wars.
America in 2020, it seems, is too disunited, with too many people in the grip of ideology and partisanship, to deal effectively with a pandemic. We have the knowledge, we have the resources, but we don’t have the will.
The coronavirus crisis once seemed to be the kind of gut-wrenching shock that would pull together a politically divided nation. Increasingly, though, it is pulling the nation apart along familiar lines.
To see why, start by looking at how the pandemic’s effects are falling along partisan lines, leaving people on both sides of the red/blue divide now feeling they are bearing unfair burdens.
Political power in the country’s states today is almost evenly split between the two parties: 26 have Republican governors, 24 have Democratic governors. Yet the coronavirus’s effects aren’t even close to falling evenly between red and blue states.
Two-thirds of confirmed coronavirus cases are in states with Democratic governors. When states are measured by the sheer number of coronavirus cases, six of the top seven have Democratic governors. Together, those six blue states have about half of the nation’s cases, though only about a third of its population.
Coronavirus deaths tell a similar story. Eight of the nine states with the most deaths due to the virus are states with Democratic governors. When measured by deaths per capita, eight of the top nine states also have Democratic governors.
Obviously, the virus isn’t picking partisan sides. It moves without regard to borders or political affiliation. It just happens that more of the blue states have densely populated metro areas, heavily used mass transit systems and colder climates, which help the virus spread more easily. In some cases, they also have older populations more vulnerable to it.
These aren’t partisan distinctions. Massachusetts with its Republican governor, Charlie Baker, has been hit as hard as its Northeastern neighbors.
Nor are the state-by-state discrepancies necessarily a sign of how well or how badly governors are handling the outbreak. Certainly some will be judged to have acted better than others, but mostly they are dealing the hand that nature and the gods of disease handed them.
Inevitably, though, this uneven distribution of disease has led to uneven political reactions about its burden. Red states feel they are being hit harder than justified by a national economic shutdown that, to them, simply feels more acute than the problem it is addressing. It’s no surprise, then, that the debate over how quickly to reopen the economy is both an emotional one, and is falling along partisan lines.
“A red-state governor is losing his business in exchange for blue-state lives,” said Angus Deaton, a Nobel Prize-winning economist at a Brookings Institution seminar last week. “So for him, opening up is a no-brainer, which is sort of why it is happening.”
He added: “It is a lot to ask those governors to kill their businesses and their GDP for people who live far away, and who they may not even like very much.”
At the same time, blue-state leaders are starting to feel that, despite all the “we’re all in this together” sentimentality heard early in the crisis, that feeling isn’t prevailing today—particularly not in the U.S. Senate.
The states hit hardest by the virus are suffering the double whammy of lost tax revenues as economic activity grinds to a halt as well as skyrocketing costs for health care. These states’ finances, obviously, are being hit hardest, and they are seeking more help from Washington to cope, on top of billions of dollars Congress already has approved. And the Democratic-controlled House voted last Friday to do just that—to provide almost a trillion dollars more in a new aid package.
But that package is going nowhere in the Republican-controlled Senate, whose leadership has characterized additional aid as a “blue-state bailout” of badly run states and deeply indebted public pension programs in which they have little interest. At one point, Senate Majority Leader Mitch McConnell suggested that troubled states could simply declare bankruptcy.
And it’s in the Senate where the imbalance between coronavirus impact and political clout is most acute. Those six hardest-hit blue states have more than half the country’s coronavirus cases, and a third of its population—yet only 12% of the votes in the Senate. It is almost a perfect formula for political tensions.
President Trump is straddling this red and blue divide. In sheer political terms, two of the hardest-hit states, Michigan and Pennsylvania, are critical to him because they happen to be swing states he carried in the 2016 election.
The president “is absolutely open” to negotiating more aid for states, White House economic adviser Kevin Hassett said in an interview Friday. But, he added, “the one thing he has taken off the table is fixing old problems” with new aid.
Mr. Deaton notes that the splits may narrow if cases continue to grow in red states. But for now, the ideal world in which red and blue sympathize with each other may be slipping further away.