Audio Length: 00:53:04

 

Transcript:

S1: My name is Felix Salmon. I work at Axios. I’m here with Emily Peck. (Hello.) And we have a special guest this week, not for the first time. Welcome back Yinka Adegoke. But you are no longer where you are. You have a new employer.

S2: Yes, I am at Rest of World. Thank you for having me again.

S1: What or who is Rest of World?

S2: The Rest of World is a publication which covers the impact of global technology around the world. We cover everything from, you know, big tech and Silicon Valley’s impact in far reaches of the universe of the globe, but also how local companies are coming up with technology ideas that can actually be things that more advanced economies can learn from.

S1: It’s a worthy and awesome publication. Go check that one out. We are going to be talking a bunch about actually what’s going on in Africa, the investments that are being made there, and especially in financial services and whether they’re entirely a good thing. And we’re going to talk about the housing bubble and whether that’s a good thing. Spoiler alert, probably not. And we, of course, are going to talk about the big Joe Biden tax plan. He wants to increase corporate tax rates. Is that a good thing? Find out on this week’s Slate Money.

S3: and also maple syrup. Just puttin' that out there. We’re also talking maple syrup .

S1: we do solve the maple syrup problem. There is a maple syrup problem and we solve it. So stay tuned for that in the numbers aound.

S3: It’s kind of a perfect Saturday category.

S1: So the other shoe has dropped and the Biden administration has announced how it wants to pay for most of this infrastructure spending, and it is through corporate taxes, which famously got cut by the Trump administration down to 21 percent. And Biden wants to bring the map back up to 28 percent, which apparently is going to raise about two trillion dollars over like 15 years. It’s not exactly the same. So it won’t cover the whole thing. They’ll do some other stuff internationally, which we’ll talk about. But, Yinka, I have a question for you. If the tax cut in 2017 was universally regarded as the reason why stocks went up so much in the Trump era, then is it reasonable to assume that a tax hike in 2021 or 2022 is going to be bad for stocks? Because if it is reasonable to assume that no one seems to have told equity investors.

S2: who knows anything about the stock markets anymore, you and I could sit here and make all kinds of guesses because there are a lot more things going into what’s encouraging investors right now than just tax cuts. But there’s no doubt that you actually are even hearing corporates out there, certain sectors. I think Jamie Dimon and some others have said, oh, yes, raise the taxes. That’s fine. It’s not the end of the world. I don’t know if that discourages or encourages investors, but for now, I don’t think it makes a huge amount of difference because there are far more other factors that impact stock prices,

S1: not least the fact that the tax rate is not the same as the amount of tax they pay. According to Treasury, the actual effective tax rate on big corporations is not 21 percent, it’s 7.7 percent. That’s the overall amount of big corporate profits that get paid in corporate taxes....

S2: You have these giant companies that don’t pay any taxes at all, here’s that research into, with five of the largest companies in the US don’t pay

S1: zero taxes. Well, they pay zero income tax. They pay zero federal income, federal income tax, which is never the largest corporate tax. Payroll taxes are pretty much always the largest. But income tax, you kind of feel that, you know, if as Mitt Romney famously said, corporations are people, too, then they should be paying taxes just like just like people.

S3: That’s what I thought was really revolutionary about the tax proposal. At least how I was reading it was the notion throughout it that, yeah, companies should have to pay taxes just like people. And they had this great chart in there that showed that people, workers are paying a higher percentage of their money to federal taxes than companies are. It was like one of those diverging chart charty things where the people's taxes are going up and to the right and the corporate taxes are going down into the right and a big wide divergence. And it seems like part of what the Biden administration is trying to do in addition to getting more tax revenue and the US has the lowest tax revenue from companies of most countries, is trying to make a fair playing field for people, make them pay their fair share, because this notion that companies paying corporations paying lower taxes makes them more productive or makes them create more jobs has just proven to be utterly incorrect. Like, yeah, maybe stock prices went up, but there wasn’t like some like big boom in investment from corporations or hiring boom.

S1: Yeah, exactly. The savings the companies made in terms of taxes went straight to shareholders. They did not go to increased employment. The other big part of this proposal, which I wanted no doubt a little bit about, is the way that the United States has really got on board with an OECD proposal, which has been going on for a few years. And it’s in pretty advanced state of play right now to basically make sure that all the OECD countries, that’s 36 different countries around the world, all the richest countries in the world, pretty much cooperate to ensure that. You can’t get that kind of tax arbitrage that we’ve been seeing so much where companies like Apple or Facebook will make sure that their Irish subsidiaries say or their Swiss subsidiaries make all of the profits. And because corporate tax rates are very low in Switzerland or Ireland, then they get to save a huge amount of money on taxes. The idea under this proposal. If you pay a low amount of tax on your corporate profits in Ireland or Switzerland, then you or your taxes then get topped up in the United States. And Janet Yellen, the treasury secretary, said that she reckons that this rule alone is going to increase the taxable income of American companies, the American taxable income of American companies, by two trillion dollars, which is a huge amount of money.

