‘The Dirty Secret of Covid’: Scott Galloway on the Postpandemic Economic Turmoil

Early in the pandemic, he began writing a book on the crisis from 1945 to the present to explain the significant changes in our society and economy. Prior to the fall release of the book Adrift: America in 100 Charts, DealBook told Galloway what he discovered about America during his research and where he thinks we’re heading.

Conversations are edited and summarized for clarity and length.

Your book suggests that the depth of recession may be the best time to launch a startup. With all the warning bells from the market and the Fed, should people think with entrepreneurship?

Evidence shows that it’s a really good time to actually start a business. When you start a business in a recession, it’s cheaper — everything from real estate to employees to technology is cheaper. Sounds counterintuitive, but building a business during a recession tests the quality of your business early. It’s like when you want a soldier who has experienced combat. It’s a kind of battle test that a business starts in a recession, and once it’s overcome, it’s a viable business. Then you have a breeze of recovery behind you.

And out of recession, businesses and consumers will revalue their purchases and be much more open to new ideas and new vendors.

Speaking of recession, what do you think Silicon Valley looks like on the other side of this?

As in the last 13 years, in a bull market you have basically modeled Netflix as long as the market reacts positively to growth and can increase the top line with stable clips. Amazon said it liked this and continued to increase the value of the company.

Here, some things happened. It’s hard to imagine a company like Uber making a profit in a sustainable business, but even though it’s growing, the market doesn’t like it. is. ..

Twitter has, in fact, lost more money in its history than it has earned. And because interest rates are rising, you have to borrow money at much higher interest rates, which raises the financial costs of companies that are losing money or are not yet profitable. In addition, the profits you expected in the future are discounted at a much higher rate. Some growing companies will cost more to raise funds that will ultimately result in worthless cash flow. Their stock value here is now absolutely hit.

What do you advise those companies to do?

There is no magic wand. It is a cost reduction. They need to reduce costs, and in some cases, adopt a business model that can achieve higher prices and dramatically lower costs. And frankly, the cost of financing the runway to profitability is much higher, convincing the market to get profitable faster. Therefore, they need to show the amount of distance and the runway needed to be profitable is shorter. They basically have to trade off growth for a shorter path to profitability. That’s what the market is telling them.

In your book, you will see how this optimism we are trying to resolve inequality during every economic recovery is. But we always seem to be in short supply. why?

We mistake prosperity for progress. And we have created tremendous, astounding, unprecedented prosperity. I think the mistakes and myths we accept are that whenever financially prosperous, GDP grows, which leads to national progress.

What does progress mean? I think ballast — and that’s my first chapter in the book — is a healthy and prosperous middle class. The geopolitical power of a country, its well-being, its democratic strength is usually a function of how prosperous its middle class is.

Now, the problem with the United States, and less so with Europe, is that the United States believes in this myth that the middle class is the natural target of the free market economy, but it is not. The middle class is an accident. It’s an anomaly in economics.

There is a certain belief that if the economy goes well, the middle class will recover itself. That is not true. What happens over time in all economic history is to weaponize wealthy governments, lower taxes on them, and resist competition — the biggest and most powerful companies have settled themselves and you are middle class. It ends in class erosion. You end up with income inequality. It gets worse, and the same thing happens with income inequality. The good news is to self-correct whenever income inequality reaches these levels. The bad news is that the self-correction mechanism is war, famine, and revolution.

Unless you invest in providing and investing in a strong middle class, such as minimum wages, trade union support, vocational training, and access to free and low-cost education, the middle class will no longer exist. We fall into this idea that as long as the economy is good, so is the middle class. The two are not necessarily linked.

You warned early on that the pandemic era was too stimulating and negatively impacting the economy. What should we have done differently?

We spent at least $ 7 trillion, but it was cloud cover that threw a loaf of bread and circulated it to the poor so that it could greatly stimulate the economy. Most of the money has reached the market, and who owns 90 percent of real estate stock in dollar volumes? Top 1 percent. PPP, a small business bailout, was nothing more than a free gift for the rich. The wealthiest cohort in the United States is the owners of small businesses waiting for it. The millionaire next door owns a car wash machine.

This is Covid’s dirty secret. If you are in the top 10 percent, you are living your best life. Covid for you meant more time with your family, more time with Netflix — and you saw your stock accelerating.

It now seems clear to pour $ 7 trillion into the economy and link it to war and supply chain eruptions. And, of course, the people who are most hurt by inflation are those who don’t have cushions. We absolutely overdo it.

You have been skeptical of crypto for a long time, and now we are seeing a real crash. What do you think will happen next?

What we found was this overall mantra of an unreliable economy and we shouldn’t have trusted many of these new actors.

Even in 1999, there were many use cases for the Internet. I was able to buy CDs and books on Amazon. Get real-time news on Yahoo. Finding use cases from blockchain that affect everyday consumers is more difficult. I think it’s just a huge rewind or deleveraging of space. And I think we’re in the midst of an unprecedented crash from an asset class perspective.

Looking at the bubble, the rise here was even more unusual than the previous bubble, including tulips, 1999 internet stocks, housing and Japanese stocks. The runaway here makes others look like sheep or understated. This means that the crash will be as severe or even more severe.

There will be more proceedings. There will be more calls for additional regulation. You’ll see investors say: Where were the regulatory agencies?

That’s bad news. The good news is that it won’t have much of an impact on the real economy. Keep in mind that even if all ciphers are now zero, it’s less than half the value of Apple.

What do you think? Do you agree with Galloway’s predictions? Please let us know: dealbook@nytimes.com.