All-In PodcastMassive jobs revision, Kamala wealth tax, polls vs prediction markets, end of race-based admissions
EVERY SPOKEN WORD
150 min read · 30,059 words- 0:00 – 1:59
Bestie intros!
- JCJason Calacanis
Do we have Freiberg? Is he... did he drop off? Oh, here he is. Okay. Freiberg's back, okay. Three, two-
- DFDavid Friedberg
I just had to take a leak. I just... I-
- JCJason Calacanis
No problem.
- DFDavid Friedberg
... I go outside my office now I come back.
- JCJason Calacanis
Oh, you like a nature pee? You're a nature pee guy?
- DFDavid Friedberg
Yeah.
- JCJason Calacanis
Me too. I love a great nature pee.
- DFDavid Friedberg
Well, I have this great office at home which is like a building outside of my house, so I like to go in the garden.
- JCJason Calacanis
Yeah. Take a breath of fresh air and just, yeah.
- CPChamath Palihapitiya
You don't sit down to pee?
- DFDavid Friedberg
(laughs)
- JCJason Calacanis
(laughs)
- CPChamath Palihapitiya
No, I'm, I'm serious. I'm not joking around, you guys.
- JCJason Calacanis
Uh, so many jokes. (laughs) I'm not going there.
- DFDavid Friedberg
That's a soy estrogen boy joke. Is that...
- CPChamath Palihapitiya
No, we can cut this out, but my pediatrician said, "Hey, Hmob, I think it's really important to teach your boys to pee sitting down. D- and even for-"
- JCJason Calacanis
What?
- CPChamath Palihapitiya
"... for you as you get older." I-
- DFDavid Friedberg
What are you talking about?
- CPChamath Palihapitiya
It's good for the, it's good for the prostate, and there is like a materially different percentage in terms of prostate cancer rates when you pee sitting down because you expel all the pee that just kind of gets caught there.
- DFDavid Friedberg
What?
- JCJason Calacanis
The little, the dribble?
- CPChamath Palihapitiya
Swear to God, bro. I swear to God. You Google it, I'm-
- JCJason Calacanis
What about a good shake?
- CPChamath Palihapitiya
Do a... Hold on.
- JCJason Calacanis
Wait, wait. What about a shake?
- CPChamath Palihapitiya
Nick, you can cut out all of this. No, the shake doesn't do it.
- JCJason Calacanis
No, this is great.
- DFDavid Friedberg
Sitting while urinating aids in muscle relaxation, benefiting men-
- JCJason Calacanis
(laughs)
- 1:59 – 15:02
Labor department revises down nonfarm payrolls by 818K
- NANarrator
in.
- JCJason Calacanis
All right. (laughs) The Labor Department has revised down the job growth numbers as a number of members of this panel predicted. The, uh, BLS updated its non-farm payroll stats, downgrading actual job growth around 30% versus what was originally reported. This means the US economy created around 818,000 fewer jobs over the 12 months leading up to March 2024. Number was originally reported as 2.9 million new jobs created, and it's more like 2.1. Uh, the Labor Department updates and revises its stats frequently. It gives disclaimers, but this is the largest and most significant revision since 2009, after the Great, uh, Recession. And so, the biggest downgrade came in the field, not surprisingly, of professional and business services with 358,000 jobs lost over the last year. We see that in all the stats of different tech companies and businesses, finance companies doing layoffs. Other fields that revised their numbers: leisure, hospitality, manufacturing, retail, makes sense, and a little bit in transportation. Here's a couple charts for you before we go and get some feedback. Civilian unemployment rate seasonally adjusted, as you can see, since the great financial crisis, we went from 10% all the way down to well below four, and that's where we sit today. USA Today chart here of gains and losses since 1980, obviously, that massive drop you see there of minus 9.3 million jobs was COVID with the big quick rebound of 7.3. So overall, the country is in great shape. Sachs, your thoughts on the revision? You obviously made note of this when we went through the numbers.
- DSDavid Sacks
Well, yeah. I mean, I predicted this, this would happen, and I didn't know exactly how we would get the correction, but now it's come out. By the way, it's not just the, this 818,000 jobs. If you look at the last 12 months and add up all the restatements, it's been something like 1.2 million. I can share the chart on that. But this is quite remarkable. About a year ago, I tweeted really fairly casually that th- there was a hot jobs report, this was around June of 2023, that I, I didn't know where they're finding all these jobs. I mean, all I see is layoffs. That was my reaction based on not just what I was seeing in tech, and all of us, you know, especially last year, were seeing nothing but layoffs in tech. It was also feedback from real estate investors that I knew. I mean, all new real estate projects had basically stopped because the cost of borrowing was so high and there was a credit crunch. So, new construction projects had stopped. Refis were very hard to get. It's just that everywhere I was looking in the economy and the feedback I was getting from people, things looked pretty dismal, and yet the media was continuously putting out stories about hot jobs reports. And we've been getting this now for roughly a year. And then what happens is that there's a revision, and the revisions have always gone in one direction. They're always a revision down. I mean, if the revisions were completely sort of neutral and arbitrary, you'd expect it to be like a coin flip, you know? You might have 10 revisions and five would be up and five would be down, but they've all been down.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
So, what I saw was a pattern of revisions down, and now we've seen the biggest one. So, it's not altogether surprising to me. And in hindsight, you know, when I tweeted that a year ago, I got this, like, hysterical reaction. I mean, like, it was one of these tweets that all of a sudden everyone's like quote t- tweeting and telling me to stay in my lane, I'm a VC, and-
- JCJason Calacanis
Hmm.
