The Economics of Common Sense

Published on
October 22nd, 2020
Duration
66 minutes


The Economics of Common Sense

The Interview ·
Featuring Joel Greenblatt

Published on: October 22nd, 2020 • Duration: 66 minutes

With a phenomenal investment track record greater than perhaps even Warren Buffett and George Soros, Joel Greenblatt is renowned as one of the world's greatest investors in history. Yet recently, he has turned his gaze beyond markets to focus his attention on fixing problems in society, ranging from banking and retirement to education and even immigration. In this interview with managing editor Ed Harrison, Greenblatt discusses his common sense solutions to society's ills, using the same analytical framework that brought him tremendous success in the investment world. Greenblatt also shares his investment philosophy and current market outlook. Filmed on October 19, 2020.

Comments

Transcript

  • NI
    Nate I.
    25 October 2020 @ 04:47
    Joel needs to count the number of times where he justifies his big ideas by stating that "we're already doing that" and stop to consider the state of our current reality. If all those things we're already doing were so great, we wouldn't be in such a mess. I also liked the part where Joel claims we can afford this or that in the context of $26 trillion in debt, not counting the unfunded liabilities. News flash. The only thing we can afford to do is shrink government and to stop enslaving future generations to an ever increasing debt burden.
  • DP
    Duane P.
    22 October 2020 @ 23:17
    Let me summarize Greenblatt's solutions: Social engineering screwed up our institutions but my form of social engineering will fix them. I say we've had enough masterminds tinkering with our society in the last several decades.
    • PP
      Patrick P.
      24 October 2020 @ 02:50
      Duane ... your comment is a grand slam ...
  • SB
    Stewart B.
    22 October 2020 @ 18:00
    I suspect this interview will divide people. I am a big libertarian free market guy but I really appreciate Joel's approach. A few thoughts - 1) I wish more people would think outside the box as Joel does. 2) While Joel focuses on social issues, he avoids the common pitfall of misaligned incentives. I noted that all of his proposals are driven by aligned sensible incentives. 3) On the working wage supplement, this makes a lot of sense. Free market capitalism works brilliantly but it does lead to extreme inequality. The minimum wage and unemployed welfare simply don't work. I have met people who want a job and would improve by being employed, however no one would hire them at minimum wage. It would be much better for them to be paid less and have the state make up the difference (with an incentive). There is a saving on welfare, an improvement in skills and it works for the employer and economy as we can produce more. 4) I worked for investment banks for 13 years. I can tell you that every step of the way we gamed the regulations. The more complicated they became, the bigger the joke, and the few people truly understood them. And we knew we were too big to fail. Joel is correct that the only way to solve this issue is simpler regulations but allowing the private sector and employees to take the loss. My suggestion was to introduce a new junior tier of debt which senior managers would need to buy into when taking the job. Being junior, this would pay a high coupon, and act as a bonus should. And it would encourage genuine stewardship as senior managers would be well compensated with salary and coupon but would encourage responsibility as senior managers realise they would lose their investment if the bank failed. 5) I grew up in Australia. There approach to superannuation works well. The state incentivises savings for retirement (and can't be released before), which saves the state money when it comes to future pension payments. Sorry central bankers and Paul Krugman, but savings are useful in a society. Having people able to retire without being a drag on the state is a winner. Thank you Joel and Ed.
    • SB
      Stewart B.
      22 October 2020 @ 18:12
      PS. The story of transporting convicts to Australia was very good. Our present style of government is to regulate the hell out of everything, force companies to take on all manner of unnecessary people (eg diversity officers - hiring based on race again? really?) and keep on people who don't really want to do their jobs. Sometimes incentives, such as paying ship owners based on the number of healthy people who arrive, makes so much more sense.
    • EH
      Edward H. | Real Vision
      22 October 2020 @ 19:12
      Super comments Stewart. I think the part about aligning incentives with desired outcomes is the biggest takeaway for me. The Australian example brings that home I would go far as to say you could have less regulation if you design systems to align incentives and desired outcomes. It sounds like Joel is trying to do that. It was certainly food for thought.
    • SM
      Sam M.
      23 October 2020 @ 11:36
      I am a big [*] [insert whatever] I worked at the central bank, prudential regulator and in investment banking for ~18 yrs before quitting to invest my own money. Keynes wrote the GT ~ 100 years ago: " The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment" We are in a situation where many people talk about excess savings; and yet we don't have full employment. Like most Australians I have relatives that were killed in transport and in WW1/WW2 etc. This guy comes on RV talking about paying people to be prisoners to Australia and "incentives" Sorry Raoul and RV but you need to pull your f*cking heads in. This interview was offensive and the feedback and voting shows it to be so.
