Deep Dive
Shownotes Transcript
Hello! Welcome to Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios with Emily Peck of Axios. Hello, hello. With Elizabeth Spires of the New York Times. Hello. We are going to talk about energy this week. We are going to talk about the electrical grid in Iberia, in Spain and Portugal, which crapped out.
spectacularly. Hospital operating theaters suddenly lost electricity, elevators lost electricity. It was bad. And we're going to try and work out what happened and whether it was the fault of too much solar power. We have a great guest, John Kemp, who can help walk us through that. We
We are going to talk about GDP. The first quarter GDP figure came in negative and we're going to talk about whether that is a bad thing. We are going to talk about stack ranking and whether firing people for being lower performers is a good idea. We have a Slate Plus segment on toys and whether they're too cheap. It's all coming up on Slate Money.
The Hoover Dam wasn't built in a day. And the GMC Sierra lineup wasn't built overnight. Like every American achievement, building the Sierra 1500 heavy duty and EV was the result of dedication. A dedication to mastering the art of engineering. That's what this country has done for 250 years.
This message is brought to you by Apple Card. You earn up to 3% daily cash back on every purchase without limits. Visit apple.co slash card calculator to see how much you can earn.
Subject to credit approval. Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Terms and more at applecard.com. Okay, so I think I would like to start this week with the biggest news of the week if you are a citizen of the world, which I think a lot of Americans kind of ignore the rest of the world, but the entire Iberian Peninsula basically had a blackout this week. That's a lot of people and not
not a lot of people really understand what happened. But the one person I felt who might be able to explain this better than anyone else is my old Reuters mucker, John Kemp. Hi, John. Hi, Felix. Nice to see you again. You are no longer at Reuters. You now have your own shop called Base Research. That's right. I left Reuters at the end of August last year to set out on my own. And you cover basically everything energy related. And
When things are going well, energy is a little bit like logistics, shipping, that kind of stuff. You never think about it. You just turn on the light switch and it works and you don't get stuck in the elevator. And then when things crap out, everyone's like, oh, now I care about grids and things like that. So the first question I have for you is how much time did you ever spend thinking about the Spanish energy grid before this week?
Zero. Because as long as things just keep on working, people don't think about them. And this is perfectly natural. But now we know that the Spanish energy grid and the Portuguese energy grid, because Portugal basically imports its energy from Spain, are much more fragile than we thought they were. Yeah, absolutely. I mean, power grids are the biggest connected machines on the planet.
And all power grids are inherently quite fragile. You have to match generation and electricity consumption continuously, second by second throughout the day. And you have to maintain the frequency and the voltage on the network within very tight limits. So they are inherently very fragile.
But cascading mass widespread blackouts like this are extremely rare, at least in the more advanced economies around the world. So, you know, they are inherently fragile, but this kind of incident is very rare in an advanced economy.
And why is it rare? What have we managed to solve, given how complex these beasts are? And given that, like, for instance, one of the things that happened is you have these, as you say, very narrow tolerances for voltages. And then in Spain, like, the voltage massively decreased.
exceeded those tolerances and that automatically means that a whole bunch of nuclear power stations will not just like take themselves offline you would think that you know given how fat tails are in this world that that kind of thing would happen quite frequently grids are managed on the principle of of defense in depth with multiple layers of protection and
And the grid is managed so that an individual fault with a particular power station or an individual power line is
should not spread across the network. It should not create a cascading failure of the kind that we saw in Spain and Portugal. So they are managed very prudently. They are managed with multiple layers of protection. And the real question that you have to ask, therefore, about what happened in Iberia this week is, is not what was the original cause of the failure? I mean, whether it was a particular solar power plant in the southwest of the country, for example, but why did
All of those multiple layers of protection failed and a small incident at one particular location on the grid brought the whole thing down in a matter of seconds. So that for me is the fundamental question. And that is the question that the investigators have got to have got to answer over the coming weeks and months. Somewhere in the answer to that question,
is this word, which I've read more times in the past week than I have, like, I have no idea previously, at least in this context, which is inertia. So please tell me, in this energy slash electricity grid context, what is inertia? And why is it important? Right. So we started by saying that the power grids have to match generation and consumption continuously on a second by second basis.
And there are a number of ways that they do that. You've got a control room at any given moment in time. It keeps a number of generators in reserve. And ultimately, if that fails and proves to be insufficient, you can also disconnect small numbers of customers in what we would call a rotating blackout. But.
What does make managing the grid a little bit easier is what they call rotational inertia. The traditional generators attached to the power grid, whether they are powered by coal, gas, nuclear, hydro, those generation units are very large lumps of metal rotating at very high speed. So they store tremendous amounts of kinetic energy actually within the generating unit.
And if there is a small imbalance between generation and demand on the network, that small imbalance will tend to cause those generating units to speed up or slow down very slightly. And in doing that, they will either absorb or supply just a little bit of extra electricity to the power grid. And that helps kind of keep it stable at a level, you know, at an over duration from milliseconds to a few seconds.
And it helps kind of keep the grid a little bit more stable if there is an incident on it.
