Billionaires and the tax code, Facebook smartwatch and a listener mail question on children's screen time

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Kara Swisher: Hi, everyone. This is Pivot from the Vox Media Podcast Network. I'm Kara Swisher. And I'm here to announce I'm going into space tomorrow. I have purchased something called the rocket trampoline. My adventures in space are only going to cost about $1,450. And there's several kids in the neighborhood that I'll say are, you know, enjoy eating. I'll just put it that way. And you know how when someone bounces right before you, you go really high? My technology is I'm getting 70 of these kids and they're going to bounce right before I bounce. And then I think I can get into near space. And grab onto Jeff Bezos.

Scott Galloway: You're still chasing Jeff Bezos, aren't you?

Kara Swisher: I am chasing that hunk of steroid love. People liked our show this one day. That hunk of steroid love. People loved it. Even my mother liked it and she doesn't like anything I do.

Scott Galloway: Oh, gosh. Lucky. That's what we need. Get her off the roads. Isn't he gay? Actually, you know what? Better yet, I'm going to bid $2.8 million for that seat and put Lucky on that ship.

Kara Swisher: I will help you do that.

Scott Galloway: So Lucky can turn to Bezos and go, "Wait, aren't you gay and on steroids?" the whole trip to inner space.

Kara Swisher: Oh, man, he couldn't take her. He couldn't take her. He couldn't take her.

[Transition]

Kara Swisher: Anyway, there's lots more news than Jeff Bezos and his love affair with Scott Galloway. So President Biden is revoking former President Trump's executive orders targeting TikTok and WeChat, but he's replacing them with orders with apps linked to study these apps linked to foreign adversaries, which might be worse, Casey Newton wrote, for TikTok and stuff. So they're sort of out of the woods of crazy town, but now they're entering a reasonable town where we actually study these things and do things about it. What do you think of this situation?

Scott Galloway: You summarized it perfectly and you've written about it that any solution has to be systemic. Otherwise, it creates a distraction. It's usually not legal. Nobody takes it seriously. Everyone just nods and then does nothing because they realize it's probably not enforceable. It's similar to when senators or regulators posture and peacock, or your words, like the social media laws in Florida.

Kara Swisher: Well, exactly. Going after specific companies, you're not allowed to do that. You have to have systemic change. It's just so alien for me to wake up and read about the White House's actions and go, "Oh, that makes sense." It just feels alien.

Scott Galloway: You know what was interesting about President Trump? He was directionally correct and executionally incompetent. This was like we need to look around China. Very much so.

Kara Swisher: But I do think that TikTok, they announced these face prints and stuff, which I thought was not a great idea for them to do this week. So they're going to be scrutinized. And they're not out of the woods by any stretch, nor should they be. We'll see what happens if the Biden administration actually follows through on really studying this stuff rather than making it into a political football. That was a missed opportunity. It really was. And it felt like it was at the behest of Facebook and others in this country. It felt not well thought out. And it felt illegal, the way they were doing it. At the same time, it's hard to support things that are done in such a crazy town way.

[Transition]

Kara Swisher: Speaking of China, a series of stories have come out over the past couple of weeks about the disappearance of Chinese innovator Jack Ma, who's the most famous person in that country. He runs Alibaba, created Ant, all kinds of stuff. For people who don't understand, Jack Ma is like if you took Elon Musk and mashed him together with Mark Zuckerberg and Bill Gates, throw in a little Elon Musk. That's who he is. He's really famous. Well, they've cut his power rather significantly through antitrust actions, cut his fortune in half, giving away pieces of his empire. He disappeared for a couple of weeks. I know him very well. He is such an interesting and energetic innovator and was sort of leading the way to this new China of entrepreneurship. So I'd love to talk to him and find out what's going on. But it's really chilling what China is doing here. And at the same time, we all support antitrust actions. But the difference between a country of law and moving it, as much as we complain about the slowness and the inaction, this is just the polar opposite.

Scott Galloway: China is doing a lot worse than sequestering and stripping a billionaire of his rights. When you think about how fortunate we are in the US and China, it's not great to be poor in China for a lot of reasons, or to be an ethnic minority. It's not a great place to live. And it's also not a great place to be super wealthy. A third of millionaires, somewhere between a third and two thirds of all millionaires in China have either left or want to leave because they're worried about unilateral action, private property laws, the fact that you get a robust defense in the U.S. Quite frankly, if you're rich, you can probably overrun the law. We'll be talking about that in a minute.

Kara Swisher: It is absolutely awesome to be a billionaire in the United States. In China, I think you want to be kind of billionaire-ish. It's similar to Russia. You have to sign up for being an agent of the government or they'll take your shit away. They'll be like, "Great, you have rights. Meet these guys." They're putting you in jail or they're commandeering a flight over another nation or they're going to disappear you. He was more well-known and, I think, beloved than she. So I think this plays into it. This sort of cult of personality thing is frowned upon unless it's the government. So it was really interesting for them to do this. I wonder if he tried to get out or tried to move. If you ever interview him, he's the most energetic person. You have to sort of strap him in his seat kind of thing. He was behind so many things. This was an investment that saved Yahoo. Jerry Yang is someone who met him and invested in Jack Ma early on. Some of his innovations are really fascinating. He had many more women on staff than anyone else. There's not everything that's perfect about Alibaba, but boy, was it a really interesting way to create a company in a country that needed entrepreneurship like this. That story in Forbes, you should read it. There's been many, but that one's particularly clear about what's happening.

