 Good afternoon, everyone. This is our second event for the spring semester. Today, we have Yaron Brooke, the chairman of the board for the Island Institute. He is an internationally sought-after student innovator. He has co-authored many books. Most recently, People is Unfair. America's Misguided Fight Against Income and Inquality. He was a columnist at Forbes.com, and his articles have been featured at the Wall Street Journal and USA Today and the rest of his business daily and many other publications. Brooke was born and raised in Israel. After moving to the US, Brooke acquired his MBA and PhD in finance from the University of Texas. For seven years, he was an award-winning finance professor at Santa Clara University. In 1998, he co-founded BEH Equity Research, a private equity and head-fledger management, of which he is managing founder and director. Brooke serves on the boards of the Imran Institute, the Clemson Institute for the Study of Capitalism, and the Center for Excellence in Higher Education. He's a member of the Association of Private Enterprise Education in the Mont Pellerin Society. Great. Thanks. People is sitting out front. It's just a rule of college life. So we're going to talk a little bit about finance, financiers. I think we build this as kind of a model case of finance. But feel free to just jump in with questions whenever you get and make this given where a small group might as well customize it to what you guys are interested in and what's on your top of mind. I don't know, did he set up the camera? Is it rolling? No, we set up on the left. OK. So one of the interesting phenomena, I'd say, in the world is the attitude we have towards finance, towards finances. Since day one, or certainly for the last 2,000 years, I can't think of a group that has been demonized more than anybody who has anything to do with money, money changing, money lending, banking, finance, Wall Street, so on. Every crisis is blamed on them. Every problem is blamed on them. Every villain in a movie or in a TV show is usually somebody involved in finance, so certainly a businessman. I think that's those statistics once. The 51% of all the movies committed on television are committed by business leaders, whereas in real life it's 0.0001% or something trivial like that. But in television we need villains and businessmen and primarily financiers are attractive villains. And this is not new. If you go back to Jesus kicking them out of the temple, the money changes are kicked out of the temple. They're the bad guys. If you go to Dante, Dante's Inferno, the money lenders, bankers basically, in the seventh rung of hell, they've got a bag of gold around their neck, and the gold is dragging them into the fire. It's pulling them down into the fire. They are the bad guys. If you've ever read, one of my favorite Shakespeare plays is a play called The Virgin of Venice. Highly recommended if you can ever see it on stage. There's actually a movie with Al Pacino. He plays Shylock, the money lender, the Jewish money lender, and there's a whole angle here about Jews as well in terms of finance. They're always linked, historically. And of course Shylock is the bad guy, and he's the guy who demands in the payment for a loan a pound of flesh, basically the life of the guy who can't pay him back. So instead of, in a sense, bankruptcy, what you get is a pound of flesh. And it's a fascinating play, both in terms of the anti-Semitic aspect of it, but also in terms of the attitude towards finance, the attitude towards money lending, and the way the court system runs in Venice of the 1500s. You know, in modern times, I don't know, you've probably seen the movie Wall Street. I don't know about if your generation, if that's a big time movie, but for us, that was the movie to see. And of course in Wall Street, the real bad guy is the Wall Street guy, right? And if you listen to the movie, it's a fascinating dialogue throughout the movie because the movie from the beginning, the guys who talk finance are talking in terms of warfare, in terms of blood, in terms of machine guns, in terms of everything is about violence. And there's this strong association, generally I think of capitalism and violence, but certainly of finance and violence. Finance, and the reason is that we perceive finance to be a zero sum game. War is a, what's war? Zero sum game, positive sum game, negative sum game, what's war? Yeah, what is a negative sum game, right? Negative sum game in the sense that you were soft after the before, you've lost. Wealth has been destroyed. Lives, obviously, have been destroyed. What is always a negative sum game? It's always interesting to listen to economists like Paul Krugman claim that war creates economic activity and it's somehow a good thing, you know, because GDP goes up during war, do you know why GDP goes up during war? Yeah, they're putting money. So GDP measures government spending. So government spending is a positive on GDP. So government spending goes through the roof. So GDP goes up. So for example, first year of World War II, GDP in the United States moved like the US economy's supposed to move by 12%. But if you think about it, what did standard of living do? What did quality of life do? Like it plummeted, right? If you were a man, you were often a trenches somewhere in Europe or in the Pacific, your life sucked, right? And if you were a woman, you were now going to work and that you were working in factories to build what? To build machine guns and tanks, which were useless when it comes to actually improving human life. I mean, the necessary, you have to defend yourself if you're at war, but they're not through really economic growth. So even though GDP goes up, standard of living goes down, you always have to watch GDP numbers because they're always tricky in that way because they measure things that are not necessarily correlated with human wellbeing. So sometimes GDP goes up for the wrong reasons like human war. So war is a negative sum game. And the attempt is to associate finance and always has me to associate finance with a negative sum game. The idea is when you enter financial transaction, everybody loses or somebody wins, but it's at your expense. And overall society is worse off. That is kind of how finance is presented in the movies and stories and our popular culture in kind of the way we think about the world. And it's, and the two question one has to ask about this. One is it true? You know, maybe it's true, maybe finance really is a horrible profession, right? And second, if it's not true, then why do we have this perception of finance? Why do we think of finance financiers, financial activity in such negative terms, instead of zero sum or even negative sum terms? Because there's something important going on here. And it's not new, as I said, this idea has been going on forever. You know, money lending, money lending is always the first guys to, you know, in olden times to get killed, you know, and there's suddenly the ones to be demonized throughout. So first, is it true? It's amazing to me that anybody would consider that it's true if you look at the world around us. Every business, every business that starts, every business that grows, and we know that businesses are what hire