Katie Gaudytossan (6:38)

If it actually had been implemented in.

Matt Brunig (6:40)

Full, which it wasn't, it would really have marked that major shift within social democracy that would have moved us away from merely looking at redistributing income to the redistribution of assets and ownership of the economy. Then you have another Nordic government, that of Norway, which did something similar, but with more success. The Norwegian government owns around 59% of the country's wealth across a few different funds and programs. And in 2017, Matt estimated that the returns on these funds would have been enough to pay a Norwegian family of four about $100,000 in annual dividends. He writes, quote, to be sure, Norway is an outlier in the world in terms of just how much wealth it has accumulated in its various social wealth funds. But this is also what makes it such a promising example. The idea that a society could collectively own three fourths of its non home wealth through social wealth funds administered by a democratically elected government without any negative economic consequences would be rejected as preposterous by most political and economic commentators in America today. But that is precisely what Norway has done, and seemingly what any country could do if it has the necessary will and competence, end quote.

Katie Gaudytossan (7:54)

The money works on behalf of all Norwegians. It is now so big that the contribution from the fund accounts for more than 20% of the state budget that is owned by all of us now. We invest in the future of the country. We take care of the money that belongs to generations to come.

Matt Brunig (8:15)

Rather than use its wealth to pay out cash dividends, Norway uses the money to fund its social welfare programs. So basically creating universal basic services as opposed to a universal basic income. So while these plans might look different around the world and the more ambitious attempts like the Meidner plan, might have been thwarted, they represent what we can take as inspiration for a potential path forward for the us. We will get to my conversation with Matt after a quick break. When you're looking to buy your dream home, should you sell your current digs and use the equity? Or should you rent your space and utilize the rental income? That's the situation that Chris and Dan found themselves in. And after working with Domain Money, they learned their best option was to sell their home. It even set up Chris to pursue their dream consulting business and not rely on a W2 job anymore, which we love to see. Whatever big life events you have coming up, whether that's the dream home planning for kids or an upcoming wedding, working with a certified financial planner can ensure you are making the right decisions. I started working with an incredible flat fee CFP Katie Song at the beginning of this year and you can hire her too. Get started by booking a free strategy session with Domain Money. You can then select Katie or anybody else on her team of CFPs as she's trained herself and your advisor will create a step by step financial plan to help you achieve your goals. And you only pay a one time flat fee. Check out Domain Money and start building your financial plan today@moneywithkatie.com domain money that's moneywithkatie.com domain money I'm a real client of Domain Money via Money with Katie. I receive compensation and have an incentive to promote Domain Money. These stories are based loosely on real scenarios of actual clients of Domain Money. We have changed some facts and circumstances for privacy reasons. Similar outcomes are not guaranteed. See Important disclosures at DMNY Co X To frame our conversation today, Matt believes that there are three major areas that need to be addressed in order to fix the American economic system for real so that it actually works for everybody. Those three areas are capital, labor and welfare. His social wealth fund plan, which is what we're going to spend the bulk of our time talking about, is how he proposes addressing the capital element of the equation, that is how to distribute ownership throughout an economy. I'm also going to ask him some questions about labor and welfare, so stay tuned. Here is my conversation with Matt Brunig. So Matt, in your social wealth fund proposal you pointed out something that I didn't know, which is that mid century America, which is a time period that we often reference as sort of this panacea of like middle class prosperity, that it was in many ways like kind of just as unequal as the America that we live in today is. And you wrote, quote, in virtually every demographic group, wealth distribution takes on the same familiar pattern. The top 10% owns around 3/4 of the group's wealth, while the bottom third owns none of it. And so I think someone like you or someone like me would look at this and self evidently see like oh this is a problem, right? Because I think we are aligned, that inequality is bad for a country. We take that fact as a But I don't want to take that conclusion for granted because I think that there are, there are oftentimes folks who will push back and say, well why is inequality in itself a problem if poor people are still becoming incrementally better off because of technological progress, why is it a problem worth paying attention to that the rich are benefiting so much more from it than everybody else.

Katie Gaudytossan (12:21)

Yeah. So I think there are a few ways to tackle this. One is to try to convince people of the moral question underlying it, question of justice. Right. And you know, obviously there are divergent theories of justice, but one very popular one from John Rawls, American philosopher, asks people to look at society from behind a veil of ignorance where you don't know who you are. So you can see this aside, you can see all the people in it, the rich, the poor, the disabled, the non disabled, all the different varieties of people. You know you're one of them, but you don't know which one you are. And then from that position we're asked to sort of think, think about how we would construct the institutions of that society. And that's meant to map onto a sense of fairness because we sort of stripped out our personal bias. You know, if I know I'm rich, then maybe I like rich, favoring institutions. If I know I'm poor, then maybe I like poor favoring institutions. But if I don't know which one I am, what would I choose? And he concludes, which I think is very reasonable, that you know, most people, they're fairly risk averse, that yes, having a lot of money is great, but it's, it's not as good as having very little money is bad. You know what I mean? And so you would really want to create a society as best you could that had a very high floor, where inequality was relatively low. So the question there would not be are the poor improving their plot over time, but rather could they be better off than they currently are? And I think with a different set of institutions you could do that. Now, even aside from that sort of moral question, because you might have a different jumping off point, maybe you don't like the veil of ignorance, you want to go go about it a whole other way. There are some more kind of practical questions involved here. Right. So even if you're relatively well off, it's not always great to live in a society where there's a lot of inequality. Crime can be higher, especially property. Crime can be higher. People who are relatively affluent do seem to spend a lot of time and money and sort of psychological energy around trying to separate themselves from people who are less well off. And some of that's rational in the sense that they're worried, you know, they might try to steal from them or something. But some of it maybe is less so. But if you had a more equal society, that would be less concern.

Matt Brunig (14:42)

Absolutely. So I guess what I, what I'M hearing you say is that there is like a self interested case for caring about inequality. Even if for some reason the appeals to justice or fairness are not doing it for you, that like, well, you are still going to enjoy living in a world that has less inequality than one that has more.

Katie Gaudytossan (15:02)

Yeah, absolutely. Another, another way to put it is that inequality or poverty has externalities, if you will. The harm of that is not fully localized on the person who happens to be poor because we live in a society and so we're all mixed in together.

Matt Brunig (15:17)

You know, it's interesting because I found that pattern that you pointed out to be notable. I had never seen it kind of demonstrated across demographic groups in that way of like this is a standard thing that we see where like the top 10% ends up accruing the vast majority of it and then something like the bottom half or two thirds is really has like nothing. Generally speaking, the issue or benefit, depending on where you sit on this wealth spectrum, is that wealth under capitalism just begets more wealth. So if you start out in life with a reasonable leg up or a reasonable amount of money and like you know what to do with it, that money is probably going to be amplified. Whereas somebody who starts out with nothing or kind of starts out on their back foot is going to then find it exponentially harder to accumulate anything at all. And so this split that you see between laborers or wage workers who are trading their time for money, but then kind of never being able to get ahead, and then the capital owners who already own most of the property or the wealth, it becomes more pronounced over time. So how do you fix that? Well, you kind of have to make laborers owners, right? Like in the current paradigm. I think this happens kind of indirectly. I don't work for Apple, I don't work for Google, but I can use my labor income from another unrelated source to buy shares in those companies. And as an investor, I am both a laborer and a capital owner now, but in this very indirect kind of disconnected way. But like the person who is sweeping the halls at Apple headquarters, they're almost certainly not benefiting from the value of Apple stock going up, even though they, as a laborer under the roof of Apple headquarters, has a far more direct hand in that value creation than I do. How do you see something like a social wealth fund as a step toward distributing ownership of these companies to the many rather than the few? Do you see it as a way of more directly tying labor to capital? Because I think that's the lens that, that I'm Looking at it through.

