Capitalism, Private Equity, and the Seven Deadly Sins — with Stephen Dubner

24:40It was a corporation who had leverage because the government gave it so much leverage. and it essentially captured so much leverage in sync with the government that it was acting as a sort of state outside the state. And yet when they finally began to go under because they were so overextended, overleveraged and made so many bad decisions, the state had to bail them out. So I think Smith right now would be a tiny bit Bernie Sanders, Elizabeth Warren, whatever. mostly, however, kind of old school economic centrist-ish on the Bill Clinton channel, maybe, and a little bit of, you know, let's say the Friedman range in terms of understanding how the world works at a very deep level in a way that a lot of sloganeering people don't.

25:33It seems as if a lot of young people have lost confidence in capitalism. What do you think they get right and wrong? That's a very good question. I would also just say, I mean, probably nobody cares about this, but I would say as a personal note, I would say that I have lost a little bit more faith over the last 10 or 15 years as well. I think there's a lot of reason to do so. You know, on the arcane academic side, I think of this outfit called Opportunity Insights run by some really smart economists at Harvard, Nathan Hendren and Raj Chetty, who try to figure out, you know, the American dream, true or false or, you know, valid or not.

26:15And their data shows that income mobility has really decreased a lot in this country. And I don't know many people who are going to argue that's a very good thing. So, you know, that's one strike against. I think government capture, as I mentioned in talking about Adam Smith, is also a really big problem. We did an episode a couple years ago with a political scientist named Yuen Yuen Ong who wrote a book about Chinese corruption and comparing, honestly, Chinese corruption to American corruption. They're just different flavors. The degree to which our corporate friends and overlords have captured the way government is created or the way politicians at least operate is really severe.

27:00We're working on a piece right now about the state of Delaware. I mean, it's a bizarre story. So I think for us to tell ourselves that we have this kind of well-balanced capitalist system that works hand in glove with our democratic system and that it still rewards people who are honest and work hard and are creative, et cetera, et cetera, and pay attention to all the important things. I think it's becoming a little bit less true every day over the past whatever, 30, 40, 50 years. So I don't blame people who think that. On the other hand, I think there's an awful lot of naivete that goes along with it.

27:40People like stuff. People like getting around. People like having air conditioning. People like having smartphones in their pocket. And all those things are created by this set of people who participate in our system by using all the rules and then some. So I hate to give the standard it's complicated answer, but yeah, it's complicated. But I would also argue that because it's complicated, it's fun. It's fun to figure it out. It's fun to figure out what's real and what's an illusion. When you hear politicians talking, it's fun to say, are they just sloganeering to try to get some votes from people who don't know any better and maybe even telling a bunch of lies along the way?

28:14Or do they actually understand this stuff and are they trying to educate us? And I'm fairly unenthusiastic about the level of intellect, especially when it comes to economics in our political class. I wish that was different. So doesn't history sort of repeat itself here? And I'll give the off-off Broadway version of history. And that is capitalism, I think the genius of capitalism is it leverages this incredibly powerful force and that is self-interest. and this notion of the collective and kind of the communist man fighting and working his ass off for the better of the collective that they just ignored human nature.

28:51And that it's always, it's like dictators always start benevolent. It seems like capitalism to me is always the best way to go for a long, long time. The question is, does it collapse on itself? And that is, and I think we've seen this play out over and over, people demonstrate extraordinary ingenuity and innovation and take risks. And with the right economic environment and the right political environment, erring on the side of a lack of regulation, they do amazing things and register and create a ton of stakeholder value. They then understandably take a lot of that wealth and in a nation like ours, weaponize government to make sure they're entrenched, reducing what you mentioned, churn.

29:33And slowly but surely, we end up with a lot of income inequality. And once income inequality gets to a certain point and you have three people who are worth more than the bottom half, at some point, the bottom half go the easiest way to double our income is to take all the shit away of the top three people. And we have to press the reset button. Where do I have this wrong? Doesn't it just keep happening? I guess so. But I mean, if you also look at the bigger macro trends about life generally, humankind generally, whether it's Steve Pinker or the Hans Rosling data, I mean, there's tons of stuff on this.

