This week, Felix Salmon, Emily Peck, and Elizabeth Spiers discuss the tax implications of Patagonia’s founder giving the company a climate change nonprofit, the US railroad strike that almost was, and Adobe’s acquisition of Figma.

In the Plus segment: Farm shares

TRANSCRIPT

Felix Salmon: Hello and welcome to the It’s only Paul Newman’s fourth episode of Slave Money, Your Guide to the Business and Finance News of the Week. I’m Felix Salmon of Axios. Emily Peck of Axios is also here. Hello. Along with Elizabeth Spiers.

Emily Peck: Hello.

Felix Salmon: And we all know that we have Paul Newman to blame for the ridiculous surge in watch prices if we haven’t talked about that. We can talk about that some other time. But yeah, it’s the basically the Rolex collectability thing is all Paul Newman’s fault. But that is not the only thing that is a little Paul Newman’s. So there’s something else that is a little Paul Newman. So which we are going to talk about when we also talk about Patagonia being sold this week. That is coming up along with discussions of the rail strike that wasn’t and also the sale of Figma to Adobe (ADBE). And if you’re a Slate Plus member, we answer your question of how do I work out what to cook with all of this stuff? It’s all coming up on Slate. Money. Okay. So I really want to talk about this Patagonia thing. You down for that?

Emily Peck: Let’s do it.

Felix Salmon: Let’s do it. Okay, so there are two duelling narratives going on in this story. There was the Oh, my God, this is amazing. Even Chouinard has donated a multibillion dollar company to climate charities, and it’s all going to be owned by the planet now. And isn’t that awesome? Versus, Oh, my God. Even Chouinard has taken advantage of a massive tax loophole to not pay any kind of gift tax, estate tax, capital gains tax, or any anything else. And how rude of him can they both be true, Elizabeth?

Speaker 3: Well, I think they can both be true, but we need to back up and sort of explain what happened. You know, Patagonia is a $3 billion company. The founders decided that he’s effectively giving it away. So he’s put 2%, I think, of the shares in 51c3 nonprofit.

Felix Salmon: And then there’s not a51 C3. It’s just a trust, I think.

Speaker 3: Yeah, well.

Felix Salmon: He’s paying gift tax on that, but it’s a tiny base. $17 million.

Speaker 3: Yeah, but most of it’s going into ac4, which is an organization that’s allowed to make unlimited political donations. So he doesn’t get the income tax deduction from it, but he does get a discount on the estate tax.

Felix Salmon: It doesn’t make any estate tax at all, even. And I think this whole distinction between if he’d given it to a501c3, he would have got even more tax breaks. It’s kind of not true when you give billions of dollars to 501c threes, like for instance, Warren Buffett has been doing for many years with the Gates Foundation, you rapidly roll through whatever maximum deduction you can get in terms of income. So it doesn’t really make any difference. Yeah, either way, it’s basically the same. You get to pay no tax and.

Speaker 3: Then critique, which I kind of agree with, which is that this is just a failure of policy because you’re basically letting people opt out of supporting the government, but giving them ways to lobby the government by elections and use politics and money to similar effect without paying taxes.

Emily Peck: I just want to jump in and say that the headline on this story that I read before we get into the weeds was basically Patagonia’s CEO Gives Company A Way to save the climate. I just feel like that should be underlined. That was the main thrust of the first day of reporting. CEO gives company away.

Felix Salmon: Right. So that was an amazing little piece of PR. Right. So what happened was the Patagonia gave the exclusive to David Girls, our friends at the New York Times and gave him huge amounts of access. They were like they were sending a photographer to photograph the video announcement by showing that the founder and David wrote a really, really positive article. And in fact, and this is, I think, the thing that really annoyed a bunch of people.

Felix Salmon: He drew an explicit distinction with the side who also gave his company to a 5 to 1 C for this is the right wing billionaire who founded a company called Trip Light. He gave it to a501c4 called Marble Hill Trust or something like that, which then turned around and sold it for 1.6 billion to a private equity company in the U.K. And that had been covered by The New York Times as a great scandal. And David was David Girls was very aware of the sort of double standard going on. And he was like, well, on the one hand, the triple donation was a total tax dodge, but on the other hand, the Patagonia donation isn’t. And then when people started looking at it more closely, everyone was like, No, they’re both 524 that both exactly the same.

Speaker 3: Yeah, I think part of it too is just people making judgments about where the money is going because see, it’s donation went in part to fight climate change activists.

Felix Salmon: So they get to cancel each other out basically.

Speaker 3: Yeah.

Felix Salmon: And no, I do think I mean, this is a very clear case of liberal bias in the press, right? If you give it to left wing charities and everyone’s like, oh, my God, you’re amazing. And if you give it to right wing charities, everyone’s like, Oh, my God, you’re terrible.

Emily Peck: Yes. But by the second day, the so-called left wing press was also making that criticism.

Felix Salmon: They were making the criticism, but like it didn’t get a million hits in the first 3 hours, like the Gillespie’s. And I think in general, what we have here is a situation where Patagonia’s customers are generally pretty environmentally conscious, and they’re going to be very happy about the idea that all of their profits are going to environmental charities. And this is good PR for Patagonia. I don’t I think the second day quibbles are not going. To take much of the sheen off this donation.

Emily Peck: One thing still confused about, actually in the parallels between Triplet and Patagonia Triplet was sold and still operates Patagonia was it sold? It’s all the same people working there, running it.

Speaker 3: Nothing’s really. And I think the families still.

Emily Peck: Don’t understand that some.

