Mike Green: America's "Valley Of Death" – Why $100K Families Can't Survive
Summary
Poverty Line Reality: The guest details how outdated measures understate true household needs, highlighting benefit cliffs that make $100k–$140k households feel poorer than expected.
Household Cost Drivers: Child care is emphasized as a primary budget burden for dual-income young families, often consuming 20–40% of income and discouraging higher fertility.
Tax Structure: He argues the U.S. tax code has become less progressive, shifting burdens onto working households via capped FICA while high earners pay a smaller share than widely believed.
Passive Investing: The guest explains how passive flows create endogenous momentum, mechanically directing contributions into large caps and adding substantial annual uplift to indices.
US Equities: He contends much of the S&P 500’s gains are flow-driven rather than fundamental, warning this market structure could culminate in a crash akin to 1929.
AI: He is optimistic on LLMs as democratizing tools akin to the printing press, enabling broader knowledge diffusion and enhancing human capital and productivity.
Risks and Triggers: Potential catalysts for a downturn include slowing contributions, allocation shifts away from public equities, rate cuts reducing retiree income, or simply an overextended bubble.
Tickers Mentioned: No specific stocks were pitched by the guest; companies like Apple were cited only as examples of flow effects, not as recommendations.
Transcript
a component of the American experience, what I call the the valley of death or other people call the u period in which you face benefit cliffs where the support that comes for those who are designated poor is withdrawn whether that is food support or housing support or child care support. Those are withdrawn from households before they're able to fully replace them on a cash earnings basis. And as a result, in many ways, you are worse off making $100,000 than you were making $40,000. >> Hey everyone, welcome back to another special in-person episode of the Julia Lar Ro Show where we are joined today by Michael Green. He is the chief strategist and portfolio manager at Simplify Asset Management and also author of the Yes, I Give a Fig Substack. Mike, it's so nice to meet you in person for the first time. >> Yeah, we've done this a couple of times virtually. This is the first time we sat down in person. >> I prefer in person. Isn't it so much more fun? >> It is a lot easier. >> Um, it's great to see you and I think Okay, we we just recently booked this and you went super viral with your Substack, which I know is not your that's not your full-time job. You've been blogging for a while, though. Um, a three-part series now on the poverty line in America that has drummed up quite the reaction. It's gone, I don't know, mega viral. Yeah. I just want to go inside the piece and what was more of the genesis for you for wanting to explore this idea and really where the poverty line actually sits today. >> Well, so the piece as you mentioned it came on my Substack. My Substack has been in existence for several years now. That subsec itself was actually a continuation of work that I've been doing for roughly 20 years where every week I sit down and explore either what's been happening in markets or um things that are you know bouncing around inside my head. It's basically my own place of taking notes and writing things out in a manner that helps me to express them more clearly and organize how I'm thinking about things. um about somewhere around September um I started pulling on some threads in this area. What I was recognizing is is that elements of the American dream and the experience that I certainly grew up with and the ability to make my life significantly better than my parents had experienced and the sacrifices they made to facilitate that I gave to my children and hopefully they're in a position to do better as well. it became clear to me that there was something going on that was actually causing this to not transfer. And the immediate catalyst was about 6 weeks ago, 5 weeks ago, um there was a right-wing influencer who posted a simple tweet that said, "In the 1950s, a single income earner could afford this house and take care of his family, etc." And there was this incredibly what I can only describe as coordinated mocking campaign that emerged on Twitter. I know you're active on Twitter as well and it was, you know, all forms of parody just to devalue that claim. And so I dug into this in a post called are you an American? And as I did that, I began to realize that this was an area that I candidly hadn't fully explored that I didn't understand all the components that were going through. >> Why was it so hard for a single income earner to afford a house? I understand home prices have risen a lot, but what are the dynamics behind actually the experience of procarity that we're increasingly seeing particularly from young people who are trying to make that transition into adulthood, parenthood, owning a home, etc. Um, and that was the genesis of it. I wasn't trying to go viral. I was really genuinely trying to explore something on my own and sharing it with people who read my Substack. And it obviously touched on a nerve because the you know what I found was that the way that we define poverty in the United States was set back in the 1960s. It was originally designed to identify families that were in crisis >> that couldn't actually afford enough and therefore were suffering from true true deprivation. The way that that was constructed was representative of the budget at that time. Unfortunately, as and this has actually been pointed out since I stumbled across that piece. As early as 1966, the government began to recognize that this was not keeping pace and it was not appropriate. But the political environment ultimately led to this being locked in place. And so basically the food budget from the 1960s inflated by CPI is what we have as the poverty line today. Today that would be about three uh $31,200 for a family of four, two income earners and two children. And in my piece basically explored how adequate is that 31,000 level and what does it actually imply? What do people really in this segment of the population that young family that is trying to make ends meet? What is their real budget look like? And when I went through and I built it up extending initially off of the work that I done in the piece are you an American which was focused in Caldwell New Jersey where somebody had articulated well you can afford that life in Caldwell New Jersey and it was totally untrue. Um you know I I basically built it up and discovered that it's about $140,000 is what it roughly takes for a family to get to the point that they are saving money in that region of the country. In the subsequent pieces, I explored it for areas like Lynchburg, Virginia, nearby where you grew up. Um, and discovered that that level is close to 100,000, still triple the official poverty line. And it really captured >> a component of the American experience, what I call the the valley of death or other people call the um period in which you face benefit cliffs where the support that comes for those who are designated poor is withdrawn. Whether that is food support or housing support or child care support, those are withdrawn from households before they're able to fully replace them on a cash earnings basis. And as a result, in many ways, you are worse off making $100,000 than you were making $40,000. And and the minute you recognize this, the minute you realize that this is actually the experience that's going on, and it starts to explain many other features in our society, in particular, a lot of the resentment and anger towards those who are receiving benefits because it's not that people don't want to see people succeed. They don't want to see them become successful. It's that they're incredibly frustrated that they're working really, really hard to get those things that are provided to people who are working less hard. >> They are the working poor. >> They're the working poor. >> Yeah. 100,000 or I guess depending where you live 140,000. And what was interesting when you did that take us into the math as well, but you're not talking about Netflix subscriptions and luxuries and vacations and things like that. You're talking about the bare bas the basics. >> Yeah, I'm talking about things like child care, right? Which >> we don't often think about that, right? Many young people have not yet had children and so they look at it and they're like, well, how expensive could child care actually be? And many older people are coming from a generation in which child care really didn't exist because wives stayed home or there were members of an extended family available. Um the childare is really the shocking one, right? If you're going to have that young family where you have a husband and wife both working, you have to engage child care. Child care is a heavily regulated industry. It's extremely labor intensive. If you're bringing in employees who often are working for near minimum wages, but simultaneously have to be certified and approved to work in regulated facilities, you need to maintain insurance, etc. And so the costs of child care are remarkably high. That was the single largest component of the budget for most young families. And the government will actually back this up. It's not just my analysis. The survey of consumer finances looking at this type of family, it's about 20 to 40% of their income is spent on child care, which is just astonishing when you think about it. >> Which also probably explains why people aren't having kids. >> It really does help to explain that because in an environment in which this information is available and in my generation, right, we used to get reports all the time, well, to raise a child costs $700,000 over the course of that child's life. This is just articulating that and highlighting it that it's really hitting at that very front-loaded component in which many young couples are looking at it and saying we can't afford to have a second kid. We can't afford to get married and have children at all. Right? Like why bother pursuing this path when I could live a much less costly existence. It actually ironically echoes a lot of the work that I did when I explored this around China in the period of 2011. And if you remember, you know, most of your audience won't remember this, but at the time the argument was that the US wasn't spending enough to educate our children. We weren't serious. We were competing against China where 40% of household spending was spent on educating their children. My reaction to that is, well, wait a second. Like that already that answers the question about Chinese fertility. If you're going to spend 40% of your household income educating your children, how many children can you have? >> Mhm. >> Right? You really can't have more than one. And if you have one child, you're spending 40% of your income. If you have no children, you're going to have much more disposable income. And your individual quality of life could actually end up being dramatically better. And that by and large has played out in Chinese demographics since that time period. I'm very frightened to see the same thing developing in our country. >> Yeah, that is so it is really concerning. And I can say that, you know, as a millennial, too. Okay. Um, one of the things I kind of personally observe, um, growing up, so I was born in 1988. I'm 37. I would have thought like, wow, $100,000 is like a lot of money. It's a great salary. It's really not like like you said, like to cover the basics. It's It's not. I don't know. Maybe my perceptions tell you off. And I also don't even know. I don't even know if like millions a lot like it used to be like when I was a lot younger. >> Well, I mean, look, this is one of the ironies to it. First of all, as an individual to make $100,000 still puts you in pretty rarified territory. And this is one of the really critical things to understand is if you have a single individual making $100,000, their experience is going to be very different because their wife or husband can stay home, right? They don't have to worry about that childare. And so there's tremendous savings associated with the single earner configuration in that framework. But the minute you have to go to two incomes in order to afford a home. And as we were talking about before, in places like Lynchford, Virginia, which is the most statistically average uh metropolitan center in the United States, homes are unaffordable for people unless you have two incomes by and large. Um the minute you you make those changes, you start incurring things like child care costs, etc. that just raise the level back up again. And so, like, if you have two individuals who are making $100,000 each in Lynchburg, Virginia, you're great. and you're going to look at the analysis, you're going to say, "I don't fully understand it until, and this is where the next part really starts to get interesting." Once you start thinking about adding on components to what we've just discussed, like saving for college, which we didn't even include in the budget, >> right? Then you suddenly discover, wait a second, the next step in this process, making my kid a really viable member of society as is developing, introduces an entirely new set of stresses. This episode is brought to you by VANX rare earth and strategic metals ETF, ticker symbol REMX. Rare earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind turbines. Van recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. 