Joel Greenblatt on understanding market factors, improving public education, reducing income inequality & more | E1159

Episode Summary

Executive Summary: In this episode of This Week in Startups, host Jason Calacanis interviews legendary investor Joel Greenblatt about his book 'Common Sense: The Investor's Guide to Equality, Opportunity, and Growth.' They discuss Greenblatt's investment philosophy, the challenges of public vs. private investing, and his innovative solutions for systemic issues in education, minimum wage, immigration, and retirement savings. Greenblatt advocates for market-based approaches like alternative certification by big tech companies, an expanded Earned Income Tax Credit, skilled immigration reform, and a compounding-based retirement system to address inequality and promote growth.

Main Topics: Investment Philosophy and Public vs. Private Markets (Priority: 5/5): Greenblatt shares his journey from running outside money to managing his own capital, discussing the psychological pressures of concentrated investing and the daily volatility of public markets. He contrasts bargain-hunting with buying great businesses cheap, and notes the shrinking number of public companies due to high regulatory costs. Education Reform and Charter Schools (Priority: 5/5): Greenblatt highlights the failure of urban school systems, where 10 out of 11 low-income/minority students fail to graduate college. He cites Success Academy charter schools and a standout district school in Brooklyn as proof that with proper support, disadvantaged students can excel. He proposes an 'end run' around the entrenched system via alternative certification standards set by major employers. Minimum Wage and Earned Income Tax Credit (EITC) (Priority: 4/5): Greenblatt argues against raising the minimum wage, which can lead to job losses and automation. Instead, he advocates expanding the EITC to supplement wages to $15-$20/hour, showing that the net cost after accounting for reduced social welfare and increased tax revenue would be far lower than the gross cost, and could even generate savings. Immigration Reform (Priority: 4/5): Greenblatt points out that skilled immigrants are a 'free gold mine,' creating jobs and boosting productivity. He proposes a market-based solution: allow unlimited skilled immigrants if an employer offers a job at $60k+ and pays a 20% tax, which would incentivize domestic hiring while capturing economic benefits. Retirement Savings and Compounding (Priority: 4/5): Greenblatt emphasizes the power of compound interest, showing that early saving (even small amounts) can outperform larger later savings. He suggests allowing higher 401k contributions for high earners, taking a portion to fund retirement accounts for low-income young people, enabling them to benefit from compounding. Wealth Tax and Political Feasibility (Priority: 3/5): Greenblatt dismisses wealth taxes as unworkable and destructive, citing failures in other countries. He advocates for practical, market-friendly solutions that can be implemented within the current political landscape, rather than idealistic overhauls.

Key Arguments: Concentrated investing is volatile but can be highly rewarding; managing other people's money adds psychological pressure that can impair decision-making. The public market's daily quotes create emotional noise; investors should focus on long-term business quality rather than short-term price movements. The current education system is a 'Soviet-style' failure for low-income students, but charters and great principals prove these students can succeed with proper support. Instead of fighting entrenched interests directly, create alternative pathways (like employer-set certification standards) that bypass the system. Raising the minimum wage harms low-skilled workers; expanding the EITC is a more efficient way to boost incomes without causing job losses. Skilled immigrants are a net economic boon; a market-based visa system with an employer tax would capture value while protecting domestic workers. Early saving, even in small amounts, is critical due to compounding; policies should help low-income young people start saving early. Wealth taxes are impractical and counterproductive; focus on incremental, politically viable reforms.

Data Points: College graduation rate for low-income/minority students in major cities: 1 out of 11 - Failure rate of 10 out of 11 for these students. Success Academy charter school performance: Number one school district in New York state - 87% minority, 80% free/reduced lunch students outperform Scarsdale and Greatneck. District school with disabilities passing rates: 99% math, 94% English - Principal Jack Spatola's school in Brooklyn; comparable district rate is 9%. Net cost of EITC after accounting for economic benefits: $9 billion - Gross cost is $68 billion; net cost is much lower due to increased tax revenue and reduced welfare costs. Cost of childhood poverty annually: $1 trillion - Includes healthcare, education, crime, incarceration, homelessness. Skilled immigrant net fiscal contribution: $500,000 to $1 million per immigrant - Each skilled immigrant creates two additional jobs for natives. Immigrant-founded Fortune 500 companies: 216 out of 500 - Immigrants or their children founded these companies. Retirement savings for median family (ages 32-61): $5,000 - Nearly half of working-age families have zero retirement savings. Social Security annual benefit for low-wage worker: $9,000 - Insufficient for retirement; need additional savings.

Pivotal Quotes: "If you're contributing $8 worth of value and you force people to pay you $15, a few things happen. One, those places go out of business or they're not competitive, or two, they use technology to substitute as much as possible." — Joel Greenblatt: Explaining the economic downside of raising the minimum wage without considering productivity. "For every skilled immigrant we take in, we make between a half a million and a million dollars. That means we collect more in taxes versus the service we give them in current dollars. It's a profitable deal." — Joel Greenblatt: Arguing for skilled immigration as a net economic benefit. "The person who started at age 19 and put in seven payments and never put in another nickel because he started earlier ends up earning more than the person who saves for 40 years but started a little bit later." — Joel Greenblatt: Illustrating the power of compound interest and early saving.

Implications: Greenblatt's market-based solutions offer a pragmatic path to address inequality without disrupting capitalism. His ideas on education, immigration, and retirement could reshape policy debates, emphasizing efficiency and incentives over ideology. For investors, his focus on long-term value and compounding remains timeless.