Geoffrey Canada & Stan Druckenmiller - Generational Equity - Full Interview

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Transcript

Helen Yan: Good evening. My name is Helen Yan, and I am the coordinator of USC EDMon. On behalf of Program Board and EDMon, it is my pleasure to welcome you here tonight.

EDMon is a grassroots movement of college students to open dialogue about the state of education in the US. We hope to engage students about this topic through looking at the effects of policy, race and ethnicity, global technology, and the arts. Our formal EDMon will be the first two weeks of March, but frankly, if Jeffrey Canada happens to come to your campus in September, then September is EDMon.

We are thrilled to welcome him and Mr. Druckenmiller. During our first two years of EDMon, we’ve showcased the work and solutions of leaders in educational reform, including Wendy Kopp of Teach for America, John Deasy from LAUSD, former mayor of Los Angeles, leaders of the charter movement, and public school educators. From those discussions, we activate students to become change agents for educational reform.

Here’s a message from one of our guests from this past EDMon.

John Legend: Hello, Jeff and Stan. I am sorry I could not be there to hang out with you all today and to honor the great work that you’re doing, but I wanted to send you love and appreciation for everything you’ve done.

I’ve been able to spend a lot of time with Jeff over the years. We went around the country and talked about a movie called Waiting for Superman. We talked to countless crowds around the country and around the world, telling them how important it is for our education system to be reformed. I’ve personally seen the great work that Harlem Children’s Zone has done in New York City. I’m so grateful as a part-time New York resident — and someone who’s been there for about 13 years — to know that there’s someone in my city who cares so much about the community and is doing so much to change education for the city, and then to spread that message around the world. So thank you for all the great work you’re doing. Keep up the great work, and let me know if you need anything else from me, because I’m always there to help.

Helen Yan: Thanks, Mr. Legend, for coming to EDMon and for being an advocate for educational fairness. It is my pleasure to welcome and introduce our moderator and host for tonight, Professor David Blasco. He’s been our partner and faculty adviser on EDMon since the beginning and has helped bring many of the people I mentioned to USC. Professor Blasco currently serves as the co-director for the Lloyd Greif Center for Entrepreneurial Studies at USC, but many of you may know him from his class “The Leap,” which is among the largest and most popular at this university. If you haven’t taken it, you should. Please welcome Professor David Blasco.

Professor Blasco: Thank you. Thank you. It’s great to be here. Thanks, Helen. It’s an honor and a blast to work with you and the other student leaders on EDMon. In just two years, you’ve built something very, very special and made a huge impact. What a great night to be at USC!

As Helen said, my name is Dave Blasco. I’m the co-director of the Greif Center for Entrepreneurial Studies at USC’s Marshall School of Business. And along with Dean Jim Ellis and my co-director Helena Yli-Renko, it’s our pleasure to welcome you to this important discussion on generational equity.

Quick commercial for the Greif Center: our mission is to train tomorrow’s entrepreneurs, innovators, and leaders by teaching them the skill set and the mindset to impact the world. We’ve been doing it since 1971, and just this past week, U.S. News and World Report ranked the Greif Center as the number two entrepreneurial program in the country. Tonight is part of our grand plan to extend entrepreneurship across campus, across Los Angeles, and across all fields, including education. And if you try to tell me that what teachers do and what Jeffrey Canada has done in Harlem is not entrepreneurship, you’ll get a very, very big fight from me.

Quick programming note for those at USC: our next event is here in Bovard on October 14th, as we welcome USC graduate Craig Pyrd and his college friend Phil Ferrell. Coming on October 14th — be here, and bring your green hat. Those who know, know.

All right, getting a little more serious. Tonight’s discussion is about the future of our country and the impact on college students and education. I looked at the RSVPs, and it is a who’s who of education in Los Angeles. If I mention you, please stand and remain standing so we can see who’s here, and hold your applause to the end.

Dean Karen Gallagher, the dean of USC’s Rossier School of Education — please stand, Dean Gallagher. Can we have the house lights, please? Faculty from USC, please stand. Leaders from UCLA, LMU, David DWI from USC Hybrid High, Lia Jennings, and everyone from Teach for America, please stand. And leaders from KIPP, Green Dot, Camino Nuevo, Valor, Equitas — please, everyone who teaches or is in education, please stand and let us show our appreciation for what you do.

And joining us at the reception — somebody had to leave — is the superintendent of the second largest school district in the country. Let’s please say thank you to LAUSD superintendent John Deasy.

All right. Don’t worry, finance and business people — we’ve got plenty for you too. It’s not only education. Let’s start that with Stanley Druckenmiller, the retired chairman and founder of Duquesne Capital. Mention his name to any hedge fund manager or private equity investor and they speak in hushed, reverent tones — they almost whisper, “Stanley Druckenmiller.” His vision and results over 30 years speak for themselves.

When he retired from Duquesne Capital in 2010, his firm managed in excess of $12 billion. Yes, he is on that list of that magazine as one of the wealthiest people in the United States, and he would be even higher on that list if he didn’t donate and reinvest so much in others. His success is legendary, but so is his generosity.

