Why Chaos Has Become an Economic Strategy — ft. Kyla Scanlon

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2:00welcome to prof g markets scott is out this week i believe he is in switzerland or austria or somewhere he's skiing he's not with us he's slacking that's basically what's happening so I'm filling in this week. I'm speaking with Kyla Scanlon, the author of In This Economy, How Money and Markets Really Work. And we'll be talking about the economics of our generation, which is Gen Z. But before we get into the show, just a reminder, Scott and I will be recording a live episode of Prof G Markets from the Vox Media Podcast stage at South by Southwest on March 10th. We had an incredible time last year.

2:41I was just shocked by the feedback and also just how many of you showed up. It was incredible for us. But we need to make this year even bigger. So we hope you will attend. If you want more info on how to go to the recording, go to voxmedia.com slash SXSW. That's voxmedia.com slash SXSW. And with that, let us get into the headlines. Now is the time to buy. I hope you have plenty of the well-resolved. Sheehan's shareholders are urging the company to slash its valuation to around$30 billion. That's down significantly from its peak of$100 billion in 2022. According to those familiar with the matter, some shareholders believe the valuation cut is necessary to get the IPO over the finish line.

3:35South Korea has temporarily blocked new downloads of DeepSeek over privacy concerns. Regulators said the app will be reinstated on Apple and Google App Stores once DeepSeek complies with the country's personal data protection laws. And finally, Argentina's president, Javier Millet, is facing lawsuits and potential impeachment after promoting a meme coin on X. The coin briefly soared to a$4 billion market value, only to crash within hours of its launch. The coin's creators are accused of a rug pull scheme where developers launch and promote a token and then cash out as its value peaks. Okay, so let's start with Shein.

4:15Shein is down to$30 billion reportedly valuation. The first thing I can tell you about this, Scott Galloway is not going to be happy. As many of you probably know, Scott is an investor in Shein. I actually don't know how much he invested. I also don't know what the terms were on his investment. I don't know what the valuation was. And we will find out. We'll make sure we ask him when he comes back. What I do know, though, is that the last time Sheehan was valued, it was worth$66 billion. And the year before that, it was worth$100 billion. So we're now looking at a$30 billion IPO. That is a 70 % decline in less than three years.

4:52This is not good news for Sheehan. Now, why is this actually happening? We've heard a lot of people say that it's, you know, market conditions, there's supply chain issues, there's issues with the logistics on the IPO. Maybe that's true. But I think most of this is a distraction from the real issue, which is Donald Trump. And more specifically, Trump's suspension of this tax law that we've talked about, known as the de minimis provision. American consumers will soon see the effects of President Trump's new tariffs on Chinese goods, especially if they shop online at discount stores like Temu and Shein.

5:30So what is the de minimis provision? This is a rule that we have in the U.S. for any shipments that come into the U.S. If they're worth less than$800, then you don't have to pay taxes. And this was originally designed so that Americans could go on vacation and go and buy souvenirs and bring them back and it would be duty free. But instead what happened is we had all these foreign e-commerce companies who realized, okay, if we can make our products really cheap, if we can make sure that every order is below$800, then we can access the US economy, we can access the American consumer, and not have to pay taxes.

6:07And so that is why in the past decade, the total value of de minimis shipments in the US has gone from$40 million to$40 billion. And more than 30 % of those shipments come from two companies. And those companies are Timu, which you've probably heard of, and yes, Xi 'an. So in other words, this tax law is the backbone of Xi 'an's business model. So Trump has threatened to end this. He knows how important this tax exemption is to China. He knows how important it is to Chinese companies. And if he does end it, it would likely ruin Xi 'an's business. So this has always been one of my problems with Xi 'an as an investment, is that their key differentiator isn't any form of technological innovation.

6:52Their differentiator is their willingness to exploit a loophole in the US tax code. Now, as we know, exploiting tax loopholes is a great business model until it isn't, until something in the tax code changes. And that's exactly what's happened here. This loophole on which this entire business was built is now under threat. And until we have clarity on what will happen to the de minimis provision, I don't think this company can go public because we simply can't know what the business is going to look like. So Scott, if you're listening to this right now, I think it's going to be a long time until this company actually IPOs.

