The Megxit Edition

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S1: This ad free podcast is part of your slate plus membership.

S2: Welcome to the mega zit edition of Slate. Money, your guide to the Business and Finance News of the Week.

S3: I’m Felix Salmon of axios. I’m joined by Anna SHYMANSKY of Breakingviews. Hello. And by our resident royal expert, Emily Peck of Huffington Post.

S4: Or as it’s now called, the British Royal Post. It’s been dominating Huffington Post for the past week.

S3: We, of course, are going to talk about makes it, which is the exit of Meghan Markle and her hubby and her hubby, who’s his ginger from that U.K. royal family. We’re going to we’re going to talk about that.

S5: We’re going to talk about index funds and whether they should vote all of the shares that they own. We are also because this is my show and also because Emily wanted to talk about it. We are also going to talk about wine and answer the question of whether there is such a thing as an Australian burgundy. We might need to find out if terrorists come into effect. All of that and a slate plus about whether war is good for the stock market. Coming up on slate money. OK. We have to start with the most important business and finance news of the week, which is clearly, Max, it makes it which if you haven’t been following this, it’s Prince Harry and Meghan Markle making a shocking announcement.

S6: This is not my characterization, the shocking part. This is the universal conventional wisdom, shocking announcement on Wednesday via their Instagram feed that they’re stepping back from their duties as royals and they’re going to be planning on being financially independent and living at least half the year, not in the U.K., which is, as I’ve been told.

S7: Unprecedented, though, to be fair. Everything that royals do is unprecedented because there are so few of them. Almost everything is unprecedented, but this is unprecedented. They’re declaring a financial independence from the family, which turns out to be a quite murky. And it’s unclear if that’s really going to be a thing.

S1: Actually, I think it’s fairly clear that it’s not going to be a thing.

S8: It’s the one of the things they did was they launched Sussex Royal, which if you haven’t been to Sussex Royal dot com and found the little link on the bottom saying finances, it’s glorious.

S5: It’s written in this really bizarre language, which is its kind of corporate but kind of trust, just like obviously written by someone who thinks who wants to give the impression that they are totally sure about what they’re saying, even though no one has a clue, because this is completely uncharted territory. And all of this is like this like there was this whole story, which then came out after the Instagram post about how the royal family was completely blindsided by this. This hadn’t been run past Prince of Wales, Queen, anyone like that. And so this was as a result of what some reporting last night just to cut you off.

S6: OK. It wasn’t that they were completely blindsided. They they knew this was going on. Apparently, Harry called his dad, Prince Charles, over their six week sabbatical in Canada. And he said, look, this is what we want to do. And Charles was like, you need to submit a written proposal to me, which if you’d just step back for a second, this is a person calling his dad and saying like, this is what I want to do in his data, saying you have to submit a written proposal.

S9: I mean, it’s not like he didn’t have it all in my area. So he gets 95 percent of his income from his dad, right? Yeah. If I was his dad, do I’d be like, what is it? Right. Right. Right.

S10: So what I’m saying is these people, the royals, they knew they just weren’t expecting an announcement yet.

S5: They were still ironing out the details, but they also haven’t agreed to other thing. And it was kind of understood that as a member of the royal family, you know, we’re going to work with you to do what you want.

S8: But like, ultimately, there’s goodwill, you know. Give me a thing that you want to put it in writing. I’ll run it by my people and then we’ll see if we can work something out and we’ll put out a document which we can all get behind. Right. But because Charles was like dragging his feet on this and because the queen was refusing to really talk about it, unless Charles had signed off on it, they were like, fuck it, let’s just short circuit the whole thing and put this thing out unilaterally. But because it’s unilateral, they don’t really know. Can they can this continue to live rent free and flog more cottage, which is where they live? Can they? Will he continue to get his substantial income from the Duchess of Cornwall, which is basically Prince Charles? You know, all of these questions, which they are just going out and assuming that, you know, the queen will let them continue to live there, that Prince Charles will continue to give him his income. But neither the queen or Prince Charles has agreed this so late. What they’ve announced can’t be considered to be the final word on this.

S7: Right. And I mean, the whole episode has given us the opportunity to think about the finances of the royals. And after reading about it, you know, all week, basically.

S11: Sorry, HuffPost’s, but you’ve been reading about it like on HuffPost. You’ve been giving us that page view.

S6: Yes, of course. And sharing all the pieces on Twitter and doing my best to promote them. There shouldn’t be a monarchy.

S9: No. It’s so ridiculous. This is like Biden. I’ve gotten into so many fights with people about this like over the last like decade. Every time I’m like the royal wedding heckler, I’m like, this is ridiculous. Laughs.

S12: I do not understand why in this day and age, like, people still want to pay money to the government to support people who don’t do anything, who think that they’re better than everyone else, who supports something, that if you think about what a monarchy actually represents, is really, really horrible.

S6: Right. It’s and that’s what’s so interesting about the Meghan Markle situation sort of more broadly, because if you think about it and there there was a good piece in The Times this morning about it, the British monarchy is basically this symbol of white privilege.

S9: Like this symbol. No, no. Why not? White privilege. White supremacy. White supremacy yet, right? White supremacy, much better.

