Adam Davidson in conversation with Adam McKay at Live Talks Los Angeles

[Applause] so Adam and I have known each other for a long time and I read his book the passion economy how many people have read the book or familiar with the book and I thought it was really of all the things I've read about kind of where America is at right now one of the more hopeful pieces of work that I've seen and I was curious about with with Adam like what was the moment after the collapse oh seven oh eight where you thought that there could be you know in in the sense of a volcanic eruption or fires where there would be growth what was that moment that hit you it was yeah I spent so much of the last time in 20 years covering terrible things that are going on in the Iraq war of the financial crisis the earthquake in Haiti Katrina and and was so consumed by the financial crisis I mean it was right when I create a plan of money and just working you know it 12-hour days 15 hour days just trying to understand and then convey how our economy was collapsing and if I'm sure was a couple years like 2010 where I started noting at first these weird moments where I'm telling this main story the main story of both the acute financial crisis the lack of prosecution and the disproportionate pain and and I just you become familiar as a reporter that the people you're interviewing tells similar stories and then every once in a while I'd meet someone who's telling a story about how they're thriving so one who doesn't fit the model that I had in my head these weren't wealthy people these weren't the 1% work in a Goldman Sachs these were regular folks who had kind of figured something out and it was at first just the occasional I'd notice them I didn't know what to do with it I remember I did a few stories for a planet money I wrote a few columns when I had a column at the New York Times and but eventually it started to feel like oh there's this thing happening that that seems to be a trend and over time I came to see it as the flip side of that of the same story I had been telling that our economy had had a logic for much of the 20th century and this is like you and I have talked about a million times about how the 20th century is kind of this weird blip in human history where we had this sort of in many ways benign but in other ways not so benign economy that was built around large corporations in a kind of stable growth environment where a huge percentage of people were able to see over the course of their lifetime their incomes grow their opportunities grow and that started to fray in the 70s 80s and then really acutely in the 2000s and that caused a lot of pain a lot of dislocation but like any massive shift any transformation from one economic logic to another causes pain but it also causes opportunity and that's when I started clinging into the complete story has a ugly side and it has a happy side and in journalism you just intend to focus on the ugly side but then I wanted to tell also this optimistic side which is a key part of the same story and and what was the was there a moment and all the stories that you were hearing that kind of struck you like was there one kind of gleaming moment immense because I think we all remember Oh 708 when the stock market collapsed when people were losing homes my father lost his home everything changed what was the moment that you saw sort of some optimism it was it was later but I remember I had this column I wrote for the New York Times Magazine I went to a brush Factory in the Bronx in New York and Kershner brush and it was this old factory you couldn't believe it still existed I don't remember if this was 2011 or 2012 it was the guy was in his 70s maybe early eighties and was still making brushes he was very proud of the machine he bought in 1983 or something that was his most recent purchase and he made these paint brushes for municipalities that would paint bridges you know there's there really is this thing where there are these bridges people you start painting them and by the time you get to the end of the bridge you have to go back and start and and this was like a solid business for him forever and for his dad and his dad's dad and then a very familiar story China came China started exporting brushes at first by the way I'd love this part of his book where he talks about how China initially was like a joke yeah it was like oh they're crappy brushes yeah then they got better and better it's better yeah and these municipality said first we're like we're not gonna buy a bunch of cheap brushes and then we had bristles on the wall and streaks and so this guy Israel Kirchner couldn't figure out how to deal with China and his business just got worse and worse and worse and he was down to his last customers you know these small municipal buying operations I remember interviewing a guy who said look my dad bought from his dad my grandfather bought from his grandfather I'm gonna stay with him but that was it he was done and it was hilarious he would show that like his two kids were in their 40s or 50s we're working in the office where are you again like what part of the world this is the Bronx in New York a Bronx okay and he points it his kids he's good I might loser kids they don't know nothing about brushes and and he was done and that's a story we know we know that story proud American business lasted forever China comes in it's done his workers are laid off it's gone and but I was like wondering and I called there's these brush industry magazines there's like three major ones what are they called we have to ask if they're literally so the big one is broom brush and mop that is you can we all know that yeah but what are the other ones get this broom brush and mop we all know this is a sore subject because McKay tried to option and at some stories for said you would not bring that up I know you're pissed off you couldn't get the other magazine is called grab the handle and move yes and so I called the editor room pressure drop and I was like is anyone is this industry just anyway and mop yeah and does he have a staff around there are it's a big the big annual interbred France and Germany I'm sure it's a big you know there's brushes everywhere and and I was like because I had saw they seen these statistics that the number of brush manufacturers in America had collapsed but there were still a lot and I was like what's going on he goes uh you gotta talk to Lance Cheney that guy's a genius from depression we all know that yeah yeah yeah last Chinese the guy you talk yeah yeah yeah and I go out and he's can I surprise you ladies and gentlemen Lance he was at my book event in New York no yeah but he was not willing to come to it so so Lance ladies and gentlemen Lance Channing so Lance Lance had the same story his dad max Jani was running the family business their brushes were focused on the food industry they had a famous pizza oven cleaning brush they had a lot of brushes for the chocolate industry to kind of brush chocolate onto pastries and but like most 20th century businesses their main focus was market share let's just make lots and lots of these things make them as cheaply and quickly as possible sell as many as possible and Lance is a fascinating character in a million ways but he would sit and have lunch with his dad Max and they loved each other they got along well but basically Lance would say dad we got to get out of this commodity rush game China's gonna kill us and his dad would say yeah we're fine we've been doing it for a hundred years we'll do it for a hundred more and max died at work very old and Lance instantly took over the company and said we're done we're not any brush that a Chinese company makes we're not making which means China is only looking at their best sellers so that means that's saying all our best sellers we're gonna stop making and Lance said we're gonna find brush solutions to major problems and it turns out there are a lot of