- DSDavid Sacks
... I don't know the numbers, and it was like I hit some sort of nerve. And, you know, whenever that happens, you're usually over the target in some way.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
And-
- JCJason Calacanis
It's, it's generating, it's triggering people is what you're saying. Yeah.
- DSDavid Sacks
Yeah. So the question is, like, why were they so triggered? And I think the reason is that on some level...... people were intuiting that the numbers didn't really make sense, it didn't really match up with what we were seeing in the economy. And now a year later, we have the proof of that.
- JCJason Calacanis
So Chamath, let me go to you next. Uh, 'cause you, you pointed out that these numbers seemed a little fugazi, fugazi. But we have 162 million people record employed in the country. This number, if it's 162, you take out 800, it's 161. This is what the Fed was, been trying to do to cool off inflation, right? We needed to see a little bit less employment, and that's part of it. So I guess the silver lining here is if we are r- revising these numbers down, that would give them more of an indication that we've slowed the economy. Correct?
- CPChamath Palihapitiya
Yeah, I mean, I think the economy is a lot slower than what people thought, which to your point, the silver lining is that it probably now tips the balance of action in September to a cut. And if it was 25 basis points, there's probably going to be a lot of folks lobbying the Fed to cut 50, and I think that they probably have enough numerical justification now to cut 50.
- JCJason Calacanis
Mm.
- CPChamath Palihapitiya
I think the bigger problem though is if you don't have an accurate sense of where employment really is, and Sachs did mention this, you will also then have an inaccurate sense of where GDP is. And I think the one-two punch could be very problematic. I think what we're learning more than anything else is we have a very sophisticated economy, we have a very sophisticated capital market system, we have very sophisticated actors in those markets, all of us included, who can react to real-time data and make the right decisions. The problem is we have bad data. And the bad data, I think, is something that is fixable, but we need to make an effort to do it because it's insane that the largest and most sophisticated economy in the world is this unpredictable. And I think that's, like, the big question that I have, which is how is it possible in 2024 that we haven't just made this a priority to fix this? And with all of the systems that exist and all of the SaaS tools that exist and everything that's used to, like, hire and fire and pay people, we don't have an accurate sense of this number.
- JCJason Calacanis
And it could easily, Chamath-
- CPChamath Palihapitiya
That's a real head-scratcher to me.
- JCJason Calacanis
This could easily be crowdsourced or we could pull data from a lot of different places. Obviously, they pull some data from employment roles. But I remember you had a startup, I can't remember the name of it, but you had crowdsourced, people were going around and taking pictures of the price of tomatoes in different places and then putting it into a database and organizing it, I think-
- CPChamath Palihapitiya
Previs.
- JCJason Calacanis
... for hedge funds and other folks. Yeah.
- CPChamath Palihapitiya
Yeah, so what that company did was it was an agent that you would download on your phone, and we would task you to go and collect certain kinds of information. And yeah, there was some socioeconomic data that was collected. A lot of it now is with three-letter agencies and the like. So without getting into details, that company's doing quite well, but it's just moved in a different direction. If you just created some kind of, like, a, a DARPA challenge, like, equivalent to this, give it to Stripe, give it to Gusto, give it to a handful of these smart companies to give a guesstimate and see who accurately predicts this number over the course of a year or two. That's more reliable and frankly more useful to the market than what the BLS is doing. My first job out of college, by the way, was not in tech, but it was in finance. I was a derivatives trader. And what was so incredible is I remember sitting at my desk in front of my terminal on the trading floor when non-farm payrolls would hit and people would just go crazy. There would just be literally tens or hundreds of billions of dollars that would start flying back and forth based on what that number was. And now, to think about that much velocity in a totally random way, because those numbers aren't reliable, it seems just crazy.
- JCJason Calacanis
Okay. Friedberg, here's a chart for you to comment on. Maybe we open the aperture here. Total employment and unemployment here in the United States. As you can see, you know, since the '80s, population has grown and the number of people employed has continued to grow. Labor participation, it kind of peaked in the '90s, in the Clinton era, and it's come down a bit since then. But overall, what do you think of the health of the economy and employment?
- DFDavid Friedberg
Well, I mean, I think the Fed target is 4%, which is kind of where we're at. I think we're at 4.2 or 4.3 now. And so the Fed tries to balance inflation, unemployment, and rates. That's kind of the three things that they're looking at. So they make adjustments to rates. Obviously, if you take rates too low too fast, you have an increase in inflation. So their target in inflation's 2%. Their target on unemployment's 4%. So if you take rates too high, you can certainly reduce inflation, but then the economy can contract or slow down and job cuts start to come through. So now, with inflation kind of supposedly approaching 2% and unemployment over 4%, the market, if you look at the, the trading markets are now estimating 100% chance of a three-quarter of a percent rate cut by the end of 2024, and a 70% chance of a one point rate cut by the end of 2024. So the question is are they gonna do three quarter point cuts by the end of the year or are they gonna do a 50 basis point cut and then a 25 or a 50 and a 50? The next couple of weeks will determine which direction, and then obviously Chairman Powell has his big speech happening on Friday.
- CPChamath Palihapitiya
Friedberg, what are the, what does the betting market say for s- specifically for September? 50 or 75% chance of a quarter point cut?
- DFDavid Friedberg
... 20% chance of a 50 basis point cut, and then 6% chance of no cut, which is kind of strange because the, the trading markets, this is, uh, obviously a prediction market, but the trading markets are showing effectively 100% chance of a three-quarter point cut by the end of '24.