Speaker 3: Of the voting rate. So it’s not there. They’re still involved.

Felix Salmon: Yeah. So okay. So that it is a difference. It doesn’t make any difference on the tax side of things, but it does make a difference on the operating side of things. But side or see doesn’t happen. I pronounce him is is no longer involved in triple-A. He sold the company to some other private equity firm that is now operating it. So no more control of the company. The Chouinard family, on the other hand, is still in control of Patagonia. Obviously, in both cases, the employees of the company are still working for the company, so their day to day doesn’t really change at all. But yet the Patagonia family still controls Patagonia the company.

Felix Salmon: And we should also say that both triple-A and Patagonia are continuing to pay corporate income taxes and all of the taxes. The Beo It’s not like they’ve become charities. The difference is the Patagonia is now effectively it’s not owned by a charity, but it’s giving all of its profits to charity with triple. It’s giving all of its profits to a private equity firm. And what happened was that was just a big $1.6 billion chunk of cash that went from that private equity firm to the 501 C4.

Emily Peck: So now when you buy your Patagonia fleece the profits go to climate change.

Felix Salmon: Yes. Well, to trying to prevent climate change.

Emily Peck: To trying to prevent climate change. And when you’re a customer of triple-A, it’s just some private equity peeps that get cash.

Felix Salmon: To this point in terms of the future of trying to get more Republican judges on the Supreme Court or whatever it is that Leonard Leo is up to these days, the fortunes of triple-A don’t matter. They sold the entire company. They don’t care what happens to triple-A anymore. They’ve got their 1.6 billion.

Emily Peck: Okay. And then in both cases, the CEO doesn’t have to pay any kind of inheritance tax, now that I'm breaking it down. They’re still alive.

Felix Salmon: So basically. Exactly. So that’s the really big tax dodge that they both avoided is that under US law, you basically get to give away $12 million in your lifetime. And anything beyond that, you have to pay a 40% gift tax or inheritance tax or estate tax or whatever you want to call it. Right. And gifts are all taxable. Once you passed that $12 million limit, they’ve managed to basically just blow through that and give away gifts, which are worth vastly more than $12 million and not have to pay any gift tax at all.

Felix Salmon: And that’s a very good reason why this gift tax exists, which is that when you start a company with founder’s equity, the equity doesn’t cost you anything. Basically, your cost basis in that company is zero. And if you don’t take out profits, if you just leave the profits in the company rather than taking them out as dividends or salary, then you don’t pay any taxes on any of those profits of the company. And it’s still your money. You still own all of that money. You just have never paid any tax on it.

Felix Salmon: And then eventually the idea is eventually you die. This is kind of inevitable. And so at some point, either at or before the point at which you die, you need to do something with this company. You need to give it to someone or sell it to someone. At that point, when you give it to someone or sell it to someone, then all of those accumulated profits and all of that accumulated value is taxable. And so that’s the idea. That’s kind of why that’s the stated reason why we don’t want to. They called illiquid capital gains. Unrealized capital gains is because eventually they will become realized capital gains and then you will pay tax on them. But what we’ve now seen in both of these cases is a way to avoid paying any tax ever on those unrealized capital gains.

Speaker 3: Yeah, and this is why progressives want higher corporate taxes.

Felix Salmon: But that wouldn’t change anything, right? Like that wouldn’t solve this problem.

Speaker 3: It counterbalances it a little bit. I don’t think it solves it.

Felix Salmon: It doesn’t solve it at all. Like in neither of these cases with higher corporate taxes have solved, like assuming that you still have a billionaire who found the company worth $1,000,000,000 and that billion dollars has been created and is value that should be taxed like higher corporate tax, like corporations don’t ever pay tax on their enterprise value or their market cap or anything like that. So higher corporate taxes on corporate income don’t. The fact that we -

Emily Peck: Don’t know the intentions here of either of these men, like the primary purpose of these actions, doesn’t seem to be as a tax dodge necessarily. Like that doesn’t seem clear to me. It seems like.

Felix Salmon: In the case of Tripp lite, if you just look at the sequencing, it’s very clear. Right. He could have sold Tripp. Light to the private equity company for $1.6 billion paid capital gains tax on the 1.6 billion. And then given all of his post-tax proceeds to charity and then the post-tax proceeds would have been like 40% less. Instead, he gave drip lights of the charity, turned around and sold the company 5 seconds later. And by doing so, that donation was worth 40% more.

Emily Peck: Okay. But these two men are then exploiting a loophole to donate more money to the cause they want to donate to.

Felix Salmon: Yes.

Emily Peck: So that’s a policy failure. I think that’s what Elizabeth said to start. Yeah.

Speaker 3: Insinuation is that allowing the deduction for C donations is the policy failure. It’s not that they’re taking advantage of it.

Felix Salmon: Although, frankly, there is this thing called the Newman’s Own exception, which is a little bit nutty, even for state money. But in principle, this could be doable even with ac3 donation. Right. So the loophole exists, by the way.

Speaker 3: What’s the name again? Exception.

Emily Peck: You’re going to have to tell us.

Felix Salmon: All right. I’m going to have to tell you now. So Paul Newman set up a for profit company called Newman’s Own and gave all of the profits of that company to a charity that he set up. And then when he died, he wanted to give the company Newman’s Own to the charity. But 501c threes at the time were not allowed to own for profit companies. And so there was this whole worry that basically the Paul Newman Foundation or the Sundance Foundation or whatever the hell it was called, would have to sell Newman’s own because it wasn’t allowed because charities aren’t allowed to own for profit companies.