30:04It's easy to see. you know, it's hard to argue that the world has gotten overall worse. It's easy to argue that progress and prosperity and all those words. I mean, it's funny. Even prosperity becomes a dirty word at some point, which I think is absurd. Billionaire class. Yeah, yeah. Here's where I think part of the problem or maybe disconnect lies. So I like economics and I like economists. I'm not an economist, just to be clear. I've hung out with a lot of economists for a long time. They are often very brilliant. These days, to get a PhD in econ from a good or even so-so program, you have to be extremely smart and really good at math because econ got extremely mathematized in about the middle of the 20th century.

30:47That attracts a cohort of people who, on average and historically, although this is changing, have been, you know, to be that smart and good at math and able to perform economics, you know, a certain kind of economics and econometrics and so on. You are often going to belong to a cohort that isn't really very good with people. You don't really understand that humans are the input in those formulas. And so what I think has been a really healthy development, and I'm sure you know a ton about this, is the behavioral economics movement, which was really birthed by a couple of Israeli psychologists, Amos Tversky and Danny Kahneman.

31:30Kahneman's still alive. Tversky died. Kahneman won a Nobel in economics, even though he's a psychologist. And then Richard Thaler was one of the economists who came along and turned it into behavioral economics. I think now we are starting to remember that people are part of the equation. And honestly, for a long time, that wasn't the case. If you start to look at our economic structure, capitalism, politics with the smarts and the analytical abilities and the ability to work with huge data sets that economists have, and you blend that with the insights that psychologists have, then I think you may begin to make some real progress.

32:05I think one concept from psychology that most of us overlook almost all the time is what they call habituation, which is just you get used to something that's good or bad, and then you want to move on to the next thing. So I think a big problem is that here in the whatever we are, 21st century, we all walk around now, the cliche is, with more computing power in our pockets than NASA had to – I don't know if that's actually true per se. But I think that's part of the problem. And then the other part is, I can't remember, you probably know who said this, I can't remember. Comparison is the thief of joy.

32:42And now comparison is so easy that it's easy to make yourself miserable, even though you are observationally very, very, very sound. You have enough food, you have shelter, all those things. I don't blame people for being frustrated. What frustrates me is when their frustration doesn't lead to anything positive. Because I think a lot of excellent developments over the history of the world have come out of frustration. It's a natural human condition. But I don't like how we often give into it, honestly. Yeah, Theodore Roosevelt said it, but I think Mark Zuckerberg decided the comparison is the root of all shareholder value.

33:20So you wrote, you did a series on private equity. What surprised you about the industry and what do you think people get wrong or right about the industry? Yeah, so, you know, big question. Our, we did a two-part series on it, and we focused on just one sector of the economy, which is pet care, because it's too big. I mean, it's huge. I mean, there have been many books written about private equity and so on. I think one thing people get wrong is that there's any one-size-fits-all. So there are some industries and even some sectors within industries that really, really, really benefit from having an infusion.

34:00Just having money, money and good management. You know, there are some of the more technical sectors of, let's say, even pet care, where you want to open, you know, a surgical outfit where you just need resources and you need organization. And a lot of cases that can be a benefit. On the other hand, when you're dealing with an industry like pet care with human health care where private equity has also been extraordinarily active, you're going to lose some connections. You're going to lose connections between the founder and or manager and the patients and or customers. I can make an argument either way.

34:39I can make an argument that private equity is a fantastic and brave application of capital. and I can make an argument that if you work in a sector or own a business that private equity is coming to knock on your door, I'm not saying you should run, but your customers may want to run eventually because of course it's going to work out well for you, but not necessarily for them. But again, the findings vary a lot from sector to sector. One thing that we found in pet care, there was this interesting knock-on effect. It used to be, until pretty recently, the majority of pet care facilities, vet practices, surgical suites, et cetera, et cetera, were owned by small owners.

35:24You'd call them mom and pop, right? And in the last about 10 years, the roll-up has been really intense. And at the top of the pyramid, the more expensive procedural stuff, surgical things and so on, the roll-up is very intensive. I think something like 75 % of that revenue is now owned by or run by private equity. One thing that we saw that facilitated the change is it used to be that if you were a young veterinarian who joined a practice and then your senior partner or boss, whatever, was wanting to sell out, you would have made enough money by then to buy it. And now so many people come out of veterinarian school with so much debt that they just don't start earning enough money until way, way later.

