← Slate Money
Slate Money
The Yanis Varoufakis is not on Slate Money Edition
00:43:00
Slate Money on Greece, Puerto Rico, and Brexit.
Loading summary
Transcript134 lines
- [00:02]
Jordan Weissman
Slate Money is brought to you by bolandbranch.com offering luxury bedding at affordable prices. Order now and they'll give you 20% off, plus free shipping. Get sheets, towels, blankets, duvet covers and more@bolenbranch.com that's B O L L A N D B r a n c dash.com and use the promo code money and by headspace, if you've ever been curious about meditation, then go to headspace.com money and try the Take 10 program. It's guided meditation for 10 days, 10 minutes a day, absolutely free. Give it a try@headspace.com money and by betterment, the largest automated investing service managing billions of dollars for people just like you. Get up to 6 months of investing free when you go to betterment.com slatemoney betterment investing made Better.
- [01:10]
Felix Hammond
Hello, and welcome to the Yanis Varoufakis Is not on Slate Money edition of Slate Money. I'm Felix Hammond of Fusion. I am joined as ever, by Kathy O', Neill, the blogger and data scientist@mathbabe.org hello. I am joined by Jordan Weissman, the Moneybox columnist at Slate.
- [01:34]
Jordan Weissman
You know, I was worried that my return to the show after two weeks was going to be overshadowed by our guest. However, that's not a problem now.
- [01:42]
Felix Hammond
We are not joined by Yanis Varoufakis, the former Greek finance minister and author of a new book who's. I mean, frankly, I don't even know if we need to plug the book anymore because he's not joining us. He's in a studio in Chicago. Chicago, where we have an ISDN connection to the studio. But his arrival at the studio did not go well. We are told.
- [02:05]
Jordan Weissman
We are that we are apparently the victims of Giannis's commute and his tempestuous Greek temper. That is what I think we are is happening today.
- [02:13]
Felix Hammond
So Yanis arrived at the studio on time, but then decided that he was canceling the interview. Therefore, Yanis Fairyfrakis is not on Slate Money this week and we are going. But the good news is that Cathy o' Neill has read his book.
- [02:28]
Kathy O'Neill
Wow.
- [02:29]
Felix Hammond
And so Kathy o' Neal is going to do her best Yanis Varoufakis impression. She's wearing her leather jacket and her Genati T shirt. And let's just say she's also shaved.
- [02:40]
Jordan Weissman
Her head bald for the and she.
- [02:42]
Felix Hammond
She may or may not be married to the woman from Common People by Pulp.
- [02:46]
Kathy O'Neill
That was an amazing song.
- [02:47]
Jordan Weissman
This is so this is something I learned today that apparently I did not. I'm A big Pulp fan and I spent time covering the Greek Crisis, and. And yet somehow I never knew that there was a rumor that Yanis Varoufakis wife inspired Common People by Pulp, which is one of the greatest Brit pop songs of the 90s.
- [03:03]
Felix Hammond
So all of these questions which we had for Yannis Varoufakis, like, did your wife inspire common people? Questions I'm going to have to put to.
- [03:11]
Kathy O'Neill
No, just go ahead and ask me.
- [03:13]
Jordan Weissman
Did she? Yes, she did.
- [03:16]
Kathy O'Neill
Why not?
- [03:17]
Jordan Weissman
She came from Greece.
- [03:17]
Kathy O'Neill
She had a source of really good evidence that she. That she is the person that would. Sorry. That song.
- [03:21]
Felix Hammond
So. But okay, so we are going to talk about the main. The three main subjects that we wanted to talk about, all of which are in the news right now and which we wanted to talk to Yanis about because he has his own unique take on this, which he's just going to channel through Cathy o'.
- [03:39]
Kathy O'Neill
Neill. Yeah, I'm going to ask and answer the questions I was going to ask.
- [03:44]
Felix Hammond
The three subjects are Greece, Puerto Rico and Brexit, which are all fascinating subjects. And actually, Kathy is super interesting on all of them. So Yanis Varoufakis is. Yanis Varoufakis's absence notwithstanding, I have a feeling this is going to be a pretty awesome episode of Slate Money. We don't just throw these things together.
- [04:09]
Kathy O'Neill
No, we don't. No. This is very well planned.
- [04:11]
Felix Hammond
Highly, Highly planned and prepared. We can totally put aside Special Guest Edition together without the special guest.
- [04:17]
Jordan Weissman
That's how.
- [04:17]
Kathy O'Neill
That's how good we are.
- [04:18]
Felix Hammond
That's how good we are.
- [04:19]
Jordan Weissman
Yeah, that's how good we are.
- [04:20]
Kathy O'Neill
So listen, I'm going to tell you a little bit about Giannis's book. Can we start?
