 Welcome and Aloha. I'm Mark Shklav, the host of Think Tech Hawaii's Law Across the Sea program. Today my guest is Roger Epstein. Roger is a lawyer who has traveled across the sea of life and law many times. For most of his career in law, Roger was a tax lawyer. He is presently co-founder and general counsel of the Asia-Pacific Group, which connects and facilitates outstanding China and U.S. investment and development projects between investors in both countries. Today is the first part of a two-part series focusing on post-COVID-19 economy. We asked the question, how did we get here? I'm going to ask that to Roger. But first, welcome, Roger. How are you? Hi, Mark. Great to be here. Good to see you again, and thank you for inviting me. We're all in our COVID-19 homes. Roger, today we're going to be talking about the Hawaii's economy and the U.S. economy in these COVID-19 times. But give me just tell me why or what in your professional background gives you an insight into this issue in the economy in U.S. and Hawaii? You know, the first reason is because I've lived through the changes since the economy, the United States economy, was the greatest in the history of the world. And to where we are today with the 199, with 70% of the population living paycheck to paycheck. And I've seen that both just personally, and I've seen it from the point of view first as an internal revenue agent in Washington, D.C., and then with the National Office of IRS in Washington, D.C., where I saw, although it was from a tax standpoint, taxes are a big impact on this. They have a big, they have a big, in fact, taxes are one of the fundamental things in your determination of what's important in your economy, in your community, in your society. If you believe taxes are a burden that people have to pay and should minimize it, that's one thing. If you believe taxes are used to provide community services, schools, roads, healthcare, social security, all these things that keep people from living on the streets, is this something that should be part of the why we have taxes? If you look at it as something that keeps the community going, keeps the society going, it's quite a bit different than if you look at it as a burden that we have to pay that comes out of our own pocket and is a semi-evil. Okay, so your background as a tax lawyer is what you bring to the table as the influence and the philosophy that you have about the economy. As well as my studies of some recent books and what I've seen. So, as a tax lawyer, I started out as a revenue agent right on the ground. How does a tax system work? What are small businesses doing? I moved to the national office where we answered very significant and complex questions from the biggest companies in the country and internationally and we gave rulings to say, yes, you're interpreting the law right. So, I got to see it from that viewpoint. I saw some pressure from the White House once or twice, pressure for some Congress people, how they were handled by the IRS and what the significance was in the picture for the White House and the Congress at that time. And then, Mark, after I finished, I went to law school while I worked for the IRS and when I finished, I moved to Hawaii from Washington D.C. and I joined the largest law firm in Hawaii and my practice became very international. And one of the things I saw, one of the things that I think is interesting is I've seen exactly the growth of China vis-a-vis the growth of the United States since 1974 when I first started going to Hong Kong in 1982 when I went to China. And I recently did a lot of research on how did we get here. Okay, well, that's what I want to ask you. Okay, how did we get here? Where are we? Let's put up the slides, please. Yeah, so the first, the first, what we're talking about is where are we going to be in after the COVID's over? We're in this huge transition, the economy's going to be horrible. Where do we, do we want to go back to where we were? And I want to then take you, can you change the slide again, Melissa? I want to take you to where we were through my experience. I'm having a hard time, see if you make that a little bigger. So what happened in the last 50 years? What happened since in 1960 to 67 during my years of high school college and working for the IRS and starting in the practice of law, what was going on then? Because I want us to understand that this is no accident. Significant changes. We still have the same capitalist system. We still have the same governments. How did we get from here to where we are today? And where were we then? Okay, a public university, I went to school to University of Maryland. This says the average public university was $329 a year. I paid $200 and the California schools were free. If you graduated from a California high school, you could go to any of the California schools for three. And when you got out of school, you could realistically buy a house. So I had a, I was making, after I worked six months, I was making $10,000 a year, I could buy a house for $15,000 a starting house. Forget the numbers. 