36:07And so the people who want to cash out can't do anything except take the big check from the private equity fund. And so, you know, for every one of those stories, there's 10 ,000 others in dental practices, in car washes, in pawn shops over and over and over again. And I don't know. Maybe this is personal preference, or maybe it's just that I'm old enough. But I liked living in a world where you knew who did the stuff that you are interacting with. And when you feel you don't. I think there's something a little bit dehumanizing about that. On the other hand, I think that capital can do amazing things and that the venture capital industries and private equity industries have produced products and goods and services that we're all grateful for.

36:48So I think anybody who tries to wipe it off or put their mark on the pro or con side of the ledger without thinking through the specifics of it and trying to find some data, I think, is making a mistake. That was a really wimpy answer, but I believe it.

37:05Coming up after the break. Some of the smartest people I know are some of the laziest, self-professed laziest people I know. Because they're smart enough to know that unless something gets inside your cranium and really, really agitates it in a good way or bad way, you should not pursue it. You're just going to waste your brain cells. Stay with us.

37:33Support for the show is brought to you by CVS Caremark. On this show, we talk a lot about money. We talk about money on a large economic scale, but we also talk about the cold hard cash, the dollars and cents of the center of just about everything. And that's the sort of money talk that's on most people's minds. How are they going to access and pay for the things they need? Like prescription drugs, CVS Caremark plays a vital role in the healthcare ecosystem by helping to ensure coverage of medications to their clients' plan members at an affordable price. interested in more affordable care for your members go to cmk.co slash stories to learn how they can help you provide the affordability support and access your members need

38:14this is a real good story about bronx and his dad ryan real united airlines customers we were returning home and one of the flight attendants asked bronx if he wanted to see the flight deck and meet captain andrew i got to sit in the driver's seat i grew up in an aviation family and seeing Bronx kind of reminded me of myself when I was that age. That's Andrew, a real United pilot. These small interactions can shape a kid's future. It felt like I was the captain. Allowing my son to see the flight deck will stick with us forever. That's how good leads the way. My favorite series that you guys have put out recently was on the seven deadly sins.

38:51And you basically said that they're not deadly nor sin. This is how I kind of interpreted it. You did it with Angela Duckworth. Talk a little bit about why some of these things are, in fact, friend, not foe. Yeah. So, yeah. So, this is for a separate show we have called No Stupid Questions with Angela Duckworth, who's brilliant and fun. She's a research psychologist at the University of Pennsylvania. She wrote the book called Grit. And, you know, she was into this idea because she studies self-control. That's what grit really is, is, you know, having a lot of self-control. And so she wanted to explore the seven deadly sins as basically failures of self-control.

39:34And it was funny because we had different perspectives on it. She would use examples of people like Eliot Spitzer or Tiger Woods. Like how can people who are so disciplined and successful in one area of their lives have so little self-control? Not keep their putter in their bag? Yeah. Exactly. And to me, I mean, that's what being a human is. Like what kind of freak has self-control everywhere? Like nobody that I've ever come across personally. So anyway, we did. So we did go back and we examined the seven deadly sins. And the thing to know about the seven deadly sins is they were from the church.

40:07They were a Catholic church doctrine, essentially. And they were primarily geared not towards civilians, but toward the clergy. Like, here's what you need to do to be the perfect conduit from God to the humans. And so lust, you know, anger, envy. The idea was really, it's a little bit more of a monastic pursuit of being anti-sinful because the idea was literally to not participate in these things so that you could keep your mind and your conscious and your soul free. considering that big caveat. In other words, they weren't written for the 21st century and they weren't written for people like you and me.

40:45We did go back and examine them and we found that, yeah, they're like, if you subscribe to the seven deadly sins as a doctrine for your life, you're gonna have a miserable life and not very productive either. And so we also started to talk, you know, sloth. Is sloth really a sin? I mean, some of the smartest people I know are some of the laziest, self-professed laziest people I know because they're smart enough to know that unless something gets inside your cranium and really, really agitates it in a good way or bad way, you should not pursue it. You're just going to waste your brain cells. Wait until you have the thing that makes you go.

