NYU Professor: The Middle Class Is A Lie & How To Escape It | Scott Galloway | FO570 Raj Shamani

Figuring Out with Raj Shamani

NYU marketing professor Scott Galloway joins Raj Shamani to dismantle modern economic myths, arguing that the middle class is not a natural

Key takeaways

• The middle class requires active investment; a $50 trillion wealth transfer from the bottom 90% to the top 10% has occurred over the last three decades without redistribution.
• Big tech algorithms exploit isolation, with men aged 20-30 spending less time outdoors than prison inmates and teen girls facing calculated relational bullying on Instagram.

Main topics

• Middle class wealth inequality & economic mobility
• Social media isolation & youth mental health crisis

Notable quotes

"The middle class is an accident of history. It typically doesn't exist... Unless you redistribute income into the middle class, it will die."

Conclusion

Listeners gain a realistic roadmap for navigating modern wealth creati

Transcript preview

Speaker 1 (0:00) The people who have asked themselves what could go right have been more successful than the people who have said what could go wrong. The optimists have absolutely beaten the crap out of the pessimists. How do you get a lot of people to vouch for you? I mean, one, to be good at what you do, you create a reputation. Two, is try and build as many debts as possible. What do I mean by that? Always be on the lookout for how you can help somebody else. It's a gift because it helps to be very social. make a lot of contacts with people, establish emotional friendships. And then three, every opportunity to help somebody else is like an investment. In 10, 20, 30 years, that person is in a position of power and they remember that small gesture you made to them when they weren't powerful. That compounds just like investment. Scott Speaker 2 (0:47) Galloway, Professor of Marketing. at NYU Stern School of Business and Entrepreneur. If you want to understand how the economy is really rigged, why young people feel poorer and more anxious than ever, and the concrete moves that actually build wealth, this episode is for you. How Speaker 1 (1:02) can someone who's watching this become Speaker 2 (1:04) a Speaker 1 (1:04) risk taker? People get very risk aggressive on a screen. What I would suggest is take more risks offline. Talk to a buddy about maybe starting a business. Approach a strange woman and ask her out for coffee. Show up to a job you're not qualified for and apply for a job. Take more risks offline and less risk online. Speaker 2 (1:23) When you feel anxious and powerless today, how do you get back Speaker 1 (1:27) power over your life now? I have a system for getting out of it. I call it SCAPA. S is sweat. I try to work out a lot. I find that it resets my brain. C. Clean, I try and eat really clean. A, abstinence. Abstinence from alcohol and marijuana. But when I feel myself getting depressed or really like going into a dark place, I just cut the substances out. And then F, family. I find hanging out with my boys is very restorative to me because they're so demanding and such jerks that I can't think about myself, which is good when you're depressed. And then A for me is affection. I'm not feeling great. I let the dogs up on the couch and I let them lay on me. I think we're mammals and for me kind of human touch is really restorative for me. How can somebody be Speaker 2 (2:09) charismatic and convincing? What I would say is... Speaker 2 (2:15) I have a small favor to ask you. I need you to subscribe to our channel. The more subscribers we have, the better and bigger guests we can bring and provide you more value through these conversations. And the full audio experience of this show is also available on Spotify, where you can follow us and listen to the new episodes as well. Speaker 2 (2:40) I was Speaker 1 (2:40) watching a few of your podcasts, Speaker 2 (2:42) right? I saw a bunch of things and you love contrarian insights, which I absolutely found insightful and amazing. Speaker 1 (2:50) What's the biggest lie that you see in economy today? The biggest lie? That the middle class is a naturally occurring mechanism that if the argument from free marketers and people on the right is that if we just let the market do its thing, the middle class will thrive. And I don't think that's true. The middle class is an accident of history. It typically doesn't exist. Usually in almost every economy throughout history, a small group of blessed, fortunate, hardworking, talented people aggregate a lot of. power and wealth and they use that power and wealth to slowly but surely weaponize government and get people in power to pass legislation or laws that help them aggregate more and more power and if you let that run unchecked ultimately the middle class begins to shrink and there's a transfer of wealth from everybody to the top 10 so loosely speaking in the last 20 or 30 years, we've had a $50 trillion transfer of wealth from the bottom 90 to the top 10. Unless you redistribute income into the middle class, unless you tax, have a progressive tax