150% of my starting salary. And when I married, after five years, we were each making $13,000 a year. And so 26,000 total, I went to buy a house and borrow the down payment from my father-in-law. He said, what do you need a $40,000 house for? So imagine being 27 years old and being able to buy a house that your father-in-law thought was way beyond your needs at that young age. And I can't see this thing. Oh, that's better. Okay. So at that time, only one family member was working and you were still doing this. Now Carol and I started out, we were right at the cutting edge of women's lib and when women began to work full time. But for most families, one family member could work and you could make enough living off of that. And few people were living paycheck to paycheck. I mean, there were poor people, but if you were working, you were doing okay. And then we had something that's about to catch up with us. It's terrible. We used to have defined benefit pension plans. If you go to work and you work for 40 years, when you retire, you get 70% of your pay for the rest of your life. We switched that somewhere in the 80s and 90s to become 401K plans. You put aside a little bit of money and when you retire, you live off of that. The average person has $75,000 or less in their 401K plan. How long is that going to last? What else? Senior executives, this is something. So the executive in a big company was making 20 or 40 times what the guy on the factory floor or the average employee was making. 20 to 40 times. So if my salary was $10,000, then that guy was making $40,000. No, $200,000. Okay, whatever it was, it was 20 to 40 times. When we see the next slide, you'll see how that's changed. And unions kept people in their jobs. Okay. So today, 2010 to 2020, US has one of the most unequal economies in the world. The public university, instead of being 329, is almost 18,000. To get a starter house instead of one or one and a half times your salary, it's now five to 10 times your salary. And I don't know how realistic that is. If you get out of college and make $35,000 a year, can you really buy anything for five times that $175,000, or even 10 times? You could get a condo, but unlikely you're going to get a house in Hawaii. Other places may be a little bit cheaper. Every family has two members working, sometimes more than one job for each of them. Families living the paycheck, the paycheck in Hawaii is estimated at 50 to 70%. And I think that's similar to around the country. We don't have defined benefit plans. We have defined contribution plans. Whatever you put in, and maybe your company matches some, that's what you have. Executives are now 400 to 1,000 times what the guy on the factory floor was making. So the guys at the top and the people with the capital have made a lot of money. And the other people have stayed steady or lost. And so this is where we are today. It's going to be worse after we come back from COVID. Roger, how and why did we get here then? Okay, let's take a look. Let's take a look. So okay, so this was not an accident. And this is what I really want your audience to understand, Mark. And there's a wonderful, recent book. There's a couple of good books out on this, but there's one called Evil Geniuses. It just came out by Kurt Anderson. And it has a very interesting, I mean, complete discussion about what's going on. All right. So Louis Powell, who used to be an attorney for the tobacco industry, he picked up what Milton Friedman, who was a very well known economist. Milton Friedman won an award, a Nobel Prize for his economy, but not for this theory. His theory was a corporation should only make profits. That's its only reason for existence. And so he penned that. And Louis Powell, who became a Supreme Court Justice in the Reagan era, picked it up. And he created literally a plan called the Powell Memo. I have a copy of it. And it says in 1971 that we need to change everything legislative, judicial, academic business, and the union situations to save our country from liberals. This is not a conspiracy. This is just, we don't agree with what liberals are doing. It was a huge backlash to the 60s when we had civil rights, when we had a lot of motion, a lot of movement by at the highest level, at the federal level, we had plans to make things more equal for the working person, so to speak. So what did they do? From 1971, they began to create think tanks, the Cato Institute, start colleges. They had individuals and estate taxes lowered. They had income tax lowered. They reduced regulations. They got like-minded judges. They put into effect a plan that they thought was really necessary. That would be the next slide. That would be the next slide. Well, I'm just trying to, yeah, how did they do this? Well, they increased their lobbying expenses by six or 10 times. The corporate round table, so this is the national corporate round table, used to say that it was important for business to sell products at fair prices, create jobs, and help the community. They changed their whole motto to profits only. They appointed conservative judges. Milton Friedman's idea about profits only became the rule, the law in