- [04:23]
Jordan Weissman
Yeah, sure.
- [04:24]
Kathy O'Neill
Let's start. Okay. So it's pretty fascinating. I mean, basically what he did was he talked about the sort of history of monetary policy and the modern history of monetary policy in Europe, and he thinks it starts in 1971 with something called the Nixon Shock. And we won't go into all the details, he said, but basically it's. The long story, shortened to a few sentences, is that it was all an effort to make money apolitical. It was all a doomed effort to make money apolitical.
- [04:56]
Felix Hammond
So money is inherently a political thing. And the idea behind Bretton woods and all of these things was to try and depoliticize it.
- [05:05]
Kathy O'Neill
Yeah. And I think it's a fascinating perspective because it does seem like that the more you see what actually happens, especially in bad times, not like when everyone's doing Humming along economy wise, but in moments of crisis, that's when the shit hits the fan. And it's all about who actually controls this and to what extent do individual nations have the power to do things that they need to do to fix their economies.
- [05:28]
Felix Hammond
And this is obviously top of mind for Yanis Varoufakis, who was the Greek Minister of Finance at the height of the Greek financial crisis and who had to deal with the unpleasant fact that Greece does not control its own currency.
- [05:46]
Kathy O'Neill
In fact, he has a term for it, he has lots of terms in this book and it's an enjoyable book for that reason. But the term he uses for this is fiscal waterboarding. I don't know if you heard this, but his theory is that absolutely the Greeks were in debt and the country was in crisis, but in order to solve that they didn't actually get help from the European powers, the troika. Instead they got fisc waterboarding, which is to say they, they were just put into sort of a torturous position and almost killed and at the last moment allowed to breathe for a few minutes, but then get, go ahead and put into a bad torturous condition again and it doesn't seem to be letting up.
- [06:26]
Felix Hammond
And, and the title of his book, we, We May as well Throw this out there is and the Weak Suffer what they Must. Question mark. This is the idea that the creditors are the strong and the debtors are the weak and that when a crisis happens, all of the power and control is in the hands of the creditor and accredited nations and the debtor and the destinations like Greece basically have no control over their own destiny whatsoever.
- [06:56]
Jordan Weissman
Yeah, at least when you're in a situation where you don't have control over your own currency. And that, that's, that's kind of the, the key bit of all this and that we've kind of almost made this mistake repeatedly through history as part of the point of the, that the Bretton woods system essentially, which was sort of the post war monetary system, more or less put the entire world on the dollar. That's what it did. It hooked to the value of the dollar to the gold, and then everyone else's currency was pegged to the value of the dollar. And then that eventually collapsed and the United States single handedly broke it and said, no, we don't want to deal with this anymore. And all the power was in the hands of the United States and that was the Nixon shock. And that sent Europe into this frenzy because they didn't have any control. So what did Europe do they created the, they eventually created the euro, which again took the power of the currency out of the hands of individual countries. And then you have a country like Greece that is stuck where it's a creditor nation. And there are reasons why this leads to monetary or financial crises.
- [07:52]
Felix Hammond
Yeah, I'm old enough to remember not just the 2008 financial crisis, but the 1998 financial crisis and, you know, the series of financial crises that you saw in Korea and Indonesia and across Asia and then eventually to Russia. And the thing that all of those had in common was exactly the same thing, basically was that these countries had pegged their currencies to the dollar and then they had to devalue and then you had this massive banking crisis.
- [08:22]
Kathy O'Neill
Yeah, so. Exactly. Right. And so he, he places Greece and the sort of modern history of Greece, the modern crisis for Greece, in a context where it is actually completely obvious, at least from his telling that the, the euro's euro has an institutional design flaw that sort of forced this on the situation, that everyone knew this was coming, it was just a matter of when and now it's happened. So if he were here, I would ask him what's going to happen next in Greece.
- [08:49]
Felix Hammond
So that's a really good question because, I mean, we've been, Greece has been in this situation a few times, but yet again, Greece and the IMF at an impasse. And the people who are controlling the purse strings, you know, in this case mainly the imf, are basically saying, no, we're not going to give you the next $3.4 billion that you need in order to keep the lights on unless you implement a bunch of extra austerity measures. And the Greek government is saying, well, we don't have any kind of popular mandate to implement those measures, and we don't even have enough MPs in parliament to be able to implement those measures. And there's no way that our, you know, ragtag coalition is going to be able to do that.
- [09:34]
Kathy O'Neill
One of the things that Yanis says in his book, which I, I think he's right about, but I never thought about it this way, is that Americans and Europeans have really different approaches to this kind of impasse problem that Americans. And the example he gave was the Nixon shock when they see that a situation is untenable, they just say, okay, fuck it, we're like stopping this. But whereas with the Europeans just absolutely are go into this denial mode and just push the, push the can down the road every single time they can.