S3: One thing I don’t understand about that is even if all the if this works and all the OECD countries have the same tax rate and Amazon can’t go to Ireland anymore, whatever, aren’t there many more countries that companies can go to to shelter themselves from paying a lot of taxes? I don’t understand how it’s going to work.

S1: I think the OECD is kind of has worked that one out. And if you wind up having a bunch of profits in a non OECD country, there’s a penalty associated with that. The big debate here is basically about where does the extra tax go? The way that the Americans have structured it and the OECD has directed it is that if you’re an American multinational and most of the America most of the extra tax winds up going to America, if you’re a German multinational, most of the extra tax winds up going to Germany. And the IMF just came out with this statement basically saying, wait a minute, that’s wrong. We should be making sure that the extra tax goes to these low tax countries, which are often poorer countries, rather than going to the richer countries who already are rich. And they’re saying, let’s do it the other way round. Make sure that, you know, countries that are right now collecting very low levels of corporate income tax are the first places that the taxes go rather than the big rich countries like the US and Germany.

S2: Which countries are they thinking of in that kind of equation? I’m wondering if it’s like the island countries, for example.

S1: You mean the tax havens?

S2: Yeah, exactly. I mean, this is this is about corporate taxes as well. Like I said, this big company that to Belize or something and stuff my profits through there. Or how would this work?

S1: It’s a good question. And one of the things that they have done is they’ve basically said that the amount of tax that you have to pay should be commensurate with the proportion of your sales in a certain country. So, you know, if Ireland has 80 percent of the profits but only 10 percent of the sales, then there’s something wrong with that. On the other hand, if like Nigeria has 10 percent of the sales and it should get 10 percent of the taxes,

S2: that makes sense. That makes a lot of sense.

S3: That seems a hard sell. Politically, though, it makes sense and good for the IMF.

S1: But I don’t see I mean, the OECD and the US is trying this as well. But as you say, it’s going to be hard to implement.

S3: Yeah, the way you sell, the way the administration sells this is like corporations pay their fair share and it benefits America and we can do infrastructure stuff with all the money. So if there’s a provision that says actually America is not going to get some of these some of the increase in revenue, then I feel like that’s going to be not great.

S1: This is America leading the world again. It’s taking the leadership position and saying we’re not just doing what’s good for America, we’re doing what’s good for the world and everyone benefits. You know, this is the age of Tony Blinken. This is not the age of Donald Trump.

S3: Right. But I don’t think voters and maybe I’m wrong, Yanka, you can tell me. I don’t think voters care about that stuff. They just want to hear that, you know, companies are paying their their fair share. And then if you start talking about the world will benefit. I don’t know if that’s salient.

S2: If you’re talking about Americans, they’re just not going to care about what happens. I mean, just like everywhere else in the world, you just care about what happens in your country and what benefits you. And it depends on how you sell it politically. If it comes across like you’re just being nice to the world rather than helping Americans, I’m not sure you’re going to get very far.

S1: On the other hand, I think that I think Americans really don’t care about corporate taxes. You know, like Americans care very much about individual taxes, partly because individual taxes are so salient because we Americans have to fill out tax returns every year, which is dumb. We shouldn’t have to fill out tax returns every year. But it does make tax is very salient. And we know very because we see it every year just how much we’re paying in taxes in total. And we’re like, wow, you know, I want that number to go down. I don’t want that number to go up. Whereas corporations, you don’t see that number, it’s invisible. And I don’t think you care that much. And I don’t think it’s a big political thing, you know,

S2: which brings us back to that zero figure I like, even though we know that even if you give those corporations paid all that federal income tax, it’s, what, 12 billion dollars tops? Right. It’s not a big number. But the idea that Nike paid zero of something is what is politically, like, useful to me if I’m a Democrat or some sort of politician trying to push this idea, just that it’s the it’s one of those things. What’s the message? What message does it send that the idea? I remember this happened in the UK a few years ago with the Starbucks doesn’t pay any taxes or Amazon doesn’t pay any taxes. Right. Just the idea that they do pay something is a very powerful thing to ordinary voters. Once people start to get this idea that these guys aren’t paying their fair share, it starts to take hold and becomes something that the politicians have to think about.

S1: I think it takes hold more. If you have a big American company like Starbucks paying their taxes in the U.K., I don’t see the same level of pushback from Americans about American companies as I do from Brits about American companies. But I think you’re right that ultimately the zero number has a lot of political power.

