Capitalisn’t: He Foresaw Inflation. Here’s What He Expects Next.
Mervyn King, former Governor of the Bank of England, discusses inflation and what comes next for the economy.Capitalisn’t: He Foresaw Inflation. Here’s What He Expects Next.
Occupy Wall Street, Italy’s Five Star Movement, the Indignados in Spain—we’ve seen an increase in anti-elite protests by a disabused public over the last two decades. But what has caused this public outrage? Martin Gurri, visiting fellow at George Mason University, former CIA media analyst, and author of the book The Revolt of The Public and the Crisis of Authority in the New Millennium, argues that elites have overpromised and underdelivered, all while losing their monopoly on information flows.
Martin Gurri: In my opinion, the emperor never had a stitch on, all right? We have never really known as much as the model of society that we have lived in since, say, the beginning of the 20th century until very recently, has pretended to know.
Bethany: I’m Bethany McLean.
Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?
Luigi: And I’m Luigi Zingales.
Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.
Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.
Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?
Luigi: And, most importantly, what isn’t?
Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.
Bethany: For this podcast, Luigi and I wanted to talk to Martin Gurri, whose book, The Revolt of the Public, has become something of a cult must-read. The interesting thing about this book is that it was actually first published in 2014.
Gurri, in many ways, is not our typical guest. He’s not an academic, he’s not, heaven forbid, a journalist. He actually was formerly a member of the CIA’s global media-analysis team. He’s now a fellow at the Mercatus Center, and as I mentioned, the book has become something of a cult must-read, particularly in Silicon Valley. It was republished by Stripe Press in 2018, and everyone started talking about it. And Luigi and I both actually wished that we had read the book back in 2014 when it was published. Luigi, is that a fair summary of your views? Do you wish you had read it earlier?
Luigi: Absolutely, that’s an excellent summary. I was impressed, because some of the stuff that he wrote in 2014 is stuff that now everybody says, but in 2014, very few people actually had that insight. And I find him incredibly knowledgeable, not only about US politics, but also about Italian politics, which is a very arcane topic, and if you do well with Italian politics, you must be very sophisticated.
Bethany: Well, for sure. For those of you haven’t read Gurri’s book, his basic, overarching point is that the current elite has lost its monopoly on information and therefore on legitimacy. That a lot of the great hierarchical institutions that have previously organized modern life depended on those institutions being able to monopolize information. And now that that has broken down, we’re in, essentially, a free-for-all. One of the quotes that Gurri writes, which I like, is, “Uncertainty is an asset corrosive to authority. Once the monopoly on information is lost, so, too, is our trust.”
Luigi: As a result of this collapse of authority, the kind of protests, the kind of revolt, is nihilist revolt. I don’t know how you say it in English properly. Nihilism is everybody is trying to destroy and attack the authority, but they don’t have a real alternative. And this is not just true in the United States. It’s everywhere you go, from the indignados in Spain—
Speaker 8: Spain’s grassroots protest movements began in 2011 and inspired demonstrations elsewhere in Europe and in America.
Luigi: —to the Five Star Movement in Italy—
Speaker 9: Italian voters rejected a referendum to alter that nation’s constitution. The vote was seen as the latest instance of a rising tide of populism, both in Europe and here, against elites and the perceived establishment.
Luigi: —to Occupy Wall Street in the States.
Speaker 10: What started as less than a dozen college students camping out in a park near the New York Stock Exchange is now hundreds of protestors, and it’s spread to other cities. But what are they protesting?
Luigi: They’re all very good at criticizing what is out there but completely unable to push forward a program of change. Everybody sees a problem, and everybody jumps on the problem, but nobody comes up with a solution.
Bethany: Right, and I one of the reasons is that there really is no solution. Nobody knows what it is, because there’s never been a time in the world like this where no one can have a monopoly on information. And if it’s monopolies on information and the control of narrative that get people to believe, what do you do and where do you go in a world where that doesn’t exist anymore?
In 2008, the global financial crisis showed that the elites didn’t know what they were doing and that everything everybody said, whether it was the bankers who were supposed to know how to manage risk, or the Treasury secretary and the head of the Federal Reserve, who were supposed to be able to see what was coming in the financial markets, that no one actually understood. And so, it helps me understand the financial crisis a little bit better and the devastating impact it had to think of it as this shattering of trust and one of the many moments that has shattered trust in the elites or that showcased what was happening.
Luigi: Yes, absolutely.
