Non-Competes, Inflation, and Peloton

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1:16Hi, everyone. This is Pivot from New York Magazine and the Vox Media Podcast Network. I'm Kara Swisher. And I'm Scott Galloway. And today we have a listener mailbag for you. We love our listener mailbags. And so we're doing them. We're also traveling. I have not seen these. Have you seen this? I've not seen this. No, I haven't. This is the whole point. We're supposed to react to them in real time because that's the kind of people we are. Our first message out of the mailbag is about non-competes, which we've talked about quite a lot, especially you, Scott. I'll read it. Scott and Kara. Why is it?

1:45Lately, it's been Scott and Kara. I feel a change in the universe. Ooh, a little power shift. The student becomes the master. The student becomes the master. The next sentence explains everything. Scott and Kara, I've had two glasses of tequila and tornado just touched down about two miles from my house. We're fine. So I'm uncharacteristically emboldened to ask, in what scenarios do non-competes actually make sense? I agree with you and Lena regarding large corporations, but for small specialized businesses, the calculus may be different. If a small business owner takes years to train an apprentice in a highly specialized field, the effective apprentice immediately setting up shop across the street would likely disrupt the original business.

2:23Does this change your thinking? Pseudonym, maybe Eddie or Jimmy or something 80s cool. Love to you all. A shout out to Lara, Zoe, Taylor, and Ernie. What do you think, Scott? I mean, I still think I don't believe in non-competes. So what if someone competes with you? That's just the way it goes. I don't know, Scott. There are some situations that were, and I think the law mostly gets this right, where a non-compete makes sense and it's enforceable. So if you're Andy Jassy's head of cloud and you have access to proprietary information, it comes down to this. It's not even the position, the litmus test on whether it should be enforceable.

2:59is if you make so much money that a non-compete would never economically constrain you and your family. And so, for example, when my company was purchased, I had to sign a non-compete, but I'm a grownup and I was given the choice and I had, I wasn't forced into a non-compete because I need to feed my family, like a waiter or a hairstylist, or some of the people are being forced to sign non-competes. I was signed a non-compete because I got an enormous payday in exchange for not compete. They weren't going to pay all this money for my company if the top people were going to walk across the street.

3:34So I think it's more a function of, are you being paid so much money and have access to such proprietary information that could provide material harm to the company if you walked out? And quite frankly, put economic strain on some of the other people in the company because you are the person who knows the AI plans for AWS. Right. Those people, okay, it sucks to make millions of dollars, but I think those people should probably be subject to, if they agree, a non-compete. And sometimes they're paid so much that part of that extraordinary payment includes a non-compete. But anybody, I mean, generally speaking, a non-compete is nothing but a transfer of wealth from labor to capital to the firm.

4:20It creates a lack of opportunities and bidders on their human capital, thereby reducing their currency in the marketplace. And if you look at what's happened over the last 40 years, capital has been beating the shit out of labor. So we need to do away with things like this and transfer some, some leverage back to labor. It's just, look, too bad. You train someone and they do something better than you, they should beat you. I'm sorry. It's just, it's just, I enjoy when people leave my employee. I do. I like, go on and make something. Copy me. Beat me. I don't care. If you're still, you have to still be good at what you do.

4:53And most of, I have heard from so many people who was just telling me, not just hairdressers, but someone else. Someone else was like, you can't believe these non-competes and things. You can't, you can't hinder a hairdresser. It hinders innovation. You know what the best non-compete is? What? Money. Money or do a better job. What I've done, I try to be transparent. We're getting a lump sum payment from Vox in a year or whatever it is. I mutualized it, and almost every full-time employee at Prof. G Media gets a percentage of it. So guess what? They're not going to compete with me or us over the next 12 months because they're going to get a lot of money.

5:31The best non-competes, the best retention vehicles aren't handcuffs. More money. They're gold bullion. They're Krugerrands. Gold bullion. We give away bullion. That's what we do. Bouillon. Bouillon. We do. Bouillon and actually chicken bouillon, too. We do both. We do both. We give all the bullions together. We give them little square things, a bullion. That's what we give them to. You love that word. A bullion. I love that word. It's a good word. Okay, let's move on to a question about antitrust regulation. Let's listen. Hi, Karen. Scott. Elena here, long-time listener, first-time caller. I'm a strategist in LA who writes about technology ethics.

