The Death of the American Dream

0:01David McWilliams: Today's podcast is all about the legacy of Alan Greenspan and the casino-ization of the American economy. It'll be 250 years of America on the 4th of July. We're just getting in there a couple of days before it. All about the American economy. The grill is shot. The chairs are held together by optimism. And what happened to the rug? Sounds like your outdoor setup is not ready for patio season. Fix it all with Wayfair. Shop Wayfair for grills, rugs, furniture, and more. With 20 million five-star reviews, room of choice delivery, and experts set up on qualifying orders, it's never been easier to do more for less.

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1:26David McWilliams: Republic and there will be podcasts and articles and all sorts of commentary about the American Republic as it celebrates its 250th anniversary on the 4th of July. With this being the Dave McRinney's podcast, we get in a little bit early and we give you our take on America before the rest of the slow coaches. Before America even knows. Before America even knows it's 250 years old. And also, America are playing Bosnia tonight. And of course, I think the American soccer team are much stronger than people thought. They've played very well. But everyone's heart is going for Bosnia. The poor, broken, refugee population of Bosnia.

2:15David McWilliams: Well, the European heart is anyway. Yeah, the European heart is for the Bosnians, around their capital, Sarajevo. If you want to read something very, very moving, Aiden Dzeko, who is the striker of the Bosnian team, maybe the most famous Bosnian player to come out post-war, wrote a little piece to Bosnian fans on what it means to be Bosnian. And he spoke about playing football after the war. He lived through the siege of Sarajevo as a five-year-old. It is very moving. Google it. it's very well worth and he was talking about what it means for him to play for Bosnia. But that is a different thing, John.

2:56David McWilliams: And who does he play for now? He plays in Italy. I can't remember who he plays for. I think he might have even played for Chelsea at one stage. But Dzeko is his name, Aidan Dzeko, and a very good striker. But the letter to young Bosnian fans would break your heart given what happened to him as a boy of five in the siege of Sarajevo. Well worth having to Google, but enough of that. Let's talk about the United States, John. Yes, let's. On Tuesday, we spoke about Greenspanism. Today, we're going to talk about the American economy and one of the legacies, I think, of Greenspanism, which has been the casino-ization of the US economy.

3:41David McWilliams: And by this, I mean, John, that the Gen Zers have taken to gambling as an alternative to working in significant numbers. Now, the question is, why is this? What has it got to do with Greenspan? What has it got to do with the outsized nature of finance in the American economy? What has it got to do with the natural, traditional progression? You go to school, you go to college, you work hard, you get a job, you get a mortgage, you settle down, and you become a member of society. And that society enables you to live a decent life. If that conveyor belt of upward social mobility has been broken, then could that explain why a huge amount of young Americans are switching to gambling rather than working?

4:34David McWilliams: So that is our piece today. It's about the American economy, 250 years after the Declaration of Human Rights, 250 years after Benjamin Franklin, Washington, Hamilton, all these geezers set up the American Republic as an Arcadian utopia, a totally different way of running society with their Declaration of Human Rights. they were saying we are going to be different to the old European monarchies. We are going to create a model society. We're looking at this 250 years later and what have they created? Is it just a large casino, John? Oh, a large casino. So it's kind of like the Nevada-ization of the whole country.

5:25David McWilliams: Las Vegas-ization of the whole country. It is the strip. What happens in Vegas stays in Vegas. what happens in America doesn't stay in America because they tend to export it. But there you go. Unfortunately. I want to start. No, I'm not part of this anti-American coalition that is endemic across Europe. I still believe they're our best friends. And I still believe when the shit hits the fan, we will depend on the Americans. But that's my own worldview. Yes. Look, John, I want to start with the most celebrated, the most notorious, the biggest, the most ridiculously hyped IPO ever, John. Yeah. SpaceX's IPO on the 12th of June was a landmark moment, not just for Wall Street, but for global finance.

6:10David McWilliams: And I also think for America. So you don't need to know the background. SpaceX is Elon Musk's rocket company is arguing, and he is arguing that the next, the final frontier, like Captain Kirk argued, is space. And he's going to own it. And if you join Elon Musk on his space odyssey, you will be made immeasurably rich. This was the pitch of the prospectus that was launched to great razzmatazz two weeks ago. Right. I love that mentality of he's going to own space. I know. Only Americans can say that. But this offering, just think about this, was not just a share issuance pitched at punters. This involved all the great and good of the American Wall Street titans.