Bethany: Well, with no further ado, let’s bring in Martin Gurri so we can discuss his incredibly provocative and timely thoughts.
Luigi: I would like to try to start with that part of the book where he talks about this court decision in Italy, because I think this is a very insightful way to see where Martin is different from basically anybody else. Martin, if you don’t mind, explain to the American listeners, what was that decision about and your interpretation of it? Because, in my view, that’s the summary of your unique viewpoint.
Martin Gurri: The area of Italy around the city of L’Aquila was having a lot of seismic activity, and naturally the people were frightened, and naturally the Italian government had a body of experts that it could summon for just this occasion. The body of experts, I believe, was called the risk commission or something along those lines, which was a terrible, terrible name, as it turned out, for them. These were mostly scientists, and the chairman of the group was a bureaucrat. They discussed the possibility of an earthquake. They didn’t dismiss it. But there was hovering in the background this gentleman who had this strange idea that certain gases that he understood could predict earthquakes, and he was very popular on the internet, and the whole report ended up with them saying there is no risk. This guy who was talking about risk, he doesn’t know what he’s talking about. And I think, at one point, one of the reporters said, “So, you say we should just sit back with a bottle of wine?” The chair of the board said, “Yeah.” And he recommended one of the local vintages. The whole thing was turned into a joke.
Well, I think within a day of that, the city of L’Aquila was flattened by an earthquake. It was horrible. Many died and many, many more were homeless. The reaction was, the public felt, these were the people who should have told us. Essentially, the risk commission, which acted as if it knew what was going to happen, delivered a message that was tragically false. They were taken to court, they were convicted. As often happens in Italy, you get convicted and nothing happens after that. I mean, Berlusconi must have been convicted five different times, and I don’t think he spent a minute in prison. But these good people, who were scientists, who were servants of the government, were subjected to this terrible ordeal of being called, essentially, murderers by a public that suddenly realized that the expert class wasn’t really as expert as they were pretending to be.
Basically, the issue is, how much does the human race actually know? How much of a grip do we have on the world around us? And it is the job of our elites to pretend that they know far more than they actually do, and my thesis is that that’s just the future. I mean, everybody thinks these are crazy Italians acting out their weird political life. No. I mean, after 2008, in this country, there were howls, and there still are to this day, howls that we need to throw people in jail because of what happened to the economy, right?
There’s a sense that because the elites pretend to know this, the high modernist ideal we know, we have science, and therefore we can explain the world and we have levers that we can pull and change the world around us to your satisfaction, that we can predict the future, we have prophetic insight, and none of these things are true. And when suddenly the fog dissipates and the poor emperor is standing naked in front of the public, there’s the urge to tear that poor guy apart.
Bethany: I love the analogy that you draw to the 2008 financial crisis, and I have to poke a little bit, of course, at Luigi in this, because I think that you wrote that 2008 ended the authority of economists forever. And then there is just a subsequent question underneath that: was the emperor always naked, and now we see it and we didn’t before, or did the emperor once have clothes?
Martin Gurri: In my opinion, the emperor never had a stitch on, all right? We have never really known as much as the model of society that we have lived in since, say, the beginning of the 20th century until very recently, has pretended to know. 2008, the question that kept coming out of their mouths was, how can this happen? How can this happen? How can this happen? All the way down to the Lehman Brothers man who kept thinking, “No, the government has got to know something and it’s going to do something. How can this happen?”
The problem was, we were dealing with a rhetorical model of discussing the economy as if politicians and experts could maneuver it like a car, could drive it like a car. And the economy is nothing like a car, and a gigantic portion of what goes on is not understood by anyone, and my friend Arnold Kling, who is probably the smartest economist I know, says, “It is becoming increasingly illegible.” There are many, many things since the digital economy hit that are just hard to measure. Our measurements are all industrial, and that era ended 20 years ago. So, basically, we’re dealing with a world that was way beyond their understanding. It fell apart, they were surprised, the public was angry.
Bethany: When you think about the figure of the child in the emperor’s new clothes or the person who saw the earthquake coming, or the various people who predicted the financial crisis coming, is that person accidentally right? Or is there something by virtue of where that person sits that enables them to see a truth that is different? And is there something we can do by giving more credence to that person if the latter is the case?
