Women Working: What’s the Pill Got to Do With It?


♪ [music] ♪ [Alex] When Katharine McCormick
was born in 1875, hardly any women went to college,
women couldn’t vote, and birth control —
that was being made a crime. McCormick set out
to change all of this. She graduated with a biology degree
from MIT in 1904, only the second woman ever
to graduate at MIT. She worked
on the Suffrage Movement, she helped to pass
the 19th Amendment, which in 1920 guaranteed women
the right to vote. And throughout her life,
she promoted female education. But her greatest contribution
to female education came in a way that even she
might not have expected. In the 1950s, a group
of scientists were working on an oral form
of birth control, the pill. But the research was slow and the political climate
at the time was controversial, and their funding was pulled. McCormick had been a long time
supporter of birth control . . . in her earlier years, going so far as to smuggle in
diaphragms from Europe. Now, at 78, she stepped in
to provide the scientists with much needed financial support. Doesn’t seem like
a controversial idea today, but at the time,
using birth control or selling it — that could land you in jail. So now you’re probably wondering, “Okay — what does this all
have to do with economics?” Of course, economics
has to do with everything. Perhaps you recall
from an earlier video that during the 20th century, the labor force participation rates
of women increased significantly, especially since the mid-1960s. Not only did more women start
to work in the paid labor force, but we also saw an explosion
in the number of women in professional fields,
like medicine and law. Research by the economist
Claudia Goldin with Lawrence Katz
and also Martha Bailey, shows that the major factor
explaining these dramatic increases was the invention
and legalization of the pill. The pill was approved for sale
in the United States in 1960. But incredibly,
24 states at that time still prohibited the sale
of any contraceptive. And a number of other states
restricted sales to married women only. In Connecticut, not only was
the sale of birth control illegal, it was illegal to use it with violations punishable
with a prison sentence. Nevertheless,
growing demand for the pill pushed it onto center stage. There was a nationwide debate
about women’s rights and sexuality. Some people feared sexual anarchy
if the pill became widely used. Others felt that it was a
fundamental right of a woman to control when
she would have a child. In 1965, the Supreme Court
stepped into this debate. They ruled that
what a married couple did in the privacy
of their own bedroom — that was their business,
not the government’s. As the pill became more
widely available with these rulings, the number of women entering
professional degree programs exploded. This graph from our textbook
with Tyler,Modern Principles, shows how, from 1955 to about 1970,
fewer than 10% of the students entering these programs
were women. But by 1980,
those rates had doubled. And then they doubled again. So that by 1995, lots of professional programs
had 40 to 50% women entrants. Now, clearly, other things were
also changing during this time. So how do we know that
the pill was a driving force? One strong piece of evidence is that the states that legalized
the pill earlier — they also had earlier increases
in female professional education and labor force participation rates. So what exactly was it
about the pill that made it easier for women to participate
in the paid labor force? Overall, it wasn’t that the pill
reduced the number of children. Much more important was that
the pill gave women greater control over when children were born. It’s another story of incentives. Economist Martha Bailey
summed it up by providing a low-cost means
of delaying childbearing. Oral contraception allowed women
to remain in school, pursue longer-term careers, and work more
in the paid labor force during ages historically
associated with childbearing. If you look around MIT today,
you can find McCormick Hall, an all-female residence that was one of Katharine McCormick’s last gifts. But if you really want
to see her influence, take a look
at all the female students studying engineering,
medicine, law, and of course, economics. [Narrator] If you want
to test yourself, click “Practice Questions.” Or, if you’re ready to move on, you can click
“Go to the Next Video.” You can also visit MRUniversity.com to see our entire library
of videos and resources. ♪ [music] ♪

Principles for Success: “Embrace Reality and Deal With It” | Episode 2


principles for success an ultra mini-series adventure in 30 minutes and in eight episodes episode to embrace reality and deal with it the path you take in life is your most important decision in my case I wanted my life to be great and I feared boredom and mediocrity more than I feared failure since I didn’t start out with money and I didn’t need much more than a bed to sleep in and food to eat I could skew my decisions to pursue my adventures so ever since I was a kid I ran after the things I wanted crashed got up and ran again and crashed again and each time I crashed I learned something got better and crashed less by doing that over and over again I learned to love this process even the crashing part of it through it I encountered reality and I learned how to deal with it which inspired another one of my most fundamental principles which is that truth is the essential foundation for producing good outcomes by truth I don’t mean anything more than the way the world works I believe that we were given the laws of reality by nature humans didn’t create them but we can use them to foster our own evolution and achieve our goals realizing that made me a hyperrealist by which I mean I became someone who has discovered the great rewards of deeply understanding accepting and working with reality as it is and not as I wish it would be what I say I’m a hyperrealist people sometimes think I’m saying that dreams can’t come true that’s absolutely not true without pursuing dreams life is mundane what I mean is that to me hyper realism is the best way to choose one’s dreams and then achieve them having big dreams plus embracing reality plus having lots of determination will bring you a successful life I believe this formula is true for everyone but what does a successful life look like we each have to decide for ourselves what success is I don’t care whether you want to be a master of the universe or to live under a palm tree or anything else I really don’t each of us chooses goals based on our values and decides on the best path to achieve them but we all need approaches to making decisions that work well especially when facing problems mistakes and weaknesses that stand in our way to succeed we must embrace all our realities especially the harsh realities that we wish weren’t true at first looking at these harsh realities caused me a lot of pain but I learned that this pain was just psychological and that my seeing things differently made all the difference I came to view problems like puzzles that would reward me if I could solve them they would help me deal with the problem at hand and they would give me principles for dealing with similar problems in the future I learned to treat pain as a cue that a great learning opportunity is at hand which led me to realize that pain plus reflection equals progress meditation has been invaluable in helping me see things that way I found that when I calmed myself down and embraced my realities and dealt with them the rewards brought me pleasure and the pain faded each of us has the unique capability to think logically to reflect on ourselves and our circumstances and to direct our own personal evolution doing this well is just a matter of following a simple five-step process in Episode three we’ll explore what that process is and how to use it

Top Three Myths about the Great Depression and the New Deal


by definition military production output is not real wealth walls destroy wealth rather than creating it there are a number of myths about the Great Depression which are very popular the first is that Herbert Hoover was to do nothing less a fair president who simply allowed unemployment to rise and was responsible for a total economic collapse in fact this is the opposite of the truth Hoover was an extremely interventionist president and one of the main reasons why the Great Depression became so severe was because of the active and interventionist policy he followed in particular his refusal to allow asset values and wages to find a natural clearing level the second myth is that the New Deal saved American capitalism and brought the Great Depression to an end the historians generally do not believe this anymore the fact is that in most parts of the world the Great Depression began to end much much earlier and much more quickly than it did in the United States in Great Britain the Great Depression was over by 1933 and Britain in fact enjoyed very rapid economic growth of 1931 onwards in the United States by contrast not only does the Great Depression go on for more than a decade it in fact actually gets worse and by 1937 the level of unemployment in the United States is as high as it had been in 1932 but in addition the federal government has built up an enormous debt the third common myth is that what eventually ended the Depression and saved the economy was world war ii by definition military production output is not real wealth wars destroy wealth rather than creating it in fact if you look at the figures for American economic activity and you strip out the war effects as people like Robert Higgs have shown what you can only conclude is that in fact the Great Depression does not really end until 1947 or 1948 and that the war simply conceals or covers up the continuing low level of real wealth creating economic activity in the United States you [Music]

US will have a strong trade deal with post-Brexit Britain: Grenell


ACTUALLY WE’RE HELPING THE SITUATION.>>YOU’RE RIGHT IN THE MIDDLE OF EUROPE. AND BRITAIN IS TRYING TO OUT OF EUROPEAN BREXIT. NO TRADE DEAL UNTIL THE BRITS GET OUT OF EUROPE AND THEN DO YOU THINK WE’RE GOING TO HAVE AMERICA HAS A VERY IS STRONG TRADE DEAL WITH THE BRITS?>>OH THERE’S NO QUESTION WE HAVE A SPECIAL RELATIONSHIP WITH GREAT BRITAIN AND WE WILL ALWAYS HAVE A — A INCREDIBLE EASY TRADING RELATIONSHIP WITH THE BRITS. I THINK WHEN IT COMES TO PARKING I THINK WHEN IT COMES TO PARKINT I THINK WHEN IT COMES TO PARKINE EUROPEAN UNION THERE’S SOME PAIN CERTAINLY WE SEE IT WITH MEDICAL DEVICES MOST OF THE NOTIFIED BODIES, THE BODIES THAT APPROVE THE PROCESS ARE LOCATED IN THE U.K.. AND SO THOSE ARE GOING TO HAVE TO ALL CHANGE AND THEY’RE GOING TO HAVE TO COME INTO TRADITIONAL EMENT U. SO WE’RE GOING SEE SOME L GROWING PAINS WITHIN CERTAIN INDUSTRIES BUT I THINK THAT — AMERICA’S RELATIONSHIP WITH EUROPE WILL ALWAYS BE STRONG AND AMERICA’S RELATIONSHIP WITH THE U.K. WHEN THEY LEAVE THE E.U. AND WE HAVE BREXIT WILL BE JUST

Huawei accuses US of launching cyberattacks


♪ LIZ: IF YOU CAN’T BEAT ‘EM, ACCUSE THEM. AFTER MONTHS OF ACCUSATIONS BY THE TRUMP ADMINISTRATION, THE CHINESE TELECOM GIANT HUAWEI HAS BEEN INSTALLING SPYWARE INTO ITS HARDWARE THAT IT SELLS TO AMERICAN CLIENTS, NOW HUAWEI IS ATTEMPTING TO TURN THE TABLES ON THE U.S. CHINA’S LARGEST TECH COMPANY SAYS THE U.S. GOVERNMENT HAS DONE EVERYTHING FROM, QUOTE, THREATENING TO MENACING, TO LAUNCHING CYBER ATTACKS AGAINST IT IN A BID TO INFILTRATE HUAWEI’S INFORMATION SYSTEMS. IS AND THAT’S NOT ALL. CHINA PLANS TO FILE SUIT THROUGH THE WORLD TRADE ORGANIZATION TO MAKE ITS ACCUSATIONS OFFICIAL. TO FORMER UNDERSECRETARY OF STATE AND FORMER GOLDMAN SACHS VICE CHAIRMAN BOB HORMATS WHO JOINS US FIRST ON FOX BUSINESS. WELL, THE LIST IS LONG OF HUAWEI’S ACCUSATIONS. YOU KNOW, I PULLED THIS AND I HIGHLIGHTED A BUNCH OF THINGS, AND THEY’RE SAYING THAT THE UNITED STATES INFILTRATED AND PUT SOME TYPE OF MALWARE, SPYWARE OR IS AT LEAST TRYING TO INFECT THE INTERNET THAT HUAWEI HAS IN CHINA. SO IT’S JUST UNBELIEVABLE NOW. WE’RE GETTING THIS HE SAID/SHE SAID TYPE OF SITUATION. WHAT DOES THAT TELL YOU ABOUT THE TRADE WAR OVERALL?>>I THINK THE TRADE WAR OVERALL WHEN YOU LOOK AT THE LATEST TARIFF MOVES BY THE UNITED STATES WHICH WERE IMPLEMENTED IN PART OVER THE WEEKEND AND CHINA RESPONDING, BUT RESPONDING WITH A MUCH SMALLER RESPONSE THAN THEY COULD HAVE CONJURED UP. AND THE FACT IS THAT CHINA HAS BEEN RELATIVELY RESTRAINED IN ITS RESPONSE TO THE TARIFFS THAT THE UNITED STATES PUT ON OVER THE WEEKEND WHICH INDICATES THAT THEY WOULD LIKE TO SIT DOWN AT THE NEGOTIATING TABLE AGAIN. LIZ: BUT THEY CAN’T GET A SCHEDULE –>>THEY CAN — THAT’S WHAT’S SO TROUBLESOME. THE FACT IS THE TRUST HAS BEEN BADLY E ERODED — ERODED, AND NOW WE’RE SEEING THE UNITED STATES ESCALATING AND THEN CHINA RESPONDING IN PART BUT NOT TO THE SAME DEGREE AS THE UNITED STATES, AND THEY CAN’T EVEN GET AN AGREEMENT ON A TIME TO GET TOGETHER. WE’RE REALLY ON A COURSE IN THE MARKETS — AND THE MARKETS HAVE PICKED THIS UP AS YOU’VE BEEN REPORTING, WE’RE ON A COURSE TOWARD MUTUALLY ASSURED DISRUPTION; DISRUPTION OF OUR ECONOMY AND OF THE CHINESE ECONOMY. AND BIG AMERICAN COMPANIES ARE GOING TO BE HIT WITH BIG SUPPLY CHAIN RELATIONSHIPS WITH CHINA. BUT MORE AND MORE OF THE GOODS THAT ARE GOING TO BE TAXED UNDER THE NEW ADMINISTRATION’S REVENUE EFFORTS, IN FACT, INCREASING THE TARIFFS — WHICH WILL INCREASE REVENUES — ARE AT THE EXPENSE OF AMERICAN CONSUMERS. LIZ: WELL, YOU TALKED ABOUT EROSION IN TRUST. YOU CAN’T JUST BLAME THE UNITED STATES FOR THAT.>>NO. LIZ: OR PRESIDENT TRUMP. YOU HAVE TO BLAME CHINA WHICH MOVED THE GOALPOSTS WHEN THEY HAD AN ACTUAL DRAFT WHICH SEEMS SO LONG AGO, AND SUDDENLY XI JINPING SAID, NO, WE’RE NOT DOING THAT. SO NOW YOU’VE GOT THIS NOTE BY A DEUTSCHE BANK ECONOMIST WHO UNDERSTANDS ASIA, AND HE IS NOW SAYING THAT CHINA NO LONGER SEES RESOLVING THE TRADE WAR AS THE TOP ISSUE IN THE U.S./CHINA RELATIONS, THEY SEE ECONOMIC RESILIENCE IN THE, IN LIGHT OF THE SITUATION. THEY ARE ALSO — HE’S ALSO SAYING, THIS IS THE ECONOMIST AT DEUTSCHE BANK, THAT THE CHINESE ARE PREDICTING THIS TO LAST A DECADE AND THEY WILL SEE IT THROUGH?>>I THINK IF THEY CAN’T REACH AGREEMENT IN THE RELATIVELY NEAR FUTURE, THIS COULD LAST A LONG TIME. IT’S NOT CLEAR WHAT THE ADMINISTRATION’S GOALS ARE. DO THEY WANT A QUICK AGREEMENT? PROBABLY NOT. DO THEY WANT AN AGREEMENT BEFORE THE ELECTION? DO THEY WANT TO HAVE THIS DECOUPLING, THE SEVERANCE OF ECONOMIC TIES BETWEEN THE UNITED STATES AND CHINA, OR DOES THE ADMINISTRATION REALLY WANT TO BADLY WEAKEN THE CHINESE ECONOMY AND HURT PARTICULARLY ITS HIGH-TECH COMPANIES? IF THE CHINESE PERCEIVE THAT THERE’S NOT AN AGREEMENT ANYTIME SOON, THEY’RE VERY DEPENDENT ON THE UNITED STATES, ON THE U.S. MARKET AND ON THE U.S. FOR PARTICULAR INPUTS, MARLEY HIGH TECHNOLOGY — PARTICULARLY HIGH TECHNOLOGY INPUTS. THEY’RE GOING TO HAVE TO FIGURE OUT A STRATEGY AND NOT BE SO VULNERABLE TO TRADE OR SUPPLY DISRUPTIONS WITH THE UNITED STATES. THAT MAY WELL BE IF THEY’VE CONCLUDED THERE’S NOT AN AGREEMENT COMING, THE UNITED STATES IS GOING TO WEAKEN THEIR ECONOMY, THEY’RE GOING TO HAVE TO BE MORE AND MORE RESILIENT THEMSELVES AND FIND OTHER MARKETS AND SUPPLIERS THEMSELVES. LIZ: OCTOBER 1ST IS THE 70TH ANNIVERSARY OF THE FOUNDING OF THE PEOPLE’S REPUBLIC OF CHINA. THAT’S THE DAY PRESIDENT TRUMP INTENDS TO JACK UP TO 25% SOME OF THE TARIFFS ON CHINESE IMPORTS TO THIS COUNTRY. THAT’S A SYMBOLIC FINISH.>>YES. LIZ: — VERY TOUCHY, SENSITIVE THE, SOFT SPOT FOR THE CHINESE, IS IT NOT?>>YES, IT IS. LIZ: HOW WILL THAT GO OVER?>>FIRST OF ALL, BADLY. BUT SECOND, PRESIDENT XI, THERE’LL BE A BIG CEREMONY COMMEMORATING THE 70TH ANNIVERSARY COMMEMORATING THE FOUNDING, AND IT’LL GIVE HIM THE OPPORTUNITY TO SAY WE’RE NOW UNDER PRESSURE FROM THE UNITED STATES ECONOMICALLY, AND WE HAVE TO STRENGTHEN OUR UNITY — LIZ: BUT LOOK AT THE SHANGHAI STOCK MARKET, DOWN 10% SINCE THE TARIFF WARS BEGAN.>>YES. LIZ: SHENZHEN DOWN 4%, HONG KONG, THE HANG SENG IS A DIFFERENT STORY WITH ALL OF THE PROTESTS, THAT’S DOWN 17%. SOMEBODY’S GOING TO CRY UNCLE. MAKE A PREDICTION.>>I DON’T KNOW AT THIS POINT. IT’S NOT GOING TO BE — THE CHINESE ARE NOT GOING TO MAKE CON EDUCATIONS THAT THEY THINK ARE — CONCESSIONS THAT THEY THINK ARE GOING TO UNDERMIGHT BE THEIR SYSTEM — UNDERMINE THEIR SYSTEM. I DON’T KNOW WHO’S GOING TO MAKE CONCESSIONS OR WHO’S GOING TO BLINK FIRST, BUT AT SOME POINT THEY BOTH HAVE TO SIT DOWN OR BOTH ECONOMIES ARE GOING TO BE BADLY WEAKENED. THE CHINESE DO WANT TO STRENGTHEN THEIR RESILIENCE, AND I THINK YOU’LL SEE THIS ON OCTOBER 1, PRESIDENT XI’S ALREADY SAID WE WENT THROUGH THE LONG MARCH, WE CAN GO THROUGH THIS. HE’S GOING TO TRY TO PULL THE COUNTRY TOGETHER ECONOMICALLY AND POLITICALLY BEHIND AN EFFORT TO DEAL WITH THIS PROBLEM IF HE

