In this episode, Jason Hartman welcomes Brian Alexander to talk about the small towns ignored by political parties and businesses. Brian Alexander is the author of Glass House: The 1% Economy and the Shattering of the All-American Town. They delve into the small town situation and how it’s not something that will likely change in the future. They also share how we can save these towns as a society.
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Welcome to the holistic survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The holistic survival show is your family’s insurance for a better life. Jason will teach you to think independently to understand threats and how to create the ultimate action plan. sudden change or worst case scenario. You’ll be ready. Welcome to ballistic survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.
Jason Hartman 1:00
It’s my pleasure to welcome Brian Alexander. He’s a former columnist for NBC number one best selling author of glasshouse, the 1% economy and the shattering of the all American town in his newest book, hospital life, death in dollars in small town America. He’s also the author of the chemistry between us love sex and the science of attraction. We should do another interview on that one. Brian, how are you? Where are you located?
Brian Alexander 1:28
Thank you. I’m in San Diego.
Jason Hartman 1:30
Oh, okay. Great, good stuff. So why the small town angle? I’m curious, did you live in a small town in the past,
Brian Alexander 1:35
I grew up in Lancaster, Ohio, which is the setting for a glass house. And I realized at one point that I had gone off I left Lancaster and gone off become a journalist and at one point traveled all over the world and partly to escape my small town. But I began to realize that in 21st century America, the fate of small towns, the fate of industrial America is really one of if not the biggest story happening in the country right now. So for glass house, I moved back to Lancaster and for the hospital. I moved to Bryan Ohio, so I really immersed myself in these places.
Jason Hartman 2:19
Fantastic. Well, that’s a, you’re you’re like a deep cover journalist. And so that’s excellent. How was the 1% economy shattering small town America. What do you mean by that? What’s the premise?
Brian Alexander 2:31
Well, let me just tell you what happened in Lancaster, Ohio, the largest employer, there was the anchor Hocking Glass Company. If you have a measuring cup or glass measuring cup in your house, there’s a very good chance you’re gonna see a small anchor on the bottom of that cut that’s made by anchor Hocking or a baking dish very likely to be made by anchor Hocking. At one point anchor rocking was the world’s largest maker of glass tableware. They employed over 5000 people in Lancaster alone, but they had multiple plants all over the United States. Well, through a long series of events, anchor Hocking was placed in the sights of Carl Icahn, in what was then in the 80s, called a green male operation, right. It then fell into the hands of Newell, and then Newell, Rubbermaid. It was divested from that then it was taken over by private equity, private equity, use highly leveraged debt to buy the company. They then in my view, looted the company of assets. And the company ended up declaring bankruptcy twice.
Jason Hartman 3:38
Yeah, so just just to give a little background on this, and, you know, correct me if I’m wrong on any of this. This is, you know, the story of the corporate raiders, right, became so famous or infamous, depending on how you look at it in the 80s. Mostly, I think, you know, one of the things they would do is they would look at a company and they would value it based not on the normal valuation metrics, right, the income the company produces the goodwill, the brand, so forth, they would look at the assets The company has, they take it over, usually in a hostile takeover through the stock market, of course, and then they would split up and sell off the assets piecemeal. And then they would do something that I’ve never understood real well, but you You said it, they would green mail the board, meaning they’d get rid of the board. And I don’t know exactly how green mail works. I didn’t know that at one point A long time ago, but can’t remember, you know, they’d get rid of that board so they could make all the decisions, right to do all these things. And they’d have a lot of layoffs and suffered a lot of criticism, right? Carl Icahn, I think especially was one of those, you know, who was thought of as very ruthless and a lot of layoffs. But what do you have to say about that?
Brian Alexander 4:47
Green Mills, basically, I come into your company and I say, guess what, I now own 5% of your company. I’m going to make an awful lot of trouble for you, if you don’t buy me off. So that’s what anchor Hocking did. They bought Off Carl Icahn. He paid a premium for his stock shares. And he did go away but what that did was it put anchor Hocking in what’s called in play it made anchor Hocking a target for all the other sharks out there. And ultimately what happens in the private equity world which happened in the 2000s to anchor Hocking was private equity loaded up so much debt on this company that it couldn’t survive. Workers pay the price for that. And
Jason Hartman 5:30
That’s, that’s true. They were doing leveraged buyouts LBOs, right.
Brian Alexander 5:34
Yeah, yeah, it’s a disaster for towns, it’s a disaster for communities. It’s a disaster for the actual employees.
Jason Hartman 5:41
Okay, so I just want to play the devil’s advocate with me for a moment if you would, and I gotta say, he is maybe my favorite economist. Not for this reason. But he coined or at least popularized the phrase creative destruction. And that was Joseph Schumpeter, people would argue that these companies were maybe already inefficient, or they were in dying industries. And they need this kind of alchemy in the economy, to move things around and reallocate resources in better ways. I think that’s what someone would say if they were arguing this with you, and I’m not necessarily maybe I’m a little bit, but what do you think about that?