S6: White supremacy. And then along comes this woman, Megan. Marcal, who has, you know, a black mother and white father and his like upended the whole thing. The British press cannot handle it at all and have just been ripping her apart from day one. And sort of like instead of an acquisition, like if you think of like royal marriages is like an acquisition where they like acquire these new people and they get subsumed into the culture of royalty or whatever of white supremacy, they. The acquisition just has utterly failed. The synergies didn’t play out. No synergy like she had to. She had to. Whatever leave she had just tap out.

S5: She’s the first person really to marry into the family who had a career and an income and a life before marrying into the family and who is her own person and actually, you know, kind of famous and well-known. So she, I think, just has a much lower level of bullshit that she’s willing to put up with compared to someone who say, oh, I’m going to be a princess, you know, and it’s.

S12: Yeah. I think it’s interesting, too, because I know one of the criticisms I was hearing of people being like, oh, well, they’re going to they’re going to try to make money off of this role. And I’m like, why should they like their what their role is are weird, weird celebrities. Now they will continue to be celebrities in a different way.

S4: So so the making money bit is super interesting. And at some point, perhaps in 2020, I’m gonna find an excuse to get my cousin Thomas Harding on this show to talk about his book, about the Salman family, which is very we had something very similar actually weirdly had happened to us in the 1980s. There was this deal in the Salman family where you basically handed over all of your income to the family and then they would give you an allowance, just like the sovereign grants, just like the sovereign grant. And and then we had a couple of family members who were in high paying jobs and they were like, this is a bad deal for me because I’m handing over more than I’m receiving. And I’m just gonna like give up what I’m receiving from the family and make my own money instead. And on its face, it seems logical, but it does. But doing that basically destroys the entire structure of the family. And that’s, I think, why so many people are freaking out. If you are able to do this, especially these days with like, you know, a multi-million dollar Netflix deals and that kind of stuff floating around in the ether, like there’s a good chance the basically the whole structure of the royal family as a cohesive unit is going to fall apart. And if that happens, that’s one more reason why the royal family should just become disestablished, basically.

S6: And can we talk more about the sovereign grant? Because this is like an a new thing and it’s mind boggling to me. So there’s something called the Crown Estate, which has all the landholdings, landholdings of like Queen Elizabeth’s family. Yes. And it makes an income every year. And instead of just taking the income, she turns it over to the government and they give her like 25 percent back. Yes. Now, the income that she’s making in the Crown Estate is that just like British real estate holdings, that really shouldn’t be owned by a person anyway.

S13: Well, I mean, yes. I mean, she owns a bunch of stuff. You’re right. A bunch of it is is real estate holdings.

S8: So one of these things, like when I was growing up, everyone would say, oh, the queen’s use the richest woman in the world and then they won’t go away.

S5: Well, does that mean. Yeah, like did she personally own like the crown jewels? Right. You know, no, I’m kidding. So now. So.

S4: So basically the understanding is that this thing called the Crown Estate is part of the British state and it generates income, which goes to the British state. And it’s not really the personal income of the queen, but it’s enough royal related that she feels that she should be able to get at least some percentage of it back. And in that, it’s very different from the Duchess of Cornwall, which is where the Prince of Wales gets most of his income, which is generally understood to be a large chunk of Cornwall, basically, which is personally owned by the Prince of Wales and generates a whole bunch of income. And he can then pass on some of that income to his sons for them to live on. And there are two different types of holding, one of which is basically the state, one of which is basically personal. And I’m not entirely sure how they draw the line between the two or why one is one and why one is the other. But yeah, the Crown Estate has, you know, because it’s real estate and real estate has been doing quite well. The income from the Crown State is is hitting record highs and she gets a fixed percentage of that. So the boil income is hitting record highs and so she gets to play around with quite a lot of cash. But even then, Prince Harry is like, I don’t really need that cash money, mostly because I’m getting most of my money from my dad rather than from the ground state. So why don’t I just go off and do a Netflix deal? The the the danger here is that like every single royal who’s entered, you know, the private money sector has made atrocious decisions. You know, they’ve all wound up doing deals with just like very, very shady characters in one way or another. And so the risk is that the people who are offering Harry and Meghan, like the most attractive financial officers, might not be entirely above board. And then that’s going to be even worse. The royal family.

S12: Well, I would say that if these people can’t exist in the private sector, like all the rest of us, then, well, sucks for them. Like that does not. No, no, no one. No one is.

S13: That’s not the risk. The risk is they can’t exist in the private sector. The risk is they can exist in the private sector. But in doing so, they are going to wind up financially entangled with a bunch.

S12: Right. So what I’m saying that if they’re so inept that they’re going to get, you know, connected with the Jefferey world, like like like like Harry’s uncle, then I mean, like, well, then maybe that’s just one more reason why you should not have government money being used to support these people.

S10: Yeah, I just don’t understand. Like, I guess every not every but British people who pay taxes. It’s like £1.4 a year goes to the royal family like. But it’s more than that. But it is nothing more. It’s clothes, security costs and an megane will still have security probably relating to them.