6:07My question is, what would happen to stocks if a big company such as Amazon or Google is ordered to break up by regulators? What would happen to Alphabet's stock if YouTube is forced to spin off? I'm curious both technically what would happen, whether there would need to be a new stock ticker, and also how the market would react to such news. Love the show. Love both of you. Love the books. Thank you so much. This is so exciting. I'm going to start. Everyone would be richer. Everyone would be richer. Everyone would be better at competing. Everyone would be more innovative. They'd figure out how to decide.

6:46There'll be more jobs because they'd have to hire lawyers and other people and things like that. I just think more efficient, better, competitive. It actualizes the businesses that should be together and one isn't propping the other up. I think it's fresh. What do you think, Scott? You're absolutely right. There's a ton of empirical evidence. I'm a shareholder in Amazon. I hope it gets broken up. You know why? I believe in five to 10 years, the most valuable company in the world would be an independent AWS. us. What happens when there are multiple companies that are, even if there's synergy there, if they're not related in the eyes of the investment markets, you pay a conglomerate tax.

7:24The market looks at the shittiest business and assigns that multiple to the entire business. When they're competing, they're innovating, they're not coordinating. A, it's unfair to competitors. You don't have as many startups. There's fewer people bidding on labor, so employees win, right? There's more taxes, there's more profits, competitors win, the ecosystem wins, the shareholders win. Typically speaking, when eBay spun PayPal, the shareholders of eBay got shares in PayPal. So spins or breakups are almost always a creative. The only person that doesn't benefit, the only person that doesn't benefit in a breakup is the CEO who wants to sit on the iron throne of all seven realms, not just Westeros.

8:11and because typically they're narcissists or like having bigger companies and also the compensation of a CEO is largely driven by one, their performance, but also the size of the company. So they have a financial incentive to say, I preside over a$50 billion company, not a$10 billion. But typically spins and breakups are accretive to shareholders. They happen all the time. They're good for shareholders. They're good for competition. They're good for wages. They're good for labor. They're good for the planet. Yep. We agree on that. And I do think that, you know, I was at the center, I was at someone from one of these companies was there and they're like, why do you always talk about breaking them up?

8:49I'm like, it just doesn't belong together. It's such a, it's good for you, but nobody else, like it doesn't work. And why should company, you know, and they were saying, oh, this one supports this business. I'm like, well, then it shouldn't be in business or they should be better at business. Or why is one part subsidizing the other? I don't understand. They don't belong together for any good reason. puts them apart. Any, we believe in that. And just the Google antitrust trial just wrapped up. We'll be hearing about some of the remedies if things don't go Google's way. We'll see what'll happen.

9:19We'll see what'll happen. But they'll figure it out. They have lots of lawyers and restructures and things like that. It's not that hard. All right, Scott, let's go on a quick break. When we come back, a question about Peloton, which has just been in the news.

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11:49Scott, we're back with more Listener Mail. Next up is a question about Peloton. Let's listen. Hey, Tara and Scott, this is Brad in California. Love the show. Love you both. Keep modeling the way on what it looks like to disagree with each other in a thoughtful, caring, and constructive way. The world needs you both right now. There's a period of time where you both talked about Peloton a lot through both its meteoric rise and its precipitous fall. Count me as one of Peloton's extraordinarily high percentage of dedicated, loyal customers. My question is really around where do they go from here?

12:17It seemed like a foreground conclusion that they were an acquisition target, and yet that still doesn't happen. Given that they will likely go it alone? Where do they go from here? How do they grow? And what is the state of the connected thickness market? Thank you both. This is a great question because just this week, the CEO that was brought in, Barry McCarthy, I think he was at Airbnb or whatever. He was a fix-it CEO. Oh no, he was at Netflix, Spotify and stuff. That's where he was, not Airbnb. He just stepped down and they had to cut 15 % of the workforce, 400 workers, in efforts to cut costs this year by 200 million.

12:55They've had lots of job cuts. They were sort of at a peak during the pandemic. What a great brand. What a great product. They haven't been able to turn it into anything. And after gyms reopened, much more competition, obviously. They had a chance right there during the pandemic, and they didn't take it. It looked like, but again, what a good product. People like it. Crazy fans like yourself. I love Peloton. Scott, your thoughts? Well, so I think Peloton does a great job. I like Connected Fitness. The company, the bottom line is the company just caught a wave and it became sort of a meme stock.