41:26And so that can look like laziness. With lust, we did look at why sex has become less popular, which is kind of interesting and weird. It's different in different places, but overall there's a lot less sex going on. And then we wanted to look at what might be a good eighth deadly sin, something that we should nominate that isn't on the list and maybe is even better than all the other seven. So, Scott, if you had to nominate an eighth, what would it be? I don't know. Being desperate for other people's affirmation. Okay. I think that's a pretty good one. Are you describing yourself? I've heard you say that before.

42:07Yeah, that's my addiction. And you're real. That's real. You're not kidding when you say that. Oh, no, no. It's my addiction. I think of an addiction as something you continue to engage in despite it damaging your life. Yeah, yeah. Do you try, do you work hard to curtail or diminish or not really? Well, I'm conscious of it. And I'm trying to modulate my time on screens, my time on social media platforms. And I'm trying to shrink how much criticism or a lack of affirmation from, I mean, you must get some of this. When you get to a certain level of followers, presence, footprint, there becomes a cottage industry and, you know, tearing you down.

42:48And when you say mean things about Putin, and I know this sounds paranoid, but it doesn't mean I'm wrong, or you insult the portfolio companies of venture capitalists, there's just thousands of fake accounts that will say very vile things about you. and it's hard to let it roll off you. But anyways, and trust me, my favorite thing is to talk about me, but I wanna go back to this notion of lust. Yeah. Something that really struck me because we think a lot about young men and specifically how much young men are struggling. And I talk a lot about this decline in romantic relationships and sex. And you cited some stats in the episode between 2009 and 2018.

43:23The proportion of adolescents reporting no sexual activity, either alone or with partners, rose from 28.8 % to 44 % among young men and from 49.5 % to 74 % among young women. Is it that we're not supposed to express lust or romantic interest? Is it because we're in our homes because of the pandemic and on screens? What do you think it is that has, I mean, you wouldn't have thought in the 70s, 80s, and 90s, if you had to bet whether sexual activity among young people and teens is going to go up the same or down. I bet the majority of the good money would have been on up. And it's gone down substantially.

44:04I think this is one of the most shocking things about our society. We become more liberal. We become more open. We become more progressive. Yet young people are having less sex. Did you get to any reasons why? So I think some of what you named are contributors for sure. Not the pandemic though, because those data were from before the pandemic. So that trend was already moving hard in that direction. Screens, for sure. I think there's a lot of evidence that between, I mean, there are many different channels of distraction. There are things to do like video games. There are relationships to maintain that are virtual that may in the old days not have been possible at all.

44:43You couldn't be friendly with someone a thousand miles away, 5 ,000 miles away. Now you can, but you can't have sex with them. I think the relationship between men and women is a constantly shifting set of social mores and permissions and lack of permissions and so on. And so it ebbs and flows. I think there was a period there where when women became more sexually liberated, some of them were having a lot more sex. And for men who wanted to have sex, especially before marriage or outside of marriage, that was a bounty. I think women's, you know, demand for sex has changed a lot over time in a lot of different directions.

45:23So I think that's part of it. It could also be that men's demand for sex has changed, although being a man, it's hard for me to imagine that that change could be as steep as it might be the change for women. I think perhaps one of the big overlooked contributors to the decline in sex generally, and I don't have data on this. I've tried. I hope people are working on this, but I haven't seen it, is that I think for a period there, maybe 30, 40, 50, 60 years, there was a sort of attitude towards sex in this country where it was decoupled almost entirely from what we used to call love, right? Or relationship even to some degree.

46:01And I think that decoupling has begun to become coupled again. I think there is a greater appreciation. And this is really mostly an opinion, so I could be totally wrong. I think a lot of young men also feel that society is stacked against them for a variety of reasons, many of which I think are good reasons. And I think that the old-fashioned casual sex machine or industry really took a big hit in part because of that and in part because a lot of people, male and female, decided that just going out and having sex because it's fun is maybe not the best idea. That it seems like a relatively costless activity, but in fact there are costs, whether it's self-esteem, whatever.