S11: Everything is according to them like that. Their statement is very much in very clearly. This is how we would like it. And this has not been negotiated. This is just a unilateral statement. And then no one is. No one has agreed to this. They’ve just decided that if they give up, the 5 percent of their income come from the crown, the state that frees them to live wherever they want in the world to make as much money privately as they want. They they had this idea that the only reason they were not allowed to make money privately was because they got this 5 percent of the income from the Crown Estate and often the sovereign grant, and that if they gave up that 5 percent, then they’re free to make as much money as they like. They have declared this unilaterally. No one has agreed to this. So it’s going to be super interesting to see how much of what they want they actually get. And this whole idea that you can resign from being a royal is kind of bizarre, you know.

S7: I mean, if you can resign from being a royal, it kind of undermines the whole operation. Right. Because, isn’t it? Yeah. Heritage, familial examining. And if you just resign like it’s a job, then maybe it’s all B.S..

S9: Maybe. Maybe, just maybe.

S7: But also, I had heard that Prince Charles’s grand plan was to have fewer people getting the sovereign grant like he wanted to sort of whittle down the family so there wouldn’t be these kind of like hangers on sucking, you know, like not doing anything. Do you believe that? Like you, Jean, I don’t have the other name.

S9: But I mean, you’ve seen that in other countries that have kind of whittle it down. Alex Yeah. Whenever, like. Yeah, they have a much. I mean, the fact that they still have any real family is absurd. But me, they have always a family.

S13: I remember this glorious Vanity Fair spread because like a million pages a few years back where they just went through every single European country basically. And they will each one of them has. I’m gone the royal family, most of them just private citizens, but they all call themselves the prince.

S11: There’s an account of that. And it’s that’s a keep private life private. And, you know, they all just pay their taxes and they have some glorious title. And everyone’s sort of like, oh, great. And the people who care about the titles to care about the titles and people who don’t run, and that’s fine. I think Britain is the only Britain isn’t the only one like Belgium still has like an established monarchy. You know, there is a king and queen of Belgium. But, you know, who cares about the king and queen of Belgium? Like basically no one in the world cares as the, you know, page views HuffPo will attest. The U.S. has about the about the U.K.. Well.

S6: And that’s kind of their argument. They argue that they bring in millions and billions of dollars in tourist money. But it’s very suspicious, as you know. They basically argue that they’re kind of like IP slash brand assets for the country. And I just think that’s kind of specious. People would still go to London if the queen wasn’t there.

S3: Well, even more to the point if she was there. But she wasn’t receiving money for. Exactly.

S6: Right. And apparently that aren’t there. I went deep into this report from this group called Republic. They’re like anti-monarchist group in the U.K. and you know, and they argue that, you know, Queen Elizabeth, because she’s famously neutral on everything. It’s a missed opportunity, like other countries have presidents and heads of state that are actually active. Right. Real role.

S5: Yeah. Her role in the whole Brexit fiasco. I mean, in case we hadn’t noticed, there was a genuine constitutional crisis in Britain over the past three years. And she was entirely photios.

S6: Exactly. And she could have. I mean, you can imagine like an alternate universe where she took a position and a rabbit.

S12: Should she be taking a position that’s with this woman who’s has. No, no. There was. Like, maybe there should be.

S13: But a figure who does that, there’s there’s always some kind of head of like if you’re gonna be the head of state, you should be empowered to take a position. And if you’re not empowered to take a position.

S1: You shouldn’t be the head of state.

S7: It sounds like what is happening here, and I guess I was brainwashed slightly by the crowd, which I have watched, which makes this case that she’s somehow unifies the country every time she does anything or by not saying anything.

S6: It’s very powerful, but I’ve come to realize that that’s ridiculous. And I just don’t see a case for why this country is paying to have these people do nothing but post to Instagram about like what they eat and their charities. They live off charity.

S9: But yes, it’s a charity like you are a charity.

S3: I make my favorite thing about when. So it wasn’t that long ago that Prince Andrew was fired from the royal family again. Like what? Know if for basically giving the world’s most disastrous television interview of all time. And when he was five normal family, he had to give up his patronage, his and everyone else. All of these charities are going to need new patrons.

S9: Like what? And they actually started looking into this.

S11: It’s like, what does a patron actually do? Do they give money to the charity? They raise money for the charity opponent? No, they just sit there, a patron. And this is considered to be a good thing somehow. And you have so many charities, most of them he probably had no contact with. In any given year. But apparently it’s very important for them to have a royal patron and like its ticket, the whole thing is unbelievably antagonistic.

S6: What a scam that they’ve perpetuated so long. Just unbelievable.

S11: Could this be the end of the British monarchy?

S10: I don’t think it could end until Queen Elizabeth, because I feel like Queen Elizabeth is is quite beloved figure.

S3: And I feel like we have this wedding. We have this like non-jury and queen. No one wants to kick her out job while she’s alive.

S6: But like, once she’s gone, like Prince Charles is going to be king.

S5: No, no, no. Yeah, no. He likes him. So it’s possible. I have to say, I’m kind of impressed. This could be the first ever episode of Slate Money where we have an entire segment where we have three Republicans agreeing with each other.