- [10:03]
Jordan Weissman
Well, in fairness, also, the US had so When Nixon officially ended, Bretton Woods. Right. The US didn't really suffer as a result. I mean, people will argue that it did, but the US was sort of in a position of power there, and they were saying, we're going to do this, so we're the beneficiaries. Whereas the reason Europe is at impasse is because they don't really see a good way out. There are no good options for them. That's why you get this Groundhog Day scenario where we're back to exactly the argument we were a year ago, basically, you know.
- [10:33]
Kathy O'Neill
Yeah. And one of the things that Giannis points out is that one solution, one thing that Europe could do right now is actually instead of just having a currency union, but no economic union, no political union, like, go whole hog and try to make it a political union as well. That doesn't seem likely at all.
- [10:49]
Felix Hammond
It's never been further away in my lifetime. I mean, I grew up in Europe and with a very sort of pro European family. And all the time I was growing up, Europe just got closer and closer together. And you had, you know, the European Monetary Union, then eventually the euro and the Schengen Group and free movement of labor around huge amounts of Europe. And we in Britain saw a lot of, you know, Polish people and everyone else coming in, and it felt. I felt very European and that everything was moving in one direction. And then in recent years, sort of since the crisis, there's been. It's all been thrown into reverse, and now all of the momentum is in the other direction. It's towards fracture, it's towards centripetal forces, basically everyone doing their own thing and refusing to unify around the common European ide deal.
- [11:48]
Jordan Weissman
Yeah. And I guess one of the important things about that, or the reason political union is so important, is because without political union, we're learning that these kind of. These monetary unions just cannot work. They're. They're doomsday devices. And that's. This is something else he sets out in the book. But basically the. The way this doomsday device kind of rolls on is that, you know, you've. You have these countries that are together in a trade block. Right. They're all in the same currency. And the natural order of things is some countries are going to create deficit, are going to have trade surpluses, like German, are going to end up with deficits. And what tends to happen is deficit. When you have a trade deficit, those countries end up also accumulating debt. And so the natural thing to do when you've political union is that you have someone who comes in and kind of redistributes the money and makes sure that these deficits and these surpluses kind of get evened out. And that's what happens in the US we have the US welfare state but Europe doesn't have that because it doesn't have political union. And so as a result you have this just again you have the doomsday effect.
- [12:45]
Kathy O'Neill
And another thing that we don't have compared to the United States that he points out multiple times is sort of democracy when it comes to this monetary policy that is like a sort of inherently undemocratic event. It is run by bureaucrats and, and tech technocrats. And in fact he, he consistently quotes Margaret Thatcher on this, which is Margaret Thatcher, I guess back when there was not the euro but a different kind of monetary union with continental Europe was.
- [13:15]
Felix Hammond
Like change rate mechanism.
- [13:17]
Kathy O'Neill
Erm, erm, was like why would we do that? Because it's, it's, it would take away our power and it wouldn't let us make rules that we want to make and it's undemocratic.
- [13:26]
Felix Hammond
That was back in the day and in Thatcher's era the Prime Minister controlled the central bank and that was more or less the last days of, of a non independent central bank. Today, all in all, central banks claim to have political independence and do to a very large degree. And even back then in Thatcher's day, the central bank governors were appointed, they were never elected. Like one of the things that is curious to me in a world of democracies is that not a single democracy that I know of elects its monetary authorities. These are deeply technocratic and fundamentally anti democratic positions.
- [14:19]
Kathy O'Neill
Right. Which it's kind of like two different ways of thinking about what politics means. Is it apolitical because it's not elected or is it a political. What does it mean to be apolitical? I think when he says money is apolitical, I think he meant that it is somehow thought of as a free market device that has nothing to do with power, which obviously it isn't. But you're right, it's not elected, generally speaking.
- [14:41]
Felix Hammond
No. But it's true. There's a lot of political power inherent in, in currency and especially in the dollar and certainly in the euro as well. And, and the implications of where that power is held have only become obvious in the wake of the Greek crisis. That all of the power is really in the hands of Germany.
- [15:04]
Jordan Weissman
Yeah.