13:35And that is people's excitement. People said, how do I invest in something that's digital and a COVID winner? And the stock became kind of a household name and it just got bid up to unsustainable levels. If I'm looking at the right chart, in January of 2021, Kara, it was$160. And today, it's at$2.81. And you think, wow, that means it's going out of business. No, it still has a billion-dollar market cap. So, I mean, it's kind of, it's too bad for, I actually like the CEOs there. I think they do an amazing job. And it just got swept up in a hysteria that was never, the performance was never going to match the promise that people placed on this company.

14:20I think Connected Fitness is a category. Everyone else has been swept off the decks, you know, Mirror and all that other stuff. It's all been, it just hasn't worked. It's very expensive to manage these things. High touch, another high touch business. It's manufacturing, it's retail. Things that can break, dissatisfaction, price. And then you have to have a great community and different IP. So I think it's actually a great company. And they do a great job. Will it ever get back to the heights it was at? No. It's going to be a nice little small cap company that does a great job, that has a loyal following.

14:58What could they do? I always thought the opportunity for Peloton. I thought that Apple or Nike was going to buy them. And I was wrong. That was actually one of my predictions three years ago. once again, and it still might happen now that it's at this level. I think the reason it was never acquired is because I believe the founder has control and didn't want to sell at these low prices. But I think the most powerful part, when you're trying to think about business growth and new opportunities or new revenue channels, you think at the end of the day, what is really our core asset and how could we extend off of that?

15:27I think the core asset of Peloton is an evangelical like community. If I were at Peloton, I would try and create a community of offline physical activity that was essentially a thinly veiled dating service. Because the people who could be part of Peloton Plus, I think they'd like to meet up with each other when they're in Hamburg at OMR, because guess what? They're going to be generally young, generally fit, higher income. It's like whoever rides a Peloton, you're just unlikely to find in a Walmart. And I understand that's very disparaging and classist. But this is a high aspirational group of very fit people.

16:06And I think they would like to meet each other. That's where I would go. I would think, what can we charge this community for to connect them with one another outside of when they sit on a connected device? Yeah. Well, they're cutting costs. That's what they're doing. They have to. You know, one of the quotes from the company was, this restructuring position Peloton for sustained positive free cash flow. well named the company can do best in software hardware and content of age improvements and member support services and optimizations for marketing efforts to scale business also you know apple got in the business i don't even think it's a very good business for apple their fitness thing i think it's a nothing burger for them um so uh you know it's just it's a very good product that just had a chance there probably should have done something at that moment and didn't and didn't do something at that that was their high point and again we know it's not a good The question of the product is where they stand in the ecosystem.

16:58Do you use a Peloton? I do. I have one. I like it. I like it, but I don't use it as much, that's sure, because I like to go outside. Like COVID, I used it continually. So wait, the seat goes that low on a Peloton. Oh, very funny. That's good. I love Allie Love. I still love Allie Love. Okay, Scott, the next one is about inflation. Let's listen. Hey, Kara and Scott. Laura Bocoff from Wisconsin. I am a huge fan of the show and the both of you. I would appreciate hearing your take on those who insist that inflation is attributable to the Biden administration policy. Can you break down which factors have driven inflation up and their relative importance?

17:35I am driven crazy by those who insist Biden's policies and initiatives aimed at blunting the economic and human impacts of COVID on the economy were the cause for our inflationary environment. I would also like to hear what you think the consequences would have been for not having taken those steps. First off, she sounds so lovely, doesn't she? She does. She's lovely. We have lovely fans. Yeah, but articulate, smart. It's also good. Like, Laura Bell from Wisconsin. How can she not be nice? I know that's hysteria, but she's got to be a nice person. Nice. She's nice. She seems nice. I mean, look, the Trump administration ran that deficit up high with the tax cuts and then the cost of COVID.

18:14I think the deficit would be the reason. And that's why, in a weird way, the dollar is so strong. And I just feel like we're in an inflationary period for a very long time because of these huge deficits. And then the prices tend to take longer to come down than go up. Cost, you know, all the wars with the gas prices, although they've moved up and down, certainly. It's just once they're up, they don't come down quite as easily. Food prices don't do it. I mean, I think Biden's been attacking those people for not bringing prices down. But interest rates and deficit, that would be it. But inflation is very simple.

18:52Inflation is too much money facing too few products. So let's start with the supply side, the product side. Between a murderous autocrat invading Ukraine and creating all sorts of supply chain disruption and the ultimate supply chain disruption in the last 50 years, COVID, where the world's 3D printer, China, essentially got shut down. You had a massive decrease in the number of products and you had a massive increase on the demand side of dollars chasing those products. So I have a lot of money and the store has fewer products, which gives the store the ability to raise prices dramatically, which results in inflation.