Scott Galloway: Neil Ferguson said something very interesting. He said China's a lot more fragile and vulnerable than people realize because when you have a one party state, we bounce a party out of power for four years and they regroup and rethink things. The country gets sick of the party in power and votes back in the other party. Any change in the party system there is revolution. So the party in power, they come to play. Anyone who threatens them, any perceived threat, they take real action against. People don't have the same laws and freedoms and protections we enjoy here. People don't realize all the shit we have that protects all our property and slows down the system from wrongful persecution, although there still is a lot of wrongful persecution, especially among people of color. I was reading about the Innocence Project the other day. It costs money, which is sort of a bridge to the other story we're going to talk about. There's just so many reasons to be grateful that you don't live in China, whereas innovators are obsessed with it because they make great payment apps. You would much rather be a modestly successful entrepreneur in America than a wildly successful entrepreneur in China. Or you'd rather be Mark Zuckerberg here because he's going to be slow. Are you kidding? In China? The role is going to be slow for Mark Zuckerberg.

[Transition]

Kara Swisher: Before we get to that next story, Amazon, speaking of overreach, has this new sidewalk feature that automatically connects all of its smart home devices like Ring and Echo. You can choose to opt out of the feature. You didn't get to choose in. They just turned it on. It brings up renewed privacy concerns. The New York Times had a really good piece explaining this. There may not be that many privacy issues or security issues, really. But I did a post where I was like, "Can they just let you opt in?" Even a little like, "Hey, we're doing this. This is what it does. It will make your life easier and here's why." It's amazing how they do this. It's creating mesh needs.

Scott Galloway: Opt in versus opt out. That's actually really interesting. Apple has said you have to opt in for the tracking across different sites for ad targeting. So the difference between opt in and opt in. Although Apple has enabled mesh networks without your permission. They all do it. They all do this without your permission.

Kara Swisher: Right, but your point is opt-in versus opt-out is about an 80% share difference. If you ask people to opt-in, you'll get 10%. If you ask them to opt-out, you get 90%, because people are lazy. And it doesn't work without all the people opting in, these mesh networks.

Scott Galloway: I'll say I'll probably do this. I think that people talk a big game about privacy. I think Amazon actually has a decent amount of credibility. This is what the Times story talked about. Their systems haven't been hacked to the same extent that some other systems. People talk a big game about privacy every day in terms of their actions. They opt for a lack of privacy as long as there's utility in exchange. And Amazon has a habit of doing that. Personally, I won't opt out. They just should say, "Here's why we want to do it." Or at least explain it as they're turning it on much better.

Kara Swisher: I don't have echoes and I don't have rings. It's more irritation than anything else. I'm not necessarily as nervous about it.

Scott Galloway: That's how we speak to each other in the house.

Kara Swisher: We do, too. Nolan, come finish. Alexa announced, "Nolan, come finish your dinner."

Scott Galloway: Really? What? No, Dad. Leave me alone. I hate you. That sounds familiar. We have Alexa throughout the house.

Kara Swisher: Really?

Scott Galloway: Oh, yeah. I just yell up the stairs.

Kara Swisher: I'm a yeller up the stairs. I love that. Like that kind of thing.

Scott Galloway: We love it. But you have such a vast house compared to mine that you can yell up the stairs. That's just a preface to the yelling. It soon evolves to the yelling and someone going upstairs and then the dog following me and peeing on the carpet. Are you listening to me?

Kara Swisher: Oh, my God. I know. We live the same life. You just have a nicer house.

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Kara Swisher: So, let me move on. Speaking of overreach. Which is going into space. I'm here to announce now.

Scott Galloway: Can I have your house when you go into space?

Kara Swisher: Kara, you're welcome anytime.

Scott Galloway: No, but can I have it? I'd like to own it.

Kara Swisher: Just bring the golden child. I have relatives that believe in the rapture.

Scott Galloway: Oh, shit. Really?

Kara Swisher: And so my brother made bumper stickers one year that said, "When the rapture comes, can I have your stuff?" Which I thought was very funny.

Scott Galloway: Yeah, that's good. So can I have your stuff when you go into space and eventually marry and live with Jeff Bezos on Mars?

Kara Swisher: If it happens, I just want to be super fucking high because I think it'll burn a little bit brighter.

Scott Galloway: A rapture on its own would be pretty cool, but it'd be awesome high.

Kara Swisher: Yeah, oh, to be up with Jeff Bezos. It'd be awesome high, yeah. In Mars.

Scott Galloway: There you go. By the way, 70% of Republicans now believe gay marriage is just fine.

Kara Swisher: Where did that come from? That's a little out of the blue.

Scott Galloway: I was just saying, you're marrying Jeff Bezos. Now the Republicans are on your side.

[Transition]

Kara Swisher: We're going to move on to big stories. A ProPublica analysis found the world's richest people paid close to nothing in federal income taxes between 2014 and 2018. The report released this week showed that the 25 richest Americans, including Jeff Bezos, Elon Musk, Warren Buffett, paid almost nothing in federal income taxes. It's a little tricky because they don't pay themselves. They make money in other ways by taking loans against their stock, their stock appreciation. This is against a backdrop of huge appreciation in their stock. I think it's $401 billion. According to research, because of the complex tax code in the U.S., it favors wealth versus labor income. It was easy for wealthy Americans to find massive loopholes, but they aren't really loopholes. It's just the way it is. Now federal authorities are investigating the disclosure of this private tax information, which could be prosecuted as a criminal offense. Scott, explain what this was essentially saying, which is something that is a shock but no surprise.

Scott Galloway: First off, it's kind of interesting that the person who probably gets in the most trouble is the person who leaked this information. But look, here's what it comes right down to. Do we want a progressive tax system in our society? We have to make that decision because ever since Reagan, it's slowly become regressive where billionaires now pay the lowest tax rate. Do we want that? On average, these individuals paid in terms of an increase of their wealth about four and a half percent to the government.

Kara Swisher: Less than that?