The Business of Conscious Capitalism


Hi, everyone. My name is Eva Agoulnik. And I’m this year’s
VIP Distinguished Speaker Series Chair. And today we have John Mackey,
the co-founder and co-CEO of Whole Foods. John has devoted most of his
adult life to selling natural foods and building a better
business model. A leading practitioner of
empowerment management, the co-CEO of Whole Foods Market,
helped build a $9 billion Fortune 500 company that is
now one of the top 20 supermarket companies
in America. In 1978, he co-founded SaferWay
Natural Foods with Renee Lawson. And in 1980, Whole Foods
Market was created. Now they have 298 stores
in the US, Canada, and United Kingdom. John and the Whole Foods Market
leadership team are firm believers in
decentralization and the ideas of self-empowerment. The company honors a strict
pay cap for all of its executives, promoting
internal equity between all team members. John cut his salary to $1.00
annually in 2006 and forgoes stock options and bonuses. He continues to work for Whole
Foods for the pleasure he realizes from leading such a
great company and to better answer the call to service that
he feels in his heart. An active promoter of a new
business paradigm that he coins conscious capitalism,
John is also co-founder of Conscious Capitalism, a
nonprofit organization with the tag line liberating an entrepreneurial spirit for good. Please help me welcome
John Mackey. Welcome, John. Thanks for subjecting yourself
to this ordeal. So far it’s been pretty good. It will be fairly painless. We’ll have about a
half an hour of me asking some questions. And then we’ll turn the questions over to the students. And it will get harder at
that point in time. So we really appreciate that. Tell us a little bit about
the young John Mackey. What was your first job? And how did that lead to or
how did you begin to think about entrepreneurship or
business as a career path? My first job. First job was I guess I was
working for my dad, because we didn’t get an allowance. So if you wanted any spending
money, you had to do the chores in the house. So that started very young. The first I suppose job
out of the house was– I grew up in Houston. And I guess I was working
at AstroWorld. And I did that for a
couple of years. And I worked as a counselor
in a boy’s camp. And I was a dishwasher at a
few restaurants in Austin. So I’ve got this resume– boys camp counselor,
dishwasher, CEO of Whole Foods Market. What did you learn on those
first few jobs that are still relevant for your
career today? You know what I learned,
I learned I don’t like authoritarian bosses. I really don’t. And part of my philosophy is
not to really have that at Whole Foods. Interesting. Let’s talk some more about the
attributes you think you have. What do you think you have that
sets you apart from your peers now and the peers
that you faced throughout your career? I don’t know because that
involves judging other people. And I really don’t
like to do that. So I don’t know what
sets me apart. I can talk a little bit about
maybe what I’m good at– if it sets me apart or not. One thing is I think I’m pretty
self-aware, which means I have a pretty good idea
what I’m not good at. And I think a lot of entrepreneurs get some success. It’s like a drug. And it goes to their heads. And they start thinking that
they’re geniuses and they can do everything. And I know I’m not good
at a lot of things. So I would do what
I was good at. And I’d make sure that we hired
other people on the team that sort of complemented my
strengths by making up for my weaknesses and deficiencies. So for example, I think people’s
weaknesses come out of their strengths. And I really believe
in people. And the good thing about
that is it oftentimes helps people to– they want to live up
to my expectations. On the other hand,
I oftentimes make mistakes about people. Because I see their potential. I don’t always see their
weaknesses that well. And I depend upon other
executives to kind of cut through that for me. And particularly in promotions,
I see the potential and I count on the
rest of the team to sort of save from those mistakes. I’m very creative guy. I’ve a quick mind. Very creative. I’m very passionate. And like most entrepreneurs,
I’m in a hurry to get things done. So when you’re building
an organization– I’m kind of a fire, ready, aim
kind of person which is, don’t have a lot of patience
for planning. Let’s get out and try things. And see what works. If it works, do more of it. If it doesn’t work,
throw it away. And so Whole Foods has
that kind of culture. We do lots of experiments. And the failed experiments,
no one’s punished for it. We just stop doing it. And the successful experiments,
we continue to continually improve them. I do think that helps us
against a lot of our supermarket competitors who tend
to be much more top-down, more controlling, more
planning oriented. Whole Foods is still– even
though we’ll do over $10 billion in sales this year– we’re still very
entrepreneurial. Right. Right. What are some of the most
dramatic failures that you’re proud of at Whole Foods? I’m not proud of any
our failures. But we did learn a few
things from them. You mean what are some
of the big mistakes Whole Foods has made? Yeah. Yeah. Well, we’ve done over
20 acquisitions. And one of them was
a disaster. It’s the biggest mistake
I ever made. And we bought this vitamin
company based in Colorado– in Boulder, Colorado–
called Amiron. We bought that back in 1997. We paid $140 million
for the company. And pretty much the day we
bought Amiron, it began to deteriorate. And it was unlike buying– retail stores, if something
goes wrong there we know how to fix it. We’d bring our team in
and we can fix it. But when this vitamin company
began to go south, we didn’t really know how to fix it. I personally moved to Boulder
for year to try to fix that and combine it with an
internet operation. Remember in the late ’90s
was when the internet bubble was going on. And I wanted my piece
of the bubble. And it was a disaster. And that was a huge mistake. So I’m not proud of it. But I’m proud I recognized it
was a mistake and got out of it before it was even
a bigger disaster. Yeah. There you go. Yeah. Who are some of the people you
admire the most and why? What’s my time range– from the beginning of
time or do they have to be alive today? Anybody. Historical, as well. Well, probably the person I
admire the most is my dad. And he’s gone now. He passed in 2004. But he was like my mentor. Initially, he was an accounting
professor at Rice University. So I never took any
business classes. I went to UT. I studied philosophy. But I never took any
business classes. And so when I started the
business, I didn’t know what the hell I was doing. And some people still think
I don’t know what the hell I’m doing. I’ve got a pretty good track
record so they’re beginning to have to grudgingly admit maybe
I know a few things. But my dad was like my mentor. So he saved us from countless
mistakes. Until age 40– at age 40,
I actually kicked my dad off the board. Because Whole Foods was
public at this time. And we were trying to
grow the business. And my dad looked around
in his balance sheet. And he realized most of his net
worth was tied up in Whole Foods stock at that point. So I think he was in a different
phase in his life. And he got very conservative. So I said look, sell your stock
and get off the board. Because we’re going to
blow and go here. But still, I really
admire my dad. I admire the people historically
who’ve been ethical leaders– who have
had a lot of courage. People like Gandhi, Martin
Luther King, Lincoln. People like that. People that are alive today–
the person I probably most admire in the world
is Muhammad Yunus. He’s an amazing man. He’s the coolest guy
I’ve ever met. And I really, really admire
him a great deal. He’s the founder of
the Grameen Bank. He has a vision to
end poverty. And Whole Foods is working very
closely with him and his organization. And from a business standpoint,
I probably admire all the entrepreneurs– guys like Michael Dell and
Steven Jobs, and Bill Gates. I really admire Warren
Buffett. I think he’s educated a whole
generation about how to invest. So those kind of guys. What are you still working
on personally? Is there anything you haven’t
mastered yet, that you’re working on? Is there anything
I have mastered? Tennis? Piano? I’m a perpetual student. Right. I’m a bookworm. I read a couple hundred
books a year. I’m always trying to
learn new things. The one thing I didn’t learn how
to do when I was younger and I really regret it, is
I didn’t learn to speak a foreign language. And I took Spanish,
because I had to. But I just didn’t think it
would ever be useful. And I really regret that because
it would be very useful to have mastered
a foreign language. And I wish I’d mastered
a musical instrument. I was into sports when
I was young. And they were trying to teach
me piano and musical stuff. And I was like, I want
to go out and play. But now, I wish I’d stayed in. Yeah. Got it. Let’s talk a little bit
about Whole Foods. What do you think separates or
differentiates Whole Foods from its competitors? What makes it really
successful? I mean, I think a lot
of things do. I think a) we’re a mission
driven company. We have a higher purpose. We believe in making
money, of course. But that’s not what really
drives the business. We have a sense of purpose and
mission to sell really healthy food, to have a different
relationship with our stakeholders– what we call conscious
capitalism. I think we’re doing business
differently than most other businesses are. I think it does set us apart. We differentiate in terms
of our product mix. And we think through each
one of our categories. For example, take the
meat department. There now, we’ve got a 100%
grass-fed beef that we well in all of our stores. We have pastured lamb. And we have pastured
eggs we’re selling. We’ve got seafood sustainability
that we’re– well now, we’ve created an
animal welfare rating system. So we had over 3,000 farmers and
ranchers who sell to us, inspected by third-party welfare
inspectors and rated in the last year. So we are continuing to ask
the question, what do customers value? And how can we differentiate
ourselves from people like H-E-B? How can we be different
than them? And so we think that through
in every category. And we continue to kind of
continue to evolve our business model and our product
mix to differentiate us. Our strategy– and if you look at a Michael
Porter way of thinking about it– we are a differentiator. We try to differentiate
ourselves. I’ll tell you a little
anecdote that kind of sums it up. Indra Nooyi– I was having lunch
with Indra Nooyi. She’s an amazing woman. And she’s the CEO of Pepsi-Co. Born in India. We had her at this event
about two months ago. OK. Then I’ll be very careful to
say nice things about her. Anyway, I’m having
lunch with her. She’s trying to evolve to a
lot more healthy products. She probably talked
about that. So she’s bought a lot
of suppliers that sell to Whole Foods. And she’d come up with this new
product that Whole Foods was going to introduce
for her. And we had like a 120-day
exclusive on the product. She it comes out. And a lot of publicity around
that product, which by the way I can’t remember right
now what it was. So don’t ask me. And she gets a call from Lee
Scott, the CEO of Wal-Mart. And he says, Indra, why are you
introducing this product at Whole Foods. We are by far your
biggest customer. You should be introducing that
product at Wal-Mart. She said, Lee, we didn’t really
think that product belonged at Wal-Mart. We think this is a product
really belongs at Whole Foods. And Lee says to her, Indra,
everything Whole Foods sells belongs in Wal-Mart. She told me that. And I said, Indra, anything in
Wal-Mart, will not be in Whole Foods Market. So that sums up our
differentiation strategy right there. Yeah. Clearly a different approach. Yeah. What challenges are paramount
in your mind? What is Whole Foods going to
have to do differently to thrive in the markets
going forward. We’re going to have to
keep differentiating. We’re going to have to
continue to evolve. Unlike a technology company,
if you’re in the retail business, we don’t
have any patents. And everything we
do gets copied. There wouldn’t be a Central
Market for example, if there wasn’t a Whole Foods Market. I mean that those guys saw what
we were doing, copied a lot of it, and then
raised the bar. So we have to continue
to get better. In capitalism, and particular
in the retail business, you can never rest on
your laurels. You never own the customer. You just rent them for awhile. If somebody comes with better
prices, or better quality, or better service, customers
will switch. So we have to continue
to get better. We have to continue
to improve. We have to continue to
innovate endlessly. So at the end of the day for
business like Whole Foods, it comes down to our culture. We have to create a type of
culture that can out compete all those other guys. At least now we’re big enough. I was always afraid when we were
smaller, that they were going to squash us like
a little bug. And now we’re so big, they
can’t really squash us. But still they try
to hack at us. But we’ve got to continue
to evolve. And I think our culture is sort
of unique in that way. We have a very special culture
at Whole Foods. We were named one of the 100
best companies to work for by Fortune, 14 consecutive years. And it’s a great
place to work. We get really creative,
bright people. We empower them. And they evolve the
company basically. Interesting. Could you talk a bit more
about your philosophy of conscious capitalism? Yeah. If I hadn’t done this Q&A, I
was going to do my talk on that tonight. So I’ll give you the two-minute
version of it. Basically conscious capitalism
is based on four key fundamental principles. The first one is that business
has the potential to have a higher purpose, beyond
just making money. Generally if you ask people what
the purpose of business is, they say it’s
to make money. It’s to make profit. And it’s such an odd answer,
because if you asked that question to a doctor,
they don’t say– what’s practicing medicine
all about? They don’t say I’m trying to
make as much money as I can. Doctors say, I’m going
to heal people. I’m going heal the sick. If ask a teacher, they want
to educate people. If you ask an architect, they’re
designing buildings. Even lawyers have ethics that
they are taught in law school about promoting fairness and
justice for our society. Although you can make a lot of
good lawyer jokes about that. Anyhow, so higher purpose
is the first one. I think business has
the potential for a higher purpose. And it needs to discover
what that is. A conscious business
understands what its purpose is. And that purpose can
evolve over time. It gets more complex. Secondly, a conscious
business– conscious capitalism is based on
a stakeholder model. It recognizes that there are
several stakeholders that are all important to the business. And you have to manage the
business to create value for all of those stakeholders– customers, employees, suppliers,
investors, and the larger community, and the larger
environment that the business is part of. So at Whole Foods, we manage
our business thinking it. We think of it that way. How do we create more value
for our customers? How do we create more value
for our team members? How can our suppliers flourish
along with us? How can we make more money
for our investors. And how can we be good citizens
in our community? And how can we have
environmental Integrity We’re continually to raise the
bar on each one of the stakeholders because they’re
all connected together. They’re all interdependent. So that’s the second
principle. The third principle is
conscious leadership. You can have a higher purpose. You can have a stakeholder
principle. But if your leadership is
basically not walking the talk, it doesn’t matter. They’ll wreck it. So you have to have a leadership
that serves the enterprise– that puts the enterprise’s good
and the good of all the stakeholders and the higher
purpose of the business first. And the fourth, you have
to design a culture– a conscious culture that
supports the purpose, the stakeholders, and the
leadership, so they can all flourish together. Add those four principles up,
and you’ve got a conscious business, which reflects
conscious capitalism. What is the chief challenge–
the biggest challenge to you of implementing that philosophy
at Whole Foods? It’s not a big challenge now. It was a bigger challenge
earlier because the world is a very skeptical, cynical place. And even now, I could joke. Our stock is up, our market
caps over $10 billion right now. So I’m back to being
a visionary genius. Alright. The stock is down, I’m like
the village idiot. And the market’s
very skeptical. So when we ever have any
difficulties, usually they tell us you need to get rid of
all that stuff you’re doing. If you would just be like a
regular supermarket and cut all this conscious capitalism
stuff out, you could really make this business successful. So there’s this skeptical,
cynical world that doesn’t think you can you can flourish
and make a lot of money for your shareholders and create
value for your other stakeholders. And that’s because
people believe– they’re stuck in the
trade-off model. They think all the stakeholders
