Bad Vibes Economics

Listen to this episode

Felix Salmon: This Ad Free podcast is part of your Slate Plus membership.

Felix Salmon: Hello. Welcome to the Bad Vibes Economics episode of Slate 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.

Host 2: Hello.

Felix Salmon: We’re joined by Elizabeth Spiers.

Speaker 3: Hello.

Felix Salmon: And we’re going to talk about bad vibes this week. We’re going to talk about the bad vibes from the inflation report that came out on Friday. We can talk about the bad vibes of gas prices. We’re going to talk about recession, whether it’s here, whether it’s coming. We’re going to talk about Larry Ellison owning an island in Hawaii and what that’s like. We’re going to talk about financial literacy in Missouri and also in the Marcy Projects in New York. We have a Slate Plus segment all about market structure and stock trading. Thank you, Max, for sending in that question. We will answer that question in Slate. Plus, it’s a fun show and it’s all coming up on Slate. Money. So, Emily, can we talk about vibes?

Advertisement

Host 2: Let’s do it. Let’s get in.

Felix Salmon: So I need to come out here and glory in being wrong. I always say if you’re never wrong or never interesting. I was completely wrong when I came out a few months ago and said inflation has peaked. That 8.5% year on year inflation rate that we saw back in March, I was like, that’s as high as it’s going to get because although. Other things like housing are still going to go up. The main thing, which is energy prices is coming down. And so we don’t need to worry about inflation ever being quite as high as 8.5% again.

Advertisement
Advertisement
Advertisement
Advertisement

Felix Salmon: Well, on Friday, inflation came in 8.6% because energy prices are volatile and they forgot that what goes down can go up and gas prices at $5 a gallon. We now have record inflation again at 8.6%. And not just record inflation, but record inflation driven by the most salient price in the economy, which is gas price. It’s the one thing that Americans care about right now is inflation in general and gas price inflation in particular. And it is my thesis that is making everyone very grumpy and there are bad vibes.

Host 2: Felix I think you are correct. You wrote about it this week and you cited some data. I think it was a YouGov poll that said a really high percentage of Americans think that we are.

Advertisement
Advertisement

Felix Salmon: 55%.

Host 2: Yes, 55% of Americans think we’re in a recession right now. We are not in a recession. To be clear, the unemployment rate is like close to a 50 year low. There are jobs for everybody and prices are high.

Felix Salmon: Jobs are being created every month, as we see in the payrolls report, even though, like anyone who wants a job already has one, we’re still somehow creating new jobs every month.

Host 2: Yeah, I was just on Indeed.com actually reporting for another story, and I was just idly looking at the jobs that are available right now. And first of all, if you want a job, you can get a job. Second of all, there are sign on bonuses for everyone who wants a job, including dishwashers, line cooks like. Employers are still pretty desperate. So for those who are grumpy, it’s kind of weird because our experience, my experience is really in the recovery from the Great Recession, when people were very grumpy and there were not sign on bonuses for dishwashers and there were not job listings that say like, you don’t need an education, prison record is fine. You can start the same day. Please just take our jobs.

Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

Felix Salmon: And this is about yeah, I feel like ten years ago. Well, not ten years ago. When was the Great Recession? Six years ago. The these five years ago. Time has no meaning post-pandemic, right? No, it was 14 years ago. Anyway, back in 2009, 2010, 2011, back when things were feeling very grumpy and bad. Yeah, the dishwashers were making 725 an hour and now they’re making $15 an hour. And somehow the economy has changed so much that it was easier to find a dishwasher at 725 in 2011 than it is to find a dishwasher at 15 in 2022.

Speaker 3: I think all of this presumes that people are actually looking at the data, and this just seems to be vibes to me. You know, people will conflate Elizabeth.

Advertisement

Felix Salmon: Tell me, where do the vibes come from? If not the data vibes not coming from the same place that the data comes, you know. So where are they coming from?

Speaker 3: I think people conflate their sense of financial security with a sense of overall stability and security in general. So if there is a lot of chaos happening in the world, they will automatically sort of assume that this is affecting them economically, even though it might not be the case.

Host 2: Also, the stock market, it’s not looking great. And a lot of people, even people who don’t have money in the stock market, see those numbers here like and just to annoy Felix, I’ll say here that the Dow is down a lot and think like things are bad.

Advertisement

Felix Salmon: They’ll be like it fell a hundred points and everyone’s like, oh, no, the down, the down, the hundred points. No one knows what that means. But it sounds bad, right?

Advertisement
Advertisement
Advertisement
Advertisement

Host 2: Yeah, but I think a lot of people equate the stock market going down with recession and bad economy.

Felix Salmon: Exactly. So what we have is three different possibly four different bad vibes all going on at the same time, possibly five, depending on how many different ways you count inflation. Right. There’s rent inflation and mortgage inflation. Anyone wanting to move into a new house of any description, whether they want to rent it or whether they want to buy it, they’re getting amazing sticker shock because the cost of renting a house and or the cost of buying a house is really high thanks to higher mortgage rates and higher rents. So that’s making people grumpy. It’s keeping them in their homes and said, I want to move. I can’t afford to.