46:46And so I think that may be a contributor that we haven't been able to put any statistics around yet. So I'm curious, have you looked at all at population decline or population trends? A little bit, yeah. I mean, all the predictions are always wrong. That's number one. I mean, you know, I can't even remember which branch of the UN now or the WHO, whoever it is. But the predictions are constantly being defined downward. And the last report I saw showed that it was in the countries with the highest birth rates where the decline is going fastest, which is not surprising. I mean, they're starting from a high base.

47:24But in this country, it is very surprising, I think, that the fertility rate fell so much. It fell a lot. We are starting – there are parts of this country that are starting to look a lot like the parts of the world, some Western Europe, Japan, and so on, where the rate is so, so low that it starts to become troubling. So before I hung out with economists a lot, I always wondered, like, what's the deal? Like, why does population and GDP need to grow? Like, what's wrong? Like, we're happy now, right? And I always thought I was wrong and naive for thinking that. But I think maybe that's not totally wrong and totally naive.

48:00And then there are economists like Kate Raworth, a British economist, who wrote a book called Donut Economics. Dona is her sort of image metaphor for a functioning economy where you don't want to fall in the hole and you don't want to go outside of it. And so basically it's how do you balance resources against the natural environment and so on. And so her argument is that we need to really engage with not necessarily degrowth, which is a really dirty word to a lot of people who like capitalism, and I can see why. but at least to understand that resources are finite and that growth in and of itself should not be a goal.

48:40And I think there's a lot of value in people reading at least that argument. There's another economist also in Britain, actually, named Mariana Mazzucato, who's written a lot of interesting things. Her newest book is about how management consultants have basically screwed over the world. And like all critiques of, you know, mainstream culture, society, econ, politics, whatever, they have some views that a lot of people might think are extreme. But what I would encourage, like the people listening to you, you know, they're smart on the hardcore econ, the hardcore capitalism stuff. And I think we can make our capitalism better by incorporating some of these critiques.

49:19And you have literally, I mean, one of the things I love about your work is that you try to ignore the social narrative. You see everyone barking up the same tree and say, okay, let's look at the data. And I find that really refreshing. You see so much data. You look at so many societal, economic, political trends. What would you say to people who say, okay, this guy is at the helm of the bobsled. He has a bird's eye view into the economy and where it might be heading. And any two or three pieces of wisdom you'd want to offer young people? Wow. That's such a good question. Really hard. I don't think I have an answer to that, But I have something that it makes me think of, which is, you know, you're familiar, I'm sure, with the book Bowling Alone by Bob Putnam years ago.

50:05And I always thought that, like, it's an incredibly evocative title. I actually think it's kind of wrong because, like, I think nobody goes bowling alone. They just don't bowl anymore. Live alone. Right, exactly. Living alone. Or game alone, maybe, at least, right? So the argument that he was making, Robert Putnam, who I believe is a sociologist who I believe is still at Harvard, but I could be wrong on both of those. He was making the argument that one of the most important pieces of a society, of a civilization, is what we call social trust. And as an example of social trust, I like to think of, let's just say you're on the street with a baby somewhere.

50:41It's your baby. Let's say it's a one-year-old. It's in a carriage and it's sleeping. And you need to run inside some store to pick something up and there's someone on the sidewalk. Will you leave your baby with that person for 60 seconds or two minutes? So that's one example of it. And it turns out that social trust in this country has declined quite a bit since the 60s. It's declined in many places, although some places it's quite high in Scandinavia. We might not be surprised in Australia and so on. So if you look at how you generate or create social trust, the scholars who study it, the guy that I like is named David Halperin in the UK.

51:15He argues that there are some institutions that do it incredibly well. sports teams, the military, universities to some degree, and so on. And what they have in common is they bring together people often of very different backgrounds, opinions, political orientation, and so on, and they engage them in a common goal. Well, that kind of describes what the U.S. was in a way. Country's supposed to do that, right? Yeah, if you squint maybe a little bit. And so I would encourage people to look at their abilities, look at their passion. What are you really good at? What do you really love to do? And then say, well, how selfish do I want to be?