Martin Gurri: That speaks to what kind of a conversation do we have about these subjects, right? I think the conversation we have right now is an exchange of anathemas. I ban you from my tribe, no, I ban you for my tribe. And my tribe knows this, no, my tribe knows the other. I’ve just been rereading, for the umpteenth time, Karl Popper, who was a philosopher of science. He basically says science is about the idea that you have to listen to the other fellow, he calls it, because there’s that wild possibility that the other fellow might be right. What you are talking about, I suspect, if you were to count people who predicted correctly anything in the future, 99 percent of it we’re talking to somebody who just threw a dart and hit the right place by accident. But the conversation has to be had. There are people who know things who are not accredited in the old expert model. I mean, they were everywhere during the pandemic, doing a lot of good work.
What you’re talking about is, how do we break down those tribal walls, those sectarian walls between people who believe certain ideals and then they just hold onto them? Once you believe it, it becomes hardened. What is the tribal token? You can’t deny this thing. And so, the conversation becomes, “Well, if you believe this because you are who you are . . .”
I recently wrote a piece in which I cite this tweet, but this young man who has a million followers on Twitter and says that he believes that wearing a mask is worth the inconvenience, because nobody will confuse him with a conservative. And I’m thinking, “OK, we’ve now just gone so far outside of science that it’s not even worth talking about.” What we need to do is break that down to, “OK, this conversation is not about conservatives and liberals or about Trump and Biden. It’s about, what do we know, and then what is that vast realm of ignorance that we always share on every subject on earth?”
Luigi: But I want to come back, because I think that this idea that the current elite has lost its monopoly on information, and as a result, they’ve lost a lot of legitimacy, is very important, because I am not sure what is next, since it’s not going to come back, the legitimacy. Now, we know that there is an attempt to reintroduce some filters on information. For example, Facebook filtered out the news that maybe the virus was leaked from a Chinese lab. This was filtered out because it was considered too radical. Where do you see the world going?
Martin Gurri: Well, that’s a good question. I make it a point never to see where we’re going, because I have no idea. I don’t want to be like all these other people who pretend to know more than they know. I can tell you where we are, and that breaks your head enough. I think we’re in a very reactionary moment right now. We’ve gotten rid of Trump and we’ve put in Joe Biden. And I think there’s this desire to turn the digital platforms into the front page of the New York Times circa 1980.
I mean, when you look at that particular incident of Facebook deciding that theory had been debunked, so we’re not going to allow it, we’re going to put a ban on it. The conclave of Facebook cardinals decided that this was anathema. And when you look at that, you realize that they had good cover, and the cover was given to them by scientists. Many scientists were saying the same thing.
You have to go beyond Facebook to the total elite class and say, “Well, why were scientists who were . . .” Here’s a perfect case of what I was talking about before, right? We are almost completely ignorant about the origins of COVID-19. The things that we don’t know about that moment could fill the universe. I mean, you’re free to speculate, but yet you have these scientists who said, “No, that particular theory has been debunked, and you are not allowed to say it.” And you have then Facebook saying, "Well, OK, if it’s not allowed, I’m going to ban it.” And you have to ask yourself, why did that happen? And it had nothing to do, of course, with science. It had to do with politics.
Bethany: Did the pandemic play out as you would have expected based on your theory? You wrote this book in 2014. When you think about how the pandemic played out, whether it was the banning of the idea that the virus emanated in a lab or Gavin Newsom having a recall vote because he was caught at French Laundry having a dinner after he told his constituents not to do any such thing. Are these the things you would have expected to see happen, or was there something that surprised you?
Martin Gurri: Yeah, I mean, a lot of it followed the previous path of elites pretending to know a lot. Poor Anthony Fauci, I mean, I hate to beat up on him, because if you beat up on Fauci, immediately everyone thinks you are a Trumpist or something, but the guy contradicted himself a lot. You cannot be certain about one thing and then be certain again when you’re saying the opposite and not lose a lot of credibility.
I was surprised, honestly, by how docile we were in taking it. I think we were all frightened, so I guess it makes sense, but we were told, go home, wash your hands, don’t talk unless talked to, and we did that. And I think it dawned on the elites that this pandemic, from the perspective of power, I mean, I’m not imputing that they thought it was a good thing otherwise, but from the perspective of power, it was actually playing out to their benefit, where, again, the social platforms very docilely decided they were not going to allow independent voices, they were going to basically attach themselves to the institutions and the elites who run them.
I was surprised that that was accepted, I was surprised that they’re still being . . . I mean, there’s this idea of the permanent pandemic, and you come up with some other idea you can put in that slot, that we need to control media because of the pandemic, or antiracism or social justice, and that slot is endless. You can put anything in there you want, and you have a permanent emergency. That means that you could always permanently filter the conversation. So, that surprises me, and I’m not sure how it’s going to play out.