people, so every job that is created is at the end of the day created by, because somebody's willing to invest capital in order to make that business sustain them. So think about what is it, let's think of bank, bank of the easiest kind of financial markets. What do banks do? What do banks do? What's that? They give loans. So what does that mean? Who do they primarily give loans to? Who is the primary who gets loans? Businesses. Most of the loans are given out to business. It's not to consumers, but most loans are business loans. What do the businesses do with the money? Go on it, waste it, what do they do with it? Now they grow their plans and equipment, they might buy stuff, they might hire people, they're using it to run the business, to actually grow the business. I mean, a bank's not gonna give you money, not gonna lend you money if you're gonna use the money to go back to bank up because then you can't return it. It's usually because you're gonna invest that money in a way that makes a return from which you can return the money to the bank. So bank loans are one of the few ways in which the economy grows by growing businesses, by growing them and businesses growing means employment is growing. And the banks loan money to all businesses. Anybody who walks into the bank, hey, I need a loan, I need to grow my business, do they all get it? No. No, what is the criteria by which a bank decides whether to give a loan or not to give a loan? Why would you give one guy a loan and another guy a loan? Yeah. What's the creditworthiness? And what's the creditworthiness, particularly on the business side, based on? Your ability to actually do something with the money, right, do something useful with the money, actually produce, actually employ more people, actually grow the business. So on the long giving side, not only are they giving loans to businesses, but they're giving loans to the businesses that based on their judgment are the best businesses. If you have a lousy business, if you're gonna basically waste the money, if you're not gonna be successfully investing in it, the bank is gonna try not to give you that money, right? So the bank does two things. One, it provides financing, but second, and I would say much more important, it discriminates. It decides who are the good guys and who are the bad guys. Who's gonna actually be a good business person? Who's not gonna be a good business person? Think about venture capital. Does everybody get venture capital in Silicon Valley? Do you have an idea? You just walk into Sequoia Capital or Klein and Pokens, and they just write you a check, right? No, they're selective. On the basis of the same thing a bank is, right? Psychic and business, but same idea. They decide who is worthy, who has a good idea, who can actually generate probably profits, who's gonna employ, who's gonna build, who's gonna grow a business, and who is not? So capital is not wasted. It's put efficiently deployed to productive activities. Which is hard. It's hard to decide what's gonna be successful and what's not. Very few venture capitalists are good at what they do. Banking's a little easier, but even in banking, some of those loans, particularly if there's a recession, you know, don't get paid back. And you get rewarded, i.e. in profit as a bank, if you're good at it, and you get penalized, and ultimately go bankrupt, if you are bad at it. So there's a self-reinforcing system which makes sure that the best people at allocated capital, decided who deserves capital, who's good at deploying capital, who's not, they rise to the top, they're the ones who succeed. Now that's one thing, one thing begs us, yeah. So you would regard bailouts of certain financial businesses as interfering with the mechanism that's determining who gets the 16. Yeah, absolutely, I mean bailouts are a way for the government to say, you don't have to be responsible anymore. You don't have to think too hard about how you're gonna get the money back or who's a good investment and who's a bad investment. Indeed, you can take on massive amounts of risk which is often associated with high, actually short-term returns. Because on the upside, you get to benefit and on the downside, we bail you out. So don't worry, don't do your job. Don't think about what you actually need to do because we'll bail you out no matter what. So I think bailouts are unbelievably destructive to the ability of a bank or ability in any financial institution to do their job properly and to get penalized when they do their job badly. And therefore, if one bank, right, if one bank is doing badly, you know, if one bank is doing badly due to financial crisis or whatever, and therefore is about to go bankrupt and another bank hasn't done badly. It's actually did a good job during this period and it's doing okay. When you bail out the bad bank, you're doing two things. One, you're awarding vice. You're awarding or at least you're awarding incompetence. And you're saying incompetence is okay and you're penalizing the good bank. Why are you penalizing the good bank? What would happen if the bad bank goes bankrupt? The good bank would take their customers. They would grow, right? But now they've got competition which is funded by government funds, which is funded by a bailout, not funded by a market, not funded because this other bank is really a competitor. So you're penalizing the ability of the good bank to expand, to grow, to do. And therefore, you're actually expanding incompetence in the economy. And what they did in 2008 during the bailout of the banks is just who in terms of its consequences for financial institutions in the United States in terms of how we see banking and how banks can function because the good guys got penalized and the bad guys got rewarded. And when you create that kind of incentive structure, you're just asking for more trouble. You're asking for more crises. You're asking for bad investments and bad allocation of capital, which is I think why we got such slow economic growth close crisis, one of the reasons and why I think the next crisis is very likely to be worse than the previous crisis because we're building up this bad, these bad investments, these bad incentive structures. But you have bailouts, a distortion to a healthy market process of correction for bad behavior. And rewarding good being, rewarding, I know banks that came into the financial crisis during the financial crisis never had a losing quarter, made money every single quarter. They had no financial problems and that they were forced to take talk, the bailout money, they were forced to pay it back to the government with an interest. So the government made money off of it and they couldn't expand their business because the banks they would have liked to have actually taken business from were bailed out. They also got the same kind of talk money. The government treated good banks and bad banks exactly the same. Between good kids and bad kids exactly the same. There's gonna be problems as they grow up. There's gonna be problems. So having a healthy financial market on that side, on the side of who gets the money and who doesn't is crucial because it is what spurs economic growth. It's what rewards good companies, encourages them to grow. It's what