- JCJason Calacanis
And, uh, Sax, here's the dramatic Fed. We always talked about them kinda getting on this a little bit late, but you can see here, man, what a ramp-up in, uh, 2022 where we were basically (laughs) at a quarter point and they just added a quarter point or 50 bips all the way up to 5.33 where we've been flat. Inflation, obviously, we have the two-handle now, so now we start the process of going down. And I think people generally believe 25 bips at a time will be their pattern coming down. Do you think that seems wise?
- DSDavid Sacks
Well, I think the Fed isn't sure that inflation is a solved problem. I mean, I think that Powell is a little bit reticent to start the rate-cutting cycle because he doesn't know for sure if inflation could tick back up. This first cut is, in a way, the most important one because it signals a regime change that we're beginning the rate cut cycle. And what he doesn't wanna do is cut any amount and then be proven wrong and we get a bad inflation report, and then all of a sudden, he has to raise it again. So he doesn't wanna be caught in that position. But I do think that the economy is obviously showing significant weakness. Inflation is not completely solved, but it's down to 2.9%. At least it has a two-handle on it now. And so, uh, yeah, I think the, the market is pricing in these rate cuts for a reason.
- JCJason Calacanis
So either mission accomplished or we'll see if we have a soft landing, hard landing, or something in between. Most people feel like it's gonna be soft with a little bit of bumps. It seems direction correct to me.
- DSDavid Sacks
I mean, I think we're already in... I mean, now that we know that the jobs picture was inflated by 1.2 million jobs over the last, call it roughly a year or 14 months, I think we know that this is not, like, a perfectly soft landing. I mean, I think that the economy is a little bit shaky and it's being propped up by massive amounts of government spending, like we talked about on a previous episode. We're running unsustainably high levels of deficit and debt. We're running, what, $2 trillion a year deficits right now, and what are we getting for that? We're not getting a super robust economy. We're getting, uh, an economy that's narrowly staying out of recession. So, it's a little bit of a scary picture, I think, that the economy is, is so shaky and we're spending so much money to prop it up. Uh, and we'll just have to see what happens.
- JCJason Calacanis
Yeah, and it doesn't seem like either of the incoming administrations really cares about spending. Seems like we're gonna be in still big money spending mode independent of who wins. We'll see how long that can last as
- 15:02 – 36:16
MIT publishes data from first incoming class post race-based admissions ban
- JCJason Calacanis
a country. And then, uh, we talked a little bit about the Supreme Court decision last year around affirmative action, and it turns out now MIT has released their data. It's getting a lot of buzz online. Here's a chart. Basically, what you can take from this chart, and this is people self-identifying at MIT, and the buzz, uh, is that Asian Americans have gone from 41% to 47%, and those gains came, uh, on a percentage basis from a decline in the number of Black and Latino students coming in. Here's the chart, as you can see. So, people are wondering about, I guess, the fairness of this and I guess you could have either one of two positions, Chamath. Asian students were being penalized, uh, for a long time, or now, I guess, you could believe that Latin and Black students are being impacted negatively about this, so I'm not sure what your take is, but it's obviously moving to more of a meritocracy according to the people at MIT.
- CPChamath Palihapitiya
It's not even clear how they were making decisions before nor now. But, you know, I tweeted about this yesterday. I think the thing that matters more than anything else is to make sure that the people that they are letting in are in love and obsessed with the things that MIT is supposed to be great at. So, if you are a great creative thinker, designer, architect, you should be at RISD. I'm just g- I'm giving an example. If you are a great musician, you should be at Julliard. You should not be going to MIT 'cause you think it's a check mark. You should be going there because you think that there are professors in organic chemistry, in physics, in these disciplines that are really important who are experts in their fields that you can learn from and become an expert yourself. And I think the problem with all of this other stuff is once you make it a credential, there are some folks that are only going to MIT because they could get in and because it's a great credential in their minds. And they shouldn't go there either. So, I think the thing is you have to get back to what matters, which is there are all of these industries that have not progressed that much, and in order for those industries to advance, you need really talented young people who can learn and apprentice and then take over.
- JCJason Calacanis
Mm.
- CPChamath Palihapitiya
And I think MIT is one of these rare places that focuses on this part of the physical world that hasn't had as much progress. And so, I just wanna make sure that the people that go there actually wanna be there for that reason. Gender, race, all that other stuff shouldn't matter.
- JCJason Calacanis
And that is, uh, what the Supreme Court decision did. You cannot take race into account. Harvard had some weird thing, um, Friedberg, where personality was one of the vectors, uh, and-
- CPChamath Palihapitiya
But, sorry, Harvard, I would say, and n- no offense to everybody at Harvard, but, like, Harvard is more of a pure credential.Like MIT, I buy more that you go there for certain kinds of specializations. Cal Tech, you go there for certain specializations.
- DSDavid Sacks
Sure.
- CPChamath Palihapitiya
If you're really into wine, you go to UC Davis. My point is, these schools exist for reasons other than just as a, a collector coin that you put in your pocket.
- DSDavid Sacks
Hm.
- CPChamath Palihapitiya
I'm not sure Harvard is really known for anything, other than for being, quote unquote, elite, but even that's questionable now. But in the technical areas, I really do think that, that MIT was an important place where people would go to train, and I just wanna make sure whoever they're letting in actually cares about the thing they're studying.
- DSDavid Sacks
Freeberg, what's your take on this? You know, moving back to a meritocracy and a color-blind application process? Not being able to use race in admissions.
- DFDavid Friedberg
I don't think that someone's genetics should determine whether or not they go to a, a school, and I think that their socioeconomic background, experience set, values, uh, successes, failures are the things that they could have affected or that I think probably better to find whether we wanna take a moral stance on giving other people opportunity. So, I think that it, that's, uh, a kind of good and reasonable place for us to end up.
