Early on in the pandemic, he started writing a book looking at crises from 1945 to the present day to try to explain the momentous changes in our society and economy. Ahead of the fall release of the book, “Adrift: America in 100 Charts,” DealBook spoke with Mr. Galloway about what he had discovered about America during his research, and where he thinks we’re heading.
The conversation has been edited and condensed for clarity and length.
Your book suggests that the depths of recession could be a great time to launch a start-up. With all of the warning bells from markets and the Fed, should people be thinking entrepreneurially?
What the evidence shows is that it’s actually a really good time to start a business. When you start a business in a recession, it’s cheaper — everything from real estate to employees to technology is less expensive. It sounds kind of counterintuitive, but building a business during a recession stress-tests the quality of the business early. It’s like when you want soldiers who have been through combat — a business that starts in a recession, if it survives a recession, it kind of battle-tests that it’s a viable business. Then you have the winds of recovery at your back.
And coming out of a recession, companies and consumers re-evaluate their purchases and are much more open to new ideas and new vendors.
Speaking of a recession, what do you think Silicon Valley will look like on the other side of this?
What you have in a bull market, like what we’ve had in the last 13 years, is that the market responded positively to growth and that as long as you could increase your top line at a steady clip, the market, basically modeling Netflix and Amazon, said we liked this and kept bidding the value of the company up.
Now a couple of things happened: When companies like Uber look as if it’s hard to imagine them ever being profitable on a sustainable business — even with growth, and they have grown, it’s still so far from profitability — the market doesn’t like that.
Twitter has actually lost more money in its history than it’s made. And because of increasing interest rates, the cost of finance — companies that are losing money or not profitable yet — goes up because you have to borrow money at much higher rates. In addition, the profits you were anticipating in the future get discounted back at a much higher rate. In some growth companies, it costs more to finance what ultimately will be cash flows that are worthless. Their equity value here and now gets absolutely hammered.
What do you advise those companies to do?
There’s no magic wand. It’s cut costs. They’re going to have to cut costs and, in some cases, adopt a business model such that they can get to higher prices and dramatically lower costs. And, quite frankly, convince the marketplace that they can get to profitability sooner, because the costs to finance that runway to profitability got much greater. So they need to show the amount of distance, the runway needed to get to profitability, is shorter. They basically have to trade off growth for a shorter path to profitability. That’s what the market is telling them.
In your book, you take a look at how during every economic upturn, there’s this optimism that we’re going to solve inequality. But we always seem to come up short. Why?
We mistake prosperity for progress. And we have created tremendous, staggering, unprecedented prosperity. I think the mistake or the myth that we buy into — that whenever there’s prosperity economically, the G.D.P. grows, that it’s going to translate to progress for a nation.
What do we mean by progress? I think the ballast — and it’s my first chapter in the book — is a healthy and thriving middle class. The geopolitical power of a nation, its well-being, its democratic strength, is usually a function of how prosperous its middle class is.
Now the issue in America — and Europe makes it to a lesser extent — is that America has either believed this myth that the middle class is a natural-occurring object of a free-market economy, and it is not. The middle class is an accident. It is an aberration of economics.
There’s a constant notion that if the economy does well, the middle class will restore itself. That is not true. What happens over time in all economic history is that the wealthy weaponize government, lower taxes on them, resist competition — the biggest, most powerful companies entrench themselves, and you end up with an erosion of the middle class. You end up with income inequality. It gets worse and worse, and then the same thing happens with income inequality. The good news is income inequality, when it gets to these levels, always self-corrects. The bad news is that the mechanisms for self-correction are war, famine and revolution.
Unless you provide and invest in a strong middle class, whether it be the minimum wage or support of unions or vocational training or access to free education or reduced-cost education, the middle class, as an entity, goes away. We have fallen into this notion that as long as the economy does well, the middle class will do well. The two are not necessarily linked.
You were early in warning about too much pandemic-era stimulus having a bad impact on the economy. What should we have done differently?
We spent, at a minimum, $7 trillion — but it was nothing but cloud cover where we threw some loaves of bread at and circuses to the poor so that we could massively stimulate the economy. The majority of the money ended up in the market, and who owns 90 percent of stocks in real estate by dollar volume? The top 1 percent. The P.P.P., the bailout of small businesses, was nothing but a giveaway to the rich. The richest cohort in America are, wait for it, the small-business owners. The millionaire next door owns a carwash.
This is the dirty secret of Covid. If you’re in the top 10 percent, you’re living your best life. Covid for you meant more time with family, more time with Netflix — and you saw your stock accelerate.
When you flush $7 trillion into the economy and then you couple that with a war and supply chain eruptions, it seems obvious now: We have too many dollars chasing too few products. And of course the people who are going to be hurt most by inflation are the people who don’t have cushions. We absolutely overdid it.
You’ve been a longtime skeptic on crypto, and now we are seeing a real crash. What do you think is going to happen next?
What we found is this whole mantra of a trustless economy, we shouldn’t have trusted many of these new actors.
Even in ’99, there were a lot of use cases of the internet — you could buy CDs and books on Amazon. You could get real-time news on Yahoo. It’s more difficult to find use cases from the blockchain that impact everyday consumers. I think you’re just seeing a massive unwinding or de-levering of the space — and I think we’re kind of in the midst of a crash that will be likely unprecedented in terms of an asset class.
If you look at the bubble — if you compare it to previous bubbles, whether it’s tulips, internet stocks of ’99, housing, Japanese stocks — the run-up here was more extraordinary. The run-up here makes the other ones look sheepish or modest, which means that the crash will be equally or more violent.
There’s going to be more lawsuits. There’s going to be more calls for additional regulations. You’re going to see investors say: Where were the regulators?
That’s the bad news. The good news is it probably won’t have much of an impact on the real economy. Keep in mind, even if all crypto went to zero right now, that’s still less than half the value of Apple.
What do you think? Do you agree with Mr. Galloway’s predictions? Let us know: dealbook@nytimes.com.