And Stan teamed up with Jeffrey Canada, champion of the Harlem Children’s Zone, which has transformed the education and lives of thousands and thousands of people in Harlem. His approach and results have been lauded by education reformers, parents, school districts, politicians, even Oprah Winfrey. President Obama described the Harlem Children’s Zone as “an all-encompassing, all-hands-on-deck anti-poverty effort that is literally saving a generation of children.” It is awe-inspiring what they’re doing.

I have been stalking — I mean, chasing and inviting — Jeffrey Canada to USC for years. To get one of these gentlemen is rare; to get both of them is just plain lucky. They are outliers among outliers. This is a unique partnership and friendship. Jeff is the CEO and Stan is the chairman of the board of the Harlem Children’s Zone. They have done this together. Let’s take a look at Jeff and Stan’s work at the Harlem Children’s Zone.

Narrator: What has happened in central Harlem — where failure became the norm, the schools were lousy, the health care was lousy, violence was prevalent, families were falling apart — you can’t raise children in a community like that. People had been talking about things but not doing anything.

Right here on 119th Street, if we could fix this block, then we could fix the next block, then we could fix the next block. We promised parents: if your child stays with us, I guarantee you that child is going to graduate from college. Failure is simply not an option. 60 to 70 to 80 to 97 blocks, which ends up being 10,000 children. We start with children from birth and stay with those children until they graduate. If you really want to have an impact that is large, you’ll get there going one step at a time. There is no act too small to make a difference.

Professor Blasco: Welcome, welcome, gentlemen. Welcome to USC. It’s great to finally have you here. I know you’ve received far too many emails from me over the years, but we’re finally here.

Geoffrey Canada: If I knew I was going to get this kind of reception, I would have come a long time ago. Thank you all.

Professor Blasco: And Stan, thank you so much for helping put this together. It really is a unique combination to have both of you here.

Stan Druckenmiller: Pleasure to be here.

Professor Blasco: So what we’re going to do tonight — just a little bit on the format — we’re going to talk first about their backgrounds: Jeff’s in education, and Stan’s in investing. Then Stan is going to present some slides about the topic of generational equity. Before we do that, we wanted to lay the groundwork, then talk about that a little, then get questions from the audience — with a high preference for students at USC, since they’re paying the tuition. Then we want you to stay towards the end because a group is going to do some text polling to see instant results on the messaging. Then we’ll come back for one final question, say thank you, and they said they’ll stick around for a few minutes to meet with you — although we promised to get them out at a certain time, because they have a ride back to New York. He does not miss many days at the Promise Academy. Do you?

Geoffrey Canada: Not many.

Professor Blasco: So let’s start out with why. We always want to say why — why are you doing this? But first: what is generational equity? Can you explain what that term of art means, Stan?

Stan Druckenmiller: The best way I can describe generational equity is it’s the net benefits through the government from one generation to the next. And the reason we’re here — the best way to describe it is a new study that came out a week ago.

If you are an average 65-year-old in the United States, you are set to receive $325,000 more in benefits than you put in during your lifetime. If you are unborn or a millennial, you are set to pay a lot more than you take out. An unborn person’s net payment will be $400,000 more in taxes than they will get in benefits. And the millennials — well, it’s not that bad for you either; you will also be net payers. So really, we’re looking at a $700,000 transfer from future generations to the current generation — and thus the term “generational inequity.”

Professor Blasco: David, you’ve had other terms for it.

Stan Druckenmiller: We all get mad when you have a nice dinner and your friend skips out on the check. Imagine if that check is multiple trillions of dollars and you’re left holding it. I think that’s probably what he’s going to show.

Professor Blasco: So let’s talk about why — why are you here, and why does it impact what you do?

Geoffrey Canada: Well, you know, I think people will wonder why a guy who spends all of his time trying to help poor children in Harlem wants to run around the country and talk about this issue of generational theft. And for me, it’s pretty straightforward.

My kids, who have literally grown up under some of the toughest circumstances that kids face in this country, have bought into the American dream — I mean, really bought into it. The dream they had previously sort of ended their lives in jails and prisons, with children when they’re teenagers, totally unable to make a way for themselves and their community. That was the old dream. It was a destructive sense of reality.

Stan and I got together and said that this is un-American. It’s just un-American. You should be able to reach your full potential, and the American dream should be open for everybody. Neither Stan nor I came from money. We got where we got because we worked hard and did what we wanted to do. We’ve both done all right — he’s done a little better than I have; it’s all good. But I think we both deeply believe in the future of this country and in our responsibility as adults to make sure that children have a better way.

So here, I’ve convinced this whole group of kids — we started out with 50 kids in college, then we got 100, then 300. We have a thousand of our young people in college today. But you have to understand what we’ve said to them. We’ve said that you’re joining a system that is fair — you’re going to work, you’re going to pay taxes, you’re going to do it all the right way, you’re going to work hard, and in the end you’re going to be able to receive from this country what we consider the American dream.