- [15:05]
Felix Hammond
As opposed to Greece. So after Greece we are going to move on to America's very own Greece. Puerto Rico. But first you about Boland Branch, which is a Slate money sponsor this week. Thank you, Bolland Branch. They make awesome sheets and towels and pillowcases and just anything made out of super soft cotton that you can imagine. You should go buy their products because they are super soft, they are super ethical. They are the first bedding company to be fair trade certified and you get to try them risk free for 30 nights. If you don't like them, you send them back. Or all I would say is that make sure you wash them once or twice before you try them because they just get softer and more lusciously awesome every single time you wash them. So go to BollandBranch.com that's B O L L and Branch.com and if you use the promo code money, not only do you get to try it all out for 30 days for free, but you also get 20% off your entire order. So the duvet covers, the blankets, the towels, the sheets, the all of the everything. You get 20% off the whole thing. So that's a good deal. Bolandbranch.com promo code money. So, so what I want to talk about is, is America's Greece is Puerto Rico. And the fact that Puerto Rico basically this week is defaulting. It has already started defaulting on some debts. One of the weird things about Puert coast, it doesn't have one big central government authority which does all of the borrowing. And so you can say, oh well, Greece has defaulted because there's a bunch of different entities, all of which can default at different times and in different ways. But there's one major big borrowing vehicle called the GDB and that is defaulting this week. And that's a pretty big deal, is it not, Kathy?
- [17:08]
Kathy O'Neill
Yeah. And you know, it goes exactly to what Jordan was saying earlier. Like the mechanism, the analogy of like Greece in Europe to Puerto Rico in the United States is really apt in the following sense. Puerto Rico has been enjoying like easy borrowing for just tons of time for decades. What it has meant is that they've built up there the deficit state. They're not actually a state, they're a territory. But it's, they've built up just enormous amounts of debt because it's so easy for people to lend money to them. They're like, I think it's triple tax havens for investors.
- [17:42]
Jordan Weissman
It's treated like a municipal bond. It's triple tax free. It's like you're borrowing from New York City. Like, you know, it's so you get the tax advantages and theoretically you know, almost. I mean, people knew it wasn't as safe. There was a reason these bonds yielded more, had higher yields, so.
- [17:58]
Kathy O'Neill
But they were more attractive to investors who weren't really thinking about default.
- [18:02]
Jordan Weissman
Yeah, I mean, I think there's. Well, some of these bonds are. And this is going to get some of the complications. There's so many different levels of Puerto Rico's debt. Some of these bonds are guaranteed by their constitution, and some of them are backed by sales tax, and some of them come from this thing called the Government Development Bank. And they're. They're not really backed by any government power. They're backed by this pseudo government institution that does a lot of its financing. And so I think people probably only had a vague notion of how safe this stuff actually was, except for the hedge funds that really just wanted unsafe things that would yield a lot of money. I think the. You're right, though, that essentially they've benefited from being a territory that had similar characteristics to a US State, while not really being a state and not really having the same level of, you know, fiscal rectitude or.
- [18:48]
Felix Hammond
But they've also been damaged, weirdly, by the kind of labor mobility that people want more of in Europe. One of the main problems in Puerto Rico is actually the same as the problem in Detroit or. Which also went bankrupt, which is that it's almost impossible for any government entity to support any level of debt if it has a shrinking population. So your debt per capita just keeps on going up even if your debt doesn't go up. And debt naturally does go up because it's accruing interest, and you're probably running deficits. And especially if you have a shrinking population, you're running deficits because the only people who are left are the pensioners and the people who are taking money rather than the people actually generating tax revenues. And what's happened in Puerto Rico is that there's been this vicious cycle where as it's got poorer and poorer, the opportunity for the people who can really create economic activity, those opportunities have been shrinking to the point at which they're like, well, I just need to move to New York or Miami or somewhere. Because that's where the opportunity is and that's where the work is. And then as those people leave, the opportunities in Puerto Rico become even dimmer.
- [20:00]
Jordan Weissman
Yeah, I mean, that. That's. That is sort of the crux of the problem. The same way Greece, you know, is struggling to pay back its debt and then being asked to take all these austerity measures, and they look and say, that's just going to make it harder for us. Our economy is going to shrink further. Puerto Rico says, you know, you want us to cut spending, we have a shrinking population. How are we ever going to realistically shoulder this burden? What I do think this is going to come to maybe a late but possibly optimistic conclusion because the Congress is sort of kind of almost getting its act together again. They haven't done it on time. They were supposed to do it before Puerto Rico was looking at default as it is on May 1. However, they are talking about putting in a financial review board, which is something that was done with Washington, D.C. famously. And it actually worked out very well for Washington D.C. in the end. The city did get its finances in order. And in a lot of ways, Puerto Rico is most similar right now financially to a Detroit or a D.C. in the 90s. They are going for.
- [21:01]
Felix Hammond
Neither of them had $70 billion of debt.
- [21:03]
Jordan Weissman
No, they had a lot of debt, though, and they figured out ways to manage it. And it's probably going to result in some restructuring and basically having a congressionally mandated board in place to deal with all of this, you know, should give, I think, you know, we still don't know exactly what the contours of the bill are going to be, but it should lead to some clarity, I think, rather than just the chaos we were looking at now.