Brian Alexander 6:20
I think that’s an incredibly self-serving description, trying to make a virtue out of a vise. It also is in the case of industries like the glass industry and anchor Hocking, creative destruction has only one side of the coin, and that’s the destruction part. There’s nothing creative about it.
Jason Hartman 6:37
What’s creative, though, they would say is they would say, look, you know, we’ve got to make way for newer industries or automation or more efficiency, or, I mean, you could argue that if this stuff didn’t happen is as much as it hurts at the time and I get it, believe me. I’m no fan of the corporatocracy. Okay, not at all. I criticize it all the time. But people wouldn’t retool. Businesses wouldn’t retool, they wouldn’t go into more innovative things and industries, right.
Brian Alexander 7:07
That’s the argument people make. I believe it’s a fallacious and untrue argument. Let me give you another example. Sure. Retail in this country is currently devastated. One of the most famous recent bankruptcies is Toys R Us 33,000 Americans lost their jobs. It was run and owned by private equity. Well, you could say well, look that it just proved that everything’s online now. It just proved that old fashioned brick and mortar really is not where it’s at these days. This is an example of creative destruction. In reality, what happens is when they buy these companies, they load up so much debt that it handcuffs, the companies from being able to innovate in handcuffs them from being able to be creative. This is what happened to anchor Hocking. They loaded up so much debt on the glass company, they had a hard time doing r&d had a hard time keeping up the factory investing in new machines, because they had to service that debt.
Jason Hartman 8:05
But the loading up of the debt isn’t that on the acquisition. So that’s to do the acquisition, anchor Hawking and Toys R Us did they are you criticizing their debt prior to the acquisition or the takeover?
Brian Alexander 8:18
No. What happens typically in a private equity takeover, private equity might put in 5%, maybe 10% of their own money. They form a blank check company. A SPAC
Jason Hartman
Right 8:30
Brian Alexander 8:31
An empty an empty suit. They go out and they borrow tons of money. The SPAC then merges with Anchor Hocking in this case, and that new company now carries that debt.
Jason Hartman 8:43
So how do we fix this then? Do we outlaw SPACs? I mean, this a lot of this stuff happened before SPACs were popularized, though. I mean, I guess, they could do they could do reverse mergers or whatever.
Brian Alexander 8:57
For a long time. Here’s one thing that’s been talked about over and over and over again, and the private equity firms all use this. It’s called the carried interest loophole. Right? carried interest is taxed as regular income, not capital gains. So there is an incentive to loot these companies of their assets. Because the partners in the private equity company are not going to get taxed at the capital gains rate, which is the way it should be, you can close that loophole today. And it would help disincentivize this kind of behavior. There was an innovation in somewhat recent legislation that said private equity has to hold on to the companies a little bit longer than they were doing. That’s good. It doesn’t solve the problem. I think you could have limits on the amount of debt. You say, look, you cannot put a certain ratio of debt on these companies lower that ratio so that the companies are quiet in so much debt. There are a number of things you could do.
Jason Hartman 9:58
Yeah, Interesting. Interesting. Why? I mean, I know that in, say the 80s and 90s, for sure, but I don’t know if it’s as true nowadays. You mentioned specifically small town America. I mean, this is not just limited to small town America anymore at all, right?
Brian Alexander 10:14
It’s not, it’s not. The big cities often have enough heft, they have often have enough diversified manufacturing or diversified industrial base, they can withstand some of this, a town like Lancaster, Ohio, where the largest employer was the Glass Company, or in the case of the new book, the hospital, were the largest employer was a company called arrow, AR, oh, they were taken over in the mergers and acquisitions craze of the 80s. And all those jobs, over 2000 jobs ended up being shifted to a right to work state, so they didn’t have to deal with unions. When you do that to a town, you got the town and you’ve got that community.
Jason Hartman 10:57
What happens? Do these people leave, say, Lancaster, for example? Do they move to another town? Do they move to where the jobs are? Or do they just kind of stay put,
Brian Alexander 11:07
It depends on the town, some people do leave these towns, other people wind up working for lower wages. So in the case of Williams County, Ohio, which is the setting of the new book, the hospital, there’s now a big menards distribution center, which is a big Midwest Home Improvement retailer. So people go to work at a place like that, that’s now the largest employer and the starting wages, there are 14 1450 an hour. Whereas before, they might have worked at arrow and be making 20 21 22 $25 an hour, those jobs are gone. And they’re being replaced by lower wage jobs. And as a result, people are living worse, and they’re living in poor health. It’s my argument in the hospital, that the current American economy is literally killing people. And it’s doing that through mechanisms of inequality.