holds back bad companies and encourages them to shrink. Think about when we transitioned a long, long time ago from buggies, host buggies, right? To automobiles. At some point there was some great buggy companies, I mean really, really good buggy companies that made world class phenomenal buggies. And there were a lot of people employed in making buggies. But it was a dying industry in spite of how good they were. It was that. And my guess is that before the people who worked in that industry, before the CEOs of those companies knew that they were dying, the bankers, the stock market, the investors figured it out first. And what was probably going on is buggy companies' stock went like this, went way down. And at the same time, automobile companies' stocks were going up. And by doing that, capital was exiting the buggy world and entering the automobile world. Now that, seeing those kind of things is hard. There are lots of changes in industry every single day that it happened. And central planners, government bureaucrats, are notoriously bad at being able to figure out what's a dying industry. And often they don't have the balls or the guts to actually shut down a dying industry, right? Because there's political consequences that are going to be people employed. So a bureaucrat is likely to prop up a dying industry that subsidizes a dying industry to keep it alive and not allow it to die. But it needs to die because that capital needs to be allocated to the automobile industry so that industry can grow. And at the end, there are many more jobs in the automobile industry than there were in the buggy industry. So you're now way better off by letting the industry die than not. And that's something markets do very well every single day. They're killing companies and rewarding companies. But it's something government is very, very bad at doing because the incentives, they don't have the right incentives. Their incentives is who will vote for me. And angry people don't vote for you. So you have no incentive to create anger, yeah. It was a current example of a way from the automobile buggy industry. I mean, you have examples going on all the time. So I'll give you an 80s example then I'll move to today, right? So in the 80s, we used to have a lot of manufacturing. People talk a lot about manufacturing. We lost manufacturing jobs. There used to be a lot of manufacturing in the Midwest. During the 1980s, we shut down a lot of that manufacturing class because we weren't very good at it. We weren't very efficient. We don't have a comparative advantage. In those days, those jobs were moving to Japan. That manufacturing was moving to Japan. Ultimately, they moved to China. Who knows where they're moving today, maybe to Vietnam, maybe even parts of Africa. Those manufacturing jobs are going to move. Where did that capital go? Where did that capital go? Because when you shut down stuff, you sell it, you free up capital, you've got now money and equipment and stuff that you can use for something else. What do they use it for? What do they use it for in the 80s? Silicon Valley? I mean, Silicon Valley took off in the 80s. Where did they get the capital? Where did the money come from? It wasn't printed. It wasn't a government doing it. So it came from all those shut down plans, all those unemployed people for a while, right, unemployment continued to drop, but for a while there was unemployment. All of that, that capital was taken and put it to Silicon Valley to create far greater value, far greater economic growth and far more jobs, long term. And to create the future. And all of that was done by the financial markets because no CEO or a particular company thinks oh, I should shut down my plan and take the capital and move it over there. Because they're not moving, right, they're here. And all they can see is their employees, their plan, their factory, and that's all they can think about it. They're struggling to survive because they can't compete. There's a wonderful move here, I recommend. If you wanna see a movie. It's with Danny DeVito and Gregory Peck, which is just an amazing pairing up. And it's called Other People's Money. Other People's Money. And it's all about exactly that. You've got Ewingland Wire and Cable, which Gregory Peck runs. And he wants to allow it to survive no matter what. And Danny DeVito is a corporate finance guy who wants to buy it up and break it up and shut it down and move the capital elsewhere. And that conflict, they each give a speech towards the end of the movie, which reflects exactly their kind of view of the world. It's brilliant. I mean, the script is brilliant. And it's really well made. And Danny DeVito is a good guy and Gregory Peck, in my view, is a bad guy. But you would never think that. That's part of, you know, I think they do that on purpose. You can't actually have a good looking, good guy financier. So if you're gonna have a good guy financier, they have to look like Danny DeVito, right? That's the kind of, it's based on a play. And on the play, the guy has a limp, right? You can't even, so no matter how you structure it, the financier has to have something that you can't admire about. Otherwise, you know, it doesn't work in a, you know. Did you raise your hand? Okay. So, you know, if you want a modern, modern example right now, it's going to happen. You're gonna see it as we move forward. You know, the United States, just the fact that nobody talks about it. You know, the United States, in terms of manufacturing, what do you think? We manufacture more stuff today or less stuff today than we did, let's say 79, when we had peak manufacturing employer. We manufacture more stuff or less stuff today than the United States. What peak manufacturing jobs? Job, no, I think we're about amazing. There's a higher asset. Yeah, so we manufacture a lot more today than we did any time in our history. In spite of what Donald Trump tells you, in spite of what anybody says, the manufacturing sector in the United States today is the biggest it's ever been in American history. It just, we didn't lose jobs to the Chinese. What happened to the jobs? What's that? Robots like took the jobs. Yeah, robots took the jobs. Computers took the jobs. It's all automated today. But we make more stuff than we ever have in our history. I mean, actual stuff. So what you're gonna see and what you're constantly seeing is movement towards more robots. So if anything, we will be producing more stuff with fewer people every single decade into the future. The future of work is not in manual labor. The future of work, particularly not any kind of manual labor that can be automated. Maybe there's some manual labor that can be automated, so it's very difficult to automate. That will sustain itself. But automated kind of manual labor is going away. So seeing as movement away from repetitive actions and manual labor and moving towards more cognitive fields for labor, is there a risk that there's gonna be a social stratification based upon people's intelligence? So like, look at the Silicon Valley. Most of those people have a higher than average. If we continue moving forward to society that has the jobs based off of cognitive ability, is there a risk that increasingly there will be people at the