- DSDavid Sacks
Sacks, any thoughts for you, from you on this? Well, I mean, I s- I support the idea of color-blind meritocracy. I mean, I agree with Chamath and Freeberg that the traits that you're born with are not skills or qualifications, they're just the accidents of your birth. And what we should be trying to create is a, is a society where those things don't matter and everyone has the same ability and opportunities for advancement, based on how h- hard they work and their skills and this concept of merit. And I think that Supreme Court decision gets us closer to that. Remember that the reason why that Supreme Court decision happened, or, or what the plaintiffs were arguing, is that the previous regime on college campuses was unfairly discriminating against Asian Americans. Because whenever you try to engineer the classes to a certain proportion of the population, somebody has to win and somebody has to lose, and the students who were losing were Asian Americans. And, in many cases, they, these Asian Americans were first-generation immigrants or they were coming from disadvantaged backgrounds, and yet their population was engineered to a smaller number than merit would otherwise suggest. And now you're seeing it in this new class at MIT, the percentage of Asian Americans has increased somewhat. So, I think it's good. I mean, we're reducing, um- Hm.
- DFDavid Friedberg
... a form of discrimination. That discrimination-
- DSDavid Sacks
Yeah.
- DFDavid Friedberg
... may have originally started for good reasons, to try and create a remedy against a different kind of historical discrimination. Nonetheless, it discriminated against talented Asian students.
- DSDavid Sacks
Yeah.
- DFDavid Friedberg
And I think now that that's been, that's been fixed. What do you guys think about creating a leg up for people that came from a disadvantaged socioeconomic background? So, put race aside, but an i- i- you know, an individual that grew up in a difficult circumstance, that didn't have the privilege of going to a good school or having a good education, worked hard, tried, but didn't end up with the best test scores or didn't end up with the best GPA because of the conditions they were born into, do you think it's appropriate to give those individuals a leg up in the application process, putting race aside, but just call it socioeconomic disadvantages?
- DSDavid Sacks
To some degree, I do. I mean, look, if you have, uh, a student who gets a four- let's call it a 1450 on the SAT, but they've got tutors and classes-
- DFDavid Friedberg
Yep.
- DSDavid Sacks
... and they're growing up in an environment-
- DFDavid Friedberg
And they went to school in A- they went to school in Atherton and so on, yep.
- DSDavid Sacks
Right. They're getting the best teachers, the best schools, the best environment. And then you take a kid who grew up in, I don't know, like, a dangerous part of the inner city where there are shootings happening.
- DFDavid Friedberg
Or a rural district with no education.
- CPChamath Palihapitiya
Appalachian.
- DFDavid Friedberg
Appalachia. Both, both are kind of equivalently disadvant- or diff- differently, but both disadvantaged, yep.
- DSDavid Sacks
Right. They don't have access to the, the best schools, best, or best-funded schools, best teachers. And let's say that person gets a 1400 on their SAT. Which one is better? I mean-
- DFDavid Friedberg
Yeah.
- DSDavid Sacks
... certainly if they got a 1450 and you're comparing two equal scores, it's really clear-
- DFDavid Friedberg
Yeah, totally.
- 36:16 – 52:33
Decision 2024: State of the race, Polls vs prediction markets
- JCJason Calacanis
working. All right, decision 2024. Uh, get ready for a bit of chaos here, folks. The DNC is underway as we tape. We tape on Thursdays, as you know. I think Kamala will give her acceptance speech tonight.DNC pulled out all of their all-stars: Michelle Obama, Barack, Hillary, Bill Clinton, Oprah. And, uh, Tim Walz spoke last night. Most people felt he had a pretty strong showing. Our guy, Nate Silver, friend of the pod, has the election as essentially neck and neck. We're in coin toss territory here. I think it's gonna be... come down to the debates. I'm interested to hear what my besties think. Here is the Silver Bulletin, his new publication. He's not at FiveThirtyEight anymore. Just Kamala at 47, Trump at almost 45 and, uh, this all will come down to the swing states, I think, as we all know. He's got a really great interactive, uh, chart over there. He's got Harris with clear leads in Pennsylvania, Michigan, Wisconsin, Arizona, and Virginia. I think those are about 68 electoral college votes, votes. Trump, with clearer leads in Georgia and Florida. My Lord, Florida's 29 or 30 electoral college votes? That's a lot. The toss-up states, Nevada with the tipping and no tax there, but that's only six. North Carolina is... been flip-flopping back and forth from Harris to Trump. Those two are worth 24, so we swung from many paths to victory, basically a certain victory for Trump with... versus Biden to now a toss-up. This is an interesting chart here, Sax, I want to get your take on, which is the polling averages. I think you said last week or the week before that we would see the Harris bump reverse, and that's exactly what's happened. The month-over-month change is dramatic, as you see in this table. But the week-over-week change... So in the month change, you have Democrats running the table in all the swing states. And then you look at the weekly change, the opposite. In the last week, the Republicans have not caught up, but made significant gains, all between a half a percentage point and a point, with the exception of North Carolina, which as I stated earlier, is a toss-up. Your thoughts on the, um, on the election right now, Sax? Before we get into the, uh, issues, just on the numbers here.
- DSDavid Sacks
Well, the, the election's gonna be a nail-biter, and it's gonna really come down to a few thousand votes, or a few tens of thousands of votes in swing states. I think we've, we've known that now for a while. I would say since Biden abdicated and, and they did the hot swap. I think the most interesting poll numbers over the past week is, if you look at Polymarket...