    • RA
      Robert A.
      23 October 2020 @ 22:52
      Per Charlie Munger....show me the incentives and I’ll show you the outcomes.
  • ar
    andrew r.
    23 October 2020 @ 15:52
    A question for Mr. Greenblatt: if you subsidize workers (from $68B to $1T) without creating proportionately more output, won't you just have more dollars chasing the same (or only marginally higher) goods/services, and thus inflating away any nominal income gains? The real question is how to make workers more productive -- and it doesn't have a money-printing answer, I say.
  • JL
    Jake L.
    22 October 2020 @ 10:32
    I'm really shocked at how much of a socialist Joel is.
    • JF
      Jack F. | Real Vision
      22 October 2020 @ 14:08
      Charter school and Earned-Income-Tax-Credit (which Warren Buffett also supports) are "socialist"? Depends on your definition, I guess...
    • TE
      Thomas E.
      22 October 2020 @ 15:11
      Earned Income Tax credit was promoted by Milton Friedman....FYI. Charter schools and school choice are supported mostly by Republicans.
    • JL
      Jake L.
      22 October 2020 @ 23:45
      Jack F. I would class earned-income-Tax-Credit as socialist (even if Warren Buffett supports it). The plan Joel sets out sounds great, and it would be if Joel was overseeing. But the Government will be..
    • JL
      Jake L.
      23 October 2020 @ 00:06
      Removing the minimum wage would solve this.
    • JF
      John F.
      23 October 2020 @ 12:58
      I don’t agree. Joel looks at the current system and comes to the conclusion it isn’t working and is getting worse outcomes as time goes by. Ie public schools in most major cities. So he backed Success Academy which is the best charter school network in the country. You get in by lottery and is publicly funded and costs less then the public per student in the school districts they reside. He is looking at problems the country has and trying to come up with solutions. He is not a socialist but a realist. And he tries to back up his solutions with numbers to show they are actually cheaper then the current system. That said these would be run by the government and politicians who probably will ruin them. I learned in business school you get what you measure. He comes up with solutions that can be measured. Unlike most things the government comes up with. They promise the world and implement some program and never see if it works out how they said it would.
    • JL
      Jake L.
      23 October 2020 @ 14:46
      John F. You're right. I get really frustrated at any intervention from government, and made now quite a flippant (and embarrassing) remark. I would prefer a completely free market. We're trying create solutions that get around the current system.
  • SS
    Steven S.
    23 October 2020 @ 00:40
    You have my vote if you run for president, Ed, You'd clearly do extremely better at managing the country than our current options.
    • EH
      Edward H. | Real Vision
      23 October 2020 @ 13:57
      You are too kind. Thanks, Steven.
  • JH
    Jesse H.
    22 October 2020 @ 15:22
    With all due respect to Mr. Greenblatt, I find the ideas he is floating around education reform to be misguided and detrimental to American society at large. Education is not about the “marketability” and “credentials” of applicants in a utilitarian economic mindset, and certainly not about having monopolistic companies like the FANGs design credentials (good Lord). Rather, it’s about the deeper formation of young people into thoughtful, competent and kind citizens who are able to enhance society through the pursuit of their varied talents. Furthermore, if we were to adopt his model and generalise it across America, what would be the role for writers, artists, musicians? My fear is that there may be none at all, and we would lose that vibrant American culture we have enjoyed in recent centuries.
    • TE
      Thomas E.
      22 October 2020 @ 15:39
      Have you been at a college campus lately? Do you actually think they are cultivating thoughtful, competent, and kind citizens. Go to a college campus and hold a sign that says "America is Great" or "Capitalism is the democracy of the economy" and see what happens. Education reform is needed in a big way. It's nice to have writers, artist and musicians but for the average American - that isn't going to pay the bills whereas an education in a STEM field will. Also, what do you think a college degree is? It's a credential or a signaling device that employers use.
    • JH
      Jesse H.
      22 October 2020 @ 15:50
      Thomas - I see your point, and as a former engineer, I understand that a college degree is a credential. Of course it is. Where I take issue with you is that doing what Mr. Greenblatt proposes is tantamount to America moving away from Capitalism and towards Socialism, and thus a more Chinese-style system. I’d be very wary of such an educational reform path. Happy to debate here further, but don’t have a lot of time to do so. And yes, musicians, artists and writers are part of what make a society LIVABLE. So, I don’t know that you and I are going to see eye to eye on this. Cheers.
    • JF
      John F.