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That's the experience that people are going through where they're working really hard and they're really trying and they're trying to make the good choices and they're trying to economize wherever they possibly can. They're not living the luxurious life where they're taking off for two week vacations to various tropical resorts, etc. They're genuinely just trying to hold on. And this is part of the stress that people that have young families experience over and over and over again. They're really just saying like, I can barely make I can't put anything away. I can't save any money. I can't do any of the things that are necessary to even begin contemplating escaping from this feeling. That's what that line really represents. >> How I guess how do you think we got here? Well, I think we got here in a very straightforward manner, right? We chose to use our tax code as a form of spending to dramatically reduce the burden on the highincome members of our society while we increase the burdens on the working poor. >> Like is that's just the math. It's really straightforward. If we compare our taxation system in 1950 or 1955 to today, it's far less progressive today. And this is when one of the frustrating things for me going through this process is to realize the extent of the disinformation campaigns that have largely shielded this from the American public. It's one of the things I try to make clear in part three. Like when we talk about spending at the federal government level, there's really not very much spending that's actually going on at the government level. There is a lot of transfers that are going on at the government level. Money that is distributed to the states and money that is distributed to Medicare and Social Security, etc. It's very hard to have significant fraud at the origin in those programs without it being discovered. This is why Doge was such a disaster, right? Really nothing to identify there. They were, you know, brought down to parlor tricks of we've got 300-year-old social security recipients, which is obviously just data errors. Um, where the spending occurs is in the tax code. And in the tax code, very simple changes can lead to radical changes in collections and distributions that effectively empower one group or special interest group over others. And so that's really where the focus has been. It's been on reducing the taxes to those who make an unbelievable amount of money while basically gaslighting people that they're continuing to bear more than their fair share. >> Okay. Talk to me about the gaslighting bit, the disinformation bit. >> Sure. So, I'm sure you've read the statistic that the top 1% pays 50% of the taxes, right? And their threat is, "Well, we're going to leave if you try to take more from us." >> Right. >> Right. It actually turns out that that's very predicated on a very literal interpretation of income taxes. So, when you receive your paycheck, the largest income tax withholding that you're experiencing is actually your FICA taxes, the federal income uh I don't even know what it stands for. Actually, I should, but it's basically your social security and Medicare taxes, which are again those transfer payments where payments are being made from the young effectively to the old through a security system in which they receive health care and retirement benefits which they've earned over the course of their lives. I want to be very very clear on that. I don't think it's a false transfer, but that's not technically income taxes. And so when it's presented as the top 1% pays 50% of the taxes, they're conveniently excluding roughly a third of the taxes that are being collected in that. And the FICA taxes are capped at $167,000. And so they pay an infiniteesmal portion of that, but the vast majority of that is being borne by people who are making totally normal incomes, not at the high end, etc. It actually turns out that the 1%'s contribution to taxes is closer to 19%, not 50%. And that is dramatically lower than it used to be because at the end of the day, remember, taxes can only be paid out of surplus, right? It's like trying to squeeze a stone for blood. You can't get it from somebody who just doesn't have enough. >> And so, unfortunately, taxes will always be paid by those who have more. and we've dramatically lowered their tax burden over the last 70 years while increasing the tax burden through things like FICA on the working individuals. >> H okay then what do you think is the solution then? Well, the solution is is writing that ship. And I'm I'm advocating against my own interests here, right? Like I I am almost the poster child for the person who will be most adversely affected by all of the steps and and um repair that I suggest, right? Removing financialization. I'm a I manage financial assets, right? I mean, I benefit from the creation of public securities like debt instruments, etc. I run a high yield fund. the firms that I invest in ultimately are ones that benefit from the tax depreciation of interest expense. Um raising taxes and removing the cap on FICO will directly hit my income. Um but those are the choices that we have to make. We have to accept the fact that we've done a relatively bad job of guiding our economy through a number of challenges from COVID to the global financial crisis etc. And in every step in the process, we've by and large tried to avoid the responsibility of fixing those problems, assuming that we can fix them through quote unquote growth, even as that growth is increasingly constrained by individuals who are struggling to participate. >> Okay. I mean, no, no one likes taxes. I don't I don't like taxes. Oh, wow. Taxes are great. >> But um >> yeah, no one likes it. Um >> it's better than death. That's your other other known certainty. That's true. Um I guess like if we could write the ship as you put it >> what could be the implications like what do you see as the implications here? >> Well this is so this is part of the core right is that at the end of the day much of the economics that we use and we think about when we do things like you know analyzing the economy talking about GDP etc. These were economic innovations that were created in the 1930s primarily in response to the great depression. the capabilities that we had for really analyzing beyond the aggregates, right? A rolled up GDP type number. We just didn't have the computing capacity to do that. Anyone who has taken economics or studied economics even briefly understands concepts like the production possibilities frontier, right? What are we capable of producing? It's a combination of labor and capital investment alongside the technology to use those two things that create that production possibilities frontier. That's an aggregate concept. But the reality is is that that aggregate production possibilities frontier is composed of give or take given 150 million working Americans, 150 million different poss production possibility frontiers for each individual that represents do they have adequate capital to allow them to produce at the maximum level given their um labor and have they been provided with the resources in the development of that human capital, things like education, nutrition, access to jobs, etc. that allows them to fully flourish. Right? When we talk about the system that we've set up right now, what we've done is we've constrained the production possibilities frontier for many individuals so that we're getting far less out of them than they are capable of producing. And that's constraining the aggregate production function. That's really the barrier that's being created. Inequality lowers your production possibilities frontier. It's one of the few things that we know actually carries across both absolute measures of poverty and relative levels of poverty. When a society is unequal, it has it is not capable of meeting that full production possibilities frontier. Just imagine a scenario in which all the capital is stored in the basement of one oligarch. It does nothing for everybody else, right? It constrains the ability of that system to produce at its ultimate maximum. And so we've unfortunately run ourselves into a scenario largely governed by the precepts of Milton Friedman and others that somehow or another giving more money to rich people is going to allow us to trickle down to everybody else. We've basically starved or or you know withheld water from the plants that make up the rest of us and that has constrained the overall growth of our society. Hey there. I just want to take a quick moment to thank you for watching this video and I would really love for you to subscribe to this channel if you like this content. Over 70% of our viewers are not yet subscribed and we are on a mission to hit 100,000 subscribers. So, if you could just take a quick moment, hit subscribe. Thank you so much for your support. We appreciate you. And back to the video. the reaction to the piece. >> It had a lot of amazing, really smart people, people that have been on this show who were just praising the piece and then you had quite a visceral reaction among economists. Why do you think the reaction was so strong and did it surprise you at all? >> It disappointed me, but it didn't surprise me. Um, the piece going viral surprised me, right? So, I was somewhat unprepared for that. uh the reaction from the two camps that that attacked it came from a very understandable place and you always need to kind of incorporate elements of game theory in this dynamic. Right? On the left, people are understandably concerned that by focusing on those above the poverty line that we're going to withdraw support and focus on those below the poverty line. And I think that's a very legitimate concern. Um some of the responses that I've received have said things like, well, we should just get rid of all benefits, right? All right. And it's like, well, that's obviously not a realistic working proposal. Other people on the right basically attacked and said, well, why don't we just make it a million dollars, right? And then everybody gets benefits. And that's also not a realistic attempt at it. That's much more of the mocking machine that I highlighted in that piece, are you an American? >> And it's basically people trying to end the conversation by extending it to an absurd conclusion. Um, the right doesn't want to have this conversation because they don't want to introduce the pro the the loss of progressivity on the tax code and the unequal burdens that have been created. And candidly, that disinformation campaign that I highlighted has been extraordinarily successful. Right? People genuinely believe that if we raise taxes on wealthier individuals that they're going to leave and we're going to be abandoned without their unique skills and talents. Um, one as somebody who is, you know, somewhat in that class, like I'll just tell you there's nothing really that unique about it. Like they're very smart people and they're they've made wonderful contributions but the simple reality is is that they are experts within a particular area and the people that have really created that wealth often times fantasize that they have unique insights in other areas but they really have rarely been particularly successful. Right? Warren Buffett has the famous expression right when a brilliant management team meets an industry with a reputation for dismal results the industry's reputation survives. Um it's the same underlying phenomenon, right? You know that somebody becomes rich in one area doesn't necessarily mean that they are uniquely qualified to take that next $100,000 or million dollars and turn it into tremendous wealth for the rest of us and themselves in the process. Um and so you know that's unfortunately part of the dialogue, right? You have both camps that are incentivized to attack. I think where I was really disappointed was the lack of quality of the attack, right? They largely tried to focus on like the very particular components. Health, you know, child care at 32,000 versus the number is actually 25,000. It's like who cares? >> Yeah. Like you're in the ballpark or they're like you used an LLM or Yeah. Oh, you didn't cite this properly. Whatever. >> Yeah. No, it was absurd. I mean, you know, had I decided to go as as one of them, you know, said he'd receive a D in my masters in economics. >> I'm not writing a PhD here. >> First of all, you're a terrible professor. Second of all, I wouldn't have I'd never be in a PhD program with you. And third, like if that's really what you took away from this article, you really need to work on your reading comprehension far more than your statistics. >> Yeah. Um, but one of the areas was that was interesting, the Washington Post did write it up. Yep. You were able to use, I think, AI to like summarize the thousand. >> Actually, the Washington Post does that. So, >> the Washington Post did that. He gave you the sentiment summary which was interesting because the people who were reading it, the people who are in that valley of death as he put it >> people who are probably bringing in that 140 or maybe not even they're like you're revealing what we're all feeling and intuiting. >> Yeah. And that's you know that's part of what's so fantastic about it. Again that was criticized in my second piece by the same people who were criticizing the first is like oh well because popular sentiment says he's right he thinks he's right. Right. And the reality is again they're intentionally missing the point, right? Which is first there's an element of reading comprehension which obviously the general public was capable of because they got exactly the point of the piece which is it's really that description of the 40,000 to 100,000 in that valley of death that so many people are captured in what other people call the benefit cliffs. That's the experience that they went through. And candidly, look, I got hate from the left and I got hate from the right. And that was very visible because these are large Twitter personalities and it was fmented by think tank institutions like the American Enterprise Institute, which ostensibly stands for individual freedom and libertarian principles, >> even as they're not really living up to those standards. Um, but the people in the middle, >> right, I got 10,000 emails. >> Wow. >> From people saying thank you. And I saw the unbelievable number of