And it also gives the control room time to react. So if a major power plant trips offline and you suddenly have a loss of generation, frequency will tend to decline. The remaining power plants on the grid will all slow down very slightly. But in doing so, they will provide a little bit of extra electricity to the system. That gives the power control room a little bit of time to bring on alternative sources of demands.
I love this idea that basically the spinning turbine is a battery. And when there is excess demand, because maybe the supplier's gone offline, you can draw extra power from that battery. And when there's, conversely, if there's a sudden drop in demand or a spike in supply, you can speed up those turbines and you can store the energy in that spinning turbine. Absolutely. And that is true of all turbines.
conventional power plants. So that would be true of a coal-fired plant, a gas-fired plant, a nuclear plant, or a conventional hydro plant. But it is not the case with a solar farm,
Ironically, it's not the case with a wind farm. They are not connected to the grid in the same way as a conventional power plant, and they cannot provide this kind of rotational inertia. Does that strike you as a reason to pull away from solar energy, which is what obviously some people who oppose it on principle are arguing? No.
No. And I think we need to avoid getting drawn into a sort of moral discussion about, you know, which is superior, conventional generation or renewables. I mean, I don't think that's particularly helpful. But we do need to recognise that as the share of renewable generation on the network increases, the network's inherent inertia reduces and that can create problems.
new problems for managing the grid and we need to think about how we manage the grid with a much higher share of renewable generation on the network. Power engineers have been thinking about this for at least the last five to ten years. There are multiple reports about what we need to do to ensure that the grid remains stable as the share of renewables increases and as the amount of
of inherent inertia on the network falls. So it's almost like what happened in Spain, a whole country blacking out is maybe like a...
maybe not a wake-up call since you're saying this is something that engineers have been thinking about for a decade, but it still does feel a bit like a wake-up call. Are there other regions, countries, states in the US that have to think about this? Where are the areas with the highest percentages of renewable energy that are looking at this perhaps and thinking, oh? Well, Iberia, Spain and Portugal have been very much at the forefront of moving towards renewables. And
On the day of the blackout, in the run up to the blackout, solar power was providing 60% of all Spain's generation and wind farms were providing another 10% of generation. So you pushed those sources of generation that have no inherent inertia, you pushed them to 70% of total generation on the network.
And that high percentage may well have been a contributory factor to the cascading power failure. But this could happen anywhere in the world. You're right. I think it's not so much a wake up call as much as what has up until now been a relatively technical discussion that has been occurring between power engineers and regulators is about to get elevated so that it becomes much more of a policy discussion. And I think that's the consequence of the Iberian blackout.
Do you think, I know it's hard to predict what happens next, but when you're saying 70% reliance on wind and solar was probably a contributing factor, something like this happening is going to make policymakers think twice about pushing wind.
more renewables as sources of energy? It's going to make it more difficult to do that. It's my understanding that we're trying to get to a future where we're relying more and more on renewables. But if this is a big danger, is there now going to be a shift away? So there's inevitably going to be some discussion about whether or not there are limits to how much renewable generation you should be
relying on at any given moment in time? Is there a sort of percentage threshold that it's not safe to exceed? But there are a couple of options as well. So one way that some grids have dealt with this is to create synchronized condensers on the system. So effectively what you can do is you can take an old gas or coal-fired power plant that you're no longer using to generate power,
and you connect it to the network, and you get that former generation unit effectively spinning at high speed, that then becomes a potential source of some additional inertia. And that has been done quite successfully. That's been done in the United Kingdom with an old gas-fired power plant in North Wales. It's also been done in Ireland. Because Ireland is an island, and it has relatively limited connections to the rest of the European network,
They've had to confront the issue of how to deal with renewable integration quite early on. And they've done it by basically contracting to have a number of these what they call synchronous condensers, effectively either a new build or a repurposed power plant. So we know now that this wasn't a cyber attack, but do systems that are heavily reliant on renewables present any challenges?
newer security vulnerabilities? I don't think so. I go back to the point that I made at the very beginning of this. So what the grid operators said in Spain is that there were two incidents in the southwest of the country that it's described as akin to a loss of generation. And it's a part of the country where there's a lot of solar farms, solar parks. So it's likely that it originated with a solar park, a couple of solar parks in southwestern Spain. We know that
After the first of those solar parks tripped offline, the grid managed to recover. It self-stabilized. There was enough rotational inertia for the grid to stabilize. But then a second generation asset tripped offline. And a couple of seconds later, Spain also lost its connections to the French grid and through France to the rest of the European network. And at that point, the multiplying failures just became too great. And you had a cascade across the whole system.
And as Felix pointed out at the beginning, you know, nuclear power stations for safety reasons are programmed so that as soon as they lose power, external power from the grid, they go into shutdown mode. So, you know, all of Spain's nuclear power plants at that point went into automatic shutdown and you had this cascading failure. The question for me is,
What was it about the way the grid was being run on April the 28th that caused problems at a couple of solar farms in southwestern Spain to spread in this way? And is there a different way of managing the grid that could have made it an isolated incident? That's, as you say, that's really important because what would happen if there was, say, a cyber attack that took out a particular person?
coal-fired power plant, gas-fired power plant, wind farm, nuclear plant, anywhere in the world. I mean, the system needs to be operated with sufficient stability that it can withstand the loss of any particular power plant in, say, a cyber attack.