are at war with each other. And that if you’re giving money
away in philanthropy, you’re stealing it from
the shareholders. If you’re paying your people
better, you could be making more money. They only see trade-offs. They don’t see synergies. It takes a different way of
thinking about business. It almost takes a different kind
of consciousness where you have a systems mind. We’ve learned in the last 40
years a lot about ecology. And when you study ecology, you
begin to see how it all connects together. That there are relationships
that exist between all the different aspects of the
ecological system. Business is a complex,
self-adapting system. And you have to see how all of
the stakeholders fit together in the system. And then you have to
manage the system. But people are so– and I’d say this is a flaw
in business schools. We train, select for
analytical skills– the ability to analyze
things and break it down into its parts. We don’t tend to do the
job of teaching– which are more important in
business by the way– emotional intelligence
is more important. And social intelligence
is more important. And a systems mind– to be able
to see the entire system. It’s an essential skill for
the future leadership of business in the 21st century. Because the world is
so complex now. And you have to see how
it all fits together. Yeah. Yeah. How do you select leaders or
incent them to embrace the philosophy that you
talked about here? The great thing about Whole
Foods is we have this empowered culture. Our stores are divided into
self-managing work teams. So you’re actually running
a little business. You’re running the
produce team. Or you’re running
the meat team. Or you’re running the
grocery team. And you’ve got profit and
loss responsibilities. And you have team members on
your team that you have to learn how to manage. And so the best team leaders
get promoted to associate store team leaders. And then they get promoted
to store team leaders– store managers. And then they can get promoted
into regional positions– regional vice presidents
or coordinators. And then beyond that, they
can get promoted into a global position. So leadership selects
itself over time. The cream rises to the top. It’s a highly– it’s a total meritocracy. We always promote from within. I’d say 97% to 98% of our
promotions are coming from within the company. The leadership becomes more
skilled through trial and error and through actually
running small, little businesses. So Whole Foods selects
leadership talent based on their success in operating
smaller units. And then you can see
who can do it. So it makes it easier. The hardest thing is picking
between really capable, competent people. That’s much harder. But we interview in groups. We never just have a one on
one type of interview. We always have a larger group
do the interview. And we try to get consensus
type decisions. So I would say you can
fool one person. It’s much harder to
fool a group. There’s a collective
intelligence in a larger interview group that tends
to make wiser decisions. Interesting. What’s the best piece of advice
you were ever given? I would say that the best piece
of advice that I was ever given, which I’m about
to give to you, is follow your heart. Follow your heart. And what I mean by that
is, life is so short. You do not know this right
now because you’re young. But life goes by really fast.
And you just can’t waste it. You’ve got to go for what
you really care about. Whatever you’re passionate
about, go make that happen. And people are too afraid
to do that. People don’t follow their heart
because they’re afraid they’re going to fail. They’re afraid that they’re not
going to have security. But you know what, you’re never
going to have security. You’re never going to really
be secure in life. So you might as well abandon the
quest. Instead, go for it. Go for what you really
care about. If you’re an entrepreneur– if you have entrepreneurial
instincts, go out and start your business. Finish school first.
Not really. Go out– Do as I say. Don’t do as I did. Right. I’m joking. Most of these guys
are on fire. These entrepreneurs
are on fire. And they just can’t wait. They just got to get out
and make it happen. You can always go back
to school, in a way. The best piece of advice I ever
got, I have always done what I was really passionate
about. Yeah. Yeah. Cool. I’m going to ask one more
question, John, before we turn it over to the audience. So if you have a question for
John, why don’t you queue up behind the microphone. And we’ll get to
those shortly. A lot of the students out there
are in the interview process, looking for jobs, and
looking to start their career. And one of the things I think
they would benefit from is hearing from you about
what makes a person stand out in your mind? What makes someone think that
you’d want them on your team? Do you mean who I might select
kind of, if I was hiring these type of students that graduate
from college or get an MBA or something like? Or are you talking about if I
was promoting somebody up to a higher level? Yeah. The first one specifically. But just generally, what causes
you to admire a person when you meet them
the first time? I’m looking for intelligence. And I don’t just mean analytical
intelligence– all those other kinds
of intelligence. Energy. Positive attitude. People who have integrity. The basic things that make a
good human being tend to make good employees. People who are hard working,
smart, have integrity, have intelligence. And you know, people that you
think are going to be successful. Because Whole Foods
is not running– we do lots of cool stuff for the
society, but we want the best people we can find. And we have a lot of people
that want to work for us. So we pick the very best people
we can find and that’s usually within those qualities
I just named. Yeah. Got it. Good. Would you please ask
your question? Please identify yourself. Yes. My name is Rebecca Mogg. And I’m a law student
here at UT. First, Mr. Mackey, thank
you for joining us. And second, pardon
my appearance. I came from the gym today. But I’d like to know– I was in shorts, like
an hour ago. What can you tell us about legal
challenges you’ve seen in your career at Whole Foods,
maybe a few years ago with the merger and acquisition. But anything you’d like
to talk to us about. Yeah. I got a thing about lawyers. I’m not really fond of lawyers. That’s OK. I won’t take it personally. In lot of ways I think we try
to solve our problems by creating new regulations. And it just makes
it more complex. We have lots of legal challenges
at Whole Foods. I will say, I’ve been in
business 32 years now. How long has it been? I didn’t have a lawyer working
for this company for almost the first 20 years. So I held off as long
as I could. Once I let one in, they started
hiring their friends. And I’ve got a bunch of them
working for us now. If you do we say you’re going to
do in business, you got to keep your promises. And you got to make sure your
honor your contracts. And you try to set up a culture
that always tries to do the right thing– which means don’t let rules get
in the way of doing the right thing for your employees,
your customers, your suppliers. If you do that, you really
lessen your litigation risk tremendously. Now we live in a litigious
society where some people just make a living out of
going and suing. So Whole Foods gets more than
its fair share of that. But I’m a great believer that
if you organize your organization in such a way that
you’re always trying to do the right thing,
you minimize your need for attorneys. Attorneys are expensive. And you waste a lot of time. For example last,
week I had to– we’re being sued by this
company for breach of contract, who we never
had a contract with. They’re suing us for so-called
oral breach, which is lie, because we never had
an oral promise. But nevertheless, I had to go
testify on this because I didn’t want to settle it. A lot of these lawsuits are
forms of extortion, meaning we’re going to make your
life so miserable. And I had to do 16 hours
of depositions. And they’re just like, you
know, we’ll go away for– I think their last is, we’ll
go away for $3.5 million. And said, you know what, we
did right by this company. And these guys are trying
to screw us. We’re going to fight it. So I don’t know if
I’m answering your question or not. But did you want to drill down
a little further on anything? I’m sorry? Did you want to drill down on
the question a little further? No. No. It’s fine. Thank you. OK. Hit the next question. Good luck in law school. Yeah. Thank you. Hi John. My name is Andreas. I’m Colombian. I just wanted to say that I
don’t know if a lot of people realize the quality of
work that Whole Foods does in other countries. In the case of Columbia, you
support our coffee growers. And people are benefiting
from what you’re doing. But my question for you
is, you know you say you hire 98% or 97%– We promote– You promote. –97% of the people
from within. How’s your hiring process for
leadership positions? It seems like going in your
website, it’s like trying to teach a dolphin how to fly. I mean it’s pretty hard
to get an interview. Because I’ve been trying
it for a long time. So– We don’t– that’s what I’m
trying to say– we don’t hire that many leadership positions
outside the company. A person that comes in a
leadership position in Whole Foods from outside the
company is usually– the culture is so different than
whatever he or she has been used in their previous
job, that it’s really challenging for them. We do sometimes, if we can’t
find good people from within. But we generally try to
promote from within. And it’s hard to get in. You’ve kind of got to work your
way up at Whole Foods. So your advice would be to start
from the bottom and work your way up. Yup. You know what, at Whole Foods
we’re growing so rapidly. Every three years we have what
we call a tribal gathering. And we bring our leadership
from around the company. We just did this in Austin
a few weeks ago. So we had– 800 people from around the globe
were in Austin here, just before South by Southwest
got started. And every one of those people
had been promoted. Most of them had been promoted
multiple times. It’s like we’re growing so
rapidly and we have so many opportunities that
people come in– and they have to
be aggressive. We post all the positions. And people apply for them. And they don’t always get
promoted the first time. But if you have persistence,
which is very important attribute– if want to get ahead
in life, you need be persistent and not easily
discouraged. The cream rises to the top. The best people do
get promoted. And fairly rapidly. Now, at Whole Foods it helps if
you’re willing to relocate. If you must live in Austin,
Texas, your opportunities are– I mean less. Because we’re– well, we’re in
38 states and three countries. And we got 60,000 people
working for us. So there’s lots of
opportunities. But you’ve generally got to
be willing to go where the opportunities are. Thank you so much. OK. I’m Michael. And you mentioned earlier that
you’re a bit of a bookworm, kind of like myself. And I just wanted to ask you
if there are any specific books or types of books that
have given you some key insights on like your
philosophies, specifically on conscious capitalism. And how you were able to use the
ideas you got from them to actually implement
in your work. And not only that, maybe your
personal life and like work/life balance? You’re asking me what books
most influenced me. Over what time period–
recently, a long time ago? Really, anything that comes to
mind that you felt like– that struck you. What would you say? You know the best book on
business ethics I ever read is by a professor from the
University of Texas. He’s actually passed now. But I studied him under
philosophy and him at UT. His name is Bob Solomon. And he wrote a book called
Ethics and Excellence, which had a big influence on the way
I think about stakeholders. And then Ed Freeman, who wrote–
who’s kind of father of stakeholder theory. I read all of his work. And you could search for
those on Amazon. I would recommend those
books by Ed Freeman, a book by Bob Solomon– Ethics and Excellence. He wrote about 50 books. So that one stands out above
all for me personally. Let’s see. I read all Peter Drucker’s
stuff. And it’s a good– he’ll
train the mind. You read Warren Buffett’s
annual letters. That should be mandatory
reading for anybody studying business. Because he’s basically
doing a seminar about business for you. And thinking about it in
a very clear way and communicating it with humor. Firms of Endearment by Raj
Sisodia and David Wolfe is a book I really like a lot. And then I’ve read books about
other entrepreneurs and other businesses like– a good one is Southwest
Airlines’ Nuts!, which is about the story of Southwest
Airlines. An easy book to read. So those are kind of
business books. I don’t read that– I mean I read some business
books but– I’m reading– I read– I have this eclectic reading. I’m usually reading about
15 books at a time. It’s kind of whatever I’m
most interested in. And then I skip around. Let’s see. I just finished a book called
Lords of Strategy, which is the history of the
consulting– business consulting. So its got a history of
Bain, McKinsey, BCG. A fascinating book for those
of you that want to be consultants someday. You might want to check
that one out. Let’s see. What else? Lots of philosophy. I read a lot of books
on ethics. If you sent me an e-mail–
oh, I better be careful. If you grab me sometime, I’ll
give you some more books. Alright. Thank you very much. Hi. My name is Kate Ronkainen. I’m a graduate student in the
communications school. Kind of to piggy-back on the
lawyer’s question earlier, the law student’s question– now
that you’re in multiple countries, how are food
labeling laws affecting Whole Foods? What are some of
the challenges? I know that Great Britain has
much more stringent rules about labeling things–
organic or cloned. And I’m wondering, since you
stated earlier that sometimes a company has to change its
mission and sometimes it has to do the right thing even if
you go against the rules, if you’re trying to push for better
labeling in the US or what Whole Foods’ stance
is on that. You mean the– not like– In terms of like GMO labeling,
genetically modified organisms, like what is the
actual definition of organic– Yes. -specifically cloned– milk from cloned cows? Sure. Whole Foods, we support– we think that all should
be labeled. Because people care about
it, that ought to be mandatory labeling. In fact, it’s been difficult
even for a long time to label something that it didn’t
have GMOs in it. Because the lobbying efforts of
people like Monsanto are so powerful that they actually want
to prevent people from saying it doesn’t
have GMOs in it. I just wondering if you guys
are pushing for more GMO– I don’t think labeling laws are
good in the United States. I have a friend– a dietitian, who teaches a
class on a label reading. And his first principle of label
reading is never ever, ever believe anything you read
on the front of a label. And he gives all these examples
of all the lies that are marketing and stuff
that’s there. He says– and you should only look at
the ingredients and the nutritional labeling. That’s the only thing of
value on the label. And we can certainly improve
that quite a bit. Because a lot of it’s
confusing to people. So I have a lot of definite
ideas about how the labels ought to be. But it would take us too long
to go into it I think. Thank you. You’re welcome. Hi. My name is Carlos. And I’m an international
relations student. My question was about how you
go about motivating your employees to– actually I had
two questions– but how you go about motivating employees your
to be so enthusiastic, so happy about working
for Whole Foods. Because every time I go into
Whole Foods, I end up having a 10-minute conversation
about cheese. And that guy is just so happy
to talk to me about Gruyere. Well, here’s the thing. You really can’t motivate
anybody else. That’s very important. That implies that we
know we sort of do something to somebody. It’s a lot easier to select
enthusiastic people who want to talk about cheese, when you
hire in the first place. But then we have a
culture that– once you create a conscious
culture, it selects for its own kind. And a company has like
an immune system. And the people that don’t fit
into the culture, the immune system begins to select them
out and get rid of them. So it’s hard to create
a culture like that. But once you have it, it sort
of self-perpetuates itself. But we do a lot of things
that encourage it. Again, we have a
higher purpose. We have a mission
as a company. We’ve organized our teams into
self-managing work teams. We don’t have an authoritarian
culture. We care about our
team members. We want them to self-actualize
themselves. We want them to move up Maslow’s
Hierarchy of Needs. We want them to fully
flourish. We care about our
team members. And we prove that every day. We walk the talk. And so I think it’s normal human
condition for people to fundamentally be pretty happy. I think that’s the human
condition if we set up the environment that allows
that to happen. And we give permission for
people to be that way. A lot of people don’t think they
have permission to enjoy themselves in the workplace. And in a lot of companies,