Felix Salmon: And then so what happened is an exception was written into the law. And as far as I can make out, Newman’s Own is literally the only company that has ever taken advantage of this exemption. But Newman’s Own is now allowed to be owned by the foundation. And the idea is basically that if the foundation doesn’t include any family members and is genuinely independent, and yet there’s a few different criteria, but it is now possible to donate a for profit company to a five at 1c3. So it’s not really this whole distinction between citizens was like, it’s not a big deal.

Speaker 3: It’s more about political activity, determines what the organizations can do.

Emily Peck: So this is all Paul Newman’s fault.

Felix Salmon: It’s all Paul Newman’s Seafoods. We’re allowed to. They can give money to candidates and to campaign for candidates directly. The C threes can be political. There’s no shortage of politics.

Speaker 3: There’s a lot of greed. There’s a lot of gray area there. That’s why a lot of political organizations have both the C three and ac4 arm. So when C three will do voter registration, the C four will donate to specific candidates.

Felix Salmon: I mean, my my big thing is like the tax dodges, the tax cuts, by the way. Right. And it’s and I can see why people get a little bit more upset about giving it to ac4 because they’re like, you are trying to use your billions to influence democratic institutions. And that seems even worse than giving it to save emaciated donkeys, you know, whatever. Right. But like, either way, you’re supporting your pet cause and not paying any tax on your gains.

Emily Peck: You’re using your money to influence government policy making while starving the government of the funding it needs to do effective policymaking.

Felix Salmon: So so yes. Emily, have we now persuaded you that this Patagonia donation is a terrible thing and, you know, opposed to it?

Emily Peck: I mean, I read a quote today, I think in DealBook where they said we’re letting people opt out of the support of the government. The rest of us have to participate and and I feel like we’ve talked this to death already. Rich people want to be governments unto themselves. And this seems like an offshoot of that.

Felix Salmon: There was this wonderful quote in the original Gallup space where even that was like they say that I’m a billionaire, but I’m not really a billionaire. I don’t have $1,000,000,000 in the bank and I drive a battered old Subaru or whatever. And you’re like, no, you are. You can I can prove that you’re a billionaire because you’re like really trying very hard to avoid.

Speaker 3: Taxes kind of persona.

Felix Salmon: Buffett, you know, famously bought himself a private jet and called it the indefensible. And you’re not like, you know, he’s not a big spender, but he’s definitely doing that billionaire thing of tax avoidance.

Emily Peck: And what’s interesting as background is Patagonia has always been kind of a a good employer type company. Like they.

Felix Salmon: Were very good in policies.

Emily Peck: During the pandemic when, you know, workers got very agitated and everyone quit everything. I spoke to Patagonia and they said almost no one left. Like people are generally happy. They’re they have onsite childcare.

Felix Salmon: They’re in Southern California or Northern California, somewhere in California. And they have this thing where like, if it’s a really good surf day, then everyone gets the sun just goes.

Emily Peck: Oh, one question I had related to that is, okay, they were really good company. Why not just become a nonprofit?

Speaker 3: They could be a B Corp. I don’t.

Felix Salmon: They are.

Emily Peck: Yeah.

Felix Salmon: But they happen to be corporate for many years.

Emily Peck: Okay. Like, why can’t they just do that instead of all this shenanigans?

Felix Salmon: I think it’s hard for a for profit company to become a nonprofit, although we have seen it in media, there has been a few like local newspapers and stuff like that that have managed to sort of switch over to becoming a nonprofit. I think it was one of the options on the table. But it’s interesting and we would need to like have background conversations with Patagonia’s lawyers. It will be interesting to see whether one of the reasons they decided not to go down that route was precisely that doing so would involve a greater tax liability.

Emily Peck: I guess the non cynical way to look at it would be like, oh, that way we would have more money to fight climate change.

Felix Salmon: Yeah. I mean, if your main priority in life is fighting climate change and you just want to maximize the amount of money that goes into fighting climate change, then obviously at the margin you’d rather do that and pay taxes. And so if there’s a legal way of getting more. Money to your cause and sending less money to the government. That’s good, right? That’s something you want. And mutatis mutandis. The triple-A.

Emily Peck: Yeah. And you could even make the argument on either side. Right or left. I’ll do left. If I give my money to the government, they’re going to use some of it on carbon emissions that I don’t want to happen. Like maybe they’re going to do energy subsidies this year or something. And I don’t want my money, my tax money going to big oil. You could sort of you could paint you can make yourself the ethical player and say, like, I’m not giving my my ethical money to the unethical U.S. government. That’s probably what the trip like. I might think, too, I sort of assume.

Felix Salmon: I do think in general, it’s not just billionaires who don’t like paying taxes. It’s basically everyone that there is a general assumption built into society that everyone pays the taxes that they have to pay and no one voluntarily pays a whole bunch of taxes that they don’t want to pay. Right. And that’s what we’re seeing in both cases here is like people working absolutely legally within the tax code to minimize the tax burden, because that’s kind of what everyone does. No one sort of like when they’re filling out their taxes, gets to that line on the form thing. And would you like to donate a few more bucks to the government this year and says, okay, I’ll throw in the next 50 bucks because I like you guys?

Emily Peck: Yeah, but it’s harder for regular people to escape taxes like they take them directly out of your paycheck. You know what I mean? Like, we can’t do a lot of that. It’s just it’s I think a lot of the emotion around it is just the perceived unfairness. And it’s not just perceived. It’s it just is.