- [21:23]
Felix Hammond
But it's not going to be the kind of solution like Washington, D.C. is now a rich and thriving and dense city with rents rising and everyone wants to move there, and it's a happening place. That's not the outlook for Puerto Rico. You could wipe out all $70 billion of the debt tomorrow, and Puerto Rico would still be fiscally in a pretty bad place.
- [21:49]
Kathy O'Neill
One of the things that's going on, I can't remember the name, but there's a law that. That forces goods to Puerto Rico to. To cost more.
- [21:57]
Jordan Weissman
There's the Jones Act. Yeah. There's all sorts of things that.
- [22:00]
Kathy O'Neill
So they have crutches, you know, even without the debt.
- [22:03]
Felix Hammond
And that's the best thing the federal government does. Some things which benefit Puerto Rico in terms of, you know, companies getting tax breaks and stuff, some things which hurt Puerto Rico because it's a US Territory. Anything shipped to Puerto Rico needs to be shipped on a US Ship. And that's basically not how goods are shipped these days. So that makes imports to Puerto Rico more expensive. You know, you can point at this thing or you can point at that thing, but the big picture is that even with no debt service, repayments whatsoever. It's really hard to see how Puerto Rico can thrive as a government. I mean, it has this horrible drought, for starters, which has just crippled the country. And people are having to live without water for three or four days a week. And, you know, there's no money to fix that. And no one knows where the money to fix that could possibly come from.
- [22:56]
Jordan Weissman
I do want to come back to this metaphor as Puerto Rico, as Greece, though, and kind of interrogate it a little bit, because there is one essential difference between. And this comes back to the idea of, you know, redistribution and dealing in countries dealing with the deficits and surpluses from Giannis's book, which is that Puerto Rico is part of the US Welfare state. And that is the one big advantage it gets compared to a country like Greece that as bad as the economy gets, they do get. They do get things like Medicaid benefits, you know, food stamps. They have. They. They do get some of the automatic stabilizers that the federal government provides. And so that's the one respect in which the country is much, much better off than Greece's vis a vis the European Union. Still, though, the fact that Puerto Rico is in this kind of awkward spot between a state and not a state means that it doesn't get the full benefits it could. It doesn't. And at the same time doesn't get to control, doesn't have the ability to devalue a currency and still has to deal with basically the free movement of its citizens so out of its island.
- [23:57]
Felix Hammond
One of the other things that happens in European countries when they go into a sort of austerity related crisis, and we saw this in the Balkan and we saw this in the Baltics to a certain extent, and even in Spain, to a certain extent is you get wage deflation.
- [24:19]
Jordan Weissman
Yeah.
- [24:20]
Felix Hammond
That in order to become more competitive, you can't devalue your currency, so you have to start working for less. Yeah. And one of the. I just want to finish this little Puerto Rico segment by talking about the federal minimum wage, which is something which people are very keen on rising in most of America, but which is already too high in Puerto Rico. And there's a very strong case to be made that even if you believe in a $15 minimum wage, you know, across most of America, it probably should come down in Puerto Rico, should it not?
- [24:55]
Jordan Weissman
I mean, there, this is a pretty active debate, if you believe it or not. It sounds obscure, but among lefties on the Internet, we talk about Puerto Rico as a test case of minimum wage a lot. I tend to be of the school that thinks it probably is a drag on their economy. It's about two thirds the, it's worth about, it's 725, obviously. It's worth about 2/3 the median wage there, which is really high. That's, that's even higher than France these days. Like it's much higher than the actual mainland U.S. and so, yeah, there's. They can't really deflate. They can't do internal devaluation. They can't deflate their wage scales even if they want to. Really. There's not much further to go. Unless. Unless people just start working in the black market economy. Which they do. Which they do. Yeah, yeah, exactly. That's the one place, the way that they can do it. But that's, that's not a good outcome because that means all that money that is not going to taxes.
- [25:44]
Kathy O'Neill
I mean, look, as a data person, I don't, I don't see why it would be so impossible to have local minimum wages that relate to things like the median wage in an area.
- [25:54]
Jordan Weissman
No, Puerto Rico is an example. Absolutely. An example of why that's. That would be a good idea.
- [25:58]
Kathy O'Neill
Yeah.
- [25:59]
Felix Hammond
Next up, we are going to talk about my favorite subject of the moment, which is Brexit. But first I need to thank Sleep Money's other sponsor, which is Headspace. If you are getting a little bit stressed out about referendums or elections or relationships or chronic pain or just about anything else that stresses people out or just distracts you from being mindful and conscious and efficient, then this is what you do. You try out this kind of awesome app called Headspace. It lives on your phone and it's this very friendly chap, English chap called Andy Puddicombe who will help you get in a really good Headspace. It's meditation, it's mindfulness. It's a way to just put your entire life in perspective, help improve your relationships with the people around you. And it guides you through how to do this in a really easy way. You get 10 free little meditation, 10 minute meditation things. It really literally only takes 10 minutes a day. You carve them out wherever, whenever you like and you just become that much more mindful and centered and generally balanced. So give it a go. Go to headspace.commoney and you'll get a free trial of 10 guided meditations. That's headspace.commoney. okay, so. And then finally we are going to talk about my single greatest worry right now.