comments that came in through my Substack and came in through the Washington Post and the free press in which people were legitimately saying basically the reason why I think Donald Trump was elected in 2016 is people are saying I feel heard >> instead of treated as a deplorable or treated as somebody who's racist because I don't want this, you know, I I'm frustrated at the what I'm seeing people who are working less hard than I am, who are making more, you know, poorer choices than I am. I'm frustrated that they're living at the same standard or experiencing the same outcomes in life that I'm experiencing when I'm working so much harder. People saw it and they're like, I this is the first time anyone's ever been able to articulate what I'm actually living through. >> Mhm. >> And that was incredible. I got letters from people saying, you know, I printed this out, made 10 copies of it, shared it with every member of my family at Thanksgiving. We had an honest conversation in the manner that we haven't had in years. >> Like, man, you want to empower somebody. Like what an incredible gift that was. >> Yeah. Do you think um part of it too is like you were kind of revealing you're revealing what the masses have been feeling that the academics or whatever have just been missing? >> Well, you know um I'm going to blank on uh his name here. Um there is the expression uh you know a man's it's difficult to convince a man of something when his paycheck depends on believing the opposite. Right. >> Interesting. Yeah. many of these economists are actually paid for their positions and paid in large way to support you know there's the internet meme we're not the baddies are we the baddies right you know and the reality is is going through this process like I realized that in part I'm the baddies right um >> you know I am part of a group that is formerly trained in economics that has treated things like the increase in the price level that we've experienced and the inflation to use the economic term is technically the year-over-year year change in the general price level that has retreated. The inflation was temporary. The price level increase was real, right? And so many of us who sat there saying, "Well, the inflation has retreated." People are saying, "What are you talking about? I still can't afford to live." >> And that really is now making its way through and what people are labeling the affordability crisis because that's really the experience that we're having. So if you know if your expenses are 100,000 and your income is 90,000 and prices rise by 2% and your income rises by 2% in an economic sense you're totally fine. >> Mhm. >> Right. But just do the math on that. Your $90,000 income went up by 2%. That means you now make $91,800 and your expenses which were at 100 are now at 102. Yep. >> So if you look at the difference between the two, you actually have less. >> Yep. >> Right. And that's the experience that people are actually going through. That's why the price level matters to these people because they can't afford what they need in life. And we were all sitting there saying, "Well, I don't know what you're talking about. Inflation has retreated." And I realize how dense and obtuse that makes me sound. And that would be a very accurate description, by the way. I want to be very clear on that. >> But once you recognize this, as other people have said about things like you can't unsee it. >> Yeah. Yeah. You're right. You can't unsee it. I think also like they're not the ones who are trying to buy their first home right now or start a family, do all of these things that I think you probably hit on it. The younger generation is I bet most of those emails came from the younger generation, didn't they? >> A lot of them came from those in their early 30s in particular. Those who are not young anymore. >> Well, I mean, anything that's complaining and whining is going to come from millennials primarily, right? It's true. >> But no, and that is unfortunately really true, right? I mean you guys are at that point where you are suddenly discovering these things and you lack the um communication tools to explain to your parents and your grandparents why this is so different. Right? Most people in my generation didn't experience child care in the same way that your generation is experiencing it. I was very fortunate my wife could stay home. She could devote our resources to our children. Never really experienced child care in that frame. We we had nannies cuz we could afford them, but ultimately they were very secondary to the process. And to your point, like I once did the calculation about what is required for me to make on January 1st to break even in New York City. And I promise you it's a lot higher than $140,000. >> Oh yeah, I lived in New York. I could tell. Yeah, it's definitely more. >> Yeah. Try three kids in private school. >> I felt bad earlier saying my comment like like a million is not what I thought. Well, I'm not I don't make a million dollars, but like I don't know. When I was younger, I was like that's like so much like whatever. It is a lot of money actually, but you know what I Like even in New York City, if you do the math in New York City, oh, it's crazy. >> Well, I I'll tell you a funny story. So, we actually moved to New York City. We already had our three kids and I showed up, you know, changed jobs. I was recruited down to New York City. We we didn't have any money at that point, certainly relative to what people thought, but because we moved into New York City with three kids and because we came in off cycle and so my children actually got into a very prestigious preschool cuz they just happened to have an opening, right? Everybody in New York was like, "Who is this guy? Where did all their money come from?" they all wanted to meet us and get to know us etc. They assumed like I was you know some tech billionaire or something. The simple reality is is that I was just living an ordinary life in New York City and I had some fortunate outcomes associated with it but I very much experienced the degree of procarity raising young children in New York. It was a challenge for a number of years and we went through those difficult time periods. >> Um my mother actually ran a child care facility when I was a child so she could stay home right and so I had firsthand experience with components of of those elements to it. But to try to explain to grandparents that you're spending $32,000 a year on child care, they're they're like, "You guys are crazy. It didn't exist, right?" >> And um so the inability to actually convey that and understand how different that aspect of it is, >> I think people slowly get there with their parents, but there hasn't really been the tools or the um expose that allows people to fully understand that. And I think that's part of the reason why the piece did go viral was because it gave people those tools to have those conversations. And it was written from a conservative enough perspective that the older generation looked at and said, "Wow, I didn't really understand this." >> Yeah. Because it's like we need a different model or framework for looking at what it is now. And like a lot of the stuff you just cannot opt out of. It just doesn't work for >> Well, and again, that was one of the interesting criticisms. You have childless people who are like, "Well, childare 32,000 and you can just skip that." Like one of the people could stay home. It's like you've missed the entire point. It doesn't work that way. And one of the best takes was actually by Adam Butler at uh uh Resolve uh Asset Management who pointed out that really what we're talking about is there is a bundle of goods and services tied to the decision to have children that all comes at the same time, right? You know, all of a sudden you're dealing with the ramifications of how is my career affected by my decision to have children? How am I, you know, do I stay home and give up 5 years of experience that permanently puts me on a slightly different path versus having child care, right? What does it mean for my independence as a young woman to have children when my husband's working? You know, have I lost something in that process, right? And the idea is in economics that these are revealed preferences, right? You know, you value your job and your job experience more than your children. No. In most situations, you don't have a choice. >> Mhm. >> Right. For most people, they don't have a choice. And so, it's not revealed preferences. It's revealed constraints. >> So another question for you. Let's say poverty line 100,94 if you're in Lynchburg, 140 in Essex County, New Jersey. If we don't do anything, will that number continue to go up? Like the the race that we're all running, what where do you see this headed? If we don't the path that we're currently on? >> Well, I mean, this is one of the interesting things, right? So some of my critics came back and they're like, well, the reason it went viral is because he put that outrageous number out there, right? And you know, June of 2025, smartasset.com put out a piece in which they said it was 240,000, right? Or maybe even higher than that. And the reality is it wasn't the number, it was the description that really captured people, the understanding of what was really going on, that these benefits were being withdrawn, and that they were looking at people behind them in the checkout line at the grocery store who clearly were not working nearly as hard, didn't have the resources pulling out an EBT card to pay for a full grocery while they were putting stuff back on the shelves, right? Like, that feels unfair. That makes you angry. It's not that you're racist or that you lack empathy. It's that you're angry that you have to work so hard for something that other people are getting for free, right? I think understanding that and giving people the grace to say maybe you're not just a terrible racist person who lacks empathy for immigrant groups and instead say like that's a pretty understandable scenario, right? You know, um altruism largely grows out of surplus. You know, you and I sit down together and I've got two bananas in my lunch and you don't have anything to eat. I'm not really that stressed. if I say, "You want one of my bananas?" >> Mhm. >> But if all I've got is one banana, it's really hard to be like, you know, "Hey, can I have half your banana?" Right. Um, >> and that's it was just a difference in presentation and a difference in discussion that I think really resonated with a lot of people because I don't think these people that are looking at people in grocery stores and the checkout line saying that's not fair. I don't think they're bad people, >> right? They're just like you and I. And there's politics to it as well because if we don't do something I imagine mom Donnie here in New York did not surprise you or is it a product of of this phenomenon? >> I think it is a product and it did not surprise me and it's one of the frustrations and again like you know when I started doing my work on passive which you're familiar with my initial target on this was regulators. I didn't have any desire to go out and talk to the public about it. I didn't have any real realization that anyone would care. But what I did was I tried to talk to regulators about it and I discovered that regulators were just as captured as we were, right? Um and so really we had to do an element of raising public awareness. This is not dissimilar in that I'm not telling anything new to people who have been studying these areas. I think some have been studying them somewhat dishonestly and candidly that's disappointing to me. But I think the much more important component is is that this information is out there just needed to get to people and they needed to understand that and they needed to be empowered in some way, shape or form. And I think understandably again both sides, the left and the right, which have largely exploited these issues for political purposes um are frustrated by that, right? They feel like they've lost control of the conversation. I think the push back on LLMs, by the way, actually is something very similar. It's not dissimilar to the push back that you would have experienced with the invention of the Gutenberg printing press and the introduction of common language Bibles and a general diffusion of knowledge. Right? This is something that needs to be contained. Right? We need to have scribes who make sure that the books only fall into the hands of those who are capable of actually having it. We should never have, you know, scripture given in the common tongue because then the people would begin to question, right? I think LLMs are similar. I think what you're seeing in part as a push back on LLMs is particularly coming from the chattering class of pseudo journalists who are largely really opinion writers. You know, they're basically saying, wait, if we lose control of people's ability to interpret this information, if they're able to access these tools and actually form informed opinions, >> we've lost control of this process. And so I think actually a lot of the push back is really coming from those chattering classes >> or like now we have the rise of independent media. Y >> I used to be a journalist and now I get to come on YouTube and interview amazing folks like yourself. >> Yeah. Well, I I was never a journalist and I don't you know it I don't aspire to be nor do I aspire to be an opinion writer, right? But um the simple truth is just that the techn the technological changes have removed the constraints on the diffusion of knowledge. You have unbelievable viewers who watch your programs and watch this long- form content that the traditional media has argued can't possibly exist, right? We should be tuning into yet another episode of Survivor or Big Brother as compared to trying to actually obtain real information. >> A three-minute segment on TV that's, you know, just a sound bite versus a conversation. And >> yeah, >> yeah, there's a lot of nuance in