The Tale of Two Bobs
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Felix Salmon: Hello. Ooh. And welcome to the Tale of Two Bobs episode of Sleep Money. Your Guide to the Business and Finance News of the Week. I’m Felix Salmon of Axios. My colleague Emily Peck is also here.
Emily Peck, Eli Lilly: Hello. Hello.
Felix Salmon: I’m also joined by Elizabeth Spiers.
Emily Peck, Eli Lilly: Hello.
Felix Salmon: And we’re going to talk about two Bobs, the Eiger and the cheap egg and all of what went down at Disney. We’re going to talk about narcissistic CEOs, not only in the context of Disney, but also in the context of FCX. We are going to talk about Shrinkflation in Slate. Plus, we’re going to talk about Balenciaga. It’s all coming up on Slate. Money. So, Emily, can you catch me up? Since we got waylaid by Taffy, Brought us at dinner last week and missed the big news at the company for which she has been working for the past year or so, which is that it was run by a man named Bob. He quit and was replaced by a man named Bob. And then that man named Bob was fired and replaced by the original man named Bob. Is that about the long and short of it?
Emily Peck, Eli Lilly: Yeah, that’s a very clear explanation, Felix. I don’t think I need to clarify this segment. And I guess I’ll say it was a Sunday night, November, when Disney announced that Bob Chapek was leaving and Bob Iger was going to come back. Iger was the super successful former CEO who was there for 15 years, did some of the biggest awesomest deals that everyone thinks Disney is great for, like Pixar and Marvel and Lucasfilms like making Disney. He basically made Disney into this massive juggernaut. He picked Bob Chapek to replace him after a bunch of angst and agita and like, didn’t want to leave, kind of holding on to the glory situation. He finally picked this guy, Bob Chapek, to replace him.
Emily Peck, Eli Lilly: The timing was terrible. Chipper came on during, I think right before the pandemic and the pandemic hit. And, you know, it was bad for Disney, right? They had to shut shut their parks for a while. All of that and then JPAC. I think we could we’ll talk about it. But I think he kind of bungled the whole thing for himself. And Iger also from his new role as chairman, kind of medals with him quite a bit. And it all culminated in the Sunday night news dump where one, Bob came back to replace another.
Felix Salmon: So my take on this that I put in my news, that it was basically it defies comprehension that they would bring back the man who failed at his most important job, which is making sure that Disney was set for the long term. That is the job of the CEO is to create a strategic long term path that doesn’t just come to a shuddering halt the minute you leave the building.
Felix Salmon: Right. And not only was that job, is that was that Bob Iger’s job as CEO, but more importantly, that was his job as chairman of the board, because, of course, you know, this being the Bob Iger fiefdom, he was not only CEO but also board chair. So he. Was doubly responsible for making sure that the company was on a long term good footing. And he ran through a bunch of deputies who people thought were the heir apparent and then turned out not to be. He finally alights on this guy from Parks. He gives him the strategy, Right. He’s I’m the board chair. I came up with this strategy which is screaming, screaming, screaming, We can lose lots of money so long as we have a successful streaming platform. And then JPEG who like inherits this strategy, has no ability to really change that strategy because he came from parks and doesn’t know entertainment.
Felix Salmon: Winds up seeing the share price go up quite a lot as everyone starts streaming during the pandemic and then come down quite a lot with all of the other streamers when the you know, when the markets change. And what happens to Disney also happens to, you know, every other streamer out there. And for this scene, he gets fired and replaced by the guy who apparently, you know, is the only man capable of running Disney.
Felix Salmon: The whole thing just an Oh, and by the way, my favorite part of this entire thing was the reporting which said that the board, which eventually managed to get rid of Paul Baker as chair, he was replaced by Susan Arnold. The board, you don’t know how many other people they considered when they decided that Chapek wasn’t working? Zero. They they just asked Bob Iger, will you come back? And we will interview zero other people for your former job? It’s insane.
Bob Iger: Well, there’s a there’s a good Wall Street Journal piece by Ben Cohen today that sort of raised the question of whether CEOs are really even capable of hiring their own replacements. And I’ve been in jobs before where you leave and you are tasked with doing that. But in the case of a lot of CEOs, or there’s maybe a instead of misalignment where you want to hire somebody who is good but not so good that, you know, they surpass your own legacy. And there is some speculation that’s part of.
Felix Salmon: A white way. Like, yeah, no, I don’t buy that. I really don’t. I feel like getting the succession thing right is a key part of your legacy. If you get the succession right, if you manage to set your success up for even more success that you’ve than you had. That’s awesome.
Bob Iger: Like Bob in theory. But these are people, big egos.
Felix Salmon: I know, but they we’re talking about Hollywood egos here. But I’m just saying, like Mike Eisner, who is Bob Iger, his predecessor at Disney, there’s not it’s not like his legacy is in no way tarnished by the fact that he set up Iger for success.
Bob Iger: Well, you know, the other factor, too, though, is, is, you know, if you’re a CEO, does that mean that you’re good at recruiting another CEO or identifying another CEO, that it could be a completely separate skill set potentially?
Emily Peck, Eli Lilly: I don’t I think I think that’s a really good point. I think it is a separate skill set and I think CEO is like this ego or can be this like narcissistic ego driven role. And I think for someone like that, it can be really hard to think I’m going to find someone better than me because he is usually thinking there is no one better than me. And you can kind of see that in Iger’s behavior because when the pandemic struck and Chair Pack was in place, he gave some interview. I forget to that which outlet he gave an interview in which he was like, I’m here to help if Bob needs me. Oh.
Felix Salmon: By the way, this is.
Emily Peck, Eli Lilly: Really I screwed up their relationship.