they don’t. So our business philosophy in
some ways is very simple. Management’s job is to hire the
very best people they can find and train them. And then help them to be
happy in the workplace. That’s management’s job. Help the team members
to be happy. The core values at Whole
Foods Market– team member happiness and
excellence, core values. It’s at the essence of
what we’re doing. And then happy team members
naturally want to give good service to the customers. Happy team members result
in happy customers. Happy customers result
in happy investors. That’s the stakeholder
philosophy. It’s all interdependent. We have to manage all of them so
that all can be flourishing and successful. That’s our secret. I don’t know why everybody
doesn’t do it. Your barbecue people
are great, as well. I’m just curious. How many people here– I have a question for
the audience. How many people here hope
someday to start a business– to have your own business? How many of you think of
yourselves as entrepreneurs? That’s fantastic. I’m going to give you the
most important secret. If you will put the customer
first and take care of your customer, you will probably
be successful in business. You know why? Because so few businesses
actually do that. I’m always astounded– every time I get on an airline
besides Southwest Airlines, I’m always astounded at the
crummy service I get. It’s like, hello, I paid
a lot of money here. And you guys, you
don’t even care. It always fascinates me. Not that I want to get into the
airline business, but it seems like there’s a market
opportunities there. But if you take care of your
customers, you’ll flourish. And the key to taking care of
your customers is the people that work for you
have got to be– they’ve got to be
enthusiastic. They got to be excited. They got to be happy. So if you make them happy,
they’ll make the customers happy. And your business
will succeed. It’s not rocket science. But very few do it. Alright. My second question– I was actually going to ask Gary
Hoover how you would feel about this. But I’ll have such a great
opportunity to ask you this. Don’t ask Gary Hoover how you’d
feel about something. How would you feel about a
peopleatwholefoods.com? How I feel about what? Peopleatwholefoods.com. Have you heard seen the
peopleatwalmart.com? Peopleofwholefoods.com. And I don’t know what that is. The people– are they customers
or employees? Yeah. It’s pictures of
your customers. And sort of shows a– Oh, you mean on our web site? A profile of who your
customers are. Who you’re aiming for. Did you ask me who our
customers are? How you would feel about
a website like that. He’s proposing a
business idea. Not quite. You should have a website that
features your customers and highlights their lives. How would you feel that? Oh, that’s probably a
pretty good idea. Alright. Thank you very much. Hi, Mr. Mackey. My name is Di Huang And I’m
a finance senior here. And I guess my question for you
is, so you say that your best advice for us is to,
I guess do what we love. And not to be afraid of that. And a lot of us have gotten
that advice in the past. I guess what would you say
to students who are now graduating from college having
majored in things that they love– like wanting to pursue
the things they like to do– and now can’t find jobs. Go create your own jobs. I mean I’ve given you the best
piece of advice I know. It’s your life. It’s your life journey. I’m not responsible for it. I don’t have to figure it out. You’ve got to figure it out. I’m just giving you, in my
opinion, the best advice I can give you, which is,
life is not easy. It’s not easy. It’s hard. And you know what, that’s
a good thing. Because that’s going to bring
the very best you have, out. You have to overcome the
adversity that you meet along the way. I’ve had an amazing amount
of adversity. It’s been very difficult. I’ve wanted to quit
numerous times. We have persevered. You have to persevere. You don’t give up on your
dreams. But we have to fight for them. And you have to struggle
sometimes. And that’s the way life is. If you don’t like
it, I’m sorry. That’s the way it is. OK. Thank you. My name is Bridget Scanlon. I’m a research hydrologist
at UT. And a very big good admirer
of Whole Foods. I was just taking my daughter
up to Boston recently and visiting schools. And one of the things she liked
was there was a Whole Foods nearby. And kind of a nice thing. I was wondering how secure do
you think our future food supplies are? As a hydrologist, 90% of global
freshwater resources are used for food production
through irrigation. And I was wondering if you
consider the water aspects of food production? And if you would ever consider
labeling food with their water footprint? I understand you’re a vegan. And so you’re not earning very
high up on the food chain. And that’s very good
for water. So I just wondered what
your thoughts are? Well first of all, I’ll
make a comment. It’s very interesting. A funny thing about it– when you get successful– and everybody wants your opinion
about everything. Like people ask me questions
about, what about china And what about– you know,
I’m a grocer. What do I know about China? And you’re a hydrologist. I’m
not going to match wits with you about water. I mean, what do you think? I think we’re not going
to change our ways. I mean I think it’s great that
you have pasture fed beef. But I think you should advertise
its water advantages then, because hopefully, that
pasture’s not being irrigated. I’m not sure if people were
aware of how much water went into food, like 15,000 meters
per kilogram of beef, whether it would change their minds
or just make them guilty. But maybe it would slowly change
how people think about what they eat. And eat lower down. And then maybe if we use up
all that, then our choices will just become more limited. And then we’ll just have to
live within what we have. You know one thing I can tell
you about customers, they don’t like to be preached at. They don’t like to
feel guilty. It’s not good business. We’re teaching people how to eat
healthier and to eat lower on the food chain. But we’re not judging them. We don’t have signs up in our
meat department, think twice before you buy this. Look at the water that went
into producing this beef. And you’re not very
environmentally responsible if you’re eating animal foods. That’s a very bad business
strategy. I’ll tell you right now, you
don’t want to judge and condemn your customers
for their choices. You want to support them in
their choices, while trying to educate them in a nonjudgmental
way. You’re absolutely right
about water. It is a real issue. And the biggest issue is
we’re emptying out a lot of the aquifers. And we’re having net deficits. But we’re also eroding our
soil– our topsoil– at rapid rate. It’s a good thing we’ve
got some good hydrologists on the case. Thank you. Thank you. Hi. I’m Jeffrey Wei. I’m a second year business
student here. And I was just curious about
what you believe is an improvement that is necessary
for Whole Foods in the future? You mean how does our company
need to improve or some of the stuff that we’re going
to be doing? I guess something that you
believe is going to be really important for Whole Foods to
consider in the future? I’m on fire about this idea. So you’re going to
get my little– My big idea is, our
country is sick. I mean I’m just going to give
you some grim statistics: 67% of adult Americans are
overweight; 35% are obese. If you look at the diabetes
increase in America, it’s unbelievable how quickly
diabetes– type two diabetes is growing
and spreading. Your generation is the first
generation in American history that probably is not
going to live longer than their parents. Sad, but true. Because we are so degrading our
health, it’s frightening. And we’re going bankrupt
to boot. We spend so much money
on health care. And 80% of the dollars we
spend on health care go towards diseases such as heart
disease, cancer, stroke, diabetes, autoimmune
diseases– that are fundamentally
lifestyle diseases. The medical system
can’t cure them. Only the individual can cure
them by changing the way they eat and the way they live. And what I’m on fire about is
that Whole Foods is going to do something about it. We are going to educate people
about how to eat better. And we’re creating five
prototype wellness clubs, which I hope to have
everywhere in the company in a few years. And one in New York–
not in Austin. One in New York, one in Boston,
one in Chicago, one in Princeton, and one in
Oakland, California. And we are going to give a
special discount card to members of that club for all the
healthiest foods we sell. They’ll pay monthly fees
to be part of the club. And they we’re going to teach
people how to eat better and how to live better. And how to cook. These diseases are
all preventable. And if you get them, they’re
largely reversible. But people are so ignorant. They do not know. They do not understand. And they’ve got major
food addictions. We’re almost all addicted
to sugar. We’re all addicted to fat. And we’re all addicted
to salt. And you won’t know you’re
addicted to those until you try to change your diet. And then you’ll find out
how difficult it is. And if we don’t change the
path we’re on and the way we’re are eating, we’re killing
ourselves and we’re bankrupting the country. So Whole Foods is going to
do these wellness clubs. And I think it’s going to
be hugely successful. And we’re going to open
them everywhere. And I think it’s going
to change the world. That’s what I think. That’s what I’m excited about. Thank you. Hi. My name is Anuj Khandelwal I’m
a third-year business owners and finance major here. And my question for you was,
Whole Foods has had fantastic growth over the last
few years. And I know you mentioned that
Whole Foods needs to stick to differentiating itself. But what do you really see
a growth strategy to be? Is it moving abroad, going to
some of the emerging markets, or just– what do you think
Whole Foods’ growth strategy needs to be in the future or
moving towards the future? Well, don’t misunderstand me. But I really– I don’t like that question
because we don’t have a growth strategy. We’ve got a mission. And we’re going to fulfill
our mission. And course to better fulfill
our mission, we need to continue to grow and
open stores. So we just don’t think about
it quite the way you’re articulating it. So I wanted to get
that out there. OK. In terms of what we’re trying
to do, we’re so far from having saturated the
United States. There’s not one market
we’re where we can’t open more stores. So we have 304 stores
open right now. Fifty-nine stores in development
I think– something like that. And I think we’ll have
1,000 stores in the United States some day. And now we’re very successful
in Canada. We’re accelerating our
growth in the UK. We’re starting to look around at
another country to go into. So I do think Whole Foods has
great international potential. But that’s not our
main driver. We’re not going to be like
Starbucks you have Whole Foods everywhere I don’t think. It’ll be more selected to
countries we go into. But it’s mostly still by opening
more retail stores. Again, the market is continuing
to develop our way. As people become better
educated about eating healthily, they naturally– a
lot of them– migrate our way. So more stores. Sure. Thank you. My name’s Jackie. And I am an international
nutrition undergrad. So this was a little
off for me. I thought there’d
be something. And I’m really glad that you
said what you did about obesity and diabetes because
that’s drilled in my head all the time. And it really scares me how sick
our country really is. I really want to applaud you
for recognizing that and making a really big change
in your organization. But my question was more
towards the Whole Foods Foundation and what
you’re doing with micro-entrepreneurship abroad. The Whole Planet Foundation? Um-hum. The Whole Planet Foundation
And how that kind of got started? And if you have to be
a team member to actually get involved? The answer to that last question
is, it depends on what you mean by getting
involved. But yeah, probably. In terms of like our volunteer
program, you’d have to a team member. So we have volunteer programs
in four countries. We got our own little
mini-Peace Corps. The Whole Planet Foundation, for
those of you that doesn’t know, is a foundation which
started about– I don’t know– about
six years ago now. And we– I was so impressed– oh, we talked about
books I liked. Here’s one. If you read the Banker to the
Poor by Muhammed Yunus. It’s an incredible book. And I read that book and I
thought, man, this is this it. This is an incredibly important
solution to poverty. And people can lift
themselves up. Rather than through foreign aid
or handouts, you engage people as entrepreneurs. I guess we’ve loaned out
$15 million now. And we’re now in 29 countries. They’re all in places
we trade. We asked the question– and
the origin of Whole Planet Foundation goes something
like this– we’ve always seen ourselves– the community stakeholder. How do we create value for the
community stakeholder? And we normally used to
answer that question– it meant we were good citizens
in the communities where we had stores. But then we asked the question,
do we have any responsibilities as citizens,
not just where our stores are located, but in other countries
where we’re trading? And we ask that question, and
we said, yeah, you know, I think we do. Why not? And I read the Banker
to the Poor. Coincidentally, got to meet
Muhammad Yunus pretty soon after that. Love that guy. And I said, how can Whole
Foods get involved? And it turned out they were
looking to do more international stuff. I said, how about if
we work with you? He said, sounds good. And we posted a position. Got an ex-Peace Corps– actually
the guy that started Book People– Philip Sansone. Before he did Book People, he
was in the Peace Corps for eight years. So he’s done a major amount
of developmental work. And he applied. And he got the position. And he’s built a team. So now we’ve started
in Costa Rica. And then it was Guatemala. And now we’re in 29 countries. We’ll be in 56 in just
two more years. We have 27 countries in
development right now. And we set a target to make $200
million in loans within the next 10 years. And to be in a 100 countries
by then. So it’s going great guns. We do have a volunteer program
that goes to four countries. Team members volunteer
for about 30 days. And it’s pretty life
changing– the team members that
have done it. So you look like just the right
person we like to hire. Chacos? Exactly. You’ve got the uniform
already. Got it. Perfect. Thank you. We have time for one
last question. Hi, Mr. Mackey. My name is Thorne Fierry. I’m a graduating senior
with a finance degree. My question is regarding the
characteristics that you mentioned that you look for– being emotional and social
intelligent, have positive energy, and also integrity. Some of those are
more apparent– first meeting being
positive energy. So what about those
like emotional intelligence and integrity? What are the kind of tactics do
you use to identify those characteristics in someone? And what ways can we better
communicate to potential employers, as well as just
people we meet, our integrity and our emotional
intelligence? The thing is, is that
you can’t develop those in other people. That’s something an individual
develops within themselves. All you can do is create an
environment that encourages people to develop it. It’s very difficult. It’s why the business schools
can’t easily teach emotional intelligence. You can teach the
theory of it. And if you have an understanding
of the theory, then in a sense you can begin to
make choices that will help you grow in that area. I mean that the most important
skills for emotional intelligence are
self-awareness. You have to be aware of your
own emotions and your own inner processes to
a certain extent. And secondly, you need to be
able to empathize with others. You have to be able
to listen well. And you can teach listening
skills. And you can encourage
people to empathize. Our culture is very
communicative of culture. So in a sense we select for
emotional intelligence. And because we’re organized into
teams, those people who just can’t get along and are
not good team players, they basically– to get on a Whole Foods team– I don’t think I told this
before– but you have to get voted on by the team. You’re on probation for the
first 30 to 90 days. Then the team takes
a vote on you. It requires a 2/3 positive
vote for you to become a team member. So if the team doesn’t think you
fit, they aren’t going to vote you in. I think that would be a great
project for young people to work on,. Because I think these are
such important skills. We need to develop ways to
accelerate people’s emotional and social intelligence. And I might also argue what I
call spiritual intelligence, which is really one’s
ability to perceive meaning and values. Ethical intelligence is also
a part of that spiritual intelligence. Those are skills that
we need to develop. I don’t really know
how to develop it. I just know how to create an
environment that encourages them to be developed. Ultimately, an individual has to
learn and grow themselves. You can’t do it for
somebody else. Thank you. Thank you very much. Well, I want to thank all of
you for attending today.