I feel so much smarter now. I feel like we need John Kemp to come on to Slate Money on a regular basis and just like explain shit to us because now I'm like, okay, good. I understand this now. This has been amazing, John. Thank you very much. I mean, this is, look, this is something that I focused on for 20 years.
But most of the time it is very nerdy and nobody wants to hear about it. The good thing is that very occasionally, you know, these big blackouts create a moment where people are super interested in why this has happened, because it brings the whole of society to a halt.
The danger is that in six months' time, it all gets forgotten about and we just go back to normal. But I do think this has dramatised a few key issues about how we manage grids with very high shares of renewables. And I think there are some simple, effective technologies that we can mandate that will improve grid stability. And I think that's much more likely in the aftermath of what happened this week.
Slate Money is sponsored this week by Shopify. If you've shopped online, chances are you have bought from a business powered by Shopify. You know that purple shop pay button you see at checkout? The one that makes buying so incredibly easy? That's Shopify. And there's a reason so many businesses sell with it, because Shopify makes it incredibly easy to buy.
Thank you.
And hey, it has that iconic purple shop pay button that is used by millions of businesses around the world. It's why Shopify has the best converting checkout on the planet. Your customers already love it. So if you have it, they'll love you. If you want to see less carts being abandoned, it's time for you to head over to Shopify.
Sign up for your $1 per month trial and start selling today at shopify.com slash money. Go to shopify.com slash money. shopify.com slash money.
This episode of Slate Money is brought to you by Lumen. Spring is the perfect time to revitalize and feel the benefits of a well-balanced metabolism. Lumen is the world's first handheld metabolic coach. It measures your metabolism through your breath. It's a tool that can help you understand and improve your metabolic health, and it does that by you
breathe into it. It's that easy. Your metabolism is your body's engine, so optimizing your metabolic health translates to easier weight management, improved energy levels, better fitness results, and better sleep. All you need to do is breathe into your Lumen device first thing in the morning, and the app will provide a personalized nutrition plan for that day based on your measurements. It can give
tailored guidance to improve your workout, sleep, stress management. Just breathe into your Lumen device before and after workouts and meals, and you'll know exactly what's going on in your body in real time. This spring, take the next step to improving your health and go to lumen.me slash slate money to get 15% off your Lumen. That's L-U-M-E-N dot M-E slash slate money for 15% off your purchase.
So let's move back to the USA here. We had the GDP figure for the first quarter, the advanced forecast GDP figure for the first quarter. It's a bit weird to say that it's a forecast for something that's behind us, but that's how it works. And it was negative.
And if you get two successive negative quarters, then there's a very good chance you are in a recession. And the recession odds on Polymarket are spiking up to like 75% or something. And I wanted to take this opportunity to ask Emily Peck, who knows about such things and who cares about such things.
Is GDP the be all and end all? Is it really that important of a number? Felix, no, it's not. And it's not a surprise. I'm not saying anything that hasn't been said before. Here's what someone said about it many decades ago. GDP measures everything except that which makes life worthwhile. The
The person who said that was RFK Jr.'s father, Robert Kennedy. And he was right. And even the guy Kuznets, is that how we say his name? Simon Kuznets, the father of modern statistics? The father of modern statistics who created the measure gross domestic product, which measures all the goods and services produced in the United States and in the wake of the Great Depression, because we knew the economy was bad, but we didn't have any indicators to actually show us the economy was bad and
measure whether it was getting better. So he came up with GDP. And at the time, it was like a big breakthrough. And then everyone in the world, all the countries start using it. And then it's like everyone's managing their economies to this measure. But the measure leaves out
so many important things like healthcare, like quality of life, like, of course, you know, I'm going to say this, like unpaid labor and caregiving, which isn't measured at all. And it also, I mean, like in terms of healthcare in the United States, it measures a lot of healthcare because healthcare is very expensive. In other countries it measures less because it's
But not the quality of health care. Like a lot of the pieces mentioned, you know, the United States spends a lot. We create a lot of goods and services around health care. But like life expectancy is falling. Life expectancy is not in GDP. If health care gets cheaper and everyone gets healthier, that's like bad for GDP.
Right. I thought of this because I've been having all these interactions with doctors lately. We don't need to get into all of the details, but one of the doctors was telling me that a doctor in one of these mega, there's like these mega practices now, like United Healthcare owns Optum, which runs this whole system of doctors or whatnot. They measure, they have all this data to measure productivity for the doctors. And a surgeon in the system recently, according to another doctor, so it's a little third hand, my anecdote,
But let me go with it. This doctor in the system was fired because he didn't do enough surgeries. So it was determined that he wasn't working hard enough. He wasn't productive. I feel like you're foreshadowing our next segment here. Yeah, maybe. Yes.