brush solutions to major problems he he found actually this was just accidentally gets a phone call from essentially Homer Simpson a nuclear safety officer serious at a nuclear power plant who says hey I looked you up you're a brush company we have this brush problem we use this brush to clean the pipes to inspect them but they're shedding staples and we don't have these staples sloshed hanging around our liquid coolant and that's really dangerous we don't want that and so Lance designs this very special brush to clean nuclear power plant pipes it costs him $12 in material but he's like what do I charge he's like they I could sure I could charge anything so he just said how about $6,000 and was that the remiel number yeah that's the real number and they buy several and hits now standard in many nuclear power plant big and and sure some Chinese company might be able to make that for three dollars or eight dollars but the problem is so much bigger than the money that they'd rather just stick with Lance Lance somehow found out that NASA had a brush problem they were creating they were designing that we all knew that yes yeah yeah no I know they were designing the Mars rover and the Mars rover comes up to a piece of rock on Mars and wants to do something to inspect the rock but there's dust in the way and so Lance worked with NASA to design a special brush that cleans the rock there's now two of lances brushes like very very specialty brushes up on Mars and he this is more prosaic but he created a brush for the frito-lay potato chip line that the the potato chips they had this brand-new machine to make potato chips but all the potato chips were like bunt bulging up in one corner and crumbling and so he created that's not cool that's not cool that's not good and he created this like soft brush that like would push them out of the way so this is what he does and it's on the one hand he's still making brushes on the other hand he's completely transformed his business from we make something that we designed 50 years ago and we just make it over and over and over again - we solve problems we figure out solutions and Lance he knows three things he knows bristles he knows handles and he knows the way you hold bristles on two handles and it's three simple things but it's infinitely complex he can talk to you about boar bristles and and beaver bristles and nylon bristles and end tampico bristles and it's interesting for a while and and that to me is the essence like when I say passion economy a lot of you oh you mean at sea making crafts actually I don't think that's a great amines at sea I don't know and I think his ebook is so great because I just want just to set the stage he'll ask questions but if he ever makes a statement that's not I just don't know yeah I'm curious about like so you have this kind of flicker amidst the darkness after the collapse of all the stories that we see in your book was there one that like really kind of sparked you like I mean we talked about like brush makers accountants and all these people was there one that like really ate you I think the accountant the accountant and a few people have said like I can't believe my favorite chapters about an accountant but it's this guy jason blum ER who wanted he had a dream to be he was a bassist in a heavy metal Christian rock I remember this yeah yeah and there was like a moment in the early 90s when that was the thing and but they just happen to be lousy and he suddenly found the way I'm a huge Christian heavy metal guy it's still a thing don't dissuade you any other direction ya know all your CDs are thirty years old but they're still good anyway Adam Davidson yeah ladies and gentlemen and so and Jason he thinks he's gonna be able to rock star that doesn't that very quickly that unravels he's suddenly married with a pregnant wife I need a job my dad's an accountant I know what an accountant is my dad doesn't seem to like his job but I think that's what you do you just do a job that sucks so he majors in accounting and finds out oh it does suck I really hate this and and I'm not good at it and he and he went to North Greenville tech which as I often tell him is like the 8th best college in Greenville South Carolina and take some six tries to pass the CPA exam and he finds himself a sort of standard CPA at a midsize firm in Upstate South Carolina doing the most boring work he hates every minute of it but that's life you you're a dad you got a kids you got it you do a shitty job and that's what you do and hopefully on the weekends you can have some fun and then he just starts wondering like what if no one wants what I do I do tax returns I do audits I do payroll nobody wants it they have to do it and they I charge them by the hour because that's what you do and by boss says I have to work seventy percent of my working hours because that's what you have to do and he just started wondering what if people loved what I did what if my clients really valued what I did what would that be and he didn't even know how to think about that and if I met him when he started this journey you'd be like I don't what are you talking about wait but he you really had that question he had that he wondered why what I'm doing is a drag what if it wasn't right what if I loved it and what if I worked with people who genuinely valued it and weren't just like oh I got this tax return can you be the guy who does this house so like neither maids would be like what if people loved me meter maid a yes yes yes and they show up in there like yeah some champagne and yeah yeah so he goes on a very long and very unwise journey frankly um takes him like ten years but he NE quits his job and he starts his own company and it goes terribly and it's really a design and the financial crisis came very close to destroying him but eventually what he what he clicks into is I don't like doing the rote work of accounting but I have a sense of money I know how money works I know how business works I know how profit and loss works and I love hanging out with creative people and this country is filled with creative people who are really good at the creative thing and are terrible at managing their own business so what if I just work with those people and didn't work with anyone else and you know CPAs like so many professions have historically been very geographical like you your clients are in this region and he's like okay so I can't do that because there's not enough of those people in Greenville so he cut creates a national firm and he also is like I have like 500 clients who I barely interact with I can only do this with a small number of clients he wants 40 clients Wow but that means I have to charge them a lot but if I charge them a lot so he cuts his client list from 500 to 40 and he gets rid of all like 499 over those 500 because they're not the right ones Wow and I'm now one of his clients I mean after writing the book I was like I'm a creative guy I'm technically an economics expert but I'm really he had actually money so I'm gonna hire him and by the way he Adam Davidson owns a chain of froyos they're not great they're not yeah yeah yeah it turns out there is really crappy option for you so so he he but and that creates a crisis how do I convince people to pay me well many multiples of what I was charging how do I actually create value in their lives and that to me again is the essence of the story of the book and he was the one so basically what he is I mean honestly I feel like I just basically wrote a book stealing a lot of his ideas and sure yeah yeah because he is a guy how books work that's how yeah he is a guide for people who are confronted by what we're all confronted by a rapidly changing confusing economy and he helps them like calm down and focus on what's the value you're creating and how do you capture that value in a way in a relationship with the people who most value the thing I mean hearing you talk about this what really strikes