Joseph Stiglitz: “The Price of Inequality” | Talks at Google


>>Male Presenter: So it’s my great pleasure
to introduce one of the deepest and most prolific economists. Joe Stiglitz. Joe is a superb
academic who has extensively applied his expertise in the political sphere. As well as in the
journals. Joe is famous for studies of the affects of asymmetric information. For which
he won the Nobel Prize in 2001. He’s one of the earliest to apply game theoretic reasoning
for studying policy issues. His work revolutionized the study of credit markets, insurance, development,
and the theory of the firm, where he is responsible for the concept of efficiency wages. You should
all like efficiency wages. That’s what gets us paid more than the competition. He served
in the Clinton Administration as the Chair of the President’s Council on Economic Advisers.
He also served as Chief Economist of the World Bank where he’s noted for criticizing the
World Bank. [laughter] He’s a co-author of the inter-governmental
panel on climate change. More recently he’s, Joe Stiglitz has been advising Obama but has
also been sharply critical of the Obama Administration’s financial industry rescue plan. To give a
quote, he said “Whoever designed the bank rescue plan is either in the pocket of the
banks, or incompetent.” [laughter] And I hope he will tell us which. [laughter] Without further ado, let me introduce one
of the best economists, Joe Stiglitz. [extended applause]>>Joe: Well, it’s a real pleasure to be here
again. The subject of course, that I’m talking about is not so, uh, attractive. The topic
is “The price of inequality. How today’s divided society endangers our future.” The book grew
out of an article that I wrote in Vanity Fair. Vanity Fair is maybe not the usual media for
academics to publish in. But the Vanity Fair article did get more attention than my 1969
Econometrica article on the same subject. [laughter] The title of the Vanity Fair article went
viral. Was “Of the One Percent, By the One Percent, For the One Percent.” And you can
sort of get the tone of the article. And it got picked up by a part of the chant of the
Occupy Wall Street. The issues that I’m talking about are not the politics of envy as one
of the political candidates has said. One of the political candidates has said “You
shouldn’t be talking about inequality except to quiet rooms in hushed tones.” But in fact,
I believe that inequality is one of the most important problems our society faces today.
And needs to be talked about actually quite loudly. What most Americans do not realize
is that quietly without people noticing it, America has become the advanced industrial
country with the highest level of inequality. And we were already at, had that distinction
a number of years ago. But while other countries have worked hard to contain the inequality,
to slow the increase. In recent years the level of inequality in the United States has
been increasing markedly. Just a couple examples, the share of income
that accrues to the upper one percent has doubled from 10 percent in 1980 to 20 percent
today. The, there are a number of other statistics that describe the degree of inequality. Perhaps
one, two, I think that maybe I should mention in the beginning here. One of them is that
Americans like to think of our country as a land of opportunity. It really defines part
of the American identity. But in fact, that notion that America is a land of opportunity
is really a myth. Now we all know people who’ve made it from the bottom to the top, middle
to the top. Immigrants who come to the United States and succeeded. But from the point of
view of the economist, what’s relevant is the statistics. Not the examples, not the
exceptions, but what happens on average. And on average, America is less equal even than
old Europe, let alone any of the other advanced industrial counties for which there’s data. What does that mean? It means that the life
prospects of a young kid in the United States is more dependent on the education and income
of his parents than in any other country. And you can see, it gets reflected in a number
of aspects. Both in terms of movement, up, but also movement down. People at the top
who don’t do very, whose children don’t do very well in school, wind up with higher income
than people from the bottom and middle whose children do very well in school. So it really
shows the influence of parents in determining opportunity in the United States. Some of you may have seen the article that
appeared yesterday reflecting the outcome results of the Fed’s survey of wealth and
income in the United States. The most recent one. And it was very, very telling. You know,
it would be one thing if all that success at the top benefited everybody. And the idea
that that was so is called ‘trickle down’ economics. You know, you throw enough money
at the top, and everybody benefits. The evidence is to the contrary. That while the top has
done very well, the median, people 50 percent below, 50 percent above. Median income in
the United States today is lower than it was a decade and a half ago. And what’s been happening
to wealth is even more troubling. The top one percent controls about 40 percent of all
the wealth. But the recession was really, really bad for most Americans in terms, not
only in terms of income, but even more so in terms of wealth. Not a surprise. But with people at the bottom
and middle putting all their wealth into the homes, when the home prices went down, on
average over 30 percent, in some areas over 50 percent, they lost a very large fraction
of their wealth. So in fact, the wealth, particularly of the middle, and the bottom, is now back
to where it was over two decades ago. No increase in wealth over two decades. The, in the recovery
from the crisis in 2010, we got another picture of the degree of inequality in our society.
93 percent of the growth that occurred in 2010 went to the upper one percent. So again,
most Americans are not sharing in what’s going on. It would be one thing, as I said, if the success
of those at the top income benefited everybody. But it hasn’t. And also it would be one thing
if the successes at the top reflected their contribution to society. This is not about
envy. The question is, have they really made contributions that are commensurate with their
incomes? And those of you who study elementary economics know this is a 19th century theory
called the ‘marginal productivity theory.’ Well, the crisis actually gave lie to that
theory. We all saw in the crisis the bankers walking off with huge bonuses even though
they brought to the global economy to the brink of ruin. Even though they brought their
own company to the brink of ruin. In fact, some of the banks were so embarrassed about
calling these bonuses “performance bonuses” that they changed the name to “retention bonuses”.
There was no “performance” so they had to have another name. But then the question was
“Why would you wanna retain somebody who had messed up your company so badly?” and all
this actually speaks to one of the key issues that I raise in the book. What is the true
source of wealth? Of those say, at the top? If you look at the list of people at the top,
it doesn’t include the great innovators. You know the people who invented the computer,
Turing. It doesn’t include the people who invented the transistor. The laser. That discovered
DNA. None of these people who really made important contributions to our society are
in that list of the wealthiest in our society. It’s basically with the argument I have is,
a very large proportion of these are people that economists call “rent seekers.” Let me
try to explain what the concept of rent-seeking is. You can see it in a couple ways. There
are two ways to create wealth. To get wealth. One of them is to make the size of the national
pie larger. And to get a share of that increase. The other one is to try to seize a larger
share of the existing pie. And that’s what rent seekers do. And in that process they
actually make the pie smaller. So an example are monopolists. How do monopolists make their
profits? Partly by restricting output. They’re making the output actually smaller than it
otherwise would be. And yet that can generate large, large incomes for themselves. So if
you look at the disproportionate people at the top, they are in this group of what economists
will call rent seekers. Let me give you a couple other examples. When
the bankers engage in predatory lending, or abusive credit card practices, what they’re
doing is moving money. They’re not creating value. What they’re doing is taking money
from poor Americans, financially unsophisticated Americans and moving it from the bottom to
the top. That doesn’t create wealth. It actually in some sense destroys wealth. Why does it
destroy wealth? Well, one of the most important resources of any society are their human talent.
The young people. And when you devote those people to this task of moving money from the
poor people. Through predatory lending. You misallocating your scarcest human resource.
So it’s not a surprise, and this is really one of the most important points of the book.
It’s not a surprise that economies in which the divide is larger, when the inequality
is larger, grow more slowly. You see that in the history of the United
States and the period in the decades after World War II. We had just fought a war together.
And there was a sense of national cohesiveness. We passed laws like the GI Bill, that provided
education for all. The result of that was our economy went through the most rapid period
of economic growth and it was a period in which every part of our economy grew. Those
at the bottom grew most rapidly. So that the divide between the top and the bottom got
reduced. Since 1980 what has happened is growth has slowed. And the divide has grown. And
that’s not an accident. And one of the things I try to do in the book is to try to explain
why there is this negative correlation between inequality and growth. Why inequality is bad
for economic growth. And there are a couple factors that help explain it. One of them
is, this phenomena of rent-seeking that I just described. That resources got misallocated
to seeking rents, rather than to producing increasing value. And there are a whole list
of the kinds of rent-seeking activities. When the drug companies spend money to persuade
congress to give them a drug, to pass a law that says “The us government, while it’s the
largest purchaser of drugs, cannot bargain with the drug companies, the result of which
gives the drug companies a gift over 10 years of a half a trillion dollars. Money that could
go into making our economy more productive. That’s rent-seeking activity that does not
lead to a stronger economy. When we have a tax law again, as a result
of lobbying, that says that speculators should be taxed at less than half a rate, the rate
that those who work for a living. Because the special provisions capital gains, we’re
destroying our economy. More resources move into speculation. Less into creative activity.
And again, our economy is weaker. It’s also of course, not fair. And it’s one of the reasons
that the top one percent pays an average tax rate of 15 percent. Which is much less than
those whose income is substantially lower. There are other reasons that inequality is
bad for our economy. For an economy to work well, there needs to be a basic level of public
spending on basic, on what you might call the common good. You have to have investments
in education, public education. One of the reasons why we’ve become a less equal society
is that we are not investing as much in public education. People in California know that
access to the university is becoming much less restricted. And it’s not as open as it
was 30 years ago. And these are things that mean that many young people are not gonna
live up to their potential. And again a waste of resources. You need to invest in technology.
Google. A lot of the most important innovations of the recent decades are based on government
funded research. The internet was supported by government funded research. We’ve been
living off, draining the well, of ideas that basic research helped support. But we haven’t
been refilling the well. And that requires government support. National Science Foundation.
NIH. All kinds of things. We’ve underfunded those. And finally you need infrastructure.
Any of you who’ve come into Kennedy Airport know that America has been under investing
in our infrastructure. A comparison between US airports and those in Asia is embarrassing. But you need ports and roads if you’re gonna
export. If you’re gonna grow. So. We’ve not been investing in these things. And one of
the reasons we haven’t, is when you have a divided society, those at the top worry that
if you have too strong of a government, it might use its powers to redistribute. So they’d
rather have a weak government that can’t do anything. That’s tied up. That’s gridlocked.
Than a government that might engage in redistribution. I’ll come back to that in the end. But the point of all these are just, some
of the mechanisms by which inequality leads to poorer economic performance. There’s one more final one I want to mention
that’s gotten a lot of attention more recently. It’s not a surprise that the last time inequality
reached the kind of level that it’s reached more recently in the United States was during
the “roaring ’20s.” Right before the Great Depression. And the IMF, the UN Commission,
that investigated the global financial crisis. Other scholars have come to the consensus
that inequality is systematically associated with instability. We have time later in the
question period. I can try to go through the mechanism by which that happens. But it is
a regularity. And so one way of thinking about it is, when you move money, people at the
top save a larger fraction of their income than people at the bottom. So you move money
from the bottom to the top, there’s a lack of demand. Or there would be a lack of demand
unless something is done about it. And what the Fed did about it was to create a bubble.
[chuckles] And it worked. For a while. But it put our economy in jeopardy.
And this has happened not only this time, but it’s happened on other occasions. So all
of these are reasons why greater inequality is associated with weaker economic performance.
And that’s really one of the main themes of the book, of “The Price of Inequality.” We’re
paying a high price for this inequality. This is a markedly different perspective than
that taken by those on the right. Those on the right say “We understand you don’t like
inequality. We wish we could get rid of inequality. But we can’t without paying a very high price.”
Now old textbooks used to talk about a tradeoff. You can get lower inequality but at the cost
of, lower growth, less economic efficiency. There’s a tradeoff. So that what they said
in fact was that the price that you, not only the top would pay, but everybody would have
to pay if we try to reduce the degree of inequality is just too high. What my book argues is quite the contrary.
That in fact, we are paying a price for not attacking inequality. That we could have,
as I say, a stronger economy and a more equal society. One of the concerns I have is that
this inequality then starts to affect not only our economy but our democracy, our system
of justice. Budget battles. The conduct of macroeconomic policy. I’ll try to explain
it in a few minutes how inequality has this kind of pervasive affect on our society. Before that I wanna discuss a puzzle that
arises in political science. In political theory. We’re supposed to have a democracy.
And in a democracy with one person, one vote, the outcome of the democracy is supposed to
reflect the middle. There’s a well-developed theory that some of you may have studied,
called “the medium voter.” That the medium voter, half want more spending, half want
less spending. And you can go through any issue in the medium voter theory describes,
it’s the person in the middle that’s supposed to be determining where our polity goes. But if you look at the United States, you
look at the decisions we’ve made in our politics, it’s very clear that that doesn’t describe
what’s going on. If you look at what’s going on, it’s better described by a theory of one
dollar, one vote, than one person, one vote. And the question is, why? ’cause we have a
democracy. Why is the outcome so different? Well, in discussing the economics and how
the economy leads to the degree of inequality that we have, what I point out is that it’s
not just market forces. Market forces are universal. They affect countries all over
the world. But the way we shape marked forces has resulted in the US having more inequality
than any other country. So laws and regulation help to shape market forces. An example, for instance, is take a bankruptcy
law. Every country has a bankruptcy law but we are distinct. We have two provisions in
our bankruptcy law that is distinctive. Are distinctive. One of them is at the top, we
give priority to derivatives. That says that if a company goes bankrupt, the derivatives,
the CDSs are paid off before anybody else, before workers, before anybody else. And we
have a law like that, that encourages derivatives. These speculative products. Remember that
AIG had a 150 billion dollar bailout? That was a result of government encouraging this
through our bankruptcy law. At the other end, this may be a sensitive subject, but in the
United States we have another distinctive provision of our bankruptcy law that students
cannot discharge their loans even in bankruptcy. Even if the school does not provide the education
that they promised. You know, in other areas of our life, companies
say, “Satisfaction guaranteed or your money back.” These for-profit schools say, “Satisfaction
is almost guaranteed not to occur.” Because they all, dropout rates are huge. But you
never get your money back, and in fact, we’re gonna be on your shoulders for the rest of
your life.” Well that’s the result of politics. Of the
laws that we passed that shape our economy. That encourage people to provide education
that doesn’t really serve the needs. Because they can get their money back. Well, the same thing is true about politics.
That the way our political system works is shaped by the rules and regulations. If you
have rules and regulations that say, for instance, affecting lobbying, campaign contributions,
revolving doors, they determine the influence of the one percent. The people at the top.
So like, the citizens united, the supreme court decisions that will allow corporations
to give unbridled spending gave more influence to those at the top. The consequence of this
is that we have a vicious circle. Where economic inequality feeds into inequality of political
power. And that inequality of political power leads to rules and regulations that lead to
more economic inequality. In a what I would call a downward vicious circle. In some ways
it’s even worse than I’ve just described because as ordinary citizens see this process in work,
they become disillusioned. They say “What good is it to vote?” And you see the consequence
of that in the last election, 2010. Where 80 percent of the young people said it wasn’t
worth their while to exercise their democratic right to vote. That’s astounding. Other countries are marching to get the right
to vote. Countries fighting to get democracy. We have democracy but 80 percent of the young
people said it wasn’t worth the trouble of going to the poll. Because no matter who wins,
wall street wins. The one percent wins. And it’s not gonna affect what happened. But then
that itself gives more power to money. Because money then has to be used to get out the vote.
And they targeted getting out the vote to those who will support their views. So that’s
one of the reasons why we’ve wound up with this kind of distorted democracy that we have.
The other reason that I talk about briefly is based on some insights from recent research
and behavioral economics. College-age marketing. Corporations have discovered that they can
market goods. Good example is for instance, the cigarette companies. Were able to persuade
most Americans that there was no credible evidence that cigarettes caused cancer. Or
had other ill-health effects. Even though the cigarette companies had in their files
that evidence. But they were very effective in casting doubt about the nature of the scientific
evidence. And people continued to smoke for several decades after the evidence was overwhelming. Well, if you can sell toxic products you can
also sell toxic ideas. And the one percent has both the resources, the tools, the techniques
and the incentive to do that. And that’s again, played a very important role in shaping our
politics. And helps explain why we wound up with these outcomes that seem so out of line
with what you would expect to get in a democratic society. Let me talk just very briefly about three
other, two or three other manifestations of this inequality. Not only has it put our democracy
at peril. It’s also put our system of justice at peril. One of the basic values I think that most
Americans take seriously is justice for all. You know, in the Pledge of Allegiance, we
say “Justice for all.” But in the recent mortgage crisis the mortgage debacle, what we saw was
not justice for all. Many Americans were thrown out of their homes when they didn’t owe anything.
The banks signed an affidavit, said that they’d looked at the record, and said that this individual
owed money. But they were lying. They hadn’t looked at the record. This was the robo-signing
where they just had so many signed thousands of these a day. They hadn’t looked at the
record. And obviously if you haven’t looked at the record you’re gonna make a lot of mistakes.
Now the banks response is that most of the people that they threw out of their homes
did owe money. That’s like a system of justice that says “most of the people that get capital
punishment were probably guilty. They must have done something wrong.” But that’s not
our system of justice. “Innocent until proven guilty.” The burden of proof. But the fact
of the matter is, after all of this has been brought to light, not one of the people who
committed this kind of perjury to the court, over and over again. Not just once, over and
over again, has gone to prison. There is some attempt to get financial reparations
to make up for the people who have been thrown out of their homes. But the result of this
if you look and this is just one example, we’ve wound up with a system that is better
described, not “justice for all” but “justice for those who can afford it.” Now take another issue that’s been very big
in the United States in recent years. The battle over the budget. How do we bring down
the deficit? And if I begin to analyze that problem, I begin with a very simple observation.
Just a little over 10 years ago, 2001, the US had a large surplus. So large that Alan
Greenspan said that he was worried. He was worried we were gonna pay back the entire
national debt and that would be very hard for him to conduct monetary policy with no
national debt. You know the details of how monetary policy is conducted, is buying and
selling national debt. Now you should understand that this was a totally specious argument.
And incredible that anybody took Alan Greenspan seriously. But then he was a hero. I cannot believe that if say, in 2015, those
surpluses had persisted and we almost paid down the national debt, Alan Greenspan or
a successor could have come to Congress and the Administration and say “You know our country
faces a real emergency. You need to spend more to create a debt. And I know you don’t
wanna spend. But sacrifice, but your country in front of anybody else. Cut taxes, spend
more. Please, please.” I can’t believe that congress would not have responded and relatively
quickly to this national emergency. [laughter] But somehow Alan Greenspan said “No, we can’t
wait until that dire moment, we have to act in 2001 to give a tax cut to the richest Americans.
Let’s not look at the details of whether we can afford it. Let’s get that tax cut right