structure and provide opportunity and subsidies and tax breaks and infrastructure investments for the middle class, it will die. It's not... It's an accident. It requires distinct funding. It doesn't just naturally occur. I think that's the biggest lie. But Speaker 2 (4:17) why does every economy, every president, every government all around the world, they say that middle class is rising, middle class will become the next big thing. And that's what we should bet on, right? Why is that a sentiment then? Speaker 1 (4:30) Well, it's true in some nations. And if you look at the countries that have aggregated the most. power and influence over the last 30 or 40 years, there's one litmus test, and that is how many people are they adding into the middle class? So arguably, one of the greatest victories for humanity is China adding a half a billion people into the middle class, lifting 500 million people out of poverty. Now, there's a lot to not like about the CCP, but that's arguably the biggest. You know the biggest accomplishment in humanity India is now adding a ton of people into the middle class and who are the two most descendant countries China and India So adding people to the middle class who create a tax base a healthy society They fund the military they feel good about their nation. They create political stability They create loving secure homes that raise children that are good citizens You know, the middle class is it requires investment but it is the gift or it is the basis for a productive, healthy society. Speaker 2 (5:32) But then can a middle-class person become really rich in today's economy? Speaker 1 (5:38) Can a middle... Yeah, they're still... So, I mean, the reality is if you look at income mobility, 11 % of Americans go from the bottom fifth to the top fifth, one in 10. That hasn't gone up or down much in the last 30 or 40 years. So the reality is there is still income mobility. The difficult thing is, is that you can correctly say to a middle class person or a young person, you have no right to be disgruntled. Your life is better than the wealthiest person on the planet 100 years ago. And your life is better than a very rich person's 50 years ago. There's some truth to that. The problem is, that's not how the human brain works. The human brain is a function of relative comparison. And that is, if I see these people aggregating the wealth of a small nation state, and I see people, and I'm reminded 110 times a day, that if I'm not partying in Ibiza, or I don't have a boyfriend with ripped ads, that I'm failing, then you are anxious and unhappy. And when you see all of this incredible wealth being aggregated, and then you layer in the fact that these people aren't paying what Bernie Sanders would call their fair share. And in many instances, the most famous of them don't appear to be that empathetic to the struggles of the middle class. It creates resentment and anxiety. So there are real economic issues. But what speedballs it and makes people really upset is that. Every day they feel as if they're failing if they haven't made millions selling Ethereum or they're not partying with black coffee and Mykonos and they see the 0.1 % life as something that should be normalized for everybody. So there's a trend among young men called looks maxing where they're getting jaw implants and lengthening their legs. Because the algorithm is telling them this is what the 0.1 % looks like and what you should look like. Women have been dealing with this for 15 years in social and mobile. And that's now their standard. Their standard isn't their friends at high school. Their standard is algorithmically presented 110 times a day, the 0.1%. So it creates a level of anxiety and depression. And also there's just some economic realities. In the United States, 40 % of U.S. households have medical or dental debt. They, you know, a huge swath of American households can't afford to pay out of pocket when their daughter has a root canal. And then they see all of this unbelievable wealth being aggregated. So, A, they are having a difficult time. Inflation, wages have not kept pace. Was that true? Wages have, wages as a percent of GDP have remained flat. Corporate profits are at an all-time high. So the difference between the two is trillions of dollars of shareholder value and these people aren't sharing in it. So even when you can say to them with Netflix and Novocaine, you are better off than the richest person 100 years ago, that doesn't work. All they see is massive wealth creation they're not participating in. So it's one, they're not doing as well. The average person under the age of 40 is 24 % less wealthy in the US than they were 40 years ago. The average 70-year-old is 72 % wealthier. The conflict or the tension isn't between rich and poor or young and old. It's between the incumbents and the entrant. I own a house. Do you have a college degree? No. Okay. I have a college degree. I'm an incumbent. I have a college degree and I own a house. The moment I own a house or a college degree, I do two things. I try to stop the issuance of new housing