S3: The other thing I liked about the plan to tax companies more at the same time the administration puts out like what it calls a jobs plan is the severing of this notion that tax cuts for business create jobs because the Biden administration is saying we’re going to raise taxes on business and we’re going to create jobs in this other way instead of this magical thing that happens where companies pay less in taxes and then start hiring more. We’re done with that fiction. We’re going to make them pay more and we’re going to create the jobs in these other ways that actually make sense. You know, we’re going to build more bridges or, you know, put up more Tesla or put up more electric car charging stations. And you can literally understand. Oh, yeah, you need people to do those jobs. I don’t know. People are talking about Bidenomics lately, but this feels like a very radical shift for the country because people had believed that cutting corporate taxes created jobs for a long time or cutting anyone’s taxes does.

S1: So what we’re trying to do basically in terms of this bill, you know, there’s there’s the spending part which creates jobs and then there’s the pay for part, which is corporate taxes. And the pay for is not being sold as a way of creating jobs. It’s the spending part that’s being sold as a way of creating jobs.

S3: Yes, exactly.

S1: But that does leave the rest of the cost of the bill. Right, because this increase in corporate taxes, even if we do repatriate a bunch of profits that are currently abroad, is not going to suffice to cover the long wish list that the Biden administration has put out in terms of what it wants to do in terms of infrastructure. So then the next question is, do you then come up with another bill down the road which will increase things like capital gains tax and make sure that the whole bill is paid for? Or do you just say, look, this is good enough and we can just borrow the rest?

S3: What would Stephanie Kelton say? Just wing it. We don’t know what kind of productivity gains we would see from the spending piece. Right. Like, it may turn out not to be as costly. It might create more value in the economy. Right. I say we wing it. We don’t have to worry so much about paying for it. See what happens.

S1: Yinka, do you believe in pay fors?

S2: This seems to be the new rules now, right? Just like millions of the winget, you just get out there, print the money and build the stuff, print the money, build the stuff, give the people jobs.

S1: So what Stephanie would say is, if it works, if this does create a big boom in consumption and the economy starts looking like it’s overheating, then the right thing to do is increase taxes. I in principle agree with her, but in practice, I think it is easier to increase taxes if they’re being pushed forward as a pay for for an infrastructure bill than if they are being pushed forward as a sort of way of fiscally cooling down the economy, because I don’t think people are going to really buy that. So, like, if you’re going to increase taxes, I think now is the time to do it rather than at some hypothetical point in the future when inflation starts picking up.

S2: What do you mean by increasing taxes in the sense you are you talking about the capital gains tax increases or are you talking about just I’m going to open my paycheck and see an extra point or two on my income tax or how are you thinking about that?

S1: Well, I mean, that’s the other thing is that if you increase taxes to pay for right now, then you would do things like capital gains. If you increase taxes later as a way of reducing inflationary pressures, then increasing capital gains tax doesn’t help as much. Right. The way to decrease inflationary pressures, if you want to hit precisely what you’re talking about is income taxes.

S2: Yeah, income taxes are always going to be a very tough sell in this country, but tough sell everywhere. But we’ve literally had several generations of Americans now who have never really had significant tax increase other than local taxes. Right. In terms of federal taxes, so that it will be very difficult to push through politically. And, you know, Republicans will have a field day.

S3: Felix, are you saying that the pay for, that the Biden administration should be doing more tax increases, more stuff more broadly,

S1: Yeah, I think now is actually a good time to do things in the tax code that you kind of want to do. So, for instance, you have broad desire to equalize capital gains taxes with income taxes then. Now it’s a really smart time to do that and to sell it as part of an infrastructure pay for rather than saying we’re already doing a lot of tax cuts like tax hikes, we should probably hold off a bit on doing too many at once.

S3: Yeah, especially as the stock market is booming. That’s a great time to be like. Give us more of that money in taxes, please. Right now you’re making tons like it’d be harder in a different kind of market climate. So I, I agree with you. More taxes. Let’s do it.

S1: So talking about economic booms, we have what a lot of my peers are calling a housing bubble. I have millennial friends who are off buying houses and they are coming back with terrifying reports of bidding wars and escalation clauses and all of these terrifying things. And they find it very hard to buy a house. I just saw a statistic from Redfin saying that roughly 50 percent of all houses put on the market are sold within one week. We have prices have gone up by almost 18 percent over the past year. We have prices in places like Austin, Texas, are up 40 percent over the past year. We have just a massive shortage of housing in this country. This is the main thing that seems to be driving it. We are at all time lows in terms of housing inventory for sale. It’s never been this low and it’s down more than 50 percent from last year, the amount of housing sales. So, Emily, this is a problem. Would you agree? And if it is a problem, how do we fix it?

S3: It is a problem, the housing boom right now is very uneven in that it’s mostly rich people and high income people who are doing the buying because of the low inventory, like you said, and because requirements for mortgages, you have to have good credit, unlike in the last the last time we had a boom. So that’s bad. And people not being able to buy houses is bad.