Felix Salmon: The argument on the other side is that neither of these men got personal benefit from those billions. Right. They gave the billions away. They didn’t find those billions in their checking account one day. They can’t leave those billions to their children. They have literally given up control, not entirely giving up control, because they still do kind of have a bunch of influence over how the money is spent, but it’s definitely not available to them if they want to go and buy a Picasso tomorrow. So if it’s not their money anymore, why should they pay tax on it? I mean, I feel like I’ve kind of already hinted at the answer here, which is that societally speaking, if you make a bunch of money, at some point you should pay tax on it. But maybe, maybe like the implicit principle behind the tax code is you can make as much money as you like and you don’t have to pay tax on it just as long as you don’t show a sort of personal benefit from it and you don’t get the money in your own bank account.

Emily Peck: I don’t. That doesn’t that’s not tracking with me. We all benefit from living in the in the United States, and we all contribute to the cause through our taxes. Isn’t that part of it?

Felix Salmon: That is part of it in theory. That is about a.

Felix Salmon: Let’s move on and talk about train strikes, because I think this is much more of a sort of real thing in the world that we can talk about theoretical billions going into charities. But we avoided a major train strike this week. And I want you to walk me through what was at stake, both in terms of the economy and in terms of the workers on the railroads.

Emily Peck: This week, contract negotiations between freight rail companies and their unionized workers came to a head, culminating in this like marathon 20 hour negotiating session in Washington, D.C., where the Biden administration essentially facilitated a deal and averted a railroad strike, which would have been, by all accounts, catastrophic for the economy, because a lot of stuff vital to the functioning of the country travels by train. Like I don’t think most people are giving a lot of thought to freight trains these days, but they’re vitally important because they can carry a lot of stuff and they can carry a lot of dangerous stuff. So chlorine that’s used to purify the water or oil or gas like dangerous stuff gets transported on the rails. There’s not an easy alternative. And the railroad association put out a stat that was picked up everywhere that said 2 billion. It would cost the economy $2 billion a day if the railroads shut down.

Emily Peck: And what was really interesting to me and why I still wanted to talk about it, even though the crisis was averted, was the reason that the parties couldn’t come to an agreement. And the sticking point in the negotiations wasn’t pay. Although they got a nice raise, the workers eventually the sticking point was work life balance. Of course, no railroad workers didn’t say we need better work life balance, but that is precisely what was happening. These freight train companies for years and years have really worked to become more streamlined, scaled back and efficient. And they did that on the backs of these workers. They cut the number of workers in their companies, the number of workers who ride the trains. And that meant not a lot of time off for any of these mostly men.

Emily Peck: There are a lot of stories about guys who couldn’t go to the doctor who missed family events, holidays, who got even sicker because they couldn’t take the time to go to the doctor. Not only couldn’t they take off, but they’re penalized for taking off. There’s a quote in The Times, I think, on Friday where one guy said, We just don’t want anyone to get fired for being sick anymore. So that all was pretty interesting to me and seems like a more widespread problem going beyond these 115,000 odd workers.

Felix Salmon: One question which I’m interested in here is there were, what, like three or four major railroads in America and they all kind of negotiated collectively and all of their employees get the same deal, is that it?

Emily Peck: Yes, there are certainly German. It’s very German. And it dates back to the early 20th century for the United States because the you think the railway is are important now. They’re are really important then and there’s federal law regulating how unions can bargain and setting kind of like breaks so that strikes don’t happen because they can be so catastrophic. There is like a number of steps that the administration, the White House, can take to sort of avert the strike that the Biden administration took, which is if they can’t come to an agreement on their own, then the president appoints a commission that like talks to both sides and comes up with a proposal, all this kind of government interference.

Felix Salmon: But to be clear, when we’re talking about the science here, on one side, you have all of the employees of all of the different railroads. And on the other side, you have all of the different railroads.

Emily Peck: Yes.

Felix Salmon: So in order to get an agreement, you need to get, number one, the employees to agree, which presumably they’re all represented by the same union. But number two, you need to get each of the separate railroads to agree.

Emily Peck: Yes. And to clarify, there are 12 unions.

Felix Salmon: There are 12 unions.

Emily Peck: There are 12 unions. Two of the unions represent about half of the workers. So there are two really big unions and then a bunch of little unions. And now you.

Felix Salmon: Have you have 12 unions on one side and you have however many railroads on the other side. I can see why this negotiating session went on for 20 hours. I mean, that’s trying to get that many different parties to agree on anything is hard.

Emily Peck: Yeah, that’s true. That is hard. But the really the sticking point was this leave policy. It’s really wild. They did not want to concede on that. And the Biden. Board said, we don’t want to get involved. Like if you read their proposal, they just say, we don’t think we should be involved. This should be settled like company by company, workforce by workforce. And the unions were like, hell no.

Speaker 3: I think we need to sort of draw out what you mean by work life balance, because I think especially if you don’t you’re not familiar with that industry. You sort of don’t realize what specifics you’re talking about. So when you talk about paid leave, these railroads are basically telling the workers, you can take a sick day, but you’re going to be in a different city because you’re at work and we’re not going to pay to get you back home or get you to your doctor. So it seems like, you know, what they’re asking for are privileges that most other industries you sort of get anyway. And so that’s part of it. But also the private equity companies that overwhelmingly own these railroads.

Felix Salmon: And I.

Speaker 3: See.

Felix Salmon: Don’t forget Berkshire Hathaway.