that, too. >> And and I think that's I mean, look, I was uniquely privileged. I did not come into an environment in financial media in which I was introduced to the 15-second soundbite. I've certainly had the opportunity to develop that as I've become more wellknown and do segments on Fox and stuff like that where, you know, the brevity and the tightness of the conversation and and being able to say things in a very dense fashion is is deeply rewarded. But I actually came of age in the period of you know the introduction of Real Vision and other long form podcast discussions that freed me to express my point of view in a much more uh robust fashion. Right. >> Yeah. The reason I left I just wanted longer conversations because I'd have incredible guests and it's like you're trying to squeeze in a few minutes and like wait I want to hear more of what they have to say. >> Well I I I will tell you I think that that actually is having an influence and this is something that I said very very early on right there were all the complaints about the millennials and how they behave. etc. Um, my view on it has always been the world changes around those people, right? We don't change the world to represent the interests of old people because their race is largely run um or at least we shouldn't do it in that way. >> Um, the younger generation will always change things, >> right? And I I'm actually as, you know, as as frustrated occasionally as I get with segments of the millennial population and my children in Gen Z, the simple reality is is that you guys are interested. You're dedicated. You're working really hard. You have the same aspirations that we had as young people, etc. And you have unique tools to take advantage of it that we need to figure out how to engage with you on. >> So, what are Mike? What are you what are you going to do about this um poverty line? Like what are you what are you going to do about it? Are you going to support different kinds of candidates or like what? Yeah, >> I mean obviously spreading the word which is amazing, but >> Well, so so first the objective was to raise awareness and understanding of it. Um again, I wrote it for my audience on Substack. didn't anticipate it going viral, but now that it actually has and we've started a national conversation around this, I'm doing everything I can to actually extend that and see if we can have some positive progress. Look, I think the core issue that we as a society face is that we have largely used our politics for driving power to the political class. We've disenfranchised the center, which is really what I represent from a political framework. I'm not a conservative in a libertarian sense, although I certainly have libertarian sympathies. You know, I'm not an extreme right individual and I'm certainly not an extreme left individual. I largely occupy the currently politically homeless middle center, right? Almost like the middle class, >> which is probably the silent majority where a lot of people actually >> I think there's no question of this. The vast majority of Americans are actually sitting in a place of common sense, >> right? And so, um, I'm going to take advantage of the opportunity to actually try to elevate candidates that I think can occupy that center that are interested in crossing party lines to work together to arrive at solutions rather than using the fractures that exist to basically drive individual political power. >> Yeah. Well, I know you have a day job, so it's not just you don't just write on Substack, but we definitely appreciate that you do. I have to ask you because this audience is just going to say you had Mike on and you didn't ask him. What do you make of markets and the behavior we've seen in markets lately? And has it surprised you at all? >> Unfortunately, it really hasn't. And you know, again, as you know, we've talked about passive for a number of years now in terms of the implications of it. Um, I just think that the vast majority of what we're actually seeing is the phenomenon that's created when you have a mindless investment process that largely creates its own indogenous momentum by virtue of the way that we invest. So the vast majority of flows that are coming into markets at this point are simply withheld from your earnings in the form of your 401k contributions. They're matched by your employers and then by verdict by by as result of government dictat, right? The creation of the qual the qualified default investment alternative with the pension reform act in 2006. Those funds are directed into passive investment vehicles that do no fundamental analysis that allocate capital on a momentum basis. So then, you know, the next dollar in rewards companies that have risen in price that creates its own what's referred to as indogenous momentum. Um, momentum traditionally has been associated with information diffusion. Cliff Asnice was the inventor of the concept and has actually done a phenomenal job of articulating the traditional momentum framework, which is I figure something out and I buy and that pushes prices up a little bit. other people see the price go up and they do the research and they discover what I've discovered and so prices diffuse that information in the form of momentum. >> There's a second type of momentum that's created by the distortions of passive investing that in my analysis has now subsumed the traditional momentum factor and become the most important component of markets. Uh it sounds crazy, but my estimate is is that we're adding about 13% a year to the S&P 500 through simply the flow of passive at this point. For the largest stocks, companies like Apple, it's north of 20%. For the smallest stocks in the S&P, it can be as little as 6%. So when you look at a year like we've had right now where the S&P is up 13%. In my calculus, that tells you that the fundamentals suggest the S&P should be basically flat. But what we're really experiencing is the impact of the way that we invest. >> Does it continue then? Do you just see that continuing on? Are you looking at what's happening in the labor market? Like what it >> Yeah. So I so I I monitor all of the flow components to it and the flows have slowed as you would expect with demographics and rising valuations among other things. Withdrawals are always going to be a function of asset levels. So as valuations get higher and higher, the withdrawals rise relative to the contributions. Um, but the share gain that we have for passive just continues to push more money in that direction and push markets ultimately up. Um, I'm currently working on a white paper with um, and one of the nice things that's happened is, you know, as I've picked up additional responsibilities in areas like this, others are now coming in with support. My work on passive has captured enough attention that other academics and practitioners >> credit on the show. Yeah. >> Well, thank you. I appreciate that. >> A lot of our guests reference your work, too. >> Oh, that's cool. Um, well, a lot of them are actually increasingly approaching me and saying, "Hey, you know, I've I've validated your work. I'd like to, you know, do some stuff on this. Could you help me co-produce a paper, whatever?" Right? And so, that's actually remarkably powerful, right? Suddenly, instead of me doing all the work, it's other people starting to do the work, and I'm merely capable of amplifying it and refining it by sharing what I've learned over the years in this area. So, we're starting to see more people pick up that mantle and carry it forward, which is really awesome. That's all I really want. By the way, I'd love to see that happen here as well. The challenge in this area is just the solutions on the right and the solutions on the left are equally terrible, right? Um I share this with people who have leftaning and they're like, "Oh, we should totally hike in, you know, hike minimum wage because that would solve the problem." It's like, "No, you guys actually don't seem to understand what the problem is. Capitalism functions on mechanisms of information exchange. Price is the mechanism for that information exchange. when you do something like hike the minimum wage, you're actually taking pricing information away from the market. What would people negotiate in the absence of that government floor? Um, so you like we're still at a stage where I think it's really important to manage the conversation and again that's part of the reaction from the right and the left because they want to amplify their competing priorities as it relates to the market itself. Um, I actually have a white paper coming out with another author that has a closed form solution on how this actually plays out. And the the quick answer is just like it ends just like it did with the XIV. We will have a crash. We will have a 1929 style event. And I'm not saying that because I want to scare people. I don't want to scare people. I don't want to scare them away from investing. But the simple reality is is that the way that we've chosen to invest is wrong. >> What do you think is the straw that breaks camel's back then on that? Well, it's the irony is is that it it ultimately doesn't matter, right? It's a little bit like the classic basian inference problem of, you know, um am I more likely to die from a shark attack or to die, >> right? And well, you know, I'm scared of the shark attack. Therefore, I assign a higher probability to it. But the reality is is that dying by shark attack is contained within the union set of dying. So, it can't be more probable. Um when you ask for the the mechanisms like the simple answer is an an increase in unemployment that slowed contributions would be meaningful. A change in our allocation mechanisms in which we decide that we're going to incorporate other assets for example private assets would reduce the flow of assets and potentially force the selling of public equities which could engender the crash. >> Something as simple as the Federal Reserve cutting interest rates perversely can actually reduce the income that is flowing to the older generation and increase their need to sell securities. that could drive it as well. >> Um, and then the last component is just simply it just goes far enough, >> right? Crazily enough, you actually discover that if you blow the bubble large enough, the volatility that is contained within that bubble actually can end it itself. >> It's fun riding the bubble up, I guess, is >> well, that was that was the analogy that I've used for years, and I continue to think it's super accurate, right? We're driving a car uphill with no brakes, right? >> Mhm. >> Driving the car uphill, totally fine. Driving the car uphill with no brakes is actually totally fine, too, because we can slow down simply by taking our foot off the accelerator. The problem is once you crust the hill. >> All right, Mike, two-part question before I let you go. What is the one risk that's been keeping you up at night? And then what's something you're optimistic about or hopeful about? >> Um, well, I mean, the risks that keep me up at night are honestly disappointing other people. And so, like I just I don't like to do that. And so I'm sleeping far less and working far harder than I'd like to be doing at this stage of my career simply because I believe that I've taken on responsibilities that I owe people to actually follow through on. Um what keeps me optimistic honestly is the letters that I receive, the commentary from it, etc. Um more because it speaks to what I really think is the most important component. Human beings are amazing. They really are. >> The capacity of an infant born um and educated properly, fed properly, etc. to change the world is truly something that we can't replace. And so we can talk about LLMs, we can talk about artificial intelligence, etc. Those are to me just tools. They're like eyeglasses, right? Eyeglasses take somebody who's nearsighted and gives them perfect vision. It allows them to participate in society. LLMs can be thought of in the same way, in the same manner that introducing the printing press facilitated the education of people and exploded human capital. I think things like LLMs have the capacity to function as an inference engine for the average person. So they can understand much more complex topics and how the world works, can facilitate education, it can raise human potential. So that's really what I'm always optimistic about is at the end of the day I think human beings win. And um I had the opportunity to fly over to London to speak with Peter McCormack who is a noted Bitcoiner, >> threehour long podcast. you know, he and I uh I think are both very much focused on a lot of the challenges that people see. And it's interesting to see people who had approached it from the Bitcoin perspective now actually recognizing that there may be other issues that they hadn't fully appreciated. It's not as simple as quote unquote fixing the money, fix the world. Um you know, he and I both see this in very much the same way, but you know, he he and I had an exchange that I put into the Substack where he said, you know, well, like how are we going to defeat China? And my reaction is like, you know, they got such unbelievable cities, etc. And and the point that I made to him is like look, slaves can make beautiful things. They can make incredible statues. They can make incredible pyramids that last throughout time, etc. But in any conflict between free men and slaves, free men win every time. And I just think the more freedom we have, more opportunity people have to make choices that reflect their actual preferences that they're able to make the investments in their children and their lives, the better off we're going to be. >> Yeah. Life, liberty, and this pursuit of happiness. >> Bingo. >> Yeah. Mike Green, it is so wonderful to have you in studio. Really appreciate you taking the time. Mike Green, portfolio manager and chief strategist at Simplify Asset Management, author of Yes, I Give a Fig. Really appreciate you. >> Thank you very much.