Actually, I am. So anyways, to answer your question, which I don't quite remember anymore, GDP is imperfect for all the things I just said and for other reasons, which maybe we want to talk about, which would indicate that this negative measure that we just got this week isn't actually something to be so freaked out about because it was negative because of all the front running of
So by the way, this is the thing that really kind of threw my brain sideways for a minute. What happened in the first quarter was that a bunch of people imported a bunch of goods to try and get ahead of the tariffs. You would think that a bunch of people importing a bunch of goods and spending money up front, front-loading stuff, would be a good thing.
increase. That's more economic activity. It's not less economic activity. And so like the main number that you look at to measure economic activity would go up rather than going down. And now everyone's saying, well, that explains why GDP went down. And the reason for that is the imports are not measured in GDP. This was the advanced measure of GDP. And one thing I do want to, I want to add a little asterisk Emily to what you were saying about Simon Kuznets because
Because up until 1991, GDP was not the main measure by which the Americans measured the US economy. Instead, we used this thing called GNP. And the difference between GNP and GDP is a bit nerdy, and we don't really need to go into it. And in this advanced measure of GDP, they didn't even report GNP. That only comes in the next preliminary measure, whatever it's called. But I fully expect
that GNP, which was the thing that we used quite happily in this country until 1991, was positive.
in the first quarter for precisely this reason, because it includes the production of a bunch of American multinationals that were bringing a lot of goods into America in the way that GDP does not. I think if we want to maybe oversimplify an explanation that helps clarify this, GNP is about what the residents of a country produce, and then GDP is more about what happens within the borders. And so GDP became a more popular measure
as the economy became more globally intertwined and there was more cross-border investment, which really happened in the 80s, I think. I think actually the reason why GDP took off, I was talking to Tyler Cowen about this a couple of days ago,
is more because it creates the ability to do cross-border apples-to-apples comparison. If every single country uses GDP, then you can compare GDPs and you can compare GDP per capita and you can compare GDP growth and that kind of stuff. Whereas...
it's because of the sort of fuzziness about where the borders are, because there really aren't any borders in GNP. It becomes harder to compare countries if you're using GNP. And so people wanted to sort of say like, how am I doing compared to other countries? And to do that, you need to use GDP. But to just kind of get a feel for how well Americans are doing, you're probably better off with GNP, to be honest.
Or one of many other measures. I was thinking about this so much reading, Joseph Stiglitz wrote a very long, long piece that we read or that I read last night about GDP and its many failings. And he has like a dashboard of other metrics that he wants people to use instead, you know, health, well-being, all of this. And I was thinking about it a lot because
If we had a better metric of how you put it, Felix, how Americans are doing, then for
for most of the Biden administration, you know, the big debate was like, why aren't Americans happy? The economy is so good. But that's because the way we measure the economy leaves out all the ways in which Americans might not be, you know, happy if we had a better GDP. And I don't think GNP would cut it. The thing that Joe loves to talk about is this conception of gross national happiness, which I think was actually officially adopted by Bhutan at some point. But the problem with something like that, although it's
very elegant in its own way from a sort of like utilitarian perspective, it's also basically impossible to quantify. Another measure he suggests using is inequality. And I think that's a really smart way of looking at it, right? It's so if, I'm not going to be able to do this math, but it's like, if Americans produce $800,000 in income, but like,
700,000 is made by Elon Musk and 100,000 is shared by 10 people. Americans aren't doing well. But if Americans make $800,000 of income and everyone, all eight Americans in my example, because math is hard, are each making $100,000, that's better. But you can't tell from like the bigger number, but inequality kind of like gets you closer. You want that to be on the dashboard. And this is the problem with dashboards.
if the Fed is trying to look at how the economy is doing and whether it needs to cut rates or raise rates or whatever, it looks at a million different indicators. Alan Greenspan was famous for looking at, you know, like soy production in Oklahoma or whatever, right? Because he felt this was so important. And so the more items you have on your dashboard, and inequality should definitely be one of those items, the richer and more accurate the picture that you get of how the country as a whole is doing. But
there is always going to be this demand to boil the entire dashboard down to one number. And that one number right now tends to be GDP. That's all true. I would encourage people to read Stiglitz's book, People, Power and Profits, which is where that essay came from. Because he does sort of advocate for a bunch of sort of common sense metrics that suggest that a country's wealth should really be understood not just as the product of what the richest do, but
but how a society can treat the most vulnerable in its population how they live, which I think is an interesting way to think about it. Because very often in policy discussions, we don't talk about the downside of many of our policy choices as destroying the overall well-being of society because they're not directed in providing a safety net for people or reducing inequality in any meaningful way.
So Stiglitz doesn't try to boil it down to just one metric or a handful of metrics. It's more like a different way of thinking and quantifying, thinking about and quantifying these things that just don't enter the conversation when you're talking about GDP or traditional measures of productivity. I think they're very easy to think about. I think they're much harder to quantify on a high frequency basis.