Advertisement

Felix Salmon: Number two, gas prices, obviously. Number three, food prices. Obviously, number four, inflation. Generally, everything is going up except for clocks and timepieces. That was like the only thing that went down in the last inflation report. Oh, and televisions, if you buy a new television, you can get away with that. So just generally, this whole feeling that, you know, this 8.6% inflation is real. We have lost 8.6% of our buying power over the past year. That feels bad. That’s number one.

Felix Salmon: Number two is. The stock market. Your stocks are down. Used to feel wealthy because stocks were up high and rising. Now you feel poor because stocks are lower and falling. And then number three is the Fed is interest rates, which is partly the mortgage thing, but it’s also more broadly this feeling that the Fed is pulling away the punchbowl. And I don’t know if this really affects normal people, but it definitely affects businesses and people who are slightly closer to the sort of internal machinations of capitalism. And they’re like, interest rates are rising. That’s really bad. And so you get those three things and it just feels bad vibes. And when it feels bad vibes, the result is people say, Well, obviously we were in a recession, as did Cardi B.

Advertisement
Advertisement
Advertisement
Advertisement

Speaker 3: We’re actually trying to buy a house right now. I like crazy people.

Felix Salmon: Congratulations. I’m sorry for you.

Speaker 3: Thank you. Mortgage demand just fell to a 22 year low.

Felix Salmon: Which is. So it’s a buyer’s market for mortgages. That’s great.

Host 2: Yeah.

Felix Salmon: I mean, the good news about American mortgages is they don’t have any kind of prepayment penalty. So you can get a mortgage right now. And if mortgage rates come down in the next few years, you can refinance a relatively low cost and it’s kind of no harm, no foul. So that’s a good thing.

Host 2: You can also get an adjustable rate mortgage. They aren’t as bad as they were during the housing boom of the 15 years ago or the two years ago, depending on your perspective.

Advertisement

Felix Salmon: Yeah, arms are a little bit cheaper than the third year, so maybe that makes sense too.

Host 2: Yeah, they’ve become a little bit more popular in the current environment. What I was going to say was that vibes, they seem like fake, like we’re like, Oh, people are grumpy, but it’s not a recession. But bad vibes can help us get to a recession. If people start really getting the bad bad vibes, then consumer spending falls and consumer spending makes up like a crazy percentage of our economy. So like, womp womp like vibes can become very real.

Felix Salmon: Yeah, it’s 70% of the economy. And it’s not just bad vibes among consumers. It’s bad vibes among businesses, right? It’s Elon Musk and Jamie Dimon and all of these, you know, CEOs who have bad vibes and are coming out saying, oh, things are really bad, there’s a hurricane coming. And if you think things are really bad and there’s a hurricane coming, then you wind up pulling back on investment. You wind up firing people, you wind up putting in hiring freezes. You kind of move out of hypergrowth mode and growth mode in general and you start sort of hunkering down for bad times. And the hunkering down, you know, as I say, it’s a self-fulfilling prophecy and it causes less economic activity and therefore it contributes to the kind of business cycle that will eventually perhaps result in a recession.

Advertisement
Advertisement
Advertisement
Advertisement

Host 2: Also, the business news often frames things from the perspective of the Jamie diamonds and not from the people. Like I was thinking about this this week because Target came out and said, We have way too much stuff, we bought all the wrong stuff, we have too much inventory and like their stock fell or whatever and everyone.

Felix Salmon: Yeah, they had a huge amount of televisions, which is the one thing that didn’t go up in price like Target. How did you manage the fact that when.

Host 2: They have like televisions and like patio furniture and that’s bad for them? And so a lot of the reporting like in the financial press was like, oh no. But like from a consumer perspective, it’s kind of like Target has too much stuff and now there’s a big sale. Like, that’s great news. So sometimes, you know, the bad vibes get amplified because everyone’s looking at this from the perspective, I think of like CEOs when for real people it’s very different.

Speaker 3: It’s a danger of treating corporate executives as economic forecaster. Yeah, which I think people do want to.

Host 2: Ask, what about Cardi B, though?

Felix Salmon: Well, the other thing we do is we and also Cardi B, but like the other thing we do is we treat economic forecasters as economic forecasters, you know, and economic forecast is on don’t have a much better track record than executives or anyone else when it comes to predicting the future. No one predicted the big bounce back economically from the pandemic, and almost no recession ends up being forecast. So if there is a recession like Jamie Dimon is saying, there’s a hurricane coming, but all of his economists are saying we’re fine. You know, we’re going to keep on seeing real economic growth for the next year or two.

Advertisement
Advertisement
Advertisement
Advertisement

Felix Salmon: There’s a disconnect there between what Jamie is saying and what his employees are saying, what his actual forecast is, who he pays to be, forecasters are saying. But what forecasters say is rarely particularly very useful. I’ve never seen a lot of utility in economic forecasts. The one thing I will say is we just had two very big forecasts for the world from the World Bank and from the OECD. And both of those showed pretty. Healthy growth in both 2022 and 2023 in the United States and globally. Like, basically everywhere that isn’t Russia. Ukraine seems to be on track for like two and a half to 3% growth, which is not fantastic, but it’s definitely not a recession.