19:29Also higher wages, higher wages because work. Anyway, go ahead. Well, that's right. And because I'm sick of bringing you your cob salad sandwich at Panera and having to ask you to put on a mask, and because there's more CARES Act money, I decide I'm not going into work for$12 an hour. You've got to pay me$18 or$20. And quite frankly, that's been the bright spot here is frontline wages have caught up for the first time more than inflation for the first time in a while. Purchasing power is actually going up among America's frontline workers. But you have essentially, now to be fair, Biden and some of the overstimulus and some of the deficit spending and some of what I'd call this normalization of spending more money than we have, that is partially to blame.

20:15And you can lay some of that blame at the Biden administration and their inability to make hard decisions to get our spending in line. Having said that, that deficit, if you want to talk about deficits, no one has increased the deficit like Donald Trump. I mean, let me get this. I understand people will say, all right, I think that COVID was the ultimate intergenerational theft of the ages. Let's put$7 trillion into the economy, or maybe it was$5 trillion, depending on how you account for it. And somewhere between 60 plus percent of it wasn't spent. So that just sent asset prices flying. And inflation in housing and stocks is great if you're an incumbent.

20:55It's terrible if you're an entrant or a young person. So it's been champagne and cocaine for me because I own stocks and real estate. It's been incredibly discouraging for young people who want their piece of the action. But we decided to artificially inflate the prices of all these assets. So the inflation here has had real social ramifications. But what we didn't do is say, OK, we had an emergency. We had to pay for it. We had to borrow money on the credit cards of our kids and our grandkids. Now, shouldn't the people who have benefited from it, specifically corporations and the wealthy, shouldn't maybe we pay a little bit more taxes?

21:31No, here's an idea. Let's cut our taxes to the lowest they've been, the corporate taxes, since 1939. Corporate taxes used to be 3.5 % of GDP, now they're 1%. And then we cut taxes on consumers. So now we have this just ridiculous deficit. So inflation is a function of exogenous shock and economic policies. Biden can share some of that blame, but most of it goes to Biden and things outside of our control, specifically the invasion of Ukraine and COVID interruptions in the supply chain. And you're right about the debt deficit. That deficit is what's sitting there. It's like a big part of our GDP.

22:07One of the things that's also happened is they've shifted not just from products, goods, spending on goods, consumers, but also services because they weren't flying. They weren't going to concerts. So service prices have gone up quite a lot and they had fallen. And then the tight labor market is, I think, absolutely. I just interviewed the guy who started Chipotle who now has a vegan robot restaurant. Yeah, it's really interesting. but he was talking about moving from 12 to, I think 50 employees to three in a store and using these robotic methods and this sort of hub and spoke method. And it's really interesting.

22:47And I was talking to him about like jobs and he's like, you can't hire people for this. They can't get them to do it in stores, cut things up and stuff. So it's not even, he can't even, he goes losing jobs, you can't get people to do it. And then, so now he can pay the people at the hub much more money over$27 an hour and give them benefits. if he has fewer people in the store. So, you know, there's a whole shift going on, but labor is certainly part of it. But the deficit, lack of our tax, we won't tax rich people, things like that. Just to dwell on the deficit for just one second, just to bring it down, because people don't understand it.

23:21And it's just some illusory thing that doesn't seem to impact them. Imagine you had a household that had the best credit in the world. Credit card offers every day. You can sign up for a new credit card almost every day. and your income in that household is 50 ,000, but every year you spend 70. That is America. We take in 5 trillion in revenues and we spend 7 trillion. Now, at some point, at some point, you're gonna stop getting those credit card offers and they're gonna say, we're not gonna lend you any more money or if we're gonna lend it to you, we're gonna jack up the interest rates because you are becoming a high-risk borrower.

23:57That's where we're headed. We need to get our house in order. Do we need to raise taxes or cut spending? The answer is yes. At some point, America is going to vote an adult into office. Yeah, and we'll have to do it. It's going to be hard and not very popular. But the consequences probably would have been dire if we hadn't spent some of that money. But they always overspend. And the tax breaks, I'm sorry, we didn't need to do those. We just didn't need to do those. I know Trump touts them, but just trickle-down economics is really nonsense. Anyway, Laura, great question. Scott, one more quick break.

24:28When we come back, one more question.