Katie Gaudytossan (17:30)

Yeah. So there's a variety of ways of spreading out capital ownership. As you noted, wealth and capital ownership follows what's called a Pareto distribution, where no matter how you slice it, it's always the case that, like, the top 10% owns three fourths. It could be, whether you look at the old, the young, black, white, within that group, it's always. It always ends up concentrating at the top within our set of institutions. In a different set of institutions, you might get different results. But when you start from saying, okay, that's no good, we want to kind of spread this out a little bit more, there's a couple of ways you could think to go, right? One is to say, well, why don't we make it so that workers in their companies, within the firms that they work in themselves, that they get some of the stock, some of the ownership. That's called worker cooperatives. We have this to some extent in the U.S. through employee stock ownership plans. ESOPs. Yeah, that's one way, right. Is more money to the workers in the firm. So the Apple janitor gets some Apple stock. The other way is to think about spreading out ownership not at the firm level where workers in each firm get the stock, but across the society by simply spreading out the stock of all the companies to all the people. And that's sort of the social wealth fund approach. And so in a way, the social wealth fund, it doesn't necessarily tie your labor to the capital in the way that a worker co op would. The Apple janitor in the social wealth fund world would own one share of a fund that owns diversified portfolio, essentially, but it would have the same effect sort of distributionally over time. If you have this social wealth fund, the idea is the federal government has this big fund and it owns a diversified share of stocks and bonds, just like a pension fund does. And then every person gets a share of this fund when you're born, and then you get the dividends and the gains from it, and when you die, the share goes back to the fund. So, you know, it's sort of a way of us all collectively owning an equal share of whatever's in the social wealth fund, right? So you kind of set that up, and then over time, you build the size of the social wealth fund. And over time, wealth goes from this private ownership bucket where 3/4 of it is owned by the top 10%, and more into this collective ownership bucket where everyone owns an equal share. And we just kind of keep ratcheting that up until we get things as Equal as is feasible or that we want them to be.

Matt Brunig (20:02)

That's kind of an interesting segue. I alluded earlier to some pushback that I've heard in the past, which is basically like elucidate the reasons why inequality is bad. Right. And I think we've already done that. But part of that pushback is often like, well, how equal are you trying to make things? What is the ideal amount of equality? And so I'm curious what you say when people ask that to you. If you're saying, okay, we want to make it as equal as is feasible, is there an optimal distribution in your mind, or is it this is just a fairer way to distribute the spoils of capitalism?

Katie Gaudytossan (20:45)

Yeah, I mean, at the kind of highest level of abstraction, I am a believer in what's called the maximin principle as a sort of way of thinking about how to pattern the distribution. And maximin just means maximize the minimum. The idea is whatever you want to call the minimum, the bottom 5%, bottom 10%, whatever, it gets a little bit tricky, but we're trying to get that up as high as we can. And then what that looks like is a very much an empirical question. At some point you could imagine that it gets too equal, the incentives start falling apart, people don't work, et cetera, et cetera. Right. And so we want to stop shy of that or not go so far that the sort of second order effect is that the economy shrinks so much that now the worst off is even worse off than they were before.

Matt Brunig (21:36)

I see.

Katie Gaudytossan (21:37)

So that's kind of like we're trying to find that sweet equilibrium where the worst off is as well off as they can be. But don't know, maybe don't go too far if in fact, like, incentives are really important and whatever. The flip side of being a very unequal country is that there are more equal countries out there. And so we do know from looking at those countries that you can get more equal. Equal in a way that is consistent with the maximin principle. We're way away from the point where you might say, ah, we're getting to be too equal. And that might cause economic problems. We're very far away from that.

Matt Brunig (22:12)

You kind of alluded to this assumption that's part of the neoliberal economic order, which is that without that incentive, without the threat of poverty, people will not work hard. But I think think you're right in the sense that I don't want to say like, that's not actually, like proven to be true, because I don't know that that's necessarily accurate, but that does still feel like a big assumption. Oh, if people are equal or if you do have widespread equality, that suddenly the economy itself will start shrinking because now this incentive structure has gone away. And it feels worth calling out the fact that even that feels like an assumption that that is being made that a lot of this logic relies on. But how much stock do you put into that fear? Legitimate, illegitimate, what do you think?

Katie Gaudytossan (23:04)

I don't put a whole lot into it. And the thing is, is even sort of in theory, that argument, it only operates at certain margins. Right. So we have to ask ourselves, like, how close are we to a kind of tipping point like that? So another way to think about it is right now the bottom half owns about 2% of the nation's wealth. So let's say we set up the social wealth fund, everyone gets a share, and we do this very gradually. So the fund is building year after year. So their wealth goes up from 2% to 3% to 4% to 5%. You know, at what point is it really going to become a problem? And we have the example of Norway where they have one of the largest social, well, I guess the largest social wealth fund in the world relative to the size of their population. And there, if you were to distribute out the value of the social wealth fund down to the bottom half. I don't have the numbers in front of me, but they're owning 20, 25% of the nation's wealth. And it's fine. It's a normal economy. You go there, it looks very much like the US on paper. It looks very much like the US Advanced economy, innovative economy, high employment rates. I would say it's conceivable at some far end of things that people get too demoralized to produce or whatever. But it doesn't seem like we're anywhere near that. And since this proposal is a gradualist proposal, it's the kind of thing where you don't have to worry like, oh, we're going to do this, and then there's going to be these crazy results. It would be gradual. So over time you'd be able to judge like, oh, okay, no, this is too far. And then stop.

Matt Brunig (24:39)

Fascinating. I've been thinking a lot about privatization and thinking a lot about the way in which public funds become privately owned wealth. And it's been obviously a huge topic in the news with Elon Musk and like the doge of it all. So I think that's why I've been so fixated on it recently. But the reason that I love this idea is because it feels like it basically takes something that I see as a huge issue in our economy, which is the fact that the federal government publicly funds a ton of innovation and research. And most of the upside of those discoveries that are funded by the government end up being realized by private parties. And this feels like a real tactical, practical way to put the ownership or some portion of ownership of these companies back into the hands of the public, who are, by and large, the people that are actually doing the work, but also like, by and large, the people funding the discoveries that are ending up becoming extremely profitable and valuable for these companies and the people that own them.

Katie Gaudytossan (25:49)

Yeah, absolutely. I mean, it's funny, when we have a public R and D policy that subsidizes all sorts of research and sometimes give money directly to companies, you're referencing Tesla or other kind of solar companies like that, and the government never really takes an ownership right in those things. And this would be one way to help capitalize the social wealth fund. Instead of giving out money to companies, you could provide them the same amount of money in exchange for equity, which is like, amusingly, what a private investment fund would do. If Tesla went to a private fund, you know, a venture fund, and said, hey, we want to invest some research into electric vehicles, we think we'll have some breakthrough. If they're down with it, they'll say, sure, you know, we need 5% of the company in the U.S. the government is. It just gives them money, and then when it explodes in value, the person who happens to own it becomes very wealthy, very powerful. And the people who put up the risk capital, which is the state and the people, they don't benefit, at least not in a direct ownership sense. So, and this is kind of true across the board. You know, that's a very good example because it's so literal. And you can find a private sector alternative and see what they do, which is they take ownership shares if you're trying to invest in something. But more broadly, we're trying to think about contribution and who receives the benefits from the economy. Is it really mapped on to how much you contribute? And I think that's clearly not the case. How much you contribute has a loose connection maybe to what you receive. But overall, there's a lot of distribution that occurs that's kind of random or unrelated to what you personally did. There's a lot of luck involved and there's a lot of just coasting off of the overall social system. Even if a company like Tesla didn't receive explicit subsidies. Market cap is dependent on existing in a society with certain laws and institutions and levels of development that have occurred over years that millions and millions of people have contributed to. Even the technologies that it depends upon mostly come from people who died a long time ago. So there's a lot that goes on, a lot of inputs that go in into any particular output. And I think the way that we map output, the way that we distribute it out to people is not really in line with their contribution or our, like, intuitive sense of what they're owed. And maybe a social wealth fund is a way to push back on that.