Scott Galloway: Three. So they basically don't pay tax. And some people like Warren Buffett under 1%. But to solve it, to come up with a thoughtful solution. Let's assume we think the wealthiest people in the world shouldn't pay the least amount of tax because that only means people who are less wealthy have to pay more tax. And we believe in a progressive tax structure. This is the mechanics of it. We have printed probably tens of thousands of people. And I'm not talking even like the top guy or gal at Clover or Square or Lemonade or Airbnb, but these companies have printed thousands if not tens of thousands of people worth 50 to $100 million. So let's be ambitious. Let's say we're worth $100 million. What we do is, say we need $2 million a year or $3 million a year to run our fat lifestyle. A quarter of a million dollars a month is what we spend. Instead of selling the stock, which triggers a capital gain, you borrow $3 million against your holding. You get to borrow at 1% interest because interest rates are so low and all these investment banks want to manage the wealth of high net worth people. So you borrow $3 million. Now you only technically have $97 million in wealth. But if your stocks go up more than 3% a year, you have more net worth and you pay 1%, but you don't pay any taxes.

Kara Swisher: And you get a tax break on the loan.

Scott Galloway: That's right. And you get a tax lien on the interest on the loan. Or better yet, say you have a private company. It's not a liquid stock. Michael Bloomberg was in this group. And you pay yourself a million dollars in salary. I'm going to take 10% of the company and put it in a charitable trust. I don't even have to give the money away. I just put it in a charitable trust. And I get a $10 million tax deduction, meaning any money I pay myself is tax-free.

Kara Swisher: The charitable deduction. And also you can determine all these CEOs that give a dollar to themselves. That is not a good thing. They are just deciding on their income essentially.

Scott Galloway: What I'm essentially saying is that if you're worth more than $50 million, you don't have to be evil. You don't have to be nefarious. You don't have to be really cunning. There's no reason you should ever pay tax. So first off, are we comfortable with that? Are we comfortable with the notion that once you hit $50 million in wealth, you effectively leave the tax system and are no longer contributing to our Navy, our parks and services, or to Social Security? That is a fact that if you have over $50 million, relatively smart people can figure out a way for you to not pay tax. So the question is, how do we figure out a way where tax isn't dependent upon income-triggering events?

Kara Swisher: That's right. It becomes somewhat like there's an AMT related to your increase in wealth or something. The bottom line is really wealthy people can avoid income-triggering events. Carl Icahn summarized it. He said, "They said you paid no income tax." And he rightfully said, "Well, I had no income" because he's able to offset it with expenses and charitable giving such that he can report zero income year after year.

Scott Galloway: The whole idea behind this is you can pick your income. That's what it is.

Kara Swisher: That's right. I want to pick my income and what works best for me. I can say I'm making a dollar and then give me kudos for only taking a dollar. That was always such bullshit when tech companies do that. The CEO is not only making a dollar. Secondly, the borrowing situation that people don't realize. But what's really interesting is the Biden administration is trying to raise taxes on the wealthiest by a few percentage points from 37, I think, to 39.6. But that does hit people who can't do this, who make income, who make big salaries. It's like a lawyer makes a big salary, doesn't get stock. So they're like, "I pay 37% right now and I can't borrow against ghost stock essentially." So I'll pay that difference. So what it does hit is it hits wealthy people. People in the middle class, they're paying 14% to 15% typically. So everybody pays much, much more than the very wealthy. And so it is progressive up to a point, because you go from 14% to 37%, depending on your wealth. But it's all based on income. So will this renew calls for this wealth tax, which the Biden administration has rejected? Because the increases they're making are people already paying those large amounts of money in taxes. Even if you're rich, and it's easy to sort of soak the rich, but in this case, you're not really soaking the really rich. You're soaking others. And maybe we should pay more in taxes as people who are wealthy. But one of the things that's happened is there's not a wealth tax for this increase in value in stock and then what they're able to do with it. I think calling it a wealth tax is the problem because everybody likes wealth.

Scott Galloway: Your point is exactly the right one. As humans, we like to simplify into a construct such that we can immediately look at someone and make a stereotype. The stereotype around taxes, young people or lower and middle income people pay more in usage and consumption taxes. And then we like to think that as you get richer, you pay less and less taxes. To your point, the person that gets really screwed here is the workhorse. The general counsel at a big tech firm that didn't get a lot of stock makes half a million a year. And maybe her husband is a dentist making two or 300,000 a year. And they have to live in a major metro to have those kinds of jobs. So they make $800,000 a year. If they live in New Jersey, California or Manhattan, they pay 50% in taxes. When you talk about take-home pay at $400,000, if you have two kids in those areas, you're not rolling in it. You're not living large. So the wealthy are actually the ones that probably have the biggest burden. And the middle class, 14%. Fair enough. But the super rich, once the majority of your income comes from assets, you can make the jump to light speed and you're on the gold medal platform and they give you three gold medals. Now, I don't think a wealth tax works for several reasons. And if you did a wealth tax, I think it'd have to be one time. Capital and wealthy people are the most mobile people and capital in the world. They just don't have a problem. They spend a lot of their lives on the road anyways. They can lubricate it with private jets and they can say, "We're moving to Toronto where our domicile now is in London." This is what Bernard Arnault did. When France tried to put a wealth tax on people, Bernard Arnault said, "Congratulations, I now live in Belgium. I now live in Brussels." And the wealthiest man in Europe changed his tax domain and there's nothing they can do about it. What you could do is a one-time wealth tax where you said, "There's been a windfall here" and that would probably not motivate people to move countries, kind of a one-time thing. I did a column suggesting this. And then you have to probably get rid of trust exemptions.

Kara Swisher: The other part of this story was they can then jump it to their kids. So never. Or their grandkids. But they still have control of it, this ability to do that.

Scott Galloway: The wealthiest people in this nation are the most tax advantaged. There are two groups. The first is entrepreneurs. I'm an entrepreneur. I've never taken a salary. I've always poured my money back in because I thought if my equity becomes more, I pay less on that wealth accretion and I can afford not to take a salary. So I've never taken a salary. If you sell a small business and you were a shareholder in the company before it was worth 50 million and you've held it for five years, the first 10 million is tax-free. So entrepreneurs are some of the wealthiest people in the nation. The second largest cohort of wealth is also the most tax advantaged, and that's people who own real estate. And inherited wealth. In real estate, it's the only asset class where if I own a building that's worth $100 million, I get to depreciate it 2% or 3% a year. So I get a tax write-off, even though it's likely going up in value 4% to 6%. And then if I decide to sell it, I have six months to 10B1 exchange it into another asset. If you sell stock, you don't have six months to throw it into another stock and not pay taxes. So the wealthiest people in the nation are the most tax advantaged. There's all kinds of loopholes we could close that would hit the most fortunate among us.