6:59David McWilliams: It was underwritten by 18 of the world's most prominent investment banks, including Goldman Sachs, Morgan Stanley, JP Morgan, Citigroup, all these things. And yet, despite all that financial heft and credibility, two weeks after its spectacular debut, SpaceX shares have fallen sharply. Now, they surged after the IPO to$220 a share. It has since, John, then, in only two weeks, tumbled to$154 a share. Wow. And it has wiped out hundreds of billions. It's in that kind of norm for a lot of new IPOs that they initially kind of surge and then they fall back and find their real level. But the point is somebody's losing.

7:47David McWilliams: So the people who bought them at$225, which were largely retail punters, and I'm talking about the average punter, lost. So billions of dollars have been wiped off this market capitalization, which obviously raises all sorts of questions of, you know, what about the valuation? What about the risk, et cetera? Yeah, yeah, yeah. But what I want to talk about, John, is the casino-ization. This feels like a Vegas casino. It doesn't feel like investing. It feels like having a punt, right? But when you think about it, the network of finance behind SpaceX's launch are sovereign wealth funds, family offices, high net worth individuals, corporates from all sorts of wealthy, wealthy countries, right?

8:36David McWilliams: It represented kind of some sort of fabulously profitable end game, you know, for a strategy, you know, that basically all these people backed Musk, right? all these wealth funds 10 years ago, and they waited patiently until Musk was ready to launch this, then they could obviously cash out and sell on to investors, right? This is the whole gig that the, an IPO is what they call a liquidity event for rich people, right? This is financial markets speak for this is how we stuff this shite onto the average punter. So after the initial IPO and there was a surge in prices, it was all the corporate traders that were selling off.

9:26Is that right?

9:27David McWilliams: An IPO is initial public offering. So it means that you're making those shares available to the world. So it means that somebody is selling shares to the world. Who is selling shares? It's Elon Musk and the people that he persuaded to buy into his idea 10 years ago. The people he persuaded to buy into his idea, i.e. lend him money 10 years ago, their exit strategy is in the share price selling today. So what you have is very rich people around Elon Musk, corporations, sovereign wealth funds, what are called family offices, ultra high net worth individuals, John, like you and me. Yeah, not us. Not us, right?

10:14Those people wait patiently.

10:17David McWilliams: Remember I always said that rich people have different time horizons than poor people. Yes. Rich people can wait. So they back Musk. Then Musk says, don't worry, I'll get you guys out in a share offering that we will value the company at trillions of dollars. And then you who bought the company yet hundreds of millions of dollars, will get paid by whom? By the retail schmucks. That's the game. That's the game. So it's a large pass-the-parcel operation, right? Now, what has happened is the retail schmucks got all excited and they bid the price up to, what we said there,$225 a share. Now, as they realize, hold on, there are no other buyers at$220 a share, the price starts to fall.

11:13David McWilliams: But who has got out is the people who invested years ago with Musk, and they are largely very wealthy people. Who is now holding the stock are what I would call cult investors. So SpaceX, like Tesla, is what you could call a cult stock. Lots of its valuation and its hype and its promise and its optimism is based around the cult of Elon Musk. So they stopped looking at the actual maths of it and they're just going for Elon. He's our guy. Well, precisely the opposite to what Greenspanism would contend. You're absolutely right. So Greenspanism would contend that everyone is a value investor and you look at the valuation.

11:53David McWilliams: There is no valuation in this. It's all hope value. And of course, the hope value is made flesh in Elon Musk. Now, in fairness, Elon Musk has made many people very, very rich, including himself, many people around him. He could do it again. But the point is what we're looking at is like a meme stock. You know, these ones that bounce up and down all over the place. Yeah. And this feeds into our notion, John, of America becoming a gambling casino society. because what you get in all these moments of madness is a crazy, crazy surge in optimism, which is the underlying characteristic of the gambler.

12:38David McWilliams: The gambler is endemically optimistic. He's always the one who says, this time it's going to be different. I'm not going to make the same mistakes in the past. And you know what? I'm buying into a view of the future. The house always wins though. Well, this is the thing. So basically, SpaceX, they said, look, it's going to be a totally different type of stock. It's invested in the future, all that stuff. What has happened since then is the NASDAQ, which is the stock tech heavy index, has in the last couple of days been profoundly, profoundly undermined by price falls across. And of course, SpaceX is not immune to all this stuff.

13:19David McWilliams: Because once confidence begins to fade in the AI sector's growth models, this happened last week, everything associated with tech falls. Now, of course, the reason this is a highly volatile stock is because it's heavily owned by Joe Public. Retail investors, leveraged hedge funds, all these people. And all these people are forced to sell when Nasdaq falls because they don't have anything other than leverage. Whereas the people who bought ages ago, when Musk was pimping this idea around the gold states and around the hedge funds and around the investment banks, they have plenty of cash so they can wait.