Felix Salmon: And this this predates the pandemic, by the way. This is and I wrote this at the time, I’m really right. But in this case, I was actually right that the one thing that Bob Iger did that was just unconscionable when he stepped down as CEO was he appointed himself this ludicrous job executive chairman, which should never exist. And I think I’ve talked about this on the podcast before, but it’s one of my hobbyhorse is no one should ever be executive chairman.
Felix Salmon: Executive chairman is the worst job you can never have because you are both the chairman, which means you are the boss of the CEO, but you are also an executive, which means you work for the company and you report up to the CEO in some way. Right? You are you know, you are working in the company and the CEO has to be able to tell you what to do otherwise and not actually the chief executive in the company. So it’s this weird paradoxical job that Bob Iger gave himself. Executive chair, which completely undercuts any authority the Chapek has. And so that’s from day one. Then like day two, the pandemic hits and and I guess like, Oh, shit, like, I completely fucked up here and I made a mistake, but now it’s too late.
Felix Salmon: But, Elisabeth, to your point of, like, is it a different skill set to be able to pick a successor than to be able to run a company? Sure, maybe. But the skill set is precisely the job. Description. But the skill set is precisely the job description of board chair. Right. If you don’t have that skill set, you should never be board chair. I mean, in general, the CEO should never be the board chair, but especially not if the CEO doesn’t have that skill set.
Emily Peck, Eli Lilly: There’s also some good examples of other hand-picked successors who are bad. And if you think about the person doing the picking it, it kind of backs up my narcissist ego theory. Jeff Immelt, Handpicked by Jack Welch. Disaster.
Felix Salmon: Also, by the way, he was the guy who started on 911. Right. Like, if you if you start if you think your first day is like an entire crisis hits the entire company. That’s never a good sign.
Emily Peck, Eli Lilly: Yeah, but if you’re a really good CEO, you can, like, turn that around somehow. Right.
Bob Iger: My question is, what’s the alternative? Do you hire a really good executive recruiter and give them equity? Like what? What would. How would this be done? Better.
Emily Peck, Eli Lilly: Hmm. Steve Well, I was going to say Steve Jobs picking Tim Cook, but I don’t know.
Felix Salmon: No, Steve Jobs did a really amazing job there, right? I mean, like that is a clear example of successful succession planning. An even better example in a weird way is Steve Ballmer, who is no one’s idea of a great Microsoft CEO, Right. Who sort of came in after the legendary Bill Gates kind of ran Microsoft Sideways, did a bunch of weird misadventures in phones, like, I know this is why we’re all using Microsoft phones right now. And then eventually said, okay, I’m no good at this, and picked Sachin and Dell, who turned out to be amazing and was like this super effective CEO who really came in and got it done. And like Steve Ballmer might not have been a good CEO, but he was incredibly good at succession planning. He he managed to find exactly the right person to take over.
Emily Peck, Eli Lilly: Yeah. And now we should talk about I mean, Bob Iger isn’t the first CEO to do a comeback tour. Steve Jobs did a comeback. He came back, Did the rest.
Felix Salmon: Invest seemed to be founders, right? Like, there’s a lot of like, you know, Howard Schultz types who can let go and come back to their come to the company that they founded. I’m I’m I’m sure there are other examples of, you know, employee CEOs rather than founder CEOs who come back. But I think that’s rarer because normally, like the board is like, okay, you know, you’ve had your tour of duty. We’re not going to bring you back again.
Emily Peck, Eli Lilly: Yeah, I think the all the ones on my list, it was like Howard Schultz to Starbucks famously like three times and Jack Dorsey to Twitter. Michael Dell to Dell. Obviously, a founder didn’t go well for him, but I guess it did long term something something. He took it private. But I don’t have anyone on my list that wasn’t a founder. Yeah, that’s interesting. Also, I want to just we should maybe mention that Chipper really didn’t seem like a good CEO for Disney. Like he made some missteps. Yes.
Felix Salmon: So he made he made a couple of, like, PR missteps. Right. He kind of mishandled the whole don’t say gay bill in Florida and and that thing. And he mishandled the. Relationships with one of his stars, Scarlett Johansson, when she sued the company. You know, she’s not a good look for Disney. But when it comes to that, kind of like those kind of PR missteps and not firing offenses for a CEO.
Felix Salmon: Right. The big a misstep that he made coming from Parks was I think he massively misjudged the power of the creatives in a creative organization. And he took a bunch of power. He took a bunch of decision making ability away from them. And he’s like, I’m not going to allow you to, like, greenlight $100 million movies anymore. Like, you know, I want to make sure that those decisions are made sort of within corporate by bean counters. And all of the creatives hated that and they pushed back against him.
Felix Salmon: And Bob Iger was famously always on very good terms with the creatives. So what they would do, especially when Bob Iger was executive chairman and was like in charge of creativity or whatever the hell meaningless job he gave himself was, was, they would moan to him, right? They would go out to Bob Iger and say, Oh my God, this new boss, he’s terrible. He’s not allowing us to, you know, implement our amazing visions. And Iger would nod and agree and leak stuff to the press about how terrible JPAC was and basically undercut JPAC and make his job impossible.
Felix Salmon: Iger also had this longstanding CFO who went along with whatever Chapek said he wanted, but was also like briefing against him, conspiring with Iger and ultimately complaining to the ball to the board about like, I can’t work with this guy anymore. And and sort of wound up being the cause by all reporting of JFK’s penetration. So it’s yeah, it it was it was clearly a political snake pit. You know, I don’t know how Chapek could have survived, but yeah, I’m not going to say he was a good CEO. He this is the guy who brought in McKinsey to sort of, you know, find cost cuts, you know, was never.
Bob Iger: It seemed like he fundamentally misunderstood what Disney’s core product is now. You know it came out of parks doesn’t really, I think understand media and entertainment where those things are the product, the creativity is the product.