Matt Brunig (28:27)

Yeah. As our economy becomes more and more complex and financialized, I don't think most people have a good grasp of, like, to what extent wealth in our economy is just created by, like, moving numbers around on a screen, no productive capacity being added whatsoever. Like, we did an episode with a wonderful DOJ prosecutor a couple years ago, Brendan Ballou, talking about private equity. And in the research for that show, I come to find out that, like, the guy that runs, I think it's Blackstone group, made, like, $900 million. And just like, oh, we're out here talking about, like, ooh, Goldman Sachs, oh, JP Morgan, all these companies that we think of as, like, the big bad banks. And it's like, no, the real money is in these firms you've never heard of. It's these people you've never heard of that are controlling things and pulling the strings and. And really extracting so much value out of the economy. And so I think that because of the complexity and because of the anonymity and privacy of how so much of this is actually happening, people don't actually grasp, like, just how much wealth is being sucked upward and how it's being sucked upward. And so when you're operating down here in, like, the real world and you're just, like, working for a paycheck, I can see why it becomes easy for somebody to just be like, well, if you're earning it, you must have done something to deserve it. That's just, frankly, not how our economy works. And I think that can be, like, really, really tough to swallow. I think it can be hard to accept the fact that it is extremely unfair and, like, really, really badly needs to change.

Katie Gaudytossan (30:10)

Yeah. When we think about wealthy people, one of the things we'll do is we'll look at the list of the wealthiest people, for example, and Piketty, in his book capital in the 21st century, he was trying to figure out he was Trying to get the best, most accurate distribution of wealth he could. And we have surveys, but those surveys don't necessarily capture the wealthiest people because when the census calls Jeff Bezos, he doesn't like sit down and tell them how much he has. So he's trying to find other ways. And one of the ways he, well, why don't I use one of these lists, the Forbes list of billionaires or whatever and we'll work on that. And he starts calling them and trying to figure out like, how do you do this? Like how do you identify, like the person, the 300th wealthiest American, like, where do you even start? And eventually he figures out, well, all they're doing is they're finding people who are public and who you could publicly determine have a lot of money. Who are the kind of people who you can publicly determine have a lot of money? Well, it's going to be people who recently acquired a lot of wealth, usually by being a founder or owner of a big growth company. And so you look at that and you say, well, the wealthiest people are all these entrepreneurs. It's like, no, no, no, no, no. Because if you're a third generation Rockefeller or whatever, you're not on that list. No one knows what you have. And then you think about what is the share like Overall in America we have over $100 trillion of total wealth distributed out. The amount of wealth that's represented on these lists is extremely disproportionate, but it's a small fraction of the total. So that's just to go to say that a lot of this wealth that's out there, you don't see it because how would anyone ever know who has it or how much they have? What kind of trust funds are out there? You only see the Zuckerbergs and the Bezos's and they end up being the face of money. And they also end up having founded companies. And so you're like, well, they did find companies, you know.

Matt Brunig (32:11)

Yeah, yeah, yeah. There's like this conflation with like, well then we get into this annoying thing where we're debating whether or not their contribution was valuable enough. It just becomes this kind of fruitless or unproductive debate. I've, yeah, I've never really thought about how they get the names and the numbers for those lists. That's a little bit scary, honestly.

Katie Gaudytossan (32:33)

Yeah, yeah, it's the reverse. It's, they start with let's look for some entrepreneurs and then you wind up with a list with entrepreneurs. Right?

Matt Brunig (32:41)

Yeah, just the amount of selection Bias. It never occurred to me to be like, actually, do they know this? I remember looking for this tax data a while ago because on Grindset, Twitter, it's very popular to kind of be like, you're never going to get rich working for someone else. You got to rise and grind and start a company like the Sigma Bro, whatever. And something that I just could not believe. I was like, there's just no way. I've seen data about small business owners. I don't know what the current numbers are, but like most small business owners talk about Pareto Principle. It's like the top business owners are making a ton of money, but most small business owners do not make very much money at all. And so there was, I want to say it was like Williams College, there was some office of tax analysis that looked into this and they were trying to figure out where the wealth of like the 0.1% came from. I think 3% of them were entrepreneurs. Something like 60% of them worked in finance. So I was like, if you want to know where the money is in this economy, it is in the financial sector where you're effectively like engineering complex financial instruments. You're managing a pension fund or you're doing something where you're skimming just a little bit off the top, but you're not adding anything. Basically.

Katie Gaudytossan (34:00)

Yeah. When you think about people who make it not from inherited wealth, but are just like high earners in the sense, like the flow of money, you start hunting around, you'll see something very obvious in retrospect, which is that they tend to be at the top of these industries that have very weird what they call unit economics. The economics of how the business makes money is unusual and different from other kinds of businesses. And finance is one of those businesses. Right. So let's think about a non finance business, a very simple one. I'm a company that have a factory that makes spoons and we sell them for, you know, the market price of spoons. Okay. So if I'm going to get rich, I'm making whatever 5 cents of margin on each spoon.

Matt Brunig (34:45)

You got to sell a shit ton.

Katie Gaudytossan (34:46)

Of spoons, more spoons. And that's more cost, right? It's just more cost. More cost, more cost. Right. The unit economics of it are that for every new spoon I make, I have to incur the same kind of amount of cost like factory capital, labor, whatever and finance. That's not how it works. Right. If I have, if I'm managing a $100 million fund versus managing a $20 billion fund it's all kind of the. There's no. It's not like my costs increase 20 fold. It's still just moving when I put the money in the computer and there's more zeros at the end of all of my orders and trades. But other than that it's the same amount of work. So you have essentially a zero marginal cost of scale. And so now you just get to print money. And this occurs in other areas as well. Entertainment is an area where it kind of occurs like that. Digital entertainment to some extent your podcast. Right. Like if you have a thousand listeners who subscribe, let's say versus 20,000.

Matt Brunig (35:49)

Yeah.

Katie Gaudytossan (35:49)

The cost for you is not. You might choose to professionalize and pay some producers and stuff, but you don't have to. It's certainly not proportional. It's not 20 fold. And then Facebook, social media, same kind of thing, right? More users, they get more advertising revenue, but there's no real. It's not like the spoon factory where they got. I got to build more and more spoon factories. They do have to scale up some more data servers, but it's not a one to one kind of thing.

Matt Brunig (36:15)

We will continue this conversation with Matt right after a quick break. This message is brought to you by Apple Card. Apple Card is everything a credit card should be. It's easy to manage, built to be secure, and gives users up to 3% daily cash back on every purchase. The best part about Apple Apple Card is applying is quick and easy. Apply in the Wallet app on iPhone and see your credit limit offer in minutes, subject to credit approval. Apple Card by Goldman Sachs Bank USA Salt Lake City Branch Member FDIC terms and more@applecard.com what does the future hold for the business world? Ask nine experts and you'll get 10 answers. Will it be a bull market or a bear market? Will inflation come down or stay up? So many questions until someone produces a Crystal Ball. Over 41,000 businesses are future proofing themselves with NetSuite by Oracle. It's the leading Cloud ERP bringing accounting, financial management, inventory and HR into a single fluid platform. With real time insights and forecasting, you'll be peering into the future via actionable data. Speaking of opportunity, download the CFO UFOs Guide to AI and Machine Learning at netsuite.com richgirl the guide is free to you at netsuite.com richGirl that's netsuite.com richgirl on the social wealth fund of it all. This is an idea that I think some people will find quite exciting, but others might find Totally radical, or it might seem totally radical to many Americans. And that's why I think it's so interesting and I was so surprised to find when I was reading your policy work on this, that it already exists in the United States at a state level. One of the examples that you cite is the Alaska Permanent Fund, which has about $80 billion in assets as of, I don't know yesterday when I looked it up. And it is an investment fund that is seeded with oil revenues that pays an annual dividend to every Alaskan. And it looked like the average annualized returns were quite good, something like, I don't know, approaching 9% over the last 30 or so years. What do you think we have to learn from the Alaska Permanent Fund? What are the important learnings and takeaways that if we were to try to apply something at a, at a larger scale, what do we know now because of this successful experiment that's being run in Alaska?