Right. Here we are at the end of this number came out at the end of April. You know, that's literally the next month after the end of the quarter. There is no easy way of getting like accurate high frequency sort of quarterly or even monthly data on a lot of these data.
you know, slightly fuzzier metrics. And so there's always this tension between like, on the one hand, we want accuracy. And on the other hand, we want speed. And there's always a trade off between those two. And in terms of the news cycle, in terms of what the Fed cares about, and, you know, people want to know how am I doing now compared to six months ago, or a year ago, you need relatively high frequency data and getting high frequency data on something like
well-being, happiness, mortality, inequality. That's really hard. This whole segment just got me thinking about how many people
glib data points rule our lives. In the world of health, there is this long kind of ongoing struggle over BMI as a signifier of anything. It's been basically debunked. BMI, it's like body mass index. It's debunked as fairly useless because an athlete could have a BMI that signifies he's obese when actually he's just like
big and muscly, stuff like that, and like different ethnicities and have different BMI as well, blah, blah, blah. But people still use it. Like the doctors still use it. The same with weight. The doctor still uses it. Like it just...
We're going to talk about performance reviews in the next segment where employees get numbers, right? I mean, it's just like there's this like endless need to sum things up that are complicated into like one number so we can like get a handle on it and like track it and put it on a chart. But that often can like mess up our understanding in really like big picture complicated ways because we're always thinking about the economy in terms of GDP. Then just like Elizabeth and Joseph Stiglitz are saying, like we're ignoring all this pain and all these problems.
people who are suffering. And that actually contributes to a worse economy that we're not really thinking about. To tie what both of you are saying together, there's a sort of ongoing discussion that I have in every business meeting I'm in that's about media or tech. And it's, you know, are we measuring the wrong thing? And are we measuring it solely because it's easy to measure? Yeah. Yeah. Are you looking for the keys under the lamppost? That kind of thing. I mean, to be clear, GDP is
a bear to measure. Like there's nothing easy about measuring GDP. But you are saying it's easier than what Stieglitz is talking about. So it's sort of relative. I'm saying something slightly different, which is, well, let's bring it back to the beginning of the conversation where we're talking about like, are we in a recession? This whole conception of recessions, economic cycles, are we in one? Does it matter if we're in one?
is based on high frequency data, right? The whole point about a recession is that you can look at a cut, you can look at a line on a chart, you can look at, you know, a series of data points, and you can say, yeah, things started turning down around, you know, this month or this quarter, and then they started turning back up again around that month or that quarter. And so in between those two dates, that was when the country was in a recession. And
you know, call up any Fred chart and there's little button you can press. Oh, I mean, not even the button you press any Fred chart will automatically have little recession bars on it because people really care about when recessions are, how deep recessions are, how frequent recessions are, these kinds of things. And, uh, NBR, which is in charge of dating the recessions, the NBR looks like many, many more things than just GDP. Right. We had, you know, two negative quarters of GDP in 2022 and they didn't call a recession. Um,
But the idea of recessions being an important part of the economy and something we should care about, I think it's relatively uncontroversial. And I think one of the things that Joe kind of elides a little bit is that if you use his broad matrix of indicators, it does become harder to identify recessions and talk about business cycles and that kind of stuff.
So we need it, but we need other stuff too. We need other measures too. Yeah, I think of it as not an either or. You can look at both. I think people do. Yeah, for sure. Is it analogous, Elizabeth, to traffic? Like the obsession in media with traffic numbers? Like, is that the right metric? Who can say? Sort of, yeah. Yeah, I mean, there's always the problem that whatever you wind up using as a gauge is
Like the minute you start optimizing for a certain number, you wind up just doing weird artificial things to make that number go up rather than really profoundly improving what you're doing.
Today's episode of Slate Money is sponsored by NerdWallet's Smart Money Podcast. Life comes with money questions. You might want to know whether target date funds are smart or lazy, or possibly both. Should you pay off your debt or should you invest the extra cash you have? Can you deduct your dog as a home security system on your taxes? NerdWallet's Smart Money Podcast has the answers. Their finance journalists break down investing strategies, tax planning, smart ways to build
build wealth and navigate big financial decisions. So work smarter, not harder on your finances this year. Follow NerdWallet's Smart Money podcast wherever you listen and stay tuned until the end of the episode to hear the Smart Money trailer.
This message is brought to you by Apple Card. Picture this. Somewhere in the world, an Apple Card user is getting 3% daily cash back on the purchase of an iPhone 16 at Apple. That's not all. They also earn 2% back on the new shoes they bought using Apple Pay. Visit apple.co slash card calculator and see how much daily cash back you can earn. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Turn to Apple Card.
Terms and more at applecard.com. Let's talk about corporate strategy in this context of performance reviews, because this is another thing which is in the news right now. And I know it's your favorite subject, Emily. So what is up? We all hate them, but they're back.
Well, performance reviews never went away. But what did go away was the worst kind of performance review created by or popularized by GE CEO, who we talked about before, Jack Welch, the legendary CEO. And it's called stack ranking or rank and yank. So at GE, he would say,
performance that there would be a bottom 10% of performers and they would just get fired. That was the rule. If you were one of them, you were out on your butt. And a lot of other companies were like, well, Jack Welch is a genius, which again, we've discussed and is debatable. We're going to do it just like him. Most famously, Microsoft did rank and yank, but the
But the problem with rank and yank is if you're always firing the so-called bottom 10%, then you, the worker, is always in competition with your colleagues. So you're not going to be incentivized to work together. You're going to be incentivized to actually compete with each other and compete.