- JCJason Calacanis
Mm.
- DSDavid Sacks
... that it has swung back to Trump being in the lead over the past week, as opposed to Harris. Last week, I think Harris was favored to win by quite a bit. And you have to ask the question, well, how does this happen during her own Democratic convention, which is supposed to be, you know, nothing but a four-day infomercial for the Democratic candidate?
- JCJason Calacanis
Yeah, it's a coronation.
- DSDavid Sacks
And I...
- JCJason Calacanis
Yeah.
- DSDavid Sacks
It's a coronation. So she should be getting nothing but a bump, and instead it seems to be the opposite. And I think the reason is, is because the more substance her campaign puts out, the more policies it reveals, the worse she does. First, they had her give that economic speech last Friday on price gouging and price controls, and we'd spent a lot of time last week talking about why price controls would be a disastrous economic policy. Subsequent to that, there were stories that came out about her campaign supporting these huge tax hikes that were in the, the original Biden-Harris budget, including a 25% unrealized gains tax, which-
- JCJason Calacanis
Yeah.
- DSDavid Sacks
... we can talk more about.
- JCJason Calacanis
Yeah, I've seen that.
- DSDavid Sacks
But I think, just to boil it down, I think the more the public learns, the more we learn about what she would do as president, the worse she does. And they've now got to run out the clock for another, I don't know, what? 70, 80 days, in terms of running a campaign that's substance-free, that's just completely on vibes, that's about joy, without answering any questions, without doing any press interviews. And I think we predicted some time ago that that just was not gonna be sustainable. That at some point, they're gonna have to tell us what they think, and as they do that, the more they do that, I think the more her polls will correct.
- JCJason Calacanis
What do you think, Chamath? Do you trust these betting markets? Because there's so much at stake at this election, right? I mean, people are pouring money into both campaigns. It's really contentious. People see it as existential on both sides. And then you have, you know, these prediction markets that, you know, have low tens of millions or hundreds of millions of dollars being bet. Could these not be... you know, influenced? Do you trust them? Because we are seeing... This is the first time these prediction markets have become a major discussion point, 'cause they're businesses, obviously. But people are really getting into them, and I wonder if they could be manipulated or if you think you trust them? I guess, is the way I'm asking you, 'cause we've had this discussion a bit offline.
- CPChamath Palihapitiya
I mean, I think these are really good businesses, but they are some combination of entertainment and gambling. I don't think that these things are as useful directional indicators, as they are just really interesting businesses that allow people to bet and wager on all kinds of random things. So, I would not look to these sites for that necessarily.
- JCJason Calacanis
Okay.
- CPChamath Palihapitiya
I think that people like Nate Silver do a pretty reasonable job. In his specific case, I think he does a very good job of threading together and doing this meta-analysis of polls. But I think we've learned that the, that this polling is pretty brittle, and not super reliable. So the, the betting markets are exactly that. They're just like, it's like sports betting, but just on different sports.
- JCJason Calacanis
Wasn't the betting market... We talked about this two weeks ago. Shapiro was like 80% or something, so yeah, it's fairly obvious, Freeburg, that maybe these betting markets are a little bit entertainment, but maybe directionally incorrect, 'cause they also did start to predict the hot swap, uh, you know. So what do you think, Freeburg, about these betting markets predictions?
- DFDavid Friedberg
Well, I think you and we keep... Everyone keeps trying to reduce this down to some deterministic binary system, which is like, it works or it doesn't. And the truth is that the conditions of the world are changing all the time.... the news is changing all the time, people are taking action all the time, there's a shift in current events all the time. As a result, the forecast is changing all the time.
- JCJason Calacanis
Hmm.
- DFDavid Friedberg
And so what a betting market or a poll does is provide a probabilistic forecast of the future. There is a probability of something happening. It is not trying to say, "I as a poll or I as a market am right 100% of the time," or not. It is saying, "Here's the estimated distribution of outcomes in the future." So there is a 20% chance or an 80% chance of Shapiro, 20% chance of him not being the case. Turns out that that 20% is where Harris ended up going based on some meeting she had in some room with some group of people that we aren't privy to, and that the market in that case was not privy to.
- JCJason Calacanis
Hmm.
- DFDavid Friedberg
What Nate Silver does, and I think people need to understand this a little bit, when you gather polling data, that poll has some predictive power based on how the pollsters conduct their poll, who they call, how they screen candidates for the poll, et cetera, et cetera. So different polling companies, it turns out, are better or worse at making that directional probability bet than others. And what Nate's models do is they account for the historical performance of different pollsters and weight them differently to create a basically a multi-poll prediction. And so that's what his system is set up to do.
- JCJason Calacanis
Mm-hmm.
- DFDavid Friedberg
And remember, he similarly doesn't give you one outcome, he gives you a distribution of outcomes. I think his-
- JCJason Calacanis
Yes.
- DFDavid Friedberg
... simulation model has probably 1,000 or 10,000 simulations that come out of it. In those simulations he says, "Look, there's a 29% chance of this happening, 70%" He's not trying to say, "Here's what's gonna happen." He's trying to give everyone a point of view on the distribution of things happening in the future, just like weather forecasting is not perfectly predictable. It's very predictable for tomorrow, it's less predictable for three days from now, and it's very unpredictable 12 days from now. And that's how these polls also work out and that's also how these massive mega models of polls, and it's also how prediction markets work.
- JCJason Calacanis
And Friedberg, he- people have a lot of emotion in these models when it comes to politics, whereas if you were looking at gambling or the odds of winning a poker hand, we all would be like, "Oh, you have a 30% chance of winning, or a 10% or an 8%, you're gonna hit two outers."
