When Big Tech Tells You 'It's Impossible', That's Latin for 'It's Less Profitable', Galloway Says

to see you once again. Thank you. Let me ask you first of all about a tax reform. As we watched this process unfold, I mentioned the delay, the one day at least delay that we've gotten from the house ways and means, how closely are you watching this? How closely our markets watching what's unfolding here. It's an incredibly tight a timeline of very narrow calendar, very narrow window for lawmakers to get something done here by the end of the calendar year. Well, I'm watching it very close, Slee.

I think that markets all year long have been tempted to think that something was imminent. It's going to happen quickly. It's this vote or that vote, and they don't really have the patients to stay on this particular issue in the legislative process. If it turns out to be early two thousand eighteen, I would think that the probability of something passing is quite high and markets can actually focus on other things if for some reason there's a delay

for a couple of weeks. But it is material. I mean, there's a lot of devil in the details here. I just took a look. For example, if you were to take a look at the original Trump campaign headlines, you're gonna getting a lot of those, but they seem to be with a one point five trillion dollar price tag sevent or more offset by offsetting revenues, which is what the really interesting details. You know, we'll see where all those other taxes have to go up in order to

pay for this. Uh, that part will I'll hopefully learn tomorrow. Devils and the details, of course you have. But on the issue of growth, we hear from members of this administration, from economic advisors to it, UH that tax reform would lead to more growth. We get to that three or four percent range that they've been talking about since the campaign, any indications of that as you look at the at the data, I think that there are subtle positives here.

If you take a look at the corporate tax rate, just having a globally competitive corporate tax rate will mean a difference. Now, of course there's some revenue lost for that, but we only collect about ten of all federal UH taxes are come from the corporate sector. And so in essence, if you can have a more globally competitive tax rate, you can incentivize domestic production. Now that will be a

subtle but positive shift up. And then you have the other issues here that are we really cutting down on all the complexity? Are we really raising enough revenue on these other issues if it's really just a tax cutter or reform. But you know, I would not expect suddenly the economy has this tremendous new technological potential to grow, the population will grow more rapidly. You know, it's subtle, but it could be. It could be in the direction

of a more positive direction. You've learned about bowl market psychology and the degree to which it's spreading around the world. What are you seeing there? How how unwilling are investors to reckon with central bank policy, political risk? Are they squarely focused here? What we're seeing is a rising still rising stock market. We'll just think about Catalonia versus Greece some years ago, and again, you know, the financial ramifications are very, very different, but the impact and market is

so tremendously different. You know, we worried in two thousand and ten whether the you know, the horrible earthquake in Fukushima was going to derail the world economy. That's how how everyone felt so incredibly fragile about everything. And now what you see with North Korea has had no more

impact than flammable smartphones. Right. So, these these types of things show that markets feel as if there's adorability, and that means that they're taking more risk and that future returns will be reduced because we're taking more risk right now. But I think it is more correct than incorrect that when we have problems, they tend to be regional, and that most recessions aren't act regional. And if you diversify across the world, you can uh you can actually take

down rest. It's one of the few things we can do to mitigate risk. Stephen Wading with this city private bank getting and started here in this hour FED day, David grew up providing wisdom in the one hour on Bloomberg Television. Then I'll wander in on radio and television with the FED show, Scarlet Food leading our coverage with Alan Blinder and Bill Gross and Jeff Rosenberg with us as well. All the tax reform dynamic runs up against all the mail I get from listeners, which is about

the fiscal deficit. I believe tax reform is really about cutting taxes. So far in the discussion I've heard when does the deficit impinge on the markets? Impinge on the markets? These are another thing that could be quite subtle, because the deficit does indeed matter to independently of the interest rate level. But this is how we use savings now. In the future, you know, what will we pay for? What will we give up? You know? Right now we

certainly have a surplus of savings. Where you can see interest rates your pointing earlier on the air to the cost of capital for Apple in the debt market, for rate is three point or something. The personal savings rates in the neighborhood of five. Yeah, the national savings is higher. Federal obviously have dis savings and in the long run, it will get worse. And you know what will we do, Well, we will finance a good deal of healthcare consumption, or