on the books as soon as we can.” What that shows you was that macro-economic policy,
monetary economic policy, these independent central bankers really often have a political
agenda. They’re not these god-like figures who are only worrying about the details of
inflation and so forth. But more to the point, if you understand that
just over a decade ago we had a surplus and you see the large deficits, where would a
reasonable place of beginning to get rid of the deficits? Well, to ask, how did we go
from that surplus to the deficit and let’s see if we should reverse those? And there
are actually only four things. This tax cut that we couldn’t afford, especially for the
top. Two very expensive wars that didn’t do anything and a military buildup beyond that.
Weapons that don’t work against enemies that don’t exist. That’s the good news. That the
enemies aren’t there. The Cold War is over. The Defense Department doesn’t seem to know
it yet. Thirdly, a drug benefit for, I mentioned before that we don’t bargain with the drug
companies. And that’s a half a trillion dollar giveaway over 10 years. And finally, probably
one of the most important is, the recession. And this is very important. The deficit didn’t
cause the recession. The recession caused the deficit. The best way of getting the deficit
down would be put America back to work. To create jobs. To get America functioning again.
Well, if you look at the deficit reduction commissions, a whole set of them. What you
see is they don’t focus on the issues that I’ve just described. There are all kinds of
things. Like, can you imagine a deficit reduction commission that says “Let’s lower the corporate
income tax.” Now how does that help reduce the deficit? Now I agree, you need to reform
the tax structure to get rid of all the loopholes. That’s important. But, lowering the rate?
What you should be doing is saying “Let’s lower the rate on firms that invest in America
and raise the rate on firms that don’t invest in America.” That would provide the incentive
for the creation of more jobs. Well, I want to conclude by saying, by discussing
what is it that we can do about this problem? In the last chapter I provide an economic
agenda. There are many aspects of America’s inequality. Too much wealth at the top. Too
many poor people. People in poverty have increased. A hollowing out of the middle class. And each
of these requires its own agenda. There’s no magic bullet. There’s gonna be lots of
things. Every law and regulation like the bankruptcy law, competition law, corporate
governance laws that allow CEOs to take a larger share of the pie, of the corporations.
All of these things help shape the inequality that we have in our society today. And so
you can’t just do one thing. There are many things. But it’s all doable. It’s actually
not that complicated. And other countries have done one or more
of the things that I describe in that agenda. The problem of course, is the politics. And
our political system is distorted so the question, and it works for the one percent, the question
is how are we gonna reform the politics? So I end, the question, is there hope? And my publisher told me that people don’t
buy books if there’s no hope. [laughter] They don’t want to finish a book and be depressed.
It’s just not, at least part of the American personality. A few years ago I think I came
here and gave a talk about my book with Linda Bilmes called “The Three-Trillion-Dollar War.”
And the book was very influential in shaping the debate about the war. When people started
using the, the war, they said “the three-trillion-dollar war.” And it helped people understand the
huge cost of the war. We were very explicit. We had underestimated the cost of the war.
In particular the numbers that have come in since then have shown that we were accurate.
And we were right that we had underestimated close to one out of two Americans coming back
from Afghanistan and Iraq are disabled. And that’s going to cost us a trillion dollars
in the coming years to pay for their health and disability payments. But anyway, the point
is, not that many people bought that book. ’cause it was so depressing. [laughter] So let me end on a note of hope. [laughter] The United States has had, well, we’ll get
two notes of hope. If you look around the world, there are some other countries that
have looked over the precipice and said, “We don’t wanna go there. One in particular, Brazil,
had very high levels of inequalities. And then beginning with President Cardoso, just
about 20 years ago he said “This is not the direction that we wanna go.” And there was
a broad consensus in the society. Including the one percent. They understood it was in
their enlightened self interest to do something about this. Otherwise their whole society
was gonna fall apart. And the result of that was a successful program
of bringing up education. And then President Lula had a program to make sure there was
, that the problems of hunger or the problems of access to health care for poor children
was addressed. And remarkably, in 20 years, you can see that Brazil is bringing down the
level of inequality. It’s been working. So and today you go visit Brazil, and there already
is across the spectrum, from business people to unions, a consensus about the direction
their economy, their society, should be going. In the United States, we’ve reached high levels
of inequality a couple of other times. The Gilded Age. The Roaring ’20s. Each time we
looked over the precipice and we said “That’s not the direction we wanna go.” The Gilded
Age was followed by the Progressive era. Legislation like anti-trust legislation. The Roaring ’20s
was followed by a whole set of legislation. The Wagner act. Social security. Laws about
hours and working conditions. That really served to re-balance our society. Reduce the
level of inequality. And the question today is, will Americans wake up to the degree of
inequality and the lack of equality of opportunity that we have today? And will they pull back
from the brink? And the hope of this book is that they will. Thank you. [applause]>>Male #1: Let’s talk about your vanity fair
article, ’cause that actually made sense to me. So your story is that it’s in the interest
of the one percent to preserve a stable economy. So I wanna question some of the statements
you made in this talk. I looked at the numbers for when inequality went down and one time
was between ’29 and ’33. Because the stock market collapsed. And the real estate market
collapsed. And we poor homeless folk, we don’t own any real estate, so it didn’t hurt us
any. And another time it, the inequality level decreased was between fall 2008 and spring
2009. And that was the same situation. Poor people didn’t have any money in the first
place. Rich people lost all their money they had in stocks and real estate. So what makes
the equality gap go down, is actually having an economic collapse. If I was in the one
percent, I don’t happen to be, but if I was, I would really wanna avoid that. I would thank
people like Roosevelt who restored capitalism. And Obama who restored capitalism again. So
how do we help the one percent avoid losing all their money?>>Joseph: Well, let me just make an important
reflection on the observation you made. Which is, because there are all these fluctuations
because of cyclical disturbances that’s why we need to look at inequality over longer
periods of time. But 10, 20 years is a longer period of time. And therefore the recent data
that I began my talk with where 20 years of wealth accumulation had been wiped out. That’s
significant. It’s not just three years. It’s 20 years of wealth accumulation. When I said
that the median income adjusted for inflation is lower than it was 15 years ago, that’s
a long period of time. If you ask the question, what’s happened to the median income of a
full-time male worker? It’s lower today than it was in 1968, almost, more than four decades
ago. These are not just cyclical fluctuations. And really speak to the–>>Male #1: Sorry, but that’s not true either.
You’re just looking at the United States. If you look at the world wide. People in China
are just a lot better off than they are now.>>Joseph: Oh, I was talking about inequality
in the United States. There are other countries. I mentioned Brazil where things are getting
better. Poverty is, the interesting thing in China is that poverty has gone down remarkably
but inequality is going up. And that shows you that there are many dimensions to the
distribution of income. But I should get the next person. Yeah.>>Male #2: thanks for your book. And for your
talk. I have a question about the marketing and propaganda basically, and I mean that
in a positive way, about ideas. It seems that republicans do a much much better job pedaling
their version of the world to all of us than people who are democrats. And I’ll cite two
examples. One of them is this phrase “death tax” that was created by Frank Lunz and all
of his focus group testing. The Cope brothers, etcetera, etcetera. They wanted to eliminate
the estate tax. Well that would cause other taxes to go up and other bad effects. So they
had to find a way to market that to the 99 point nine percent people who aren’t really
affected by the inheritance tax. Or aren’t affected very much, I should say. So they
came up with this idea of “death tax” and they made a big joke about it. “Even when
we are dying, there are taxes.” Another one, you were one KQED forum and you had a gentleman
yesterday who called in and he talked about how half of Americans don’t pay any taxes.
Which is this meme that’s been repeated and repeated and repeated on talk radio and on
TV. So these are two examples where Republicans have found a way to reduce the complexity
of economics and all of this in a way that really makes an impact on politics. And I
wonder if there’s some organizations that are doing it in a way that’s consistent with
what you write in your book. And, which is consistent with my economic values. I agree,
the way that we’re headed is not good. Even for people at the top one percent. We’re all
gonna suffer from this. We’re suffering now. So do you agree with my idea that we’re kind
of losing, we’re winning the economics battle, we’ve got the economics right, but we’re losing
the propaganda battle.>>Joseph: Yeah.>>Male #2: And what can we do about it? And
if I had some money to donate to it, where should I donate?>>Joseph: Well, I agree that this is in some
ways the key issue. I suppose, I mean, and it’s one of the reasons I wrote the book because
I wanted to try to crystallize some of the arguments that are wrong in the you might
say, the conservative interpretation of inequality. So I suppose if you’re willing to do something,
I would say buy a lot of copies of my book and give them to all your [laughter] Friends and neighbors. But [chuckles] more
seriously, there are, there is one Washington think tank that is very concerned about this
issue. It’s the Center for American Progress. To how do we get across this particular message.
Set of messages. And in the book, I look at this example of the “death duty”. And it’s
astounding. You know, most Americans opposed the repeal, opposed the death duty. Even though
in the United States, if a married couple will only pay the death duty if their income,
their wealth, their bequests, exceeds 10 million dollars. Now, there aren’t many Americans,
certainly not the average American, is facing this dilemma of what to do with their 10 million
dollars. I wish it were so. But they simply don’t know. Moreover, they’ve been so, a lot
of these are several myths together. They believe, “Oh yes, I don’t have 10 million
dollars now, but we are a land of opportunity and I’ll become one of these guys with 10
million dollars.” Anything is possible, but the probability is point zero, zero, zero,
zero, zero, zero, one. So it could happen. But it’s not likely to happen. So the question
is, how do we give more fact based discussion. You talk about the bottom 10 percent, 15 percent
not paying taxes. That ignores the fact that they pay sales taxes, property taxes, a whole
set of other kinds of taxes.>>Male #2: [inaudible] taxes.>>Joseph: So it is really distortion of the
stories. So what I’ve tried to do in the book is tried to explain at least some of those
distortions and what the truth about those matters are.>>Male #2: I think that’s good, but I still
think we need like two bumper sticker phrases.>>Joseph: I agree. But I’m not good at bumper
sticker phrases.>>Male #2: Because the book>>Joseph: As you’ve just seen from my long
talk, I’m much better at long winded answers than bumper stickers.>>Male #2: So the Center for American Progress
is a good place to go?>>Joseph: Right. They’re trying very hard.
They’ve come up with a little pamphlet actually. The American Middle Class, Income Inequality,
and the Strength of our Economy. Where they’ve tried to articulate this in simple terms. But it’s where they’re trying to go. And they’re
trying to get, I and people like them are trying to get President Obama who does hopefully
have a knack for articulating these things in a way that will have resonance.>>Male #2: thank you very much.>>Male #3: So you mentioned wanting to leave
people with hope. Well I’m from Wisconsin and was recently involved in the Recall Movement.
So I’m desperately in need of some hope. [laughter] So for those who don’t know in Wisconsin we
had a fairly radical anti-union governor who played with various budget manipulations and
then kinda drove the state into a ditch and then blamed it on public employees. And in
this recent recall election, the incumbent Scott Walker’s side had seven times the spending
on campaign materials and on advertising that his challenger Tom Barrett did. And the majority
of that came from very wealthy out of state donors, many of whom were able to remain anonymous
because they didn’t give directly to his campaign but because they gave to superpacs. Which
are allowed by the recent Citizens United decision. And this kinda ties in with what
the previous person was talking about. But how do we change the political system to promote
better outcomes in the economy and less inequality, if there is already such a tremendous inequality
in the money that goes into the political system? And you have a situation, I mean,
is our only hope to rely on relatively enlightened one percenters? Like say Warren Buffet? Who
have a distaste for superpac spending? As well they should. I mean, what is the path
out of that?>>Joseph: I think there are two that I sorta
outline in my book. One of them is that eventually enough of the one percent realize this is
not in their interests. And there are people like Warren Buffet who’ve been very articulate
about the dangers of going the direction that we’re going. Not only dangers but the fundamental
inequity that he pays a lower tax rate than his secretary. The other one is reflects my
other perspective. That I, that the 99 percent might finally begin to realize that they’ve
been sold a bill of goods. That what is in the one percent interests may not be in their
best interests. Some of it is, but some of it is not. Low tax rates for speculators is
not in their interest. There’s a whole set of, a system of appropriately designed estate
taxes really does help, raise needed revenue, enhances equality of opportunity. So there
are a whole set of reforms that it should be possible to articulate that the 99 percent
will realize is in their interests. And that there is this potential conflict and that
will change our democratic process. We’re still are a democracy, and we still have the
potential of changing the legislation.>>Male #4: so I’m sympathetic to the argument
that wealth inequalities can be economic inefficient. But isn’t it dangerous to talk about “the
one percent” because it sort of conflates income and wealth. Which are very different
things? And also, it sort of presents “the one percent” as a homogeneous group. Whereas
people at the bottom end of that, who aren’t poor by any means, they still aren’t going
to buy any influence in Washington. Whereas the upper percentiles of the one percent are
qualitatively different. So why do you use the term “one percent” and what>>Joseph: I use it because you have to simplify.
And in the book, I raise exactly the point, when I use the words “one percent” I’m using
generically for something above the top. And some of those at the, and I do make the point
that the one percent in wealth is not the same as the one percent in income. And that>>Male #4: But still they’re kind of fundamentally
different remedies. Like the only way you’re ever going to penalize the Walton heirs is
through an estate tax. There’s no income tax that will ever change that inequality.>>Joseph: Let me just, one of the numbers
that I mention in the book that it’s gotten a lot of resonance is the fact that the six
heirs to the Walton fortune have as much money, much wealth, as the bottom 30 percent of America.
And that is a testimony both to the wealth at the top and to the lack of wealth at the
bottom. But you’re absolutely right. That’s something that’s going to need the estate
tax. And what I said was, that we have many dimensions of inequality in our society. And
each of them requires their own remedy. We also have inequality in health outcomes. And
that, the remedy of that is, a better healthcare system. So there are many of these dimensions and
obviously in a short talk I couldn’t go into all of them. Also, you’re all, absolutely
right that it’s unfair to the one percent to lump them all together. I mentioned that
Warren Buffet has actually been very articulate in saying that we oughta do, a system of taxation
is unfair. He even addressed the issue of class warfare when he said, you know, cause
one of the reactions to some of the statements that I’ve made and others like it is “You’re
fomenting class warfare.” And his response was, and this is from somebody at the very
top, he said “We’ve been at class warfare for a very long time, and our class has been
winning.” So he gave I think a perspective on what is at stake. This is not about class
warfare. This is about how you make our society work better.>>Male #4: Thank you.>>Female #1: Hi, I’m just going a little bit
off topic here. But I’m wondering as an economist who’s focused on inequality from an economic
standpoint, how do you feel about Obama’s nomination for World Bank President?>>Joseph: Well, this, it’s an interesting
nomination. I don’t know if you know, the first point I’ll make is that the G20, had
agreed that the next president of the World Bank ought to be chosen on the basis of merit.
That traditionally it’s always based on, it’s always been an American. And they said “Why
does America have the monopoly on talented people? There’s actually a world out there.
And we oughta open it up.” And the US agreed to that, sort of. But and everybody had expected
this case would be one where countries would put forward good candidates and there’d be
an open and fair competition. Well it turned out that it was more open than
there had previously been. There were two very good candidates from developing countries.
So, Antonio Compo from Columbia, and Ngoze from Nigeria. Both really outstanding people
who would have made good presidents of the World Bank. Both with a lot of experience.
Both who had served as senior ministers in their government. Head of Foreign Policy.
Head of Economics. You know, so a lot of experience. In the end, the United States, said, “Oh,
we didn’t really mean chosen on the basis of merit. We meant a good American. As opposed
to somebody like Wolfowitz who was not a good American.” [laughter] So the good news of the G20 was the Administration
had been considering appointing somebody who would have been a disaster. And the fact that
there was a more open process meant that everybody could pile in and tell Obama “Don’t do that.
That would be a mistake.” And there was a lot of press discussion. And he decided not
to appoint that person. Last minute he got the guy that, Tim, that he chose. A person
who’s done fantastic work in the area of health. At least a lot of people say. You don’t, but,
but that’s only one part of the portfolio of the World Bank. And so the concern is that
it’s, it’s not sufficiently broad relative to the needs of what the World Bank. But we’ll
see how that evolves.>>Female #2: Hi, so I’ve done some reading
and research on the relationship, if any, between a country’s ethnic fractualization
or the ethnic or racial relations of a country and its economic growth especially with variables
like corruption or like rent-seeking like you talked about earlier. So I’m just wondering
what your perspective is on that type of research. Ike what your perspective is on the theory
and how you think it’s maybe relevant to the US and inequality.>>Joseph: Yeah, that’s actually interesting.
There is this body of research that basically is focused on different, how societies work
together and the extent to which there can be ethnic divisions. A lot in Africa where
you have tribal divisions. Some interesting aspects of it is, when you have two or three
groups, things work worse than if there’s either one group, or very many groups. I think
that it’s relevant in the following sense. That it is clear that some more homogeneous
societies like the Scandinavian countries have managed to have a higher degree of cohesiveness.
Have much broader policies that support greater equality. And have grown together. But I think
at the same time while America is a very diverse society, there’s absolutely nothing about
any of the policies that I’ve described here that couldn’t be implemented in a very diverse
society.>>Female #2: Thank you.>>Male #5: Hi. You made a point about how
rent-seeking can shrink the economic pie. I’m wondering if you have any thoughts about
whether labor unions exhibit rent-seeking behavior and how that affects the economy.>>Joseph: That’s a good question. Labor unions
have played both an important and in some cases an ambiguous role. [pause] The reason
that unions originally grew to the importance that they have is that there was an imbalance
in economic power. Particularly bargaining power. One, when the introduction was talked
about game theory. The standard economic models pretend that there is perfect competition.
And there’s a, just a supply of labor and a demand for labor and everything works out
very smoothly. The reality is not, that doesn’t describe the reality. There is a difference
in bargaining power. And again, one of the points I make in the book is that the rules
and regulations of how we run our economy affect that bargaining power. For instance,
when we run globalization in a way that we say that capital and goods can move anywhere
in the world, but labor can’t, that affects bargaining power. Because a firm bargaining
with workers can say to the workers “If you don’t take lower wages, we’re gonna move
somewhere else and then we’re gonna be able to bring the goods back home.” So it totally
distorts the bargaining power. I tell my students “Think of another world with a different set
of rules. Let’s assume that we have a set of rules that capital couldn’t move, but skilled
labor could. So an economy would have to compete for skilled labor. And so they would compete
by having old schools, good environment. Totally different world than the world that we live
in.” The important lesson of this is that rules and regulations do affect the bargaining
power. In that kind of a world, unions have played an important role in trying to redress
the imbalance that has emerged naturally and out of the distortions in the rules and regulations.
Now there are some cases where they themselves have high bargaining power and have tried
to use that for obviously the benefit of their members and particularly sometimes their older
members. And that’s had an adverse affect. The point of that is, you don’t say, let’s
get rid of all unions. You have to understand the role that unions play and try to correct
the problems that have arisen in those unions.>>Female Presenter: Not a question. But a
thank you for coming to Google. [applause]