7:31It was supposed to IPO this April. That was the goal. It's now looking like it's going to be delayed a lot longer. And if I had to put my money on it, my bet would be that an IPO is probably going to come in 2026. But maybe I'm wrong. And let me know if you think so. And you can always hold me to account.

7:56Now, let's talk about what's happening with DeepSeek in South Korea. So South Korea has temporarily blocked new downloads of DeepSeek. We don't know if this ban is going to last longer. I think this is the right move from South Korea. And I'm honestly surprised it didn't happen sooner. The reality with DeepSeek is, yes, it's cheap. Yes, it uses fewer chips. Yes, its reasoning capabilities are highly advanced. But it is also unbelievably insecure as a technology. It's one of the most compromised technologies we've ever seen. Its encryption is the weakest in the industry. It is, according to research, four times more vulnerable to hacks than chat GPT.

8:43We've already had multiple data leaks, and Wiz has published some pretty concerning research on this too. And on top of all of that, their data is stored in the servers of the Chinese government, and DeepSeek has openly said this. So if you're a nation like South Korea that has even a slightly frosty relationship with China, there's practically no reason you shouldn't ban this. It really isn't worth the risk. There really isn't any upside in hosting a Chinese chat GPT that threatens the privacy and security of your citizens. And by the way, OpenAI's chat GPT is banned in China. So South Korea is one of the first countries to do this.

9:21I think in the next couple months, we're going to start to see a torrent of other countries banning DeepSeek. And I think the first country we could probably expect this from is America. You know, if Trump wants to go through with this whole reciprocity thing, then DeepSeek is probably the best place to start. And in fact, we are starting to see some state legislation that is banning DeepSeek on government devices. So Greg Abbott in Texas, he issued a ban. Kathy Hochul in New York, she issued a ban. And so did Glenn Youngkin in Virginia. So to me, this is sort of a no-brainer. I cannot see any meaningful upside in keeping this app around.

10:00But perhaps I'm missing something. And if I am, let me know in the comments and we can have that debate. But as of now, the stance for me is quite simple. Deep Seek is not worth this risk. South Korea has got this right. Deep Seek should be banned.

10:25And finally, let's talk about what happened with President Javier Millet, the president of Argentina. You know, this story is honestly insane to me. Let's just start with the timeline of what actually happened. So on Friday, a website was launched promoting this project called the Viva La Libertad project. And the mission was, quote, to boost the Argentine economy by funding small projects and local businesses. Now, exactly how this would be accomplished was not clear. It wasn't really mentioned anywhere. And in conjunction with that project, there was a cryptocurrency that launched called Libra or LibraCoin.

11:08And just a side note, it was launched on this platform called FixFloat, which notably does not ask for any personal identification. Everyone is anonymous, and it is most commonly used for scamming and rug pulling. So it's a very shady start to begin with. None of this really mattered, though, until half an hour later, the president of Argentina, Javier Malay, tweeted out the news of Libra and LibraCoin, and he directed his 4 million followers on where they could go online and buy the token. And within 45 minutes, the market cap of Libra went from virtually nothing to$4.5 billion. Now, to put that in context, that would make Libra, this cryptocurrency, the ninth most valuable company in Argentina.

11:56Within an hour, one and a half billion dollars worth of Libra coin was transacted between buyers and sellers. Then all of a sudden, the early investors started to sell and the value of Libra plummeted. And after one hour, Libra had lost 70 % of its value until eventually President Millet deleted his tweets and he apologized for what happened. He said, I was not informed of the fine details of the project. And after learning, I decided not to continue spreading it. But by that time, the damage had already been done. 75 % of the investors lost money. And according to the on-chain data, many lost up to$10 ,000.

12:37Some lost up to$100 ,000. So the financial damage here is once again, just enormous. And the winners, of course, there are always winners with these crypto tokens. The winners were the developers of Libra, who sold at exactly the right time. Many of them made millions, and one of them netted almost$9 million in profit. So I think what we have here is the same dynamic we had with Trumpcoin, where the power of a presidency, in this case, Argentina's presidency, was abused to essentially trick people into wiring their money to a handful of anonymous individuals with no financial protection, no recourse.