will we finance plant and equipment. And that's a question of what the deficit is doing, and that it is the treasury will get financed that we will be able to borrow and spend. But what will we be giving up if we don't have an endless supply of savings in real savings UH inflation adjusted saving. And that's the question is to how we use capital, Steve, you talked about the need to to diverse f internationally. How how broadly does one do that? Or how broadly would you

counsel one one to do that? Is it targeting one mark in particular, one sector in one market? How how broad a brush to you use when you when you talk about the international versification. Well, I'm a little worried when you know, for example, we're now overweight all emerging markets regionally, and that's in both equities and fixed income. We spent most of the last five years underweight. Instead, Now when we do that, people will say, well, I bought this one emerging market country E t F or

something like that, and it didn't work well. The reality is is that there's a lot of idiosyncratic country level risk and you need to be careful. Things that look quite good have idiosyncratic risks. If you take a look at fixed income in Brazil, for example, give us give us a plus and a minus adios syncretic risk. We'll think about the elections of two thousand eighteen that are coming. In the case of Mexico and Brazil. These are markets where yields are tremendous compared to what you see and

developed markets. In the case of Brazil, you also have a good equity valuation. But could you say that I put those into a portfolio of other emerging markets and I will probably have a good high expected return. Yes. Can you say that if I concentrate solely in that country and something goes wrong on the political front, then you have a problem. So that's why we need broadly diversified global portfolios. UH. And if we have an emerging

market's overweight, it's not the entire portfolio. When when you when you look at Asia in particular, and we've heard so much about trade UH, and we're looking to the president heading over to Asia at the end of this this week, has that risk ebbed or subsided a bit? Uh? Do you have a better sense here what trade policy is likely to be. It is as big a risk

factory as it was. Well. I think the notion that some had at the beginning of two thousand seventeen that if you can't make it in the United States, you can't buy it, that whole risk has diminished now it has fallen. Uh in terms of how the markets rate that political risk. You can see how the Mexican pay so has risen pretty tremendously and suddenly there's a little bit more risk there. So I think that market are coming around and could could face another relapse and concern

about that. I think the issue of Asia, though, is that there's a greater adorability in Asia than many investors believe. I just spent a week in Shanghai a couple of weeks back, and it is amazing how differently investors there feel about China than Western investors. Do you know we've had declines on corporate debt in China since two thousand and sixteen? Where where do you read about that? You see large declines in capacity in industries that have problems

with overcapacity. You know where do you read about that? Those are the things that I think are underappreciated right now, particularly about China. Do we treasure our guests, and we particularly treasure them for their proclivities, their oddities, their focus

and weirdness. Within the game of economics, fans investment. So if you're speaking with Stephen Whiting and City Private Bank, and he has an intellectual skill to talk on eight nine things at once, it always comes back to corporate profits and their link in to the economy, and that means investment, dynamics, consumption sixty nine point five percent now

of g DP. Do you do you know, by the way, the whole Medicare system is consumption is consumer spending that essentially all government healthcare benefits anything that goes Yeah, you know, it's one of these things that sort of folks don't want to always, you know, trot out sevent I'm going to put a chart out here on Twitter for Bloomberg Radio which will feature over the next coming days, that goes to that investment is the partial differential, It's the dynamics of g d P. Are we at a subpart

g DP simply because we can't get investment going over the last several years, it's been across the board moderation in terms of the pace of ground. When I say moderation, I don't want to say, you know, lacks volatility. That would lead to another conversation. But consumption has not been powerful, income dynamics have not been powerful, and investment I've all

been on the slow side. We're seeing a bit of a pickup now and I think the question I should probably spend a bit more time on this myself, is to the extent that the energy boom and bust. The one thing that boomed in the U. S economy last several years, it's a bit energy related investment. Then it went bust. And now it's coming back to what extent is that contributing to the rebound that we're seeing investment. But we are seeing stronger investment now that we've seen

for a very long period of time. Ideally it's more broad based than interest energy. We're looking at the conclusion of the FED meeting today Tomorrow we're likely to hear from the President, who has picked to head the FEED is going to to be tell us a bit about how you from investing perspective. See Jerome Powell, the gentleman who's reportedly in the running to get that job. You've written about him being sort of a benign, predictable UH.