Speaker 3: Yeah, them too, basically just have decided that it’s cheaper for them to pay overtime all the time instead of just instituting these. You know what? My opinion are very stingy, sick leave policies. So, you know, my sympathy is definitely with the worker side, but I can also see why private equity companies were refusing to budge on it.

Emily Peck: Yeah, when I say work life balance, I mean this is way beyond what you might think of. I was sort of being cute, but basically there are no paid sick days at these companies and they’re not.

Speaker 3: Asking for free yoga lessons.

Emily Peck: Right. Instead, they give you points. If you have to take an unscheduled day off, you get penalized with points. And if you accumulate a certain number of points, then you get penalized. They tell you you can’t work for a certain number of hours and that level increases until finally you are fired. So like someone was telling me, like you could take a day off, an unscheduled day off to attend, I don’t know, your son’s championship soccer game. If you get the flu at that game and needs three more days off, you will get fired from these companies.

Felix Salmon: So do you understand the economics here? I’m fascinated by the way in which this turned out to be the big sticking point. There wasn’t pay that somehow giving decent sick leave benefits to employees seems as though it’s significantly more expensive and or disruptive to the railroads than paying quite a lot of money to those employees.

Speaker 3: My guess is, since they were thinking of it as an overtime versus benefits situation, that overtime is a variable. It changes depending on demand and need and things like that. And if they commit to paying, you know, paid sick leave, that’s a fixed experience that they already know what it’s going to be. So in some ways, just about about which number is going to be higher, I.

Felix Salmon: Don’t quite see that. I mean, I see in my mind is basically the same thing, right? That if someone takes sick leave, then someone else winds up having to work overtime to do that person’s job on the two sides of the same coin.

Emily Peck: Okay. So what’s going on here is these companies cut the number of employees by like 30% over the past, I think, seven years or something. And they basically for the folks, the workers who ride the trains, you can only ride a certain number of hours under regulations. Right. You can’t have people, conductors or engineers on the trains falling asleep and stuff. So there are some regulations around how long you can work, but with less staff. So then all these workers are on kind of like a list of rotation, like you work and then you go to the bottom of the list and then the list works up again, if that makes sense. And you’re sort of like on call waiting to get called again and it’s cheaper is my understanding for the rail company is to just have fewer workers and the lists are shorter, so you just get less downtime and more on call time.

Felix Salmon: On the one hand, there’s a limit to how many hours you can work. It sounds like, you know, aircraft crews and that kind of stuff that they have these limits which are baked into the contract. But on the other hand, I guess the railroad companies are basically trying to keep people basically at that limit and not give them more time off between shifts and in which.

Emily Peck: There’s less time off, less time off between shifts and more time just on call. And if you’re not available to work when you’re on call, that’s I think you’re penalized for that as well.

Felix Salmon: One of the things that I kind of weirdly suspect in the back of my head and I haven’t done any reporting on this, so I don’t know is that there’s a pandemic aspect to this, too. The two things happened in the pandemic. One was the freight volumes went up. The people started buying more stuff, more goods. And so goods wound up becoming a much bigger proportion of GDP than services. That’s since sort of reverted.

Felix Salmon: But the other thing that happened during the pandemic was the supply chains became much less predict. Of all the what you had pre-pandemic with these incredibly efficient supply chains where everyone kind of knew where every container was going to be. Months and months in advance. And everything was very smooth and efficient. And all of that just kind of got blown up overnight. And when you’re running a railroad, moving hundreds of thousands of containers across the country, like when it’s smooth and predictable, then you can schedule people in a kind of smooth and predictable way. When the pandemic hits and goods volumes go up, good volumes go down. Some goods just don’t appear at all because they’re stuck on a ship or they never left China or whatever it is.

Felix Salmon: Then yeah, the work of the railroad workers becomes inherently much more unpredictable, and what the companies need is a lot more flexibility. They need to be like, Oh shit, we need you here now. And that kind of ability to send workers on very short notice to certain places because that’s what’s needed right now and it wasn’t predictable, is obviously it’s bad for the workers in terms of that work life balance. But you can kind of see how the shadow of the pandemic leaves behind this dispute.

Emily Peck: Oh, yeah, absolutely. I mean, and all the union statements and at least one worker I spoke to was like we gave them everything in the pandemic. We worked so hard. There was so much more work to do than usual. Our colleagues got sick, our families got sick, people died like that. Emotional stress also adds to it from the pandemic.

Felix Salmon: Let’s move on to the big M&A transaction of the week, which is that Adobe has announced that it is buying Figma Elizabeth. Do you use Figma?

Speaker 3: I do, actually.

Felix Salmon: And do you use it because it’s like better and cheaper than Adobe? Is it a disruptive company?

Speaker 3: It is. If you’re if you’re working on UX stuff and you’re doing product design, it’s fantastic. And I read somewhere and this was a couple of months ago that Adobe executives were getting annoyed because their own employees were using Figma for presentations instead of Adobe’s actual competitor software.

Felix Salmon: Adobe has has a direct competitor to Figma called XD, which no one uses and everyone hates. But it also has an indirect competitor to Figma, which is called Illustrator, which is a very, you know, fully featured and very expensive piece of software. And up until Figma came along, basically anyone wanting to do this kind of thing would go into illustrates and do a bunch of work in the kind of clunky, crappy interface. And then, most importantly, couldn’t really collaborate very easily. Imagine going back to the days of sending word files back and forth, you know, that kind of thing. Everyone is using a file dot final .2..

Speaker 3: Yeah.

Felix Salmon: Sure.