In the case of Microsoft, there are all these stories in this famous piece from Vanity Fair a long time ago from Kurt, how do you say his name? Eichenwald, where, you know, employees are like backstabbing each other. They're trying to look good and put the other guy down because that's how you win. It's a zero-sum way of managing your workforce. And it was a disaster. And Microsoft famously walked away from it around 2014 after the company was just like
doing terribly. And I don't know if it's a coincidence, actually, that Microsoft is now, I believe, it just surpassed Apple in market cap. And it's doing tremendously. And it's made a big comeback. And I don't think it's because they got rid of stack ranking. But I don't think it's not because they got rid of stack ranking. I think it's partly because, you know, Sajam Nadella is a really good manager. And Steve Ballmer is
is not and yeah bill gates is not and gates is an engineer bauman is a sales guy and the thing about engineers and sales guys is that both of them work in areas where individual contribution is like venerated and can be measured relatively easily um
In engineering teams, there's always like, you know, you get some engineers in the room. They always talk about this mythical like 10x engineer or 100x engineer. Like one person, if they're really good, can be like literally an order of magnitude better than another really, you know, just normally good person. Salespeople are kind of the same. Like a really good salesperson can easily sell like 10 times as much as an average salesperson. And you can totally see in like engineering teams and sales teams why a company would want to...
get as many of those incredibly good high performance who just knock out on the park and get rid of everyone else because that's just so much more efficient. To just finish what I was saying. Yeah. This system, which went away in the 2010s when interest rates were at zero and they wanted to hire a lot of talent and they wanted to become nice places to work. That system went away and performance reviews became a lot gentler. Well, now it's 2025 and TLDR. This stuff is back.
Meta is doing something where you manage out the worst performers. Microsoft is doing something like that now. And I think Google also just announced that it was changing the way it does performance reviews. I think it's worth distinguishing, though, between what Meta is doing and the way Jack Welch did it, where there's a kind of arbitrary number.
of people that are deemed low performers. They'll say like the bottom 10% or the bottom 15%. And let's say you're really good at management and you've hired a bunch of great people. The bottom 15% of the company are not necessarily going to be people who are incompetent, need to be let go. But the other thing is that the stack ranking system sometimes fails to connect strategy to execution. So let's say you're the CEO. You decide we need this new product. I'm going to go get this new team. We're going to develop this.
And then the product just doesn't work. In the numbers, it might look like all the people on that team are crappy performers and you should let them go. But that's not what happened. And so I think this is why it affects morale so much. If these systems actually work to root out people who are incompetent and not doing their jobs, I don't think anybody would have a problem with it. I think the problem is that they catch up too many people that...
you know, are being blamed for management incompetence. No, I think that's absolutely true. Like what you want is, is good managers. But I think there's something that there's a slightly more subtle thing going on here, which is that by the time you get, by the time a company gets to the size of Google or Microsoft,
or GE for that matter. It's so much not a sum of the parts operation where if you just get a bunch of high performers together and you hire 20,000 high performers, then you'll get a high performing company. And if you hire
20,000 mediocre performers, you'll get a low performing company, right? It's a coordination problem at that point. And it's a management problem at that point. And what you are trying to do is a collective action thing where you want all of these people to be working well together and
Yeah, morale is a sort of very fuzzy thing, but it's important. And obviously, if people are getting fired every year, and your colleagues are getting fired, and you're living in fear, that's bad for morale. But just more generally, the way in which one person can make a big difference to the productivity of the company just gets diluted.
The bigger the company is, and by the time you get to a company the size of Microsoft, yeah, I think it becomes increasingly pointless to think in those terms. And you should start thinking on a much more sort of systemic level about how these groups and teams and subsidiaries and all the rest of it sort of contributing to the greater whole.
I'm curious about what are the worst ways that you've seen companies evaluate people? Like what metrics that just don't make any sense? I've worked in and with companies that used literal time in the office as a metric. Oof.
which now seems you know insane but the problem is there's very few metrics that do make sense i mean with the exception of again sales people where there's a very key there's a very key obvious metric where you can look at and you can judge them how many sales did you make like that's easy but for most jobs they don't have a nice easy way of measuring them you know we can go out of
the private sector, go into government, go into education, you know, all of these things. Like it basically, it rapidly becomes impossible to find any metric at all. And maybe in the absence of any metric at all, time in the office is the only metric you have. And so that's the one that you wind up using. But yeah, like metrics in general are probably bad things to use compared to just the idea of how do we
build a company and a culture that
allows everyone to contribute in a great way. And like, obviously if there's like a person who's terrible or who is causing a huge amount of management headaches or just isn't doing what you're asking them to do, then that is an individual performance thing that can be managed. But on a sort of system wide level, the idea that let's just say hypothetically, you're in a company that needs to downsize, right? You need to have fewer people than you have for whatever reason. Like it is not at all obvious to me
that the first best way of downsizing is to fire your weakest performers. I think there are often smarter ways of doing that. The
We read a Fast Company piece to prep for this. And one of the experts they spoke to just said, the reason stack ranking is back now is just because companies want to figure out a way to justify firing workers. It allows companies to lay people off, but still feel like they're a good company. Like we're not firing people because the company is not doing well and we need to reduce headcount.