Katie Gaudytossan (38:52)

Yeah, I mean, so a lot of things politically, one of the interesting things is that Alaska is a red state. And the governor that implemented the Permanent Fund, he was a conservative Bush pilot kind of guy. So it wasn't some kind of weird socialist Alaska kind of thing. They hit a lot of oil and they just sort of thought, well, what do we do with all of this? And they said, why don't we build a fund and from that fund we'll invest it because, you know, the oil is going to run out one day. So let's turn temporary revenue into permanent revenue. That's why they call it the Permanent Fund. And then with those dividends, we'll send those out equally to every person each year. And it works great and people love it. It's hugely popular. It's virtually impossible to cut. And like I said, this is a conservative state. This is a state that doesn't have an income tax and refuses, though, interestingly on that point, there was a survey in Alaska recently where they were trying to say, look, if the state had a budget shortfall, would you rather cut the dividend check, reduce it so they could cover the revenue shortfall, or would you rather implement an income tax, which they don't even have one. And most people said they'd rather implement an income tax and get rid of the dividend or even to reduce the dividend, which is shocking for, again, a conservative state. It's hugely, hugely popular. And like, as you pointed out, these things are not hard to run. They have their 9% return, but they also compare it to a benchmark index and they like Mildly beat out the benchmark index. They started out by having external fund managers run it, but they've been bringing a lot of it in house as they got bigger. And so it's very funny. Like if you go to their website, you can see like they have like the pictures of their two Alaskan interns. Every, every year there's this office in Alaska where they sit and they have like some traders who, who do stuff. It doesn't take a whole lot. You know, at the end of the day the, the way that the financial system works to go out and buy a bunch of stock, hold it fairly passively and spread the money out. The average dividend, by the way, it depends on the year they set it equal to. I think they may have changed this recently, but it's sort of like like 5% for a while. It was the average return of the trailing last three years or something like that. So it could go up and up, but it's like, can be up to three to 4,000 a person. So if you got a four person family, you get a $12,000 check each year.

Matt Brunig (41:17)

That is really amazing. So something that's bringing that up for me is after the pandemic and the stimulus checks went out, there was this kind of narrative that it was, that was what caused the inflation. And so you kind of have this like moment in American history when it felt like when Joe Biden took office there was this recognition of like, oh, we have a K shaped economy and the government actually does need to be more involved and they send out these stimulus checks. But then the fact that there was inflation created as a result of supply shocks and all these other like confluence of factors, it kind of soured people, I think on the idea that you could have a system where people are receiving checks in the mail that are disconnected from the work that they are doing as part of their job. In a way I think of that as something that like really set us back because that became the prevailing narrative was like, well, when the government gets involved and the government helps in any way, look what happens. You don't want to see price increases again, do you? And so I'm just imagining, I'm sure there is someone listening to this that's hearing $12,000 check in the mail for a family and they're immediately going, that's going to be inflationary. But I think that the point is like, but it isn't. The wealth is already there. You're not creating new money out of nothing. It's wealth that's already in Existence, you're just distributing it more evenly amongst people.

Katie Gaudytossan (42:38)

That's exactly right. In the recession, the checks that were sent out were deficit financed. So in a sense, right. New income going out, that's not being offset in any way by an increase of tax. And so, yeah, people had more spending power without getting into. Was that the reason we had this specific inflation? It's conceivable, right, that that could drive inflation, that if we were to borrow a bunch of money as the government and send it all out without any kind of offset, that spending power would increase by so much that more money chasing the same amount of goods, you get inflation. But like you point out with the Social wealth fund, this money already goes out. So if you think about Alaska, the $80 billion fund, let's say it has a 10% return, just to make the math easy, that $8 billion that's then being shot out to Alaskans. In the alternative, that $8 billion of return is going to go to someone else. It goes to the top 10%, the people who own the wealth. So we're moving money around. We're not creating new spending power, new purchasing power through deficit financing. We're just changing the distribution of spending power by moving some of that wealth and some of those returns away from the top and down towards the bottom and middle.

Matt Brunig (43:56)

Yeah. And I think the delivery mechanism, it sounds like, is important. It's an issue that we ran into with the child tax credit being expanded. That, that did lift a bunch of kids out of poverty, but politically it didn't have the same salience as like receiving a check in the mail because most people don't really understand how tax credits work. And so if you don't really understand how something is benefiting you, then you aren't going to fight to keep it. You're not going to miss it if it goes away. And I think that that was another relevant learning here, based on what I read, is that like actually getting the check in the mail and like understanding that you are receiving a dividend from something that you collectively own is politically an incredibly powerful feeling.

Katie Gaudytossan (44:39)

Yeah, the ownership share, even, you know, however you want to emphasize it, is big in Alaska. It's so funny. They kind of view it as almost like an anti big government thing. People do this sometimes, right? Keep the government hands off of my Medicare or my Social Security or whatever. But people can get a sense of entitlement, not in the pejorative sense, but they can get a sense of something being owed to them that is theirs, that belongs to them. And if you can create that sense, it becomes a lot harder to take it away. And we've done that with the old age benefits. Putting aside the fact that, yes, obviously those are government welfare programs, at the end of the day, we have cultivated a kind of culture around them where we think, well, this is my pension, pension. You do not take my pension away. And we don't really have that same sense with the child tax credit, obviously. And, and this is a way to do it with the fund to have an ownership share. I think in my paper I wrote, Social Wealth Fund for America, I had the designer, John White, he mocked up like an app that kind of looked like a Vanguard or Fidelity or whatever. And you could see your share and claim your dividend, you know, as much as possible to make it seem like this is just, just something you own.

Matt Brunig (45:48)

Yeah, I mean, I think it's a very politically powerful idea. It strikes me that a lot of the pushback to concepts like social ownership would probably be something to the effect of, well, why don't you just allow the companies to be. Continue to be owned by whoever, let them maximize all their surplus value and then just tax it higher and then just like redistribute money from the taxes to the people at the lower end of the spectrum, like, why do we have to distribute ownership? What do you think a social wealth fund achieves here that taxing corporations does not achieve?

Katie Gaudytossan (46:25)

Yeah, so in a perfectly administrated world, I guess you could imagine a setup where you could tax capital in a way to collect this amount of money from it. In practice, it's very, very difficult to tax companies and not even to mention other kinds of capital. And we have multinational corporations these days. They're very skilled at realizing their incomes in tax shelters. And Piketty's book, he tries to propose a wealth tax and other kinds of capital taxation. And it's funny, you start saying, okay, well, but how are you going to deal with all these problems that we've identified in collecting it? And his answer was to have an international registry of all the wealth. That's what you would need to actually make that happen. So what we found is that taxing companies is very difficult, but owning companies and receiving their capital return is very easy. One example I like to give on this is Apple for many years, and maybe this has changed more recently. Apple was paying very, very little tax because all of its returns were, quote, unquote, offshore. That's how they would realize them. And they would just have these big cash accounts in these balances In Ireland or other countries where the US Couldn't tax them until repatriated the money. Which is funny because it's like, what do you mean, repatriated the money? You know, the money. It's not like there's a bank vault where there's just a bunch of bills. Like, it's all very fake. But that's how the corporate tax system worked. But at that same time, as the US Was struggling with taxing Apple and there were all these policy proposals here in D.C. about maybe we could force them to repatriate. Like, how do we make this work? Not just for Apple, but they were kind of the big example. At the same time, the Norwegian sovereign wealth fund, its biggest ownership stake was in Apple. That was its number one holding, and it was having no problem collecting dividends and returns from Apple. So. And Apple's not a Norwegian company, you know, so.

Matt Brunig (48:21)

Fascinating. Okay, so basically you're saying, like, if you can find a way to tax corporations at a higher rate and redistribute it, be my guest, good luck to you. But like, as we've seen, that doesn't really work. But what our system is set up to do is return dividends to shareholders. And so, okay, you just have to make effectively the government who represents the people, a shareholder.

Katie Gaudytossan (48:45)

Yeah. If you want to say, look, the two are essentially equivalent, then which is the easiest way to go? This is the easier route to go, is just to own it along with everyone else and collect your money that way.

Matt Brunig (48:58)

So I'm trying to extrapolate this forward. Like, say you do something like this 20, 30, 40 years down the road. Does this ultimately have the effect of just nationalizing everything over time? Like, would this ultimately, as that growth compounds or like the same dynamics of capitalism happen with. As the government owns more and more and more of it? Does everything eventually get nationalized?