S7: Why? Oh, right. I obviously Felix knows everything about wine and I know nothing. But I read in the Times that there is a big crisis going on with mine because of Donald Trump and tariffs. And it seems overblown to me. But then Felix wrote all about it and made the same case basically that there is a big crisis with wine.

S5: So what is going on? Okay. I’m going to give you the TLT. The one is going on, and then you’re going to explain why you think it’s overblown. The the tilde is that there are two different trade disputes between the U.S. and Europe. One is about European subsidies to Airbus and the other one is about France’s tax on big Internet companies. And the U.S. has two sided that both of these are deeply unfair and that they are therefore willing and able to retaliate with trade measures. And the trade measures they want to retaliate with in both cases are wine tariffs. And they already started this in the Airbus thing. They were real. I mean, this is where things start getting completely ludicrous. They really telling ated to European subsidies to Airbus by putting a 25 percent tariff on still wine from France, Spain and Germany under 14 percent alcohol. What? OK. That’ll get out. And then. And so this hit a bunch of wine importers in the in the United States. And they’ve managed to kind of try and, you know, eat that as best they can. But now they’re threatening to raise the 25 to 100. And if you add not just on from those three countries, but all wine from all of Europe, including sparkling wine, including wine, over 14 percent from anywhere in the EU. And this is in retaliation to like aircraft subsidies. You know, like what? And then separately, they’re also threatening to impose a huge tariff on champagne in retaliation for the French technology. Big tech tax that they’re trying to implement. So there’s all of these different threatened tariffs on the table. And maybe the champagne one would have some effect because it hits Ben. And I know basically who owns LVMH and he owns all the big champagne houses and he’s influential in the French government. And maybe that would hit someone in France where it hurts. I don’t know, because there’s a lot of French exports of champagne to the United States and this would go down. But the wine one makes very, very little sense, because what we’re talking about here is European winemakers who can sell their wine anywhere and who will just wind up selling their wine to places that aren’t America and the people who lose and not the European wine makers who are just going continue to sell that wine.

S8: But rather, it’s everyone in the American wine industry who has to buy or sell European wine because they will basically not be able to do that anymore. And so. The people you are hurting are not in Europe. The people you’re hurting are all in the United States. So now tell me why it’s over.

S6: Okay. I feel like I’m going to get shot down pretty hard, but here I go. First of all, Wayne seems quite arbitrarily priced like I go into the alcohol store and there’s like a $10 bottle of $50 a bottle a 30. It doesn’t matter. So if the price of European wine increases are 100 percent, the price prices double. So what?

S3: So answer to that quote. Very good question. Just genuinely good question. And a lot of the reason why people like wine is precisely because it’s expensive. And as we have covered on slate money in the past, the more money you pay for a bottle of the wine, the better it tastes. So maybe like this would just make the wine taste better.

S4: The realistic effect of these terrorists is not going to be that the cost of European wine will double. The realistic effect of these tariffs is going to be that the European wines will just disappear from the U.S. market entirely. Do they basically become unbearable?

S8: I’m willing to spend $20 for a bottle of Beaujolais. I’m not willing to spend $40 for a bottle of Beaujolais. The Beaujolais will just no longer get imported. The importers will no longer import it. The distributors will no longer distribute it. The retailers will no longer retail it. And it will not be on wine lists. It will not be on liquor store shelves. And the wine will just basically disappear. And all of the jobs and all of the economic activity in that sector will just disappear.

S12: And then this is kind of mean this I mean, yes, wine may seem like a relatively small thing, but like I say, this, as you just said, like it does have these kind of large ramifications. We’re seeing that with all of the tariffs and we’re seeing that Fregoli with more, more and more reports coming out telling us what we already know, which is that the only people who are really being hurt by these tariffs are United States consumers. And that, you know, this is just one more example of a policy that in theory is designed to be granted like there are large. I have very legitimate, you know, thoughts about a number of European trade practices, frankly, a lot more Germany than France, but still, like there are legitimate concerns. But when you try to use these types of tools, they just don’t have the benefit you want. And even though, yes, the trade deficit, the U.S. has shrunk, but it shrunk because imports have gone down now because there always an exporting market or manufacturing more.

S3: But the big point here is that while other terrorists have hurt U.S. consumers, really it’s not on some level, it’s not the consumers who are going to be hurt, like Americans are going drink less European wine because there won’t be any European wine on the shelves anymore. And they’re going to wind up drinking whiskey or beer or hard, new and more expensive. And they’ll be a little European wine, a lot more expensive as you can get wine from other places. Yeah. And then we will get wine from other places. So it’s not so it doesn’t hurt. It doesn’t hurt the consumer. This is what I would say. It hurts the people.

S8: It hurts the importers, distributors, the wholesalers. There’s a whole industry of wine industry, people who literally could go out of business as a result of that, don’t they?

S6: I mean, they can’t shift their businesses to start importing wines from other countries.

S3: No, these are these kind of relationships take decades to build up like these people who’ve been travelling to France and Spain and Italy in Germany for decades and getting to know winemakers and getting them to trust them and getting allocations and all of that kind of stuff. You can’t just wake up in the morning and say, I you know what, I’m going to start importing, you know, Australian wine instead.