Jason Hartman 12:03
Yeah, and I agree with you. It seems though, that for any person who’s who’s a worker, if you will, it’s not wise to live in a one horse town, because there’s no competitive market for your labor, right? Where there’s a more competitive market where there’s more choices for the employee, they can shop for a better deal with another employer. So I don’t know that we can rest all this on the feet of the corporate merger or the corporate takeover people, you know, some of it’s just that they’re not in a market that’s big enough to where they have enough job choices and opportunities, right?
Brian Alexander 12:40
Well, you’re taking the bio u haul side of the story, which is what a famous columnist once said is that, look, we know these people just need to buy a u haul and pick up and move. So that’s one way to look at it. But you’re only looking at the
Jason Hartman 12:53
Well, I’m saying maybe don’t settle there in the first place. Because a small town doesn’t offer as many opportunities, right?
Brian Alexander 13:00
Sure. But look, there are different kinds of capital. There is cash capital, but there’s also social capital.
Jason Hartman 13:06
Sure
Brian Alexander 13:07
So let’s say I grew up in Bryan, Ohio, all my cousins, aunts, uncles, family, everybody I know in the world is there. I have a high school diploma. I gotta move to Denver. What job am I going to get in Denver that’s going to be different than a job I’m going to get in the area I live in. And in the process of moving, the expense everything else. I’m also sacrificing all this social capital. Am I really going to be better off? You got to look at it from the point of view of people who have, whose assets are not bank accounts, they are relationships with other people?
Jason Hartman 13:45
Sure. Sure. You know, being able to form other new relationships in places is an important skill. No, no question. I mean, you know, I kind of take the example of my mother, right? She grew up in upstate New York, in a little tiny town on a farm five kids, she’s the middle of five. And literally, every one of them the moment they turned 18, left and moved to California, like all of them, and they all have their now except now my mom moved out of California, but you know, it’s just kind of interesting that they just didn’t feel there was any opportunity there and they didn’t want to live on a farm and they didn’t want to live in a small town. You know, they wanted to move to San Francisco, Sacramento, LA, you know, that’s where they went.
Brian Alexander 14:28
People still do do that. In Williams County, that which is a setting of the hospital, the population is in fact decreasing. Often when young people those people who go off to college, they’re having a very difficult time getting those people to return because what are they going to return to? So I’m not saying that nobody ever wants to leave of course people do want to leave, but oftentimes people feel that they don’t really have the choice to leave.
Jason Hartman 14:54
Well, they don’t feel they have the choice but I don’t know that that can be fixed. You know if if they don’t feel they have the choice. But part of this is sort of the the scale problem, and I’m really concerned about this nowadays with these big tech companies. I think they’ve become incredibly abusive. You know, Amazon is just rolling over the entire world. I mean, it’s absolutely unbelievable. And I think this comes down to the fact that there’s really just like, no interest in the past many decades for any antitrust enforcement anymore, you know, and we look at the censorship problem with these big tech companies. And there just doesn’t seem to be any interest by Republicans, Democrats, you know, since I don’t know since at&t was busted up to have any real antitrust stuff anymore. And monopolies are scary, or duopolies are scary enough, right?
Brian Alexander 15:47
Part of the new book, the hospital because healthcare is becoming monopolistic, and all realistic. And the reason it’s doing that is pricing power. And so what you have
Jason Hartman 15:58
What power did you say?
Brian Alexander 16:00
Pricing? Pricing
Jason Hartman 16:01
pricing power? Yeah.
Brian Alexander 16:03
So what you have are these gigantic health systems now that are taking over entire regions of the country, and they are becoming an essence, a monopoly. And it’s been shown over and over again, but through economic research, that when you have this consolidation in healthcare, which is really speeding along at an incredible pace, prices rise, and quality either does not increase, or it can actually decrease. And that’s why the hospital, which is the subject of the book, The hospital is struggling to remain independent. It’s trying not to be taken over by one of the health systems because it feels it can serve its people better by being an independent.
Jason Hartman 16:48
Right. And, you know, a big part of this problem really comes I mean, you address it in our discussion initially. But it comes way before that really, just the way capital formation works in this country. There’s almost no choice in in coffee shops anymore. It’s all Starbucks now. Right? And, you know, I hate Starbucks, personally, I think their coffee and food is poisonous. It’s giving everybody diabetes, cancer and obesity. It’s absolutely awful. And the big tech companies, you know, all the venture capital rushes to these big tech companies. They’re not financing steel mills, and you know, more traditional businesses. Nobody cares about financing that stuff. They’re all going for the bright, shiny objects, so they throw their money at Amazon and Facebook. And these companies just become incredibly abusive. You know, power corrupts, absolute power corrupts absolutely. As the saying goes,
Brian Alexander 17:42
This is how you end up having booming cities and booming economies on the two coasts, and a hollowed-out middle. And what you get when you have a hollowed-out middle is a lot of disaffection, a lot of despair. And you end up with the political turmoil that we have just lived through. Implications of all this are very big.