Host 2: The other thing I could add if we wanted was that some of this inflation pain and the vibes are kind of self inflicted because the Biden administration and Europe, everyone decided to really take a stand against Russia for invading Ukraine and say like, we’re not going to buy the Russian oil anymore. And that really drove up energy prices, which is a big part of what’s happening now. And politically, it’s interesting, I think, because the Biden administration was like, Americans will understand and we’ll sacrifice. And I really don’t.

Felix Salmon: And the Americans are like I yeah, we will.

Host 2: No.

Felix Salmon: No. I mean, it is now this dumb political game of the Republicans all blaming Biden and Biden is blaming Putin and everyone is just trying to point fingers and you’re like, come on, grow up. But I at least blaming Putin has some kind of basis in reality. What I struggle to understand is the blaming Biden thing. Like, it’s really hard for me to understand what it is that the Republicans think that Biden did that caused the inflation. Was it that one stimulus bill in early 2021 that they’re now saying, like that one bill in early 2021 is causing all of this inflation in like June 20, 22? It seems like a little bit of a stretch.

Advertisement
Advertisement
Advertisement

Speaker 3: They don’t genuinely believe that Biden is responsible for it. It’s just politically expedient for them to suggest that he is. And they also they were opposed to the stimulus bill, and they don’t want to see it repeated because, you know, as a matter of policy, they don’t like those kinds of economic remedies. So if they can indicted after the fact as being directly responsible for inflation, it behooves them to do that. They’re not making a good faith argument.

Felix Salmon: Meanwhile, like I can report back from Davos that Joe Manchin was there being very self-congratulatory and basically accepting everyone’s congratulations for having singlehandedly prevented inflation from being even worse by preventing the stimulus from being even bigger. Yeah, well, thank you. Thank you, Joe Manchin, for your selfless service in the aid of disinflation.

Host 2: But all the other OECD countries are seeing record inflation also and they didn’t have.

Felix Salmon: Which is definitely a data point that would suggest that the pointing fingers at Putin makes a little bit more sense than pointing fingers at Biden.

Host 2: Right? Right. Unless you could say I was wondering about this and we can cut it. But I was just curious, like you make that argument everywhere else has record high inflation but the U.S. is so influential that. Is our inflation contagious? Like the dollar is the dominant thing. So if the country that makes the dollars is having inflation, would it spread that way? Is that we’re really I’ve.

Speaker 3: Heard that argument from people who I think should know better and they sort of tied into dollar hegemony. Yeah. Argument generally. But you know it just doesn’t make sense to me. And I always think that when people are really bending over backwards that way to explain something that has, you know, several much more simple and obvious explanations that, you know, they have an investment and a very specific explanation that that isn’t that.

Advertisement
Advertisement
Advertisement

Felix Salmon: I mean, there is a kind of attenuated way in which it happens, right. Which is that when you have an inflationary environment, the Federal Reserve raises interest rates. When the Federal Reserve raises interest rates, the dollar strengthens. The dollar is very strong right now. When the dollar strengthens, U.S. exports become more expensive for the rest of the world. So if you are a European or any other country that is importing stuff from the United States, then those imports become more expensive in your local currency. That then causes inflation to the degree that you import stuff in the United States.

Host 2: Good stuff.

Felix Salmon: Should we talk about financial literacy?

Host 2: Because I think we should be love a lot.

Felix Salmon: I feel like that we have a financial literacy program in this country. It is called state money. And what we need is for everyone to listen, to sleep, money. And then everyone will become financially literate. But. No. What’s happening is that Michigan is it Michigan has just become the 14th state, something like that to mandate financial literacy education in high school. And I am. On the record critique of what I have called the financial literacy industrial complex. And I am not a big fan of how a lot of financial services firms try to wrap themselves in the financial literacy flag and say, like, look at us, we’re doing great things for the youth by giving them financial literacy videos on their phones or whatever.

Felix Salmon: But like that said, I think a well constructed academic curriculum in a state that puts that curriculum together with academics who have studied what’s effective, and that doesn’t just ask Charles Schwab or Robin Hood to give them a curriculum is a good thing. I don’t have a problem with high school students learning the basics of what money is from people who are coming from a relatively sane point of view. So I am all in favor of that. I am kind of hilariously laughing at the idea that in certain places in Michigan, taking this financial literacy course will count towards your foreign language requirement because apparently finance is a foreign language.

Advertisement
Advertisement
Advertisement

Host 2: That’s fair. I think it’s deliberately so. Sometimes financial firms write things deliberately in an obscure way to make things seem very complicated. So you wave your hand and give up. So it makes sense to me that would be considered a foreign language, actually.

Speaker 3: What do these programs actually entail? I’m curious because I went to a teeny tiny, you know, redneck school in rural Alabama, and there were 32 people in my graduating class and our government teacher, who was also the basketball coach and the baseball coach and the assistant principal and so on. Our senior year had us do a six week long project where we just had to learn to fill out our taxes and also create a budget and, you know, find hypothetical employment. And he said he was doing this because most of the kids that I graduated with didn’t go to college. They went straight into the labor force. And he thought it would give them, you know, basic life skills that they would have before they graduated. And I always thought that was a great idea. But when we talk about financial literacy in this context, are we talking about teaching ninth graders options trading, or are we talking about, you know, basic?

