David Friedberg on the Economic Crisis Nobody Wants to Fix

**David Friedberg** (0:00)
He's known as the Sultan of Science.

**Molly O'Shea** (0:02)
The Sultan of Science.

**David Friedberg** (0:03)
The Sultan of Science himself, David.

**Molly O'Shea** (0:04)
David.

**David Friedberg** (0:05)
David Friedberg. David Friedberg. We have five years till Social Security is bankrupt. If you had put all the extra money that was put into Social Security since 1982 into the S&P 500, Social Security Trust Fund would have an extra 37 trillion dollars in assets sitting in it today. The net worth of Americans is 183 trillion dollars. The billionaires in America, their net worth is eight trillion dollars. The bottom 50% of America, their net worth is four trillion dollars. Capital gains tax should be 40%, not 15%. That would be a fair tax policy. The key metric for America should be to convert 2% of Americans from labor to capital each year. If that would be the KPI from America for the next 250 years, we would fucking crush it. I think it's about making Americans feel good again. 45 million Americans graduated college in the last 10 years with student loan debt, can't afford a home, can't afford health care, looking at the situation being like, what the F could you leave us with?
Oh, sorry, I'm just rambling on.

**Molly O'Shea** (0:58)
It was a mic drop, but it was a tree drop instead. David Friedberg, welcome to Sourcery.

**David Friedberg** (1:14)
Thank you for having me.

**Molly O'Shea** (1:15)
Last time I saw you, it was at Hill and Valley and you had this really hot take that took the Internet by storm. What was your hot take?

**David Friedberg** (1:23)
Was this California bankruptcy? Yeah.

**Molly O'Shea** (1:26)
You said that California was functionally bankrupt.

**David Friedberg** (1:28)
Yes. Well, if the ballot initiatives and the tax policy and the battle that's going on in the state for spending and taxation is any indication, I think it's probably true. The current budget from the governor is something on the order of $30 to $40 billion short that they bridge with kind of an accounting thing. There's another $30, $40 billion on the ballot to be spent as a California constitutional amendment this year. There is this massive kind of pension cliff. We have the highest tax rate. We just increased taxes, highest tax increase in, I think, the history of California.
So yeah, it's not going the right direction. But it's a reflection, I think, probably of broadly what's going on across the United States. I mean, we are in year 250 of this republic, and there's probably a number of policies that were major missteps in the mid 20th century that bring us to this moment, which is not a very pretty moment.

**Molly O'Shea** (2:28)
What are those policies?

**David Friedberg** (2:29)
I'll start with one fundamental truth. I think a fundamental truth is that there's this natural feature of nature that plays out in the economy, in business, in markets, which is this idea of compounding.
If someone or something or some organism has an advantage, it takes over. It ends up growing very quickly and it can have an outside kind of influence or presence in its ecosystem. The same is true in business. Compounding is an advantage that arises from once you've accumulated some capital, you invest that capital, you don't have to do work to make that capital grow, and it just keeps growing and growing and growing.
That compounding advantage is to some degree a feature of capitalism, but fundamentally, it led over time without the right policy from government sitting on top of it to an extraordinary state that we're in today, which is the cost of everything has run away from the majority of Americans. They can't afford stuff.
And a small percentage of people have large assets, but a majority of Americans don't have assets. So when you fast forward, some of the policy decisions that were made over the last 50, 60, 70 years to try and fill the holes that were being created, they were the wrong decisions. They were actually putting fuel on the fire.
And it brought us to kind of this moment where the majority of Americans can't afford to pay housing. They can't afford their student loan. They can barely afford food. They definitely can't afford health care. And they don't know if they'll ever be able to buy a home. And meanwhile, they're watching guys like Jeff Bezos and others go up into rockets and hold flowers out in space and say, look how amazing the world is. While the majority of Americans feel left behind. And things are fundamentally unaffordable for the majority of Americans. And so I would argue that there was a series of policies that took place over the last couple of decades that we could talk about that bring us to this moment. But I just want to like, I should frame one important set of statistics.