bottom of the IQ lottery who won't have the ability to gain employment or it hasn't? I mean, no one has the same ability as anyone else. Yes, no, absolutely. So we've got a bellcove of IQs and what happens to people at the lower end of the IQ curve in terms of their ability to be employed. But there's no question, you've already seen this, that the return on cognitive ability is only going up. And I wouldn't say cognitive ability is just an issue of IQ. I know a lot of high IQ people who are lazy or a lot of high IQ people who are just jerks or a lot of IQ people who are just, we don't use an IQ, we're just stupid, really stupid and smart people. I know a lot of people like that. So it's not that you have the IQ and therefore you're determined to do well in life. Character maps and character is something you're not born with character is something you determine for yourself, you actually create. So people with good character and high IQ are gonna do very well if they work hard and they're productive, they're gonna do very well and the returns on that are gonna continue to accelerate. The question is what happens to people with low IQ and I think there are always gonna be jobs for people with low IQ. It's just they're gonna be different ones, right? There's certain things that at least it's hard to imagine robots doing in the next 20 years and potentially 30 years and maybe 100 years. It's hard to tell. Some jobs, it's relatively easy, some jobs are hard. If you're working in McDonald's behind the cashier your job is over, right? It's gonna disappear. It's disappeared already because it's so easy to put an iPad there and let people order off an iPad. Particularly if minimum wage is 15 bucks an hour, which is where it's going throughout the United States or 15 bucks an hour, it's cheaper for me to put an iPad there and have people order for themselves. Have one person who's like moving around in the back to make sure there are no problems or no issues or if somebody has a question. If you're working in California, if you drive, every strip mall has a nail salon, like pedicures and manicures, right? 20 years ago, it was very unusual to see a nail shop. This is a new phenomenon. These are thousands and thousands and thousands of jobs that have been created that didn't exist 20 years ago, right? So can a robot do that? No, not yet. And a big chunk of the pedicure, manicure, business is the competition. Robots can't do that, right? It's the social thing, right? So are they jobs safe for now? Yeah. And we only seem to be using stuff like that more. So if you think about luxury stuff, getting a massage, there's like massage envy now everywhere and places like that, it never used to be. We couldn't afford it. It just means we're rich enough. We have more leisure time now. And therefore, these are jobs that were created. Nobody could have imagined, I think, if you'd asked somebody 40 years ago, there's gonna be a nail salon in every strip mall. People would have said, you're nuts. Who gets manicures and pedicures? Like, they're very rich, nobody else does that. Today, everybody goes. Same thing with a lot of different things that I can't imagine, and you probably can't imagine, about 40 years from now, where the jobs of people with relatively low education or low IQ or however we wanna measure it, those kind of jobs they will do. I was sitting once at a high rise in Chicago, and I'm looking at the window and I'm like, I don't know, I'm on the 50th floor and there's a building across from me that's even taller than that. And they guys, like, dangled in this little piece of wood cleaning the windows of this thing. And I'm going, you probably couldn't pay me a million bucks to get on that thing and clean those windows, right? It's just not, I couldn't do it. I feel heights is no way. I don't care how high my IQ is, that I am not good, right? And now you can imagine robots doing that, but they're probably expensive robots. It's not easy to do that. It's, you know, the idea of putting the right pressure on the window, and you know, you can do it. It's all doable, but it's expensive. Ask the robots, they usually robots to clean solar panels and solar panel farms. Oh my God, that is so expensive, so difficult, consumes so much energy that it's part of why solar energy is an illusion, it's so expensive. Because you have to clean it, particularly if they're in the desert, and cleaning them is unbelievably costly. So there's always gonna be jobs like that, that it's just cheaper to hire a human being than it is to hire a robot. But it's also true that unless we get our educational system in order, unless we get our educational system great, we're screwing up a big chunk of our population who put aside IQ, who just won't have even high IQ kids, just won't have the skill set to be able to have jobs in a, you know, robot driven, technology driven economy. And it's why, if there's one issue that is probably the most important issue that we face globally as a society, it's education, and the fact that education sucks. And education sucks primarily for those who can't afford it to suck for them because they have no alternatives. So the poor you are, the worst education you're getting today in America, in spite of the fact that it's government education and the poor we money into it. And it's not an issue of dollars, it's an issue of the whole mentality of how we do education, right? So that is going to be a key in places and countries that get education right are gonna transition in a much more healthy way to a robust economy with automation than countries that don't. The tax industry would be another example, the Korean destruction that you're talking about. Yeah, yeah, Uber is a good example, right? So money is flowing out of the tax industry. Medallion prices in New York, it's vomited. They used to be over a million dollars, now they're under 250,000. They've gone down by 80%. That's like a stock price going down, right? It's equivalent. And at the same time, Uber is gonna go public here later this year, some ridiculous amount of valuation even though they've never made money. But you see the capital is flowed. Nobody's investing in taxes. Nobody's buying taxing medallions. Nobody wants to be in that business. And all the capital is flowing into the alternative, which is Uber Lift. You know, I think that both, both, and if Airbnb grows, you'll see capital flowing out of the hotel industry and into, you know, I think you're already seeing whole entities organize condo buildings to be in B and Bs, in the sense B hotels that are unregulated, you know? So, which is what Uber is, taxes that are unregulated. Because today you can get taxi apps that are almost as good as the Uber app. But the difference between taxi and Uber is the level of regulations. Taxes are heavily regulated, Uber's not. And the solution, of course, to that, if you want real competition, is to eliminate the regulation of taxes. But that wouldn't ever happen, right? That's not how bureaucrats, not how politicians think. They almost never reduce regulations on an important scale. So, just to relate that back to the good actors versus bad actors. Sure. The regulations that do apply to Uber, they regularly violate them, whether they be, you