      23 October 2020 @ 13:02
      I think he was talking about the people who don’t goto college currently. He wants to give them a path to earn a better living then they currently have. In fact a lot of manufacturing companies are doing this in intern high school programs. He was expanding this to other types of jobs.
  • SM
    Sam M.
    23 October 2020 @ 12:44
    Anyone that listens to this entire interview we need to set up a $1 donation fund never been done before RV decided to do what it is doing
  • SM
    Sam M.
    22 October 2020 @ 10:29
    (50:11 to go) The solution for (unemployment) technology moving too fast is education and job training ... so you can move up the job curve ... what an idiot. This guy ... I think ... will be one of the first they come for with the pitch forks.
    • JC
      Jay C.
      22 October 2020 @ 11:23
      Exactly, I am surprised by the number of people who believe that the answer is simply more education and job training. In reality different people have different levels of capability, no amount of education or training can significantly change that.
    • RP
      Raoul P. | Founder
      22 October 2020 @ 13:26
      Hey, no ad hominems. You cant go calling guests idiots. We stand for something at RV and its civilized discussion, not this.
    • TE
      Thomas E.
      22 October 2020 @ 15:16
      False. If you're 40 or 50 and are working in an industry that's being disrupted by technology and you are trying to raise a family (probably teenagers) you don't have time for a lot of schooling. Yes there's a certain portion of the population who aren't going to be software engineers but many people could be re-trained if we would go about training in this country a different way. The average person is intelligent enough and capable enough to be trained for more high tech jobs. Technology after all is a TECHNICAL skill! And thank you Raoul for keeping discussions civil. I'm sure Sam M has been as successful as Joel (sarcasm).
    • MD
      Matt D.
      22 October 2020 @ 23:49
      Not to take away from your points @Thomas E but I would be surprised if Joel would say that his success legitimizes his personal opinions. Ironic you praise Raoul but then be sarcastic?
    • SM
      Sam M.
      23 October 2020 @ 12:02
      Thank you to @Thomas E and @Jay C and @Matt D. Great to be Australian imo. Who would want to be anywhere else.
    • SM
      Sam M.
      23 October 2020 @ 12:09
      @Thomas E. Great comment. When I was ~21 and working at the central bank, my (now wife) girlfriend's father was <50 and was working for Western Mining (purchased by BHP). And he lost his job for ~ 2 years. He delivered pamphlets etc. He re-gained a job at Uranium mines until he retired after that. But I never forgot it.
    • SM
      Sam M.
      23 October 2020 @ 12:37
      Raoul replies are irrelevant. You might hate that others like it. $0 advertising is converting these interests You are signed up to the wrong platform.
  • EH
    Edward H. | Real Vision
    22 October 2020 @ 17:39
    Quick thoughts here from the interviewer's perspective, as I've also read the book. James S wrote: "It seems to me this is a corollary to an apprenticeship model which works much better for many. You learn what you need to support your ability to do a job as opposed to a generalist education model. Some people learn much better if they have job context first." That seems like right to me. What Joel was saying is that the signaling effect that employers in the US use with college excludes a lot of people from jobs who don't have to go to college or don't have the opportunity to go. What he was saying is that we need to develop a way to figure out who has the skills to do the job even if they don't go to college. That's why the part from James about "you learn what you need to support your ability to do a job" resonated with me. It's not about getting a degree. It's about having the skills to do a job. And having a certification process to prove that skill instead of a college degree makes sense.
    • JH
      Jesse H.
      22 October 2020 @ 21:50
      Well said, Ed :-)
    • SM
      Sam M.
      23 October 2020 @ 12:26
      not helpful for me
  • DT
    Daniel T.
    22 October 2020 @ 10:01
    Ed, do you think this long-term compounding narrative is still valid in a world where every bit of future yield is earned upfront by bidding up valuations in a low yield environment and the Fed comes in every time to save the day? I feel that talking younger generations into saving without thinking about prices being paid / valuations is a setup for disappointment. I know Raoul would say ‘Bitcoin’, which is fair enough, but I think compounding at relatively high rate in the next decades will require a different attitude than just passive investing. It would be great to also hear Joel’s perspective on this.
    • EH
      Edward H. | Real Vision
      22 October 2020 @ 13:55
      The compounding doesn't resonate except in a world of long-term passive investment where people have a long time horizon. If the 19 yr-old gets 10% a year, just as the 26 year-old over a lifetime of passive investing, then what he says about starting early makes a lot of sense.
    • SM
      Sam M.
      23 October 2020 @ 12:17
      Raoul was previously saying if you could earn ~ 7% p.a. as hedge fund you'd kill it. If you don't think that is accurate I can go back and check further. Then it was own a real business doing that (assume not killed by CV19). So I look forward to the 10% p.a. passive portfolio coming soon.