Kara Swisher: The borrowing against it is really interesting, this ability to borrow. And that's not going away. And again, they get a tax invention. This story, we've been aware of this. We talked last week about the corporate tax, right? And the idea of doing that. It's the same kind of thing that they're pulling. What's interesting is how angry people will get about this. I interviewed the reporters, one of the reporters who did this story. There were issues around the sourcing of this thing. Not that they were bad sourcing because these turned out to be very accurate, but the leaking of it and stuff like that. They're being very cagey about that as they should, because they could be in legal jeopardy. He wouldn't say what he thought was the best thing to happen, but certainly this administration is not going to put a wealth tax. They're going to soak the sort of rich, the less rich, but rich kind of thing. And then ignore these billionaires who run up in value of the stocks of these tech guys, and they're all guys, is astonishing. It's an astonishing amount of billions and tens of billions of dollars of which they will give themselves a dollar salary and then actually take deductions and write-offs. And so we have to pay them. And then they lord it around when they give away money, right? "Oh, I'm such a good giver." It's good for them to give. It's tax advantaged for them to give. You don't even have to designate who you're giving to.

Scott Galloway: Elon Musk added the GDP of Hungary in the last 12 months. He has a worth of $150 billion. He takes a billion dollars at 1% loan against his stock in Tesla. And then if for some reason he has a $100 million triggering event because he sells some stock, he just says, "I'm going to take a billion dollars and put it in a fund that's designated for charity." And that's a tax write-off. Not only that, he can borrow money against the money in that designated charitable trust. The borrowing thing was really well done in this thing.

Kara Swisher: We'll see what happens. We'll see if there's anything. But of course, they cry like stuck pigs, "How dare you take my taxes?" And I get that. These things should be confidential. But the fact that they can do this so legally and so easily is really something.

Scott Galloway: So the next time a CEO says, "I take a dollar in tax," tell them they're assholes. I don't know what to say. Or "I'm starting this giant charity." It is not. Look, we may benefit from it, but they also get to pick and choose the policies they're going to. Why does Mark Zuckerberg get to pick education? As a well-known education expert, Mark Zuckerberg, give me a break. And then, of course, people suck up to them because they want that. Those nonprofits do want that money. So they are not paying taxes the way they should. These very rich people and everybody else. And I mean everyone else, including rich people, are getting screwed. And then anything that you propose around it, the Republican Party will say it's a radical idea. And it's like that's radical. This is super rich. We're talking about going back to like Reagan, where there was no difference between capital gains and current income. We're talking about going back to the first Bush where taxes on the top 1% were 40%, not 17%. These aren't radical ideas. America has generally bought into the notion that the most fortunate, the most productive, whatever you want to call the top 1%, should pay more in taxes. Unfortunately, I don't think much is going to happen because I think the problem is us. Deep down, I think we no longer go to church. We no longer believe in a super bang.

Kara Swisher: We believe in Elon Musk. We believe in Jeff Bezos.

Scott Galloway: And they do that. They lord that we created all these jobs. So what? You still have to pay your taxes. We believe they're innovators. They're our new Jesus Christ. And we kind of like, "Oh, it is what it is." Here's the reality. In America, and this is what's different about America versus China, regulatory arbitrage, being very aggressive, starting a business without business licenses, hiring a lot of people, a lobbyist, to go to the most coin-operated senators in the U.S. Senate. Of which there are many. And not pay a lot of tax. Regulatory arbitrage is a fantastic investment in business in the U.S. It'll probably get you disappeared in China. They do not go for the regulatory arbitrage, try and put pressure on the government or screw. They just take their money.

Kara Swisher: Well, look what they did in the Gulf. Remember when they put them all up at the Ritz-Carlton for three days and said, "By the way, this is about to become a prison."

Scott Galloway: That was one guy. That was MBS. That was Bonesaw.

Kara Swisher: Right. Unless you give us 30% or 50% of your assets. And when you have three days, even at the Ritz-Carlton, to contemplate being in prison for the rest of your life. Scott, should we just take that money from them?

Kara Swisher: Just show up. We go into space with them. We're going to space with them. Baby, we go to space. We're going to send lucky in space. But one of the disappointing ones here is obviously Warren Buffett, who paid the very least. I mean, they're going to release more of this stuff. They only picked five or four or five to show the specifics, Bloomberg. But Warren Buffett paid less than 1%. And he did say, "I want to pay more." Like, I am paying what I'm supposed to pay. And, you know, he gets to pick and choose his income as much as I am. It's not their fault. It's our fault. It's not 100%. We have to elect people who have— He did say, "I want to pay more. This is wrong." But I don't know what to say. We have to elect people who have the backbone to put in place to return to our proud legacy of a progressive tax structure. And most wealthy people will support – let me put this away. A lot of wealthy people will support these policies. They're just not going to disarm unilaterally. Yeah. What is income, Scott? What is income? We've got to redefine income. What is income? There you go. Anyway. What is wealth? What is true wealth? Anyway. All right, Scott. Let's go on a quick break and come back to talk about the future of wearables industry as Facebook jumps in and a listener mail question.