- [27:37]
Kathy O'Neill
Yeah. What's going on in Britain.
- [27:39]
Felix Hammond
So this is the thing which I really wanted to talk to Yanis Varoufakis about because, you know, I have these questions like, what on earth is David Cameron thinking? It's it, but, you know, like, why on earth would someone who wants Britain to stay in the European Union offer the country a referendum on whether or not to stay in the European Union?
- [28:02]
Kathy O'Neill
But, I mean, it's too late for him to take it back now.
- [28:04]
Felix Hammond
No, no, exactly. But, like, why does he make that promise in the first. There was no good reason for him to do that.
- [28:09]
Jordan Weissman
David Cameron just kind of strikes you as a stumbling doof in general.
- [28:13]
Felix Hammond
He is, in my opinion, the worst prime minister, quite possibly of all time in Britain because he has made exactly the same mistake twice.
- [28:24]
Kathy O'Neill
Right.
- [28:25]
Felix Hammond
First of all, he promised the Scots a referendum, which he should never have promised them on whether or not they could become independent. And then he's offered all of Britain a referendum on whether or not they should leave the eu. And in this respect, I am deeply and proudly anti democratic. You know, if you have something which you don't want to happen, you don't allow the country to vote for it. And I feel bad about this, in a sense, because I feel that democracy is generally a good thing. But I look at the opinion polls in Britain with this, with, you know, sometimes greater support for Leave than for Remain, and I'm petrified.
- [29:07]
Jordan Weissman
So can we talk about why you're terrified? Specifically? Because I've been looking at, from the economic end and, you know, there, there you can. There are definitely some analysis that say Britain's economy will be 3% smaller or 2% smaller in 10 years if they leave the euro, because our banks won't have the same access to European markets and we won't have the same free trade area. And then the other side comes back and says, well, at the very least, we'll still have the same rights as everyone else through the World Trade Organization, yadda, yadda, yadda. It's very. It's very murky. So I've had difficulty figuring out one way or the other if I would be terrified economically for Britain. I'm curious, is that your concern or is there something just like, deeper politically? Just. Is your inner Britishness getting inner European ness? Yeah, inner European ness.
- [29:48]
Felix Hammond
Partly it's the inner European ness. There is no doubt that Britain has benefited, not just economically, but culturally from being part of Europe. And as you know, as Yanis explains in his book, the European Union is first and foremost a way to stop, you know, these incomprehensibly bloody wars that we saw in Europe throughout, you know, the first half of the 20th century from ever happening again. Political union means peace and prosperity, and we've had peace and prosperity since the European Union was created, more or less. And every so often, a small and nasty war kind of erupts on the outskirts of Europe. But what no one wants to see is for the entire political union, insofar as it exists, to just completely fracture. It would be really bad economically. People would lose. I mean, there's no doubt that Europe would make it very expensive for Britain to be able to keep on trading with its European partners. There's no good economic reason to leave, but also there's no good political reason.
- [31:08]
Jordan Weissman
So why are people. I want to push back on that a little bit because, okay, if you're staring at a European Union that has proven itself economically dysfunctional, and, you know, the goal is ever closer union, and you know that they're going to try and increasingly kind of, you know, have uniform labor laws, more so than they already do, and uniform regulations in general. I mean, wouldn't you be a little bit frightened of giving up whatever sovereignty you have given, especially that Britain has avoided the worst of the euro crisis?
- [31:39]
Kathy O'Neill
I mean, and I'm going to jump in and ask, what do you think the people who want to break. Why are.
- [31:45]
Jordan Weissman
What are they?
- [31:46]
Kathy O'Neill
What motivates them?
- [31:47]
Jordan Weissman
Partly they're afraid of, like, Turkish people. There's, like, some racism.
- [31:50]
Kathy O'Neill
Is it a Syrian refugee crisis issue?
- [31:52]
Felix Hammond
Yes, I think. I think the migrant crisis is the proximate cause for the popularity of the Leave campaign. That in the minds of the people who want to leave, you know, helped out by the Daily Mail and various sort of racist and xenophobic elements of the national press, There's a direct connection between the European Union on the one hand, and the fact that there's a refugee crisis on the other, which is kind of crazy, but that's how they see it.