Jason Hartman 18:03
And interestingly, you know, those hollowed-out people and those disaffected people are largely Trump supporters. You know, that’s part of the populist movement, which is kind of counterintuitive almost, isn’t it?
Brian Alexander 18:15
Trump just didn’t come out of nowhere. He came out of a 40 year period from Ronald Reagan to today that really disregarded big swaths of our country. I would count both parties in that. Bill Clinton himself has a fair amount to answer for actually,
Jason Hartman 18:35
Oh, yeah. NAFTA? How’s that one? I mean,
Brian Alexander 18:37
There’s a lot of forces at work that really have played and have really paid for it. It’s all coming home to roost right now.
Jason Hartman 18:45
Yeah. And I don’t see it getting any better. Now the, there’s one slight change, and that would be COVID. Right? Because that has caused flight out of these cities, and into more suburban markets. So you know, that will even out the flow a little bit, but it’s not going to be extreme for this issue that you mentioned, what has to happen is the change in capital formation, not going to the winner take all society, and all these tech companies,
Brian Alexander 19:14
The last 25% of the hospital deals with the COVID pandemic. And the reason it does is not only because it’s it’s an obvious health issue, but it really reveals the fault lines that we’ve been trying to ignore, for the last 40 years with issues of inequality, low wages, the gutting of some of these towns. I mean, it’s really become very obvious. The people that we call our essential workers, and we’re all praising our essential workers. We couldn’t even get them a $15 an hour minimum wage. We’re gonna have to try that again, in my view, but they are dying faster and catching it more often. COVID I’m referring to because they’ve got to go out and work. They don’t get to work from home. They got to go to a meatpacking plant. They got to go to a grocery store and on so and often those people are minorities. So we’re also dealing with the entrenched racism in our country. COVID is really exposing a lot of things we wanted to overlook for a long time.
Jason Hartman 20:10
And it’s accelerating a lot of things to the problem we have, though, is like I just read an article maybe two weeks ago, about the hero pay initiative in California and how grocery stores are now closing. They’re limiting their hours, they’re literally closing down in some cases completely. And you know, when you raise the minimum wage, who’s paying the minimum wage, the small businesses, right that they don’t have any margin, they’re not big tech companies.
Brian Alexander 20:37
The stores that closed down we’re not small businesses. Kroger’s is the number one grocery retailer in the United States. They can afford to keep the store open in Long Beach, California.
Jason Hartman 20:46
Right. But But there are some mom-and-pop stores for sure. My neighbor literally owns an Italian market, like that’s a mom-and-pop store. You know, these are two young kids that own this, this market. I don’t know the minimum wage thing. I just think it goes back to capital formation more than anything these monopolies. Because interestingly, Jeff Bezos, who I don’t think is any kind of like a good person, okay? by any means. He’s a shark. Okay. And granted, we all love the cheap prices and the convenience, but, and he’s done an incredible thing. But interestingly, he does not treat his workers well. And there’s tons of stories about that this is not my opinion. And he was against the minimum wage increase. And then he was suddenly for it when maybe he had the epiphany that it would put his small business competitors out of business because they couldn’t afford to pay it, but he could. So suddenly, he’s lobbying for minimum wage $15 an hour. And it’s just a sham. Things are not what they appear to be.
Brian Alexander 21:48
Yeah, I mean, look, people met are making in waves County, Ohio, where the hospital is is set, there are people working full time that qualify for Medicaid. And that also damages the hospital because Medicaid reimburses at a much lower rate than private or employer based insurance does. So the hospital then suffers in the case of menards menards privatizes the profits and socializes the risks, right? They put the responsibility for health care for their people, essentially on the government, because those people don’t make enough money and they qualify for Medicaid.
Jason Hartman 22:24
Yeah, these are, these are complex problems. And you know, we can debate the Walmart thing too, same idea there. Interesting. So where people can get the books and all the usual places, of course,
Brian Alexander 22:35
All the places I always just as you were describing, I always encourage people to buy books at their local booksellers
Jason Hartman 22:40
Couldn’t agree more.
Brian Alexander 22:43
But they can get it anywhere that they would normally get books. I appreciate people’s interest. I think it’s an important issue and I hope people go out and buy the book.
Jason Hartman 22:50
I do too. And what’s your website or whatever you want to share
Brian Alexander 22:53
By Matt BrianRAlexander.com.
Jason Hartman 22:56
Excellent. BrianRAlexander.com. Brian, thank you for joining us.
Brian Alexander 23:00
Appreciate the time.
Jason Hartman 23:03
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