Maybe not guy, But in terms of policy choice, what do we know about him and what might that mean for markets? I think we said something about, you know, the principal teaching an art class, you get these people are really passionate about monetary policy, and and you know you obviously the carrot Kevin Warsh for example. So this is UH an environment where the marketplace probably overreacts some to the practical impact of the choice of FED share

that it is a committee, that the institution is very powerful. UM. I've never served in the Federal Reserve system, so you know, others can speak to this much better. But the idea here is that in the very short term, when it comes to confidence and clarity about monetary policy, how market participants feel they can forecast the FED staying with someone

who is part of the yelling FED. UH, and it's laid out conditions for unwinding monetary accommodation the way Jerome Powell has it seems much more predictable, UH than going to an outsider. Right now, a great value of horizon investments, writing this morning in his note about Janet Yellen likely not to be a FED chair for another term, saying should go out on top widely praise for engineering an economic recovery and presiding over a historic stock market rally.

Lucky Janet Yellen getting out just in time. How much your thing is going to change here when you look at what she's set up with this committee has has set up. How likely is it to change under the leadership of some buty else, Well, if it is J Powell. I do think that monetary policy is not going to be, you know, the driving force that changes the whole economic outlook. You know, I think there are many economists who go out and say, well, you know, the federal reserve and

monetary tightening, all the recessions are about that. Only if we just it would almost give you the notion that if you stayed easy forever, you'd never have a downturn. And I think that that, you know, is a real mistake.

That the imbalances that you can build in an economy by having monetary policy off sides or otherwise um irrational exuberance, these sorts of things, whether but it has to be I think real side as well as financial When you get that, I think you can have downturns, and clearly what you saw I know eight, which I don't think has to happen again in any by any means. You know, these are things that were not well predicted by the stance of monetary policy alone. I just came up with

a phrase. I'm not saying it's original, but it goes back to the military industrial complex of the fifties. Is there such a thing as the medical industrial complex? When you look at the hybridization of government investment, combine them all in a where medicine is just become the beast of all of our dynamics. Are GDP dynamics, well, that is, it is the secular grower. And the United States just

stands out though. I mean, this is this is a problem for us because you know, a good deal of our health care is sort of like a stock option going into the money when you turn sixty five. You know, the Medicare system covers those and outside the United States, people if they have government healthcare programs, you know, they're covered for the entire of their life. So there's not this massive kink up and expenditures that occur like that.

But you know, around the world, one of the interesting things to to note is that healthcare expenditures are less cyclical in income. Most you know, things go up and down even more than income, and healthcare only goes brilliant. Thank you so much. He is with City Private thank or Global chief investment strategist. Futures Up eleven del Futures Up a big one five the vix nine point eight six. This is Bloomberg. This is an honor. What we are

humbled by the guests we have in their perspective. Frederick Michigan is at Colombia. You've heard me rave about his textbook, which is policy driven, particularly back half of it. He holds court at Colombian Dark in the door of the Echoes Building. Years ago as a Fed governor. Rick in few years ago you wrote a chapter in Crashes and Panics and Historical Perspective comment on who put the mania and tulip mania? And this goes to the This goes

to the idea of asset bubbles. Are we bubblicious now? If we skewed things to such a manner that we have a mania within our financial systems, well, I think you have to be very careful in terms of thinking about two different kinds of bubbles, and one is very dangerous and one much less so. So as at prices do wild and crazy things. And who knows whether in fact the stock market is too high right now. This is something that economists have a really hard time uh

predicting or even explaining even after the fact. But uh, currently the stock market may be very high, but we're not seeing excessive risk taking on in terms of credit markets, and that's really very very different. We get many bubbles, which are the ones that are very dangerous. We like when we had preceding these global financial crisis we had recently, where in fact there's a huge incluse and asset prices,