- [32:28]
Kathy O'Neill
Oh, well, I. Doesn't it. But it does seem to be true that a strong European Union would have sort of rules about immigration, like. Like spreading out the Syrian refugees equally among all countries. I mean, that actually does make sense. And Europe, I mean. I mean, Britain so far hasn't taken that many Syrian refugees.
- [32:48]
Felix Hammond
It's true.
- [32:48]
Kathy O'Neill
So it would actually mean they would get more. I mean, I'm not saying racism is good. I'm saying that it actually has a logic to it.
- [32:55]
Jordan Weissman
Yeah. One thing here is that the European Union has done a really great humanitarian thing in trying to allow migrants to come in, but it is sacrificing its own political stability, it seems like. And it seems like also a similar thing with kind of the idea of letting Turkey in would have that effect down the line if that ever happens. That's been an ongoing question. I know one thing looking at the British press is the Turkey question that always seems to come up in the leave campaign. Do you want Turks coming in the way one day that you have Syrians now and the way you have Poles already do? And on the one hand this is racist and awful. On the other hand, if you know that doing the right thing is also possibly going to fracture the entire political union, is it worth it? That's a question. And it doesn't seem like the eu. Which political union it's going to fracture Europe, the European Union, by making the right choices when it comes to immigration and migration from the Middle east or whatnot. If that's going to end up fracturing the whole project, why make that choice? I guess I'm, you know, a little, it's, it's hard, it's hard for me to, you know, understand that trade off.
- [34:02]
Kathy O'Neill
Thing to do.
- [34:02]
Jordan Weissman
Basically. If, you know, if you know, you have a ton of racist people who may actually just bring down the whole project by, through these choices. I don't, it's, I don't know if that's necessarily the right, the right move then.
- [34:13]
Felix Hammond
And that's exactly my point about democracy is that the minute that democracy becomes the tyranny of the racists, that's when I start breaking with democracy.
- [34:27]
Kathy O'Neill
Yeah.
- [34:27]
Jordan Weissman
Yeah. I just don't know if that's sustainable. I don't know in this case, but this is. Maybe it is. Maybe the racists will lose and we.
- [34:40]
Felix Hammond
Hope the racists will lose. And certainly in this country, when we look at the racist support for someone like Donald Trump, it's hard to see how that could turn into an absolute majority of Americans. But never say never. Yeah, okay, enough depressing talk of Brexit. I just really, really hope it doesn't happen. I have some faith that it won't happen, but I can't say I'm sure about that. We are going to move on to the numbers round, but before that I need to, to tell you about an interest. Quite a big number, which is $4 billion. That's how much money Betterment now has under management. That's quite a lot of money. And it makes sense that they have that much money not just because they're a Slate money sponsor and so therefore obviously awesome, but also because they are a really sensible way for people to make sure that their money is sensibly invested. You hand over your investment capital, your risk capital to Betterment. You tell them what your risk profile is and what you might need the money for in future and they will invest it in an incredibly low cost and efficient way in index funds. They're not going to try and be too clever. They're just going to do exactly the kind of investing that I and everyone else say that you should be doing, which is passive investing in broad stock and bond indices. They are the largest independent robo advisor around. So give them a go. If you go to betterment.com slate money, you'll get up to six months of automated investing for free and it's very low cost after that. So this is a good idea. Go to betterment.com slatemoney Investing made better it's time to move on to the numbers round.
- [36:39]
Kathy O'Neill
I have a number.
- [36:40]
Felix Hammond
What's your number?
- [36:41]
Kathy O'Neill
513 million.
- [36:43]
Felix Hammond
What's that?
- [36:43]
Kathy O'Neill
That's Amazon's net income for the last quarter, which is really big. The biggest one they've ever had. It.
- [36:52]
Felix Hammond
Well, I can tell you that Facebook had 2 billion of net income.
- [36:56]
Kathy O'Neill
That's right, 1.5 billion. Yeah, for Facebook. But for Bezos Personally, he gained $6 billion in wealth after the stocks jumped after the announcement. So it's a big deal. Amazon is growing, growing, growing and its profits are growing too.
- [37:11]
Jordan Weissman
I finally.
- [37:12]
Felix Hammond
$6 billion. He, he, he could buy the Washington Post 24 times with the one day.
- [37:18]
Kathy O'Neill
And by the way, 60% of that profit is accounted for by the web services. So everybody on the cloud, that is pretty good business for them.
- [37:25]
Jordan Weissman
Which is kind of like an amazing testament to companies. Just like letting a company kind of fuck around for a while until it happens.
- [37:33]
Kathy O'Neill
If it's run by Bezos.
- [37:34]
Jordan Weissman
If it's run by Bezos and just giving it the. Yeah, the only way to just see what works because like I don't think if you went to Anyone in like 2002 they'd be like, oh yeah, Amazon.com is going to be a giant web server. Like that's what's going to make it, its money.