me is the idea that we're all told through traditional capitalism that you should have the most amount of customers regardless and what you're really talking about is that there is a line in there I mean it's that yeah I mean I've so some of the hidden logic of the 20th century you know you have Adam Smith and you know I love Adam Smith but he had this model of an economy that was a very it was a model it wasn't how the economy actually works where there's just one marketplace everyone's just producing equally exchangeable goods bread and every piece of bread is the same as every other piece of bread every shirt is the same as every other shirt and the famous supply and demand curve that price is at the point where supply meets demand and as economists define it it's at the point of indifference that what in the economic theory is you price where the very last potential customer is like okay fine I'll take it I'm not that into all right you'll if I pay you a dollar you'll give me this bottle of water okay fine I'm not that into it but that's fine if you charge a dollar in one cent I'm not gonna buy it but for a dollar I'll buy it and but what's implied in that is that higher up on the on the curve there are people who would pay $500 for the bottle of lager they really want it they really value it and that and also as we've learned markets are not just this open undifferentiated world of equally transferable goods and this particular water is not a great examples of water it's probably not a great example but there's some number of people who would pay five hundred dollars for this let me find those people and which was not technically possible until very recently and just work with them and stay in communication with them because they're gonna those are the people who really love what I do but their their life is changing their problems are changing so I have to stay in that constant communication with them and that is a fundamentally different economy than the mass production economy of the 20th century so so let me throw out the monster on the other side that's fighting against what you're talking about which is the conglomerate which is the commodified conglomerate that is like trying to roll over everything that you're talking about which is you know specific personal economy is right yeah I think that's yeah yeah way to call it how like with the case examples you gave how did they fight off that conglomerates or the Kumada you know the commodification of their products and and and for a second because I didn't know this until I uh I worked with Adam on the Big Short he was our advisor on that movie and taught me a lot about economics and he taught me about commodities which I had never really thought of as anything other than a word or kind of a system and what he told me about commodities was that it's a you know it's a product that hits kind of a set price point you jump in sure yeah god I seemed cool for like a minute ya know ya know I ran out of gas I ran out of gas I mean generally so a commodity market is it's like that market that Adam Smith defined Karl Marx in Das Kapital talks about imagine a one mark store I guess they have like 99-cent stores at the time and like where he does this essay about this thinking about oh this is telling us everything here is worth the same as everything else everything here is worth one mark and but the the basic logic there is if you are producing a commodity and you know classic commodities with the grains or metals but you know economists talk about these yeah yeah but commodities has an undifferentiated product so a generic white t-shirt or a generic accountant who's just as the standard stuff yeah or or a generic audience that fills a theater and it just yeah it's just whatever offense no yeah commodity yeah yeah every one of you yeah all your individual feelings and like dramas are all grouped together as a command and our I think we can take you somewhere to relevant irrelevant yeah yeah you're on a balance sheet your entire soul is on a balance sheet yeah I'm going out that this Cedars just here and there's like two people talking and yeah just happen to be the two people talking yeah anyway I will say they pay us a lot yeah are these events and I don't want to make things awkward but he was paid $35,000 for tonight 20 grand yeah and your commodities yeah but thrilled to do it peace there's one in 30 of you that believe that okay but the 20th century was built around commodities so there's mass production of a similar set of goods and you are what economists call a price taker you go to market with your soap or your whatever and you just the price is what the market price is you don't have a lot of influence over it your customer is that indifferent customer so you don't have an ability to really engage them and so the way to make money is to focus on the production side if I can make my soap or my pasta or my cars or my what a little bit cheaper than yours we're both gonna get the same price because we don't really have that much price control but if I can get my production cheaper then I get a little bit of bigger profit I can invest in even better production and hopefully I eventually get to the point where I really dominate a market but you might find it and so that is a tough race but it also but it had a lot of benefits I mean Henry for Henry Ford to get rich he eventually learned I actually have to make a lot of other people maybe not rich but middle-class I actually think this is one of the key moments in American history or even industrial history as the moment that Henry Ford who was kind of a messed up guy in a lot of ways crazy about Jews yeah and realize that I'm paying my workers a dollar an hour and they're showing I was wrong like a dollar 50 a day let me have my moment okay let me talk to the commodity and so they were being paid like this crappy money and Henry III is there any story of how he came to this conclusion he figured out that if I pay them more they'll do a better job production will drive forward faster yeah and it changed everything right I changed everything and yeah well would he so if you think of early industrialization you basically have semi-literate peasants going into factories you know people who farmed for living on their own and they're like you just called the crowd semi-literate let's just move on past it yeah their grandparents were semi illiterate peasant I actually know a lot about your ancestry and they yeah actually does that mean I would be like my grandparents were yeah they were linen Weaver's in Ireland yeah totally right so um and they would like they didn't know about you know but it wasn't a standard that you show up at this time and you leave and and that you come every day and and so he said Oh Noah I need you to come especially if I have a conveyor belt and I got 50 people on the line I need all 50 to show up and he wanted to pay them terribly he'd much rather pay them terribly but he learned he had to pay them the insane amount of $5 a day to get them to just show up and that was throughout Procter & Gamble whatever GM and the other companies were mad at him mad yes that they were like what are you doing exactly and and you see for much of the early what we call the Second Industrial Revolution like 1880 to say 1970 ish you have there's just always more demand for labor than supply and that creates a space for labor unions and creates of space for bargaining power not saying it's all wonderful or easy but you see like for really rich people get rich they have to make a lot of other people if not rich at least better off but now like Mark Zuckerberg doesn't need to make anyone else rich and you know snapchat doesn't need to make anyone else rich and Goldman Sachs doesn't need to make anyone else rich so I do think big scale is bigger and scalar than ever you know when you the strategy people at Google and Facebook are they're constraint of their potential