Felix Salmon: Yeah, absolutely. No, no, no. That is exactly what we’re talking about. We’re not even talking about stuff as advanced as, you know, filling out your taxes. It’s really basic stuff, like what is interest, what is like a budget in terms of income versus expenditure? And like, you know, what is the concept of like living between within your means, what it taxes, you know, stuff like this that really do need to know to participate in a capitalist society. But along the way, no one necessarily teaches you. And if you don’t grow up with parents who tell you about it, you know, that’s a problem.

Advertisement
Advertisement
Advertisement

Host 2: Where it gets dangerous or weird is when people blame poverty on a lack of financial literacy. Like if only poor people understood how to budget than they wouldn’t be poor. And it’s like, yeah, you can understand how to budget, but if you don’t have enough money to pay your bills, not.

Speaker 3: Have any money to pay, it.

Host 2: Don’t matter. You know? And I feel like that happens a lot.

Felix Salmon: You know, totally, 100%. And what you see a huge amount of is people like parachuting into poor neighborhoods and saying, like, we are going to save you by teaching financial literacy. And it’s this kind of savior complex, which I see weirdly frequently comes from rich black folk parachuting into black neighborhoods rather than rich white folk. Parachuting into black neighborhoods, by the way, is the same kind of savior complex.

Felix Salmon: The thing that, like, just had steam coming out of my ears this week was the African-American billionaire Mr. Jay-Z teaming up with Jack Dorsey, the guy who runs BLOCK, which is a crypto trading outfit, used to be known as Square. And they have decided to set something up called the Bitcoin Academy in the Marcy Projects in New York City. And dear God, I like can I just quote some of what they want to teach these kids in the project? Classes will be offered from June 22 to September seven and will include What is cryptocurrency and what is blockchain is apparently a, quote, a financial literacy program titled the Bitcoin Academy. And I’m like, this is just the worst.

Felix Salmon: Like what? No, don’t know. Like and the idea and oh, and also like, what is money? And they’re going to be like, money is this terrible thing that governments can just produce at will and it’s worthless. But bitcoin is amazing how trustless the. Future. And it’s a great place to invest. And it only goes I know, like like I cannot none of this can end well.

Advertisement
Advertisement
Advertisement

Speaker 3: They’re basically going to teach you how to invest in the riskiest asset class available to you right now when you’re probably the least qualified person to do that. Or when.

Felix Salmon: You’re. Yeah. And when you’re like 13, like, come on, come on.

Host 2: Maybe it’ll go nowhere. I mean, have they actually done anything yet or is this the press really saying, yes.

Felix Salmon: It’s starting like the week after.

Speaker 3: Next. Is there an optional NFT class people can take?

Felix Salmon: Almost certainly they’ll be like, we’re mainly about Bitcoin, but we will also branch out into, you know, normal basic financial literacy, things like Etherium and then fees.

Host 2: I mean, that’s the other downside. There’s financial literacy can be okay if it’s teaching kids things they need to know, then it veers into bad. If it’s teaching poor people that the reason they’re poor is because they’re illiterate about finances. And then there’s the third tier, which is like financial literacy as marketing tool, where finance companies, people hawking crypto, whatever, say we just need to teach you financial literacy. But what they’re really teaching you is to love whatever product they’re trying to sell you, which is a big component of all this. And I think a lot of those firms are involved, I think, in making some of these curriculum that are getting mandated in the states, like a finance company will come in and say, like, oh, we’ll help you make your curriculum. And then the next thing you know, you’re like marketing for Fidelity or something like that. Maybe not Fidelity specifically.

Felix Salmon: My favorite ever example of this, and this is actually real. Like I confirmed, this happened with a small local bank. I can’t remember where I think it was in Oregon. Decided to sponsor some financial literacy classes for a group of like middle schoolers, or I think they were like eight, nine year olds, I can’t remember. So each of them was given $5. And what they did was they opened up their like kitty bank account and put the $5 into their bank account at the local bank. And they were like, Look at this. And it had some interest rate. And then be like, You can grow over time, but it’s safe here. And then if you want to withdraw your money, you can withdraw like $2 to buy your candy or whatever, and you can put more money in. And, you know, basically just teaching kids like what a bank account is. And then the bank got acquired by some big national bank and implemented monthly account fees to people with a low balance. And every single kid got their money wiped out immediately.

Advertisement
Advertisement
Advertisement

Speaker 3: I mean, that is a kind of literacy.

Felix Salmon: It really is. I mean, that’s the true lesson right there. I mean, so many of these curriculums are put together by banks and so many of them all financial services companies of one type or another. And so many of them are basically saying, like, trust the banks, they know what they’re doing. And then there’s also the biggest subtext to financial literacy as a concept, which is being financially healthy and especially like financial health for poor people is like is on you. It’s not a societal problem, it’s a personal problem.

Felix Salmon: And if you manage your finances well and, you know, responsible in a good like Protestant kind of way, then you will do well. And then it places the onus of responsibility on the individual when a lot of the problems surrounding poverty and predatory lending and all of these kind of things are societal. And you don’t fix predatory lending by teaching people not to take high interest rate loans. You fix predatory lending by making it illegal.