14:01David McWilliams: So the people who get wiped out are the gamblers. I can't think of a better way, John, to start a podcast on the casino nature of the American economy than through the eyes of SpaceX. Because the fall in SpaceX has been phenomenal. It has wiped out billions of dollars. But the people who have probably lost most are the little Joes who didn't have the foresight to invest when it was cheap and ended up investing when it's expensive. So what Greenspan would say to that is, well, you know, tough. And, you know, given that there has been so much talk in the last six months to a year about the possible bubble that is the NASDAQ and the Magnificent Seven and all the rest.

14:55Then for the SpaceX IPO to come along, you kind of wonder, why would you add to the bubble, pump up the bubble even more?

15:04David McWilliams: Pump up the jam, John, a great Belgian classic from the early 90s. It was a Belgian classic. That was actually recorded by a Belgian Congolese group. But pump up the assets. Basically, one way of looking at this is this is going to be the railroads of the future. Some people are going to lose. Some people are going to win, but it's going to change the world profoundly. And that's the only way in which you can justify the valuations of 100 times on this stock. But let's not get too involved in this stock. Let's just look at this as emblematic, John, of the American economy as it's presented itself, which is that loads and loads of young people are choosing to gamble rather than to work because they feel that no matter how hard they work, they will never get a stake in society.

15:54David McWilliams: This, I think, is really worth exploring in this podcast that looks at America in its 250th year, or the week before it's 250 year. So it's the idea of has America and the American economy become a giant casino. So a gambling society, I mean, it's a little bit like, you know, a few years back, the way out of the ghetto was to become a boxer or a sports star or a rapper or, do you know what I mean? It's that kind of get rich quick kind of scheme. So this is the new version of that, working the stock exchange and becoming a gambler. So what are some numbers behind this, Mac? Okay, so we're going to explain why we think this has happened and why when I look at what's going on in America, I can see this is a logical conclusion.

16:51David McWilliams: But let's just have a look, right? The National Council on Gambling in the United States and nearly two-thirds of all adults, two-thirds, John, have reported and participated in at least one form of gambling before they were 21. Of all the adults 21 and under, 40 % regularly play scratch cards, the lotto, 23 bet on sports, 21 play online gambling games, you know, on their phones, on their laptops. And of course, 33 % of 21 to 44-year-olds play the sports bet before they were 21, as opposed to only 11 % of people over the age of 55. So this shows a generational gap in the nature of gambling. Overall, 57 % of American adults have participated in one form of gambling last year.

17:39David McWilliams: And 30 % are gambling in a casino and 21 % on a sports bet, right? But just so you know, the American is now the largest gambling market worldwide. It's$121 billion a year in revenue. And of course, sports gambling has increased massively in recent years. Total amount of sports gambling in the United States was 6 billion in 2018, and it was 165 billion by 2025. That's incredible, actually, because you can actually see that. I mean, over here even, you know, I don't know how many teams in the Premier League are sponsored by online gambling outfits, you know? Exactly. So the question then is, is this just a reflection of wealth?

18:26David McWilliams: people having extra money in their back pocket and they're having a punt, having a flutter? Or is this a reflection of poverty and desperation? People are having a flutter in order to acquire the income that they can't acquire through working and therefore they are doubling down on the risk in their lives in order to acquire a lifestyle. So that's the key thing. I think the biggest change in the last couple of years, John, are prediction markets. prediction markets, yeah. Explain those. What are those exactly? Prediction markets are a really new thing. There's Polymarket and Calci. These are two new companies.

19:06David McWilliams: So for example, you will get like, will Donald Trump drop a bomb on the Strait of Hormuz? This suddenly becomes a gambling situation. So in the old days, it used to be gambling was, will the horse win? Now prediction markets are on, you know, will Trump raise taxes? Basically anything that moves, you can bet on. Anything that moves, right? And this brings us into the whole world of polymarket, of gambling. Yeah. Of course, for me, the biggest one is crypto, because crypto seems to me to be endemically gambling because it doesn't seem to me to have any fundamental use. And what you find then is the idea that everything that is human, every decision.