permits. Because the lower the supply of new houses, the more my house goes up in value. I purposely advocate for the dean and chancellor of my university to lower the admissions rates such that the value of my degree goes up. The result is there's an incredible aggregation of power and wealth to the incumbents, people my age, at the expense of the entrance. So a college degree and a house have become almost out of reach for your generation. The assets I own, stocks, have wildly appreciated. And every time they go down, we use debt to artificially prop them up. Speaker 1 (10:05) What we have is this rejectionist, what I call LVMH strategy, where the incumbents are hoarding opportunity and wealth. And young people have figured this out and they correctly resent it. So here's a question on this, that Speaker 2 (10:18) this feeling of anxiousness, this feeling of that I'm failing already in my life, which a lot of young people have. Is it because of... young people's own insecurities and their human nature or is it because the system has actually made it a point to make more young people feel insecure so that they start spending more money on trying to look max and whatever they Speaker 1 (10:42) try to do I think it's all of that. I think there's a variety of things. First and foremost, I think that mental health is very strongly correlated to isolation. So 40 % of the pubs and clubs in the UK have closed since COVID. People aren't going to church as much, remote work, they're not going into work as much, remote schooling. So young people aren't around each other as much. The number of high school students that see their friends every day has been cut in half over the last 20 years. Interaction with others is really healthy. And so you have big tech, which is now 40 % of the S &P by market value, trying every day a billion times a second to figure out a way to get you to spend one more second on this and one less second with friends and with family and pursuing friendships or romantic relationships. This creates anxiety. This creates health. More anxiety. more health, and there's an economic incentive to move you more towards digital platforms, promising you a frictionless form of life. And the result is men ages 20 to 30 in the US are now spending less time outdoors than prison inmates. So I would say the number one cause is isolation at the hands of an addictive technology that keeps you on screen, further sequestering you from the most important thing in your life, and that is relationships. You're also reminded every day that you may not be doing well on your phone. Again, that's that mimetic or comparative or relative. I think there's also real issues in the economy that make young people feel less happy about their lives, a lot of pressure to achieve a level of success. If you're on Instagram, it feels like everyone's rich and hot but you. Like everyone's so hot. Everyone's so rich. I'm neither of those things. What am I doing wrong? And then, you know, different things attack different people's self-esteem. With young men, there's less obvious paths to the middle class. That really attacks their self-esteem because men are still largely evaluated in society in their own self-esteem based on their economic viability. So when there's fewer paths to the middle class, it attacks their self-esteem. And they also... need and benefit more from relationships than actually women do. Women are better at maintaining a social fabric than men. So they become isolated, less economic opportunity, don't develop the skills for friendships, romantic relationships or work relationships. And they kind of go on this downward spiral. With women, especially teen girls, Instagram has been an absolute weapon of anxiety. The entire high school cafeteria is following them around everywhere. and judging them. And the pressure, you know, just as your brain is getting wired and you're most insecure, you have the high school cafeteria following you around. There's no safe place from judgment, from shame. And actually, we don't like to talk about this, but boys bully physically and verbally, girls bully relationally. They're actually much more calculated in terms of their attacks. And we've put a nuclear weapon in their hands with social media. Some of the things that teenage girls do to each other on social media is very strategic, very calculated and incredibly vicious. You Speaker 2 (14:14) mean Speaker 1 (14:14) example? Oh, spreading rumors about somebody. They say something stupid online and all of their friends in the cool group weigh in and really shame that person. Whereas men, boys typically like start yelling at each other, maybe come to blows or scream at each other and then it's over. So they're not as calculating. They're not as thoughtful. They're not as meticulous. And this is all happening in a period where your brain is being wired. You're especially sensitive. You're especially self-conscious. Maybe you don't feel like you can really speak to your parents about these things. So and then if you go online and you start saying I'm depressed, the algorithms will pick