Host 2: Yeah. If you ask people, if you look at survey data, the people who get predatory loans know that they are bad. They just often don’t have a choice. It’s not like they’re choosing, you know, to go to the check cashing place for a loan like you go there out of desperation.

Speaker 3: Yeah. We also just have a lot of policy in this country that’s designed explicitly to stigmatize poverty. And when you actually dig into it, you make lawmakers really defend it. They’ll always say something like, well, you know, if we gave poor people this assistance mechanism, it’ll just encourage them not to work and not to make money is if any poor person is sitting around going, well, you know, I kind of like financially struggling. Please enable me to do it further. It’s built into almost every policy decision that we make on a regular basis through our orientation toward poverty and who we blame for it.

Advertisement
Advertisement
Advertisement

Host 2: I just was thinking about Elizabeth, your teacher slash principal, two slash gym teacher, having to teach you how to fill out your tax forms. The real issue is that we have to fill out tax forms. The U.S. is like the one country where you have to spend hours, months feels like dealing with these tax forms or most countries that, you know, send you a bill, they’re like, okay, this is how much you owe. Or this summit you’re getting back. Like, That’s the. Problem. Like we shouldn’t have to be wasting time explaining to kids what certain things mean. It’s all backwards. We should make things simple to understand and therefore not have to teach them.

Felix Salmon: So I have an idea, which is that instead of living in some kind of a Hobbesian world where everyone has to compete with each other to try and. Grab financial. Stability. We could all live in a medieval world where we were all basically just serfs who work for a benign billionaire. And we live in housing provided by the benign billionaire, and he pays us wages that he kind of decides what they are. And we work for businesses that are owned by the benign billionaire. And he will come down from on high and give us like a nice school or a nice playground or whatever, according to his whims and his benign nature. And so long as he has enough billions, then he doesn’t really mind.

Felix Salmon: And we can all live a a kind of idyllic life. And ideally this would happen in some kind of tropical paradise. And we can all live in the tropical paradise and be happy living, you know, happily for and working for and being more or less owned by a benign billionaire. And that sounds quite nice, especially if there are like tropical fruits involved, right?

Advertisement
Advertisement
Advertisement

Host 2: It sounds perfect. It sounds like I mean, you dreamed it Felix, but Larry Ellison made it real. Larry Ellison owns a Hawaiian island. And Bloomberg Businessweek, I believe, has a huge article out and podcast as well on what happened to the island of Lanai after Mr. Ellison purchased it for $300 million. And it’s not quite the paradise that you’ve outlined.

Felix Salmon: Feel like you mean medieval surfing isn’t all it was made out to be?

Host 2: Well, I mean, there are two no booths now. One of the first things Mr. Ellison did was get a Nobu built because he didn’t like the food here.

Felix Salmon: He said the food was terrible. So he bought in two neighbors. And there were two full seasons and. If you managed to stay at the Four Seasons for just one or $2,000 a night, you’re doing quite well. They can go up to like over $10,000 a night very easily. But obviously, none of the islanders can afford that.

Speaker 3: If you’re an islander, the extent to which everything he does touches your life is insane. You are renting from an illicit phone company. You work at an illicit phone company. And by the way, if you get fired from your job, they can take away your housing. You shop at an Ellison owned grocery store which determines prices. Ah, there’s nothing on the island that he doesn’t own. So it really is the kind of feudal system almost.

Felix Salmon: My favorite. Well, there are lots of great powers at the article, but there’s one amazing thing, which is that if you want to run a business, your lease is 30 days long and he just renews your lease every 30 days, which makes it impossible to invest.

Advertisement
Advertisement
Advertisement

Host 2: Yeah. No bank will lend to you if you’re subject to a 30 day lease. I can’t even imagine that the apartments were in 30 day leases where they.

Felix Salmon: I know, but as Elizabeth says, there is a clause in the apartment saying that if Larry Ellison fires you, then you have to leave the apartment.

Host 2: The piece focuses on this one man who had moved to Lanai. It was like a paradise. He’s living in this Hawaiian island, helping his friends build a woodworking business. They get a little bit of work for Ellison when he’s just like setting up on the island, I think maybe at the Nobu or maybe at the Four Seasons, whatever. And then next thing he knows, Ellison buys the guy’s woodworking business. So this man is specifically out of a job, and then he starts delivering newspapers. But then Ellison changes the Four Seasons newspaper contract and switches all of it to iPads so they don’t need newspapers anymore. So the guy is out of another job and now he’s, you know, dependent on charity to live, basically.

Host 2: And this is kind of how the fortunes of a lot of people on this island go after Ellison comes there and like ostensibly makes it better for everyone, which he doesn’t. And I can’t believe this is the United States. Like, I don’t understand. They describe these town meetings where the Ellison people come in and they’re like, This is what we’re doing. And then people ask questions that don’t get answered. How is that America?

Speaker 3: This is kind of what an actual privatized, you know, pseudo nation state would look like. There’s a the actual, you know, vein of thought in Silicon Valley right now, neo reactionary that says that this is kind of an ideal state of affairs where instead of having a democracy, you have a fiefdom run by a CEO style executive, and somehow that makes everything more efficient and everyone’s taken care of. And you can see in this real world example, that’s clearly not the case. Although I do think you have to admire Ellison’s decades long, consistent commitment to being horrible. If I were going to guess who had done this, I think Ellison would be at least in my top five. It’s completely unsurprising.