- DFDavid Friedberg
There's emotions both ways, J-Cal. So basically, when I read those polls or I read the summary of the polls, I have a bias based on my interest in the outcome-
- JCJason Calacanis
Right.
- DFDavid Friedberg
... that says, "That thing is BS. That thing is right. Oh, look at this." And everyone points to the stuff for confirmation bias of their opinion-
- 52:33 – 1:05:19
Tale of two tickets: Private sector vs. Public sector
- CPChamath Palihapitiya
that.
- JCJason Calacanis
Yeah, yeah, we're gonna run into policy. Sachs, I wanted to get your take on this, Trump's VP pick. JD Vance is now the least popular VP pick in modern history. People said the same thing also about Walz, that that was a terrible pick. Here's your chart on JD, and here's the historical chart. John Edwards, man, I remember him. Uh, he was plus two in net rating, Tim Walz plus five, Mike Pence plus five, Kamala when she was VP plus three, but JD Vance is absolutely, uh... He's below Sarah Palin, which I guess takes every... What's your take on the VP picks and the impact they're having here? 'Cause it's, it's a major topic of discussion.
- DSDavid Sacks
I think what history shows, the VP pick doesn't matter that much. People vote for what's happening at the top of the ticket. And I would argue the reason why JD has the polling he does is because... There's a couple reasons. Number one is just media bias, and there was-
- JCJason Calacanis
Hmm.
- DSDavid Sacks
... an interesting report showing that the media's coverage of the Harris campaign was 84% positive, whereas the coverage of the Trump campaign was 89% negative. That actually seems to understate the bias that I see out there. But look, this is the number one reason why JD has a negative rating, is 'cause the media's-
- JCJason Calacanis
Yeah.
- DSDavid Sacks
... defining him. I'd say furthermore, JD is out there talking about ideas, and I give him credit for that, but because he is an idea man and he's also a writer and he's said interesting things in the past and al- sometimes occasionally a sarcastic thing or two in the past, the media has been ta- able to take those things out of context and harp on them relentlessly. On the other hand, you take someone like Tim Walz, and he's out there, he's not really talking about ideas. I mean, every time he goes up there and speaks, it's like a pep talk. I mean, if I wanted to hire a guy to give the halftime speech to my team, he'd be the guy, you know? If I wanted-
- JCJason Calacanis
Yeah.
- DSDavid Sacks
... him out there puffing up a team, talking about-
- JCJason Calacanis
Paul Volks.
- DSDavid Sacks
... how we gotta all give 110%, he's, he's the guy for that. But he's not really talking about ideas, he's not going on the Sunday shows. You look at JD, I mean, I've watched a couple of his campaign stops. I mean, the guy is really sharp and when he goes on the Sunday show, they are pitching nothing but fastballs at him, and he's hitting it out of the park every time. And Harris and Walz are just not doing that. They're not even appearing on those shows. I don't think they could survive 20 minutes of harsh questioning the way that the, the media pitches at JD every time he goes on a campaign stop and takes questions or he goes on a Sunday show.
- JCJason Calacanis
I love the JD pick. I... You know, venture capitals, business guy, well-written, well-spoken.
- CPChamath Palihapitiya
You're picking up on something that I think is really im- y- important that I think has been under-reported...It really is a tale of two different tickets. The Republican ticket, whether you like them or not, are very financially astute actors. And if you look at the Democratic ticket, they are under-invested to not invested at all in anything that would normally resemble the United States economy.
- JCJason Calacanis
Hm.
- CPChamath Palihapitiya
And I find that a very odd distinction, meaning the way that I would think people would want to see their candidates is folks who have a very sophisticated understanding of the parts that they're going to govern. And in this case, if you're gonna sit atop the economy, one would hope that you're invested in the economy in some way so that you know how it works. And it's a little surprising to me that nobody's really questioned how, how under-invested the Democratic ticket is. And it's almost as if the, the Republican ticket, for their financial sophistication, is looked down upon.
- JCJason Calacanis
To unpack what you're saying here, there was a report, Tim Walz has no financial holdings. He has no stocks, no bonds, no mutual funds, no real estate, nothing, no cryptocurrency. This is what you're referring to here, Chamath.
- DFDavid Friedberg
Yeah.
- JCJason Calacanis
The level of, like, literally owning nothing and, I guess, Friedberg, to your, I'll let you take it from there.
- DFDavid Friedberg
So I think it's actually a step a little bit deeper than that. Kamala Harris and Tim Walz have only ever worked for government. Trump and Vance have worked in private industry. It's not just their perspective being colored by the, the lack of participation in the private economy, but the lack of employment in the private economy. They've never worked for a private business, they've never been employees of a private business, they've never built a private business. I'm not trying to be disparaging, but I do think... I- I'm just trying to underline the point here, Chamath, which is the voter's choice is, do you want candidates that are not typically government operatives or do you want candidates that have spent their whole career as government operatives? And that is effectively what the voters are gonna be voting for, and they're gonna make a decision. They may wanna have someone that's gonna lead the biggest government in history because they've spent their whole careers in government or they're gonna say, "You know what? The biggest government in history needs to be significantly altered and we wanna bring someone in from the outside that's worked in private industry." And that is the voter's choice. That's one way to view the voter's choice here.
- JCJason Calacanis
That's an interesting framing, and another framing might be, Friedberg-
- DFDavid Friedberg
I love that framing.
- JCJason Calacanis
"Hey-"
- DFDavid Friedberg
I love that framing.