S6: And it’s really like that. It’s really quite decentralized business. It’s not like I can’t buy cause anymore. Similar by Budweiser like this.

S3: Yeah. If you if you want to buy Virgile, it has to come from France. If you want to buy Burgundy, it has to come from France. If you if you want to buy real, it has to come from Spain. It’s not like you can buy an Australian burgundy. There is no such thing.

S1: Let me know. But what do you think about that? Is the likelihood that this is actually gonna happen? I do feel like we continue to keep having these kind of these threats of these various significant tariffs and then they don’t actually play out. And it does seem like this perhaps may be one more example of that.

S5: I hope that it won’t happen. I think most people hope that that won’t happen. Donald Trump, in one of his recent press conferences or random flirtations, did say something about like how he hoped that it wouldn’t happen. So. I know. I mean, that does seem to be a pretty intense desire on the part of Robert. Like I said, the US trade rep to do this, and the thing which I don’t understand is why he’s so keen on this and why he thinks this is a good idea. I have yet to find like a coherent explanation of how hurting a bunch of like American wine importers is going to pressure the Europeans to do anything. As I say, the Europeans, he can get hurt, but.

S12: Well, we’re late. Hi. Sorry. You mean like what? Because if you think about like with China Light, Heizer has been obsessed with trade with China since like, I feel like he was born, you know, he’s written books on it, death by China, this whole thing. And yet the U.S. is going to sign this phase one trade deal, which is really gives very little to the US. But it’s just because they want to make it appear that they have a win. So they’re not going to push for any of the real changes that are needed. They’re simply going to say like, oh, you’re always going to buy all these more aquaculture products, even though there’s no way that China’s even going to buy all those agriculture products because the numbers don’t make any sense. So if he’s willing to do that on China, which is what he really cares about. I just have a hard time believing that going into an election year that Trump is going to allow, you know, light Heizer to push so much on these tariffs to Europe that could potentially hurt Americans.

S3: You know, like I just I feel like on some level that’s that’s the point. On some level that owning the Libs, that on some level the wine drinkers, the Californians and the New York people who drink French wine are the Californians and New Yorkers who they hate. And they just like doing this to hurt them. Yes.

S6: One of my questions on my little index card was, do you think this would be happening if Trump weren’t a teetotaler because he famously does not drink at all. So that was one he doesn’t care about people who drink wine at all or in the wine business.

S11: And then if he is in the wine business, he forgot.

S10: But anyway, and to like none of the people that this hurts would ever vote for Donald Trump. Like, I cannot believe that European wine importers are red-state.

S3: I know. I know a bunch of wine importers.

S5: Yes. And I would agree with you.

S10: Yeah. Yeah. That was my theory. Like this is like they’re like owning the lab.

S3: He’s like he’s lost his f rove. I’m who I thought my story is this very good.

S11: An important and I can guarantee you that it’s ever over and there’s not going to be voting for Trump whether or not these terrorists happen.

S6: OK. So, yeah, they don’t care about the people they’re hurting here. Make no difference to them. They’re not going to do like what they did with the farmers, which is like give them money.

S1: You know, like any of the wine subsidies. Well, they give them wine. Right. And the reality is, I’d be curious to see what the numbers are in terms of like what the actual economic impact would be, because if it’s a very, very small it’s I can give the numbers.

S13: I actually have numbers. Total U.S. wine imports from Europe are about four and a half, five billion dollars a year, which by the time it trickles down through the three tier system and ends up in wine stores and restaurants probably translates for about 20 billion dollars that U.S. consumers spend on European wine each year.

S12: Right. So it’s it’s not nothing, but it’s also not you know, I guess it might. Might I say this because if it’s the kind of thing where it could actually affect growth numbers in any way. Right. Or employment, then that’s the kind of thing where I think going into an election year, like, why would you do that? But if it’s simply going to annoy people who wouldn’t vote for Trump anyway, then I can see more arguments on the other side.

S6: Also, I just want to repeat the point that I think this is going to make European wine. I’m just going to go for it more desirable. I think if you raise the price of Burgundy or whatever, people that cover these kinds of people who are already spending money, that’s unnecessary. Too much money on wine, even though everyone knows that cost isn’t a factor in how the wine tastes. Right.

S11: It’s it’s the primary factor in how the wine.

S10: Well, whatever. So if it’s again. Yes. If it’s the primary factor in how the wine tastes and the prices going up, all the people who spend lots of money on wine will spend more money on wine. I’ll be even more coveted to be like Cuban cigars. Right. Harder to get more coveted. The price goes up. Perhaps everyone wins. I think that’s unlikely. I think it’s likely. I don’t think it matters how much wine costs at all. As long as it keeps costing more. Except that wine Trader Joe’s that everyone talks about.

S5: Index funds, index funds, index funds. We we we like to talk about index funds on this show and we try not to repeat ourselves too much. So so this time I think we’re going to take the voting angle because we have now reached the point that index funds controlled ten trillion dollars of more than 10 trillion dollars of equities.