Katie Gaudytossan (49:20)

Yeah, it's going to depend on your definition of nationalization. Right. I mean, so over time, if you're constantly growing your share of the ownership of the wealth, eventually you're going to tip into 51%, 52%, you know, and you'll have majority voting share at that point. It depends on what are you worried about with respect to that. If you're worried about, well, whoever happens to run the fund, they're just gonna. That's way too much power for a person to have. There's ways to disperse out voting power, for example, by allowing people to vote the shares in different ways. So there's ways to manage that if you need to. If you're worried about. Well then at that point we're gonna have problems with price signals because there's not gonna be enough trading happen.

Matt Brunig (50:04)

Oh, interesting.

Katie Gaudytossan (50:05)

You can split the fund up into multiple funds and have them trade against each other. Of course, we live in a multi. There's hundreds of countries in the world and there's 80 sovereign wealth funds already in the world. So that's already a thing we'll have. It's kind of a weird future to imagine. You know, all these countries, the sovereign wealth funds are just like trading against each other. But there are ways to generate these price signals that don't require private ownership. You just need different managers who are trading against one another. This has actually happened in Norway. So Norway has two sovereign wealth funds. The one that people talk about the most is the global sovereign wealth fund which is massive. And then they have a smaller domestic one that only invests in Norway and in other Nordic countries. So Sweden, Denmark and Finland and that one, they put a bunch of money in it in the 70s when they had a payroll tax surplus and it's just been sitting ever since. And they don't put any more money in it. But it just. All the returns are 100% reinvested and they don't do anything, they don't pay a dividend from it. There's nothing. It's just this sort of fun that just is self perpetuating. And recently it's. They've run into the problem where, I mean I don't think it's a problem but they think it is, that it's moving in on owning 15% of the Norwegian stock market. It, they're proposing a dividend from that because domestically the people who run Norway at present are concerned about it. This fund's gobbling up the rest of the Norwegian stock market?

Matt Brunig (51:36)

Well, yeah, I mean flesh that out though. What would be the reason for that to be concerning? Have they cited a reason why they're concerned about that?

Katie Gaudytossan (51:43)

It's, I mean not really, you know, it's just kind of a outsized influence. It's honestly, it's a political thing. Right. Does it make you uncomfortable to have the stock market owned that way or not? I mean 15% is such a random. Why not 16, why not 17, why not 18? It's just this trigger that's occurred and the governance of the country at present is just not as ambitious. Of course you'll find they have like most European countries, some like seven, eight parties in parliament. You start going out to the further left ends of the parties and they want to keep going. But this, I think, is a good point, though, because it, I mean, I think 15, I would say keep going. But I do think it's useful because it shows that this is a gradual thing, and if you want to, you can pull the brake. It's not like this revolutionary leap, you know, like the Soviet Union or something. And, oh, my God, now we're in this whole new system, and it may just collapse on us. If you decide, look, 15%'s enough for me, all right? And that would be a political judgment you could make. You can stop it. So it's not like a huge risk to get going.

Matt Brunig (52:53)

So obviously, we've used two primary examples, Alaska and Norway. Both of these places have oil. And so I think there is a natural question that people ask, and I've seen it asked a lot recently, because Trump, in one of his flurry of executive orders, is like, yeah, we're going to do a sovereign wealth fund, too. People are like, with what money, though? Obviously, our national debt is large. We don't run budget surpluses. And so I think it's interesting to think about the fact that, like, a lot of the prominent examples are tied to places who have a lot of natural resources or, like, reserves of that nature. But I would point out that the US does contain an absolutely enormous amount of wealth. And so if we are talking about, okay, how would you theoretically fund something like this? Sure, we didn't just discover oil in our North North Sea, but you have introduced a lot of different ideas for funding. You've talked about market capitalization, taxes. You've talked about wealth taxes. You've talked about IPO taxes. And so I'm thinking, like, with the challenges that we've already discussed with how difficult it can be to tax capital because of all the loopholes that exist in the current regulatory regime, what do you think of as the ideal approach for something like this?

Katie Gaudytossan (54:09)

Yeah, I mean, it's a kind of pragmatic question. At the end of the day, the dollar, wherever you get it, is investable. Whether you get it from taxes, selling assets, selling resources. It's funny, because we do have a large national debt. But of course, all the other countries that have sovereign wealth funds also have public debt. There's no country in the world that has no public debt. A country like Norway could eliminate its public debt if it wanted to, but it chooses not to. There was a fund that was set up in Australia where they actually sold bonds. The government borrowed money in order to capitalize the fund, and that was Something that was very tantalizing for a while, not so much anymore because of the interest rates being what they were. But when interest rates are low, which they often are for the government, there's some free money to be had there. Because if a 10 year treasury is trading at 2%, 3%, the government could borrow at 2 to 3%, put it in an index fund which is going to generate an average of whatever, 7, 9%, and that spread between them becomes free money essentially. Obviously, there's risk involved, but over the long run, you have an infinitely lived state.

Matt Brunig (55:17)

Yeah, infinite timeline, Right.

Katie Gaudytossan (55:20)

And the government is kind of uniquely able to do that because its borrowing costs typically are lower than others. But like I said, right now the interest rate, that spread is not really present because the interest rates are so high. But things like wealth taxes, even though they're evaded in the realm of like, messaging. A very nice kind of conceptual idea, right, is to say, what if we had a wealth tax? You would have a threshold below which wealth was exempt, but wealth over a million dollars of net worth or something, put a tax on that and you collect it each year and then put that into the social wealth fund, which we all own an equal share of. Inheritance taxes, I think also work very well there, right, because you could think about, I don't know, imagine a setup where over a certain threshold, inheritance was taxed at 50%, which seems kind of extreme, but the one thing about this, right, you lose 50% of your inheritance, but you get 50% of everyone else's inheritance because it's all going into the social wealth fund, which you will own a share of and then your kids will own a share of and so on and so forth. So things like that, I think are very, like, fun from like a messaging perspective. But even things like assets though, right? When you think about these countries that had oil, I mean, what they really had was land. And the US Actually does own a tremendous amount of land, especially in the West. The western half of the country is like, mostly owned by the federal government. And some of that's, you know, Yosemite National Park. But some of it's just whatever, just random land, you know. And like, you could sell some of that and bring that money into the fund in a way rebalance the portfolio away from desert into stocks and bonds.

Matt Brunig (56:54)

Oh, fascinating. Well, I thought, what I thought was so interesting in the paper was the references to the Meidner plan and how they were effectively taxing corporate profits but doing so in such a way that was like transferring the value. It was Almost like they were doing it in kind. They're taking shares and transferring the shares directly. Because I think that becomes a big sticking point in the US when we talk about wealth taxes. And, you know, Piers Morgan goes on Fox News and is like, it's not fair for them to take the money of the whatever. And they're talking about, oh, well, someone worth a hundred million dollars with a billion dollars. They don't just have a billion dollars in cash sitting in a bank account. They own, own this company or they own shares of this company. And so one very easy way to address that is, okay, well then don't make them sell shares to pay a tax bill in cash. Make them just transfer the shares into the fund.

Katie Gaudytossan (57:47)

Yes, the minor plan, which is the initial proposal there, used something that I guess people call a scrip tax. But you would take the corporate profits and you would take 20% of them. So you think about a corporating income tax, but then you would say, look, you don't have to give me 20% of your profit, so you don't have to give me that amount of money. Give me an equivalent amount of shares and you can just create the new shares and give them to me. And then you think over time that's going to dilute out the existing shareholders and the government will come to own those assets. But you're right that it does fix that narrow problem of liquidity. And even when you're talking about corporations, they'll complain about like, like dealing with cash flow. They have this money that comes in, they might want to reinvest it, and instead they're sending it off to the government. Well, you don't have to send any money to the government. You just send these new shares, your balance sheet, as far as, like your actual book value, like what you're doing in the business is unchanged. It's just the underlying ownership structure gradually gets diluted out and sent off to the state. So there is something very neat about that kind of script tax. It doesn't require the literal sending of money, but what allows you to meet your obligations by simply transferring ownership shares.