S1: How do I mean, wait a sec, I want to push back on you there a bit. I don’t think it’s bad that you need to have good credit to buy a house. Oh, yeah. Yeah. You know, we learned last time, all right, mortgages are really not a good thing. And in principle, I’m in favour of anything which reduces homeownership. I think homeownership is too high in this country. I think it is hurtful in terms of labor mobility. I am very excited, actually, about one of the other things that is driving up prices, which is big corporations like BlackRock just buying up millions of houses and turning them into rental properties because renting in good neighborhoods is something which never used to be very easy or even possible. That used to be that if you wanted to send your kids to a good school, you wanted to live in a certain neighborhood. All of the houses in that neighborhood were owner occupied. And so you basically needed to buy there. And those houses were restricted to the kind of people who can afford to buy. Now we have a situation where rents are rising much less quickly than prices. Rents are going up modestly, maybe four percent. They were basically flat through the pandemic. And so, you know, housing in good neighborhoods, as long as you have the income is now accessible to more people. And I believe in like opening up the universe of rental properties, but Emily’s making faces at me, 

S2: Emily’s face is  turning this stone (laughter).... I

S3: I’m just thinking about Bloomberg BusinessWeek just had a whole series about how the tax code is inequitable and racist, particularly when it comes to owning homes. Like we all know that white homeownership rates are much higher than black homeownership rates. And behind that, for other reasons you probably are aware of, is this very inequitable property tax system where the lowest priced homes have the highest tax rates, for reasons I don’t think I should explain, because I’m already feeling like I’m down a hole. But when you say that investors are buying homes and that lets people rent, I thought immediately of the series because it features this woman, a homeowner who owned her own home in the Detroit area and was so happy and proud of owning this home. And she’s raising a family there. And that is a very important component of homeownership that I don’t think you get with renting and fell behind on her property taxes, which were inflated because of all this inequity in the way everything is structured. And now some, like faceless corporation, bought the house because she was foreclosed on for tax reasons and now she is renting the house instead of owning it. And every month she will drive to the landlord’s office and pay because she’s so worried they won’t give her a lease on the home, even a rental lease. So she’s months, a month, and she is so embarrassed about this, she hasn’t told her own children that she lost the house like her daughter saw online, that the house was sold. And she was like, well, that’s crazy. We still live here like just like, ah. So when you say that more people are renting homes in good neighborhoods instead of owning, I worry that stuff like this is happening, but maybe you have more evidence to show it’s it’s good renting instead of this what I would call technically bad renting.

S1: Well, yeah, as I say, I’m talking about empty homes that are being sold on the open market are being bought up by investors. You know, I’m not talking about foreclosures here. In fact, foreclosures are pretty much at an all time low right now. And one hundred percent, like, you know, stories of foreclosures are nearly always bad. And if they’re caused by property taxes, that can be bad. And I totally agree that particular situation that you’re talking about is a bad one. And all things being equal, especially if your rent is not lower than your mortgage, was that you were better off with the mortgage. You know, all of that I agree with. I just think that. You can bring up a family in a good home in a rental like this is normal in Germany, you know? Why can’t we do that in America? Yinka?

S2: I think it’s a cultural thing. I was thinking I knew you were thinking about Germany, as, you know, that premise where you know and whenever you think about sensible things in an advanced economies, you always look to Germany. But I don’t know. I think it’s such a deep thing in American culture to own homes. And you’re right, and I don’t think everyone should feel the need to own a home. I think that’s I think that’s what where the pressure is. Right. It’s this it’s such a deep thing in culture that even people who perhaps would be just better off renting feel the pressure to buy.

S1: And that, I think, is exactly why the housing boom has this feeling of despair and pessimism to it. In a homeownership economy where you have 63 percent or whatever it is of the homes in America, five percent. Sixty five percent of people are homeowners. You would think that a housing boom would make people happy, right? Sixty five percent of the people are homeowners, you would think. Sixty five percent of people are seeing their houses go up in value. And look, I’m rich. This is great. And, you know, you kind of saw that in 2005, 2006. You’re not seeing that now. But I think you’re absolutely right is that a lot of it is just people who have this emotional need to buy a place and they’re not happy so long as they’re renting and they see the price of buying going up and they see the amount of money they’re going to have to spend on property taxes and mortgage payments, so much higher than the amount of money they are currently spending on rent. And they think that’s normal and they just sort of grit their teeth and say, well, I have to pay whatever I need to pay. And they wind up, you know, massively increasing the housing costs, massively decreasing their disposable income, all for the sake of this kind of American dream of homeownership.