but they're fueled by credit. And if the fueled by credit, when they've ascid, bubble births, now you have a contraction of credit and that destroys the economy. And that's what happened in this in this recent episode. That's not what we see going on now. And we've had many cases where stock market has gone way up, it's sometimes crashed. Just think about the tech bubble um in in the early two thousand's that crashed and the economy had very

little impacts from it. So I think the key issue is not that we need need to predict what's going to happen asset prices. If I could do that, I would own Bloomberg. On the other hand, uh, not that good and so. But in the other hand, we can tell whether a very high asset price are associated with a lot of risky credit taking, and in that case we've got to get very nervous and we have to do something about it. That's not the situation now, but

that's one of the lessons we learned from the last crisis. Rick, let me ask you about the evolution of rules basedness. I gather you were at the Boston FED conference a couple of weeks back when John Taylor spoke about his rule in a new broader context of you know, not go ahead. In fact, by the way he let he

led off the conference, and I was the count or conference. Well, I just I wonder what you made of what he had to say, the fact that he suggested there could be some discretion infused with that rule that could be used in tannem are we're seeing an evolution in the way that we have roach rules based monetary policy. You know, it's hard to say, uh that I think if John was actually put in the position of being FED chair, uh, he'd be more flexible. But that's nearly not what what

what he said. He he actually talked about that the fact that that the kind of discretion that Ben Bernanky in the FED used was way weight too much, and in fact, I think he mischaracterized what happened during that period. I would describe the the operation under the Banancy FED as very rulelike. The key thing that Ben Banankey emphasized was that he wanted to anchor inflation expectations. One of the huge successes of that period is in this case,

he anchored inflation expectations so they didn't fall. So remember at one point we actually had a huge negative shock. We actually had deflation for a very brief period of time, but it was very temporary. The fact it was so temporary that inflation expectations stayed around two percent. That's very ruleike, that's looking to the future. That's exactly the great success

of the to reserve. And I think that that that John just doesn't get that, and in fact I called him out on that in the conference And how did you d you respond? Well, you responded that he disagreed with me, but that's you know, Uh, one thing about economist John is a wonderful person, by the way. One

thing about economist is we love to disagree. But I do have a very formal, very strong disagreements with views, very strong disagreements with the bill that he has helped, uh encouraged through Congress, which actually requires to have a directed policy. I think this is incredibly important because of time, Professor Michigan, we got to cut to the chase. Are we gonna have these debates and discussions if we have

a non PhD economists running the FED? Well? I think the answer is these debates and discussions will always take place. That there are some very strong reason why rules have advantages, and also some strong reasons why pure discretion, which is not with Ben Bernaki was doing at the FED and not what Janet Yellen is doing at the FED. That Uh, that that can have real problems too. So we do need to think about how we if we do exactly that.

In fact, the paper I presented the conference was actually directed as saying, how do we get the use of discretion the use of rules? Just right? You didn't answer my question will we have these discussions if we have a mckesley Martin, William G. Miller J Powell type running the FED. Well, first of all, let's not talk about William and Miller. He was a disaster, but Besnie Martin was actually very capable, and I think J. Powell is

very capable. Uh So I think that that, uh that my view is, I think Jay will do a terrific job. I think the Janet would be even better because Janet really uh has shown great performance and it's a terrific, terrific economist. But Jay is extremely capable. I interacted with him a lot over time. Uh. He's extremely sensible. He understands how to listen. He also understands how they actually use the staff in the where it should be used.

Should be a very good choice. This has been a great briefing Rick Michigan as a Columbia and I'll say it again, folks, he did a wonderful econ one on one macro text a couple of years ago, which is an act of God because it's a little less Matthew than some of them and a lot more policy driven. Rick Michigan is at Football Power Columbia. Columbia University. Let's turn out to a friend of the show, Austin Gulsby, who was for a long time the Chairman of the

Council Economic Advisors in the Obama White House. He's now back at the Booth School for Business at the University of Chicago. He joins us now as we continue to look at the prospects for taxio for him, talk a little bit about the prospects for for further growth as well.