some jurisdictions, that if you didn't, if you were a director and you didn't look for profits only, you were breaching your fiduciary duty. Now think about that. A corporation, which is, here's the organizations, the Heritage Foundation, the Cato Institute. There's a Hillsburg College. I get their emails, their monthly newsletter. Reagan became the first president to put this policy under this plan. This was who Reagan was. He said, government is not the solution, which is what people were looking for in the 60s to get government to do everything. Government was the problem. With profits going, he devastated the unions by, I don't know if you remember in 1980, the Air Traffic Controllers Union was busted by him, and he did a lot of stuff. He was effective, but he was effective to put this practice into place. Then what happened? Now, it wasn't just profits. Profits became corporate stock price. That became everything. Stock prices were manipulated on the basis of short-term profits. Executives began to be paid on the basis of stock options. That meant they didn't care about the employees. Employees were in expense. If you want to get your stock price up, you've got to get your net earnings up. You've got to keep employees down, payroll down, pension plans down, and short-term profits up, not even thinking about long-term. This created all kinds of problems for the working person, the entire country now from the top. What happened was, as Reagan said a whole new standard, so then when the Democrats came back in, that's what they were modeling off of. It's going to be like with Trump. We cut taxes down to nothing. 37%. When I started with the IRS in 1967, taxes, the highest rate had just come down from 90% to 70%, and we had the best economic times in the history of the world. Roger, why was Lewis Powell doing this? What was the motivation here? I'll tell you why. Let's put up the next slide, Melissa. The reason Lewis Powell was doing this is because this is what he believed. He believed that this is how we're supposed to live. That he essentially believed in an oligarchy. He believed in the Republican philosophy that a rising tide raises all boats. He believed in the idea of trickle-down economics. If the big corporations are making money, that will trickle down to everybody else. But it didn't trickle down. It was so incredibly successful with very little backlash from the 60s people that this is what happened. There's nothing wrong with the system. We've just taken it to a terrible extreme. We've taken the pendulum so far towards an economic system based only on profits, not triple bottom line. You know what triple bottom line is? Peaceful places and profits. There is a movement in this country for triple bottom line. There are companies called B companies who look to see what did we do for the community? What did we do for our employees? What do we do for our buyers, our suppliers? This is how people live. This is what bothers me. We've got it to where corporations are irresponsible. It's not corporate responsibility. It's irresponsible. If all I lived for was profits, and what's in it for me and how much money I could make, you would consider me a sociopath. You would not consider me a good citizen. Well, why does a corporation get to act that way? A huge conglomerate corporation who gets this huge benefit from the government of no liability. In other words, if you start a company and a subsidiary company, only the assets you put in there are subject to creditors. That's why Donald Trump could go bankrupt six times because he had it locked into a company. So you get this huge benefit of being able to operate without jeopardizing your own personal assets as a corporation. So why do you then get to be a sociopath and not care about the community? I'm using these words because this is what I see. I represented the largest companies in Hawaii, all of them, the largest companies many in the world. These are good people working hard. They're not trying to screw anybody, but we're all caught up in a system which tells them that their job is to be responsible for making profits for their shareholders. If they went home and acted that way in their personal lives, no one would talk to them. Okay, so it's all about profits. That slide back again, Melissa, please. We've decreased the ability of ordinary people to live just well. Well, where are we going to be post COVID? Well, that's a question. That is the question. And we already have, if you look at the slide about 2010, so you look at it. Tuitions are $18,000. People get out of school with hundreds of thousands of dollars in debt, and they can only make $35,000. You can't buy a house unless their parents gives them a down payment, maybe never. I think millennials have kind of given up on buying houses, many of them. Everybody's working. Some people, the moms working two jobs and dads working three, and they're still living paycheck to paycheck. And Mark, this 401K, this is going to be a huge burden. There is not enough money with social security and what you have in your 401K to retire. And it's just starting to kick in