market is literally how many hours a day are human beings awake and and how can we monetize all of that time and that is a crazy constraint so that way also terrified and terrifying yeah yes absolutely but that's the like when you think about what's your by the way full disclosure Adam and I are staying with Mark Zuckerberg at his condo up the street yeah whatever we're just talking we're doing yeah yeah and he's actually giving us a report on this audience that was really interested really [Laughter] and actually we shaped like there's six of you that we just for fun this afternoon we shaped how you see the world and so so that that is very real and that is a real force but it the the kind of the the structure that brought others along with it is broken and so we as you know like you you can decide oh I want to be a billionaire I'm gonna do that but what I'm arguing is you can also just be like oh I'm not gonna do that I'm gonna do this other type of economy where I might use some of those tools I mean a lot of the people in the book will use Facebook ads and Twitter and and other social media tools to reach find their customers but I'm not gonna I'm I'm gonna focus on creating the value I uniquely can create that other people can't create find the people who most value it and figure out how to really match me to them and come up with a price rooted in the value I'm creating so so let me ask you with that it is there a chance that what you're talking about with the passion economy could it overtake the come out the commodified conglomerate economy or and the example I would give is like beer right like beer is you know they have micro breweries they have like these big companies and the big companies keep trying to buy the micro breweries how do you see that battle between the two because I totally agree with you like there's the kind of you could also call it like a bespoke economy or an artisanal economy and and what is the give-and-take between the two the conglomerates and the passion economy and this is so I think this is the kind of book we're all writing together at the time and I find I have optimistic ways of thinking about an impasse amidst equation think about it I think so the optimistic way is that much of the 20th century mass production large corporation a single brand that everyone on earth drinks coca-cola and uses ivory soap and those McDonald's was actually a byproduct of the technology of the age that we you know if you think up until say the 1880s almost all manufactured goods and all services were very locally provided there was always a tiny tiny tiny luxury goods industry that was traded even in you know in pre farming days we see evidence of trading among nomadic you know hunter-gatherers but but that's for very high value luxury goods for most people most of the stuff was either made at home or made by a neighbor you'd know the grandparents of the people who made your goods and then suddenly all of a sudden in 1880s trains and the beginning of mass production Proctor and Gamble people are going to the general store or whatever in their village and there's products that are made by strangers in another place and how do I trust that how do I know it's not crap and that's Sears and roebucks Sears and Roebuck catalog was my branding yeah like and this the whole structure of the modern economy like ivory soap is considered the first branded product by a lot of people they spent a fortune saying look this is a thing called ivory soap and we really stand behind it and once you build that brand you sell it everywhere and but today and this is the positive side of artificial intelligence and the internet and outsourcing and global trade you can do much more complex matching like you're I mean I don't really care that much about soap but there's probably so good I do you do you care what you talk about it we're different people I yeah you don't yeah yeah yeah I care about clothes no you were telling me today that you found to your shock and slight horror that you were targeted with ads for it's true people who are tall and you have like they figured out what clothes I'm six five I'm 250 I shut down my Facebook account because Facebook is evil it just is and but I lazily left an Instagram account going and I just occasionally go on it and they were giving me ads and they were like four I'm sixty five to fifty but I like comfortable clothes and it was like spot-on every single ad was like oh that's good all right and they got me they got me yeah yeah and so the the optimistic case is hey I another bubble blood that you can match lots and lots of people so you're living in a world where you're matching with producers who meet your needs I'm matching with producers you meet my needs the that all of us are living in a world and this isn't doesn't have to be just oh we're rich and and we're getting like high-end consumer goods it could be in fact a lot of the most interesting stuff happening is happening in Africa where there's sort of a fascinating revolution and consumer packaged goods and and what is that I don't know there there's a sometimes it's called the bottom of the pyramid but there's figuring out you know micro sized products specific so if if you're like one thing whatever we think about soap we basically are not thinking how much like it costs to bathe like we don't it's not like but if you're living on a dollar a day or three dollars a day you know saving a penny a bathe is a big deal and so so Davidson told me something very interesting about soap which this these are the kinds of conversations we and it was when we were working on the the big short he was telling me how like wideout also pads tell you like it's pure its clean and he was telling me that like back in the day soap would have like hunks of like pig hoofs in it and like hair because they were getting it from yeah exactly and we're distilling it from like animals and oils and I was like holy yeah like soap would rot and stink and yeah yeah and so and Procter & Gamble gets into this but there's more innovative companies that you know for us we co it's a gel soap it's of this soap it said that's oh but if you can create a soap that allows you to bathe your family for a penny less and maybe also smells a little better or whatever is packaged in a way that there's less waste its enormous ly valuable so that's happening in Africa and Africa starting that the there's you know what computers I mean computers can create massive scale and monopolies but it also the logistics revolution that allows you to actually efficiently transport goods to villages all over Africa allows companies to actually say oh boy if we could improve the packaging and the chemistry of the soap product and we could get a much we could sell to a much bigger audience so it it's no I'm not you know we live in a very unequal world and it's much better to be well off that not well off but these principles don't necessarily mean Oh rich people have a bunch of nice sweet stuff and then the poor will desert a standard old commodity and so there I can live in a world where I I can be in a place where I think oh there's there's an optimistic world where just is more and more efficient for most of us to get the thing we value most and if you're rich that might be a luxury thing but if you're poor that might be something that just provides a neat serves a need you you have that's different and it's more fast effective the flipside of that or the the negative side of that though is that it is ultimately political that that even if it's true that the 20th century technology created a bunch of companies that don't have to exist that way now what we know about wealth and power is just having wealth and power allows you to perpetuate your wealth and power absolute oh yeah and so they don't necessarily want that change so that's a market inefficiency is that you have these entrenched monopolies and powerful forces that are sort