Professor Goolsby, great to have you with us, and I want to just get you to react, first of all, to the delay that we learned about yesterday, that there's gonna be another day until we get this legislation from the House Ways and Means Committee, and maybe just react, if you could, to the timetable for all of this happening. Give us your sense of of how possible it is to get some sort of comprehensive reform done here over these next few months. Well that's a how fast it's

going to happen is perhaps the key question. I would disagree a little with the premise about comprehensive tax reform, though I don't think that's an accurate description. I think what they're what they're seeing is what's been the reality that they that they did not want to admit all along, which is they're not trying. They're not even remotely trying to do a six style comprehensive thing. They're just gonna try to figure out a way to cut some taxes.

And I think the delay, you know, you you may disagree with me, but I think the delay of one day my harbor delays of more days because ultimately they've agreed that they are going to increase the deficit by one point five trillion in doing this, but they've described in the President's framework, what he calls his framework, more than five trillion of tax cuts. So to get to the one point five number, they have to raise three and a half trillion. Austin, I don't think they'll be

able to do it. We had too short a time with you today, but just one more question and we'll let you go on and get you for a longer time again. I had huge response to the idea that they would play around with the four oh one K funding. People were just baffled um by by that. With within these limits, what is the constraint of the federal deficit? Is that a valid constraint to the legislative process forward.

I think it's only a political constraint. Certainly in the short run, the dead capacity of the U. S. Government is vastly in excess of where we are, so I don't think that that's a market constraint. I do think that there are a fair number of Republicans who so put their credibility on the line attacking President Obama for the stimulus that for them already to be calling for a tax cut twice as large as the stimulus. That's about the limit of how far they're willing to go.

Because of the services at the New York Stocks, James, Austin is too short of visit with you. Would like to get you on again, and particularly to talk to the Cubs, talk to you about the Cubs fan, the laureate Richard Taylor. We haven't had that moment with you yet, but we'd like to get Austin goes beyond again. Professor Gouldsby, thank you so much. With Chicago, of course, Ken Griffith, citcal Citadel donating hundred and fifty million to the institution.

Austin will get his fair share of David. I think as what we thank Uh, things I could say. No, probably get a copy of Samuelson. Austin goes to be the former chairman of the President's Council of Economic Advisors. David gurl has got lots of intelligent questions and technology for the author of The Four, The Hidden DNA of Amazon, Apple, Facebook,

and Google. But I've just got one question for Scott Galloway of New York University on Amazon, I mean, you're living the benefits of Amazon twenty eight dollars for your book The Four. They're walking out the door at eighteen dollars thirty cents prime free one day shipping. That's a discount of thirty Is Amazon your friend or enemy when you're flogging a book? I think the answer is yes. Uh, they're They're so dominant in the book business that I

think they've reshaped it. What's interesting about the book business, though, is that Amazon has arguably done less damage or less disruption of the book business than a lot of the categories. It's kind of too after that. So they're, you know, they're the biggest player in books. But at the same time, as an author, they're very good at figuring out how to track people who maybe have checked out your book,

you'll start getting haunted by ads. For the four few I have I have, you know they'll start stalking you. So there. I almost wanted Scott Galloway last night for Halloween. That is a terrifying costume. And trust me, it doesn't work anywhere. Um doesn't get you into restaurants and doesn't it doesn't help anywhere. So yeah, Amazon, Amazon, look it dominant,

I would say on the whole good for authors. Okay, David Garrol, why din't you start on the tech frenzy is people know, I think it's just a bunch of blooming. But David trying to be more intelligent than I could be. What we learn yesterday? You had three representatives from three of the Big four on Capitol Hill yesterday testifying before

the Senate Judiciary Committee, a subcommittee of that committee. Today, move over to the House and we'll see a repeat of what we saw yesterday when it comes to what these companies did and are doing to change their behaviors. What do we learn? So what you the new sort of non denial denial or non apology apology is the term we must do better and the key to it's not a crisis itself to damage is a firm. It's

the response to the crisis. Mar the student Martha Sturgeon go to jail for insider trading because she went to jail for denying it, specifically obstruction, obstruction of justice. And the only thing you really have to remember in crisis management is to overcorrect or at least be perceived is overcorrecting. And I would argue these guys have yet to really put out the necessary statement and that's it. That is