S4: And that’s a very large amount of equities and put aside for the time being because we’ve covered this before. All the questions about what that means for market dynamics and price discovery and all of that kind of thing. And just ask yourself, if you have essentially three companies which own 10 trillion dollars of stocks, then those companies have enormous power in terms of being able to vote those stock and specifically may have enormous power in terms of being able to vote in favor of climate related resolutions which shareholders put forward and say, we want you these companies to do this not for the sake of the planet. And BlackRock, which is one of those three companies, is the biggest of those three companies.

S13: This week it joined a group called Climate Action, which exists to do exactly that, to pressure companies to take action. And if BlackRock is a member of climate action, that at least raises the possibility that it might get off its arse, pull its finger out and actually start voting. It’s trillions and trillions of dollars of shares in favor of these climate resolutions, which it hasn’t been doing up until now.

S4: And if it does that, that could actually really make a difference in terms of corporate governance and whether or not, you know, these companies really do something in terms of, you know, abating global climate change. Now, I don’t think that’s going to happen. I don’t think the BlackRock is going to actually vote all of its trillions of dollars of shares as a big like green blog. And I’m not quite sure why it doesn’t because Larry Fink is the who who runs BlackRock, loves to talk about, you know, corporate responsibility and climate change and that kind of stuff. Sadly, if he actually does what he says he believes in, he would.

S13: But and I’m very interested in hearing what you think about whether he should vote these shares as a blog. And if not, why not?

S12: Yeah. So, I mean, look, if you’re thinking about this for like what an important problem climate changes, I can, of course, understand why you’d want to say, well, like ethically he should. And I can agree with that. However, like, is that really the role of these people who are running index funds? Is it really their role to be making these political decisions? Because although we may agree with this one, you could make the argument that, well, what if the person who is running these index funds has very different politics? Should then he be able to vote the, you know, everyone who’s owning these index funds, he should up to vote their shares in whatever way he or the people around him. Like like. Is that really the role?

S6: But it’s so interesting and it makes me think of Queen Elizabeth, who is, you know, sits back and is neutral in British politics. And it’s almost like the people who could have this major voice in the markets, the people running these index funds are basically sitting back and saying nothing, just like just like going green. And it’s weird to think that, you know, this is such powerful voting interests in the markets are not doing anything.

S13: And I do think that the way that public companies work is that the companies do need to be answerable to shareholders. And if the shareholders are just sitting there saying nothing and not voting, that’s an abdication of their responsibility as shareholders.

S1: Yeah. I mean, I think that this is where it gets into the question. I mean, look, at the end of the day, index funds are still a relatively new invention. And then in terms of their power, we’ve never obviously had a spirit of time and they’ve had this much power. I think the reality is the structure that we currently have in place is not well designed to make companies be held accountable.

S13: And so I think the question then becomes, explain that what I think it’s perfectly well to. I think that it is, in theory, incredibly easy for BlackRock and State Street and Vanguard to go ahead and start flexing their muscles and voting aggressively in favor of listeners.

S1: They they have money. It’s money they’re managing and like, well, that’s a way.

S3: But now that has always been the case. It’s that has like all of the mutual funds, all of the insurance companies and all of the pension funds that all managing money on behalf of otherwise.

S12: But I thought it would still a kick. Here’s the thing. And this is work gets little complicated. When you’re a money manager and you are voting in these things, you have to go through all of these votes and you have to say, is this in the best interest of my clients? And you if you’re running index funds that you have a swath of the entire population tied states, they may have very different ideas about what is in their best interests.

S13: No, but but that’s the case. Whether you’re a passive investor or in that IT industry is no different.

S1: That’s that’s true. But it’s just that now that there is so much control by essentially three different companies, I think it becomes a bigger issue. I think that I mean, there there’s long been a question of is part of the reason that companies are being able to pay their CEOs better. They want to being able to kind of do a lot of things that perhaps aren’t in the best interest of all stakeholders. It’s because you don’t have a lot of kind of aggressive ownership with people who actually own stocks in these companies. Right. Exactly.

S5: Not voting. Stepping back from that responsibility that shareholders have to vote is itself a political act and essentially hands over an untoward amount of power to management, which they neither deserve nor should have.

S6: And they need more oversight. Right. Like setting aside the climate change issue for a second. Like there needs to be more oversight over exorbitant CEO pay over fraud, wrongdoing. Like could one of these funds have stepped up and said something to Boeing? I mean. Right. Like they needed.

S9: And look, if you like it, if you hear air.

S13: Right, it took it took over a year for the CEO of Boeing to resign. And I’m sure part of the reason for that is the shareholders were not pressuring the board to kick him out.

S6: Right. So it does seem like there’s a real problem here.

S1: And there is. And it’s in it’s bigger than I mean, it’s bigger than just the index funds. It’s part of just the issue that, you know, there is just not an aggressive block of people for the most part who are interested enough in these corporate governance issues that are putting pressure on management.

S4: I can tell you why. I mean, I it’s quite obvious to me why what you have seen in the world of index funds is an understandable and entirely rational, highly competitive race to zero fees, zero management pieces is now the new normal. And more, more index funds are going to charge either zero or very, very low, like zero, like four basis points or something like that for for running these funds.