Speaker 3: Nobody is. Nobody is using Illustrator anymore, you know, for a complex project because it’s just it’s not very intuitive. The collaboration tools suck.

Felix Salmon: Yeah, exactly. It’s just it’s basically impossible in Illustrator to have two different people working on the same file at the same time. When it’s a big file and you have big teams all trying to work on different parts of the same thing. That’s not acceptable.

Speaker 3: You know, that’s why they created Adobe XD, but it’s just not better. Yeah, that’s.

Felix Salmon: Why it’s worse. And it’s cheap and it’s, you know, it’s a minimum viable product. And meanwhile, Figma has come along and Figma was founded specifically to address this problem of Adobe being crap. And there’s any number of interviews with Figma founders basically saying, we are here to replace Adobe because Adobe is terrible and we are going to build something better.

Speaker 3: There’s another company called Canva that I think is competitive with other parts of Adobe Suite and is also getting traction for much the same reason. You can use it without much technical knowledge, and it’s more intuitive and it’s collaborative.

Felix Salmon: So what we have here is a very classic case of genuine disruption. We have something which is cheaper, which is maybe not as fully featured, but is a more convenient and easier to use. And people like it more. And nine times out of ten, when I hear the word like disrupt, I’m like, You are using that wrong. There’s no way I’m being disrupted here. But in this case, I think it’s actually e it’s correct.

Felix Salmon: But Figma was a genuine disruptive threat to Adobe and being a venture funded startup, it was also losing lots of money. And right now is a terrible time for venture funded startups to raise money. And so this was a problem for Figma. And what’s more, they’ve already gone through seven rounds of fund raising. They did the seed round and then A, B, C, D and E round. The last E round was $200 million. And they still looked at the IPO market and said, We’re not going to be able to go public right now. You know, the IPO window is shut. There’s not going to be a series F, you know, certainly not one isn’t a massive down round and hugely dilutive. Where are we going to be able to find the money to continue to grow after seven rounds of fundraising?

Felix Salmon: I can tell you one thing. In fact, after six rounds of fund raising, I looked this up on Pitchbook. VCs have a majority of the stock, so even if the founder doesn’t want to sell, ultimately the board at that point is controlled by investors. And one of the things the investors always had in the back of their mind was like, We don’t need to IPO because if push comes to shove, we can always just sell to Adobe.

Speaker 3: Yeah, they want an exit. And this is the window. It’s not I’m not sure they could have waited that much longer.

Felix Salmon: It just strikes me as this is the failed state. This is what happens when a company fails to really achieve the kind of profitability it needs in the time it has available. And maybe they the amount of time they had suddenly got a lot shorter than they thought it was. But this is not good because the whole purpose was to go up against Adobe and now they’ve been bought by Adobe. And on some level Adobe would have been happy to pay $20 billion for them and just shut them down. Now they’re not going to shut them down, but this is like a competitive, disruptive threat, which now is no longer competitive because it’s owned by them.

Speaker 3: Yeah, I mean, I think some founders. Do you really think about it? I’m going to build this great company. And then if we find a values aligned partner, say all is fine, but.

Felix Salmon: Clearly the values are not aligned. They would like. Adobe was the big enemy all along.

Speaker 3: Well, competitively, yes. But in terms of vision for what they want for products they might be more aligned than products with. Indicate.

Emily Peck: I mean, isn’t this how it works? We’ve talked about like the in the nonprofit world, a little nonprofit or try out a little pilot program. And then the U.S. government swoops in and does the pilot program on a nationwide level. And isn’t that great? Because these little nonprofits are little incubators? Well, isn’t is in the business world, maybe the tech sector, maybe a similar kind of thing where these startups are basically little incubators, where people can like run free and be creative and do disruptive things outside of a big footed corporation that ruins everything anyway. And then they can’t really afford to do that forever and stay out on their own forever. So then the big company swoops in and then the little company can survive.

Speaker 3: I’ve tried to raise money before and I’ve never been in a pitch meeting where somebody didn’t ask me ultimately who could potentially buy the company. You know, it’s it’s not always. What do you think your IPO scenario looks like?

Felix Salmon: So I feel like the difference in this case is that Adobe is a monopoly and monopolies shouldn’t be allowed to. Quash competition by buying.

Speaker 3: Yeah. Do you think I mean, if that’s the case, why is there no antitrust noise about it?

Felix Salmon: I would. Bet that there is going to be antitrust noise. I think that there’s going to be a bunch of whatever sort of rock, paper, scissors game that the FTC and the DOJ play when these kind of things happen. I never quite understand how it’s determined which one gets these, but probably the FTC is going to want it and they’re going to want it for exactly that reason, which is that Leonard Cohen, who runs the FTC, is very keen that tech monopolies should not be able to grow by acquiring their competitors or by acquiring anyone really like ones who are monopoly. Stop buying people. That’s basically the rules he wants to implement. Now, I’m not saying that she’ll be able to block it. She might file suit against it and then lose that suit. But I do suspect that there will be some kind of a suit.

Speaker 3: Yeah, I think it depends on how they choose to categorize Adobe or what sector because the Adobe products kind of certain a sector of design and collaboration tools, but they really own the design piece of that. Right. And there are a number of other companies that that integrate with Adobe because they have to be part of the collaboration process or the product development process. And I think if you view Adobe as being solely in that design space, I feel like them acquiring Figma is not going to be a candidate for antitrust.

Felix Salmon: Why not? Because if they have a monopoly in the design space and Figma is in the design space, why is that not?