we're firing people because they're not quote unquote good performers. And that's really what's going on now, which kind of tracks and makes sense as to why this stuff is back. It's just like a cyclical thing. You know, these companies aren't raking in the cash that they used to. It's harder to
borrowing money is more expensive. They need to get rid of people. They want to look like the smarty pants they think they are. So they're bringing in these like new ways of getting productivity up. And they look at Elon Musk and they're like, he fires people, we'll fire people. And like, it's as simple as that. It's not, it's not even connected to performance. Like you don't need a performance review system to recognize that someone's not
pulling their weight and like want to fire them. You know, if you're like a decent manager day to day working with someone, you don't need to wait every six months to like review their work for the past six months. You probably don't even remember what they did. But like every day you kind of have an idea of like how the person is performing. Like performance reviews just add a weird layer on top of
a structure usually that is like an additive. It's a liability mechanism. It mitigates liability. But it's interesting, in certain industries, the fact that Elon fires people all the time is regarded as some kind of strength. Like, oh, he's fine. He can make these hard decisions and not a measure of his inability to manage people or recruit. Let's say all the people he's firing are
incompetent. Isn't that a recruiting problem on some level? Yeah, of course. Same with Trump. He's fired every cabinet member he ever has and suggests that the problem is really the individuals and their performance. And it's like, well, if everyone's incompetent, then...
maybe there's a hiring problem there. Yeah, go back and look at your hiring process before you just keep firing the bottom 10%. Ask yourself, why don't we like these bottom 10%? What did we do wrong when we hired them? The one thing I will say that Mark Zuckerberg, Elon Musk...
Donald Trump have in common is that as far as I know, none of them have ever had a manager and the culture in Silicon Valley of venerating founders and especially founders who founded their companies at relatively young ages, like straight out of college or whatever. It does wind up placing a bunch of people in incredibly powerful positions in like CEO positions who have never been managed.
And then that sort of blind spot winds up appearing in this kind of system, I think. Totally agree. I think that's such a good point. Yeah. These guys have never actually been managed. They've always been the boss. And it's only hard to fire someone if you have empathy for them, right? It's easy to fire someone if you don't care about other people. And it helps. The empathy is more likely to be there if you've been on the other side of it.
Slate Money is sponsored this week by Upwork. Hiring shouldn't be a hassle, shouldn't be a drain on your budget. Upwork is your one-stop shop to find, hire, and pay top freelance talent, saving you time and keeping costs in check. Companies at every stage turn to Upwork to get things done and find more flexibility in the way they staff key projects and initiatives. Their global marketplace is filled with top talent in IT, web, and
Thank you.
Upwork makes the entire process simpler and more affordable with industry low fees. Post a job today, hire tomorrow with Upwork. Visit Upwork.com right now and post your job for free. That is Upwork.com to post your job for free and connect with top talent ready to help your business grow. That's U-P-W-O-R-K.com. Upwork.com. We should have a numbers round, I think.
Elizabeth, do you have a number? Yes, my number is 104. And that's the number of people who are in a LinkedIn group called I'm just here for the puzzles and games. And apparently LinkedIn has games now and people are kind of into them. Like 84% of the people who try them return. And they're designed to be very short. So you can sort of do them, you know, in between, like if you just need to clear your head for a minute.
And they're created by actual humans, which for a platform the size of LinkedIn is a little surprising. There's a games editor named Paolo Piazzo, and there's a Sudoku champion named Thomas Snyder who designs all the games. Huh.
And the most popular one, I think, is called Queens. Have you ever played any of these games, Elizabeth? No, but now I want to go look at them and see. We should all play them and then we can check back next week and report. Felix is a big game guy, right? I mean, there's literally no such thing as too much games content on Slate Money. I love games. So yeah, what the hell? This is going to be my number for the week. 190 is the maximum score you can get on Bloomberg's pointed news quiz.
which is a weekly news quiz that Bloomberg has. Like most questions are multiple choice and they're not too hard, but there's a whole like meta level to it. You kind of have to decide in advance which questions you think are going to be easy or you're most likely to be able to answer. And then you can apply multipliers, the number of points you get for those questions. And you can give yourself more points for answering those questions and other questions. Does it like Jeopardy? Like the first time you play it, it's very confusing. You don't really understand it.
And then by the time we've played it once, you're like, oh, now I get it. I have got 190. This week I got 180. But there's definitely an art to sort of point maximization. And it's a highly addictive game. And that is my new jam. It's the pointed news quiz. Will you share it in the Slack? I've never seen it before, but I love a news quiz. I do the Slate one and the New York Times one all the time. Emily, what's your favorite number of the week? 230, Felix. 230.
That is the number of chicken thighs per minute that is processed by the Bader 632 thigh filleting system.