51:59How profit maximizing do I want to be? In other words, do I want to go into one of the money harvesting industries because I want to make money? That's fine. I don't mean to sound so judgy. But I would encourage people to think about going into a field where at least a component of it has to do with building social trust. And maybe it's just social trust between your customers and your firm or whatnot. But I think we all individually and certainly collectively would benefit a crapload by collectively increasing our social trust. And so I would encourage you to sort along those dimensions. I like that.

52:35But Stephen Debner is an award-winning author, journalist, and TV and radio personality. In addition to Freakonomics, Super Freakonomics, Think Like a Freak, and When to Rob a Bank, his books include Turbulent Souls, Choosing My Religion, Confessions of a Hero Worshipper, and the children's book, The Boy with Two Belly Buttons. He joins us from his home in New York City. Stephen, love your work. Really appreciate your time. Thank you, Scott. I love this conversation. Thanks for having me.

53:12Algebra of happiness. So being in the moment, we say that a lot, how to be in the moment. And it helps me to sort of break it down and acknowledge why it has been so hard for me and people like me to be in the moment. And that is if you're thoughtful, if you want to learn, if you want to understand how to be better at what you do, if you want to be a better person, a better man, a better spouse, a better student, a better teacher, you are in the past. You focus a lot on history. You focus a lot on your learnings. You try and draw on your experiences. So you are in the past a lot, trying to understand what happened, trying to process things.

53:50If you are successful, you are in the future a lot. Why? Because the key to success or one key to success, or absolutely almost a requisite for success is that you are able to live so much in the future that you delay gratification, that you trade off the moment. You don't play more video games. You don't spend money on going to Coachella. You save money. You study. You work that extra few hours instead of going to the pub with your buddies because you are delaying gratification. You're not as in the moment such that you can think about the future constantly and you give up on the only thing we own.

54:28And the only thing we truly own is this moment. That's it. The past is immutable. It's done. Literally, the past is the most immutable thing ever. There's absolutely nothing we can do about it. The future is literally the most mutable thing ever. It's so mutable that, in fact, no one person has control over it. Everything can be going great, and you can find out you have severe leukemia, which happened to one of my friends recently. Everything can be going shitty, and then you meet someone wonderful or you get some luck and things turn around. It's incredibly mutable. You have no control over it.

55:07The only thing we own, really own, is this moment. And here's the fear. The fear is you go through life and you're in the past effectively. You learn from your mistakes. You take your education. You take your relationships. You learn from them. You apply them to the present, which you trade off as a successful person for the future, and you end up at the end of your life, and you were never really in the moment. You were in the past or you were in the future, but the series of moments called now that were your life, you were never really there. You were never really there. So what do you need to do?

55:45You need to try and recognize you can't control the past. That's it. It's done. The definition or one definition of depression is being too focused on the past and anxiety is too worried about a highly mutable, uncontrollable future. So what can you do? You can slow down and say, okay, I'm going to smell the flowers. I'm going to appreciate how good a person this is. I'm going to appreciate how lucky I am that I have economic viability. I'm going to appreciate how wonderful it is to live in America. I'm going to appreciate how fucking awesome this food is. I'm going to appreciate how nice I feel, how nice I feel after I work out.

56:24I'm going to appreciate how awesome it is to be physical with someone else, whether it's affection, whether it's sex, whether it's holding your kid's hand, whether it's having your dogs lay on you on the couch. I'm going to be in the moment. That is all we have. That's the only thing we own is these moments. And what you want to make sure of is you don't live a wonderful life that you never really owned. You were never in those moments. This is all we have. Stop. Stop. The past is done. The future you can't control. What you own is the here and the now. This episode was produced by Caroline Shager and Jennifer Sanchez is our associate producer and Drew Burrows is our technical director.

57:14Thank you for listening to the Prop G pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn, and on Monday with our weekly market show. Support for this show comes from Odoo. Running a business is hard enough, so why make it harder with a dozen different apps that don't talk to each other? Introducing Odoo. It's the only business software you'll ever need. It's an all-in-one, fully integrated platform that makes your work easier. CRM, accounting, inventory, e-commerce, and more. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost.

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