- JCJason Calacanis
It's an interesting framing. Here's another framing. I don't... You're a young person. "I can't own a home. They're too expensive. I don't have any equity. I'm getting ground down. I own a bu- I owe a bunch of student loans." Tim Walz feels more, (laughs) like the experience I'm having as a millennial, where I can't afford a home, where I don't have equity, where I'm constantly trying to pay off my bills and the finan-... What we'll say is like, "Hey, this guy's not very financially astute. He doesn't even own his own home."
- DFDavid Friedberg
But that could be because he's never-
- JCJason Calacanis
That could be a feature to him.
- DFDavid Friedberg
It could be because he's never... It's 'cause he's never-
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
Maybe it, maybe it's because he's never had a private sector job.
- JCJason Calacanis
Well, he's been a teacher, right? So maybe people say, "You know what? I feel, I identify more with Tim Walz." And I think that's actually what might be happening here.
- 1:05:19 – 1:20:33
Kamala Harris supports Biden's tax plans, including a 25% wealth tax on those with more than $100M in assets
- JCJason Calacanis
- DSDavid Sacks
Right.
- JCJason Calacanis
... and that's actually a great jump-off point here, because, uh, the big news in our circles this week and o- on social media was, and some of the group chats, is that Harris has reportedly backed some of Biden's really out there tax plans, which include a proposed 25% wealth tax on people with over $100 million in assets. Important to note that this would be very hard to pass because getting these tax increases, you'd have to get through Congress, et cetera. But let's just talk about what the proposal is 'cause it's out there. In Biden's 2025 tax plan, which the campaign has said to Semafor, which is a, a niche publication, like a newsletter company, that, uh... and I'll just give the quote, "In a 'Little Notice' portion of its Friday analysis of Harris's new economic plans, the Committee for a Responsible Federal Budget wrote that her campaign said it 'endorsed the suite of revenue options included in President Joe's recent budget.'" And that CRFB report said, quote, "The campaign has communicated to us that Vice President Harris continues to support all of the revenue-raising provisions in the President's 2025 budget." So, there is continuity confirmed between Harris and Biden's plans. I'll just explain, uh, as simply as I can what this, uh, extreme plan says and then I'll get, Chamath, your take on it. Biden's proposed 2025 tax plan includes the following, 25% unrealized cap gain tax on those with over $100 million in assets, 28% corporate tax rate, right now it's 21, Trump had proposed a 15% rate, and quadrupling the stock buyback tax to 4%. That's when a company, uh, buys their own shares as opposed to putting it to work in the market. The stock buyback tax was created as Biden's Inflation Reduction Act of 2022. It's just 1% if you wanna buy back your shares like Apple and some other companies do.But let's unpack the 25% unrealized cap gains, 'cause that seems to be, you know, the most, let's say, I don't want to say triggering, but the one that's triggered the most number of people. There's 5,000 people who f- fit into that category. What do you think, Chamath, of this proposal? Fair? Unfair? Crazy? Socialist? Anti-American?
- CPChamath Palihapitiya
I mean, it's, it's, it's less about fair or unfair. But I think that we are in the part of the cycle where enough people don't feel the positive aspects of capitalism that they want to push back against it.
- JCJason Calacanis
Mm-hmm.
- CPChamath Palihapitiya
I just put a little image in here, Nick, if you want to just throw it up in the chat. But wh- when you look from 1913 on to today, the reality is, we've had many different forms of political philosophy that have governed the country. And what you can see is that tax rates have varied wildly at the federal level, and I think it's because that at certain times, there was the political will to go to extremes. And this may be a moment where we are going to explore the extremes that we had in the '40s and the '50s. And I think the reality is that if that does happen, you're going to see people behave in ways that weren't possible in the '40s and '50s. In the '40s and '50s, everybody was more geopolitically constrained. I don't think that that's the case anymore and the way that people start companies, where they start companies, the flexibility of citizenship have changed really dramatically. So, if it's the will of the people that they want to explore these mechanisms, I think other people will react in kind and, you know, the die will be cast. So, um, you know, I don't have much of an opinion of-
- JCJason Calacanis
Uh, you're referring to removing y- y- your w-... I think you're implying people might be able to move to other places and create companies there. Is, is that what I'm reading into it?
- CPChamath Palihapitiya
Well, let, let's put it this way.
- JCJason Calacanis
Yeah.
- CPChamath Palihapitiya
We have, we have a small microcosm of this going on within the 50 states, which is, if you said California was the United States and Texas and Florida were... I'll make up two different countries, Malta and Dubai.
- JCJason Calacanis
Mm-hmm.
- CPChamath Palihapitiya
Well, what happens when taxation goes beyond the pale? And what happens when budget deficits and spending go beyond the pale and when the government plays too large of a hand in the economy? People leave with their feet. Companies leave. So, we don't need to guess what's going to happen because if, if it can happen between California and Texas, it probably stands to reason it can happen between the United States and the UAE, as an example.
- JCJason Calacanis
Yeah. You already have a bunch of hedge fund manners moving over there, right, Chamath? They have... People are starting-
- CPChamath Palihapitiya
Yeah. I, I-
- JCJason Calacanis
... to buy apartments in Abu Dabi.
- CPChamath Palihapitiya
There's, you know, there's, there's golden visas in some great countries. Portugal has a golden visa. The UAE has a golden visa. Italy has a golden visa. The UK had this great program, what was called non-doms for a long time. So, the, the point is that all of these took advantage of countries that went to extremes, and they lost citizens as a result. And I suspect that if what the US voting population wants to do is explore that extreme, these policies will get enacted, and then people will act in kind. The only thing that I would just, again, reinforce is, unlike when taxes went to 90% in the '40s and '50s, people are much, much more mobile than they were then.