up to it up on it and begin serving you a lot of content, sort of normalizing depression, normalizing eating disorders. So they're up against. a what I would call a real enemy in the form of big tech with no regulation. There's no reason anyone under the age of 16 should be on any social media platform. We should absolutely there's no reason to have phones in schools. So there's a lack of regulation around a technology our instincts haven't caught up to yet. And also more single parent homes in the U.S. anywhere in the world. And there's evidence that shows that boys really. Speaker 1 (15:31) are hurt when there's a lack of a male role model. And that is when a boy loses a male role model through death, divorce, or abandonment, at that moment, he becomes more likely to be incarcerated than graduate from college. What's interesting, Raj, is that girls in single-parent homes have similar outcomes as dual-parent homes, same rates of college attendance, similar rates of self-harm. A little bit more promiscuous because they're looking for male attention in the wrong areas, but largely the same outcomes. So what it ends up is that while boys are physically stronger, they're emotionally and neurologically much weaker than girls. And they really need male mentorship. And without it, they kind of come off the tracks. So there are a variety of economic, sociological, and even biological issues that have resulted in what is the most anxious and depressed generation, young generation in history. Only one in four young people feel good or extremely good about the U.S. Three in four people my age feel good or extremely good about the US. Speaker 2 (16:33) Wow. And you feel largely this constant comparison because of big tech. Speaker 1 (16:41) Well, yeah, constant. 105 times a day, I get a notification that I'm failing. That's what it's like to be a young person in Speaker 2 (16:50) the US. Speaker 1 (16:51) But Speaker 2 (16:51) tell me, isn't it? Here's just a question that... If you are constantly comparing yourself with someone who's doing much better in your life. Yeah. Right. And you look at that person, similar age, similar background, similar country, and you feel like, oh, he's just like me or she's just like me and is winning in life. Yeah. Doesn't that make me more ambitious that I can have that too? Because now there are possibilities. The game is not rigged. Someone my age just did it. Speaker 1 (17:21) So that's the argument from creators that their content inspires people. And I think there is part of it is an inspiration. But I think a lot of it results in unrealistic expectations that ultimately end in disappointment and anxiety. I think comparing yourself to other people's other people is can be motivating. I think online. It's become a source of incredible disappointment and anxiety for young people. I mean, so something I actively do, I don't ever take pictures of myself or post me at the World Cup or something like that. I hate wealth porn. And people, people basically, what you're seeing online is someone's fake version of their life and shoving their wealth and their success and their beauty and other people's faces, filters, pictures of their feet at the almond resort in, in, you know, in Greece or whatever. And everybody is creating a totally unrealistic, irrational. aspirational vision of their life. And I think, unfortunately, young people start to think that's the bar, that's the standard. And I think over the medium and the long term, it makes them feel, it can make them feel like they're failing. Speaker 2 (18:45) See, there can be two situations, right? Just the way you explained right now. When I look at you, that you have a house and let's say a post from you, like at the age of 30, you bought your house or whatever, whatever. You're this globally successful writer. You're at the World Cup. When I look at that, I get inspired that I want to do it. Right? Versus there are a lot of people who see this as failure that, oh, you're doing it and my life is shit because I'm not able to do it. What's the difference between somebody who's getting inspired versus somebody who's feeling like shit? Because they're essentially two same people looking at the same thing. Speaker 1 (19:21) So America's superpower is its optimism. People make crazy investments thinking they'll work out. People leave their company, safe company, and start new companies with crazy ideas. So we're optimistic. We take a lot of risks. That is kind of the secret sauce of our economy and our success. The downside to that level of optimism is everybody believes they will someday be in the 1%. And the reason why we continue to tolerate a tax policy that transfers money from the bottom 99 to the top 1%, that's not even accurate. transfers money from the bottom 99.9 to the top 0.1%, is that the bottom 99 believe someday they have a shot of being in the top 1%. But the problem is, and I can prove to you mathematically, 99 % of us will not be in the 1%. So when you're young and full of vigor and you see podcasts and you're inspired, some people like yourself figure it out, take