Felix Salmon: And I don’t know, like, you know, he he stuck with the strategy, right? Which was like, just go all in on Disney Plus and. The markets didn’t like it. Ultimately, there was one reason why I got fired, and that is that the stock went down. If the stock had kept on going up, you would never have got fired. The minute the stock went down, he got buy it. This is how the life of the CEO is these days. It’s about the stock price. And if you look at the makeup of the Disney board that fired Chapek, I had a look at this. It was absolutely amazing. I couldn’t believe it. Every single member of the board that fire Chapek had zero. Experience in the entertainment industry.
Emily Peck, Eli Lilly: Wow.
Felix Salmon: They finally brought on one new person, Carolyn Everson, who had a little bit of experience in that in the media. But she joined the board literally the day after he was hired.
Emily Peck, Eli Lilly: But Felix if if CEOs get fired when the stock goes down, shouldn’t there be a lot of CEOs that just got fired in the past few months where everyone’s stock just went down like Mark Zuckerberg out just before?
Felix Salmon: Well, yeah, he should be out. I mean, he should have been.
Bob Iger: Fired and that’s.
Felix Salmon: He he controls that. Yeah, that’s exactly he controls the board. And so he would have to fire himself.
Emily Peck, Eli Lilly: Oh, okay. But like, the S&P is down. I don’t know. How much is it down this year? Like.
Felix Salmon: Not that much. Yeah.
Emily Peck, Eli Lilly: Stocks are down, so. So all the CEOs should be gone.
Felix Salmon: No, that’s. No, no, no. You’re misunderstanding me entirely. Like I’m saying, this is a terrible reason. Like, if you look at, say, all of the other streamers, right, that the boards of all of the other streamers are saying, well, this is happening to everyone. This is not uniquely your problem. This is an industry thing. You know, the market value stream is this kind of multiple a year ago and it’s now multiplying. Valuing streamers at that kind of multiple today. This is not your fault. We’re not going to fire you for that. The only the only place where where you know, the CEO of a streamer got blamed for that and fired was Disney. Now, I’m not saying like, yeah, but I’m just saying that was. Necessary and sufficient for him to be fired. But like most boards were slightly more intelligent than that and didn’t do that.
Emily Peck, Eli Lilly: I think they just didn’t like him.
Felix Salmon: I’m sure they didn’t. I think that’s.
Emily Peck, Eli Lilly: Why it was scarjo. To me that that’s the signifier for how if you.
Felix Salmon: Don’t if you don’t like the CEO and you think he should be replaced, then as a board, what you do is you start looking for a replacement. You don’t panic and bring in the guy who fucked up the last time.
Emily Peck, Eli Lilly: But he only messed up that one thing.
Felix Salmon: Why have we forgotten? You know, spending $20 billion on Fox? Like no one thinks that was a good deal. The other day, I.
Emily Peck, Eli Lilly: Figured Marvel and Lucasfilms like that. I mean, those are massive in their own right. Each deal. Billions. Billions and billions and all the IP. My God.
Felix Salmon: No, no. But let’s be clear about. No, let’s be clear about this.
Emily Peck, Eli Lilly: Let’s be clear.
Felix Salmon: That that was deal making. Right. I. You know, he was good at being nice to creatives. He was good at managing that. And I’m not going to say he was a bad CEO. He was a good CEO. I think that the legacy, the real legacy of his time in Disney is those three acquisitions, not Fox, the first three, not the fourth. The fourth, by the way, was much bigger than the other three combined. But the first three acquisitions were the thing that really cemented his legacy at Disney. Those were, you know, strategic decisions, which he should get a lot of credit for, but which everyone at the time, really the credit for those acquisitions went to.
Felix Salmon: Kevin Mayer, not to Bob Iger. Kevin Mayer was the guy who was apparently going to take over for Iger until he wasn’t. And who really spent all of his time looking strategically at those things, doing the negotiations, putting those deals together. Those deals were Kevin Mayer deals at least as much as they were Bob Iger deals.
Emily Peck, Eli Lilly: I don’t think JPAC would have made those deals. Now I’m just completely making stuff up. I have no idea. But it seems to me that the guy who fought with Scarlett Johansson would not negotiate a diplomatic.
Bob Iger: Skills or jobs just based on that.
Felix Salmon: Yeah, but yeah, in any case, just the stated job of Bob Iger at this point is to find a successor at some point in the next two years. The fact that he is a deal maker and everything he ever got credit for is basically a function of those three acquisitions leads certain people to believe that while ostensibly looking for a successor, what he’s actually going to do is look for one last final career topping deal, which, you know, is less sell Disney to Apple.
Emily Peck, Eli Lilly: Oh, no. Oh, interesting. That could work.
Felix Salmon: I don’t I don’t think that Apple has any particular interest in buying Disney. But like, I feel like that is a good way of him, like ducking the whole issue of who’s going to replace me. It’s just my plan. Yeah. Having that decision over the same good that.
Bob Iger: Would also thread the needle for, you know, Emily and partially my theory about narcissism, because then he wouldn’t really have to worry about legacy and that sort.
Emily Peck, Eli Lilly: That’s good stuff. Real life succession drama. Yes.
Felix Salmon: Let’s let’s talk a little bit about this curious media tour that Sam Bankman-fried is now on. We’ve talked at length now about the facts of what happened and the fact that it’s in bankruptcy. And let’s put all of that like what happened, what happened, Alameda aside, and start and stick to this question of narcissistic CEOs and ask ourselves, what the hell does Sam Bankman-fried think he’s doing?