19:56David McWilliams: So, you know, in the old days, it was a sports bet, but now it's a political bet. You know, will Donald Trump go to Russia to meet Putin? That becomes a tradable asset. It's a difference of opinion. And opinions are now being traded. So it means that they're going to financialize everything. Everything becomes a gamble. And the question then you have to think is like, where does all this come from? Does it come from day trading? Does it come from crypto? Does it come from young men feeling that they need to be involved? And this was mainly young men. Or is it, and I think the big question for the podcast is, is this a sign of wealth and you're having a flutter?

20:37David McWilliams: Or is it a sign of poverty and you're gambling out of desperation? And I think this is the key argument. Okay, well, I think after all of that excitement, we need a hydration break. And then let's come back and talk about how we actually got here after this.

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21:33The American economy, the American society has changed profoundly over the last few years. I mean, we've always had get-rich-quick schemes and all the rest. but this has become the kind of the day job for many people, which is now gambling. How did we get here? Like, why is this happening now?

21:54David McWilliams: So this is where I bring you back to Greenspan, right? So Alan Greenspan's legacy, part of Alan Greenspan's legacy was this idea that all finance prices are all efficient. So what you see during the period of Greenspan being in the Federal Reserve was that, you know, housing, which used to be a situation where you'd buy a house, it was never seen as an investment. It was always seen as a place you live, becomes an investment. And what you get in the housing market were housing funds. And those funds, I'm just using housing for an example, those funds were used as leveraged plays for rich people.

22:39David McWilliams: And then suddenly you had a situation where more and more and more poor people were in houses and housing complex that were owned by small amounts of rich people. And the rent that the poor people were paying was the yield for those richer people. So suddenly housing becomes part of the casino. Yeah. And I think the key thing is in the old days, the celebration of risk, like the flutter at the Kentucky Derby, wasn't really seen as widespread, right? It was seen as kind of on the margins. Yeah, it was part of entertainment. Now I think what has happened is risk has become a permanent factor in people's lives.

23:22David McWilliams: Housing is the great example of this. But by and large, ordinary people stayed out of stock markets, gambling levels were low, people didn't talk about it, there weren't Instagram accounts for this, all that sort of thing. Then you think, okay, so why has all this happened? And I think it is because in the economy of America today, housing is unaffordable, housing debt is unsustainable. That previous life path was available to young people of our generation that basically said you can have a comfortable middle-class lifestyle. You can move out, you can rent, you can save, you can buy a house. this has all disappeared as costs have spiraled.

24:06David McWilliams: And also wages have remained relatively stagnant. This is disgrace. Asset prices have risen, John. Wages have remained relatively stagnant. So people are falling behind. And the question is then, why are wages regulatively stagnant? Or why is the cost of living rising everywhere? And this, I'm going to do a really brief detour, is called Baumol's theory. Baumol's theory of inflation, a guy called Baumol, William Baumol. Who is he? He's an economist who was knocking around, won a Nobel Prize, all that sort of stuff. What he basically said was that certain sectors of the economy are very, very high tech and very high productivity.

24:47David McWilliams: Let's say like tech and finance, okay? Sure. People get paid well in those companies. But because we live in one society, those companies and the people who get paid well in those companies, in order for everybody not to try and migrate to those sectors, wages have to go up in other sectors and other more labor-intensive sectors, right? So in capital-intensive sectors, wages can go up because they're highly productive. But in labor-intensive sectors, wages go up not because the people are productive, but to prevent their workers migrating to these productive tech jobs, right? So it's a similar kind of thing to Dutch disease.

25:30David McWilliams: Exactly. Now, what that means is that all those labor-intensive sectors that are now paying higher wages have to actually increase their prices in order for those to remain profitable. So across labor-intensive sectors like healthcare, education, elder care, child care, right, all these things that have become incredibly expensive. If you speak to young people, they'll say, oh my God, I can't believe how much the childcare is. If you speak to older people who are looking after their older parents, they'll say, oh my God, I can't believe how much care for the elderly has become. Now, why has that happened?

26:10David McWilliams: This happened because of Baumol's cause disease, because the tech sector in America and in Ireland has made wages in the tech sector unbelievably attractive. In order to stop your people going into those, you have to pay them more. In order, therefore, for your company, let's say you're in healthcare and you're the state to be profitable, you have to increase the cost of healthcare. So that happens in America, that comes through private health. In Europe, that comes through the increasing public sector health bill. Same thing for education, right? But all the while, as those things that we associate with a nice life, good healthcare, good childcare, good education, all of those become increasingly expensive the average worker is becoming poorer because the cost of those things that make life nice is getting more and more expensive.