Luigi: As you said, the elite have lost the monopoly on information, and so a lot of information is bubbling up, and so they are constantly confronted with pressure in every direction. And sometimes, even many CEOs are confused about what to do and how much to follow the pressure of the crowd or how much to resist. What is their business? Because some of them seem to be more interested in being in politics these days than being in business.
Martin Gurri: Yeah. They don’t seem confused to me. They’re in stampede mode, and they’re all stampeding to, “If you want me to say something, if you want me to take out that All-Star Game from Atlanta because the Georgia legislature is doing things that you don’t like, hey, I’m taking that game out.” If I’m Coca-Cola, and I’m headquartered in Atlanta, and suddenly the stampede has swept up, it seems to me, a whole lot of these businesses . . .
We were talking earlier about the pressure that made Zuckerberg basically ban the mention of a possibility of the virology lab in Wuhan being the source of COVID 19. That’s a part of the stampede, the same stampede, OK? They’re not confused, they’re just going with the flow, and the flow, it seems to them, is political elites are maintaining all these rules and regulations, what can be said and what can’t be said. They have this army of online policemen, that if you say the wrong thing, they come and get you and cancel you. That seems to be the model right now. I don’t know anybody who’s taking a stand against that particularly, at least not in public.
Luigi: But, Martin, don’t you see this as an attempt of the elite to regain control? In the old propaganda model of Herman and Chomsky, the idea was that you needed a common religion to basically marginalize any thought that was not mainstream, and so they posit that during that period anticommunism was the common religion. Now, of course, this religion is long gone, but it seems to me that political correctness and wokeness is the new religion, and it is used to marginalize everybody who is on the fringe trying to create some trouble. So, if you are either from the left or from the right, it doesn’t make a big difference, the way you are basically killed is you are seen as a violator of the common religion.
Martin Gurri: Yeah. I don’t think it rises to the level of a religion. To me, if you’re antiracist, then you have to say and behave in very specific ways that the government must mandate. Well, that’s control. If you are trying to solve climate change, well, the government must take over all these gigantic parts of the economy, and if you disagree, you’re like the equivalent of a Holocaust denier. Well, that’s control. You look at the automobile, which to me is like the ultimate symbol of indeterminacy, you can get in a car and go anywhere. The elite take the car, right? They tried to tax it to death and funnel us into trains and biplanes, because they can control those. So, every thought and, of course, in social media, in the digital world, there’s the politics of official truth, which we had in the pandemic, that’s control. I don’t think this is thought out from the top, like a pope coming down with a doctrine that somewhat modifies this great body of logical, mutually supporting constructs. It’s just very instinctive, very ad hoc, but it always goes for control.
Luigi: But you are a believer in representative democracy. As such, representative democracy tends to form some elite. So, how should the ideal elite be chosen, be selected?
Martin Gurri: Well, I mean, I follow the Spanish philosopher Ortega y Gasset in this one. He says it’s a mutual selection between elites and the public. We each select our elites primarily by who we give our attention to in this day and age, that is the number one commodity that you donate, but also our money, our votes. What movies do we go to? What books do we read? What persons do we follow on Twitter? We make certain personal choices that in the aggregate leads to some of us becoming the public, and then enough are chosen that they become elites. I see nothing wrong with that system that we could not change our elites if we say so ourselves.
In other words, we have developed the habit of saying the system is terrible, it should be torn down. The elites are terrible, they should be tarred and feathered, and we have not developed the art of looking in the mirror and saying, “So, what have I done to change this? How much of this is within my sphere of influence to even a little bit change?” We are not self-critical.
Bethany: How does that way of selecting elites contrast with the American belief in meritocracy and the way in which that’s worked over the years? And I feel like it’s particularly important today, because that belief in meritocracy has been used as a way to justify great wealth inequality and many other things. And I think it’s fundamentally different than the system you just described, at least the way it plays out in practice.
Martin Gurri: Oh, yeah. I mean, I think that system is fundamentally corrupt right now. Getting a business degree from Harvard, who are you? You’re just a guy or a woman who got a degree in business from Harvard. But that puts you on a path to make a whole lot of money on Wall Street, right? Because in the end, the elites will not hire anybody who doesn’t have that business degree from Harvard.