in the market yeah cuz that was the question I wanted to ask you was that you and I were talking earlier about the idea that I read this article that was about brand loyalty versus consumer loyalty and it was in some obscure kind of marketing magazine that I found and what they were talking about was that brand loyalty is one of the most powerful forces on earth that once you choose to like back a brand your mind is just done like you're gonna do it whereas if it's consumer loyalty you're looking at the cost you're looking at the benefit you're looking at the quality and I retweeted it I was like this describes the American political situation perfectly and but beyond that I I was curious about like everything you're talking about because with the passion economy what you're really talking about is a personalized connection with the consumer and I'm curious if you've noticed a difference between certain consumers that won't abide by that like it is there are they're a group of people that don't want to hear it like they're using crests it's over or there's a new toothpaste they've been marketed and they're open to it have you encountered that at all I mean I think the data is clear like I actually did look into Mike Bru's and large beer companies because there was an antitrust case I don't know five years ago it was under this is what we were talking about that as well yes where and the US government was suing it was I'm trying to remember it was was it Budweiser baby InBev the Brazilian company bubbles EV like Owens everything every like and they were gonna buy Corona I think that's what it was yep and the government was saying no you can't because then you'll have a monopoly and I remember at the time I thought was like what are they talking about there's like a million brands there's you know nobody drinks bud but obviously I am a coastal elite and and I talked to the chief economist of the Department of Justice at the time who was like oh no people only drink but like like all of the micro brewery stuff all of everything you've ever heard of is like this you know the the spill from one day's production of Budweiser it's irrelevant Wow and and so we do live in a world where the vast vast vast vast vast majority of purchases are of mass-produced goods or rayon loyalty brand loyalty yeah and I think carries about about that gives intersection that intersection between brand loyalty and just haven't been having yeah yeah and I do think yeah and I was thinking that I bought we actually have a guest here this is Robert Biegler I'm the economic hypnotist everybody doing and Rob is a friend of ours who's a writer that we just love and a cool guy and so at one point I said step out Rob and ask us a question that breaks our rhythm which he's just done really really well I'm gonna be I was I'm so sorry Oh keep going okay honestly I thought so you've heard everything we've said you've been talking back and forth what do you want well I got so fixated on Katherine Schwarzenegger Pratt and Jessica Simpson coming out in a couple weeks that I kept thinking about what the question I was gonna ask them was going Jessica Simpson well I think she's in Beverly Hills they were saying she'd get sort of a nicer stage um so I actually did have a question kind of a macro question and that was that we have heard quite a bit I think in recent months about the inverted yield curve and and sort of interest rate stagnating and the potential for a recession and so I'm curious how inevitable is that recession how impending is that recession it's probably not coming in the election cycle for better or worse are we prepared to handle that recession if not how do we prepare for it and how do we adapt and then what role does the passion economy play in it if any sure thank you Robbie all right so so to sum up what Rob's asking is how does the passion economy the personalized economy deal with a large catastrophic event right right yeah yeah it's a fair by the way very nice question right yeah yeah yeah once again Rob big round baler yeah yeah big Trump supporter openly racist but we appreciate your applause for him yeah so yeah we are wildly overdue a recession and we you know I think everybody who does forecast thinks we're gonna have a recession and it's sort of surprised it's taken this long we're still in a sort of unnatural economy we're still on the life-support that was put in place after the financial crisis and a lot of the positive economic news is the result of I mean essentially transfers from the poor to the rich through the tax code and do you write deregulation which are not real growth it's not real value that's the big thing I keep talking about is like oh when you know the government isn't gonna regulate anything you're gonna have a bubble yeah we've seen it over and over again yeah yeah so the to me the the passion economy if in in its fully fullest manifestation whatever that would be is a more stable economy because it's a much more diversified economy you don't have as many like single points of failure like we saw you know the financial system where we have a small handful of banks that make up the vast majority of global banking they all make the same set of mistakes they chase each other to profit from the same set of mistakes and then they all collapse in the same way I mean I remember an economist telling me we'd have a better system if our banks were wildly irresponsible but just each was irresponsible and in a different way and you would have diversification and and we still have an extremely top-heavy and and topper heavy like the I was looking at some stats at the fortune 500 the 500 biggest companies I forget the exact numbers what used to make up 50 percent of our economy now it's something like 66 percent of our and so that kind of and that has multiple problems so you have like just in a kind of engineering way of multiple you have like concentrated points of failure but then in a power way just concentrated wealth just does lead to political distortion so I don't I think I mean it's very hard to predict how a recession will unfold I will save for me if it's gonna come I'd rather it come sooner than later and but also the last tax plan gave away all of our surplus so do we have a move to go to if another giant recession hits I mean can we go to quantitative easing can we go to like can we buy you know yeah I mean the language of central banking is the powder is dry we don't have a lot of we're still kind of almost got the gas pedal pressed all the way down and the cars moving but it's so and yes I mean we've wildly irresponsibly stat at a time of growth and that's crazy I mean it's insane so and I guarantee that if through it's a miracle there Democrat is elected the next president all we're gonna be hearing from Republicans but also from lots of centrist Democrats is oh we got to break down the welfare state where we're we're about to you know lose you know we're gonna be deeper and deeper in debt so there's a book I really like why nations fail by a great book you gave it to me yeah great book my friend Aaron Acemoglu who's a professor at MIT and it talks about a big sweeping his economic history and talks about periods where economies share their wealth somewhat and periods where they're it's highly concentrated and I think Darrin would say I think it's obvious we're at a pivotal point we're in a turning point and I do believe you know I tell the story in the book there it is possible today to profit from the passion economy lots more people could do it but big picture we do need as like a society to make the decisions that would support broad-based growth as opposed to concentrated growth and the thing that makes me slightly optimistic or at least less pessimistic is when you've seen these other major changes like say the shift from agriculture to industry it just takes a long time this is a multi-generational process and and so it today it does not feel like