Advertisement
Advertisement
Advertisement

Felix Salmon: There’s a local Hawaiian, and it’s worth noting here that the word Hawaiian refers to native Hawaiians, not to just anyone who lives in Hawaii, but there is a local Hawaiian man who is particularly cares about sustainability, which is quite high up, apparently, we are told, on the Larry Ellison priority list and who has been trying to get a meeting with Larry Ellison for over a decade to talk about whales and things like that and has never spoken to him. Ellison is a very remote landlord and his whims like manifest themselves in the appearance of no booze in the lake. But there is no real there’s certainly no accountability, but there’s not even really much in the way of visibility.

Felix Salmon: And then there’s this wonderful story about Tom Cruise where like Tom Cruise comes to the island because Larry Ellison likes to hang out with his celebrity friends and he, like, totals the Jeep or whatever. And because everything like this police force is owned by Larry Ellison, the records are owned by Larry Ellison. Like there’s no record of this ever happening. And there was one guy who was actually fired from his job for even mentioning that Tom Cruise had ever set foot on the island.

Host 2: So I put my tinfoil hat on and was reading that anecdote and thinking about, of course, succession and thinking like, we can’t really know it happened with Tom Cruise and the Land Cruiser. And like, I don’t know, I was just starting to spiral because in this show succession, for those who don’t listen, the son of the rich patriarch gets into a car accident where someone winds up dead. I’m not saying Tom Cruise has killed anyone, to be sure, but maybe he did. I don’t know. We don’t know. It’s all covered up on Larry Ellison.

Advertisement
Advertisement
Advertisement

Felix Salmon: It is. But but it is incredibly similar. Like, you know, something something happens. And then if you’re rich enough and owned and controlled enough of the infrastructure, which Ellison totally does in Lanai, then yeah. No one need ever know that you were even.

Host 2: There while.

Speaker 3: Emily’s. Going to get strange voicemails. Psychologists.

Felix Salmon: This has nothing like Larry Ellison, to my knowledge, is not the Scientologist. You know, his ability to cover up whatever happened to Tom Cruise on the island of Lanai has nothing to do with Scientology.

Host 2: I’m not saying Tom Cruise did anything wrong.

Speaker 3: Many on.

Host 2: The island. To be clear, I am looking forward to one day seeing his latest movie. As far as I know.

Felix Salmon: This, as we know, there was no one else in the vehicle and no one was hurt.

Speaker 3: As far as we know.

Felix Salmon: We have a numbers around. Elizabeth, what’s your number?

Speaker 3: My number is 1.9 billion. I’m going back to your giant numbers now. And this is from a story that is personally devastating to me. And it’s that there is a giant Sriracha shortage now because Mexican droughts mean that we don’t have enough chili peppers in this country. And it turns out that the U.S. is the largest importer of chili peppers, are responsible for 30.9% of total volume.

Felix Salmon: Wait, wait. So we 30.9% of what is what.

Speaker 3: Total chili pepper imports or at least imports for whole dried chili peppers. Most of which we get from Mexico.

Felix Salmon: So 30.9% of U.S. chili pepper consumption is imported. So you’re saying.

Advertisement
Advertisement
Advertisement

Speaker 3: Now total imports in from one country to another in 2020 like.

Felix Salmon: Total trade? Yes. They took the global chili pepper. Trade is like 31% American. 31% is going to America. We know that the rooster ferocious sauce, which is made by a company called Hoi Fung, is not shipping anymore through Asia until September. But I feel like there are other stretches out there, you know, and that all you need to do is realize that you can get chili sauce in many different ways from your local Asian supermarket. That maybe isn’t Haiphong, which is the one that everyone buys. And maybe this is an opportunity to discover a whole new world of interesting new chili sauce. Is the arm, the rooster one that we all just reach for reflexively.

Host 2: Also, I remember back in like 2013, also Hoy Fang warned of a Serratia shortage because there was like people in the neighborhood where it produced the sauce were complaining about the smell or something. So it got all like crazy and warned about a shortage of Sriracha and everyone panicked. So I feel like I don’t know. I’m not saying I don’t believe that there’s a shortage of chili peppers or whatever the. I’m sure that’s all legitimate.

Felix Salmon: I mean, there is a big drought in California and New Mexico which produce a lot of chili peppers. So we do believe that.

Host 2: Yes, but there’s something going on where they know that if they, like, make a thing out of it, it’s going to do, I don’t know, again, like the Tom Cruise that.

Felix Salmon: We don’t know, although this comes this was like I don’t know. There was a letter they sent to their suppliers in April and it kind of got leaked in June. So I don’t have no shades. Yeah, but I still wait. I think I’ve forgotten. What’s the 1.9 billion?

Advertisement
Advertisement
Advertisement

Speaker 3: That’s the amount of the dollar amount of chili peppers we import from Mexico.

Felix Salmon: Aha. That feels low. If I had to guess how much chili peppers we were importing from Mexico, I would have guessed something much more than just a couple billion. But maybe we just produce so much in New Mexico that we don’t need to.