Speaker 3: I don’t think that there’s discrete design space that’s that tiny. I think it really is part of a larger set of software that you would use to build products.

Felix Salmon: You’re saying that Adobe is not a monopoly?

Speaker 3: Adobe? Yeah. Yeah, I don’t think it is.

Felix Salmon: I mean, talking to everyone I know in that space who uses Adobe products like that, like, of course, Adobe has a monopoly. Everyone has to use it. It’s the standard. We hate it, but we feel like we have to.

Speaker 3: I think if you’re a big corporate company, maybe I think it’s similar to you people. You have to use Microsoft collaboration products now. They don’t think that they’re great. It’s grandfathered in.

Felix Salmon: Totally. And Microsoft has a monopoly, too. And Microsoft isn’t allowed to like by G suite via acquisition. Like if Google decided to sell Google Docs to Microsoft, of course that would be blocked.

Emily Peck: And the harm to consumers is what Felix.

Felix Salmon: The harm to consumers is that if Adobe buys Figma and then just fold Figma into the creative suite and says You need to buy a subscription to the Creative Suite in order to use Figma, then suddenly the price of Figma goes through the roof for millions of users. So that’s a clear consumer harm.

Emily Peck: Is Adobe signaling that that’s what they’re going to do? Is that what they’re expected to do?

Felix Salmon: I have no idea what know what they haven’t said, what they expected to do. But the point is they have that pricing power now that they didn’t have before.

Emily Peck: That is more interesting, I think, or more clear cut as an antitrust than, say, Facebook, buying up Instagram and WhatsApp because the catch there was always while consumers aren’t harmed because these are free services. So it doesn’t really matter. And then you had to make this kind of esoteric argument around that.

Felix Salmon: Yeah. Also, just to be clear, like Lina Khan has very explicitly said that consumer harm should not be the be all and end all when it comes to antitrust. But that’s the kind of Balki in view that she is pushing back against. And she’s saying, like, there are other reasons to prevent monopolies, especially monopolies growing via acquisition, even if you can’t prove.

Emily Peck: But has she successfully wielded that argument yet or has it’s just an, you know, research paper form still?

Felix Salmon: Right. Yeah. We haven’t seen her wield that argument in the way that has gone through court, and she has one. But I feel like this is one of the cases where she might want to try.

Felix Salmon: I think we should have a numbers round. Elizabeth, do you remember?

Speaker 3: Yes. My number is 40 and it’s a percentage. And I learned today from The New York Times that 40% of young people now use Tik Tok for search instead of actual search, which makes music as well.

Felix Salmon: Right. It’s not like they literally never.

Speaker 3: There’s a Google executive who said you saw that. That was the ratio. I think he’s talking about very young users. But it’s it’s still I can’t fathom and I’m old, you know, I can’t fathom using Tik Tok as it is a search mechanism.

Felix Salmon: We are entering a post literate age. Elizabeth, if you can. Although the fact is, if you’re searching on Tik Tok, the way you search on TikTok is by writing a word into the search field, like you can’t search on it. And it’s we I’ve seen talk about this, too. I do think that people find information broadly.

Speaker 3: Yeah. And I can see like if you wanted a cooking video or something like using it for that, I just think 90% of the stuff that I search, like information wouldn’t even be on TikTok, you know?

Felix Salmon: Yeah, you’re too old for that. I have to say, I made a cocktail last night that I found on TikTok, and it was delicious.

Emily Peck: What was.

Felix Salmon: It? So it’s a dirty martini. And instead of using olive brine, you use basically MSG that you’ve dissolved in water. And it’s amazing. It’s a much sort of cleaner version of a dirty martini. It’s really nice.

Speaker 3: A clean James, like a David Jane kind of clean.

Felix Salmon: It’s a clean, dirty martini. Yeah. My number is 24.2 billion, which is the number of dollars that were lent to people buying now and paying later in 2021, which is up like. Attacks over two years.

Felix Salmon: This is a new report from the Consumer Financial Protection Bureau. Basically look into the whole bnpl industry. There were 180 million loans. On average, there were $135, and the total was $24 billion. So on the one hand, it sounds like a lot, but on the other hand, you know, again, if you compare it to the amount of money that people put on their credit cards every day, I don’t think it’s huge.

Speaker 3: Yeah, I think the problem is, though, it’s a lot of the afterpay’s services, the credit standards are so much lower, so people get themselves into debt at an earlier stage or with fewer conditions.

Felix Salmon: I mean, these things are all underwritten by underwriters. The credit losses on Bnpl have not been big. One of the positives that the Bnpl companies try to talk about, and I think this is real, is that if you don’t really have a credit file and you haven’t been able to access credit, then being able to buy something for 100 bucks on Bnpl and pay it off over four instalments is a good way of actually building up your credit. So yeah, like on the one hand, if you don’t have a credit file, then your I guess you could say that’s a lower standard, but that’s kind of also a good thing to be able to get people to build credit that way.

Speaker 3: Yeah, that’s true.

Felix Salmon: Emily given them both?

Emily Peck: Yes. My number is 15,001.

Felix Salmon: Ooh, I like that number.

Emily Peck: It’s the lower bound dollar value of Janet Yellen’s stamp collection with.

Felix Salmon: The Janet Yellen stimulation. This is our colleague, Neil Irwin. It’s all his fault.