- JCJason Calacanis
And that was during World War II and the postwar era. Uh, Freidberg, your thoughts on this proposal specifically, which impacts a very small number of people, although maybe a high percentage here.
- DFDavid Friedberg
Yeah. So, so just, just to give a little more detail to it, J-CAL?
- JCJason Calacanis
Please, yeah.
- DFDavid Friedberg
And you can actually see it, I think, Nick, if you wanna pull up the page 8283 in the document. So, the wealth tax is 25% of your unrealized capital gains if your net worth is above 100 million. And the first time this happens, you can split up the payments over nine years. You have nine years to kind of pay down the assets or sell the assets or borrow the money you need to make those tax payments. After that, you can actually make those payments over five years. Those payments are ultimately treated as pre-payments on taxes that will weed you when you realize the capital gains. Every year, you have to report to the IRS, separated by asset class, the cost basis and the estimated value of every asset you have. You then have to determine your tax that you owe because of the difference from last year. You start out with tradable assets of stocks. Those are just valued at the end of year. Illiquid assets, like private companies or real estate, you don't have to get evaluation. If there is a financing event or some other sort of major revaluation, you have to use that value. And if there isn't, the number goes up every year by some nominal rate that will be set by the treasury. So, the treasury is basically gonna tell you what they think the value of your company has gone up on an annual basis, and that's the determination of valuation. You can file an appeal. So, for all the entrepreneurs and startup people listening, there's a process that they're proposing that is basically the government saying, "If you didn't get a new financing round done, the price goes up. And if you disagree with the price going up, you go back and you appeal it."
- JCJason Calacanis
Well, let's pause there for a second, Freidberg, because-
- DFDavid Friedberg
Yeah.
- JCJason Calacanis
... this is super important, I think, to the audience here. Somebody has a startup company. It becomes worth $10 billion. It has 100 million in revenue. It's, it's doing well. It's losing money. 409 valuation comes in. Founder owns 25%. Co-founders own 25% each. They own two or $3 billion in stock. Now you've got an illiquid founder who owns $3 billion in stock. Company's not going public. There's no secondary market. What would happen to that founder? Would-
- DFDavid Friedberg
So, they've addressed this, and that's the final provision. And what they said...... is that if a taxpayer is treated as what they're calling illiquid, meaning that their tradable assets, the stocks that they own or the cash that they have, is less than 20% of their total wealth, then they amo- may elect to include only the unrealized gain in their tradable assets to determine their tax liability. However, if you do this, you will actually have a deferral charge, which means you'll ultimately pay a higher tax on the capital gains, on your illiquid asset, when you do have a, have a realized capital gain on it. So, they're trying to cover the fact that people might have all their assets tied up in real estate, or all their assets tied up in private company stock. And again, I feel like we're, we're kind of shouting into an abyss here, because this is only gonna affect such a small number of people. But they've really tried to write this in a way that ultimately covers the kind of pushback that you're highlighting. I'll say one other piece of pushback that's been received and tested in the Supreme Court. A lot of people have said that the 16th Amendment prohibits this, uh, taxation. A ruling from the Supreme Court was published June of this year. And in that particular case, there was a repatriation tax for folks that left the country. It's the Moore versus United States tax case. And when people left the country, the government, under the Tax and Jobs Act, which was passed under the Trump administration, the government had a right to go after people's assets and tax them on their unrealized gains, even after they give up their US citizenry. This was challenged to the Supreme Court, and there was a number of amicus briefs filed on this case that said the government does not have the authority, and Congress doesn't have the authority, to actually tax on unrealized capital gains. And at the end of the day, the Supreme Court agreed to hear the case, and they did not overturn on the position that the government actually did not overstep their authority to be able to tax unrealized capital gains. So there is some Supreme Court case precedence here that indicates that this will not get thrown out on an unconstitutional ground basis, so there is a lot of conversation that this might actually become a real case. I'll pause there, and I actually have a theory I wanna talk about in a minute, but it's a little bit of an extension from this point. But the, the-
- JCJason Calacanis
Sax-
- DFDavid Friedberg
... that's the summary.
- JCJason Calacanis
... is this a seizure of assets, in your mind? Is it constitutional, in your mind? Two questions there.
- DSDavid Sacks
It's certainly a confiscation. I mean, basically, this, this tax is directed at center millionaires and billionaires to basically take 25% of what they have. I mean, that's basically w- what this is about. There's a good reason why realization is one of the core concepts of our tax code. What reali- realization gives you two really important things. Number one, you have a sale price, right?
- JCJason Calacanis
Mm-hmm.
- DSDavid Sacks
Y- your realization means that you sell the asset, so we know exactly how much you made. Number two, you have the liquidity to pay the tax bill, because you've just sold the asset. The problem with an unrealized gains tax is both those issues. Number one, we don't know what the asset's really worth. You know, it's easier to, to put a value on a publicly traded asset, but a private asset, it's very hard to know exactly how much it's worth. The valuation's bouncing around all the time. What this bill would do is create, I guess, a whole new process and bureaucracy to try and put a value on that. But it's gonna be really complicated to comply with. All of us are gonna need to hire a whole new legion of lawyers and accountants. So, I mean, you're talking about a whole new essentially tax bureaucracy that's gonna spring up around this concept. On the, um, liquidity part, you're being taxed a huge amount without having the cash to pay th- the tax bill. And, you know, yes, they've tried to mitigate that by creating this installment plan, but you're still gonna need to go out and sell large chunks of your company every time you get an upround in order to pay the tax bill.
Episode duration: 1:31:42
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