  • TM
    Tim M.
    23 October 2020 @ 09:04
    Interesting conversation and some interesting ideas. As a participant in the European bond markets, I would like to make one comment about the CoCo bonds. Pre-crisis the Tier 1 bonds were only loss-absorbing in insolvency and clearly were ineffective. The post-crisis form (Additional Tier 1) has "going-concern loss-absorption". When Banco Popular was bought by Banco Santander for 1 Euro their Tier 2 and AT1 were written down to zero. So, based on one example, it served its purpose.
    • TM
      Tim M.
      23 October 2020 @ 09:09
      And I 100% agree with your observation about aligning incentives. If business/government/society got that right the rest would take care of itself.
  • MD
    Matt D.
    23 October 2020 @ 00:46
    Great interview Ed and Mr Greenblatt. Thought provoking, and interesting. I would definitely prefer an idea like the living wage rather than outright MMT!
  • SS
    Steven S.
    23 October 2020 @ 00:40
    You have my vote if you run for president, Ed, You'd clearly do extremely better at managing the country than our current options.
  • JT
    John T.
    22 October 2020 @ 20:53
    I'm always glad to hear someone really thinking about these issues. I may have different ideas on some details, but our political leaders typically just ignore social concerns. If they just advetised and targeted metrics besides the headline numbers CPI-U, GDP, and U-3 unemployment it would help a lot.
  • SS
    Stephen S.
    22 October 2020 @ 15:05
    What’s the point of sending people to College if you then just bring in “skilled immigrants” to do the same jobs?
    • TE
      Thomas E.
      22 October 2020 @ 15:34
      Bro....did you not listen to the interview? About the net value of $500k to $1 million value. Yes, there are many companies that abuse HB-1 visas. I use to work for one. That's why I agree with Joel about having a 20% tax. The facts is most Americans are going to college for Art, Language, Education, Sociology, Psychology, and Business degrees. Ever been inside an Engineering college, Math or Science college? Mostly foreign born individuals.....hardly any Americans. That's why we need skilled immigrants but there needs to be something in place (like the tax) to make sure it's not being abused.
    • SS
      Stephen S.
      22 October 2020 @ 15:58
      I have seen what you are talking about at Engineering Schools but the idea we were able to produce Engineers and Scientists a generation or two ago, but now we can’t doesn’t seem to add up. Remember a foreign student at an American State University pays 3x the tuition of an in state student. The Universities, many state funded, have an incentive to take these students.
    • mw
      michael w.
      22 October 2020 @ 16:36
      That's because the money one earns going into Science and Engineering is not worth the work required. It's far easier to go into business or something similar and make just as much or more. This also leads to the smartest people going into sectors like finance instead of the sciences where they are needed.
    • SS
      Stephen S.
      22 October 2020 @ 16:56
      Yeah, Engineer was a pretty solid job at one point but I’m not even convinced it is worth pursuing at present. That may change if we really do start onshoring more industry, but the policies of the last several decades have tilted the balance of power so much to Management and Capital it really hasn’t been a great profession.
    • TE
      Thomas E.
      22 October 2020 @ 17:36
      @ Michael W - I see your point about going to business school and earning as much if not more than an Engineer. Depending on the Engineering degree you can start out between $60k to $100k or more. I know guys who have graduated with a Master's in Electrical Engineering starting at $200k in the Mid-West. I don't think the issue is compensation. Most Americans don't want to put in the WORK to obtain these degrees. Most would rather get a Sociology or a Psychology degree because it's easier. Then when they graduate they think they DESERVE a good paying job because they have a college degree. That's not how it works. You earn money based on what people are willing to pay for your skill set. STEM majors are some of the highest paying majors but the work required to obtain the degree is more demanding.
    • SS
      Stephen S.
      22 October 2020 @ 18:23
      His numbers on this strike me as mostly bunk. Of course the Business round table / Bill Gates would say that, it directly benefits them. Just stop and think how is it even remotely possible we as a country make 500k to a million dollars A YEAR off of one person who may be making say 70-150k (typically H1-B type worker). Second how does this same person create another 2 jobs with that disposable income? I guess the logic is Steve Jobs is as a child of immigrants so we can then extrapolate the economic output of Apple and count that in numbers such as these? That doesn’t really seem to follow.
    • mw
      michael w.
      22 October 2020 @ 18:28
      @Thomas E. The starting salaries may look good, but most engineers(excluding tech) top out in the mid- $100k range. I have a masters and make about $80k.
  • EP
    Erewhon888 P.