I learned this because sales of boneless chicken thighs are soaring. They've become very popular and it's apparently very easy to debone them in this thigh filleting system machine, the Bader 632 thigh filleting system. And I read about this in The Atlantic in a story called The End of Chicken Breast Dominance. And once again,
I feel a little less special because, you know, in the Peck household, we have discovered chicken thighs, not recently, but like we went through a chicken breast period. But now we realize, like everyone else, that chicken thighs are better. So has all of America. Apparently, sales of chicken breast by volume are up 4% in the past three years. Sales of thighs are up 10%.
according to the data in this piece. They're cheaper and they're harder to overcook. Harder to overcook. Key. Very key. Yes. So I'm beginning to understand this.
I never understood why people ate chicken breasts because chicken breasts are like the blandest, most terrible part of chicken. A well-cooked chicken breast is good. Well, they're very hard to cook well. Yeah. So now I'm beginning to understand why people cook chicken breasts. It's because they don't have bones and people don't like faffing around with bones. And so the solution to this problem is to buy a
What did you call this machine? A beta 632 thigh filleting system that boasts of processing 230 thighs a minute.
And if you buy one of these processing systems, then you can get all of the benefit of a chicken thigh without having to worry about the bones. I don't think you or me or Elizabeth would buy such a system because we probably couldn't use 230. But we effectively wind up receiving the benefit of this. To my knowledge, I have never bought a boneless chicken thigh. I was kind of unaware that such things even existed. Oh my goodness. Really? I have a bunch of them in my freezer right now. We had them last night. We grilled them.
them and the reason you buy boneless chicken thighs is just because you don't like bones well i buy both kinds they cook faster when they're boneless and they're easier to eat too so
There you go. It's for the boniverse among us. And also like with the rise of chicken sandwiches in fast food. You don't want to put a bone in a sandwich. No, you want to slap a boneless thigh on a sandwich. Delicious. Also, it's more forgiving, as Elizabeth has already pointed out. All right. I'm going to try a boneless chicken thigh. I'm going to do a side-by-side taste test of a boneless chicken thigh and a bone-in chicken thigh and see whether they taste different. I'm a big fan of the bone-in because I really like the bones, but not everyone agrees.
So you should grill them, okay? Grill them in your... I'll do that. Okay. Brilliant. Okay, I think that's it for us this week. Many thanks to Jessamyn, Molly, and Shana Roth and Merit Jacob for producing. A special thanks to John Kemp for explaining everything about turbines and inertia and...
renewable power. We have a Slate Plus segment coming up on Emily Watt. This was going to be my number. Let's just say Trump and dolls. It's a Barbie segment and it's a Barbie world. So do listen to that. It's great. Join Slate Plus and become a member and support Slate in all we do and listen to all of this stuff with our ads and generally be a good person that we all love.
Other than that, thanks for listening to Slate Money. And we will be back next week with more Slate. Today's episode is sponsored by NerdWallet's Smart Money Podcast. Money can be confusing. Should you invest in ETFs, get a travel rewards credit card, buy a house, or just build a really fancy pillow fort? That could work. No shame in pillow fort game. Or you could just tune in for clear, research-backed financial insights.
I'm Sean Piles, a certified financial planner professional. And I'm Elizabeth Ayola. We're the hosts of NerdWallet's Smart Money Podcast, where you bring the money questions and we bring trustworthy information back by NerdWallet's expert analysis, without the jargon or the sales pitch.
Our nerds do the research so you don't have to. We'll help you understand your options so you can make the best decision for your situation, from optimizing your investments and maximizing credit card rewards to making big money moves with confidence. Plus, we keep it real. No lectures, no judgment. Just tips and tools you can use to build wealth and take control of your finances.
Think of us as your financial GPS, helping you navigate your money decisions and avoid expensive wrong turns. Whether you're planning for retirement, weighing a big purchase, or just want to make your money work harder for you, we've got insights that you can use in real life. So if you want practical, straightforward, and actually useful financial knowledge, plus a little bit of fun along the way, follow NerdWallet's Smart Money Podcast on your favorite podcast app. Trust us, future you will thank you.
I'm Leon Nafok, and I'm the host of Slow Burn, Watergate. Before I started working on this show, everything I knew about Watergate came from the movie All the President's Men. Do you remember how it ends? Woodward and Bernstein are sitting with their typewriters, clacking away. And then there's this rapid montage of newspaper stories about campaign aides and White House officials getting convicted of crimes, about audio tapes coming out that prove Nixon's involvement in the cover-up. The last story we see is Nixon resigns. It takes a little over a minute in the movie.
In real life, it took about two years. Five men were arrested early Saturday while trying to install eavesdropping equipment. It's known as the Watergate incident. What was it like to experience those two years in real time? What were people thinking and feeling as the break-in at Democratic Party headquarters went from a weird little caper to a constitutional crisis that brought down the president?
The downfall of Richard Nixon was stranger, wilder, and more exciting than you can imagine. Over the course of eight episodes, this show is going to capture what it was like to live through the greatest political scandal of the 20th century. With today's headlines once again full of corruption, collusion, and dirty tricks, it's time for another look at the gate that started it all. Subscribe to Slow Burn now, wherever you get your podcasts.