We have forced or we have stimulated kids, subsidized kids, to go to college on the belief that if you go that route, you get to join the great tip of the pyramid. But the pyramid, unless you invert it, is very narrow at the top. So, you’re creating people who are essentially unhappy, because they feel like they’ve been given all this education, and it could be in economics, it could be in women’s studies, who the heck knows? But the point is they come out with a degree, they come out with that accreditation, they come out, “I’m one of you now.” And the people at the top are saying, “No, you’re not, there’s no room up here anymore.” And so, you go and you do Occupy Wall Street or whatever, because you feel like you’ve been lied to and you should have been part of the meritocracy.
What’s the secret key? Well, the secret key is you need an elite up there to say, “You’re one of mine, come up here, I’ll hire you.” When you look at the people who have physically led the revolt of the public in almost every country, some exceptions, but almost every country, they have been university-educated people. I mean, there’s a number of things that play into this. Honestly, I think part of it is the idea that you have to go after money and that is not a . . . I mean, it’s necessary, obviously, but it’s not a satisfactory ideal of life. The fact that you want meaning in your life, and you try to get it from politics sometimes, that is a disaster, because politics never gives meaning. So, there’s a number of things that compound the situation, but in the end you get this great anger, because you feel like you’ve done all the right things and you want all these noble virtues and these magnificent utopian ideals, and nothing is happening.
Bethany: You write that the revolt of the public hasn’t constituted a real threat to capitalism. Why do you think that is? And is that ultimately a good thing or is that a bad thing?
Martin Gurri: That’s a puzzle. I’ll open my soul to you and say I don’t know, really. I have a guess, a speculation. And my speculation is that business, unlike government, really does work by trial and error. If you commit error, you go out of business and some other company comes in. So, there is that constant churning, and as you see from my book, the turnover of companies in the S&P 500 has accelerated to almost vertigo levels, right? They used to stay on the S&P. Once they got there, they stayed for decades, and now is it like years or less?
And I think what has happened is when somebody delivers the goods, the system is basically justified, becomes legitimate. The old companies have failed, but they have new ones. The failure rate is increasing, like it has everywhere else. The difference is the success rate seems to be maintained, because somebody else is always going to make money on that slot. So, that’s a guess. I mean, there are so many people who hate capitalism so much, so deeply, so profoundly from their souls, that it surprises me that more has not been made of this very, very uncertain and confused and really broken-down moment in history.
Luigi: But one of the things you write is all these protest movements are about everything and nothing, there is not really an alternative ideology.
Martin Gurri: That’s right, they are against. Many times, many, many times, protestors, I mean, it happened in France with the yellow vests, it happened in Chile, it happened in several places, they got what they asked for. The taxes were rolled back or whatever, and they would not take yes for an answer. The spark that starts these protests is never the real reason behind them. There’s some existential reason for these protests that is hard to get at, because you can’t . . . once you cure the thing that started it, then it makes no difference whatsoever. They have no proposals, they have no parties, they have no organization, they have no leaders, on purpose. They consider any of those things to be a lack of virtue. So, they cannot supplant the system with some other system, the way the Bolsheviks might have in 1917, because they have no system. They’re antisystem.
Bethany: So, if you don’t like this model of control, and the old model of elite authority is breaking down, again with the understanding that you are not in the business of predicting the future, what would you like to see happen? If you could write a plan for where we should go, without saying that this is where we’re going to go, what would you do?
Martin Gurri: I tend to be skittish about saying what I would like, because who the hell cares about what I like? I’m a believer in liberal democracy in a really simple way, there are no layers of complexities, no contingencies, in a really simple way. I was born in Cuba, and so I experienced two kinds of dictatorships by the time I was 10. I’m here to tell you that liberal democracy at its worst is better than the most efficient dictatorship, all right? So, what I would like to see is the rise of a new political generation that has the guts to say, “This is what we know and this is what I’m going to try. I may be wrong.” You can’t be wrong if you’re a politician. You’re dead after that, right? I may be wrong, say it upfront, I may be wrong. If we are wrong here, we’re going to try over here, that’s the objective. I’m going to give you the objective very clearly. The means depend on a lot of things that we may not know enough about. Let’s try this, let’s try that.
Trial and error is the only way the human race has ever gotten anywhere, and our politics abandoned trial and error. Everybody is in lockstep, right? I mean, slightly different with the states. We still have a division among states, but even so, there seem to be like two big divides that are walking lockstep with each other. And I would like courage. Our elites are massively cowardly and we ourselves, as the public, are not much better. And I don’t mean like John Wayne in The Sands of Iwo Jima or something like that. I mean, the courage to stand up for what is obviously the case, which is, we don’t know enough. I mean, I think that falls on us to some extent, but hopefully a new generation. There are some people out there that are interesting, but not many, I have to admit. I think our elites are just a bunch of chickens that just get terrified by any loud noise and go in the opposite direction.