know, city traffic pollution laws or the mild background checks or a myriad of other things where Uber just has compliance and can pay the fine and continue to keep that practice. So, where do you draw the line between a good actor in stimulating the economy and providing service and a bad actor in overstepping the lines of the name of providing that service? Well, my view is that the data that any customers are gonna make that decision, right? So, if it's true that Uber does light background checks, for example, then, you know, some of us are gonna get worried about using Uber, particularly Naito for a loan and we're gonna just reduce that demand and the market will take care of it. You know, I think the regulations are stupid to begin with. So, I would, you know, the fact that Uber has to apply to any regulations, I think is ridiculous. The fact is that I wait my driver as a customer. I think that's the genius of Uber and the real competitive advantage is I can see before he arrives and, of course, if he has a rating, I think I'm the four that kick out, they kick them out of Uber anyway. So, I can see what rating I can cancel the trip if I don't like it or if I don't like the rating. He can see my rating. And some passages are super jokes and, you know, they're drunk and drivers don't wanna take them so they don't take them. So, the fact that there's a rating system, the fact that you're evaluating them on a convoy basis to me is far better regulation than what the government is trying to regulate them. Indeed, what I'd like to see is the elimination of all these regulations on both taxis and Uber and let the market really see competition and let it flourish. And if I want stringent background checks and I have a competitive Uber and I advertise that my background checks, you're always gonna get a decent human being driving you, then let's see how much consumers value them. Let the market determine these things. Rather than the bureaucrat deciding what's important, what's not important to me. And I don't think they know what's important. I know what's important. That's generally the problem with central planning. The main problem with central planning is somebody else trying to decide what's good or not good for you. Which right or what's not good for you. What values you should pursue as a human being. The only person who knows what's good for me is me. And I might get it wrong a lot of the time, but that's my problem. Particularly if I get to suffer the consequences of mistakes. Which is why we get bailouts again. You gotta let people suffer the consequences of mistakes. Otherwise they don't learn. The markets don't learn. And you just tend to repeat mistakes instead of actually learning from them. Do you think there should be any sort of regulation on the contract to economy? Like people like Uber and all these other places though? Or do you think, because otherwise it's always gonna be cost effective to shift people into that model of like no benefits, no sort of anything else that are kind of the trappings that become characteristics of employment in America as we know it? Yeah, but are those trappings good trappings? I would argue that one of the biggest problems in America today is that we have replaced actual dollar compensation for people with benefits. And I think the benefits are restorative. I think the benefits make it very difficult for employees to figure out how much they're really getting paid and what their real value is. It's hard to compare between two companies offering you two different packages because the benefits are so distorted. And also what health insurance has done. Because we get health insurance to our employer, that is completely distorted in the health insurance market and is one of the most destructive things that have happened. And of course it happened by accident. I don't know if you know the history of why we get health insurance to our employers. It's a direct consequence of government intervention and the response of the market to government intervention. So what happened during World War II is that government froze all salaries. So all salaries were frozen. You couldn't give anybody a raise. But you wanted to give people a raise, right? Because they weren't being more productive and some people maybe were being more productive than other people. You generally wanted to have a mechanism by which to award people. So what companies started doing is they started giving benefits to their workers that were not wages. And the government now wasn't frozen so they could get around the wage freeze by giving you health insurance. Paying you health insurance, being here and the government let them get away with it. And then after World War II, a lot of companies were doing this. So the government said, okay, well you can deduct that from your taxes. So anything you give the workers benefit is an expense that we'll recognize and you don't have to pay taxes for it. And now the companies that didn't do that had to do that in order to compete because if I as an individual go out and buy health insurance it's on after tax dollars. But if I get it through my employer, it's on pre-tax dollars. So there's massive benefits to getting from the employer. So the whole way in which our healthcare system has evolved over the last 60, 70 years is because of a price fixing during World War II which was a mistake. They shouldn't have done it, but they did it and we suffer the consequences and they huge consequences because the whole insurance market is completely distorted by this instead of you owning, you know, one of the policy with pre-existing conditions is I don't own my policy. My employer owns the policy. So if I'm gonna lose my job, I lose my insurance. Why? It's my insurance. Why don't I own the policy? If I own the policy, it doesn't matter where I lose my job or not. It's my policy. I'm paying directly to the insurance company. So if you own your policy, the whole issue of a big part of the issue of pre-existing conditions goes away because now the policy follows you. So there are all these distortions in the marketplace that are created because of these benefit packages and I'd like to see the benefit packages go in all mandated. They're not driven by markets. They're mandated by either government mandates or by distortions created by government. So I'd like to see people paid actually salary and then you figure out what benefits you want, what benefits are right for you and purchase them in the marketplace. So if it's health insurance, you want life insurance, you want unemployment insurance, you want whatever you want. You go on and buy a package that is appropriate for you. Again, but part of this is I view human beings very differently than the central planning mentality of human beings, right? The typical view of human beings that drives the whole drive towards central planning is we're too stupid to take care of ourselves. So if I didn't provide you with these benefits you wouldn't go and get them themselves. But there's plenty of history to suggest that's not true. Before there was a welfare state, we organized in all kinds of mutual associations. We got together in all kinds of ways in order to provide insurance for ourselves. There used to be mutual