    22 October 2020 @ 17:59
    Did I miss the Bitcoin/crypto value question? If there wasn't one, can anyone give a pointer to where he has stated an opinion?
  • AP
    Ash P.
    22 October 2020 @ 17:23
    A great interview and the perfect retort anyone that suggest that free markets and capitalism are at odds with social democracy. The only thing holding these ideas back are vested interests and embedded institutional identities. Unleash the free market, replace regulation with incentives driven by long-term outcomes and wonder and the change that manifest. Common sense indeed.
    • AP
      Ash P.
      22 October 2020 @ 17:36
      Excuse the typos.
  • FC
    Frank C.
    22 October 2020 @ 16:49
    Wow! Joel Greenblatt on RV! It was worth 4 years of waiting.
  • SR
    Steve R.
    22 October 2020 @ 15:59
    I am extremely conservative and I enjoy differing opinions on handling the issues we face. Notice I said "handling" and not "solving." Conservatives believe there are no solutions, only "trade offs." That being said, I found this interview to be outstanding. Ed does a great job as usual and Mr. Greenblatt's opinions are very well thought out and should be taken seriously by people of all political persuasions. In a time of political acrimony, it is good to hear new ideas and be willing to test them in the "real world."
  • TA
    Timothy A.
    22 October 2020 @ 15:41
    Market this as a way to create access to high paying jobs. Real purpose, create an employers rather than an employees market by flooding the market with job applicants. This has the result of reducing the bargaining power of applicants. Being a M.D. has been good because there are barriers of entry and bottlenecks in the production of doctors. That why hospitals are trying to change the language from visiting your doctor to health care provider so they can supplement services with other professions that don't have the bottlenecks.
  • TA
    Timothy A.
    22 October 2020 @ 15:41
    Market this as a way to create access to high paying jobs. Real purpose, create an employers rather than an employees market by flooding the market with job applicants. This has the result of reducing the bargaining power of applicants. Being a M.D. has been good because there are barriers of entry and bottlenecks in the production of doctors. That why hospitals are trying to change the language from visiting your doctor to health care provider so they can supplement services with other professions that don't have the bottlenecks.
  • SS
    Stephen S.
    22 October 2020 @ 14:24
    More college? We’ve been doing this for 40 years, now we have a generation deeply in debt, that’s frankly been more indoctrinated than educated. That’s the fault of the Universities but also the idea that people who are perhaps not that intellectually gifted need to be sent to college. This is out of date thinking, we need to move away from this.
    • TE
      Thomas E.
      22 October 2020 @ 14:53
      Stephen S. you are correct. Universities are all about teaching you WHAT to think not teaching you HOW to think. Something like 80% of all college professors identify as Liberals or Democrats. Not much "diversity" of thought or opinion there. I'm a big advocate of Technical Colleges and apprenticeships. Also, not everyone is suited for college and society needs to get that through its head. That doesn't mean those people can't be successful - they just need a different way to learn. I really think we are less than 10 years away from having the education model disrupted and Universities can either adapt or die. People will want to learn how to do something not how to be a SJW.
  • JS
    James S.
    22 October 2020 @ 14:28
    It seems to me this is a corollary to an apprenticeship model which works much better for many. You learn what you need to support your ability to do a job as opposed to a generalist education model. Some people learn much better if they have job context first.
  • TC
    Thomas C.
    22 October 2020 @ 14:27
    I have to be honest that I was really disappointed with this. Ed did a great job (like he always does), but the interview reeks of the fact that Joel only agreed to the interview if his new book was the center of the interview. There isn't anything wrong with it, but it was so US focused that it really was a let down that only 10 minutes was focused on the things that he really is famous for (ie. value investing beating titans like Buffett). The interview could have contained so much more interesting things - how does Joel look at a business, how does he treat the balance sheet and earnings and how is he trying to estimate cashflow going forward and what level of safety margins does he apply. Little book that still beats the markets is to this day still one of the best investment books out there for any new investor to pick up and it really is a shame that the interview only contained 10 minutes regarding Joel principles of investing.
  • PT
    Philip T.
    22 October 2020 @ 14:20
    I agree with Daniel. It's a tough sell to younger investors that compounding at 1% or so for the next 5-7 years is an enticing proposition. Many respected studies show that's the likely outcome when entering the market at the current high valuations.
  • sh
    steve h.
    22 October 2020 @ 13:10
    Joe Greenblatt for president....Why cant we get people like him in politics GREAT INTERVIEW..
    • JF
      Jack F. | Real Vision
      22 October 2020 @ 14:09
      Thank you, Steve. I'm glad you enjoyed the interview