13:19And it's unlikely that these people will ever see their money back. I doubt it will ever happen. And this is exactly why I personally don't like crypto. I think it's one of the most useless and the most destructive technologies of our time. And when you put it in the hands of the wrong people, they can levy extreme damage on a lot of people who don't really know what's happening. And I think that's what happened here, probably. I don't think this was a malicious operation by President Millay. I don't think he was behind the scenes orchestrating this. I mean, he deleted the tweet. He eventually expressed regret.

13:54I think the most likely scenario is that he got tricked. And that's a shame because so far, Millet has actually done quite a good job. He's brought inflation way down. He's brought wages way up. He's expanded the Argentine economy. I was with Argentinians this weekend and they were huge fans of President Millet. He's doing everything he really should be doing. But now that this has happened, this is a huge hit to his credibility because it basically means one of two things. Either he's a scammer himself, which I don't believe, but it's possible, or he's easily duped by scammers. And neither of those things reflect very well on him or on Argentina.

14:36It's a massive sign of weakness. And so what happened? As soon as the markets opened, the Argentinian stock index fell 6%. And this is exactly the kind of thing that rattles investors. so it's now being investigated in the courts we'll soon find out what actually happened and what he actually knew about this libra coin but what is clear is that this is going to be a very long road to recovery and this is certainly the lowest point so far in the javier malay presidency we'll be right back after the break for our conversation with kyla scanlon if you're enjoying the show so far be sure to give prof g markets a follow wherever you get your podcasts

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17:40Welcome back. Here's our conversation with Kyla Scanlon, financial writer, video creator, podcaster, and author of In This Economy, How Money and Markets Really Work. Kyla, thank you very much for joining us once again on Profity Markets. Thanks for having me. So we're exactly one month into the Trump presidency. A lot has happened. We've had tariffs, Doge, we've had drama with Greenland. I mean, the list kind of goes on. I guess what has stood out to you so far and what have been kind of your main takeaways from this presidency so far? I think the main thing that I've taken away is there's kind of this element of faffonomics is sort of what I'm calling it, where people are like really effing around and really finding out in a very big way.

18:27Like that's what you see with Doge, with some of these maybe hasty firings and then the subsequent rehirings that have to happen, like with nuclear safety workers. So I think what we're seeing is just an administration that's moving pretty fast and moving without maybe any acknowledgement of potential guardrails and just kind of a gutting happening at the federal level at a pace that we really have never seen before. And I think a lot of people are a bit worried about what that could mean. A lot of people are excited because they want to see, you know, debt levels go down. But I think the underlying worry then is, well, you know, if you've got the government from the inside out and have to rebuild it, it could be quite expensive.

19:12So I think right now everybody has more questions than answers. There's tremendous amounts of uncertainty and you can really just feel that percolating. Yeah, you mentioned that term faffonomics, which I've read about and which I love. Could you just spell out exactly what that means for us? Well, it means F around and find out. So the idea is chaos as a strategy, right? And so you're just going to sort of go full steam ahead and see what you can unplug and then see what stops working once you unplug it and then maybe figure out a way to plug it back in. And so that's the general strategy is just effing around.

19:50And that's a very crude, introductive way to say it, but maybe it's a decent summary. Yeah, chaos as a strategy sounds about right to me. Why do you think we have reached that point? Why do you think people are attracted to this chaos as a strategy system that we seem to be reverting to right now? I think that there's a lot of distrust in institutions. And so you see things like the spring 2024 Harvard Youth Public Opinion poll where they ask young people, you know, what institutions do you trust in? And trust in all institutions except for the United Nations was down by double digit percents.

20:33You know, trust in the media, trust in the White House, trust in Congress. And so I think you have this base of people who just don't trust in the possibility of things getting done. And so that drives, you know, actions like Doge is able to take, like people support that because it's like, well, nothing else seems like it's working. And so you have that lack of trust. And then you have the echo chambers that can be created by social media where people are hearing that, you know, this sort of strategy is the best way to approach it. There's a lot of misinformation flying around right now, like with Social Security payments and an understanding of what nuclear safety workers do.