aid societies and you could buy in the marketplace, you could buy poverty insurance. So you could buy an insurance policy that covered you if you ever became poor as defined by the insurance policies. If you lost your job or something like that, it would kick in. There were all kinds of amazing market solutions to problems that people faced that once you have a welfare state, they price them out, right? All of that innovation, all of those products disappeared because people now rely on the state for everything that they get. Remarket to determine the natural life cycles of industries and companies. And we should, as a society, should accept the short-term consequences for the long-term gains of new industries and greater growth in society. And the consumers will be able to have determinants whether these new services will work through, yeah, it's like the newer bi-pirates. But the consumers and users only see the last step in the stage. How do you stop companies from taking shortcuts upstream to prevent a detrimental society? So what kind of shortcuts? Give me an example of a shortcut that's detrimental to society. So that is something that will be a cost-saving measure that let's say, I don't know, instead of a manufacturing company, instead of dumping my waste to a safe waste yard and stuff it in the river in the back yard of the... Well, I mean, my solution to that, this is often called the problems of the commons, right? How do you protect the commons from abuse and from people using them badly? I mean, my solution to really all problems of the commons is not to have any. Privatizing. No commons. No commons, right? So if the lake is private, you're not gonna dump your waste in my lake. If the streams are private, you're not gonna dump your waste in my stream because I'm gonna sue the hell out of you if you do. So I suddenly have an incentive to monitor what's going on. If there's a piece of land outside there and people are just dumping their garbage in it, it's probably owned by the state and nobody really cares. But if private ownership, if private people owned that land, they wouldn't let people just dump their garbage in it. Because what do we take care of the best? Our own stuff. Like when the Berlin Wall came down and people went into Eastern Europe and so what was going on there? The thing that shocked people the most, more than the poverty, more than the awful products they were making, more than anything, the thing that shocked them the most was how filthy everything was, how dirty it was. And there's a reason why communism, socialism, breeds filth. It's because nothing is privately owned. And if stuff is not privately owned, we don't take care of it. You know, the whole, the way capitalism works is through self-adjustment. It's through taking care of your own stuff, taking care of yourself. That's how capitalism works. You go to work because you're trying to make a living. You don't go to work to benefit mankind. You don't go to work for some social agenda unless you're working for non-profit or something. But even then, you need to get paid, right? So you go to work to make a living. Hopefully you love what you do. Hopefully you're going to work because you love it. You enjoy it. You're having fun doing it, right? And then maybe as a third goal, you're going to work because you want to change the world. You want to make the world a better place or whatever, right? But see jobs, none of these entrepreneurs wake up every day saying, I want to make the world a better place, right? I want to go and do fun stuff. That's what they wake up. And then secondly, I'm going to make a profit doing it. And thirdly, the only way to make a profit, you can ask me about this, is to make the world a better place. Because if customers don't think they're better off using my product, then I'm going to buy it. The only way people are going to buy my product is they believe they're going to be better off as a consequence. So capitalism is a system about the pursuit of self-interest. It's a system that is geared and motivated and driven by self-interest. And the way that is self-correcting is to make sure that everything is in some of these self-interest, everything good. And so, how do you make it in some of these self-interest, not to have this piece of land dirty, you don't make it private, it's easy. And it used to be that way. I mean, the East Coast, almost everything is privatized. I mean, not the rivers and lakes, unfortunately. And the West, 75% of all the land is owned by the government. But it used to be in the West that the rivers used to be owned privately. So there's a whole, I mean, you can look this up. You're a lost dude. There was a whole, during the late 90s century, a whole body of law, common law, that dealt with what happens if my cows poop up here and you're drinking the water down here? And how do we deal with those constitution privately? Not government regulations control, but just privately. Now imagine that was really applied across all the rivers and all the lakes in the United States. And imagine if that body of law didn't stop developing sometime in the early part of the 20th century because basically all the rivers were nationalized, all the lakes were nationalized, and now it was all political issues. It wasn't a legal issue. But imagine if that legal common law had developed to really figure out how do we deal with private property when it comes to waterways, when it comes to these things that people use? I mean, I think we'd be in a much better situation today than we are where it's all political. And when it's political, how do we make decisions? How's, I mean, the difference between private property disputes through the common law and how that decision-making goes versus how do you make decisions when it's political? Fear. Well, fear, but who's making decisions? It's democratic, right? But what drives democracy? Whatever the majority who's voting because often most people don't vote, right? In most local elections, most small elections, judge elections, things like that, how minority of people vote. And then who is getting influenced by politicians the most? People with the most mistake, the people with the loudest, the people who have the biggest, you know, maybe the biggest wallet, maybe it's just the biggest voice, maybe it's the people who can rally the most voters. But it becomes, democracy becomes pressure group politics. It doesn't become, let's figure out what the best solution is. You went into the last time politicians sat around the table and said, let's figure out the best solution to this problem. I can't think of a time in modern American history where that has happened. Usually it's this pressure group wants us to do this, this pressure group wants us to do that, that pressure group wants us to do the same. How do we balance all the pressure groups and how do we minimize the damage to ourselves? That's how politics works. And that's why I think the, you know, the U.S. is in the position, it's there. We divided ourselves into little tribes based on the political pressure group. We believe that it's going to give us the most leverage so we can influence policy the most, not for the good, but just for the most, for our little group. And