S5: And when you are cutting your fees that aggressively, you don’t have a whole bunch of slack in the system to research shareholder proposals and work out which ones you want to vote for and which ones you want to vote against. And now and decide on a company by company level, how you want to vote and how you want to pressure the management, especially with an index fund. If you say have a Russell 3000 index fund and you own 3000 stocks and you barely know what their names are, you just have a computer buying them according to an algorithm like the extra amount of work it takes to start meeting with the management, pressuring them to do things, voting your proxies and all of that is a non-negligible expense in a world where everyone is really focused on expenses.

S12: Yeah, and I will say this because I had a job or one part of my job was I had to do a deal at all the stupid proxy votes and we didn’t even have an enormous equities portfolio. And it was my least favorite thing in the world to do because it was awful because it was just like it was a pain in the ass because every company has eight million measures. And then you have to go through and justify why you are saying that you’re voting in the best interest of your clients for each measure. And so at the end of the day, are you mostly going to simply vote with management? Yes, you are.

S3: But this is also why I’m mildly and with a very strong emphasis on morality, like I was even less than mildly, like tiny, like minuscule.

S5: Lee optimistic about BlackRock joining climate action because what they’re effectively being able to do in doing so is to outsource a whole bunch of that work to climate action. And then climate action can say these are the proxy votes that we think is really important that you vote for. And then having now that they’re part of that group and aligned with that group, they’ll be like, oh, OK, you’ve done your homework. We’ll make that vote. Now, do I think that’s going to happen? I’m not optimistic, but it could happen.

S6: We should say that the reason we’re talking about this is because of BusinessWeek’s cover story, which was all about the power of index funds and also featured a great quote from Al Gore. Yes. You guys catch the quote from Al Gore who said, I think the large passive managers have a real difficult decision to make. Do they want to continue to finance the destruction of human civilization or not?

S9: Although I do think like that’s a little bit like you. What are they? They could divest their friggin index fund. Like that’s kind of what you. What are you suggesting? L.A..

S3: We should let the one thing I’ll say, as much as I respect the whole bunch of Al Gore has done. Do not listen to Al Gore. Because Al Gore runs a multi-billion dollar active management company.

S7: Al Gore calls.

S5: Generation. And yet we can have a whole other segment one day on generation and in that business model. But like you, he is not an impartial observer here. OK. Numbers round. Emily, you look sick.

S6: I had two numbers, but I think they’re boring my way in. I read this. Amazing. My number is 73 because on my way in, I read this amazing story about a woman called Faith Hope Consolo, who was the real estate person, a real estate person in New York City, famous real estate person, did big commercial real estate deals. And she recently died. And the reporter at The Times who wrote her obituary wrote the obituary and felt uneasy throughout because there are lots of stuff she couldn’t confirm. And she found out, for example, 73 is how old faith hope Consolo was when she died, that she had been telling people she was in her 60s. And this apparently was just the tip of the lie of the iceberg that this woman was walking around telling about herself. She told people that she went to fancy prep school in Connecticut and was raised very wealthy again in Connecticut. But it turns out she just grew up in Sheepshead Bay in Brooklyn. And had, you know, her mother died when she was young and her father was in jail for a time. And she just had this whole other life story. And it was a very interesting read. That’s my number. Check it out. Check it out.

S12: So my number is 87 percent. So for the Fortune 1000 companies, those that have defined benefit pension plans. That’s the ratio of their assets to liabilities after last year’s returns. The reason I’m bringing this up is because that only improved by one percentage point. It had been 86 percent.

S13: So they’re still under FISA, even though the equity market went up 30 percent.

S12: And this is my point is that like even though the returns they had like one of the best years of returns, they’ve had these funds since 2003. However, because of rate cuts, because rates are so low, they still ended up only improving this ratio by one percentage point. And it’s just one more example of why there are numbers that occurs.

S13: Is that because lower interest rates mean a lower rate, which you’re discounting future obligations? Yes. So, OK, so we’re not going to get too much into the effects of discounted cash flow analysis.

S9: But you’re right. But yeah, exactly. Like if you’re defining a defined benefit pension plan yet you have to explain. Exactly. You have your.

S13: But the good news is that if rates go up, then, you know, even as stocks go down, the number could improve. Well, who knows? My number is twelve.

S5: I had a piece in axios age this week about the proportion of full time employees who work remotely from home. And it’s three. Your list was three in. 2017, which is up from 0.7 in the in the 80s. So it’s rising super fast, is going up into the right astonishing level. And one of the reasons I know it’s going up into the right is because I asked my employer axios like how many of our employees work remotely? The answer is 12 percent. And that actually undercounts the total because there’s a large number of employees who live and work in New York and Washington, in San Francisco, where we have offices and technically they go into the office to work. But in reality, a lot of us who live in these cities don’t go into the office to work. And that’s also fine. No one cares, right? It’s like if you can work better at home, work at home. And many of us like, you know, especially if we got to do sort of heads down coding and writing and that kind of thing, we do that. And the ability of to work from wherever you like has massively. Altered the corporate landscape in super interesting ways, and one of the interesting ways it has done that is by massively reducing the number of times that people move, people are moving between houses in between cities, much less than they ever used to, partly because you don’t need to work anymore.