we're on the cusp of some major change in how you know what are the great books that Adam recommended to me was the what's called the good job strategy yeah yeah it's an amazing book if you have a chance to check it out actually not that long zeyneb tone what's her name Zeynep Sean and it's an amazing book that shows how that if you treat your employees well and you have a specific relationship with your customers you actually do better and she studied like six seven companies and it's a nice companion to yeah a very smashing economy it's it really it talks how like I think a little bit what's been lost with economics and and consumer goods and a lot of this is probably through advertising and marketing is that personal connection and I feel like that book and your book both remind us that it's an exchange the story I always think of is I went to Greece on my honeymoon with my wife Shira and we went to a store when we first got there and we were like yeah can we have that and the guy wouldn't talk to us and we were like yeah can we get the bottle of water and he was like just looked at us and we were like how you doing he was like I'm good and we were like we're good - we're here on our honeymoon and he was like oh that's fantastic what would you like and we like weird like that bottle of water he goes great and then we learned have you heard in Greece that like you have to have an exchange before there's a tragic and we were like that's beautiful yeah we're creepy dirty Americans and it was really like a beautiful moment and I feel like that essence is in your book and I feel like the good job strategy has that - that that connection isn't just a sort of you know religious or personal thing but it actually does lead to a better economy yeah and I think a healthier economy yeah yeah and her I mean I she and her own I like because sometimes you can feel like saying words like passion and I want connection oh that's softy lefty stuff and there's serious business but I like it when really smart economic writers are like no no you businesspeople are being stupid like you can make more money doing it this way and everyone will be better off we're gonna go to some questions from the audience slash commodities yeah we have a exchange we go through before we do that here oh I love it questions at live talks la typically start with the W R and H sometimes a D they are generally short there is no such thing as a two-part question and tonight only Adam McKay gets to ask the follow-up questions Wow oh my god feels so powerful I was just wondering when you were telling that story about um the brush maker it kind of was making me think and I haven't read the book so that would maybe be better if I had but it makes me wonder a little bit about you know sort of I guess elephant the room would be the ethics behind charging you know six thousand dollars or sort of an invented price just because someone values it which seems like it kind of so I guess like the the question that leads to is like I'm inspired by this idea and I think a lot of people are too I'm an artist so I do you know like direct marketing or whatever like anyone in a band does or a lot of visual artists do too but it seems to me that it would engender a lot of like some ill feelings and in competition when you find out like people either from the person who's receiving the good is like oh this cost you $10 and you discharged me $6,000 and also it seems like it could be chaotic within communities of human beings cuz they'd be like oh well you know Jeanine invented this product she's making crazy profit for nothing so I know you've thought about all this so what is your thought on that sort of issue yeah that's a great question yeah I think that's actually the essence of the entire debate yeah question I I think you're a hundred percent right yeah and and I feel like pricing is this profound and crucial thing that everyone gets wrong and it's like the number one if I'm talking to some business person or some and price also includes your salary so I I look at it in a different way so Lance Chaney is spending an incredible amount of time searching for problems creatively solving problems and also understanding the industry understanding Britain new bristles that are coming out understanding new glue technology he's amassing this incredible body of knowledge just like jason blum er went on a long journey to understand how to think about creative artists and how they think about money and it's something he's continuing to do and this idea that the value is cost plus it's the physical objects and some reasonable hourly rate would not allow you to value all that other stuff so so if if lance cheney made a brush for that nuclear power plant for $12 and then sold it for say twenty four dollars or even fifty dollars he's actually being unethical to his feet to to the nuclear power plant and the others because he's creating a condition where it's unsustainable for him to be solving these problems and no value doesn't mean it's always six thousand dollars but for the nuclear power plant he solved a multi million dollar problem and potentially a billion dollar problem by avoiding a catastrophe so what you're really saying is what's the price on innovation and or ideas and if you base it on the value you are creating so which is a ephemeral thing yep yep then you will create more value for people and so that nuclear power plant is happy to pay six thousand dollars because they solved this much much more expensive product that doesn't mean we all should charge six thousand dollars for everything and everything should be six thousand that just was in that context an appropriate price I think this idea that you price based on just cost plus is is just a byproduct of that 20th century mass production economy and and really isn't applicable something Jason bloomer does with his clients who are often graphic designers our ad agency people or whatever who typically charge by the hour and he'll walk them through like if you're a marketing person or web designer or something it's often like the first 20 minutes or maybe the first two hours you're adding enormous value because you're an expert and you know stuff and this person is presenting you with a bunch of issues and you're you might be solving massive problems but then like our 96 is just you're just like doing kind of rote work so why should you charge everything by the same hourly price it will create an incentive to actually under provide less value than the customers actually want so we have a friend in common who's one of the most brilliant editors in all of editing Hank Corwin and I was joking with Hank about six months ago I was like why doesn't he really is one of the great editors of all time he did like JFK Tree of Life all these amazing movies and we've worked with them and he's incredible one of the best people one of the best people ever and I was joking with Hank and I'm like why doesn't every movie or TV show that's in trouble just give you a million dollars to like fix it and he like giggled and and then later there was a movie that was in trouble that gave him he was like I don't want to do that and they gave him a bunch of money I won't say the movie or whatever and he fixed it and it became a hit movie and so it's a tricky thing in that line of like what is the idea worth versus the value I think you nailed it exactly and in this town in Los Angeles it's really apparent because you have people with ideas like you know you're some Schmo walking around then that ideas worth so much money yeah I think that's exactly the transference that that kind of ratio is kind of the key to what you're talking about with the passion economy and the other thing I mean the way I think about it is it's an ongoing relationship so it's you know I you know IP and copyright probably play a role but but it's not about capturing like this I own this and you have to pay me it's like I'm gonna