the following. The CEO needs to stand in front of America comm Risk consumer, sheha olders and say I'm personally committing to making sure this never happens again. And they haven't done that. How difficult is that? From a technical perspective, how much some ppathy do you have for these companies who say to do the kind of screening with the individulants have the kind of vidulance that would be required is technically an impossibility. I have almost no sympathy because

we're not talking about the realm of the possible. We're talking about the realm of the profitable. And that is if The New York Times can protect us from the weaponization of their platform. On ninety million dollars in cash flow, Facebook can figure it out. With twelve billion, Facebook could

hire ten thousand people to screen content. They could spend half a billion dollars a year on artificial intelligence to help those ten people identify and flag that content, and it would dent their free cash flow five or ten percent. When big tech tells you something is impossible, that's Latin for it. We would be less profitable if we did this. This is look a better business model for our country club is to have no lifeguard to the pool, and

that's what they've done. But for some reason they've co opted us into believing it's impossible. That's just ridiculous. Why are they the police of all this? They're just a kind of it. They're just a distribution system, aren't they. That's a fair point. And that's the argument that they're a quote unquote platform. This alterms are that platform or the media? I would argue, I would argue the part

of the fourth of state. You create content, you spend a billion dollars in original content, you run ads against that content, boom. Should they be regulated by the FCC? I mean back then, you know, I remember in Douglas Brinkley's wonderful one volume and Walter Cronkite the whole radio regulation when Cronkite was nobody in Kansas City. I don't see why they shouldn't be subject to the same scrutiny. The rest of the media is media to I looked at the definition last night. Media is a medium that

is used to influence and reach people. Facebook defines what it is to be a media company, and they still haven't admitted their media company. They keep saying that they're a platform. This would be like McDonald's serving of their hamburgers or fake can we get encephalitis and make bad decisions? And McDonald's defense would be, We're not a fast food restaurant,

We're a fast food platform. Facebook defines what it is to be a media company and should and should live up to the interesting to the responsibilities of being part of the fourth of State. How much self awareness to these company these have? I always have flended funding when I go out to San Francisco Silicon Valley, the rhetoric that you hear people toiling away to change the world.

They have these broad, big ambitions, and I wonder if there are sense of of of place in the United States in the world in society generally, UH is somehow skill show. And this is gonna sound cynical, but I believe what Peter Drucker said that organizations are here to create a middle class and four profit entities, which these companies are, are primarily there to create economic security for

their employees and their shareholders, not in that order. And the notion that they're there to connect the world or save the planet or do no evil, I think it is more marketing than it is reality. And every quarter people analysts don't ask them if they're saving the world, are connecting the earth, They ask them what were your earnings? And I think they are very focused on profitability, as they should be. I don't. I think they're doing exactly

what they're supposed to be. The problem is we've personified these companies and we think they're almost christ like. We've given them the mother of all hall passes because we've decided who's we us society. I think we look at these companies differently. Even even these questions if they should be subject to the same regulation as radio, why wouldn't they Why why wouldn't these companies be subject If if a company is weaponized by Russia and other media firms

were not. Then isn't the obvious and answer or logic 'to our more regulations. Let's let's take all the clicks that fit to print. I mean, do the analog of Facebook to the New York Times, do the analog of facebooks? And how is Facebook? Well, it's because you know, I'm I'm at I'm recently, sir, Professor Gellow. Compare the New York Times, then the Facebook, the the pressures that the

Sulzburgs have, yeah versus Zuckerberg. Okay, So I was on the board of the New York Times for a couple of years, and in my second board meeting, and this might be inside baseball, I suggested we shut off Google. I think it's ridiculous. The stupidest thing we've done in old media was buy into this lie that information wants to be free. Your boss doesn't think information wants to be free. And there's a reason why this firm is still fabulously successful. But we at the New York Times.