Mike Green: America's "Valley Of Death" – Why $100K Families Can't Survive
Summary
Transcript
a component of the American experience, what I call the the valley of death or other people call the u period in which you face benefit cliffs where the support that comes for those who are designated poor is withdrawn whether that is food support or housing support or child care support. Those are withdrawn from households before they're able to fully replace them on a cash earnings basis. And as a result, in many ways, you are worse off making $100,000 than you were making $40,000. >> Hey everyone, welcome back to another special in-person episode of the Julia Lar Ro Show where we are joined today by Michael Green. He is the chief strategist and portfolio manager at Simplify Asset Management and also author of the Yes, I Give a Fig Substack. Mike, it's so nice to meet you in person for the first time. >> Yeah, we've done this a couple of times virtually. This is the first time we sat down in person. >> I prefer in person. Isn't it so much more fun? >> It is a lot easier. >> Um, it's great to see you and I think Okay, we we just recently booked this and you went super viral with your Substack, which I know is not your that's not your full-time job. You've been blogging for a while, though. Um, a three-part series now on the poverty line in America that has drummed up quite the reaction. It's gone, I don't know, mega viral. Yeah. I just want to go inside the piece and what was more of the genesis for you for wanting to explore this idea and really where the poverty line actually sits today. >> Well, so the piece as you mentioned it came on my Substack. My Substack has been in existence for several years now. That subsec itself was actually a continuation of work that I've been doing for roughly 20 years where every week I sit down and explore either what's been happening in markets or um things that are you know bouncing around inside my head. It's basically my own place of taking notes and writing things out in a manner that helps me to express them more clearly and organize how I'm thinking about things. um about somewhere around September um I started pulling on some threads in this area. What I was recognizing is is that elements of the American dream and the experience that I certainly grew up with and the ability to make my life significantly better than my parents had experienced and the sacrifices they made to facilitate that I gave to my children and hopefully they're in a position to do better as well. it became clear to me that there was something going on that was actually causing this to not transfer. And the immediate catalyst was about 6 weeks ago, 5 weeks ago, um there was a right-wing influencer who posted a simple tweet that said, "In the 1950s, a single income earner could afford this house and take care of his family, etc." And there was this incredibly what I can only describe as coordinated mocking campaign that emerged on Twitter. I know you're active on Twitter as well and it was, you know, all forms of parody just to devalue that claim. And so I dug into this in a post called are you an American? And as I did that, I began to realize that this was an area that I candidly hadn't fully explored that I didn't understand all the components that were going through. >> Why was it so hard for a single income earner to afford a house? I understand home prices have risen a lot, but what are the dynamics behind actually the experience of procarity that we're increasingly seeing particularly from young people who are trying to make that transition into adulthood, parenthood, owning a home, etc. Um, and that was the genesis of it. I wasn't trying to go viral. I was really genuinely trying to explore something on my own and sharing it with people who read my Substack. And it obviously touched on a nerve because the you know what I found was that the way that we define poverty in the United States was set back in the 1960s. It was originally designed to identify families that were in crisis >> that couldn't actually afford enough and therefore were suffering from true true deprivation. The way that that was constructed was representative of the budget at that time. Unfortunately, as and this has actually been pointed out since I stumbled across that piece. As early as 1966, the government began to recognize that this was not keeping pace and it was not appropriate. But the political environment ultimately led to this being locked in place. And so basically the food budget from the 1960s inflated by CPI is what we have as the poverty line today. Today that would be about three uh $31,200 for a family of four, two income earners and two children. And in my piece basically explored how adequate is that 31,000 level and what does it actually imply? What do people really in this segment of the population that young family that is trying to make ends meet? What is their real budget look like? And when I went through and I built it up extending initially off of the work that I done in the piece are you an American which was focused in Caldwell New Jersey where somebody had articulated well you can afford that life in Caldwell New Jersey and it was totally untrue. Um you know I I basically built it up and discovered that it's about $140,000 is what it roughly takes for a family to get to the point that they are saving money in that region of the country. In the subsequent pieces, I explored it for areas like Lynchburg, Virginia, nearby where you grew up. Um, and discovered that that level is close to 100,000, still triple the official poverty line. And it really captured >> a component of the American experience, what I call the the valley of death or other people call the um period in which you face benefit cliffs where the support that comes for those who are designated poor is withdrawn. Whether that is food support or housing support or child care support, those are withdrawn from households before they're able to fully replace them on a cash earnings basis. And as a result, in many ways, you are worse off making $100,000 than you were making $40,000. And and the minute you recognize this, the minute you realize that this is actually the experience that's going on, and it starts to explain many other features in our society, in particular, a lot of the resentment and anger towards those who are receiving benefits because it's not that people don't want to see people succeed. They don't want to see them become successful. It's that they're incredibly frustrated that they're working really, really hard to get those things that are provided to people who are working less hard. >> They are the working poor. >> They're the working poor. >> Yeah. 100,000 or I guess depending where you live 140,000. And what was interesting when you did that take us into the math as well, but you're not talking about Netflix subscriptions and luxuries and vacations and things like that. You're talking about the bare bas the basics. >> Yeah, I'm talking about things like child care, right? Which >> we don't often think about that, right? Many young people have not yet had children and so they look at it and they're like, well, how expensive could child care actually be? And many older people are coming from a generation in which child care really didn't exist because wives stayed home or there were members of an extended family available. Um the childare is really the shocking one, right? If you're going to have that young family where you have a husband and wife both working, you have to engage child care. Child care is a heavily regulated industry. It's extremely labor intensive. If you're bringing in employees who often are working for near minimum wages, but simultaneously have to be certified and approved to work in regulated facilities, you need to maintain insurance, etc. And so the costs of child care are remarkably high. That was the single largest component of the budget for most young families. And the government will actually back this up. It's not just my analysis. The survey of consumer finances looking at this type of family, it's about 20 to 40% of their income is spent on child care, which is just astonishing when you think about it. >> Which also probably explains why people aren't having kids. >> It really does help to explain that because in an environment in which this information is available and in my generation, right, we used to get reports all the time, well, to raise a child costs $700,000 over the course of that child's life. This is just articulating that and highlighting it that it's really hitting at that very front-loaded component in which many young couples are looking at it and saying we can't afford to have a second kid. We can't afford to get married and have children at all. Right? Like why bother pursuing this path when I could live a much less costly existence. It actually ironically echoes a lot of the work that I did when I explored this around China in the period of 2011. And if you remember, you know, most of your audience won't remember this, but at the time the argument was that the US wasn't spending enough to educate our children. We weren't serious. We were competing against China where 40% of household spending was spent on educating their children. My reaction to that is, well, wait a second. Like that already that answers the question about Chinese fertility. If you're going to spend 40% of your household income educating your children, how many children can you have? >> Mhm. >> Right? You really can't have more than one. And if you have one child, you're spending 40% of your income. If you have no children, you're going to have much more disposable income. And your individual quality of life could actually end up being dramatically better. And that by and large has played out in Chinese demographics since that time period. I'm very frightened to see the same thing developing in our country. >> Yeah, that is so it is really concerning. And I can say that, you know, as a millennial, too. Okay. Um, one of the things I kind of personally observe, um, growing up, so I was born in 1988. I'm 37. I would have thought like, wow, $100,000 is like a lot of money. It's a great salary. It's really not like like you said, like to cover the basics. It's It's not. I don't know. Maybe my perceptions tell you off. And I also don't even know. I don't even know if like millions a lot like it used to be like when I was a lot younger. >> Well, I mean, look, this is one of the ironies to it. First of all, as an individual to make $100,000 still puts you in pretty rarified territory. And this is one of the really critical things to understand is if you have a single individual making $100,000, their experience is going to be very different because their wife or husband can stay home, right? They don't have to worry about that childare. And so there's tremendous savings associated with the single earner configuration in that framework. But the minute you have to go to two incomes in order to afford a home. And as we were talking about before, in places like Lynchford, Virginia, which is the most statistically average uh metropolitan center in the United States, homes are unaffordable for people unless you have two incomes by and large. Um the minute you you make those changes, you start incurring things like child care costs, etc. that just raise the level back up again. And so, like, if you have two individuals who are making $100,000 each in Lynchburg, Virginia, you're great. and you're going to look at the analysis, you're going to say, "I don't fully understand it until, and this is where the next part really starts to get interesting." Once you start thinking about adding on components to what we've just discussed, like saving for college, which we didn't even include in the budget, >> right? Then you suddenly discover, wait a second, the next step in this process, making my kid a really viable member of society as is developing, introduces an entirely new set of stresses. This episode is brought to you by VANX rare earth and strategic metals ETF, ticker symbol REMX. Rare earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind turbines. Van recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly. From mining to advanced manufacturing, investors can gain access to this powerful trend through REMX. Visit van.com/remxjiulia to learn more. >> In one of the pieces, I think you talked about it as like the survival line. Was that the language? >> Way I described as the procarity linear, >> right? Procarity, you can basically think of it as that feeling where you're holding on, but you're holding on by your fingertips, >> right? And like, you know, imagine you're dangling from a burning building and you're holding on by your fingertips and there's somebody who's, you know, genuinely fatigued more than you are next to you. If the fireman says, "Are you okay?" Like, "Yeah, I get that person, but I could really use a little extra help here pretty quickly." Right? That's the experience that people are going through where they're working really hard and they're really trying and they're trying to make the good choices and they're trying to economize wherever they possibly can. They're not living the luxurious life where they're taking off for two week vacations to various tropical resorts, etc. They're genuinely just trying to hold on. And this is part of the stress that people that have young families experience over and over and over again. They're really just saying like, I can barely make I can't put anything away. I can't save any money. I can't do any of the things that are necessary to even begin contemplating escaping from this feeling. That's what that line really represents. >> How I guess how do you think we got here? Well, I think we got here in a very straightforward manner, right? We chose to