Felix Salmon: He’s giving interviews not just like a Twitter GM interview to Kelsey buy for Vox, which like he claims he wasn’t sure was on the record, but on the record interviews to New York Magazine, to Axios, to The New York Times, to Good Morning America, to basically anyone who will listen to some random YouTuber who just called him up one day and he’s like, I’ll tell you everything. And he you know, he did a massive Twitter spaces this week where, you know, 30,000 people tuned in to listen to him talking to, you know, Kim Dotcom and people like that about like what happened. He is really out there. Very visible. Mm hmm. Running through lawyers like other people run through toilet paper. You know, it’s just like they are all just dumping him because he is doing the one thing that every lawyer will tell him, which is just talk to people. Shut up.
Bob Iger: There is a there is a thing in DealBook this morning where he was quoted as saying something like, I’m not taking the, quote, classic advice route of not not talking as if as if positioning it like he he’s innovating here.
Emily Peck, Eli Lilly: Not he’s a renegade.
Bob Iger: Not just you know being.
Felix Salmon: And he is I’m about is the son of two law professors like on some level he does respect lawyers and understand that they generally can have something intelligent to say.
Bob Iger: Or maybe his parents. Like, I know.
Felix Salmon: He has a very close relationship as well.
Emily Peck, Eli Lilly: In yet another interview with Bloomberg Businessweek that I was looking at today. The author has a good theory or a theory I liked about why Sam Bankman-fried Won’t Shut Up, which was the press helped him create his only honest man in crypto image. So why not use them to talk his way out of trouble?
Bob Iger: Do you think he is that sophisticated about it?
Felix Salmon: So yeah, we do. Okay. I think I think that he we so there was a very interesting substack post by Lily Chang Mousavi, who used to be the chief of Substack and is now something something else, basically detailing all the ways in which his PR strategy was very smart. He was clearly very conscious of having a smart PR strategy. He has said this explicitly on the record to people like Halsey paper, basically saying, Oh, yeah, you know, I was careful to use all of these shibboleths to get the press on board. He told the YouTube woman that he gave roughly equal amounts of money to Democrats and Republicans, but he kept all of the Republican donations dark and made a big noise about the Democratic one so that the you know, because he reckoned that would get him in the good graces of the liberal media. And he wasn’t wrong about that.
Felix Salmon: And he. Definitely was extremely good at making himself available to journalists and being very open and honest with them, except for when he wasn’t obviously about he he he became like the go to person to talk to about crypto because he was that available. And that worked for him for many years. And maybe he thinks this will continue to work for him. And certainly now we have people like Bill Ackman coming out on Twitter saying, I believe him. And.
Felix Salmon: The really interesting question is. Let’s say it works. Let’s say that with all of these interviews, he brings public opinion around to his story here, which is he was not trying to defraud people. He was not deliberately running any kind of a Ponzi. This was a cock up mother conspiracy. This was just him making mistakes rather than actively and cunningly, cunningly stealing money from people.
Felix Salmon: If that is true, what happens in some sort of hypothetical future courtroom? There are two very interesting, completely disparate points of view here. One point of view is. If you believe him. And he’s like, I fucked up. But it wasn’t really my fault. I didn’t do it deliberately. It was my fault. I didn’t do it deliberately. Then a jury might be more likely to be lenient or find him innocent on various charges. The other point of view is he has just admitted to all of these crimes and you know, not doing it deliberately is no excuse. And if you are if you’re on the record multiple times saying, yeah, I did this, I did this, I did this, then that is the most slam dunk conviction you can possibly imagine.
Bob Iger: I mean, in theory. But we also just had a, you know, president for four years who did that every day.
Felix Salmon: He never he never came up for trial in the courtroom. Right.
Emily Peck, Eli Lilly: Right.
Felix Salmon: This is this is the question like what happens in a criminal courtroom, if and when, you know, he finally finds himself in that position. That, I think, is the is the strategy. If there is a strategy here, the idea is that he is bringing public opinion around to this idea that he did it, but it wasn’t deliberate. And I don’t know whether that’s I don’t know whether that’s like something that juries care about, whether it was deliberate or not.
Bob Iger: Yeah. He keeps using language that sounds very, you know, like not quite legalese, but he keeps inserting like I did not knowingly commingle funds, raided and knowingly do X. And, you know, in theory, the law says doesn’t matter if your ignorance of the law doesn’t matter, you’re still did this bad thing. But he is he keeps sort of adding these qualifiers. Any time he admits to something, he says, you know, but I didn’t understand that this was blah, blah, blah. I didn’t know this was happening. And I guess it might be mitigating in in terms of whether people have sympathy for him. But I don’t know that it really makes a difference legally.
Felix Salmon: There is one other aspect here, which I think is important, which is that. Sam Bankman-fried is a creature of the crypto verse. He his entire career, insofar as it matters, has been spent in and around people who care deeply about crypto, are fully invested in crypto in one way or another. It’s a relatively tight knit community, although obviously there’s a lot of enmities in there as well.
Felix Salmon: And the crypto verse has. Almost unanimously. Decided that he is the greatest villain in the history of corporate villainy and he is persona non grata and no press should even talk to him. And he is the worst fraudster ever and he is a terrible person and there is a reason why they have come to this very quick and extremely negative conclusion about a man who they loaded up until a month ago. And that is that they need him to be a villain in order for crypto itself to have any future. Because if this kind of thing can happen inadvertently by mistake, as Sam Bankman-fried is basically saying, then that is not just an indictment of Sam Bankman-fried and his management abilities. That is an indictment of the entire crypto ecosystem, and it will happen over and over again.
Bob Iger: That’s a good point. And I think, you know, the now once you sort of understand that all of the the coverage makes sense, because if you think of him as an outlier, then, you know, it sort of follows that there’s nothing wrong systemically with the crypto verse.
Emily Peck, Eli Lilly: That makes me wonder which story is right. I feel like like most things, it’s a little bit of each. Yeah.
Felix Salmon: Yeah.