The Business Deception That Cost $60 Billion


An American worker named George had his sights
set on a comfortable retirement, perhaps some holidays in the sun, relaxing in the garden
with good novels and a gin and tonic by his side. And then when the company he worked
for, the energy giant called the Enron Corporation, collapsed in front of his eyes those plans
went up in smoke. Years later he was mowing pastures when he should have been living on
his retirement savings, which had been mostly tied up in Enron company stock. No one ever
thought such a behemoth of a company could just go belly-up. It was a story that shocked
the world, one involving mismanagement, corruption and greed. This is what happened. In its heyday Enron was one of the largest
companies in the USA. At its peak its shares reached $90.75, and when it declared bankruptcy
in 2001 they were worth $0.26. Few saw it coming, and to this day the downfall is a
reminder to us all that indeed giants can fall, and on top of that, giants aren’t
always what they seem. The story starts in 1985 when two companies
merged. They were Texas-based Houston Natural Gas Company and Omaha-based InterNorth Incorporated.
At the beginning the new Enron was simply a very big natural gas supplier, but then
in 1989 it turned a leaf in its book and began trading natural gas commodities. In 1994 it
also began trading electricity. These changes took place under its new CEO Kenneth Lay,
who had formerly been in the big chair at Houston Natural Gas. At the time Enron was
said to be one of the most innovative companies in the USA, but at the time of the downfall
the New York Times wrote, “Enron is a new-economy company, a thinking-outside-the-box, paradigm-shifting,
market-making company.” It added to the end of that paragraph, “It is also, at this
point in time, a bankrupt company.” As the story goes, before Enron got started
gas and electricity were produced and sold by state-regulated monopolies. But then there
was deregulation, and as the Times writes, “Enron used Wall Street magic to transform
energy supplies into financial instruments that could be traded online like stocks and
bonds.” Prior to this, those energy monopolies were always under government scrutiny, but
after deregulation Enron had more freedom and so started trading energy online, such
as stocks and bonds, and also placing bets on future energy prices. Enron started selling
contracts, called energy derivatives, to investors. Soon Enron was called “America’s Most Innovative
Company”, and it won that accolade for a number of years. At the time this looked good for
the consumer, because with supply and demand taking over fixed prices by monopiles, the
prices for customers seemed fair. It seemed like a dream story for capitalism. There was a problem, though, and something
didn’t quite add up. You see Enron thought that if it could trade
energy, then why not trade all kinds of other things, such as insurance or advertising and
then turn these into contracts and sell them as derivatives, too. The company poured billions
into these new trading ventures, but not everything turned into gold. It later turned out that
while Enron was winning on some levels, it was losing on others, but the problem was
it wasn’t always coming clean about where it was losing. It was kind of fixing its accounts
and reporting false trading revenues. As one person pointed out, “Some of the schemes
traders used included serving as a middleman on a contract trade, linking up a buyer and
a seller for a future contract, and then booking the entire sale as Enron revenue. Enron was
also using its partnerships to sell contracts back and forth to itself and booking revenue
each time.” It was in fact creating imaginary revenues. If that is confusing to you, The Wall Street
Journal gave an example of one such piece of Enron subterfuge. Enron got into a deal
with Blockbuster, those guys whose stores you’d go to in the past and rent out a movie.
The new deal with Blockbuster was to do this online. But it didn’t work out, and in eight
months the business was a total flop. While this was going on Enron had made a deal with
a Canadian bank. If the bank loaned Enron $115 million, Enron would then hand over its
video deal profits for the first ten years to the bank. As you know, Enron made no cash
from this online video renting business with Blockbuster, but it still wrote the $115 million
down as part of its revenue, not a massive loss. The Canadian bank was owed money, but
on paper things didn’t look bad for Enron. According to the New York Times, Enron did
a fair bit of shady accounting and still Wall Street bankers at J. P. Morgan, and others,
were gung-ho about the company and its stock. Some people, however, began to smell a rat. The thing was, Enron was also seen as a fairytale
winner in the years when deregulation and online trading, embodied by a get rich quick
culture, were admired by everyone. Leave the innovators alone, this is the future. But
things got out of hand, as they tend to do when in Hobbesian terms the “Leviathan”
goes missing and no one is watching over the people to ensure nothing terrible is happening.
Enron also invested heavily in high-speed broadband telecom networks, but the company
saw no profits from that, either. The most innovative company in America was on a losing
streak, but still those losses were not reported. It was hiding all its financial losses, using
something called mark-to-market accounting. Investopedia explains that like this, “This
technique measures the value of a security based on its current market value instead
of its book value. This can work well when trading securities, but it can be disastrous
for actual businesses.” Another example given of the Enron way of
hiding losses is this. If the company bought a power plant it would first put the projected
profit on its books. That’s a projected profit, meaning nothing has actually been
made. If then Enron actually didn’t make a profit but a loss, it would transfer the
loss to an off-the-books corporation somewhere no one would find it. This way Enron’s bottom
line didn’t look affected and everyone still thought the company was booming, when in fact
heavy losses were being incurred and then hidden like soiled underwear at the bottom
of a laundry basket. Enron used something called off-balance-sheet special purpose vehicles
(SPVs) to hide these failures, but all you need to know is that this is a technique that
can be used to fool investors and creditors. The experts tell us this is not illegal, but
it can be dangerous. At the same time, not everyone understands how they work, so it
could be said to be slightly unethical if companies are not completely transparent about
it. And then the bubble burst, as bubbles tend
to do. By April 2001 analysts were on to Enron, they saw what was happening, realizing that
accounting wizardry had been creating a company not unlike the fantasy city of Oz. Behind
the screen Enron was crumbling, and by summer 2001 the company was in freefall. Its stock
was downgraded, sinking like a stone into the abyss. By 2000 it was revealed that Enron
had losses of $591 million and $628 million in debt. In 2001 the company filed for bankruptcy,
and a lot of poor folks whose pensions were tied up in company stock were going to have
to cancel their dream vacation in the Caribbean. From 2004 to 2011 the company paid $21.7 billion
to its creditors. It’s said shareholders lost in total around $74 billion and employees
lost billions in pension benefits, with one such person being the guy we mentioned at
the beginning of this story. There were many, many more like him. Some of the executives were charged with conspiracy,
insider trading, and securities fraud. The CEO we mentioned died of a heart attack before
he could face any prison time. Others did time for facilitating corrupt business practices.
Another CEO, Jeffrey Skilling, was only just released from prison. Do you think government regulation of markets
is good or bad after watching this video? Let us know in the comments! Also, check out
our other video How Jeff Bezos Gets His Money From Amazon. Thanks for watching, and, as
always, don’t forget to like, share and subscribe. See you next time.