use our tax code as a form of spending to dramatically reduce the burden on the highincome members of our society while we increase the burdens on the working poor. >> Like is that's just the math. It's really straightforward. If we compare our taxation system in 1950 or 1955 to today, it's far less progressive today. And this is when one of the frustrating things for me going through this process is to realize the extent of the disinformation campaigns that have largely shielded this from the American public. It's one of the things I try to make clear in part three. Like when we talk about spending at the federal government level, there's really not very much spending that's actually going on at the government level. There is a lot of transfers that are going on at the government level. Money that is distributed to the states and money that is distributed to Medicare and Social Security, etc. It's very hard to have significant fraud at the origin in those programs without it being discovered. This is why Doge was such a disaster, right? Really nothing to identify there. They were, you know, brought down to parlor tricks of we've got 300-year-old social security recipients, which is obviously just data errors. Um, where the spending occurs is in the tax code. And in the tax code, very simple changes can lead to radical changes in collections and distributions that effectively empower one group or special interest group over others. And so that's really where the focus has been. It's been on reducing the taxes to those who make an unbelievable amount of money while basically gaslighting people that they're continuing to bear more than their fair share. >> Okay. Talk to me about the gaslighting bit, the disinformation bit. >> Sure. So, I'm sure you've read the statistic that the top 1% pays 50% of the taxes, right? And their threat is, "Well, we're going to leave if you try to take more from us." >> Right. >> Right. It actually turns out that that's very predicated on a very literal interpretation of income taxes. So, when you receive your paycheck, the largest income tax withholding that you're experiencing is actually your FICA taxes, the federal income uh I don't even know what it stands for. Actually, I should, but it's basically your social security and Medicare taxes, which are again those transfer payments where payments are being made from the young effectively to the old through a security system in which they receive health care and retirement benefits which they've earned over the course of their lives. I want to be very very clear on that. I don't think it's a false transfer, but that's not technically income taxes. And so when it's presented as the top 1% pays 50% of the taxes, they're conveniently excluding roughly a third of the taxes that are being collected in that. And the FICA taxes are capped at $167,000. And so they pay an infiniteesmal portion of that, but the vast majority of that is being borne by people who are making totally normal incomes, not at the high end, etc. It actually turns out that the 1%'s contribution to taxes is closer to 19%, not 50%. And that is dramatically lower than it used to be because at the end of the day, remember, taxes can only be paid out of surplus, right? It's like trying to squeeze a stone for blood. You can't get it from somebody who just doesn't have enough. >> And so, unfortunately, taxes will always be paid by those who have more. and we've dramatically lowered their tax burden over the last 70 years while increasing the tax burden through things like FICA on the working individuals. >> H okay then what do you think is the solution then? Well, the solution is is writing that ship. And I'm I'm advocating against my own interests here, right? Like I I am almost the poster child for the person who will be most adversely affected by all of the steps and and um repair that I suggest, right? Removing financialization. I'm a I manage financial assets, right? I mean, I benefit from the creation of public securities like debt instruments, etc. I run a high yield fund. the firms that I invest in ultimately are ones that benefit from the tax depreciation of interest expense. Um raising taxes and removing the cap on FICO will directly hit my income. Um but those are the choices that we have to make. We have to accept the fact that we've done a relatively bad job of guiding our economy through a number of challenges from COVID to the global financial crisis etc. And in every step in the process, we've by and large tried to avoid the responsibility of fixing those problems, assuming that we can fix them through quote unquote growth, even as that growth is increasingly constrained by individuals who are struggling to participate. >> Okay. I mean, no, no one likes taxes. I don't I don't like taxes. Oh, wow. Taxes are great. >> But um >> yeah, no one likes it. Um >> it's better than death. That's your other other known certainty. That's true. Um I guess like if we could write the ship as you put it >> what could be the implications like what do you see as the implications here? >> Well this is so this is part of the core right is that at the end of the day much of the economics that we use and we think about when we do things like you know analyzing the economy talking about GDP etc. These were economic innovations that were created in the 1930s primarily in response to the great depression. the capabilities that we had for really analyzing beyond the aggregates, right? A rolled up GDP type number. We just didn't have the computing capacity to do that. Anyone who has taken economics or studied economics even briefly understands concepts like the production possibilities frontier, right? What are we capable of producing? It's a combination of labor and capital investment alongside the technology to use those two things that create that production possibilities frontier. That's an aggregate concept. But the reality is is that that aggregate production possibilities frontier is composed of give or take given 150 million working Americans, 150 million different poss production possibility frontiers for each individual that represents do they have adequate capital to allow them to produce at the maximum level given their um labor and have they been provided with the resources in the development of that human capital, things like education, nutrition, access to jobs, etc. that allows them to fully flourish. Right? When we talk about the system that we've set up right now, what we've done is we've constrained the production possibilities frontier for many individuals so that we're getting far less out of them than they are capable of producing. And that's constraining the aggregate production function. That's really the barrier that's being created. Inequality lowers your production possibilities frontier. It's one of the few things that we know actually carries across both absolute measures of poverty and relative levels of poverty. When a society is unequal, it has it is not capable of meeting that full production possibilities frontier. Just imagine a scenario in which all the capital is stored in the basement of one oligarch. It does nothing for everybody else, right? It constrains the ability of that system to produce at its ultimate maximum. And so we've unfortunately run ourselves into a scenario largely governed by the precepts of Milton Friedman and others that somehow or another giving more money to rich people is going to allow us to trickle down to everybody else. We've basically starved or or you know withheld water from the plants that make up the rest of us and that has constrained the overall growth of our society. Hey there. I just want to take a quick moment to thank you for watching this video and I would really love for you to subscribe to this channel if you like this content. Over 70% of our viewers are not yet subscribed and we are on a mission to hit 100,000 subscribers. So, if you could just take a quick moment, hit subscribe. Thank you so much for your support. We appreciate you. And back to the video. the reaction to the piece. >> It had a lot of amazing, really smart people, people that have been on this show who were just praising the piece and then you had quite a visceral reaction among economists. Why do you think the reaction was so strong and did it surprise you at all? >> It disappointed me, but it didn't surprise me. Um, the piece going viral surprised me, right? So, I was somewhat unprepared for that. uh the reaction from the two camps that that attacked it came from a very understandable place and you always need to kind of incorporate elements of game theory in this dynamic. Right? On the left, people are understandably concerned that by focusing on those above the poverty line that we're going to withdraw support and focus on those below the poverty line. And I think that's a very legitimate concern. Um some of the responses that I've received have said things like, well, we should just get rid of all benefits, right? All right. And it's like, well, that's obviously not a realistic working proposal. Other people on the right basically attacked and said, well, why don't we just make it a million dollars, right? And then everybody gets benefits. And that's also not a realistic attempt at it. That's much more of the mocking machine that I highlighted in that piece, are you an American? >> And it's basically people trying to end the conversation by extending it to an absurd conclusion. Um, the right doesn't want to have this conversation because they don't want to introduce the pro the the loss of progressivity on the tax code and the unequal burdens that have been created. And candidly, that disinformation campaign that I highlighted has been extraordinarily successful. Right? People genuinely believe that if we raise taxes on wealthier individuals that they're going to leave and we're going to be abandoned without their unique skills and talents. Um, one as somebody who is, you know, somewhat in that class, like I'll just tell you there's nothing really that unique about it. Like they're very smart people and they're they've made wonderful contributions but the simple reality is is that they are experts within a particular area and the people that have really created that wealth often times fantasize that they have unique insights in other areas but they really have rarely been particularly successful. Right? Warren Buffett has the famous expression right when a brilliant management team meets an industry with a reputation for dismal results the industry's reputation survives. Um it's the same underlying phenomenon, right? You know that somebody becomes rich in one area doesn't necessarily mean that they are uniquely qualified to take that next $100,000 or million dollars and turn it into tremendous wealth for the rest of us and themselves in the process. Um and so you know that's unfortunately part of the dialogue, right? You have both camps that are incentivized to attack. I think where I was really disappointed was the lack of quality of the attack, right? They largely tried to focus on like the very particular components. Health, you know, child care at 32,000 versus the number is actually 25,000. It's like who cares? >> Yeah. Like you're in the ballpark or they're like you used an LLM or Yeah. Oh, you didn't cite this properly. Whatever. >> Yeah. No, it was absurd. I mean, you know, had I decided to go as as one of them, you know, said he'd receive a D in my masters in economics. >> I'm not writing a PhD here. >> First of all, you're a terrible professor. Second of all, I wouldn't have I'd never be in a PhD program with you. And third, like if that's really what you took away from this article, you really need to work on your reading comprehension far more than your statistics. >> Yeah. Um, but one of the areas was that was interesting, the Washington Post did write it up. Yep. You were able to use, I think, AI to like summarize the thousand. >> Actually, the Washington Post does that. So, >> the Washington Post did that. He gave you the sentiment summary which was interesting because the people who were reading it, the people who are in that valley of death as he put it >> people who are probably bringing in that 140 or maybe not even they're like you're revealing what we're all feeling and intuiting. >> Yeah. And that's you know that's part of what's so fantastic about it. Again that was criticized in my second piece by the same people who were criticizing the first is like oh well because popular sentiment says he's right he thinks he's right. Right. And the reality is again they're intentionally missing the point, right? Which is first there's an element of reading comprehension which obviously the general public was capable of because they got exactly the point of the piece which is it's really that description of the 40,000 to 100,000 in that valley of death that so many people are captured in what other people call the benefit cliffs. That's the experience that they went through. And candidly, look, I got hate from the left and I got hate from the right. And that was very visible because these are large Twitter personalities and it was fmented by think tank institutions like the American Enterprise Institute, which ostensibly stands for individual freedom and libertarian principles, >> even as they're not really living up to those standards. Um, but the people in the middle, >> right, I got 10,000 emails. >> Wow. >> From people saying thank you. And I saw the unbelievable number of comments that came in through my Substack and came in through the Washington Post and the free press in which people were legitimately saying basically the reason why I think Donald Trump was elected in 2016 is people are saying I feel heard >> instead of treated as a deplorable or treated as somebody who's racist because I don't want this, you