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Kara Swisher: Welcome back. The Verge is reporting that Facebook will release its first smartwatch next summer. They screwed up in phones, now they're coming back with a smartwatch. Obviously, they have Oculus. What could possibly go wrong? The watch is reported to have cameras for direct upload to Facebook and Instagram. This puts Facebook in direct competition with its big tech nemesis, Apple, in the wearable space. Apple sold 34 million watches last year. That business, even though people made a little bit of fun of it, is doing rather well. It was interesting because Facebook also took, Adam Mosseri took aim at Apple's 30% around creators. They're also pushing heavy into the creator space and trying to help them monetize outside of the app store. But what do you think about this? The Facebook watch. Would you buy a Facebook? I didn't buy their other one, whatever their version of Echo is. I went to Portal. Someone gave me one as a joke and I literally left it in the box and wrapped it in cellophane. But what do you think about this?

Scott Galloway: Well, the only non-hardware company that's had any luck building hardware has been Amazon with Alexa. Alexa is a very elegant device. And buying Ring. They spent tens of billions on it. The Google phone, the Google Pixel phone, is supposed to be a superior phone, but it hasn't really gotten any traction. Facebook's Portal has been a disaster. Hardware is really difficult. This is no easier for Facebook to do than for Apple to start a social network.

Kara Swisher: Yeah, which Ping. It was called Ping and it was a disaster.

Scott Galloway: There's a natural, and I do think there's a lesson here. I talk to a lot of young people all the time and some of them are in good jobs and some of them also have small businesses and they think, "Hey, I'm thinking about getting into that business." And I'm like, just trust me on this. Every business looks much easier when you're looking at it from afar.

Kara Swisher: Yes.

Scott Galloway: And building a piece of hardware, especially a piece of hardware that people want to put on their person. People put things on their person for two reasons: for warmth and to find people to have sex with. It's either for utility, and that's about 3% of it, and another 97% is you want to signal strength or attractiveness. These hardware devices, the only wearable that has really worked in my view is the AirPods Max, which on their own are a Fortune 50 company. The Apple Watch, no other company could have pulled that off. It took massive investment. It was a big thud in the beginning. It has such a strong brand. And I would argue it's not a wearable. It's a second screen for your phone.

Kara Swisher: I think wearables... I see a lot of people with it. I've had four of them. I don't wear any of them. I don't like them. I wear the AirPods all the time. Remember the Nike Fuel Band?

Scott Galloway: Yes, I had that too.

Kara Swisher: Remember Jawbone? You couldn't go to a conference without someone giving you a wearable. We introduced Jawbone at one of our All Things D conferences. But the majority of people are only going to put on something that they think makes them look... I put on a Panerai. So what do we think about this? So you're saying no one wants to put on a Facebook watch.

Scott Galloway: Oh, fucking dead on arrival if they don't know it.

Kara Swisher: Wow.

Scott Galloway: Facebook, I think it is so difficult. Let me put it this way. I think Apple has about as much – there's a greater likelihood of Apple launching a very successful social media network than Facebook producing a wearable that people want. The hardware that you put on – I think wearables is right up there with 3D printing and VR in terms of overhyped technology. I call them "unwearables" for the most part. I've tried all the wearables. And then what's a success that I didn't mean? I don't – you can see. I have them all. I have a box of them.

Kara Swisher: I have a box of them. Even my son, who was going crazy for an Oculus, we got it. It was a ton of fun for two or three hours, and that's it. It's like, "Okay, I feel nauseous." So how does that fit with what they're doing? I agree with you on this. I agree with you. I think eventually augmented reality glasses will be interesting, but I think Apple will give them to us, not Facebook. Even though Apple's in – Facebook has their VR thing, I think this will be an Apple business.

Scott Galloway: I worked with a lot of luxury brands. Everyone from LVMH to Kering Group, to Richemont. And when you go to the headquarters in Hermès, and you see that they are buying python farms in Brazil because they want to make sure they have access to the best python skins. And then you meet this 78-year-old woman who stitches the Birkin bag by hand. Do you realize the grace and artisanship that goes into things that people will pay a lot of money for to put on their person? It's extraordinary. Or you go to the design labs of Porsche or you see what the history of Ferrari. And these tech companies are so incredibly arrogant that they think they can figure out a way to get you to wear something because it connects to Instagram.

Kara Swisher: What do you imagine is happening where they're going, "We're going to do this." Let me just say, Mark Zuckerberg, you're in the social media business and that's all you're going to get. I don't see them making anything else. Listen, let me be wrong about this, but that's your business, my friend. And this idea of wearables and everything else, I mean, it'll be very nice if you make a nice Oculus, but it's not a huge business for you. And again, I could be wrong. And in 10 years, someone could pull this quote out. But this is not a space. I mean, Amazon has tried to do, if you remember the phone, and they've done pretty well with the Kindles. Pretty well, not great, but good. Like it's a good business. So the only two players here that are actually good at one is Apple, far and away. They run laps around everybody else. That's what they do. That's what they do. And then Amazon has put in a pretty good show.

Scott Galloway: By the way, Microsoft made a very, very good phone. I liked that phone a lot, but couldn't handle it. That said, they then pivoted into all their gaming stuff. And now there's a good story in the Wall Street Journal today, I think, about how they're not relying just on consoles. They bought Minecraft. They bought 15 different gaming services. That's really smart and plays right into their business. So you need to play into your social media business. And the problem Facebook is going to face going forward is they don't have a device. They don't have a TV. Well, they're not vertical, right? They don't have a network. They don't own.

Kara Swisher: I feel like they kind of got to move into content or something, but they're not going to. They're not going to. I don't know. The gangster move and what could happen is that if, I mean, assuming the antitrust slumber continues, is this new Discovery, Discovery Plus, throws up in its first earnings as they try to transfer to CNN Plus. And then Facebook comes in and buys Discovery.

Scott Galloway: Yeah, but that's still not a distribution. That's still not distribution. Like they kind of got to buy Roku, like you say, or something like that.

Kara Swisher: That's a good point. Vertical distribution. I don't know if it says much about the battle between Zuckerberg and Cook, but I'm sorry, Mark, you're not up to him in this space. You're just not. It's literally like watching a very tiny person play LeBron James.