Emily Peck, Eli Lilly: There’s something wrong.
Felix Salmon: I don’t. I don’t think he. I don’t think that he is. Doing like cunning lies on this media tour. I don’t think he is strategically trying to persuade people of things that aren’t true for the sake of whatever, like we a plan that he has in mind. But I do think he is, you know, at least as much of a narcissist as Bob Iger, if not more. And, you know, this is his last chance to bask in public attention until, you know, he gets locked up.
Emily Peck, Eli Lilly: It’s weird how I’m not. Of course. Like if he wants to talk, I totally understand why. Andrew Ross Sorkin, George STEPHANOPOULOS, and on and on, everyone’s talking to him that said yuck. Like if someone did murder, let’s say, or was accused of murder, like, would they go on a press tour? And if they wanted to go on a press tour, would everyone. Yeah.
Felix Salmon: There would be there would be 8 million true crime podcasters lining up to interview.
Emily Peck, Eli Lilly: But it’s yucky. Like, why give a more of a I mean, I know I get it like and I again, like, if he called me up, I’d be like, Oh my God. And I’d runs matter and say, Let’s run this interview that I just got. Like, I know that. But at the same time, there’s something really reprehensible about how the media and the business press built this guy up into some kind of like super hero, put him on the cover of everything like they always do, Elizabeth Holmes, whatever. And now they’re doing kind of the same thing. It’s still going.
Bob Iger: He’s I don’t think his media tour is working. Like I don’t think it’s convincing people that he’s not a fraudster, that he didn’t.
Felix Salmon: Oh, I certainly no, no. I like. And the universal reaction to the DealBook interview into pretty much all of the other ones is, oh, my God, this guy is terrible. And like, this is the most damning interview that I’ve ever seen. Right. Like he is damning himself. With every interview he gives. On some level, I think he has to know that.
Emily Peck, Eli Lilly: And why does he admit the other stuff? Like, why is he like, Oh, yeah, well, I was a negligent CEO and I didn’t manage risk at all. But also I didn’t believe in effective altruism. But also I donated to Republicans, like it just seems like.
Bob Iger: It might be there’s a true crime trope where the killer is what to confess on some level. So they just cleared it all out.
Felix Salmon: It is it is interesting.
Emily Peck, Eli Lilly: And I was actually terrible. Oh, I.
Felix Salmon: Haven’t I haven’t done a good job of keeping up with the like, the more mainstream interviews like New York Times and New York Magazine. But it seems to me that the more damning admissions about things like effective altruism and Republican donations are the ones that he’s giving to people he considers his friends rather than adversarial journalists.
Emily Peck, Eli Lilly: Yeah, I think that’s right. Like George STEPHANOPOULOS didn’t care to even ask from the clip I saw about effective altruism. Like GMA doesn’t care about that. It was just like, why do you steal people’s money, though, You know? So that makes sense.
Felix Salmon: Emily, I know that you, more than anyone else on this podcast, care about the inflation. You are the queen of the inflation. So can we talk about the shrinkflation?
Emily Peck, Eli Lilly: Yeah. Let’s get into it. Let’s talk.
Felix Salmon: What is the shrinkflation?
Emily Peck, Eli Lilly: Shrinkflation Felix is a term for when a company reduces the size of its packaging in some way. That’s like very subtle. You might not notice. Doesn’t change the price, but all of a sudden you’re paying the same price for a little less. So like your box of cereal gets a little smaller. Or this one hurts me. The pint of ice cream, that’s like 14 and a half ounces. Why?
Felix Salmon: And the thing that gets me is the pound of coffee. That’s 12 ounce. When did all coffee become 12 ounces?
Emily Peck, Eli Lilly: That’s how they get you that shrink.
Felix Salmon: And sometimes eight ounces. So sometimes it’s like, you know, a half pound of coffee is the new pound of coffee.
Emily Peck, Eli Lilly: It’s so people really hate this. And I, of course, hate it. I mean, I don’t know. It’s whatever it is, what it is, but we hate it. And The New York Times had a nice profile of this fellow named Edgar Dorsey, who is a 71 year old semi-retired lawyer who lives in Massachusetts and only makes $7,000 a year and like, eats, you know, buys everything on sale and whatnot and tracks all this shrinkflation on his website. And the author of the piece goes around Massachusetts, has his town with him to all the pharmacies to check on like cough syrup shrinkflation which golly like I don’t I wouldn’t even know to care about that. So, yeah, I wanted to talk about it a little. Does it bother you, Elizabeth?
Bob Iger: Yeah, because I feel like it’s it’s sort of, you know, deceiving consumers. I understand what happens. It’s really, you know, the consumers are just looking at the price and not really paying attention to the quantity of product they’re getting. Then it’s a way to handle, you know, inflationary measures in a way that maybe like think consumers won’t notice. And most of the time they don’t like. I wouldn’t notice if cough syrup was suddenly packaged in a smaller bottle.
Felix Salmon: So can I can I ask you guys about this thing that is almost ubiquitous in supermarkets now? These are little liquid crystal price displays for all of the items on supermarket shelves, which display not only the price but also the price per pound. Unit price count.
Felix Salmon: The unit price. Mm hmm. And supermarkets have been, I think, pretty good in general in principle about displaying the unit price alongside the actual price, precisely in order to make the shrinkflation much more obvious and to be able to make price comparisons much easier. In practice, I find those unit prices weirdly confusing and. Often just way massively weirdly inaccurate. And I don’t think the supermarkets put a huge amount of effort into making sure that they’re correct. But in principle, I think this should be like a pretty strong solution to this problem.