politics is a complete disaster today. There's no sitting down and thinking about how to solve problems. Minimizing the politicians, is there any way to change in your mind the incentives of politicians to better write the system? No, in my view there isn't. I mean, people talk about took limit, people talk about all kinds of mechanisms to do it, but I don't think you can change the incentives of politicians. The incentives of politicians are basically bad. And if you read the founders, if you read the Federalist Papers, they knew that this was going to happen. They would try to establish kind of a system of checks and balances to prevent it, but today the whole system is distorted. Our Supreme Court doesn't really take the Constitution seriously and won't monitor it. And then they're accused of being either activists or non-activists, which is a false dichotomy. Of course they should be activists. Activists in the name of getting rid of stuff that's not constitutional. But what does the Constitution even mean? Our interpretation today of the Constitution is very different than it was 80 years ago. I don't see a mechanism short of limiting the power of government significantly. And the only way to do that today, or today I don't think you can do it, but the only way to do it if you could would be to rewrite the Constitution in clear terms to make it clear what powers politicians have and what powers politicians don't have. So I'm one of those arrogant individuals who would like to completely rewrite the American Constitution because I think it was great. It was the best they could do probably at the time. Of course it's full of contradictions and compromises, horrific compromises that held this country to this day. But the fundamental, the structure, the way they were doing it, there were good intentions there and they did probably maybe as good a job as they could, particularly with the world of politicians. But today we know so much more. We know what can be distorted. We know what compromises they made, which were evil and bad. We know how to fix them. And I don't think you can fix them just by men, but I think you have to fix them by rewriting. So you have to, you know, Congress for example, for decades now has shifted authority to the executive branch in mass. That's now what the Constitution says, right? Any trade deal, anything related to trade has to go through Congress, that's what, right? But they've shifted this one. They've given the power to the executive branch. We haven't declared a war. We're fighting like in, I don't know how many countries now. We've got troops in everything. I think 120 countries in the world have American troops, right? But we haven't declared a war since World War II. We fought in Korea and Vietnam, in Iraq. We did a thing in Granada, we fought in Haiti, I don't know, all these places and we've never declared a war, why? Because Congress doesn't want that responsibility. So it shifted it to the executive branch, which has made the executive branch more and more and more powerful, right? And now they can write, emerging, now, you know, Trump has just done this emergency thing on the border. Whether you agree with it or not, that's not his job. I mean, there's a law from 76 basically saying we Congress don't wanna have to deal with these issues. They're too hard for us. And we have too many, you know, so we're gonna give it to the executive branch, okay? So now you've given the cement power to the executive branch. You get upset when he does, when he exceeds what you would like him to do. So we need to reset everything. We need to reset what the executive branch is for. All the regulatory agencies. There was no consideration in the Constitution for a fourth branch of government, which is the regulatory agencies. Or the Federal Reserve. What's the Federal Reserve? It's a pseudo-private, completely controlled by the government entity that serves the Treasury, but is accountable to no one really. Kind of accountable, because the chairman has to go in front of Congress once a year. But there's almost no way to be rid of the chairman of the Federal Reserve. So the world has changed dramatically since we wrote this document. And to really change things, you would have to rewrite it. Unfortunately, because I wouldn't trust anybody in the world right now to rewrite the Constitution, because they make it a thousand times worse. I'll take what we have. But if you're asking what would it take, it will take shrinking the power of politicians dramatically. I would like to see them out of the economy. I'd like to see them out of education. I'd like to see them out of science. I'd like to see them out of the realm of ideas. I mean, I think a lot of that's implicit in the Constitution, but you need to make it explicit in the Constitution. Otherwise, I don't think they're gimmicks. And I know people always look at gimmicks to fix things. Things are going to get a lot worse in American politics before they get better because there's no mechanism by which to make them get better. Should they exist in any chamber of law? I can't think of any worse regulations than anti-trust regulations, right? So again, I'm going to make a broad statement about anti-trust regulations. You guys are lawyers, so you can quibble with me after it's been. Anti-trust regulations basically are there to give the government the power to basically have power over business, almost no matter what a business does. So if you're underpricing your competition, if you're selling a product really, really cheap, just compete with your competition, can anti-trust be used against it? Absolutely. Yeah, absolutely. You're dumping or you're, you know, I forget the legal term, but you know, you're doing something bad. It was the basis for the anti-trust case against Microsoft. What was Microsoft doing? Anybody know why Microsoft was sued for anti-trust violations? No, it was giving away a product for free. Oh, a word. It wasn't a word, it was what they were charging. It was the internet explorer. At the time, I was old enough, I remember we had to buy your browser. I paid 70 bucks for Netscape, right? You bought a browser, and then you could browse the internet, right? And Netscape, that was their business model, to sell you a browser. And Microsoft came out and said, we'll bundle it, we'll just give it to you for free if you buy an operating system, which everybody was buying, right? Say everybody got a free browser and Netscape got upset, and so if you're really cheap, they're gonna go after it, right? If you're selling really expensive stuff, can they go after it? Much higher than your competition. Yeah, I mean, that's a sign of an awfully problem. Otherwise, how do you get away with it? Markets drive your prices down. So if you can sustain a high price and a high profit margin, they must be a sign of an awfully problem therefore they can go after you. So they can go after you for pricing above your competition. And if you price exactly the same of your competition, can antitrust go after you? Yeah, because it's collusion. So you can't win. I mean, it's built that way on purpose because the purpose of antitrust law is to give government absolute power over business decisions. I mean, you see it in the way