Scott Galloway: And listen, Apple's got plenty of...

Kara Swisher: It's like watching Mark Zuckerberg play Tim Cook. Yeah.

Scott Galloway: And by the way, Apple has plenty of problems. They've got a real issue with this app store. It's very vulnerable in China. Everybody has vulnerabilities. But in this space, no. They are good. And they recover well, by the way. Can you believe that? AirPods, if they were a distinct company, would be a Fortune 50 company. Just that one product.

Kara Swisher: I love my AirPods. It's the most successful wearable. And the Apple Watch, if it didn't have Apple behind it, it wouldn't have worked and it took a decade. People love it. And I still don't think it's a great product and it's not a wearable.

Scott Galloway: I agree. I agree, but I got to tell you, I see it on everybody's wrist. And these are regular people, not Silicon Valley.

Kara Swisher: I've just been noticing everyone's wearing one and I'm like, "Huh." I think they use it for exercise and health. What about the Amazon Halo? Did you try that?

Scott Galloway: Yes. It's not a watch. It was terrible. It figures out your mood. It was terrible. I gave it up. I had it. I don't know where it went. It's in my box.

Kara Swisher: It's in my box. I have a box of things and there's, I've got every single Jawbone. You know what I had when I was in the 10th grade?

Scott Galloway: What?

Kara Swisher: I had a mood ring. Remember those? I have one.

Scott Galloway: Ooh, Scott's happy.

Kara Swisher: I have one. And I couldn't figure out what the color was for "deeply insecure and acne riddled."

Scott Galloway: Red. That was the color that I basically had all the time.

Kara Swisher: Red and orange. That's the color. Cynical, deeply insecure. Blue is good.

Scott Galloway: Adding up to nothing. Blue and green are good.

Kara Swisher: What color was that? Adding up to nothing. Black. Remember mood rings? Do you remember mood rings?

Scott Galloway: I remember them. I have one still. I have one in that box with all the other stuff. It's along with the bread machines. I remember being out on the golf course with my father. That was the only time we got to spend time with each other was he would go play golf, and I would try and find lost balls because he was such a cheap, cheap motherfucker.

Kara Swisher: That is a poignant and sad moment to think about.

Scott Galloway: And it would be really windy and cold on the golf course, and I would sit there and hold my hand in the air and go, "Dad, look at all the moods I'm in." "Shut up, you wee bastard. Find my titular ball." I mean, anyway, hold me.

Kara Swisher: That sounds like a loving, loving relationship. Oh, my God. I literally spent the morning like playing. "Meet your new mother. Meet your new mother." Oh, Scott. Oh, I'm so sad for little Scotty.

Scott Galloway: "And tell that bitch, your mother, her child support is not coming this month." Little Scotty. This week on the Hallmark Channel.

Kara Swisher: I like your show last week, "The Trillionaire's House." This one's sad. I don't want to watch this show. Everyone's like, "This is where you crossed the line."

Scott Galloway: Why? People like to tell me. People like to tell me. And I'm like, "Come on, bitch. That line was crossed about three seasons ago."

Kara Swisher: Why did you cross the line? People didn't like that the rocket blew up because of all the gorilla semen.

Scott Galloway: I should have said that it's steroids or something. Come on. And not like that, Rebecca, she edited out the most crazy bits.

Kara Swisher: Oh, really? She saved me from myself. Okay. All right. Anyway, we do not feel good about the Facebook watch. This is our thing. So let's pivot to a listener question. Roll tape. You've got, you've got. I can't believe I'm going to be a mailman. You've got mail.

[Listener Question Recording] Hi, Kara and Scott. It's Leland in New York. Given your access and insight to technology, how has what you have learned actually changed your actions as parents? During the gloom of the pandemic, we traded off the risk of our 11-year-old learning some new words from Cardi B for the joy that she got from dancing with TikTok. But now we're back to the usual concerns. Kids used to be able to mature in relative obscurity, making mistakes, having remorse, and changing. Today, the mistakes are permanent and public, while remorse and growth don't show up on Google. Our kids have to be adults before they actually mature or else fall behind by staying off the web. What real-world precautions do you recommend for other parents? Thanks very much.

Kara Swisher: That's a really good question from Leland. He's a good parent. I'm going to give him my kids to raise. Leland, will you adopt me?

Scott Galloway: Yeah, I know.

Kara Swisher: Oh, gosh. What do you think, Scott? You know, I think about this all the time because now Claire is liking the moan. She calls it the moan, the phone. But we just show her photos on it. We make those. Apple has this thing where you can make little movies. It makes it itself by you click on someone's face and it makes beautiful. I think about this all the time. I think this constantly. You have teenage boys. I'm not there yet. What have you or what are the guardrails you've composed? It's hard to get it out of their hands. They're not quite as jacked into the internet as I thought they would be. They use it for communication, for sure. One of my sons uses it for watching a lot of videos, but they're kind of good videos. I have to say I can hear them in the background. He does a few memes, but it's entertainment, and so I'm not feeling very bad about it. There have been issues over the years of videos they've done or little memes they've sent, especially my oldest son, that were not good, you know what I mean, that had problems. And they got into trouble at school over them. He was not the instigator, but he was still involved. But, you know, and there's been that kind of stuff. I don't take as many precautions as I should, but I certainly am thinking about it a lot with Clara as a girl, especially around self-esteem. And there is a difference of how girls and boys interact on these things. I would never let her use Instagram for kids. I think they shouldn't have phones in school. I do think these streaming networks are kind of good in a lot of ways because we can pick and choose the movies that they see. So she watches only Teletubbies because I enjoy it also. So there's not any tech companies I trust with my children. I think there's a couple others that are trying to do some good things like Roblox and others, but I gotta say, the more I can keep them away from this stuff and jacked into the internet, probably the better. Scott?

