Republicans are Jumping Ship Days Before the Midterms | The Week

Episode Overview

• George Hahn, Heather Cox Richardson, Scott Galloway, Kyla Scanlon, Aziz Sunderji, Ed Elson, and Steve Eisman examine record-breaking midterm election spending, the structural roots of the American housing crisis, and the hidden financial risks in Anthropic's S-1 filing.
• The discussion begins with how nearly 30 million early voters and $11.2 billion in political ad spending reflect a historical struggle between concentrated wealth and democratic community interests.
• Next, the guests analyze why housing remains unaffordable, tracing the problem to localized permitting control, generational wealth divides, and income inequality rather than a lack of buyer demand.
• Finally, the episode breaks down Anthropic's expected $2 trillion IPO, contrasting its rapid revenue growth against massive future compute liabilities and a lack of competitive moats.

Key Concepts

• Historical Parallels in Political Realignment: Heather Cox Richardson explains that current Republican defections from Donald Trump (such as reactions to the Amy Acton ad and a former Republican governor in South Carolina endorsing Lindsey Graham's opponent) mirror the 1850s, 1890s, and 1920s/1930s. In the 1850s and 1860s, culminating in the November 1863 Gettysburg Address, the central question of the Civil War was whether government exists to protect property that privileges a small elite of Southern enslavers or to protect the good of the community. Richardson views today's pushback against billionaires, symbolized by the fight against data centers, as the modern equivalent of this struggle, whereas Scott Galloway focuses on intergenerational inequality (noting that in France, 1/3 of education spending goes to non-teaching former teachers and retirees earn more on average than working citizens, a topic Richardson declines to evaluate as she is not a specialist in France).
• Diminishing Returns and Wealth Distortion in Campaign Finance: According to The New York Times, the current midterm cycle is the most expensive on record at over $11.2 billion, topping the entire 2024 presidential election. Galloway estimates total spending is around $11 billion versus $10 billion previously, with $850 million going toward a single Texas Senate race to tell voters in Waco what they already know, driving the return on investment for political money to a record low. Furthermore, without campaign spending limits, extreme wealth distorts democracy: Galloway notes that Elon Musk (worth $1 trillion) spending roughly $300 million in the midterms is proportionally equivalent to a millionaire (worth $1 million) spending $300 on a nice dinner.
• Housing as a Speculative Asset vs. Shelter: Citing Derek Thompson, Kyla Scanlon notes that American housing must function simultaneously as a place to live and a speculative asset. Because older Americans (particularly those over 55 who benefited from post-World War II boom policies) have their wealth tied up in their homes and the stock market, they resist new local construction, forcing younger buyers to rely on parental or outside financial help. Galloway adds that shifting permitting power from local bureaucrats to homeowners created a system where locals block construction to avoid traffic and maintain scarcity to inflate their primary asset's value.
• Why Demand Subsidies Worsen Housing Affordability: Aziz Sunderji cites an 1856 New York Times article titled "High Rents" about New York tenements to show that housing scarcity in productive cities is centuries old, driven heavily by income inequality as high-earning investment bankers compete with teachers for positional land. While Sunderji expresses humility and doubts there is a silver bullet solution, Galloway argues that housing is strictly a supply problem. Consequently, government policies that spend tens of billions of dollars on low-income housing tax credits, mortgage interest deductions, and first-time homebuyer credits only subsidize demand, which escalates prices when paired with national NIMBYism.
• Unrecognized Liabilities and Missing Moats in AI Valuations: Anthropic's SEC S-1 filing targets an IPO valuation of up to $2 trillion, showing first-half revenue rising to $16.3 billion (up from $1.2 billion a year prior) and operating losses narrowing to around $700 million. However, Ed Elson points out that the end of the S-1 discloses over $800 billion in future compute commitments not yet on the income statement (including $110 billion with Amazon, $115 billion with Google, and $161 billion with Broadcom), alongside billions in planned capital expenditures for its own compute. While Elson notes it is only a theory, not a fact, that the IPO was timed to precede these exploding losses, he stresses that Anthropic is a risky venture bet rather than a proven corporate investment. Steve Eisman adds that he will not invest because the company lacks a competitive moat, noting that if reports of a 50% price cut are true, it proves price-cutting is their only way to gain market share.

Quotes

• At 6:04 - "In a capitalist society with no campaign spending limits, a trillionaire can basically decide, I'm going to spend $300 to swing an election, and that we need progressive tax rates to, quite frankly, protect us from the tyranny of power." - Scott Galloway explaining why extreme wealth concentration requires progressive taxation to safeguard democratic elections.
• At 17:21 - "The worst thing to happen to the housing market, especially for entrants, is we took power around housing permits out of the hands of bureaucrats, local public officials, and we put it into the hands of homeowners." - Scott Galloway identifying the structural shift in local governance that enabled NIMBYism and restricted housing supply.
• At 20:18 - "The most important numbers in the filing came at the end of the document, where we learned that Anthropic has signed more than $800 billion in future compute commitments, none of which are reflected in the current income statement, but all of which eventually will be." - Ed Elson highlighting why headline revenue and loss numbers in Anthropic's S-1 obscure massive upcoming financial obligations.

Takeaways

• Evaluate off-balance-sheet commitments before investing in tech IPOs: Do not rely solely on current income statements when assessing high-valuation companies like Anthropic; read the end of the S-1 filing to identify future capital expenditures and contractual commitments that will impact future profitability.
• Assess competitive moats through pricing behavior: Before buying into an emerging industry leader, check whether the company is forced to slash prices (such as cutting rates by 50%) to capture market share, which signals a commodity business lacking a defensible moat.
• Shift housing policy advocacy from buyer subsidies to supply incentives: Instead of supporting demand-side measures like first-time buyer credits or mortgage deductions that inflate prices, advocate for federal and local policies that withhold funds from permit-restricting jurisdictions and provide tax credits directly to developers to build more units.