Matt Brunig (59:04)

Something that I had noticed about the proposal is that it basically structures it, or recommended in this initial conception that retired people would probably be ineligible because they are receiving Social Security payments. And so if you can kind of cap the age of the folks receiving the dividend, it's obviously going to raise the dividend payments for those who do receive it. And it occurred to me while I was reading it, just kind of with this eye toward simplification basically. Like, it would be interesting or. There is sort of a similarity here between the way Social Security already works in this country. There's a trust, people are paying into it. Eventually you receive these payments. Everyone's kind of on board with how this works. Like you said, we have come to think of it as something we are entitled to. And I was like, I wonder what would happen if you basically melded these things, things together. Take a program like Social Security, kind of fold it into the wealth fund concept, and then just essentially apply the entire thing to everybody so that the payments for everyone are just lifelong. Like, you don't have two separate programs that are dependent on age. You're just doing this for everybody the whole time. But is that insane? I don't know. I'm. What am I missing? You tell me.

Katie Gaudytossan (60:16)

Yeah, not Medicare for All, Social Security for all. Some people call that basic income. I. I actually use the phrase universal basic dividend in my paper is a kind of nod to that. And the downsides to that is just that elderly people, the amount of money that you want to give someone in a pension is maybe different than the sort of flat amount that would come out of this kind of fund, right? You want to be replacing a certain share of their prior income, and you want it to be very stable. So if market's up and down and we maybe have to change the dividend check because of that, that's not. Not great if you're literally like, this is your only income. I think a kind of ideal structure for me overall is most countries, they already have a setup where once you get above a certain age, you get your public pension, which is Social Security here. And before you're a working age, you get a check each month which is a child benefit. We have the child tax credit. It's not quite the same thing, but it's the same kind of idea, right? So there. I think that's a clever kind of structure, right? The kids, we figure out kind of a fixed amount that we think will cover, you know, whatever, some food, clothing, we figure out how much that is, and that's a guaranteed thing that's coming out of the welfare state, not dependent on the Social wealth fund and whatever returns it may generate. And then for the elderly, the same thing, right? We're taking care of them, make sure they have adequate income replacement, and it's all set. And then for the group in the middle, that's where you're working. And you're also receiving the dividend check. And obviously, some people may be Disabled, or they might be students or whatever. But. But that group in the middle, I think that's a good structure to keep it focused on them and use Social Security for the old and the young.

Matt Brunig (62:00)

I see. Okay, so is it fair to say that it's basically the difference between, like the question of capital distribution and basically, how do you bolster a welfare state? Because I guess it's my understanding that Norway uses its fund to create said welfare state. In essence, instead of doing what we're calling a universal basic dividend, they're really using the fund that they have and the wealth they have accumulated in it to fund their universal basic services.

Katie Gaudytossan (62:32)

Yeah, I mean, and. Well, and services implies that it's in kind. But they have checks for elderly people, disabled people, kids. They have money for people. But unlike Alaska, where they have a very literal accounting of here's the return divided by the population, here's your check. They just take in 4% of the assets under management every year and bring that into the general budget of the government. And then separately they run their welfare state and whatever the benefits they have for that, which is free college, free health care, old age, pension, the whole kind of slate.

Matt Brunig (63:09)

Don't you love living in America? They're like, oh, well, they use their wealth for these wonderful things in this welfare state.

Katie Gaudytossan (63:16)

I do like the idea of tying it to a dividend, but it's really kind of a way of saying, look, look. We distribute income in the market through one of two mechanisms. One is through labor, which gets around 60 to 70% of all the money that goes out, and then the rest through capital, which gets 30 to 40% depending on exactly how you want to account for it. And that 30 to 40% that goes to capital, it's highly unequal, as we discussed before, but it's also very gettable. It's not hard to own wealth. Most of that wealth is passive. Most of those returns are passive. I know this is a personal finance podcast. So, you know, if, if you've got a 401k or IRA or whatever, what was the return on the S and P last year? You know, like, it doesn't take a whole lot to. And so in a way, capital, it's kind of the easiest income there is to grab, especially in the, in this financialized system we have where you're not really allocating all that. It's not really like, I'm owning my own company. It's kind of just like almost like a checking account that has some risk but just yields return. It has the Ability to be a great source of revenue, especially if you own it and you're not dealing with taxing it. The disincentives aren't really an issue. You start taxing labor really heavily. You do concern yourself at some point with people saying, I'm not going to work or I'm going to work a lot less. If the government owns half of the national wealth in these sort of passive funds, that doesn't require taxation. There's no disincentive from that. I mean, it requires it to capitalize it, but once you own it, there's no requirement to be levying on investment or levying on labor. It just kind of flows in.

Matt Brunig (65:05)

That has always been something that kind of. I could never quite see the rationale for taxing capital at lower rates than labor. I was like, but don't you want to incentivize people to work more than you want to incentivize people to accumulate assets and then just like, skim some off the top every year? If you're asking which activity is more productive for an economy, surely labor would be the more valuable thing. Right. That part of our tax code never quite made sense to me. And I'm pretty sure the. The origination point of, like, lower capital gains taxes was some very angry rich people in the early 20th century. Like, it's all very arbitrary, I guess, is the point of, like, how these things kind of came to be. And because capital is power in the United States and you can wield capital and you can wield wealth for political power. I understand how we got here, but, like, as an incentive structure, it always struck me as very backward.

Katie Gaudytossan (66:04)

Yeah. You know, from a deservingness perspective, it's tough to say that people who own and receive sort of passive income deserve to take home more of that than people who work. But that's the system. We have the arguments for it. One of the big ones is, is avoidance. Right. The issue is, like, well, once you get the tax up too high, the capital owners are very savvy, and it's all kind of fake in a way. It's not like labor, where you actually have to go work. You can hide your money, you can put it offshore. There's lots of things you can do to avoid the tax, which is just another reason why it makes sense to own the wealth instead of to try to chase down the people who own it and hope that they don't have it in a pan, a small bank account or something. The other argument for low capital taxation has to do with just sort of investment. Right. It's sort of, well, we want to maximize the amount of funds that are available to invest so that companies can expand production and that will increase growth, which will trickle down and everyone will benefit. But this is another reason why I think the wealth fund is very appealing. Because if what we're saying is, well, we're going to have our own own money, that's going to be like, we don't depend on you necessarily to invest. And so we're less worried about capital flight. We're less worried about our, I'm going to take my money and then you guys are not going to have any investment capital. And then things are going to be bad for everyone. We've got our own wealth fund. We don't need to worry about this. And this actually came up in Norway not too long ago. And a very, it was a very funny article. I think it was in Ink magazine. One of the wealthiest men in Norway left. He was very angry and he was talking about Norwegian Norway's taxes and why he just couldn't as a wealthy person so much. And they have a wealth tax in Norway. They have an inheritance tax. And like, on top of all of it, they also do just, they also have the highest corporate tax rate. Like, they really go in on them. And they asked the prime minister of Norway, are you concerned about this? Because you get this a lot. Like, oh, my God, if the wealthy people of your country are going to leave and they're not going to invest, and isn't that going to be a problem? And I forget exactly what he said, but he was just like, let him go. We don't care. Yeah, what do we care? We have more. The state of Norway owns 56% of the national wealth. And if you exclude homes which are privately owned, it's like 76% of the national wealth is owned by the government. So he's this guy who cares. Like, we don't need this guy. So you get to that point where the tables start to turn and you don't worry so much about, oh, if we increase capital tax, are the capitalists going to leave? Are they going to pull their investment? You don't worry about that so much.

Matt Brunig (68:47)

That's so funny. Okay, so what you're saying is, in America right now, you hear this all the time. It's like, well, the billionaires are going to leave. I'm like, first of all, see ya. You're not exactly doing us any favors, man. I'm like, I don't look at the current state of things. And Go, man. Thank God for the billionaires. They're really doing us a solid. But it is interesting just to think about it in that perspective of by doing something like this, you are now no longer subject to the whims or the threats of like, well, all the rich people, they're gonna leave. And so we have to keep doing things that will make them happy because we're so reliant on their wealth. You're investing like a tremendous amount of power, influence and control in this exceedingly tiny subset of people. And this is a way for us to get away from that concentration of power.