continue yeah to pay to create that value next question hi sorry in advance for diverting the conversation from the passion Makani passion economy to Donald Trump on today of all days but Adam you wrote about what you described as his worst deal yet in The New Yorker describing his business dealings in the country of Georgia relationship to organized crime financing from potentially the codes for us in Iran are you planning to revisit that story now that you're done with this are we gonna revisit it I feel like that was a big deal and we've sort of forgotten about it by the way I totally think you agree I thought that was a monumental piece and and a scary moment that America just let it roll right by but anyway you go yeah I mean it is it you know I I feel like I did establish and the Trump Organization actually fully conceded that they were part of a money-laundering operation for the Islamic Revolutionary Guard Corps through the election like they sew it it started in 2011 they say they didn't learn that it was this until 2015 but they continued to be part of the deal for the entire election and killed the deal in December after Trump was elected and when I asked why didn't you pull out when you learned you were probably supporting the Islamic Revolutionary Guard Corps the lawyer their chief counsel said oh well we had a contract he can't violate a contract I was like I think the general rule if you find out yeah so look it's a tough time for investigative journalists who focus on Trump because you feel impotent you know and you feel like you know my view is we don't need really more information we just need to share the information we know I'd say there's sort of a team of people you know David Ferran thought that the post andrea bernstein it would trump ink at WNYC a bunch of people ProPublica there's a bunch of us who talk all the time and we feel pretty confident that the Trump Organization is at base a criminal organization that that transitioned in the in the 2000s to become as its primary goal providing a big gold mask for incredibly awful money laundering operations for some of the worst people on earth and but it is hard not to feel like what who cares like what am I gonna find out that's more than that like so you know I think that you eventually people that you know I I covered the Iraq war I was in Iraq for a year and we knew it was a disaster before that word got out and it took a while but eventually America figured that out I do think at some point this fever breaks but it's it is just a very hard time to be an investigative reporter on the Trump beat it just feels like what's the point yeah it's tough yeah yeah yeah next question yeah the next question okay so I'm gonna bring it back to the economy I wanted so I wanted to ask you my understanding is that from studying economics when I was in college which was a long time ago but that the marketplace is really what sets the pricing so that you know if you want a bar soap and a normal price is a dollar you can probably find a market that's gonna sell for 600 but that you know that's gonna be a small market and it's questionable whether you're gonna find those people but I understand in the new economy that you might be able to find those customers but what what I wanted to ask is I see that the bigger threat is really the accumulation of wealth and that that most companies now are you know either monopolies or they're a group of of several companies that take over an industry like banking and such so what I wanted to ask you is I see that as a threat so I just wanted to know if you feel that way and and if so or if not how does it relate to your book and like your concept of the way the economy should be functioning yeah I mean they're the kind of catch-all term is market power that there's companies that whether it's through monopolies or corruption or exploiting regulation or whatever they have power that's independent of like the value they're creating they're able to set prices or restrict competition I will say I have spent part of my career in countries that really have like we have a major problem in America I don't want to bend a little bad but Iraq under Saddam Hussein truly the only thing sold were things that Saddam or one of his cronies wanted to be sold and so I've seen the worst version of it and we don't have the worst version we do have scope for entrepreneurship and new innovation and bottom-up growth it's not as much as it should be I would like a lot more there's serious market power but there's also very serious scope and I think the people in my book have found that there's a place where you're big enough your market is big enough to make a living but not so big that some big company's going to come in and swallow it whole and and that I think that there are a lot of places for that that kind of Goldilocks big enough but not too big that but what I would say is this is this book in in Silicon Valley one of the biggest insults is lifestyle business which they define as a business that isn't trying to become a billion in dollar valuation you know high growth business oh that's a lifestyle business now a lifestyle business can still be a business that makes millions of dollars and you have a really nice life but oh that's lifestyle this is this book is not about crazy growth if you want crazy growth I do think you want market power and you want to be doing a lot of stuff but I do think there's a lot of space and more space than people are taking advantage of even in this very troubled economy right now we could have a lot of policies that would make that better I mean just one obvious one is health care like it's insane that this country is probably filled with ambitious curious people with interesting ideas who have to stay in a job that isn't ideal because to leave it their family might die like that's crazy it's insane it's bad on market grounds it's bad on humanitarian grounds it's just crazy and and though there's a lot of structures like that in our economy that that could change that could make this easier and better but even without that we're not we do have a very nimble economy if you're small enough to not draw the attention of big players god that's depressing [Laughter] there's a fire eating ants within a rotten log and the Wolverine can't see you Eirene these forces scare the out of me man I mean III agree with you there's market distortion all over the place and and to see what's going on now we're like all the tax breaks go to the conglomerates and the monopolies and then it goes the other way but at the same time I agree with you I do think reality wins in the end I do think people want good like they don't I think there's a point at which someone's eating a hamburger and they say well I mean you saw with McDonald's I mean McDonald's actually had to back up and start making real hamburgers because people were like this is horrible yeah that actually happened so I agree with you but man like but but it's I mean this is the tricky thing about having optimism at a time like this that you I feel as a citizen and a father and a husband like I have an obligation to do what I can to change government and change policy and I have my values and and and and I have the things that the candidates I'd vote for and and and there are solutions that aren't gonna be bottom-up but they're also a real bottom-up opportunity and if you look at it great I agree if you look at what happened you know the 1880s to say 1920s was a tough time for the Industrial Revolution like it it would have been reasonable you like I think agriculture was better like life seemed a lot better and we got you know the five-day workweek we got the eight-hour workday we got unions by the way yeah unions its unions it's we need unions individuals getting education and it and there is a lot of bottom-up activity that softened the cruelty of the early Industrial Revolution and I think that can happen like that