Emily Peck, Eli Lilly: Yeah, I think some municipalities, governments. I found a story on Bloomberg that talked about shrinkflation dates back to the high inflation era of the seventies and probably earlier. And I think starting back then is when these unit price requirements were put in place. And I agree that they don’t always really help very much. You end up kind of like looking at the coffee, the small bag, the big bag and like doing the math in your head. I spent $15 for this big bag, this one seven. And yeah, you can get really.
Felix Salmon: So as a as a consumer, Emily, you know, you are my platonic ideal of the, you know, someone who shops in a suburban supermarket. Like, why? What is it? What is it that is confusing about those unit price? You’re the.
Emily Peck, Eli Lilly: One who said it’s.
Felix Salmon: Going on the shelves. I’m confused, but I don’t know why I’m confused. I want you to explain it to me. Like, I feel like this is a this is a solved problem. We found a solution to the problem, but the solution turned out not to be nearly as good as we thought it would be. When? Why is it the. You know, someone like you who cares about inflation, Who cares about shrinkflation doesn’t just look at the unit price when you go, shoot me in.
Emily Peck, Eli Lilly: First, I would say that I am not the primary food shopper in my house, so just know that. Second. To quote Barbie from the nineties. Math is hard. And when you go to the supermarket, you don’t want to be like doing the math on everything you pick up. You know, when you go food shopping for your family, you’re going to buy like what, Like 60 items. You’re not going to do the math on every item. It it’s not really helpful. Bottom line, it’s it’s like when you’re doing calculations in your head to figure out what size box of cereal to buy. Like, you’ve lost like the unit price is an opinion.
Felix Salmon: But that’s but that’s, that’s the that’s something which is true of inflation just as much as it’s true of shrinkflation. Right. Like the idea that shrinkflation is somehow. Worse than inflation because it’s somehow less obvious. And like we have we not solved that. Have we solved that problem through these clever, you know, mathematical shelf price things or have we not?
Bob Iger: I don’t think I don’t think we have I don’t think people really even register them. And I don’t think that most people even know what Shrinkflation is or notice it much.
Emily Peck, Eli Lilly: Really. Yeah. And I mean, I was thinking about that like everyone who knows about Shrinkflation, which I guess is and everyone doesn’t like it, but the alternative would be everything costs more just. Everything costs more. You know, like your box of cereal is $7 or something. Instead of you buy a little smaller box of cereal and maybe you don’t notice or eat less.
Bob Iger: I mean, it is it is interesting to think about if everybody did know this is happening and noticed it. Would that be worse than, you know, the way people perceive inflation? Because the loss aversion is a very powerful bias. If you think that you’re getting less for what you’re paying. Would that be worse than just saying just raising prices on something?
Felix Salmon: Don’t know. Wait, wait. What do you mean by worse? Less say who?
Bob Iger: For the average consumer. If they understand that Shrinkflation is happening, would they? And they had to choose between, you know, a price going up on, you know, a larger bag of coffee or same price, a smaller bag of coffee.
Emily Peck, Eli Lilly: What do they would you pick, Felix? Do you want? Would you rather pay more and get the same sized coffee bag or pay the same and get a little less coffee?
Felix Salmon: I think we are habituated to certain sizes and we are creatures of habit. And one of the reasons why we don’t like Shrinkflation is because we have to wind up building new routines and new habits to accommodate the new.
Felix Salmon: Sizes. If the bag of coffee goes down from 16 ounces to 12 ounces, then they have to buy a bag of coffee significantly more frequently than they would have done previously. And that routine of like, Oh, I need to go out and buy a new bag of coffee, you know, I need to change that routine. And that’s annoying. It’s not the question of like, what’s better, bigger or smaller, you know? There are advantages to doing it more frequently. You get fresher coffee, you know? Great. But there are also the the the difficulty is the change rather than the fact that it’s smaller.
Felix Salmon: I think once people get into a routine and are used to something, then changing that thing in any way is annoying to them and in a weird way, just changing the price of it is the is the least annoying thing because like, you know, prices go up, some home prices go down, it’s all good, right? But like it, you don’t need to change your actual day to day habits when the price change in the way that you do, when the when the quantity changes.
Emily Peck, Eli Lilly: Yeah. Like I can’t eat a full pint anymore. Standing up in front of my freezer feeling bad about myself. Like it’s gone so good.
Felix Salmon: So mean there’s ice cream people in place.
Felix Salmon: If we have a numbers round.
Emily Peck, Eli Lilly: Felix, What’s your number? I heard it’s good.
Felix Salmon: My number is 10.5 million, which is the number of hectolitres of wine that China consumed in 2021.
Emily Peck, Eli Lilly: What’s a hectoliter?
Felix Salmon: It’s. It’s a lot of money this. But it’s a small number. 10.5 is it 10.5 million is a small number and it’s down from almost 20 million in 2017. It has shrunk by 45% in just four years. And get this, it is lower than any year since 1997. And in 1997, not only were there 200 million fewer Chinese people than there are today, but the GDP of China was literally 5% of what it is today. And yet, even despite that, they are drinking less wine now than they were in 1997.
Emily Peck, Eli Lilly: Why? Why?
Felix Salmon: Okay. I am. I didn’t entirely tell the truth when I said that drinking last night now than they were in 1997. They are buying less wine now than they were in 1997. The fact is, the only about two and a half percent of Chinese adults drink wine on a monthly basis. It’s not something that happens very often. If you look historically at Chinese wine consumption, what you’re actually looking at is people buying bottles of wines for like Singles Day or Chinese New Year or some big, you know, Autumn Harvest Festival or something like that, and giving those bottles of wine as a present to someone else because it was a high status gift to give to someone else. And then the recipient of the gift would be like, Oh, wow, this is a very lovely bottle of wine, thank you very much. And would stick it on the shelf and would never drink it.