S2: And I think that’s a broken system. But don’t forget, the American owning owning a home is built into the system. It’s built into your your credit score is built into the way you are, not just the way you’re viewed in society, but the actual financial system rewards you or penalizes you, partly based on whether you own a home, you know. So if you’re growing up and you see that that box every on every form you filled you and your home, do you you know, you’re always going to feel you should this is the thing you’re supposed to do to be a complete grown up, to be a complete adult. The United States.

S3: One thing you’re overlooking, I agree. It’s definitely a bedrock kind of principle and very emotional thing to feel like you’re a homeowner. But in the United States, when you talk about home ownership, the key thing to think about and not overlook is education in the U.S. If you want to raise a family and you want to send your kids to a good school, your best bet is to buy a home in a place with really high property taxes because the school system is going to be better then in a place where you’re renting. There’s just no question about that.

S1: Why can’t you rent in a place with really high property taxes?

S3: Because there are owners, like you said before, there just aren’t as many rentals. The inventory isn’t there, like where I am in Westchester. There’s if you want to rent, there’s like a few options, but mostly the inventory is is for buying. And so I think a lot of people, parents would be happy to rent an apartment or a house or whatever, but you ought to send your kids to school and it’s still cheaper to pay the property tax than it is to pay private school tuition.

S1: You have 100 percent come around to what I said initially, which is what we need is more rental inventory in good school districts, basically.

S3: Yeah, I think that’s great. I don’t think that’s happening.

S1: I think that is happening. I think there was a big Wall Street Journal article about how one in five houses these days is being bought by permanent capital and financial investors who are turning around and renting those houses. And they’re doing that in all neighborhoods, not just quote unquote, rental neighborhoods.

S3: OK, if you say so, Felix. But I don’t I don’t see it. I mean, I remember after the housing bust, there were all these stories about private VXI and private equity buying up homes and renting them out. But I don’t think it’s made a huge difference. People still want to buy houses to live in the good school districts and they don’t want to. And I just I can’t imagine it’s such a sizable portion of the inventory. Is is rentals owned by investors?

S2: Is there any Airbnb people with second homes? Every time I go, is there an Airbnb boom with second homes? Is that every time I go on Airbnb, I’m like, oh, how there’s so many homes for it.

S1: So this is part of the housing boom is well, OK. As an English person, I can tell you that one of the peculiarly English parts of the English housing boom is this thing called buy to let where people buy homes in order to rent them out. And instead of large, you know, blakroc permanent camp. All investors buying homes to rent them out, you get individuals buying homes to rent them out and that I am not a fan of at all because it creates distortions in the housing market. And it also, like individuals basically shouldn’t be landlords, in my view. They don’t that we saw during the pandemic that you had a bunch of individual landlords who just literally couldn’t afford to allow their renters rent relief when they lost their job, when in this time last year and because the landlord needed that money maybe to pay the mortgage. And so if you’re that cash constrained, if you don’t have the massive cash flows and the big balance sheets that the big Black Rocks of the world have, then I don’t think you should be a landlord. And I think the idea of people like doing this hustle culture, if I’m going to make I’m going to live on the income from Airbnb and being out my properties and use the Airbnb income to pay the mortgage. Yeah, that kind of gives me out a bit. And I’m not a big fan of that. But I do think that the move towards work from home that has created, number one, a desire for more space in homes. The number two, feeling that you can live in a much wider range of places. And yet people are like, oh, you know, maybe we should get a second home and it won’t cost quite as much as we thought it would because we can Airbnb it out for a lot of years that we’re not living there. And it’s an interesting way that the market has evolved.

S3: One other way to solve the problem, Felix, would be something we’ve I think discussed before, which is change zoning laws. Right, so that in the suburbs you can build multifamily units that you can rent out because there’s just something unintuitive and renting out big houses versus renting out apartment buildings. To me, like it just seems better to have the apartment buildings. And I know there’s all kinds of NIMBY activism right now to get more, you know, to change zoning laws, get more apartment buildings in the suburbs and make

S1: not just the suburbs. Look at Los Angeles. They’ve done an amazing job of changing the zoning law to basically allow everyone with a back garden, which is a lot of L.A., to build little units back there, which they have actually like redesigned units. You can just plump in your back yard and create a new rental property and you can rent out to anyone you like. And that was illegal up until very recently. And now they’re positively encouraging it. And so, yeah, that like just increasing density, changing zoning and more generally just increasing supply. You know, any anything which creates new construction is a good thing. And we’re you know, we think it’s [unintelligible]. This infrastructure bill will help on that front.

S3: And also more if you made education a federal thing instead of a local thing and we somehow magically improved the US education system. So it’s not so dependent on where you live. I think that would magically solve a lot of problems as well. So someone to get on that.

S2: But the most important question, Felix, should I sell my home now?

S1: You should sell it to BlackRock and then lease it back through a sale leaseback, Yinka, and then invest it all in Bitcoin.