Bethany: Thank you very much, Martin, that was really fascinating. I really enjoyed that.
Luigi: Yeah, that was excellent. Thank you, Martin.
Martin Gurri: Nice talking to you all. I’m going to go have dinner.
Luigi: One of the interesting aspects that we have seen in the contemporary world is that experts who are challenged in their authority, rather than being open to this challenge, they actually close down like a clam and try to keep people out and overemphasize their knowledge at the expense of truth. And we’ve seen that with the pandemic in spades.
Remember when we talked with Mervyn King? He said that the really knowledgeable people are the ones who sometimes say, “I don’t know.” I think that that is a very powerful message that resonated in my ears when I was listening to Martin go into all these things. Because, in reality, now experts who are challenged in their status are even less willing to say, “I don’t know,” because the moment they say, “I don’t know,” we say, “Ha ha, you see, you’re not an expert because you don’t know.” And so, they overemphasize their knowledge in the same way in which the seismologists, the Italian seismologists, overemphasized their confidence when there is no confidence, in the sense that we don’t know about earthquakes. And you can be the expert seismologist and you’re not very good at predicting earthquakes.
However, you have to have the humility to say, “We don’t know.” And that’s the same for the financial crisis. I think that it’s not that easy to predict a financial crisis, probably easier than earthquakes, but a lot of people don’t know. However, they behave in their day-to-day operations as if they knew, they had the confidence. So, I think we’re seeing this phenomenon over and over again.
In the conversation, when I challenged him, how do you find the right elite? He was a bit waffly, but in the book, he says clearly that it must come from a sense of respect that comes from the bottom up. And that’s the part that is so difficult to reimagine today. How can you gain that respect from the bottom up?
Bethany: The parallels between Martin Gurri and Mervyn King both saying that one of the most important things is being able to say you don’t know is fascinating. It’s interesting how these two different thinkers have arrived at the same point of view through very different routes.
It’s interesting, because I am not entirely clear what Gurri is saying, either in the book or the podcast, on this front, and on your point that trust needs to come from the bottom up. Because, in some ways, he says, it’s not the elites that have changed, that the elites have always been as fallible as they are today. And that the only reason we didn’t know that and that people still had trust in the elites was because of their monopoly on information.
But, in some ways, he’s saying that something did change, and the way I read his description, at least in our talk with him, about what has changed was that this false concept of a meritocracy has gotten in the way, the way in which people are conferred all sorts of advantages through mechanisms that aren’t trusted from the bottom up, that are, for example, having gone to the right school, being selected by the right person. And I’m not really sure if that’s different than it used to be, and nor am I sure how we go back from that system, given that we have such—although some of that’s starting to be challenged today—but we have had such an overwhelming belief in meritocracy as a real thing.
Luigi: I think one big thing has changed and that is the level of confidence and security that experts used to have and don’t have anymore. And let me give an example. I don’t know if you know the history of IBM, but IBM was not founded, but it was basically made into what it is today, or what it used to be in the ’70s and ’80s, by a guy called Watson, OK? And his son was actually higher up in the company, in the most nepotistic form that you can imagine. However, his son is still revered, and when he passed away, IBM did a big advertisement in all the newspapers to celebrate this, because his claim to fame is that he went to his father at the right moment and said, “We need to move away from typewriters and go into computers.” And the father, as all the successful people, tended to be a stubborn, autocratic guy who didn’t listen very much, and everybody was afraid to go and tell the old Watson that he was wrong. The son was the only one who could afford to do that.
And why am I saying this? It’s because if you have your power coming from blood, not from expertise, you are more confident and you can admit you’re wrong, or you can bring the different things you can change. We’re not trying to resurrect aristocracy in any possible form or shape, let me be very clear. I hate it, but it shows, speaking of meritocracy, it shows one limitation of meritocracy, which is, by the way, amplified by the loss of monopoly on information. Because once you had the monopoly on information, you did not have the blood, but you had information that everybody else did not have. Today, you are forced to be challenged in every possible form or shape.