27:05David McWilliams: So this is what's happening to people's lifestyles. And of course, what you see then is that wages can only grow so fast. And if the cost of all those basic ideas is going through the roof, what you will find then is that people will start to give up on certain types of jobs. So for example, teaching in America. Since 2008, in real terms, teachers' salaries have fallen by over$4 ,000 a year. Of course, what that means is that teachers, and the reason it is because teachers are employed in the state. So you can't privatize teaching. So teachers in general are employed by the state. So as their wages fall, less and less people go into teaching, as less and less people go into teaching, the quality of the teachers falls and the quality of the education system falls.

27:59David McWilliams: And you see, it's a downward spiral. So I think what is happening in the United States, the first thing is that the cost of a normal life has gone up dramatically because of Baumol's cause disease. And this has impacted profoundly on young people's ability to get their step on that ladder of prosperity. So they're thinking, screw this. I'm going to start gambling. I don't trust anyone. Like, you know, the reason you trust people in society, John, is you're usually in a good position. You have a nice house. You have a nice wage. Family are fine. Now you trust the news. Yeah, I trust the news. Or I trust the state.

28:38David McWilliams: Or I trust politicians. But now you're seeing that people are being put on edge so much because of this. Yeah. that they begin not to trust the people who tell them that they are looking after them, whether they are politicians, state institutions. Employers, et cetera. Yeah, and then you superimpose all that social media junk. And I was just going to come to that. This is further compounded by not just social media, but AI. And AI taking some of those particularly more junior jobs and more manual labor jobs as well. And then now as people, as you're talking about, young people going in and gambling on a daily basis, day traders on the stock market, and now they're also kind of competing and gambling against AI as well.

29:31David McWilliams: Well, exactly. So what we always know is that in the short term, any big technological shift or shock will enrich profoundly the owners of that technology, right? And the owners of AI are already very, very wealthy. We're not too sure, will it wipe out jobs? How is it going to all pan out? But what we know is the shock will disproportionately affect the very, very wealthy. That's the first thing. The second thing is in America, you have this celebration of wealth, right? It is good to be rich. People are flashy. People will tend to show off much more. They'll drive faster cars. They'll have bigger houses.

30:11David McWilliams: They'll have whiter teeth. They'll have all that sort of carry on, right? Okay, they'll have bigger asses. Their Brazilian butt lifts will be bigger, right? Yeah. And in the old days, I know you quite fancy a Brazilian butt lift, John. I think it would look really well on you, actually. Yeah, I have one. I'm sitting on one at the moment. But of course, the issue then is in the old days, you only saw these signs of wealth in your immediate circles. Now, with Instagram and social media, you're seeing them every single day. So the social anxiety associated with falling back, which is already bad enough, is amplified by the lifestyle nonsense that you are drip fed every single minute of the day on your smartphone.

30:56David McWilliams: And of course, the generation that are smartphone natives are the younger generation. Our generation are still very much using this as an extra thing. Whereas the kids, this is our life. There's no blurring between their online life and their real life because both have actually blended and merged into one thing. So, okay. So you're saying that this kind of stems from that Greenspanism initially. but also my question to you now is that how sustainable is this in the long term? I have no idea, Johnny boy. That's not the answer I know you wanted, but I have no rashers, right? Okay. Well, let's gamble on it.

31:37David McWilliams: Let's gamble on it, exactly. Let's open up a thing. Look, I'm saying, look, having a flutter, gambling, et cetera, all fine by me, right? But if the society is signaling to a disproportionate amount of younger people that the only way you can acquire the lifestyle you want is through gambling because the other avenues that were open to your mom, your dad, your grandparents are being closed off. The sort of plodding, gradual, work hard, invest, save, do the right thing. If that has all been in effect cordoned off for this generation, then it's not surprising that what they will do is they will look to do something else.

32:24David McWilliams: Now, interestingly, in the old days, John, they would revolt. There would be a revolution. Like this is what George Washington's revolution was all about. It was about taxation. It was about taking back some sort of sovereignty on the part of the American colonists. Nowadays, Americans don't revolt. They gamble. Right. So, John, now, on the 250th anniversary of the American Republic, where the founding fathers rebels against the might of the British Empire in order for their children to have a better future, what do their descendants do? They gamble. That's it. They've turned that great American empire, that great American republic, into a casino, John.

33:12David McWilliams: I think it was you said at the top of the group, wasn't it? the Nevada-ization of the United States? Yeah, yeah, yeah. We are witnessing the Las Vegas-ization of the United States, the Caesar Palace-ization of the United States. That is the image we will leave you with as the Americans go about their business and are about to celebrate their 250th anniversary. We'll talk to you on Monday.

34:02We'll see you next time.

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