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S1: Let’s go international because there’s another boom. I want to talk about, the news hook here is Grab, which is a big e-commerce company based in Singapore but active in a lot of Asian markets, is going public and it’s going public in a SPAC because, of course, everything is SPAC these days at a thirty six billion dollar valuation. And that is massive for a SPAC. Suddenly we are very interested in booming tech in emerging markets. And Yinka, as the Rest of World person here, you get to tell us what the latest is. I know you’ve been looking at this in Africa.

S2: Yeah, I know. We look well, like the name says, the rest of the world, that everything outside of Silicon Valley in Europe. But, yeah, there is a there’s a boom. And I’m kind of cautious about the word boom because I feel like sometimes these things are just their natural growth. They’ve been going on for a while. It’s just that what I think is surprise people is how much investment has been going on regardless of the pandemic, even as these some of these economies have struggles. Right. You see the numbers that they haven’t got the vaccines, the economies are shut down, the informal economies and then unicorns are being created, you know, in the middle of these supposedly terrible situations. And that’s because investors are thinking, obviously, not just about the short term, but definitely the medium and long term that many of these markets need these new digital companies to help build our favorite word at the moment, infrastructure, sort of a systemic infrastructure which introduces financial services to people for the first time. But there are millions and millions of unbanked people who need to move money around the. To pay for things in new ways away from the traditional cash systems, particularly in Africa, where some of the center’s tech help centers like Lagos and Nairobi have become especially hot right now because investors from Silicon Valley, as well as local investors and from China, are coming into these markets to get some of these startups up and running. Most recently, Flutterwave companies started just five years ago, less than five years ago, had $170 billion dollars investment, which valued its over a billion dollars. So one of the first sort of luckily totally locally homegrown unicorns. But it’s not just being far away.

S1: There’s been there’s been many more. And the question which I have is, as a veteran of the big wave of foreign investment in Latin America in the 2000s, is there’s something possibly harmful about this, that what we’re doing. You said this is infrastructure and you said this is foreign investment. This investment from China is investment from Silicon Valley. This is investment from big VC companies around the world, which basically means that the core technological infrastructure of much of Africa and much of the emerging markets is going to be wind up being owned by American VCs effectively and or China. And is that something we should be worried about?

S2: That’s a definitely a conversation that’s happening now. A lot of there is some concern your investors own the IP. And I think in some cases, the one thing I want to call it a pushback is that so much about the technology is it’s more about building the systems. Right. What’s more important, because the technology that’s used today might not be what you use it down the road. It’s really about building systems forward over which people can work and that does anyone really own a system for which people, the relationships, the business relationships that people build over time, they work through this company and work through the technology used today. But more importantly, this is where nothing exists right now, so to speak. Right. Other than cash payments. So it might be flat away today, but down the road, there’ll be other companies as well helping to build on the rails that these companies are building.

S3: But I was wondering, like when these young companies, the fintech companies, as they go public, they’re coming to the U.S. to to IPO and things like that

S1: The Grab IPO is going to be in the United States. And presumptively, I think, you know, the United States has is seen as the market for where very fast growing companies go public. We recently had the Deliveroo IPO in London. And London was like, we get a big tech IPO and we’re really excited about this. And it absolutely follows it. And it was a complete disaster, a disaster. And that and it reminded me of when when Rocket Internet went public in Germany. And that basically killed everyone’s hope of any tech companies ever going public in Germany. This one, I think, is going to kill anyone’s hope of these markets existing in in the UK, which basically leaves the US and maybe China. I don’t think you’re going to see a lot of publicly listed technology companies, you know, on the Nairobi Stock Exchange.

S2: No, because those markets are too shallow. Right. And if you’re an investor comes over from Silicon Valley, come even if you are a Kenyan investor or a Nigerian investor, you know, this is the reason you put your money into it, frankly, is that they might IPO in these much wealthier markets and you’ll get X times your return. The other thing to be clear about with these companies is many of them are actually incorporated in Delaware. Right. Because that’s the only way they can get investments in the first place. So they kind of have the US, they have you know, they have the markets and the customers all in in these African cities or Asian cities, South East Asian cities. But indeed, a lot of the finance is running through through the US.

S1: And so what that means is if they wind up, you know, being successful in making lots of profits and they’re going to wind up paying 20 percent of that. Twenty eight percent of their profits to the United States rather than to their home governments or what feels like their home government.

S2: That could be extremely controversial. Right? I don’t know. That would necessarily be the case because they would probably make the case that most of their profits are actually made in these countries. But we don’t quite know how this rule would work.

S1: No, I mean, like, I was being slightly facetious there, but the fact is that everyone who’s investing in these countries is investing in the hope and expectation that they. Will ultimately dividend back out more money than they put right in. And we definitely saw that in Latin America. You know, there were billions and billions of dollars going into Latin America. And then they started flowing out and people got very upset and it caused a lot of political problems. And you wind up with systems like you have in Mexico, where the three largest banks, in fact, the four largest banks, if you include Wal-Mart, are all foreign owned. And that feels like you just don’t have control over your own infrastructure and your own financial system. And I don’t think anyone in Mexico is particularly happy about that.