know, I I'm frustrated at the what I'm seeing people who are working less hard than I am, who are making more, you know, poorer choices than I am. I'm frustrated that they're living at the same standard or experiencing the same outcomes in life that I'm experiencing when I'm working so much harder. People saw it and they're like, I this is the first time anyone's ever been able to articulate what I'm actually living through. >> Mhm. >> And that was incredible. I got letters from people saying, you know, I printed this out, made 10 copies of it, shared it with every member of my family at Thanksgiving. We had an honest conversation in the manner that we haven't had in years. >> Like, man, you want to empower somebody. Like what an incredible gift that was. >> Yeah. Do you think um part of it too is like you were kind of revealing you're revealing what the masses have been feeling that the academics or whatever have just been missing? >> Well, you know um I'm going to blank on uh his name here. Um there is the expression uh you know a man's it's difficult to convince a man of something when his paycheck depends on believing the opposite. Right. >> Interesting. Yeah. many of these economists are actually paid for their positions and paid in large way to support you know there's the internet meme we're not the baddies are we the baddies right you know and the reality is is going through this process like I realized that in part I'm the baddies right um >> you know I am part of a group that is formerly trained in economics that has treated things like the increase in the price level that we've experienced and the inflation to use the economic term is technically the year-over-year year change in the general price level that has retreated. The inflation was temporary. The price level increase was real, right? And so many of us who sat there saying, "Well, the inflation has retreated." People are saying, "What are you talking about? I still can't afford to live." >> And that really is now making its way through and what people are labeling the affordability crisis because that's really the experience that we're having. So if you know if your expenses are 100,000 and your income is 90,000 and prices rise by 2% and your income rises by 2% in an economic sense you're totally fine. >> Mhm. >> Right. But just do the math on that. Your $90,000 income went up by 2%. That means you now make $91,800 and your expenses which were at 100 are now at 102. Yep. >> So if you look at the difference between the two, you actually have less. >> Yep. >> Right. And that's the experience that people are actually going through. That's why the price level matters to these people because they can't afford what they need in life. And we were all sitting there saying, "Well, I don't know what you're talking about. Inflation has retreated." And I realize how dense and obtuse that makes me sound. And that would be a very accurate description, by the way. I want to be very clear on that. >> But once you recognize this, as other people have said about things like you can't unsee it. >> Yeah. Yeah. You're right. You can't unsee it. I think also like they're not the ones who are trying to buy their first home right now or start a family, do all of these things that I think you probably hit on it. The younger generation is I bet most of those emails came from the younger generation, didn't they? >> A lot of them came from those in their early 30s in particular. Those who are not young anymore. >> Well, I mean, anything that's complaining and whining is going to come from millennials primarily, right? It's true. >> But no, and that is unfortunately really true, right? I mean you guys are at that point where you are suddenly discovering these things and you lack the um communication tools to explain to your parents and your grandparents why this is so different. Right? Most people in my generation didn't experience child care in the same way that your generation is experiencing it. I was very fortunate my wife could stay home. She could devote our resources to our children. Never really experienced child care in that frame. We we had nannies cuz we could afford them, but ultimately they were very secondary to the process. And to your point, like I once did the calculation about what is required for me to make on January 1st to break even in New York City. And I promise you it's a lot higher than $140,000. >> Oh yeah, I lived in New York. I could tell. Yeah, it's definitely more. >> Yeah. Try three kids in private school. >> I felt bad earlier saying my comment like like a million is not what I thought. Well, I'm not I don't make a million dollars, but like I don't know. When I was younger, I was like that's like so much like whatever. It is a lot of money actually, but you know what I Like even in New York City, if you do the math in New York City, oh, it's crazy. >> Well, I I'll tell you a funny story. So, we actually moved to New York City. We already had our three kids and I showed up, you know, changed jobs. I was recruited down to New York City. We we didn't have any money at that point, certainly relative to what people thought, but because we moved into New York City with three kids and because we came in off cycle and so my children actually got into a very prestigious preschool cuz they just happened to have an opening, right? Everybody in New York was like, "Who is this guy? Where did all their money come from?" they all wanted to meet us and get to know us etc. They assumed like I was you know some tech billionaire or something. The simple reality is is that I was just living an ordinary life in New York City and I had some fortunate outcomes associated with it but I very much experienced the degree of procarity raising young children in New York. It was a challenge for a number of years and we went through those difficult time periods. >> Um my mother actually ran a child care facility when I was a child so she could stay home right and so I had firsthand experience with components of of those elements to it. But to try to explain to grandparents that you're spending $32,000 a year on child care, they're they're like, "You guys are crazy. It didn't exist, right?" >> And um so the inability to actually convey that and understand how different that aspect of it is, >> I think people slowly get there with their parents, but there hasn't really been the tools or the um expose that allows people to fully understand that. And I think that's part of the reason why the piece did go viral was because it gave people those tools to have those conversations. And it was written from a conservative enough perspective that the older generation looked at and said, "Wow, I didn't really understand this." >> Yeah. Because it's like we need a different model or framework for looking at what it is now. And like a lot of the stuff you just cannot opt out of. It just doesn't work for >> Well, and again, that was one of the interesting criticisms. You have childless people who are like, "Well, childare 32,000 and you can just skip that." Like one of the people could stay home. It's like you've missed the entire point. It doesn't work that way. And one of the best takes was actually by Adam Butler at uh uh Resolve uh Asset Management who pointed out that really what we're talking about is there is a bundle of goods and services tied to the decision to have children that all comes at the same time, right? You know, all of a sudden you're dealing with the ramifications of how is my career affected by my decision to have children? How am I, you know, do I stay home and give up 5 years of experience that permanently puts me on a slightly different path versus having child care, right? What does it mean for my independence as a young woman to have children when my husband's working? You know, have I lost something in that process, right? And the idea is in economics that these are revealed preferences, right? You know, you value your job and your job experience more than your children. No. In most situations, you don't have a choice. >> Mhm. >> Right. For most people, they don't have a choice. And so, it's not revealed preferences. It's revealed constraints. >> So another question for you. Let's say poverty line 100,94 if you're in Lynchburg, 140 in Essex County, New Jersey. If we don't do anything, will that number continue to go up? Like the the race that we're all running, what where do you see this headed? If we don't the path that we're currently on? >> Well, I mean, this is one of the interesting things, right? So some of my critics came back and they're like, well, the reason it went viral is because he put that outrageous number out there, right? And you know, June of 2025, smartasset.com put out a piece in which they said it was 240,000, right? Or maybe even higher than that. And the reality is it wasn't the number, it was the description that really captured people, the understanding of what was really going on, that these benefits were being withdrawn, and that they were looking at people behind them in the checkout line at the grocery store who clearly were not working nearly as hard, didn't have the resources pulling out an EBT card to pay for a full grocery while they were putting stuff back on the shelves, right? Like, that feels unfair. That makes you angry. It's not that you're racist or that you lack empathy. It's that you're angry that you have to work so hard for something that other people are getting for free, right? I think understanding that and giving people the grace to say maybe you're not just a terrible racist person who lacks empathy for immigrant groups and instead say like that's a pretty understandable scenario, right? You know, um altruism largely grows out of surplus. You know, you and I sit down together and I've got two bananas in my lunch and you don't have anything to eat. I'm not really that stressed. if I say, "You want one of my bananas?" >> Mhm. >> But if all I've got is one banana, it's really hard to be like, you know, "Hey, can I have half your banana?" Right. Um, >> and that's it was just a difference in presentation and a difference in discussion that I think really resonated with a lot of people because I don't think these people that are looking at people in grocery stores and the checkout line saying that's not fair. I don't think they're bad people, >> right? They're just like you and I. And there's politics to it as well because if we don't do something I imagine mom Donnie here in New York did not surprise you or is it a product of of this phenomenon? >> I think it is a product and it did not surprise me and it's one of the frustrations and again like you know when I started doing my work on passive which you're familiar with my initial target on this was regulators. I didn't have any desire to go out and talk to the public about it. I didn't have any real realization that anyone would care. But what I did was I tried to talk to regulators about it and I discovered that regulators were just as captured as we were, right? Um and so really we had to do an element of raising public awareness. This is not dissimilar in that I'm not telling anything new to people who have been studying these areas. I think some have been studying them somewhat dishonestly and candidly that's disappointing to me. But I think the much more important component is is that this information is out there just needed to get to people and they needed to understand that and they needed to be empowered in some way, shape or form. And I think understandably again both sides, the left and the right, which have largely exploited these issues for political purposes um are frustrated by that, right? They feel like they've lost control of the conversation. I think the push back on LLMs, by the way, actually is something very similar. It's not dissimilar to the push back that you would have experienced with the invention of the Gutenberg printing press and the introduction of common language Bibles and a general diffusion of knowledge. Right? This is something that needs to be contained. Right? We need to have scribes who make sure that the books only fall into the hands of those who are capable of actually having it. We should never have, you know, scripture given in the common tongue because then the people would begin to question, right? I think LLMs are similar. I think what you're seeing in part as a push back on LLMs is particularly coming from the chattering class of pseudo journalists who are largely really opinion writers. You know, they're basically saying, wait, if we lose control of people's ability to interpret this information, if they're able to access these tools and actually form informed opinions, >> we've lost control of this process. And so I think actually a lot of the push back is really coming from those chattering classes >> or like now we have the rise of independent media. Y >> I used to be a journalist and now I get to come on YouTube and interview amazing folks like yourself. >> Yeah. Well, I I was never a journalist and I don't you know it I don't aspire to be nor do I aspire to be an opinion writer, right? But um the simple truth is just that the techn the technological changes have removed the constraints on the diffusion of knowledge. You have unbelievable viewers who watch your programs and watch this long- form content that the traditional media has argued can't possibly exist, right? We should be tuning into yet another episode of Survivor or Big Brother as compared to trying to actually obtain real information. >> A three-minute segment on TV that's, you know, just a sound bite versus a conversation. And >> yeah, >> yeah, there's a lot of nuance in that, too. >> And and I think that's I mean, look, I was uniquely privileged. I did not come into an environment in financial media in which I was introduced to the 15-second