Let Google show up with a dump truck and start taking cash from us, crawling our data, slicing it up, serving it against ads that they could monetize a ten act what we could monetize and debased our gorgeous content. We took Birken bags and distributed them through Walmart. Information Wants to Be Free one of the stupidest things we've ever bought into. We're talking with Scott Galloway of New

York University's book The Four. I have a rave review on it, the hidden DNA of Amazon, Apple, Facebook, and Google. It's incredibly refreshing given the other business books that are out there. And what's refreshing about you, Scott, as you've been on both sides of the fences. J Putney migrates down under three dollars per share? What was it like advising, consulting and being on the board of Edward Bauer old Line? What Seattle Retailer? Yeah, Seattle retail are kind of an

icon brand in the in the Northwest. I was put on late by the hedge funds who wanted to kind of muscle it into reorganizations. So you know, I was there when it was kind of near the end. But what's interesting is it got bought again in another bout, and it's about to do kind of chapter twelve. I think it's about to go bankrupt again. But you're seeing

brands everywhere under attack. The era of what I would refer to as a brand era, the sun has passed midday on traditional kind of brand, brand building and shareholder value through through a marginal product with great associations. That's over. How much is what we're seeing here a governance issue? Of course, Uber is an outlier example of problems with

the with the board of directories. But with these big companies, are they adequately governed by folks who know business and know about what historically business has been and stood for. So in media companies, media has and this is not just YOURR Facebook and Google, but all media companies have talked themselves or most of them into believing that they're special and that the founders have some sort of special insight, that they need protection from shareholders and the owners. So

they typically have two classes of stock. And that's true of UM, It's true the New York Times Company. I believe it's true of news Core, and I know it's true of Google and Facebook. Now it's also true of Snap. You have a twenty seven year old will you buy a share? And Snap you have no rights, you have no say, you have no ability to put anyone on the board, and it's run by a twenty seven year old whose company is now worth more than Vatcom, the

New York Times and combined, It's like, what could go wrong? Right? So corporate governance, there isn't a lot of corporate governance. Here's the board of directors of these companies aren't really a board. They're an advisory board because they don't get to fire the CEO and they don't don't get to buy or sell the company, which at the end of the day is really the only two things that matters

for board. How do we get to that point? I look at the sort of social side of things and our willingness or to be complicit, to give away data, to give away information because it's convenient or easy, And I look at it on the other side, led you with the with governance and management and just the way these companies are run. How did we we become we society again? Talk and that it with it with a capitalists become so comfortable with that happening. Sure we were

talking about this during the break. I believe that we no longer worship at the altar of character and kindness, but the altar of innovators and shareholder value, and we believe that these people are good for society, good people. I think they're incredibly savvy, they're incredibly impressive, and there's a political bend here. I believe they've wrapped themselves in a pink or rainbow or a neon blue blanket. Because progressives, as a general rule are perceived as being very nice

and weak. It's a great foil for for a company that acts like Darth Vader and in a rand during the day, wrap yourself in a progressive blanket and you're not seeing this threatening. Look. At Microsoft, they were perceived as more conservative, and conservatives are largely seen as being smart but mean. So the foil, the illusionist trick is to come off as very very progressive and liberal and caring about other people, because then during the day you

can be Darth Vader. But give the parallel. Then then you do this a bit. In the book before of these giants and John d Rockefe are literally the first business book I ever read was I did tarrible. To this day, I can't tell you why I pulled it off the shelf at Fairport High School a million years ago. How do they relate to John D. Rockefeller, Well, you mean in terms of concentration, concentration and come on power

simply so. So I would argue that at share of search and search is now a bigger business than the entire advertising business by dollar volume of any country except in the US. And you have one company that controls nine percent of it. It's Google. So I would argue, I would bet Google it has more power and concentration of market share than the railroads? Are mob Bel did when they were broken? Are we waiting for I did Tarble to come along to break up Google? Well? Are

the equip analog to that? And the only regulator in the world now who I would describe whose testicles have descended is Marguerite Messenger. She's the one that's going after them.