Felix Salmon: And basically the pandemic reduced the amount of gifting that people did because all of those social occasions, you know, got curtailed, but also just reset a lot of expectations. And people realized that this was a dumb gift because, you know, although there was a certain amount of sort of status attached to it. Ultimately, you don’t want to give people something that they’re not going to drink. So they just stopped giving wine. And so the people who drink wine in China are drinking more. But there aren’t very many of them. And the total consumption of wine that’s in the number of bottles purchased is going down because most of it was never drunk in the first place.
Emily Peck, Eli Lilly: That is probably the most trivial thing we could have said about what’s going on in China right now. I guess the priority is, my goodness.
Felix Salmon: Yeah. Like, you know, we could talk about major protests against COVID shutdowns. Or we could talk about wine consumption. Which one do you wanna do?
Emily Peck, Eli Lilly: I think that we know the answer.
Felix Salmon: Elizabeth, do you have a number?
Bob Iger: Yeah. So my number is 26 million. And it’s the number of Americans 50 and older who live alone now. And this is up from 15 million in 2000. So and they’re mostly I mean, by definition, there are a lot of Gen-Xers. I turned 46 next week, so I. I’m on the very young side of this. And my theory is that if this is a problem that all the single Gen-Xers should just move into communes together where they can play pavement 24 seven and complain about boomers. So this doesn’t depress me at all.
Emily Peck, Eli Lilly: I like the positive aspect.
Felix Salmon: Is is it being reported as a depressing statistic?
Bob Iger: The framing of the story was a little bit because, and understandably, because it has implications for health care and real estate. And you know who takes care of these people when they’re aging. So I guess in material terms, it’s probably depressing. But I as an eternal optimist, I refuse to not see a silver lining here.
Felix Salmon: But Elizabeth, you said something interesting. You said it has implications for for real estate. What are the implications for real estate?
Bob Iger: Well, it’s it’s you know, what people can afford to buy is single buyers and not, you know, two income households or, you know, people who are in a better position to get, you know, a mortgage.
Felix Salmon: So basically, the implications for real estate that people won’t be able to spend as much on real estate if they’re single and that therefore demand will be lower for high priced houses and that will will help bring prices down at the margin. Sounds good, right?
Bob Iger: Yeah, in theory.
Felix Salmon: I’m just asking. I don’t know, like. But, like, so well done, Gen-Xers to staying single because it helps to bring keep keep house price inflation low.
Felix Salmon: Emily, what’s your name?
Emily Peck, Eli Lilly: The number is 1 million. $89,300. That is the new loan ceiling for federally backed mortgages. It’s the first time it’s crossed $1,000,000. And people are very excited. And The Wall Street Journal is very upset about this new this new limit on conforming loans.
Felix Salmon: And this is just in like New York and California. Just in a couple of the.
Emily Peck, Eli Lilly: High cost areas around the country. So New York, California, etc., there’s like a list and it’s like 150% of the limit in other areas, which is still a very reasonable $726,000, which which is a lot. Two years ago, the maximum for conforming loans was more like 500,000, something like that. But home prices have gone up a lot. And so the Federal Housing Finance Association, they FHA, they adjust these limits based on home prices. So they’re realistic, even though the Wall Street Journal thinks they’re, you know, a benefit for the rich or something, they’re just realistic.
Felix Salmon: Well, it is a benefit for the rich. I mean, the fact is the subsidized, subsidized mortgages are, in general a benefit for the rich. Now, you know, they’re not a benefit for the super rich. You get jumbo mortgages who are even, you know, even bigger than that. But they’re definitely a benefit for, you know, upper middle classes and broadly get a huge tax benefit from.
Emily Peck, Eli Lilly: A mortgage, from 30 year mortgages.
Felix Salmon: From Fannie and Freddie and 30 year mortgages that is not given to people who can’t afford houses. And as that limit keeps on rising, that the size of that tax expenditure effectively.
Emily Peck, Eli Lilly: But it’s good for stability. I mean, you see that now in the US we have these 30 year mortgages compared to like the UK, which has the more adjustable ones and inflation and rising rates have really like messed with human beings and their homes and what they pay every month and their mortgage payments. And UK versus US.
Felix Salmon: Absolutely.
Emily Peck, Eli Lilly: Stable. So that’s kind of cool.
Felix Salmon: I mean, the fact is that you have 30 year jumbos here. You know, the I’m federally backed. I feel like if you if you cap those limits. Below the pace of house price inflation and got fewer and fewer people getting conforming mortgages that would, at the margin, again help to reduce house price inflation. It would make houses a little bit less affordable. I mean, you know, yeah, at high prices. And that would help bring high prices down. I don’t know, maybe I’m not sure that seeing these numbers just go up and up is in anyone’s interest, really, except for, of course, the 65% of Americans who are homeowners and who are much more than 65% of voters.
Emily Peck, Eli Lilly: Yeah.
Felix Salmon: But yeah, on that note, I think we’re going to wrap it up for this week unless you are a Slate Plus member, in which case you get the happy, joyful news that we’re going to talk about Balenciaga and Sleepless for the rest of us. I think that’s it. Many thanks to Anna Phillips for producing. Many thanks to all of you guys for writing in. Slate Money at Slate.com. And we’ll be back next week on Slate. Money.
Felix Salmon: Okay. Elizabeth, you are the person who has been deputized to try and make the most sense of what the fuck is going on with Balenciaga Something. Something Teddy bears in bondage.
Bob Iger: Yes. So I always think of it as being pronounced Balenciaga because I’m a barbarian and don’t really know anything about fancy fashion. But I do know what’s going on with the story, which is that Balenciaga has a lot of provocative, you know, ad ad campaigns and they’re they just had one that had photos of children and Balenciaga, you know, clothing holding teddy bears that were dressed in bondage gear. So this is this maybe not even the most provocative thing that they’ve done. But it’s it’s something that I think because of the political environment people are latching on to because it’s in the critique, is that it sexualizes children in some way.