The moment all your knowledge is based on you knowing more than others, that’s a source of authority. Then you become more doctrinaire, because if your thesis is wrong, you are gone as well. And so, I think that this challenge of expertise has made the expert more intolerant, more aggressive. I am shocked by my own colleagues and other professors in other fields, how aggressive they are on Twitter, saying things that I would never say and I would never think, and having that degree of certitude that I don’t have about anything in the world. I personally think that everything can be challenged, but I am a minority these days.
Bethany: Yeah. It’s a very interesting point that sometimes, in a way, I think the answer is that it’s not black and white. Sometimes, in a way, this ability to monopolize information and control the narrative actually turned out to be a positive for the advancement of the world, and sometimes it was a great, great negative. Just like, sometimes, the confidence of an aristocratic elite can actually be a good thing, just as in many cases it can be a bad thing. But I think Gurri’s point and your point are similar, which is there’s no way we’re going back to the way it used to be.
Luigi: And I want to bring up another point, which I don’t know to what extent it’s in Gurri, to what extent it’s my thinking within Gurri, at this point it’s all jumbled up, but I don’t think it’s fully appreciated at large that our modern representative democracy coevolved with 20th-century media. If you think about it, representative democracy started around the same time in which newspapers started. Universal suffrage came into the picture roughly at the same time as the radio came into the picture. The radio and then, of course, TV later, really shaped democracy as we know it today. It would be surprising that social media and this revolution did not change the way we practice democracy today.
Representative democracy, the delegation that we normally do, that you and I grew up with, sounds very primitive to the world of our kids, who live on smartphones and can get feedback immediately. That delegation was invented at a time in which you had to vote in California and send a representative to Washington and probably hear from him—at the time it was him—two months later. In a world in which you have instant feedback, do we really want to change nothing in the way we do democracy today?
Bethany: That’s a good question, that maybe representative democracy was dependent on the creation of, maybe not a single narrative, because we obviously always had huge disagreements as a country, but dependent on the creation of narratives that resonated. And in this day and age, when the narrative has been fractured into a million different bits and pieces, can you still have representative democracy that makes sense? And, unfortunately, I would argue that in the era of the pandemic, that we’ve gone the opposite way of a hopeful sign for that. Because, to me, a hopeful sign of the fragmentation would be people’s ability to think through it and say, “I identify with this and I believe this, but I don’t identify with this and I don’t believe this.” And so, for candidates who had multiplicity to them.
And instead, at least what we saw with the gigantic uncertainty brought by the pandemic, is that we all oversimplified. As Gurri used as an example in our podcast, the supposedly smart person on Twitter saying, “I wear a mask so you can see that I’m not Trumpian.” I mean, instead we’ve conflated these things that we should be separating and pulling apart. We’ve conflated and oversimplified in an effort to use tribalism to ward off the uncertainty of this new world. I worry that just as that didn’t serve us well in the pandemic, that may not bode well for our future.
One of the places where I wasn’t sure about Gurri’s diagnosis, I was unclear how this filters through corporate America and why this doesn’t . . . We can see the effects this is having on democracy, but why it doesn’t . . . He’s pretty sure that it hasn’t interrupted or affected capitalism yet, and per some of our previous episodes, I don’t understand, if it starts to fray democracy, how it can’t fray capitalism as well, except for perhaps maybe the old adage that capitalism is the worst possible system with the possible exception of all others. So, maybe capitalism actually fits perfectly in this nihilistic world where we’re not sure what to do.
Luigi: I’m actually with you and not with Martin here. Maybe being a media analyst is closer to the political world than to the business world. I think that this crisis is enormous in the corporate world, and not only that, that insecurity is multiplied by a factor of n in the business world, because you can be deposed in a second.
The one lesson I learned by joining a corporate board and leading the corporate world for a little bit is how insecure CEOs are. Because you look from outside and say, “These guys are super powerful, blah, blah, blah, blah, why are they not super secure?” And the answer is because, unless you are Jeff Bezos, that basically you own a majority of the company and so you cannot be kicked out, you can be dismissed at a moment’s notice. And this depends on a change of mood, because most board members—I’m an exception—but most board members tend to be fairly yes-men-like and always say yes, until the moment they say no.
So, you don’t even see it coming. You have total consensus on the board until the next moment, when you don’t. And that’s the reason why businessmen are so paralyzed by the media and the press, because the only thing that can create this common knowledge against their narrative is the media. And so, they try to do their best to control the media in every possible form or shape. But, of course, the genie’s out of the bottle. So, the old-fashioned media could be controlled through advertising, through donations, through this, through that, but social media cannot.