A Day in the Life: NYU Stern School of Business Student


– My name is Jennifer. I’m at NYU Stern Class of 2020. I’m concentrating in Finance
with a minor in Studio Art. Outside of school I really
love exploring New York. There’s always really exciting things on from cool bands to restaurants
and bars to explore, so I really never get bored. (jazz music) So this is my room, there’s
not a whole lot to see because no one has particularly big or
cool rooms in New York. But, pretty standard, I’ve
got a bed, some plants. There’s a lot of art around
because I really love art, and I’m doing a studio art minor. You can see a couple of pieces that I’ve been working on this semester, so I’m currently taking
a oil painting class, and we’re focusing on portraiture. So those are two girls in
my class that I painted. (bright music) So, a typical Monday for me,
I wake up around 7:30 a.m. I walk to the deli. I usually grab a double
bacon egg sandwich, and then I head to my art class where we do oil painting
for about three hours, maybe grab lunch with a couple of friends, or at 3:30 I have a finance class and then probably for
the rest of the evening I would just be either
working or studying. And I usually get to bed, it’s pretty bad, past one a.m. to be honest. (light music) This is one of my
favorite spots on campus. Not many people know about it, but once you go inside and walk through this
little restaurant area, there’s actually this
beautiful green house with a fountain and these
gigantic colorful lamps that you can sit under. So sometimes I’ll just come here and study by myself or with my friends and eat the pizza which
is all cooked in house. (light music) Cool, so we’re currently
in Washington Square Park. This is really NYU student’s
equivalent of a quad, so people really just come out here to hang out with their friends
and enjoy some of the music. There’s a lot of jazz band
pop-ups and artist pop-ups. You get really famous artists. You get incredibly talented, like Julliard trained musicians. It’s kind of incredible, I
really love spending time here. – This is so neat though. It’s like an amusement park. – Yeah, it really is, it’s
like endless entertainment. Here we are at the Sterns
School of Business. I’m about to walk into my favorite class, called the International Studies Program. What’s really cool about this
particular program at Stern is this really very
generous alumni family, actually every single year they sponsor all the juniors to fly
to a different country. So this year, I got to choose between Hong Kong, Lima, and Copenhagen,
and I chose Copenhagen. And yeah, so basically
the alumni are paying for my flights, for
nice hotels for a week, and, yeah, I’m really excited. I’m really looking forward to it, so (points toward building). (light music) – Broadly speaking, what is
the curriculum like at Stern? Like, what does everyone need to do and then what is more specialized, like you might choose to do? – So, at Stern is a really large core, and the idea of this is, as I mentioned, just to provide a really strong foundation for being able to go out
and either start a business or thrive in a business space and understand finance and economics and statistics and how everything works. – [Interviewer] Right – So there is a really
large core curriculum, but I think what’s really interesting, and maybe people don’t always understand, is there’s also this sustainable
business slant on it. – Cool, are there specific
tracts within finance for somebody who wants to
go work in the hedge funds, somebody who wants to
work in private equity or in, I guess, asset management or some other finance-related career? – Yeah, so we have a
lot of specific classes geared towards those different areas. So actually one of the
most famous classes here is with a professor who’s kind
of well-known on Wall Street as the King of Beta or basically it’s just this kind of technical
concept for valuation. So, everyone wants to take his class. He’s like kind of a superstar, known all over Wall Street
and finance circles. So, you really have access to world-leading, industry-leading
talent and research. – [Interviewer] So where are we now? – We are currently in the
NYU Steinhardt Building. NYU Steinhardt is the
School of Arts and Culture, so there’s a really wide range of things that people do here, and
one of them is studio art. So, there’s a really
broad range of things that that encompasses, so you can do anything from what I’m doing, which is oil painting to sculpture, photography,
even like pottery. – [Interviewer] So, is it
common for students at Stern to take classes outside of
Stern and to get minors, or even I guess majors,
outside of the program? – Yeah, it’s really common, and I think Stern does its
niche subjects really well, but because people want to explore things beyond business and finance and a little bit of math and things. People do get really excited about doing things like art minors. – [Interviewer] So you really have access to all the NYU schools basically? – Yeah, yeah, I think you still need to apply and everything
individually and be accepted, but yeah a lot of people are also doing computer science or math at Courant. – So what draws you to visual art? – I think just the feeling of
when I’m creating something that hasn’t been created before, and I know I can just
take it anywhere I want, and also the feeling that I get when I’m looking at something
that someone else has created that’s really amazing and awe-inspiring or technically beautiful. You know the technical skill
involved is really amazing. Just really that feeling
brings me so much happiness, and I’ve loved art since I was a kid, so I feel like I’m kind
of living the dream. (jazz music) – So, what has the transition been like from NYU’s College of Arts
and Sciences to NYU’s Stern? – Yeah, I think there’s two
really large differences, well actually there’s a number
of really large differences, but I would say the two largest ones are probably the type of people. So at the College of Arts and Sciences, there’s a really wide range of people, so you have people from all sorts of different
ethnic backgrounds and who plan to pursue a
lot of different interests, but I think at Stern there’s a little bit less ethnic diversity and people are generally quite
focused on one of two tracks. So there’s a lot of
people going into finance. – [Interviewer] Okay – About 75% of people
at Stern study finance, and I wouldn’t say tunnel vision, but there’s just a really large focus, the entire school’s really
geared towards finance. – [Interviewer] I see. – And, in the College
of Arts and Sciences, I think people just think
a lot more holistically about what they’re interested in, about what careers they want to pursue. – [Interviewer] Mmhm, gotcha. What would you say surprised
you the most about Stern? – Honestly, I was a little
worried about going into Stern because people like to portray
it as this hyper-competitive, I don’t want to say unfriendly atmosphere, but yeah I hear a lot of
people describing Stern with these negative terms. And so going into it from
the outside I was like, is this really a place I wanna be? – Right – But going in, it was
actually the opposite. Yes there is a small minority of people who are too competitive
and a little cutthroat, but, as with any school, you just avoid those people and you just hang out with the nice ones. – Yeah – I’m originally from
Auckland, New Zealand, and I love it there, but
it’s very kind of small versus coming to a
global hub like New York. – [Interviewer] Right. – Endless culture and endless fun. Yeah absolutely, I would say do it. (jazz music) If you like this video, and you want to see more
videos about top colleges, don’t forget to like and subscribe. And, if you want to
see more about my life, then follow me on Instagram
it’s just thats wright which is thats underscore,
underscore, underscore w-r-I-g-h-t. (jazz music)

How data drives Uber’s efficient but controversial business model


AMNA NAWAZ: Uber’s impending initial public
offering is expected to be one of the largest ever. Our economics correspondent, Paul Solman,
recently visited their headquarters to better understand what happens when a San Francisco
company puts economists in the driver’s seat. It’s the latest installment of Making Sense,
our weekly economics series. CORY KENDRICK, Senior Data Science Manager,
Uber: We’re in 65 countries, and we see about 15 million trips a day. PAUL SOLMAN: Uber, these days literally all
over the map. CORY KENDRICK: So, you will see the biggest
circles are where we see the most trips happening on our platform. PAUL SOLMAN: Uber data scientist Cory Kendrick
can track every ride worldwide, and there have been tons of them. CORY KENDRICK: About 10 billion trips since
we started. PAUL SOLMAN: Here at Uber’s San Francisco
headquarters, the resulting data is analyzed by a team of in-house economists. JONATHAN HALL, Chief Economist, Uber: My guess
is, overall, between 20 and 30 Ph.Ds. PAUL SOLMAN: Jonathan Hall is Uber’s chief
economist. His mission? JONATHAN HALL: Writing papers, publishing
them, and trying to establish ground truth on tricky issues like the value of flexibility
to the work force. PAUL SOLMAN: Of course, Uber’s economists
need to protect its bottom line, help it stay ahead of the competition. But Uber presents an unusual opportunity,
the realization of many an economist’s s dream, efficient markets. Case in point, surge pricing. JONATHAN HALL: Economists really don’t like
the idea of the price not being able to change when supply or demand changes. We have this algorithm called the surge algorithm
whose purpose is to identify imbalances between supply and demand and solve them in a way
that maximizes the efficiency of the market. PAUL SOLMAN: So when more passengers demand
rides, prices go up to entice more drivers to supply them. Or take Uber’s controversial, oft-criticized
labor model. JONATHAN HALL: The drivers, who are independent
contractors, can choose to work whenever they want or wherever they want, with essentially
no restrictions. And that’s very exciting to an economist who
believes in open markets and competition. PAUL SOLMAN: So you are the embodiment of
what economists would like an economy to look like? (LAUGHTER) JONATHAN HALL: I think we strive for that. PAUL SOLMAN: So Hall’s economics squad is
mining the vast data collected by the Uber app to understand driver and passenger behavior,
and to tweak it. JONATHAN HALL: Women, on average, tend to
do fewer trips per unit of time than men. PAUL SOLMAN: One study analyzed data from
over a million drivers to find a 7 percent gender earnings gap. PAUL OYER, Stanford Graduate School of Business:
We know it’s not discrimination. There’s a formula that determines how much
they make. PAUL SOLMAN: Stanford economist Paul Oyer,
who did the research with Uber, says women make less for a less obvious reason. PAUL OYER: They drive slower. So, the faster you drive, the more revenue
you’re generating, because you’re getting more rides in per hour. PAUL SOLMAN: And since men give more rides,
they get more experience. PAUL OYER: So if you go out and get in an
Uber right now, and there’s a man driving, and then you go out and get in an Uber with
a woman driving, on average, that man will have had more experience driving for Uber,
and therefore he will be better at it and he will earn more money. PAUL SOLMAN: While we were there, the Uber
team explored one possible tweak. ALISON STEIN, Uber: Having this per-mile component
essentially mechanically rewards for speed. So, what this intervention considers is weighting
less heavily on this per-mile and more heavily on this per-minute. PAUL SOLMAN: Data is the driver, about tipping,
for example, introduced in 2017. JONATHAN HALL: We consider the rollout of
tipping to be an important experiment and opportunity that — to get it right. And so you will see changes happening over
time. PAUL SOLMAN: Because you’re constantly testing,
does this make people more generous towards drivers or less inclined to use Uber, or both? JONATHAN HALL: Both. PAUL SOLMAN: But using the key metric of economics,
the cost of losing customers, was outweighed by the benefit of more motivated drivers. Stanford economist Susan Athey many tech companies
now employ economists to run the numbers. SUSAN ATHEY, Stanford Graduate School of Business:
You have a bit of this image of Silicon Valley that somebody is sitting there, you know,
thinking of a brilliant idea, you know, alone in a room, and then putting it into practice. But, actually, the real innovation that happens,
especially for the larger tech firms, is just lots and lots and lots of incremental innovation,
randomized controlled tests, thousands of them a year, to try to improve algorithms,
to try to improve systems to make them better. PAUL SOLMAN: Better, which ultimately means
more profitable, whether consumers are on board or not. Jonathan Hall and I took an Uber with Hayley
McGonigle, who says the algorithms keep her busy, happily busy. HAYLEY MCGONIGLE, Uber Driver: I think a lot
of the improvements lately have been to keep drivers constantly busy. Any time you don’t have a rider, that’s, of
course, lost wages right there. PAUL SOLMAN: McGonigle was provided by Uber. She works morning rush hours, says she makes
$35 an hour. But for some San Francisco drivers, the economist’s
dream can be the worker’s nightmare. MOSTAFA MAKLAD, Uber Driver: They have been
decreasing how much money they pay to drivers year after year. PAUL SOLMAN: Mostafa Maklad has been driving
for almost four years. MOSTAFA MAKLAD: Instead of working like 40
hours a week, I’m forced to work at least 60, 70, 80 hours a week in order to pay my
bills and pay all my expenses. PAUL SOLMAN: Bay Area drivers for Uber and
rival Lyft have been protesting low pay with no benefits. Meanwhile, the IPOs of both companies will
make many of their actual employees rich. MICHAEL MARTINEZ, Uber Driver: There’s a lot
of frustration out there. PAUL SOLMAN: Michael Martinez drives for Uber
about 20 to 25 hours a week. MICHAEL MARTINEZ: If you include all of the
costs, and you also include the constant rate cuts that have been going on over the last
four years I have been doing it, I’m probably getting pretty close to just what San Francisco’s
minimum wage would be, to be honest. PAUL SOLMAN: Uber says there have been rate
changes in both directions. But that doesn’t mitigate the impotence drivers
feel in the hands of a faceless, forever-tweaked algorithm. MOSTAFA MAKLAD: Whenever they do any changes,
we are forced to accept and agree to their terms in order to go online and start driving. MICHAEL MARTINEZ: We have absolutely no power
whatsoever. Uber does as they will, and we have no choice
but to accept it. PAUL SOLMAN: But, despite their gripes, both
Maklad and Martinez continue to drive. MICHAEL MARTINEZ: The main draw is the flexibility. MOSTAFA MAKLAD: To be honest, it’s the only
job that I can do while going to school. PAUL SOLMAN: Unsurprisingly, Uber economists
like Libby Mishkin studied the value of flexibility. ELIZABETH MISHKIN, Senior Economist, Uber:
Drivers worked more as a result of this flexibility, because they don’t have to commit to doing
something that they might not want to do later. They can just choose to work whenever they
feel like it. PAUL SOLMAN: The economists also use data
to answer critics on a myriad of issues, like the charge that uber increases congestion
in cities like New York, Uber rides lighting up the city on this map. CORY KENDRICK: There’s really mixed evidence. And so one thing we’re trying to do is make
sure there’s more rigorous research out there, trying to get at this question. It’s really hard to study, for a number of
reasons. One is that there has been a lot of economic
growth in the last 10 years, and there’s more traffic when that happens. PAUL SOLMAN: Suppose you did a study and found
that Uber was the main contributor to congestion problems in New York, San Francisco, and elsewhere. Wouldn’t you be constrained from telling everybody
that that’s the case? CORY KENDRICK: Some of these questions may
be tough questions for us, but we would rather know the answer than not know. Congestion is bad for Uber too. Our cars will be going slower. We also have bikes and scooters, which are
new modes on the platform that are trying to get people out of cars and into active
modes. PAUL SOLMAN: In short, more tweaking, with
the data from mega-millions of customers leading the way. And that’s the new world of economics, says
Susan Athey. SUSAN ATHEY: Right now, it’s the Googles and
the Amazons and the Ubers, but it’s going to be the banks and it’s going to be other
manufacturing firms. So, really, all parts of the economy are going
to digitize and start optimizing in a more scientific way. Eventually, it will all get routine. PAUL SOLMAN: Because of the information you
and I provide. From San Francisco, this is “PBS NewsHour”
business and economics correspondent Paul Solman.