Speaker 3: Yeah, it was just whole dried chili peppers. That’s not the entirety of it. That’s just the primary thing that we import.

Felix Salmon: I mean, this is the secret of the rooster sauce, right? Is that they add a lot of sugar to it. The other chili sauce is a not a sweet. So they’re not popular. The way you make money in the food industry in America is by just adding sugar to things.

Felix Salmon: My number is 5.2 million. So this is the weirdest story I’ve come across in ages and I don’t understand what’s going on. And I’ve looked into it and I’ve read a bunch of articles and I still don’t understand what’s going on. 5.2 million is the number of dollars that was awarded, first by an arbitrator to a missouri woman who sued her boyfriend for giving her HPV after they had sex, and specifically after they had sex in his car. And then they immediately turned around and said, Well, I’m not going to try and get it from my boyfriend. I’m going to try and get it from my boyfriend’s car insurer.

Felix Salmon: And so now the Missouri courts have awarded a $5.2 million to this woman from Geico. And GEICO needs to pay $5.2 million because this woman had sex with her boyfriend in his car and he had throat cancer and had been told that that throat cancer had HPV. And apparently he didn’t tell her that. And then she got HPV. And like, to be clear, like there is like a 75% chance that if you’re an adult in America, you will get HPV like everyone winds up getting this.

Advertisement
Advertisement
Advertisement

Felix Salmon: But somehow some arbitrator then seemed to decide that this was worth $5.2 million. Geico didn’t even find out about it until the court said, well, yes, obviously this is geico’s thing. Like I can insured the car and they had sex in the car and therefore it’s on Geico. And now Geico is being asked to pay $5.2 million and it is the weirdest story and I need someone to explain to me.

Speaker 3: That’s kind of like if you had sex in an office applying for a workman’s comp, if.

Felix Salmon: That if you got HPV. Yeah. So the main thing that I really want you state money people to explain to me if any of you guys are in Missouri or have been following this case is like what was the stated reason why there were $5.2 million worth of damages here? Because that’s the first thing that I really don’t understand. And then everything else kind of like waterfalls from there.

Speaker 3: How does she how does she know?

Felix Salmon: Obviously, they were having sex in other places that weren’t in the car as well. You know, like the whole thing is very odd.

Host 2: Did you read the the documents?

Felix Salmon: So all of the court documents are all like procedural and it’s all like, you know, like once this thing has been arbitrated, like, can Geico be held responsible and you know, which state should this be litigated in? And there was a whole thing about whether the plaintiff and the defendant needed to be named in like the the man is named in some suits but not others, and the woman is just known by her initials and all of this stuff. The amount of time they spend talking about whether, you know, the man should be known by his initials for his name seems to dwarf the amount of time that anyone spends saying like, wait, why is this $5.2 million in the first place?

Advertisement
Advertisement
Advertisement

Host 2: There’s got to be something we don’t understand. It’s like in the nineties when there was McDonald’s hot coffee suit and the details were covered in the press in one way, which was like, Can you believe this idiotic legal system where a woman can get a lot of money and she just spilled coffee? But then, if you like, dive deep into the whole case, which I only did because I listen to you’re wrong about you. Find out. Like the woman was very, very badly injured. And there’s like a lot of circumstances which make it all makes sense. You know, it wasn’t so frivolous. So that’s like. Right. My instinct to be like, there’s something else going on here. Yeah, that’s.

Felix Salmon: What I’m trying to work out. Like, can HPV, like, cause $5 million of damages? I mean, maybe. I guess there’s kind of a hint running through the court filings that there’s collusion between this woman and her ex-boyfriend and they, like, colluded even possibly with the arbitrator. The arbitration proceeding took one day and that they somehow colluded with the arbitrator who knew that he could award or he or she, I guess, could award $5.2 million because the ex-boyfriend would not be asked for that money. And that would just mean they would immediately turn around and ask Geico for it. Anyway, litigation is ongoing.

Host 2: I don’t know how to follow that, but I will.

Felix Salmon: Well, you’re going to have to order.

Host 2: My number is 50,787. That is the number of out of gas calls fielded by Triple A in April. In other words, people calling Triple A for help because they have run out of gas. And it was a 32% increase from April 2021. And the reason, according to The Washington Post piece and according to Triple A for this big increase, is because gas is more expensive now. So people don’t fill up their tanks as much. They just like top off or get like $10 worth or whatever. So they’re more apt to run out of gas. So I’m here to tell people to please make sure you have enough gas to drive your car to where you need to go.

Advertisement
Advertisement
Advertisement

Felix Salmon: Don’t run out of gas. People can ruin your entire day. All right. I think that’s it. First slate money this week, but we are going to have a sleep plus on something. We will work out what we don’t just throw this show together, you know? Many thanks to Jessamine Molli, the amazing Jessamine Molli who managed to produce this show from Savannah, Georgia. But she is still at sea playing them out. We love them. Many thanks to Shannon Roth and the whole Slate crew.

