CO103 Michael Tanner on Helping the Poor

Michael Tanner is a senior fellow at the Cato Institute, with an emphasis on poverty and social welfare policy, health care, and Social Security and entitlement reform.

His most recent book, The Inclusive Economy: How to Bring Wealth to America’s Poor, looks at the ways government contributes to poverty in the United States and suggests reforms that will enable the poor to more fully participate in a growing economy. 


I saw a couple of things recently related to podcasts, or at least that might resonate with podcast listeners. One was a YouTube video that compared the market valuation of WeWork, the company that offers hotdesking to remote workers, to Regus, a similar but much more established company, now owned by the IWG group. WeWork has a valuation of $47 billion. WeWork have been advertising heavily on some podcasts. Hell, if they have that much money, I should be tapping them for ads on Challenging Opinions. Regus has a valuation of $4 billion and, get this, Regus is does almost ten times the business. Almost ten times bigger, but less than one tenth of the valuation.

What’s going on? Well, for one, WeWork has a far snazzier brand image; they’re doing everything to appeal to the Millennials, but seriously, $47 billion? Does a hip graphic designer doing your website, along with serving moco-frappa-chappa-lattes to your workers justify a one-hundred fold increase on your valuation? I don’t think so. The other difference is that WeWork has big money venture capital from Softbank and others. That $47 billion dollar valuation is based on an investment of $2billion from them.

The other investment that caught my eye recently was Spotify buying Gimlet Media, the podcast company behind Reply All, Science Versus and the oh-so-self-referential Start-up. Get this, Spotify paid $230 million for Gimlet, a podcast producer that produces 25 podcasts, as well some of what they call branded podcasts, which basically means corporate promotional videos without the video.

Seriously? $230 million for 25 podcasts? That’s nearly 10 million bucks each. I’ve got to see what Challenging Opinions is worth.

That’s just two examples that touch on the world of podcasts, but there are lots of others, and they concentrate on the tech, online, internet, millennial world. If you want a crazy valuation, it seems you need to have an app or a dot com in your name or something.

Take another comparison. Tesla – market valuation $70b. Compare that to BMW, market cap of less than $60b. You could say that Tesla makes electric cars, they’re the future, doesn’t that justify a higher valuation? Hardly. In 2018, BMW made 142,000 electric cars. Tesla are mostly making promises. In 2018, they made 90,000 electric cars. That’s right, BMW makes far more all-electric cars than Tesla, even though Tesla is valued far higher than BMW. And that’s not taking into account of the fact that electric only accounts for seven per cent of BMW’s output

What is happening here? Quantative Easing, that’s what. The Federal Reserve in the US, the European Central Bank and to a lesser extent other central banks around the world, for the past 10 years have been basically printing truckloads of money. That’s not an exaggeration, it’s probably an underestimate, you’d need fleets of dumper trucks to move the amounts they’ve been printing. Their objective was to use it to save the banks, who might be going under if money was tight, and the valuations of the assets behind their loan books were under pressure.

What’s surprising is that this ocean of money hasn’t caused inflation. Mugabe in Zimbabwe and Maduro in Venezuela have crashed their economies into hyperinflation by printing a tiny fraction of that amount of paper money. There is almost no inflation at all in western economies. How are they getting away with it?

The difference is that this ocean of paper money isn’t going to the general population, it is going into the financial system. In some aspects it’s propping up the banks, think of that what you will.

But it’s clear that a lot of this money is sloshing around looking for a home, somewhere it can be invested. You might think that’s not a bad thing, investment in the economy, right. But look where it’s going. It is massively inflating the value of companies like WeWork, when any rational analysis says that you’d be better off investing in Regus; the same business model, for a tiny fraction of the cost – a much better return.

It’s clear that this huge amount of money in the economy is being invested based on fads and hype. The point is that there is hyperinflation in the economy. It’s not that we need a barrowful of cash to buy a loaf of bread, because cash isn’t being poured into the pockets of people looking to buy groceries.  But we do need truckloads of money to buy very modest companies with a bit of buzz around them, because cash is being poured into the pockets of people who buy companies without bothering too much as to whether it’s a good investment or not. This is a classic example of what economists call an inefficient use of resources. I’m not an economist, and I’m not a gambler either, but if I was, I’d bet that this won’t end well.