Bob Iger: So there’s been a big backlash to it. And the thing is, a lot of brands like Balenciaga who, you know, view these sort of creative campaigns as a kind of provocative art. And sometimes you have a superstar creative director who is also regarded as a, you know, an artist, and provocation is part of their job. And so the other side of that argument is, you know, this is art. It’s a statement about something. Nobody should be offended by this.
Felix Salmon: Wait, wait. Someone’s making that argument or is that like a straw man?
Bob Iger: People in fashion are who are sort of defending it. I know. So there there are there are consumers, there are.
Felix Salmon: People in fashion saying this is art and it’s fine. Yes. It seems like, you know, Balenciaga, for one, you know, it took them a little while to come out and condemn the campaign and to apologize for it profusely. They did eventually. But they are coming out and saying, no, this is not this is just a rogue director who’s just completely destroyed our brand.
Felix Salmon: And what the fuck? There is good and bad art. And I think the. If they’d just put. Teddy bears in bondage gear. That would have been, you know, something that the edgy fashion consumers could have got behind. But when they start sneaking a Supreme Court opinion about child porn into the corner of the photograph that crosses the line into what on earth do you think you’re trying to you know, what kind of message do you think you’re sending?
Emily Peck, Eli Lilly: Yeah, I don’t get it. Yeah. Why would you? I mean, I get that like someone thinks they’re an edgy artist, but at the end of the day, this is marketing and an ad campaign.
Bob Iger: Well, it’s what’s what’s amazing is that, you know, 4000 people probably had to approve this entire campaign and that nobody kind of put their hand up and said, you know, this could this could backfire.
Felix Salmon: Well, I think I think that’s because the number of people who approved the campaign, you know, it’s not clear how many there were, but I’m quite sure that those people did not realize the significance of that, you know, little piece of paper in the corner with the Supreme Court.
Emily Peck, Eli Lilly: But the bondage and the children. That seems more clear.
Felix Salmon: If it was just children holding teddy bears in bondage gear, like I feel like Balenciaga could probably have gotten away with it a little bit.
Bob Iger: It was just the teddy. The teddy bears in bondage gear. Yeah. With the little Tiger product. Now, nobody would have thought about it at all.
Felix Salmon: Yeah. Would that would have been like an uproar on Fox News and everyone would have been like, Oh my God, Fox News is being morons. And it would have blown over. It was that. It was that little Easter egg that really pushed out.
Emily Peck, Eli Lilly: I just it seems like one of these times where the right has a point and you got to give it to.
Bob Iger: Well, it’s I mean, part of it, too, is that even if they viewed it as an artistic project, what are they trying to say? Like, it’s not clear. Even I think to people who were maybe sympathetic to the.
Emily Peck, Eli Lilly: And again, it has its marshals, its commercial speech, its marketing, its advertising, like I’m sorry. I know that that advertising can be artistic and beautiful and whatever, but at the end of the day, it’s still advertising, right? Felix Salmon You know about art, right? You’re your resident art person. So is advertising art. No.
Felix Salmon: No.
Emily Peck, Eli Lilly: No, no, no.
Felix Salmon: I mean, like, what happens in the fashion world is the is that they do love to, you know, get artists to make campaigns because they’re cool or, you know, or like, collaborate with artists in various ways, normally named artists. But yeah, no, this this is not I don’t I don’t think there’s much of a sort of freedom of artistic expression defense here. And honestly, I haven’t really seen anyone. Cohesively. Trying to make that argument, I think is just a major fuck up, and it’ll be interesting to see what happens in the lawsuit that Balenciaga has filed against the director. You know.
Emily Peck, Eli Lilly: Saying that seems uncool, like it’s their responsibility to oversee the production of their marketing materials. Like they can’t then blame this guy. I mean, like Elizabeth said, there must have been a lot of people signing off on it.
Bob Iger: Yeah, that seems like a cover your ass move.
Emily Peck, Eli Lilly: That’d be like. Like a newspaper suing one of its reporters or something. You know, like, you can’t do that, can you?
Felix Salmon: Can you just. I mean, you know, they like the AP just fired the guy who put out the alert about. Sure. Russian missiles landing in Poland.
Emily Peck, Eli Lilly: Yeah. You could fire someone over that. Something like that, because. Right.
Bob Iger: And also, I think we generally agree that that guy shouldn’t have been fired, right?
Felix Salmon: Yeah. Like, you know, that the Slack logs kind of suggest that maybe he wasn’t entirely clear that it was an alert, but. Yeah.
Emily Peck, Eli Lilly: Yeah. So what these companies what.
Felix Salmon: Is it with these companies. Yeah. Eventually they did like first of all they tried, you know, passing the buck and blaming the underlings and eventually they took responsibility and said, Oh yeah, we shouldn’t have done that. We’re very sorry. But it took.
Emily Peck, Eli Lilly: Them.
Felix Salmon: Balenciaga Yeah, they the like Eleanor Hawkins over it. I Axios has a decent has a pretty good column about like how if they just done that on day one instead of on day five, you know, things would have been much less inflammatory.
Emily Peck, Eli Lilly: That’s always how it goes, right? It’s not the crime, it’s the cover up. I mean, not that this was a crime nor a cover up, but you know what I mean. It’s there worst.
Felix Salmon: You’ve got it. You’ve got to get out in front of these things. And they clearly did not get out in front of it.
Emily Peck, Eli Lilly: Right. Maybe that’s what Sam Bankman-fried is doing. He’s getting out in front of it. No, no, no, no. I was just testing a theory.
Bob Iger: Yeah.
Felix Salmon: All right, Stapler, folks, Let us know what you think about Balenciaga and everything else by.