risks, and it pays off and you can point to people as an inspiration. Most people are good people who are talented, not remarkably talented, have decent luck, not great luck, and they do fine, but not great. And so the bar is so high now for what success looks like. And you're taught online that if you just keep at it and any here's the here's the problem. This is the this is the dilemma with a quote unquote meritocracy. When you tell people that anyone can do anything, that anyone can be... We tell kids from the age of zero to 22, you can do anything you want. That's bullshit. A lot of it's luck. A lot of it is your parents' wealth. A lot of it is when and where and who... Where you're born and things you can't control. Your sexual orientation, the color of your skin, the parents you're born to. But when you tell people you can be anything, what you're also telling them is if you aren't successful... It's your fault. And that attacks a person's self-esteem when they're not. When I survey my business school students, within five years, 70 % to 80 % of them expect to be in the top 1 % income earners. Now, granted, that's an ambitious group of people who will be highly credentialed. But they're setting themselves up. I don't say they're setting themselves up for failure, but the expectations are enormous, right? Your happiness isn't a function of what you have. Your happiness is a function of what you have and what you expect. So the expectations in a digital economy with wealth being thrown in your face every day, this notion of meritocracy, that anyone can make it, all these success stories of people who came from nothing, but they kept at it and then they became, and then now they're on a Gulf Stream. That is created, that is normalized. Speaker 1 (22:15) totally irrational outcomes. And it makes the people who aren't able to achieve those irrational, super, super fringe case outcomes, it makes them feel bad about themselves. But Speaker 2 (22:26) isn't that good that you have these Speaker 2 (22:32) these like incredible examples, which is somewhat responsible for spreading, spreading optimism in the world. Speaker 1 (22:41) Yeah, so having aspirational figures is good. But if you can't, if being a big part of becoming Warren Buffett or or. Or Elon Musk. Oprah or Elon Musk is the ability to get a degree from Omaha State or McGill, wherever Elon Musk went to college. And every year it gets more and more expensive to go. And maybe you're not cut out for college and you have to borrow a ton of money and you drop out of college, but you still have that debt and it's put a real strain on your family. Or. Speaker 1 (23:19) You can't even dream of moving to London or New York because it's so expensive. Or you maybe find a romantic partner and you want to save for a house, but a new house in London or a small starter house in San Francisco is $2 million. And you think, I will never be able to save it down. So all of the things that kind of signal commitment and success and ability to move up the income ladder feel as if they're getting out of reach for young people. And I think that's incredibly discouraging. When I went to UCLA, the admissions rate was 74%. Three out of four people who applied got in. I was the 26 % that didn't get in. But I appealed and I got in. My total tuition for five years of undergrad and two years of graduate school was $7,000. Total tuition all seven years, right? I think the total tuition now for an in-state student would be about $180,000. And even more than that is not even the cost, it's the accessibility. Remember the 74 % admissions rate? At UCLA, the admissions rate this year will be 8%. So you work your whole life, you're a kid. You've studied hard, you've done well, you've sacrificed fun on weekends, and you get rejected from everywhere. And maybe you get into a good college, not a great college, but the good college has the great college price tag. Your parents are middle class. They can't afford. NYU is $100,000 a year tuition and board. So you might have to borrow $100,000, $200,000, $300,000. So you start life with debt. And by the way, if you want evidence that we're screwing young people in America, one of the great things about America is bankruptcy laws. You make a series of bad decisions or you get unlucky, you can declare bankruptcy and you wipe out your debt and they can take everything from you, but you have a clean start. You have a clean start. I think that's a wonderful thing about America. We don't have debtor's prisons, right? They used to be people in prison who couldn't pay their debts. But there's a small number of forms of debt that are not dischargeable in bankruptcy. You can't get rid of them. And one of those things is student debt. What debt should be the most forgiving? Maybe the debt that young people took on trying to better themselves. But no, we've decided that debt. So you end up with hundreds of thousands of kids who start their life. With debt. They're told they can do anything. They're told go to college. And then every day they see everyone's doing great. Maybe they don't graduate