Bethany: I’m going to expand on that and try for something here that may not work, but let me try it. I think that’s exactly right, and I think there’s another element here, which is that if you go back to the beginning of corporate raiders in the 1980s and 1990s, that was almost, in Gurri-like terms, the destabilizing of the system, in the sense that CEOs could now lose their job for failure to perform, even if they had the noblesse oblige created by a dependent board and quiescent shareholders. All of a sudden, the system was no longer guaranteed, and the upheaval began, and that made CEOs increasingly insecure.
I remember Angelo Mozilo, the former CEO of Countrywide, speaking of the financial crisis, saying afterwards that he had no choice but to get into subprime mortgages despite the fact that he had never believed in subprime mortgages. He had no choice, because if he hadn’t, his board would have fired him. His investors would have said, “What are you doing? Why aren’t you keeping up with the market?” And so, that very insecurity led him off the cliff.
And I think now, with social media, there’s another element to that CEO insecurity, which is they can’t control the skepticism about their businesses on social media. And you see that playing out in the Elon Musk, Tesla debate all over Twitter. Back in the old days, even in the dotcom bubble and in the days of Enron, all you had to control were the major media and the Wall Street analysts. And you could figure out how to control both of them within some reason, because the major press depended on access to you and understood that if they wanted access to you, then they had to behave.
And the Wall Street analysts wanted your banking business, and so they understood that in order to get that banking business, they, too, had to give you authority and say that your stock was a buy. And in this new world, it’s a complete free-for-all, because anybody can put anything on Twitter, any piece of analysis that completely undermines what you, the CEO, just said, and they can do so instantly. And so, it is a continued destabilization of the corporate world in exactly the same way that we see a destabilization of the political world or of the world at large. Did I get there in a sensible way?
Luigi: Absolutely. No, you’re perfect, your analogy with the takeover wave is brilliant and suggests, I think, the next step. Because my reading of that wave is the insecurity brought an enormous backlash that led to the incrimination of Michael Milken. Now, I’m not saying Michael Milken was not guilty, but I’m saying he probably was not more guilty than most financiers. And most people don’t know that the only thing he went to jail for is parking, which is not parking your car, but parking some stocks during a takeover. Nobody else has ever been punished, as far as I know, for that, certainly not with jail. So, there was a concerted effort to bring down the cause of instability in corporate America. They succeeded, and afterward the world was different, because the takeover wave of the ’80s never repeated itself.
And so now, the question is, now that the source of instability is social media, what I suspect is that we are going to go toward a backlash that we need to restrict what social media diffuses. And we see that you can’t write that the virus originated in a lab in China, because that’s false information. They don’t know it’s false, that nobody has an idea whether it’s true or not, but they select that you cannot report that. And, next thing you know, you will not be able to report anything negative about the CEOs of large corporations, because that infringes on their privacy, their royalty and whatever.
Bethany: Oh, my God, dystopia. That’s actually a pretty frightening picture of the world, but I certainly agree with you, it is a slippery slope. I’m going to disagree a little bit about the takeover wave ending. I think it did end, but it got replaced with activist investors who are every bit as destabilizing to CEOs as the takeover magnates of old. So, I think the explosion of hedge funds, aggressive hedge funds and buyout firms that, no, they’re not the raiders of old, but they have every bit, if not more, influence on whether a CEO can keep his or her job, have effectively continued to accomplish the same thing, and I’m going to put “accomplished” in quotes, because I’m not sure in the end it is an accomplishment.
The more we talk, the more I think about this key idea of balance, that extremes are dangerous and destabilizing. And I was also thinking, as we were talking, about this difference between being able to say “I don’t know” as an insecurity, because many people think that saying “I don’t know” is a form of insecurity, when, actually, being able to say “I don’t know” is the greatest expression of confidence in yourself that you can possibly have.
But somehow, we exist in a world where saying “I don’t know” has become equivalent with a form of insecurity. And I was thinking of Gurri’s line in our podcast that Karl Popper said science is about the idea that you have to listen to the other fellow, because there’s a wild possibility that the other fellow is right. And listening to the other fellow or the other woman takes an enormous amount of confidence. It’s not insecurity at all, it’s confidence.
Mervyn King, former Governor of the Bank of England, discusses inflation and what comes next for the economy.Capitalisn’t: He Foresaw Inflation. Here’s What He Expects Next.
Make rules that are simple and apply to all companies.How Best to Report Carbon Emissions
Monetary policy lives in the shadow of US federal debt.What Makes It Hard to Control Inflation
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.