And it's because as war, the war against big tech is going to break out where all the other big conflicts have broken out, It's going to break out in Europe, Tom, because we register a lot of benefit here and a lot of downside in Europe they register all of the downside and a fractory I'll agree with that analysis, But then how do you respond to the natural lockey in individualistic We're American we're gonna do it ourselves attitude that pushes against Mr Investiger in Europe. I mean we push

against that theme, don't we? Yeah? No, I don't. I don't think people say what could get in the way of these guys and people. I believe the only thing that standing between any of them and a trillion dollars in market cap right now is Washington or Brussels, and it's definitely more likely going to be Brussels. But I don't you know, at some point Tom one of these Northern European nations is going to say, is the model

of letting these guys in worked out better? Or is the Chinese model where you let them in just long enough to steal their i P and then prop up a local competitor and capture all the value. Do the Chinese have it wrong? Who are the dumb ones here? So? I wouldn't be surprised if we see a small European nation actually outright ban one or more of these companies.

I think the worm has turned against big Tech. I've had a case to talk to to Margaret Vesker in Washington, and she's kind of seen, at least as I perceived it as a curiosity there in terms of where she's coming from, what she's trying to do, and I think she's probably the subject of a lot of ire there,

of course in the Bay Area as well. What accounts for the cultural difference there between where Brussels is and where Washington is And are there any indications that our sense of competition is going to change or revolve as a result of what we saw in this election, of what we've see in terms of the micro or size of these companies there, there's a big difference. And it said in the US, it's hard to deny we register a great deal of benefit from these firms. Amazon is

the largest recruiter from my class. You have the real estate prices in California or northern California skyrocketed because of the wealth created there. They they're sources of national pride there. You know they are ours. It's a huge sort. They create competition, economic growth, the all the concerns around privacy, job, job just direction, weaponization by foreign adversaries are a real conversation.

We're having it. But in Europe there aren't a lot of university buildings or hospital wings named after Facebook or Google. Billionaires show the question is if if if I don't get the upside and I get all the downside, that stiffens the regulators backbones in Europe. David, just to point things out, and you know, I've read most of Galloway's tone here. I've read the first point of the Old Testament, but not the New. Did I know, David Gura, that

Amazon has five d forty one thousand employees. I don't believe I knew that. Is there a point at which got you push against the company becoming too big? And others? We can talk about how regulation might curb the growth through the influence of a company, but just I guess it's a principle of physical Can it get too big? Can a company get two sides of Can Google and Amazon become too big? I don't know if they've become

too big. They're definitely not too big. Keep in mind, I mean Tom talked about the half a million employees at Amazon. The more interesting fact is that Facebook is now I think, the fourth most valuable company in the world. They do with twenty two th employees. And if you take these companies combined, it's the population of the Lower East Side with the GDP of India so GDP of India spread across the Lower East Side. They outside. It's not that can they become too big? Is it? Can

they become too powerful? And that's a that's a legitimate question. You do your gen mooriss imitation at the back end of the book and you say the four in you what should you do about this moment? And this is a profoundly American issue, which is the de peopling of America to the cities, and this has to do with our American politics. Get to a city, Yeah, what do you mean by that? Two thirds of economic value is

going to be created in a city. When you're in a city of bump into people who are better or you know, are the best in the world. It's when you play tennis, so someone who's better than you, you get better. So rally with someone who's great and the best in the world. Are gravitating to cities because that's where the economic value is. To get to a city and pump off in rally with better tennis. Twenty five year old in Brooklyn, they can't afford to live large,

Like David Girl, which city should they move to? Where's Galloway's favorite city right now? Oh? Gosh, Tom, if you can afford to, you want to live in New York or San Francisco because it's a very endeah. But come on, they can't. I mean no, you know it's outrageous. Give me a secondary city here. I gotta make some news and sell serious XM Channel one nineteen somewhere Miami, a small city like Miami, Miam is fantastic. Nashville, Um, Queens, Yeah,

there's there's there's a ton of great cities. Uh. St. Louis, Wash you that probably the fastest. There we go. We'll leave at their Washington University, St. Louis. Riley from St. Louis, we say good morning to you. Scott Galloway. The book is The Four Even Riley from St. Louis is going to read it. This is Bloomberg. Thanks for listening to the Bloomberg Surveillas podcast. Subscribe and listen to interviews on Apple Pie, Guests, SoundCloud, or whichever podcast platform you prefer.

I'm on Twitter at Tom Keene, David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio