‘The Dirty Secret of Covid’: Scott Galloway on the Postpandemic Economic Turmoil

Twitter has actually lost more money in its history than it’s made. And because of increasing interest rates, the cost of finance — companies that are losing money or not profitable yet — goes up because you have to borrow money at much higher rates. In addition, the profits you were anticipating in the future get discounted back at a much higher rate. In some growth companies, it costs more to finance what ultimately will be cash flows that are worthless. Their equity value here and now gets absolutely hammered.

What do you advise those companies to do?

There’s no magic wand. It’s cut costs. They’re going to have to cut costs and, in some cases, adopt a business model such that they can get to higher prices and dramatically lower costs. And, quite frankly, convince the marketplace that they can get to profitability sooner, because the costs to finance that runway to profitability got much greater. So they need to show the amount of distance, the runway needed to get to profitability, is shorter. They basically have to trade off growth for a shorter path to profitability. That’s what the market is telling them.

In your book, you take a look at how during every economic upturn, there’s this optimism that we’re going to solve inequality. But we always seem to come up short. Why?

We mistake prosperity for progress. And we have created tremendous, staggering, unprecedented prosperity. I think the mistake or the myth that we buy into — that whenever there’s prosperity economically, the G.D.P. grows, that it’s going to translate to progress for a nation.

What do we mean by progress? I think the ballast — and it’s my first chapter in the book — is a healthy and thriving middle class. The geopolitical power of a nation, its well-being, its democratic strength, is usually a function of how prosperous its middle class is.

Now the issue in America — and Europe makes it to a lesser extent — is that America has either believed this myth that the middle class is a natural-occurring object of a free-market economy, and it is not. The middle class is an accident. It is an aberration of economics.

Article source: https://www.nytimes.com/2022/06/18/business/dealbook/scott-galloway-on-post-pandemic-economic-turmoil.html