Katie Gaudytossan (69:37)

Yeah, absolutely. It's a way to solve. It's called the problem of the capital strike. So discussions of the sort of welfare capitalism, right, where you have a capitalist economy is very privately owned, but then we have a nice welfare state where you get your Social Security, you get your disability and whatever, it seems like, okay, maybe this will go, maybe this will work, maybe this will be fine. And then there's this line of critique that says this is an inherently unstable setup up because in order to tax to generate the welfare state and to fund all that, you have to levy on these capitalists who if they get pissed off enough, can go essentially on strike. And then when they go on strike, the whole thing kind of collapses. So you're dependent on this thing and they don't want to pay tax. So over time you're like, well, okay, we'll cut down on the welfare state because we. So this is a way to say capital strike, strike. It takes that weapon off the table. Your strike doesn't mean anything to the state of Norway. When they have trillion dollars on a per capita basis, hundreds and hundreds of thousands of dollars per person of, of collective wealth that they can invest wherever they want. It cuts that contradiction like straight out of the system and hopefully puts things on a more even keel. And you're less worried about whether the rich are satisfied with, with the tax and benefit system and other forms of governance that they don't like.

Matt Brunig (71:02)

Yeah, often I think when we talk about these ideas that are basically suggesting, like here's a way that we could structure the system and could structure society that we have every reason to believe would make it function more smoothly. But when you bring up big ideas like this, I think the burden of explanation and the burden of proof kind of falls on the new idea to have to defend why it's better than the old. But the current system never really faces that kind of scrutiny. We never sit back and go, but wait, do we really Want a system where, like our fates in the hands of 200 extremely rich men who like, if they don't like something, they're just going to call up their senator they've paid off and be like, yo, I don't want to pay this tax anymore. The status quo never faces the same burden of having to defend itself from that type of scrutiny because the assumption is that if things have ended up this way, it must be because this is the best way, or that because this way is inevitable, but it isn't.

Katie Gaudytossan (72:02)

Yeah, definitely. No, there's definitely a bias towards the status quo and there's a sense of just world fallacy that the way the world is, is. Attracts some underlying sense of justice. But there's also, I think a reasonable fear people have of the unknown. Things might be bad, but I don't want to take this leap into the unknown and wind up figuring out that things are even worse. So people being a little bit averse is rational as well, to some extent. This is why. Or one of the reasons why when I try to advocate these things, I really try to center it on the fact that these things do exist already and that they are effective where they do exist. And I'm just basically saying, let's copy that and scale it up. So we've got it in Norway, we've got it in Alaska. You can go see, you can go to Alaska, visit people, talk to people. It's not a leap into the unknown. It's known we know how this is going to work. There will be winners and losers, and the losers will tend to be more affluent, like very affluent people. There's some potential political tension involved in making that leap, but it's not a leap into the unknown. We know how this works, but it's true as well. And this is a problem I've had in policy in general. I write about policy and advocate a lot of policy in D.C. at the federal level level. It's one. Obviously, of course people are. You have that status quo bias. But also they tend to discount the experiences of other countries. This has been one of the most irritating things for me, I've been doing this for five or six years, is you'll go to somewhere and be like, hey, I've got an idea. What if we did A, B or C? And they're just like, oh my God, I don't know, how would we. I mean, we need this vast study to know how it would work and how would you predict it? I'd be like, oh, no, no, look, they do it in Germany in France, and they've been doing it for 50 years. It works great, great. And that's Germany and France. These are modern, advanced countries. They're pretty similar. But yeah, you do run into a huge status quo bias that is against change in general, even if you can massage it a little bit by pointing out that these things exist and they work.

Matt Brunig (74:11)

Am I correct in remembering that you actually had some of your policies adopted into the Bernie Sanders platform?

Katie Gaudytossan (74:19)

Yeah, Bernie. I had a great relationship with Bernie and the Bernie campaign. Free childcare. These are, like, not my ideas. I just am the one who advocates publicly. Like, obviously someone previously thought about that, but my free childcare proposal was adopted by his campaign. We had a proposal to expand the Tennessee Valley Authority, which is a giant public utility in the Tennessee region, to expand it across the country. It's owned by the federal government, and to use it to do decarbonization. So instead of like the sort of like tax credit stuff that we did with the ira, say let's use the federally owned tva, which has a lot of green energy production, and like, spread it out. He adopted that proposal. And on and on down the line. It was like three or four of the policies that I'd written in the three years leading up to the 2020 primary he picked up for his campaign, which was quite thrilling from a think tank perspective to get to that, to get to that point. That's what you hope to. To achieve, I guess. I mean, ultimately hope to implement them, but I guess this is the closest I ever got.

Matt Brunig (75:24)

So do you just, like, look at our current reality and just be like. I feel like, like the Democratic Party kind of chasing Bernie out was kind of like watching the last helicopter leave Vietnam. And we're all like, that was our chance. There it goes.

Katie Gaudytossan (75:40)

Yeah. Since 2020, it's been a little tough. Matt output at my organization, People's Policy Project, has gone down quite a bit. I've been focusing on state level stuff, but, you know, 2028 is around the corner. What I'm doing now is it's going to be an open Democratic primary, be an open Republican primary as well. And so there's going to be a lot of people running from across the spectrum. So hopefully there'll be someone in that Bernie Lane who I'll be able to reconnect with with. Parenthetically, probably a lot of people who worked on the Bernie campaign, wound up working on some other campaign. So it'll all spread and hopefully I can get some more of these ideas on some more presidential platforms.

Matt Brunig (76:25)

Yeah, it's super cool. I guess my, my last question that I wanted to ask you about. So there is something in economics called the life cycle model of consumption and so on. From a personal finance perspective when we talk about this, it's basically the thing that says like, okay, normally when you hear about something like personal budgeting or personal financial management, there's this idea that like, you're gonna spend the same amount of money every month for the rest of your life. You're gonna arrive at some equilibrium point that it's like, this is what my life costs. And then like, once I know what it costs, then I can plan for that and then I will base my retirement assumptions on that and whatever you kind of backfill from there. But this life cycle model of consumption says that's not really how life works at all. Because when you first start working, you're probably in your late teens or twenties. This is also the period of your life where you're going to be having children, or you might be having a wedding or life is very expensive, but you are actually very short on resources compared to how you'll probably be in your 50s when like now you've been working for decades and you've been investing in a 401k and now your children are out of the house and, and what have you. So it's, it basically says you have to adjust just the personal financial advice that you give somebody for the fact that like the human lifespan actually requires different resources at different times. And so it might actually make sense to accumulate debt in your 20s to fund these things and then spend your 30s paying that debt back. And then like readjusting and now focusing on investing later versus just kind of treating the whole thing like it's going to be the same the entire time. And, and something that I've heard you point out in the past is the same exact concept, but from the perspective of, okay, well, a good welfare state can and should actually adjust for that reality. The way that we think about it as this like individual personal finance problem is actually kind of silly because everybody's life is going to be impacted in this same way. So why don't we just take a more universal approach to correcting for that suboptimal distribution of wealth within an individual life. And I mean, the numbers kind of bear this out, right? Like 80 million Americans are on Medicaid, half of them are children. What does fixing that look like? What does a welfare state correcting for that suboptimal just like reality of life look like?

Katie Gaudytossan (78:49)

So I've used this mostly in advocating for child benefits because there's a mismatch between the window of fertility and how income is distributed across the life cycle. Cycle, as you say. Right. So people typically age of first birth is around 26. It's been going up, maybe is at 27 or 28 now. But there's a age period in which you can have kids just biologically. And when you're having kids in your 20s or even early 30s, you're at a lower income level than you will be when you're an empty nester. And there's something contradictory and nonsensical about this, right? When you're an empty nester, you don't need that much money, you don't have to little kids that you have to pay childcare for. Now maybe you have to pay for the college. Different thing.