Scott Galloway: Yeah, one of the most stressful moments in my life and one of the most frightening things I've ever encountered is slowly but surely my youngest suffered from device addiction. About three months ago, when it was homeschooling and he was on his iPad all day and then on video games, it just rewired his brain. And one day we just noticed even his voice was different. And he had to be near a device that would give him some sort of interaction. And when he was off the devices, he was a different person. And it's like, when did this happen? And it was the first real look into addiction I had ever experienced. And when it's your kids, it's really jarring. The problem is this is how they socialize with their friends now. Communication. And you say, "Well, just don't let them on their devices." And I'm like, anyone who says that doesn't have kids. They need to talk to their friends. This is how they talk to their friends. So what we do is we just limit it by time. We used to say no devices during the week. That became impossible. Now we try to limit it to an hour during the day. And then on weekends, we let them play in the morning. But there is something, especially I think with the young male brain, I think it actually rewires the male brain. I think with young women or girls, it's more like what you're talking about. We put these nuclear weapons of destruction of self. I always say boys bully verbally and physically, girls bully relationally. And then you put social media on it, and they are really brutal. I mean, they can be very mean to each other. But these companies haven't taken responsibility. I would like to see our school does not allow devices at school.

Kara Swisher: Yes, ours does too. So, yeah, they have a thing they put them in when they come in. But the stuff about your permanent record, the other issue you talked about, and I think this cancel culture, not a cancel culture, this, I think this latest, whether it was Reuters or Condé Nast deciding to punish people 10 years after a mistake they made when they were literally minors. They were younger than 18. I think we have to start that zeitgeist bullshit from our society. I think you get to Etch A Sketch your history before the age of 18 for your professional life. And I think if you said something stupid on social media when you're 17, I just don't think it should be allowed to haunt you.

Scott Galloway: Agreed. Agreed on that.

Kara Swisher: Except if it's egregious. There is egregious. There is some egregious.

Scott Galloway: Well, some minors are tried as adults when they start killing people. But we have enough nuance to say if someone says something stupid or off-color when they're 17, they shouldn't be fired when they're 28.

Kara Swisher: Agreed. And I think you take that into account in some ways. I mean, I had an issue with a video at my son's school, and he didn't do the video, but he was in it. And, you know, we made him apologize to the girls. It was a very anti-girl thing that one of the teams did that he was on. And he was there in the background laughing. And again, he got up and apologized to the girls in a public setting. He did this himself. He's a really good kid. But still, it was cringe-inducing. Like, oh, why don't you leave? But of course, social pressure and things like that. It's really hard. Or maybe you didn't know it was being taped or whatever. In any case, any parent is going to deal with this issue over and over again. And especially as they get older in a much more sexualized way, the trading of pics happens. I'm sorry to tell you, Scott, but there's going to be that. It's going to happen. And so you have to really pay attention. At the same time, you don't want to be sort of this, "Let me have your phone, you can't use it," because it does hinder them in so many ways, especially with online. Because a lot of, by the way, all their classes are online and their assignments, they're all their assignments. And, you know, nobody, everyone operates in an online environment at that school, at least for assignments and homework and turning it in and writing it up. I am going to be so relieved next year when everything's in person. And by the way, Clara's going to school too. But I'm just going to be so relieved when everything's in person. I can't even, I think it's been a big experiment in crappy education during the pandemic. But there's – I'm sort of – I mean, another thing you have to contend with is that I think that there's something – and I have two boys. So, I think about boys a lot. I think there is an advantage and there's something to their aggressive, rebellious exploration where they don't get caught. Now, they get caught on everything. Now, everything – "Give me your phone, give me your password," and you see everything they've done the last 24 hours. I don't know if that's good either.

Scott Galloway: And when their mom asks— You do that?

Kara Swisher: I don't do that. I don't do that. Well, that's the thing. When their mom says, "Here's about something at school, here's about something off-color with one of the kids," and says, "All right, everyone's fun." I'm like, I think they need some room and some privacy to screw up.

Scott Galloway: Mm-hmm.

Kara Swisher: And if I look at the shit I got into—first off, when my mom left at 8 in the morning, we didn't see each other until 10 o'clock at night.

Scott Galloway: Yeah. I mean, it's just kids have—kids are so overprogrammed and so over supervised that there's a difference between guardrails and concierge and bulldozer parenting where they don't learn. It's that Jonathan Haidt notion. We use so many sanitary napkins on their life. They don't develop their own immunities. It's a tough balance. And these companies, keep in mind, these companies are not concerned with your children. They want to addict them.

Kara Swisher: Certainly. They want to addict them. These devices are purposely and these social media platforms are purposely addictive.

Scott Galloway: I think you can get involved in your school. I'm really thankful our school does a really good job. The only thing we seem to be able to do is to put a time clock on it. But I'm not exaggerating. When we go into the den and we ask our youngest to get off of Minecraft or whatever he's playing, it's literally like telling someone to stop smoking crack.

Kara Swisher: Yeah.

Scott Galloway: He looks, I mean, he literally looks at me like, "Memo to self, kill father and sleep tonight." It's just, it's just.

Kara Swisher: You've gone too far. Yeah. I don't know. Now you haven't. I agree with you. I agree. It's really, it's addictive. There's no question. And one of, you know, we believe that kids should make mistakes. And obviously, you know, Scott Galloway always makes mistakes right here publicly. And we love it. I'm going to space. We're lucky. Anyway, that's a great question, Leland. I, if I had to name, I guess, I guess Roblox, I suppose, if I had to name a company. There's several others that try really hard. And by the way, pick and choose what they're watching on television, too. That's what I do. That's the one great thing about streaming now is you can really pick and choose and you don't have to be part of an endless vomiting up of ads and stuff like that for kids.

Scott Galloway: So, by the way, just a quick note on space.

Kara Swisher: Yeah.