bottom-up it's not ultimately you need laws you know but FDR said make me change the laws ya need to force me to do it it has to come up and so for me the the kind of entrepreneurial approach that I celebrate in this book is you know what I like about the people in this book and some are very left-wing some are right-wing some are Christians some are secular some of this some of that but some are Satanists summers actually just mostly Satanist yes it's a weird part of your book but I keep going keep going but they're they're seeing something they're not these aren't intellectuals these are an economist but they're seeing something they're articulating something and then they're creating conditions to thrive in in that economy those are lessons we can take and and so I don't know that there's a contradiction like if we all just wait for the government to fix it yeah wait a very very long time and we won't really know how to fix it because there won't be enough solutions so so I see both of those things working hand in imeem you're seeing it with global warming right now I mean global warming obviously is like you know the most pressing issue bearing down on all of us and what are you seeing a government that's ignoring it because it's bought off but you're seeing the private industry take action you're seeing certain oligarchs take action it's not ideal you want everything operating in concert but at the same time a friend of mine met with Bill Gates a couple weeks ago and he goes he's said to me he goes what do you want me to ask him and I was like why isn't every dime you have going towards carbon capture and my friend actually said a lot of his money's going towards carbon captures so I agree do we have one more final question for the evening final question make it really really ok this is hi know I went to college with you so it's been 30 years hello I'm Craig zanuck yeah he's a really fun guy it would not be Hollywood if I didn't say he was the funniest guy Thank You ppreciate prop guy it would no it's just uh yeah I have to say this that's a big compliment it wouldn't be Hollywood without somebody offering you the rights to buy just the preface of your book to make the two Stanley's yeah which is would be a great movie by the way animal love you direct talk to me after here's my actual question about the book I it is strange to write a book that is optimistic right now and I'm very glad you wrote this book because I kind of participated I what I think is the passion economy but did you interview anyone for the book that didn't make it in the book because they didn't quite make it I'm kind of curious about that it's a great question yeah that's a very good question thank you but not just not just funny remember you said that question in a high-pitched English accent right away yeah yeah no that actually was a great question great but and I had the same thought when you were talking about the brush guy with NASA yeah and I and then you interviewed another guy who was a brush guy who didn't do that and is very shut down yeah I'm like is there a part of the structure that you're talking about that is inherently kind of for lack of a better word like boutique or additional like it like can there only be one specific winner within that range which I think yeah yeah so yeah I mean well first of all like everyone in the book heads lots of failures and I like wanted to point out this is not all of these people struggled and took him a long time to figure things out and but I I think if I can't like the way that you ask that question is is kind of assuming monopoly sort of thing like it's true if you if you think of brushes as oh there's gonna be one company eventually there's gonna make all the brushes and yeah if one then every other company is not going to be but if you're have all these different people solving different kinds of brush problems then you will have lots more companies and and again that would be a healthier economy etc but it is an economy that has more failure and that could be in a certain that could be a good thing because it is more robust to have a lot of smaller players who are failing and succeeding and failing and succeeding I do think that this economy the big thing that the 20th century delivered uniquely in human history is a long period of reasonable stability where it became natural for the only time in human history for a large percentage of the population to just think that the natural course of things is kids make more money than their parents 40 year-olds make more money than 20 year olds 60 year olds make more money than 40 year olds that there's this kind of wind at your back that the standard thing is you you you you experience growth over the course of your career your kids will grow even further that is not the human condition the human condition is hustling every single day to get enough calories to survive and worrying about weather and worrying about and I think that this economy I think that stability is is shattering it won't return so I don't think the passion economy is gonna be equivalent in that sense where oh okay I just got to figure out my passion and boom I'm done and now I'll be rich I'll be fine for the next 20 years that's it it is gonna require a constant vigilance and this is and that in a constant hustle I actually want to call the book the hustle economy but my editor thought that was it couldn't be misconstrued but and and I actually I I now run a company and and I have millennial workers and they're different from how I was when I was a worker you know when I was in my early 20s like I just wanted to kiss my boss's ass all the time and and I had away his company manufactures tear gas yeah this in case you're wondering yeah yeah we yeah we just got that great really it's great tear gas yeah the best yes the best yeah but he's a great boss but it's tear gas yes yes yeah yeah which helps trick management but this but I've learned to like I really like it when millennial staff are like you know no no I think we should do it this way no sometimes I want them to do it a different way but I think it I take that like we complain about Millennials and entitled and blah blah blah I take it as oh they're learning they're already figuring out that they have a different deal than I did like implicit in me kind of kissing my bosses fast when I was 23 was oh I just have to go through this hazing process and then I'm just one of those people who's going and and I think there's just an intuition now among younger people that oh I'm gonna be like in this fight this guy happens to be my boss now but I'm in this fight for the rest of my life and and I have to acquire skills and I have to advocate for myself and I think that's very healthy I do happen to have two people work for me in the audience and I want you to just do what I tell you so but yes failure is embedded failure is part of it and this does get into you know my my political values that you know a stronger social safety net a system that allows for you know even a you know a basic income that you know we are a rich enough country that we can provide a cushioning that would actually make all of us better off because it would allow people to take the kinds of risks and it would spur innovation or innovation it's that the same way corporations were created to give a safety net for people to take risk without a thing about their life the same thing is with a social safety net yeah yeah yeah I don't want to have the last word you have a house where no no great well thank you all very very much thank you Adam Davidson ladies and gentlemen the passion economy what a pleasure thank you all so much you

Channel: LiveTalksLA

Views: 752

Rating: 5 out of 5

Keywords: Adam Davidson, Adam McKay, Knopf, Planet Money, Passion Economy, Big Short, Dynasty Typewriter, Live Talks Los Angeles, Live Talks LA

Id: tBa_m4rfStA

Length: 79min 20sec (4760 seconds)

Published: Thu Feb 13 2020