21:10So I think it's that, like there's this lack of belief and that's all compounded by the systems that we engage in every single day, you know, the algorithms perhaps perpetuating that even more. One of the big themes you talk a lot about is this idea of the vibe session. A lot of people love that term. And basically what that means is this disconnect between the reality of the economy versus the way people feel about the economy. and it was very relevant last year when you had low consumer sentiment but at the same time the economic data was actually quite strong i'd just be interested to hear what you think about where we are today do you think we are still in a vibe session is there still a disconnect between how people feel about the economy versus how the economy actually is going right now what do you think we've kind of come to our senses?

22:10I mean, I think the big thing with the vibe session is we did see, and I wrote about this in my newsletter, like we did see aspects of the vibe session show up in the electoral data. Like part of the reason that people voted for Trump is because they were like, I'm sick of this economy. I'm really tired. Like, I just wish somebody would make it easier to afford a house. And that's like so valid. Like part of the vibe session is the data might not be telling the whole story, like aspects of structural affordability, like housing and childcare and elder care are very important and they impact people's lives and they're extraordinarily expensive.

22:46And so with the Bob session itself, at least right now, those things are still extraordinarily expensive. And we also saw, of course, a partisan flip in sentiment, like Republicans are now feeling quite good about the economy. Democrats are feeling quite bad. This happens pretty much every election cycle. And we haven't seen things really take impact on the economy yet. Like now that so many workers have been fired and we could have inflationary pressure due to tariffs, that could create a bad economic environment where it's totally valid to have maybe negative consumer sentiment. But the whole goal with the Vibesession story is to really talk about what data are we using to measure the economy?

23:25Like, is it the right data. And so in that capacity, like, who knows if we're still in one or not. But I think that the sentiment has always been a bit strange to measure. What would you say are the most important pieces of data that we should be looking at? I mean, I feel like, you know, when we say, the economy is doing well, oftentimes we're saying, you know, GDP is expanding, or inflation has come down. But then you look at the price of houses and the fact that none of our generation is even close to being able to afford a home. And perhaps that's what we should be looking at. Like, what do you think is most important when it comes to measuring or taking our temperature as a nation and checking in?

24:07How well are we doing? This is a good question, too. The American Academy of Arts and Sciences has a new paper that they released last year called The Core Score. And I worked a little bit to develop some videos around it. But the whole idea is, like, how do we measure economic well-being? And it's looking at things like housing. It's looking at things like health care. And I think that sort of stuff is important because it gets beyond just GDP, which is like consumer spending and things like that just just outweighs. And I think if we can sort of get a little bit more granular in how people are actually experiencing the economy, which is what the core score and nonpartisan effort tries to do, that's a better way to actually figure out what's happening and how people are feeling.

24:53and then we can address the problems a little bit more head on. Like clearly housing is a massive, massive problem. You don't need the core score to tell you that. But then the question becomes, well, how do we build more housing? And I think that's also a measure of economic success. Like not just how the economy is performing, but what are we doing in the future to like make it perform even better? Things like building more housing, having more access to healthcare and education, et cetera. People are very interested in Gen Z all of a sudden it feels. I mean, they really want to know how we think, probably because we're now entering the workforce and suddenly we're all a bit more relevant.

25:29I'd like to get your view. How do you think Gen Z feels about the economy right now? What do you think is most top of mind for our generation? So I have been on the road traveling for the past eight months talking about my book. and I have had the opportunity to talk to a lot of young people across 25 different states about how they're feeling about the economy and I think the main thing that I'm hearing is people are really concerned about the labor market like when you talk to kids and your students not kids in college a lot of the times it's um you know it's like well I'm getting all of these skills but when I graduate like this could be a totally useless degree like look at what happened with software engineering, which was supposed to be this really safe way to go.

26:16And so you see a lot of young people going into the trades, like Wall Street Journal had this article called Gen Z is the tool belt generation. And where I'm from in Kentucky, like you're seeing this massive move towards the trades. And so I think that is how young people are feeling about the economy, is they're not sure what their places in it anymore. They're not sure where they fit, partially because, you know, the growth of AI, partially because we are seeing some dismantling of the government and there's uncertainty about what jobs are going to be left there as well and then you also have in i know you all talk about this a lot on the podcast but like you have these get rich quick schemes that work like meme coins uh and and so when you look at these two things like you have maybe the roi on a college education isn't it doesn't seem as powerful as it once was, and then you have the ability to make a ton of money on what is, you know, essentially could be called a scam.