soundbite. I've certainly had the opportunity to develop that as I've become more wellknown and do segments on Fox and stuff like that where, you know, the brevity and the tightness of the conversation and and being able to say things in a very dense fashion is is deeply rewarded. But I actually came of age in the period of you know the introduction of Real Vision and other long form podcast discussions that freed me to express my point of view in a much more uh robust fashion. Right. >> Yeah. The reason I left I just wanted longer conversations because I'd have incredible guests and it's like you're trying to squeeze in a few minutes and like wait I want to hear more of what they have to say. >> Well I I I will tell you I think that that actually is having an influence and this is something that I said very very early on right there were all the complaints about the millennials and how they behave. etc. Um, my view on it has always been the world changes around those people, right? We don't change the world to represent the interests of old people because their race is largely run um or at least we shouldn't do it in that way. >> Um, the younger generation will always change things, >> right? And I I'm actually as, you know, as as frustrated occasionally as I get with segments of the millennial population and my children in Gen Z, the simple reality is is that you guys are interested. You're dedicated. You're working really hard. You have the same aspirations that we had as young people, etc. And you have unique tools to take advantage of it that we need to figure out how to engage with you on. >> So, what are Mike? What are you what are you going to do about this um poverty line? Like what are you what are you going to do about it? Are you going to support different kinds of candidates or like what? Yeah, >> I mean obviously spreading the word which is amazing, but >> Well, so so first the objective was to raise awareness and understanding of it. Um again, I wrote it for my audience on Substack. didn't anticipate it going viral, but now that it actually has and we've started a national conversation around this, I'm doing everything I can to actually extend that and see if we can have some positive progress. Look, I think the core issue that we as a society face is that we have largely used our politics for driving power to the political class. We've disenfranchised the center, which is really what I represent from a political framework. I'm not a conservative in a libertarian sense, although I certainly have libertarian sympathies. You know, I'm not an extreme right individual and I'm certainly not an extreme left individual. I largely occupy the currently politically homeless middle center, right? Almost like the middle class, >> which is probably the silent majority where a lot of people actually >> I think there's no question of this. The vast majority of Americans are actually sitting in a place of common sense, >> right? And so, um, I'm going to take advantage of the opportunity to actually try to elevate candidates that I think can occupy that center that are interested in crossing party lines to work together to arrive at solutions rather than using the fractures that exist to basically drive individual political power. >> Yeah. Well, I know you have a day job, so it's not just you don't just write on Substack, but we definitely appreciate that you do. I have to ask you because this audience is just going to say you had Mike on and you didn't ask him. What do you make of markets and the behavior we've seen in markets lately? And has it surprised you at all? >> Unfortunately, it really hasn't. And you know, again, as you know, we've talked about passive for a number of years now in terms of the implications of it. Um, I just think that the vast majority of what we're actually seeing is the phenomenon that's created when you have a mindless investment process that largely creates its own indogenous momentum by virtue of the way that we invest. So the vast majority of flows that are coming into markets at this point are simply withheld from your earnings in the form of your 401k contributions. They're matched by your employers and then by verdict by by as result of government dictat, right? The creation of the qual the qualified default investment alternative with the pension reform act in 2006. Those funds are directed into passive investment vehicles that do no fundamental analysis that allocate capital on a momentum basis. So then, you know, the next dollar in rewards companies that have risen in price that creates its own what's referred to as indogenous momentum. Um, momentum traditionally has been associated with information diffusion. Cliff Asnice was the inventor of the concept and has actually done a phenomenal job of articulating the traditional momentum framework, which is I figure something out and I buy and that pushes prices up a little bit. other people see the price go up and they do the research and they discover what I've discovered and so prices diffuse that information in the form of momentum. >> There's a second type of momentum that's created by the distortions of passive investing that in my analysis has now subsumed the traditional momentum factor and become the most important component of markets. Uh it sounds crazy, but my estimate is is that we're adding about 13% a year to the S&P 500 through simply the flow of passive at this point. For the largest stocks, companies like Apple, it's north of 20%. For the smallest stocks in the S&P, it can be as little as 6%. So when you look at a year like we've had right now where the S&P is up 13%. In my calculus, that tells you that the fundamentals suggest the S&P should be basically flat. But what we're really experiencing is the impact of the way that we invest. >> Does it continue then? Do you just see that continuing on? Are you looking at what's happening in the labor market? Like what it >> Yeah. So I so I I monitor all of the flow components to it and the flows have slowed as you would expect with demographics and rising valuations among other things. Withdrawals are always going to be a function of asset levels. So as valuations get higher and higher, the withdrawals rise relative to the contributions. Um, but the share gain that we have for passive just continues to push more money in that direction and push markets ultimately up. Um, I'm currently working on a white paper with um, and one of the nice things that's happened is, you know, as I've picked up additional responsibilities in areas like this, others are now coming in with support. My work on passive has captured enough attention that other academics and practitioners >> credit on the show. Yeah. >> Well, thank you. I appreciate that. >> A lot of our guests reference your work, too. >> Oh, that's cool. Um, well, a lot of them are actually increasingly approaching me and saying, "Hey, you know, I've I've validated your work. I'd like to, you know, do some stuff on this. Could you help me co-produce a paper, whatever?" Right? And so, that's actually remarkably powerful, right? Suddenly, instead of me doing all the work, it's other people starting to do the work, and I'm merely capable of amplifying it and refining it by sharing what I've learned over the years in this area. So, we're starting to see more people pick up that mantle and carry it forward, which is really awesome. That's all I really want. By the way, I'd love to see that happen here as well. The challenge in this area is just the solutions on the right and the solutions on the left are equally terrible, right? Um I share this with people who have leftaning and they're like, "Oh, we should totally hike in, you know, hike minimum wage because that would solve the problem." It's like, "No, you guys actually don't seem to understand what the problem is. Capitalism functions on mechanisms of information exchange. Price is the mechanism for that information exchange. when you do something like hike the minimum wage, you're actually taking pricing information away from the market. What would people negotiate in the absence of that government floor? Um, so you like we're still at a stage where I think it's really important to manage the conversation and again that's part of the reaction from the right and the left because they want to amplify their competing priorities as it relates to the market itself. Um, I actually have a white paper coming out with another author that has a closed form solution on how this actually plays out. And the the quick answer is just like it ends just like it did with the XIV. We will have a crash. We will have a 1929 style event. And I'm not saying that because I want to scare people. I don't want to scare people. I don't want to scare them away from investing. But the simple reality is is that the way that we've chosen to invest is wrong. >> What do you think is the straw that breaks camel's back then on that? Well, it's the irony is is that it it ultimately doesn't matter, right? It's a little bit like the classic basian inference problem of, you know, um am I more likely to die from a shark attack or to die, >> right? And well, you know, I'm scared of the shark attack. Therefore, I assign a higher probability to it. But the reality is is that dying by shark attack is contained within the union set of dying. So, it can't be more probable. Um when you ask for the the mechanisms like the simple answer is an an increase in unemployment that slowed contributions would be meaningful. A change in our allocation mechanisms in which we decide that we're going to incorporate other assets for example private assets would reduce the flow of assets and potentially force the selling of public equities which could engender the crash. >> Something as simple as the Federal Reserve cutting interest rates perversely can actually reduce the income that is flowing to the older generation and increase their need to sell securities. that could drive it as well. >> Um, and then the last component is just simply it just goes far enough, >> right? Crazily enough, you actually discover that if you blow the bubble large enough, the volatility that is contained within that bubble actually can end it itself. >> It's fun riding the bubble up, I guess, is >> well, that was that was the analogy that I've used for years, and I continue to think it's super accurate, right? We're driving a car uphill with no brakes, right? >> Mhm. >> Driving the car uphill, totally fine. Driving the car uphill with no brakes is actually totally fine, too, because we can slow down simply by taking our foot off the accelerator. The problem is once you crust the hill. >> All right, Mike, two-part question before I let you go. What is the one risk that's been keeping you up at night? And then what's something you're optimistic about or hopeful about? >> Um, well, I mean, the risks that keep me up at night are honestly disappointing other people. And so, like I just I don't like to do that. And so I'm sleeping far less and working far harder than I'd like to be doing at this stage of my career simply because I believe that I've taken on responsibilities that I owe people to actually follow through on. Um what keeps me optimistic honestly is the letters that I receive, the commentary from it, etc. Um more because it speaks to what I really think is the most important component. Human beings are amazing. They really are. >> The capacity of an infant born um and educated properly, fed properly, etc. to change the world is truly something that we can't replace. And so we can talk about LLMs, we can talk about artificial intelligence, etc. Those are to me just tools. They're like eyeglasses, right? Eyeglasses take somebody who's nearsighted and gives them perfect vision. It allows them to participate in society. LLMs can be thought of in the same way, in the same manner that introducing the printing press facilitated the education of people and exploded human capital. I think things like LLMs have the capacity to function as an inference engine for the average person. So they can understand much more complex topics and how the world works, can facilitate education, it can raise human potential. So that's really what I'm always optimistic about is at the end of the day I think human beings win. And um I had the opportunity to fly over to London to speak with Peter McCormack who is a noted Bitcoiner, >> threehour long podcast. you know, he and I uh I think are both very much focused on a lot of the challenges that people see. And it's interesting to see people who had approached it from the Bitcoin perspective now actually recognizing that there may be other issues that they hadn't fully appreciated. It's not as simple as quote unquote fixing the money, fix the world. Um you know, he and I both see this in very much the same way, but you know, he he and I had an exchange that I put into the Substack where he said, you know, well, like how are we going to defeat China? And my reaction is like, you know, they got such unbelievable cities, etc. And and the point that I made to him is like look, slaves can make beautiful things. They can make incredible statues. They can make incredible pyramids that last throughout time, etc. But in any conflict between free men and slaves, free men win every time. And I just think the more freedom we have, more opportunity people have to make choices that reflect their actual preferences that they're able to make the investments in their children and their lives, the better off we're going to be. >> Yeah. Life, liberty, and this pursuit of happiness. >> Bingo. >> Yeah. Mike Green, it is so wonderful to have you in studio. Really appreciate you taking the time. Mike Green, portfolio manager and chief strategist at Simplify Asset Management, author of Yes, I Give a Fig. Really appreciate you. >> Thank you very much.