- [37:46]
Kathy O'Neill
I mean, but also retail. Like do you know that they're expected to cover 8% of all retail in the United States by the end of the year?
- [37:54]
Felix Hammond
Which, all. Which is still smaller than Walmart. But yes.
- [37:57]
Kathy O'Neill
It's just a ton.
- [37:58]
Jordan Weissman
Yeah, I mean it's, it's big.
- [37:59]
Felix Hammond
Jordan, what's your, what's your number?
- [38:01]
Jordan Weissman
My number is 3. My number is so there Was an article today in, in Bloomberg looking at the who the actual authors behind Zero Hedge are. Some of our listeners are probably familiar familiar with that blog. If you're not. It's the ID of finance blog ecosystem. It's like lots. It's where like gold bugs and people who like Russia and Syria and who think the end of the world is coming kind of go to commiserate and read these anonymously written or pseudonymously written posts, typically coming from a person who was known as Tyler Durden. As you might know, that character from Fight Club. Turns out Tyler Durden was three people, one of whom recently quit and then went to Bloomberg and told them all about the working on the blog. The interesting thing is you have these, interesting thing about this story is that you have these, you know, this blog is devoted to talking about it's the end of the world, everything's awful. Meanwhile they're raking in cash from the fear mongering. And apparently one of them lives in one of the authors, this Bulgarian former finance guy lives in a mansion in New Jersey and the other guy lives in like a huge plush place in San Francisco. So it's another example of how like talking basically fear mongering about the end of the world is always profitable. If there's someone, if there's somebody who is talking about how you throw all of your money in gold, you're probably getting taken for a ride and they are probably laughing all the way to the bank.
- [39:21]
Felix Hammond
My number is 0, which is the amount of control over Facebook that the majority of shares of Facebook are going to have pretty soon.
- [39:34]
Jordan Weissman
Oh, I love this talk about anti democratic.
- [39:37]
Felix Hammond
Facebook has decided to create a new class of non voting stock which you would think would be illegal or a contradiction in terms or something, but apparently is legal. And every single person with a Facebook share right now is going to get two shares of this new non voting stock. So pretty soon two thirds of the stock in Facebook is going to have no votes at all. And that's just going to help consolidate control in the hands of one man, you know.
- [40:07]
Jordan Weissman
Well, so this is a way for Zuckerberg to sell his stock over time without giving up control. Right. Of the company.
- [40:11]
Kathy O'Neill
This kind of reminds me of like we have the right to change the terms of the service.
- [40:15]
Jordan Weissman
Yeah, yeah. I mean on the one hand like this is. Yeah, it's kind of funny that Zuck is just like maintaining his like grip on the company. But on the other hand, would anybody really in their right mind challenge? I mean, I guess, who knows, Years down the line. Maybe they would. But I mean, would anybody at this point really try to tell Mark Zuckerberg what to do with the company that he is leading to fantastic profitability?
- [40:38]
Felix Hammond
That's exactly the point. Since no one would try to do that, there's no need for him to have this iron gripped dictatorial control over the company, even when he controls maybe 1% of the store.
- [40:50]
Jordan Weissman
Although on the other hand, the fact that no one would tell him what to do is probably part of what's allowing him to do this.
- [40:55]
Felix Hammond
Oh, no, the thing that's allowing him to do this is that he has control over the company right now and he can do whatever he likes. Although he's being enabled by Erskine Bowles and Marc Andreessen and various other people on the board who are saying, oh, yes, we really want you to control this company outright. We never want you to lose control. Well, it's very suck up y Masters of the Universe. Masters of the universe. In any case, that is it for us this week. Thank you for listening to Slate Money. Thank you to Audrey Quinn, the producer who tried incredibly hard to get Yanis Varoufakis on this show and it's totally not her fault that he wasn't on. Thank you to Steve Lichti and Andy Bowers, the executive producers. No thanks at all, Frankly, Yanis Fairy Fagas, who, who really didn't help in the slightest.
- [41:49]
Kathy O'Neill
He did write a book.
- [41:50]
Felix Hammond
He did write a book. And listen to all of the Panoply podcasts@itunes.com Panoply write to us slatemoneylate.com and we will talk to you next week on Slate Money. She came from Greece. She had a thirst for knowledge. She studied sculpture at St. Martin's College.
- [42:13]
Jordan Weissman
That's where I.
- [42:17]
Felix Hammond
Caught her eye. She told me that the tap was slow. I said, my case on the room with Coca Cola. She said, fine. And then at 30 seconds time she said, I want to live like common people. I want to do whatever common people do. Want to sleep with common people. I want to sleep with common people like you. What else could I do?
- [42:53]
Kathy O'Neill
I said, I'll see what I can do.