S2: One of the things I think is interesting is that a lot of the local money, particularly a country like Nigeria, where there’s lots of oil money, that’s lots of sort of wealthy people, they just kind of sat on the sidelines and watched this happen. Right. And it’s not that very few of the sort of traditional big money people from the country invested in these tech companies. They kind of watch the thought. I don’t know what these young people are doing and have you. And I think as they start to see these companies get these valuations and get these this investment, you’re going to see more local money come into it as they also feel they need to take part. And that’s kind of the hope as against just watching, as you very rightly both point out that when it comes from outside and therefore ultimately you didn’t what you’re describing as, you know, Nigerian or Kenyan companies. So that’s the hope in the long term that you’re going to see a lot more big because there is local money at the sort of level, you know, like sort of low stakes kind of money. But those things for wealthy people, but ultimately not the big sort of, you know, who’s Africa’s richest man, Dangote, come in and put 10 million dollars into something. And that’s kind of what needs to happen next.

S1: Let’s have a numbers round, I want to start off this one with mine, which I’m going to do 120 billion, which is my prediction for the valuation in dollars of Coinbase when it goes public on Wednesday. I don’t make a lot of predictions on this show, but I thought I might stick my neck out a little bit. It’s a very fast growing Bitcoin company. Obviously, that fast growth is going to come to an end if Bitcoin stops going up at the current rate of speed, which it has to do eventually. But there’s just so much excitement and buzz around it. I think we’re going to see a completely, insanely enormous valuation for Coinbase on Wednesday. So we’ll talk about that a little bit next week. But it could easily, if it does come in at 120 billion dollars, it could actually wind up being bigger than Goldman Sachs.

S2: I saw a tweet that Square does more transactions or something in Bitcoin than Coinbase does something like something like four point six billion versus Coinbase is one point one.

S1: It’s amazing how how small a lot of these things are. I put this in my newsletter this week. Stripe just raised money at a ninety five billion dollar valuation. Yes. And they have about 400 billion dollars of transactions per year that they process, which 400 hundred billion is a lot of money. But there was a hilarious little footnote in the JP Morgan annual report that just came out saying, oh, did we mention we do eight trillion dollars of payments per day? Like, wow, it’s just a whole other universe. Yinka, do you have a number?

S2: Yes, my number is five million and it is five million calls a day. And it’s a number that came from a really fun story we had in the world.

S1: I love this story, by the way, and it’s definitely the missed call. So the mythical story they use missed calls as a method of communication. It’s been around for a long time. It’s mostly in India. Right. But it’s slowing down. Fifty five million is what it is now or what it used to be,

S2: not five million is what it was at its peak. And it was basically I think the thing was fascinated by this story, as you say, filters. They built a whole business around this idea that when data is really expensive, Internet data is really expensive in India, or at least expensive to the average person. People had a habit of of making calls just to let you know, you know, hey, I’m about to come to your house and I’ll let it ring twice and then put the phone down. And then, you know, I’m coming around this guys. So that saw this opportunity and they turned it into this business, which did about one hundred million dollars, its peak of just. You dial this number and you’ll ring a couple of times and then it will send you the latest cricket scores or it will send you celebrity messages of all of a sudden, you know, this will generate revenue for them.

S1: It’s an arbitrage because you making a call that doesn’t connect doesn’t cost you anything. And you receiving a text message also doesn’t cost you anything.

S2: Yes, actually,

S3: I really don’t understand what - how this company makes money. Am I what am I missing here? I don’t get it.

S1: Sorry. Because the people sending the cricket scores pay the company money to be able to reach all of these millions of customers that they wouldn’t otherwise be able to reach.

S3: Thank you. OK

S2: The story is called Don’t Pick Up, The Rjse and Fall of a Massive Industry based on missed calls. It's by Atul Bhattarai, at Rest of the World.

S1: Emily, what is your number?

S3: My number is very self-serving. So we have a yard with lots of trees. And this year, friends of our family offered to tap our maple trees and help us get maple syrup.

S1: Oh, nice.

S3: Yeah. And so we did it and we got it looked like a ton of stuff. But then when it comes down to it, I think maybe we got a quart of maple syrup from our own trees. Very cool and so totally unrelated. I was talking to a man in Vermont who owns like a maple farm and manufacturing plant and my number is 50 percent. He told me his maple production is down 50 percent this year because it was a it’s been a weird spring where there was like a cold snap. So it cut the season short. And he warned me that we are on the precipice. This is a quote. We’re on the precipice of the worst maple season in decades. And I was I felt so wonderful that I had made this wonderful.