Felix Salmon: Many thanks to you guys for e-mailing us on Slate Money at Slate.com. We love those e-mails. We are going to have a Slate Plus segment where we respond to one of those emails. Wanted to know about what Gary Gensler was saying and payment for the float and that kind of thing. So we’re going to talk about that on slate plus market structure. Bit of a new slate plus. Otherwise, we will be back next week with even more sleep money.

Felix Salmon: Okay. Max sent us an email. Hi. Sleep money. Could you spend some time explaining how this order by order auction would work and how it’s different than payment for the float or posting on the exchange? Thanks. Okay. So what Max is talking about is a speech by Gary Gensler where he talked about various things that might happen by in terms of S.E.C. regulation of market structure. And we’re talking about stock market trading here. And there is a very common system at retail brokerages like Robinhood, where Robinhood basically says we get this massive firehose of trades of people wanting to buy and sell stocks from all of our customers. And we just want to turn around and sell that entire firehose to Citadel or Virtu or someone like that. And they just take the other side of all of those trades and they’ll make a little bit of money doing that. They’ll kickback some of that money to us as payment for order flow.

Advertisement
Advertisement
Advertisement

Felix Salmon: And then we just don’t need to worry about anything because we know that every trade that comes in will automatically get filled because we’ve agreed that with the high frequency traders and Gary Gensler is basically saying, well. That might not actually get investors the best price. What happens if when Robinhood gets its trade instead of just sending it on automatically to Citadel or Virtu, they allow anyone in the market to bid on that trade. Then it could be not just high frequency traders who try and fill that trade, but it could be like real money investors who might want that stock or might want to, you know, sell that stock to buy that stock. It could be any number of other hedge funds.

Felix Salmon: So he’s basically saying, why don’t we just allow a whole bunch of different people on an order by order basis to be the counterparty for that trade and pick the best bid or the best offer rather than just sending it all to the same place. And that’s not quite the same thing as sending it to the exchange, but it’s kind of similar. It’s halfway there.

Felix Salmon: And what he’s saying is that if Citadel of Virtue or whatever offering what he’s what’s known as mid-point or better, then you don’t need to do it. So there’s a bit of a spread and if you take the middle of that bit of a spread, then if you’re there, then you can just sell it to citadel of value because you’re getting like a better than average price. But if you’re not getting a better than average price, then maybe like some other people to bet on it.

Advertisement
Advertisement
Advertisement

Host 2: I don’t know what to think of this. Is this better or worse for retail traders? The Gensler way.

Felix Salmon: So it kind of depends how you measure this. And Gensler spends a lot of time in the speech talking about best execution. And the way that people really judge this historically is how good of a price are you getting? And I think one thing that we learned in early 2021 in the meme stock crazy is that sometimes having free trades or really low cost trades isn’t great for investors. You know, there’s sometimes a little bit of friction can be a good thing. But in general, one of the things that we’re learning is that, you know, if you’re paying NBE a national best bid offer, that’s a very wide spread, often compared to what investors are willing to pay for retail order flow. And you should be able to do better than that.

Felix Salmon: And Robinhood is, you know, has this big headline $0 trades. But the reason they can offer $0 trades is because they’re better off a spreads quite wide. And maybe if you implemented this kind of system, then the bit offered trades would be narrower and that might cut into robinhood’s profits, or they might actually start charging money for themselves per trade. And that could be bad for small investors and good for big ones is my guess that if you’re trading like $10 of shares, then you would probably lose out. But if you’re trading maybe $5,000 of shares, then you’d win. That would be my intuition.

Host 2: So if if the end result is brokers like Robinhood start charging retail investors for trade. Is it? What GANZER really wants is to avoid another like meme stock situation because that would definitely I mean that definitely that could dampen sort of the stock trading frenzy that we’ve seen for the past few years among retail investors.

Advertisement
Advertisement
Advertisement

Felix Salmon: Right. And maybe that would be a good thing.

Speaker 3: How would this affect Robinhood if it does cut into payment for order flow? Is that a significant amount of money for them?

Felix Salmon: So yes and no is the answer. Payment for order flow is a really huge amount of money for them, but mainly on the option side. Basically, stock trading is kind of a loss leader for Robinhood or if you add up all of the stock trading revenues, they are low and they make their real money on options and crypto.

Host 2: Hmm. So is this Gensler stuff? Seems from what I’ve been reading. Bad for Robinhood though, even given that like if there’s less retail trading, that’s bad for Robinhood.

Felix Salmon: I would say. Right. Especially combined with the fact that right now people are much less enthusiastic about trading options in crypto because we’re in a down market rather than that market. So yeah, Robinhood’s not doing so well right now.

Host 2: They’re doing really badly. All those like Hot Coinbase also doing really badly. They were supposed to be the answer but have doing layoffs.

Felix Salmon: And that’s why FDX, the crypto exchange FDX is moving into stock trading because they’re like, you know, if Robinhood can use stock trading as a loss leader to get people into crypto, well, we are the best crypto trading house, so why don’t we just offer stock trading as a loss leader to get people into crypto?

Host 2: Yeah. Not looking good for Robinhood I guess.

Felix Salmon: But you know, the founder of FDX and Bankman-fried has now bought, what is it, a 7% stake in Robinhood. Hmm. It’s all going to merge into one big crypto tastic speculative fervor. We can learn that in our financial literacy class at the Bitcoin Academy.