now for 65-year-old and older. And so, yeah. Let's continue the conversation. We're looking at the present. What will Hawaii look like post COVID? Let's look at that. Okay. So is it going to get worse after COVID? I think so. People are going to be more people out of jobs. What's going to happen when the employment payments have run out? The unemployment payments. What's going to happen then? What's going to happen when businesses don't reopen? And how many people are looking for jobs? And so, I think it's going to be terrible and add on top of that the 401K mess, the non-pension plan stuff. Some people don't even have a pension plan. They're going to live on $1,500 of social security. Now, we're going to change. We're going to move back with our parents and grandparents. We're going to have three or four generations. There may be some good in that. I mean, we've lost a lot of our values and ethics with the incredible mobility that we've had and we've come to expect in our generation and maybe the Generation X people, but not the next one down. So, yeah. So I say, is this what we want? Do we want to go back to where we were? Because even if we get back to where we were, it wasn't so good. And if we have 7,500 homeless people, is that going to go to $15,000? Is it going to go to $100,000? I mean, what are we going to do? And then I get into this idea of what's democracy? What's America all about? What is government of the people by the people for the people? Isn't it intended to not be no government? It's intended to be a government that helps people have a society that is what you want. What would we like? If we had our goals, wouldn't we like to see a chicken in every pot? Wouldn't we like to see everybody having food, clothing, shelter? Now, I'm not saying it's easy to get there and I'm not proposing anything like communism. I'm talking about just getting our capitalist system back to where it was 50 years ago. And how do we do that? And I'm trying to say we got here deliberately. I'm not doubting the belief of Republicans and Lewis Powell who was a Supreme Court Justice and Milton Friedman. I think they believe what they're saying. I'm just saying Friedman had another statement he used to make. Don't pass laws based on what you think is going to happen. Pass the laws based on what really happens. And what I'm saying is this is what's happened. So what's the next slide? We only got a couple of minutes. Let's see. I got one more slide here. Yeah. So what is it telling us? So here's what I'm saying. Ben Franklin said you got a democracy if you can keep it, a republic if you can keep it. Mussolini says, where's that Mussolini? Is there another slide there? Yeah, it's right there. It's right there with the Ben Franklin. I thought there was another one here. Right. So Mussolini said, you know what fascism is? It's the domination of corporations, the conglomeration of corporations and government dominating the country. He said that's always going to be better than democracy. So what I'm saying is this is where we've gotten the pendulum needs to move back very dramatically. And next time we talk, I've got about 10 or 12 items. I'm sure there are many more that I think are a little bit out of the box. They're a turnaround. We can't say we just want to go back to the way it is. Let's go back to post COVID. Post COVID was not good for most of the people in this country. And we don't have to go to any new philosophy. We just got to change what we're doing. We got to change the way we're implementing our current system of democracy and capitalism. So I'm going to ask you where would you like the post COVID-19 U.S. Hawaii economy to go? And Roger, I'm going to ask you to answer that question in two weeks. Talk to me about that, your ideas for that. And we'll put them up there and talk about where we could be, what the alternatives are. Can I just wrap up what I want to leave as a going away message, which is we've got a great country. We've got a great system that works. We changed in the last 50 years in a way that created an oligarchy of the rich, allowed them to dominate. We didn't get here by accident. We got here by using their philosophy. And now we have to go back to the kind of, I think, thoughtful. If you want to call it liberal, you want to call it progressive, I call it intelligent, where most of the people in our state, and I'm focusing on the state because we can do it at a state level where most of the people in our state have a decent life and a decent chance to live here with adequate food, clothing, and shelter for all. Okay. So thank you, Roger. I mean, I can tell that you're enthusiastic and passionate about wanting Hawaii's economy to be better for everybody here. And I want to hear your suggestions. So next time, Roger Epstein, looking forward to two weeks from now, we'll talk about the options. So thank you so much. And I hope I didn't get too carried away. This is important to me. And at age 75, I'd like to help us benefit from what we've seen in history, what you and I have lived through, and how we can get to a higher level. All right. Aloha, everybody.