S6: Is that because of remote work?

S5: That’s I mean, that’s one tiny part of the reason. I will say just like a little glimpse into how the journalism sausage is made. I had a line in my email saying that twelve percent of axios employees work remotely from home and my copy editor deleted the flom homebuilt and said, Well, we don’t know that they’re working from home. They might be working from Starbucks. And I’m like, yeah, that counts.

S3: If you’re looking at the 3 percent number, like working from Hartnett’s Starbucks counts, it’s kind of interesting to me, though, that like that somehow Starbucks has become an extension of the home. It’s the third space of that space. I think that’s it. I think that is it for Slate. Money this week. Thank you, Emily, for coming in. Thank you. And for fighting your cold. Thank you. And coming in you we will be a little bit less congested next week because we all know we’re on the upswing. Thank you. Jessamine Molly for producing this. Thank you, all of you guys, for listening.

S2: To keep the e-mails coming. The address is sleep money. It’s like dot com. And we will talk to you next week on Sleeth Money.

S3: Well, Emily, what is it good for?

S10: Absolutely nothing but stock returns.

S9: Say it again.

S3: The idea that the Pod Save America guys were very rude about this on Twitter. They were like, I can’t believe how how ludicrous like axios is being. Well, I saw this thing on EXIF about how war is good for stocks. I want to throw up in my mouth.

S5: And that was super interesting tweet for me because I never said that like a rising stock market was a good thing. They just kind of like inferred that. And they like I was never saying I never would say that like war was a good thing or that if it caused a rising stock market, that would in some way like help to justify it. But that was the message that people got. And I think in this kind of ultra weird capitalist system that we’re living in, in this world of CNBC and like stocks rising is good and stocks falling is bad, that people have internalized that to the point at which they think that I might be saying that like a rising stock market in some way might justify a war, which, of course, I wouldn’t know.

S12: And that’s interesting. I mean, I think that will a clearly what you were doing was showing like what has happened in the past. Right. And was probably likely to happen in the future. Yeah. But but I do think there’s something interesting there, because I do think that there is you know, we it’s something I’ve been thinking about, like especially looking at last year’s returns, because so little of last year’s returns was based on anything really real. It was I think something like 92 percent of it was just multiple expansion, which is almost entirely because the Fed was cutting rates. You had outflows from equities funds last year. The only net buyers were corporate. So you have essentially buybacks. And the Fed, you know, at the end of the day like that, that is what is propping up this market. And so to to then’s, when you have people saying, oh, well, everything, like the market’s going up, thus the economy must be going well or people are fine with the economy like that’s not true.

S6: I think what you were saying. I mean, I guess you could Rita, as you were saying, war is good for the economy. But I feel like what you were saying was military spending is. And you’re saying in the in the piece. Military spending is basically our annual stimulus.

S11: It’s yeah. It’s it’s it’s in stimulus. The 20/20 defense budget is 780 some billion dollars. That’s like. More or less will someone in 30 billion dollars. It’s basically the same as the Obama stimulus, right? And I feel and it’s the GDP of Switzerland, it’s huge.

S10: So I feel like if you read it, then it’s sort of a really good explanation for why we’re always at war and why people don’t freak out about war spending. And it explains why there’s almost an incentive to have wars to keep up that stimulus like it’s not. And I’ll bet you could be spending on the favor of war per say. But it’s an argument that sort of explains why wars are happening all the time.

S5: Yeah. And I think I think to your point that if we, like, cut all defense spending to zero, given the makeup of Congress, we wouldn’t just take that a hundred billion dollars and spend it on social programs. We would use it. They would just disappear. I would like reduce the deficit somewhat. And it would actually be contractionary. It wouldn’t end up being spent somewhere else. So we just end up not being spent.

S12: Yeah. And I do think it’s interesting. I mean, it is so fascinating when you look at American history. You look at different cities and the relationship between Air Force bases. And so that’s why I think it’s always interesting to think about funding for the Defense Department, cause I think we tend to think about this is like this is war funding, but like that’s how we got the highway program, right. That was how we got the money that went into developing the Internet. The only way we can get money spent is calling it defense spending. So and also, I think it’s interesting because you can make an argument that having a very like having a lot of defense spending. So having a strong military can be a deterrent. Right. In the sense that like if the U.S. has a seemingly strong military, that can make it less apt. So it doesn’t mean you’re necessarily not going. No one has invaded America, right? Yes. I guess that’s why I would always caution when people say like, oh, we shouldn’t be spending as much money on defense. I’m like, you need to look at that, because if you really want to start cutting defense spending, as Felix as you’re saying, you’re talking about cutting a significant amount of fiscal stimulus into the economy.

S9: But we should spend money on other stuff, Yes, we can find real needs.

S7: You know, for war, we can find the money to.

S9: All I am saying is give peace or we could just fund other things. But call it defense. Yeah, whatever. There you go.

S11: We should implement a universal basic income, but all of the money comes from the Department of Defense.

S6: I mean, it is a good defense to make your country stronger by making the people healthier live stuff and stuff like that. Right. A healthy, healthy.