Scott Galloway: These guys are tempting disaster. Every really terrible decision usually involves ego in the corporate world. And these guys competing against each other. This is where capitalism meets space exploration. There'll be some externalities, and that is you now have three megalomaniacs—and that's probably not true of Richard Branson—but three people who explicitly or implicitly are putting pressure on their organizations to get them into space. And I'm telling you, Kara, space travel is expensive and really dangerous.

Kara Swisher: Is this your prediction? They are tempting disaster.

Scott Galloway: It's just, it'll be really, I don't know, the whole thing, quite frankly, makes me nervous. I think that there's now individuals nobody wants to let down. And they've announced with their press that they are going to go into space. This is space travel. And by the way, it might be worth it. I had a kid who works with me say, "I think it's wonderful that billionaires are spending money on exploring space and opening new worlds." And I'm like, that's a nice optimistic view. So it'll come at a cost, and the cost will be more than money. It is dangerous, expensive space travel.

Kara Swisher: Okay. All right. Scott, one more quick break. We'll be back for predictions.

[Ad Break]

Kara Swisher: Okay, Scott, you just sort of predicted something with space travel that Jeff Bezos is going to blow up. I believe that's what you were just saying, or one of them is going to, there's odds are.

Scott Galloway: Maybe, maybe not. Maybe they'll come back safely or not come back at all and stay there and live and enjoy themselves up in space.

Kara Swisher: But what is your prediction besides that dire prediction?

Kara Swisher: I think we're going to see an examination of the difference between income and wealth. We're going to hear a lot more about what it means to be wealthy and what is your role as a citizen. And I think it's going to be an interesting conversation. I don't know if it's going to be a wealth tax. I think most likely they'll go after trusts. Real estate taxes, a lot of those loopholes are going to be closed. But we have hit—I'm very encouraged. I think a lot of immunities are kicking in. People have said enough is enough. And I think COVID-19 has really laid bare a lot of those externalities. But we're probably going to see some sort of AMT introduced.

Scott Galloway: Explain how that would work.

Kara Swisher: Well, it's an alternative minimum tax that says, okay, if you reported $10 million in income or wealth and you ended up paying less than X percent, we want you to pay at least X.

Scott Galloway: Yeah. That's what the AMT—basically the new G7 intra-sovereign or the international tax treaty is saying these guys are going to have an AMT of 15 percent. They've got to pay at least 15 percent on their profits. No matter what tax deductions or gymnastics or low tax domain they manage to get into, the minimum is going to be 15 percent. I think that's the beginning. I think we're about to see a lot more of that.

What happens is, to a certain extent, it's sort of the bad LBO of America. An LBO—a leveraged buyout—people show up, layer a company with debt, take out a bunch of payments or dividends to themselves, lever it up more, take all their money out, and then say to the company, "Best of luck to you. And if things work, we want even more money back." There's been sort of an LBO of America. We've issued incredible debt. Our government spending really hasn't gone up that much as a percentage of GDP until the last year. Taxes on the middle class and lower income have actually not gone up—they've stayed flat. What's changed is that we've decided to lower taxes as a percentage of GDP on the wealthy. I think that's changing.

Anyways, I think this G7 tax treaty is going to—there's going to be different forms of it that come into America. I think there's going to be some sort of AMT on the top 1%.

Kara Swisher: It certainly put a lot of energy into Elizabeth Warren and all those who were calling for this, for sure. 100%. And there's more to come. They only did five, really, of the people. I'm going to make a prediction, Scott.

Scott Galloway: Go for it.

Kara Swisher: So I just noticed—nobody really knows—Carolyn Everson, who has been working at Facebook forever, very close to Sheryl Sandberg, is leaving the company after a long time. I'm assuming she's just retiring and she's got a lot of money. I think it's going to be a hot summer for Facebook and I would see some other major executives leaving. There's a book coming out by Shira Frankel and Cecilia Kang of the New York Times called *An Ugly Truth: Inside Facebook's Battle for Domination*. I think there are some things in here that are not going to be good for many executives there. I haven't read it, I haven't seen it, but I am hearing a lot. They're very worried at Facebook internally about it.

Scott Galloway: They're worried about the book?

Kara Swisher: Yes. And so we'll see. I just saw Carolyn leaving and I was like, "Huh, that's interesting." I think there's going to be a lot of people front-loading this situation. Why wouldn't she go be—I met her once, she struck me as a very talented executive—why wouldn't she go be the CEO of TikTok or something? I don't know. Maybe she is. She is a very competent executive. She's been their ad chief for a long time. Anyway, I just feel like there's going to be quite a few departures and a real turnover there. At some point it's so wearying and exhausting, and especially with the drumbeat around this book. This isn't going to stop for them. At some point, these executives are like, "I've had enough." Or maybe, "I don't want this to be what I have to say at dinner parties." I don't know. I just have a feeling.

Scott Galloway: That's your feeling?

Kara Swisher: That's my feeling. I just—it didn't get a lot of attention, Carolyn leaving, and she's a very important executive. Also someone who's been very close to Sheryl Sandberg in the past. They're very good friends.

[Transition]

Kara Swisher: Anyway, don't forget, if there's a story in the news that you're curious about and want to hear our opinion on, go to nymag.com slash pivot and submit a question for the show. Leland, your question was excellent. I love all the excellent questions we get. Scott, read us out and try not to cross the line.

Scott Galloway: Okay, try. Today's show was produced by Rebecca Sinanis. By the way, this is the third take of the credits because the dog is feeling salty, and I did an NC-17 read on the first one, and everyone's saying no. So here we go. Ernie Intertot engineered this episode. Thanks also to Drew Burrows.

Kara Swisher: Yeah, we thank them every week. Snooze.

Scott Galloway: Make sure you're subscribed to the show on Apple Podcasts. If you're an Android user, check us out on Spotify or, frankly, wherever you listen to podcasts. If you like this show, please recommend it to a friend. Thanks for listening to Pivot from Vox Media. We'll be back next week for another breakdown of all things tech and business. Kara, have a great weekend.

Kara Swisher: Thank you, Scott.

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