S1: Made your own maple syrup.

S3: My own syrup. Yeah. So there you go.

S1: My favorite factoid about maple syrup is the grade B is better than grade A. It’s like it’s upside down from like what you would expect. But maple syrup dates back to when refined sugar was extremely expensive and you would use maple syrup instead. And they would grade syrup according to how like tasteless and refined it was. And so great is like the very clear sugar substitute, while grade B is like the beautiful, dark, tasty kind of syrup that we love. But then those grades just stayed. And so if you go into a supermarket and you see, like, great people often just grab the gravy because they think that’s the best. In fact, the lower the grade, the more MAPLEY it is.

S3: But this guy also said that maple syrup sales were crazy in 2020. And his theory was that more men are trying to help out at home during covid and they only know how to make a limited number of items on the menu, which includes waffles, therefore increasing demand for maple syrup, which I don’t know if that’s true. I think more people are just home making breakfast and that increased demand. But I liked his theory a lot.

S2: It’s very Canadian. No.

S1: Did you know that Canada has a strategic maple syrup reserve? Yes, of course it does. I don’t know what that means exactly. But what that means is that if just as we have we have a year of unusually low maple syrup production, then Canada can tap its maple syrup reserve to help make up for that.

S3: That might come in handy now, according to my reporting.

S1: So there you go. Great. We have we might not have solved the housing bubble, but we have solved the maple syrup shortage. Canada, come to the rescue. We need you. Justin Trudeau.

S1: Thank you very much, Yinka for coming on Slate Money this week. Thank you all for listening. Thank you to Jasmine Molly for producing. 

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PLUS:

We have a Slate Plus coming up about childcare and whether it counts as infrastructure. We seem to be in a weird world right now where people are going back and forth on what even is infrastructure. So Emily, are you going to give me I want you to give me will you give me the case for child care being infrastructure?

S3: Yeah, sure. So I don’t think it’s very hard or complicated to understand. And a lot of feminist economists have understood it for decades. But without childcare, you can’t have an economy like as a parent, I think you intuitively understand that you need somewhere to put your kid so that you can do the productive work. So in that respect, it’s infrastructure like you need a bridge, like you need a train, you need childcare to get to work. And then besides that, I think I’ve been talking to a lot of people who have been saying quality childcare, good child care infrastructure raises the productivity of the country, of the economy because quality child care produces more productive citizens, children, better education, especially zero to five, which is under invested. And now in the U.S., if you put the money into it, if you invest in it, you get returns to lots of different areas, like better kids with better jobs who are more productive parents are able to be more productive if they can offset some of their child care labor, you know, if they can outsource it. And then, you know, there’s more innovation, blah, blah, blah. There’s all this productivity.

S1: So I buy that child care is good for the economy. I buy that it helps the economy in multiple ways. Where I have questions is whether it’s infrastructure as opposed to just, you know, investment. The things that I get caught up on is that it’s a very recurring expense. It’s not an electric grid or a road or a highway or a broadband piece of infrastructure that you build and then it’s built and then everyone can use. It is something that doesn’t scale and it’s something that you have to keep on reinventing more or less from scratch every single day. You can’t just say, oh, I’ve managed to create this child care for my child. And so it seems like an ongoing expense rather than a one off investment.

S3: I don’t understand that, though, because if you build a bridge or a highway or an electric grid, you have to pay to maintain it. You can’t you don’t just build it.

S1: But the cost the cost of maintaining is much lower than the cost of construction. And the idea behind infrastructure investment is you’re paying an upfront cost of construction and then the ongoing cost of maintenance is much lower.

S3: I don’t know. I’ve read a lot of definitions of infrastructure in the past few weeks and I feel like, so what? So the cost is more spread out and ongoing. I don’t think that makes it not infrastructure because it is I think the public good piece of it and the productivity increase of it and the fact that it can’t. But if it’s kept private, the economy kind of crumbles, I think is the more important piece of the definition.

S1: And ultimately, the definition is not that important. Right? Well, what’s important is the effect it has. But we’re going to we’re going to go to for this for the casting vote on this one is child care infrastructure

S2: for this way. The number one thing on my mind coming out of this is child care. It’s the most important thing for well, for parents, obviously. What’s in terms of the way that we think about how to get back to not any sort of normal life definitions of I don’t know. I mean, you could a win. I think anything puts it this way. In fact, I’m almost contradicting myself to say otherwise, because I said earlier I talked earlier about systemic infrastructure. Right. I like anything that where the system doesn’t work unless you put something in place is infrastructure. This is the same thing about about broadband or all these other things that we’re now debating. It’s about systems. And if the systems aren’t working, nothing works.

S1: I will take that as a casting vote for Emily. Emily wins, but let it be resolved in this leaflet that childcare is infrastructure, even though I might have qualms about that.