Emily Peck: It’s all his fault. Years ago, he wrote about this. Janet Yellen has a stamp collection that passed down from her mother that’s valued between $15,001 and $50,000. And she declares this because she’s a good steward. And Neil Irwin wrote about it years ago in The Washington Post. And since then, Janet Yellen has become the treasury secretary. And when she travels, other world leaders want to give her gifts. They all believe that she’s into stamps. So a lot of them would have her stamps. But as it turns out, and this is a story reported this week in The Wall Street Journal, as it turns out, Janet Yellen is more interested in rocks.

Felix Salmon: But the weird thing is, whether she’s given the rock or whether she’s given this damn life, she doesn’t get to keep it either way.

Speaker 3: Janet Yellen, songs like seven year old Me, the stamp collection and the Recollection.

Emily Peck: Yes, she said there’s a quote in the piece so she’s less interested in stamps. She just doesn’t have time for Felix help me out for lately. Flatly, flatly. She doesn’t have time for philatelic philatelic finance.

Speaker 3: She’s not philatelic.

Emily Peck: Yes. So don’t give Janet Yellen a stamp.

Felix Salmon: You know who famously spent every waking hour devoted to finance? It was Bill GROSS of PIMCO, who was also one of the biggest stamp collectors ever.

Emily Peck: I bet his stamps are worth way more than 50,000.

Felix Salmon: His stamp? Yeah, he sold a bunch of them at auction, but I think he was one of the few people to put together a full collection of every US stamp ever issued.

Emily Peck: Wow. Wow. That almost makes me interested in stamp collecting. Almost.

Felix Salmon: Almost. You need to be very rich to do that. On which note, I think we’re going to wrap it up for this week unless you’re asleep. Let’s listen. In which case you will get an extra treat. Thank you very much to Jessamine Molli for producing. And to everyone really who’s writing in with money. And please don’t don’t keep the emails coming. We love them. We will be back next week with even more sleep money.

Felix Salmon: Let’s talk about what I calls the essays and what Emily calls farm shows. And if I’m basically getting this right, what you do is you sign up with local farmers who produce various different crops over the course of the year. And whatever they produce, they divvy up between their customers and you get whatever you get and whatever they grew. And obviously at the late summer, you get big boxes of delicious things. And in the middle of April you get tiny little bits of kale and you’re like, What am I going to do with this? And that’s your way of supporting farmers and being close to the land. And I guess your question, Emily, is like. Is this good? Is that the.

Speaker 3: Question?

Emily Peck: Well, I mean, we belong to a CSA and we pay for it at the beginning of the summer. I never remember how much we paid for it. And then every week we get all these mostly vegetables that I would probably never buy if I just went to the supermarket. And then I feel this, like, crazed pressure to cook all the vegetables. Right? They always send a note like this week is bits and you can use the beet greens and this week is carrots and you can use the carrot greens. And I’m always like, you know what? I’m not. And I just clip them off and I throw them in the compost and then I’m like, Wait, am I spending hundreds of dollars for compost? Like, what is happening? You know? And then I wonder, is this a good thing or a bad thing? It’s probably good because I’m supporting the farmers, like you said. But I live in West Chester and these farmers, I think, are kind of raking it in. I don’t know. So. So that’s just fine, Felix, you know, so.

Felix Salmon: Okay, so I see something super fascinating going on here, I have to say, and this is why I really love this subject. It gets you out of the standard American zone of first you work out what you want to eat and then you write the ingredients and it forces you into a much less common zone of first you get your ingredients and then you work out how you’re going to cook them.

Emily Peck: Yes, yes, no.

Felix Salmon: And and you wind up with a pile of turnips and you’re like, what on earth am I meant to do with a pile of turnips? Because frankly, there’s not a lot you can do with it. But I’ve done it and it can be a bit annoying. And when you can’t work out what to do with them, you feel like you’re an adequately inventive cook and you feel terrible about that and or the food goes to waste and or you don’t use the greens attached to the beets. And you’re right, it creates pressure because you have food which arrives in quantities that you don’t entirely know how much to expect. And then you’re like, Oh my God, how am I going to cook this all? And sometimes it’s too much, and then often it’s not enough. And it’s a form of stress, which I guess was incredibly common in the pre-industrial era. And we should.

Emily Peck: Just.

Felix Salmon: We should just stress ourselves now.

Speaker 3: But now it’s.

Felix Salmon: A little.

Speaker 3: Ways.

Felix Salmon: Though, because because pre-industrial stresses are awesome. And ask anyone who goes to the gym like, you know, that’s what you want is to just replicate the movements of farmers because the old farmers in the 19th century were all really fit or something. I don’t know.

Speaker 3: Yeah, this is luxury stress though. I’ve never had a CSA box that wasn’t slightly expensive and delivered me an obscene amount of kohlrabi, which I know I know.

Emily Peck: I’m doing frantically googling kohlrabi recipe and not on tick tock because I’m old, I’m doing it on on Google.

Felix Salmon: So I.

Speaker 3: See me doing it and.

Felix Salmon: I think this is our prescription to you, Emily, now that we’re now that way, hitting peak CSA boxes. And you know, this is this is when all the tomatoes are coming in and everything. Next time you get a box search on tick tock, let us know and let us know what comes up. And they might be pleasantly surprised.

Emily Peck: Okay, I like that. This week was very easy and I haven’t had to do googling. It was like apples and basil, so I’m good. This week was okay earlier in the season. There’s some weird cabbages I never know what to do if there’s a lot of different kinds of cabbages in this in this here life.

Felix Salmon: All right. So the question, what the hell am I meant to do with my CSA books? Answer. Tick tock. Search it. You know, we. We are nothing if not service. Here on Sleepless.

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