Matt Brunig (79:35)

We'll fix that with a different proposal.

Katie Gaudytossan (79:38)

Free college doesn't fix that. You know, but there's a logic to how all these systems unfold in these other countries that start to make a lot of sense once you recognize that a lot of what we're dealing with is people just dealing with different stages of life. And we are all kids at some point and we don't work at all. And yet we need money, we need a lot of resources, we need healthcare, we need food, we need housing, we need, need school, but we don't earn. And so you can put that on the parent. But remember, parents are having kids when they're in entry level jobs because that's when fertility occurs. And so there's something about that that doesn't make a lot of sense. And so even aside from isn't it sad that some kids are very poor, there's just a matter of like fixing this problem with the way that income is distributed across the life cycle cycle where we distribute the least amount to people when they have these young kids who are very expensive and we distribute the most when they're empty nesters and have the least sort of financial need. And so the welfare state can pick that up by providing universal child benefits. So you mentioned Medicaid for kids. A lot of kids, the majority of kids I think are on Medicaid, or maybe it's a slight minority. There's no reason why we couldn't just say look, every child is going to have, have Medicaid or Medicare. Right. Public health insurance. When you have a kid, you just don't have to worry about that they're going to get a public health insurance card. And you know, we could do that for the whole society as well. But we, you could start with the kids, right, and say, hey, you just don't have to worry about that. You keep your health care. Whatever you're getting from your employer or however you're getting it, they're taken care of. And that's just a cost you don't have to deal with. Just like with school, we already do that for ages 5 through 18. And then with that you could extend that down, down, free pre K, free child care, give the kids a check each month, a free school lunch. All that can be done universally. And there are countries where it is done universally. And the effect of that is just to make life a lot easier and to smooth out income across the life cycle. You're going to have more resources when you have these young kids because the health care and the child care and all that's going to be taking care of them. And you're going to have less when you're an adult, an empty nester, because you're going to be paying the taxes, but you won't be receiving the benefits anymore because your kids will be grown, but that'll just be a form, not a much smoother existence. And that, that smoothness is quite pleasant. It's a pleasant way to live, to not have to have instability, to not have it be the case that when you have a kid, boom, you're out 15,000 a year for child care. And now, oh my God, I got to budget all this. Like no, no, no, your budget will be exactly the same and you'll just keep going and you'll pay more tax, but everything will be smoothed out across the life cycle and it'll all even out and it'll be pleasant for everyone. The kids will grow up better, healthier, smarter, more productive. There's a lot to like about it.

Matt Brunig (82:36)

So yeah, well, and that kind of comes back to this idea that like there's a self interested case for a lot of these things. I feel like whenever I argue with my like Fox News parents about these things, like are you bleeding heart liberals? And it's like, no, it's just make sense. Is it going to be cheaper in the long run if there's better labor participation from parents and that these kids are growing up and like fed and taken care of and are educated, like this is just going to create a better society. This isn't about altruism. This is about just what is going to make a more pleasant society for everybody. What's the best way to distribute these resources?

Katie Gaudytossan (83:12)

Yeah, Absolutely. And with kids, a lot of the private school stuff, if it's not religious, Some people are pursue private school for religious reasons. But when it's not religions, a lot of it is people trying to get their kids away from poorer kids or maybe racial minorities or whatever. Right. But you see that. I see that very distinctly here where I live in Connecticut, where we have the King's School, which is what it's called. Yeah, that's literally what they call it. So it's like 40,000, $50,000 a year. And it's like, okay, so these, like, our public schools are totally fine. There's a lot of poor kids in the public schools, and they just want to. To get away from them. And if we had this welfare state, you wouldn't have to do that. Like, the kids would be taken care of. This came up actually recently in a. In a local issue because we have free school lunch for all the kids.

Matt Brunig (84:04)

Nice.

Katie Gaudytossan (84:04)

And they were talking about getting rid of it to save a million dollars a year, which is like 0.03% of the budget. And I actually wrote a letter to the editor, was trying to like, no, no, this is a really bad idea. And one of the points I was making was to say, look, when you make people pay for it, even a lot of people will not get lunch. Poor kids, their family may not sign up. There might be English language learners. There's a lot of people who you would want to eat. It's not just going to be like you're sticking it to the rich. Poor people also end up not getting these benefits when you make them hard to get and you make them have all these eligibility forms and whatever. And then we're going to have this situation where you have kids who are hungry in the schools, and not only is that sad that they're hungry when no kids should be hungry, but those kids are going to be disruptive. It's going to be harder for the teachers. It's not going to be great for the other kids to be dealing with hungry peers. So just like little stuff like that. I mean, that's kind of maybe a small bore thing. But just to point out that we live together, and if some people are struggling and hungry and whatever, you can't always insulate yourself against it, or in order to do so, you have to pay $50,000 a year to go to the King's School.

Matt Brunig (85:12)

Jesus Christ. That's absolutely insane. Yeah, I mean, I was listening to you on another podcast and you had basically said, like, it's kind of crazy. How arbitrary a lot of this is like, yeah, there's school buses. They could charge fares for the school buses. We don't do that. Why have these kind of sticking point issues? Or there are so much about public school. It's like the difference between the right to do something versus like the right to be free of something, I guess. And so like with school, every child has the right to an education. And so like the government is obligated now to ensure that you can be transported there and that the school has a place for you and whatever. But there's such an obvious case for the lunches being part of this process. And so I don't know, when I, when I see this kind of become this very like individualist, why should I have to pay for somebody else's kids to eat? It reminds me so much honestly of the type of short term narrow thinking and cost cutting that maybe like a poorly run business would make. It's like you're not seeing the larger implications or consequences of these decisions. And so I don't know, there's just this like great irony of everyone being all hopped up on this idea that government should run like a business. It's like, but the government isn't a business. The government is not here to make money. That's not the role of government. And so it's funny to see these short term narrow, with these bad second and third order effects being applied to the governance.

Katie Gaudytossan (86:41)

Yeah, because a business can make money by externalizing costs. The government, I guess it can externalize costs in a way that is budget positive. But the government functioning as the sort of entity that sets above the society, it bears the costs. The society bears the costs. So okay, we, we save a million dollars on the school budget, but how would you quantify the amount of damage that that's going to cause to kids learning and behavioral issues and the long run effect of all that, that's probably going to far exceed millions of dollars. And sure, as a business maybe you don't care because you say those costs are not my problem. But the government represents the society. Those costs are our problems in some cases quite literally with child benefits. There are many studies that would say that the government itself kind of will net profit, profit from reduced incarceration and higher employment and stuff like that. Even if it doesn't, the government itself doesn't literally as a budget matter net profit. The society. When you start putting a dollar figure on the better outcomes for everyone, it's clear that that's a net positive, especially for kids. And it's not just school lunch. That's like the tip of the iceberg which you can think about in general, right. If kids are well fed and well housed and well clothed and can go to the doctor and what benefit that has not just for them, not for just that them in the moment, they'll have better lives, but them in the future and then also for your, your own kids in the moment and your own kids in the future, one because they would receive a universal benefit like that, but also because they have to navigate the society with these other children who if they're having issues, those issues do not stay with them.

Matt Brunig (88:25)

Yeah. Wow. Thank you so much for being here today. Thank you for talking to us about all your and just for sharing your expertise with us. I think this is a pretty mind blowing idea and I do have faith that I don't know if it's gonna have to take everything fully breaking for people to see the light, but I feel like we're kind of heading toward everything fully breaking anyway. So I guess we'll find out.

Katie Gaudytossan (88:50)

Yeah, we're in a precipice. We'll see how it goes next few months.

Matt Brunig (88:55)

So thank you for joining us.

Katie Gaudytossan (88:56)

Thanks for having.

Matt Brunig (89:04)

That is all for this week. We will see you next week on the Money with Katie show. Our show is a production of Morning Brew and is produced by Henna Velez and me, Katie Gaudytossan with our audio engineering and sound design from Nick Torres. Devin Emery is president of Morning Brew. Content and additional fact checking comes from Scott Wilson.