the antitrust departments go. They've never gone after Google. Never gone after Google. Why have they never gone after Google? They have 90, 70% of all internet advertising. Why don't they go after Google? Europeans have gone after Google. The US antitrust division has never gone after it. Why? Because Google has from day one, because Google came into existence post Microsoft antitrust case. So Google from day one has given money to politicians across the board, both political parties, everybody gets money from Google. Just look at their files. They give money to everybody. And they give a lot of money to them. Microsoft, Microsoft famously, never used to give any money. The lobbying budget, until the antitrust case, the lobbying budget was exactly zero. They were literally bought in front of the Senate. Aaron Hatch, who's still, I guess he just retired from the Senate, was out of the Republican from Utah, stood up and yelled at the Microsoft executives. You guys need to be here in Washington. You guys need to have a lobby from here in Washington. You guys need to spend money here in Washington. You need to build a building here in Washington. And Microsoft walked out of the meeting. This is all documented. Said, you leave us alone, we'll leave you alone. And six months later, antitrust division comes down. It's all about power. You know, Ubers being very good at spending the money on. They're buying off the right politicians in the right places to get what they want done. Other companies, Apple is not being very good to Apple, but they went after Apple for a little while, at least. Now Tim Cook has dinner with Trump every few weeks, right? Cause he knows, he knows. Bezos doesn't have dinner with Trump. Suggests who they're going after, you know? They're just eager to go after Bezos. It's our politics. There's no economic, there's no law. There's no law. Because the bureaucrat gets the side who to go after and who not to go after. Mergers, is all these mergers happen, right? Why does some get through and some not get through? There's no legal, there's no legal doctrine. You think there's a, you think there's legal, of course they'll wind it up as if there's a legal reason, right? They just don't read legal reason. It's all about politics. It's all about money. It's all about newsbinding, you know? I mean, it's not a direct bribe like they do in some third world countries. It's an indirect bribe. It's a more sophisticated bribe, it's not bribe. And this is what happens when you get politicians power. This is an antitrust, this is a great example that there was a thing recently where they disallowed a moja of, you know, the government wanted to disallow the AT&T moja. Why did the government want to disallow it? The rumor was because it was a way for Trump to go after CNN because CNN was part of this deal and he was anti-CNN. And you know, if all I know of the rumor is absolutely right because there was no other reason because deals like that have that exact nature. This was a, wasn't a horizontal, it was a vertical. I've always not to, the Justice Department has never stopped deals like that. And yet this one, they try to stop. So I'm very opposed to antitrust. It gives government this huge leverage over businesses and the way politics works, it's always gonna be about the views. I don't believe, and you know, this is the economist that we need to wrap up, but if you look at history, if you actually look at history, in a free market, there are no monopolies. So people who are supposed to behave like monopolists never actually behave like monopolists. Whether it's Standard Oil in the 1870s where they had 92 to 94% of the overfunding capacity in the US and your economics wanna, one teacher will say prices went up and quality went down and the exact opposite happened, prices went down every single year, quality went up every single year because what Rockefeller understood and what every good businessman understands is there's always competition. Unless, unless the government is borrowing it. That's real monopolies. You can't compete with post-office. There's certain industries in the United States that are very difficult to compete with because the government has created values. And I would argue that until Uber, taxis were monogamous. The government created only so many medallions. Why? I mean, obviously, you know, I was hailing taxis in New York when there was no Uber. You could never get a tax, particularly when you needed one, particularly in Russia. Because the way the medallions work, the way the flow of taxis work, there was no, what do you call it, Russia or pricing or whatever. There was no incentive for more taxis to work during Russia. It couldn't charge more. One of the beauties of Uber, one of the things they're criticized for is this variable pricing. But the variable pricing is what makes it possible for me to get an Uber anytime, any place. It's more expensive, but I could choose not to pay it or I could choose to take taxis. I could choose to walk or I could choose to change my schedule and not seek an Uber during Russia. But now I have a choice, which before I didn't, and it was a government-protected monopoly. So anything Uber does, including circumvent a law, is fine with me because the laws are stupid. I have the same attitude towards things like illegal immigration and stuff like that. You create stupid laws that don't be surprised when people circumvent, right? Of course people are gonna come to this country legally because it's impossible to come here legally or almost impossible to come here legally. You wanna fix illegal immigration? Fix legal immigration. Make the laws such that people can actually come here and decide who you want kind of thing, right? But have rational legal immigration laws. Today's laws are completely nuts. They make no sense for anybody. And that's why you get masses of people coming in. These people wanna work. So create a work requirement, you know? Set up that anybody who wants to come in has to have a job with full hand or something. And these people would come in, they'd pick apples and oregano, the Mexicans, and they'd go back. So what? And nothing would happen. Nobody would be worse off. Everybody would be better off. They'd be better off because they got some work. Now they come, they can't go back. Because the same barriers that are there to bring them in, they can't go back. So they come and they stay. And that creates all kinds of, and they only have work sometimes. They don't, that creates the problems. The problem is the legal structure. And it's again politics, it hasn't, and nobody has sat down, this is another example. Nobody sat down and said, okay, how do we devise the best legal immigration system that makes sense in America? No, it's about pressure groups. It's about the immigrants shouting this and it's about business shouting that. And it's about, you know, the people at the border shouting something else and about the some xenophobic American shouting something else. And there's no, let's figure out what's true. No, let's pander to the worst elements in our constituency, which is what you're seeing the immigration debate involving. So as you can see, I'm cynical about politics and very positive about markets. Thanks.