And when I saw the figures that Stan presented about what’s going to happen, I said that essentially we’ve told our kids a lie. We’ve told them this thing was going to be fair, it’s going to be equitable, and yet my generation is literally picking their pockets. I’m not as worried about young people who may have some supports in their life. These kids have nothing. Their families have no money, they have no support in their homes. And for us to be taking from them — to me, I think is unconscionable. That’s what really got me involved in this.

I think this is a matter of equity. I don’t think you can tell young people that if you play by the rules and work hard, your country is going to make sure you get an equitable deal — and then have a generation take that money away. That’s why I’m involved.

Stan Druckenmiller: Well put. David, I’ve been following this issue because of what I do — invest on future economic trends — for many years. But the two paths crossed with Harlem Children’s Zone.

The last straw for me was the sequester. When I heard the President of the United States get up in February and say, “We’re not going to solve this problem by balancing on the back of seniors” — I’m going to show you tonight that seniors, systematically for 30 or 40 years, have been getting a wealth transfer from the young. And when I saw them cutting Head Start programs, cutting food stamps, cutting NIH grants — never touching entitlements, not even part of the conversation — we have a budget battle going on in Washington that everybody knows about. I’ll guarantee you one part that’s not going to come up in the discussion: entitlements. And that was just it for me.

I blew a fuse on TV a few times, thought that would be the end of it. The last time I did that, I made a fool out of myself about 15 years ago. And sure enough, it resonated, and we decided to go out with this message, because I think it’s a message young people need to hear.

Professor Blasco: As a footnote — if you haven’t followed Stan’s career — you lived a pretty private life. You were not in the press at all; you actually avoided it. So for you to come forward now, it must be important to you. And when you say this is not a political issue — at least in terms of the numbers — it’s apolitical. It’s just the math, and the numbers don’t add up. You’re going to show us that, right?

Stan Druckenmiller: The facts are what they are. The solutions may be political — what you cut, how to do it — but the facts themselves are not partisan. I’m going to show you facts, and they’re going to blow your mind. I thought I knew this issue because it’s what I do for a living. But the more I got into this, the unfairness and the inequity — just amazing.

And we have three-year-olds at Harlem Children’s Zone. We promise them that if they do it our way and get through college, when they’re 22 years old they’re going to have a job. Well, if we don’t fix this problem, those promises are going to be broken even if they hold up their end of the bargain.

Professor Blasco: That’s not like either of you — not to keep a promise. Let’s talk about Jeff for a minute, and then we’ll shift to you. You grew up in the South Bronx, wrote a great book — Fist Stick Knife Gun. Talk about Harlem before the Harlem Children’s Zone.

Geoffrey Canada: Well, people ask why I ended up coming up with this strategy. Harlem was a place people used to describe as all that’s wrong in the Black community in America. Our kids had the worst outcomes: more of them were going to jail and prison, fewer were graduating high school, few kids were going to college. These young people lived in a community that was literally falling down.

Stan and I would walk around Harlem, and every third building was abandoned. He stuck out a little bit more than I did in Harlem, but I was kind of scared walking around back then. The conditions these young people lived in are just unimaginable. It reminded me of the conditions I grew up in in the South Bronx, where it looked like no one gave a damn. You would think anyone who cared would not let kids grow up in places that you could look at and tell were terrible neighborhoods.

We thought this involved more than just trying to get kids an education — that the community was crumbling around them, and we had to fix it up. We had to create block associations, tenant associations. We had to start with kids at birth and help their parents learn about all the brain science that was coming out. How do you translate that information to people who want to do the best by their kids, but no one’s ever told them what to do?

So we decided that there was no area we could leave untouched. If we work with kids until they’re four and then send them to a lousy school — guess what happens? All of that hard work goes down the drain. If you work with them through elementary school and send them to a lousy middle school, two years later the kids look like all the other kids who were failing. Even when we sent our kids off to college, they ended up dropping out in record numbers. So we created this pipeline. The idea was to stick with these kids through the pipeline, get them through college, so they could come out and get jobs.

And it’s not just education — it’s arts and culture and sports and all the things that allow young people to be successful.

Now, one of the things we do is somewhat controversial: we insist that college graduation is the goal we have for our kids. Some people say, “Well, don’t you believe in vocational education?” I do. How about kids joining the fire department or police? Great jobs. I believe in that. But I believe part of the challenge we have in our community is that we have had very low expectations for these kids. And so we believe in college.

I always tell folks — whenever you’re faced with an issue like this and you don’t know what the right answer is — it’s somewhat controversial, and I haven’t said this in front of Stan before, but I tell it to the rest of the country, so I might as well say it here — I tell folks: when you don’t know what to do, do what rich people do.

I know it’s controversial. But that’s what I tell people. It seems to be working for them pretty well. People who have money have only one expectation for their children: their children are going to college. The only question is which one. Never have I seen people with money who’ve had three kids and said, “Okay, you’re going to USC, you’re going to Notre Dame, but you — I think hairdresser school.” I’ve never seen it. All of their kids go to college.

And I’m looking at my kids and saying: why shouldn’t we have the same expectation for these kids? What if you decided that every kid was going to get this message — we value you so much, we think you have so much potential, that we’re going to treat you as if you’re our own kids and make sure you go to college? So we started out with a few kids, and now we have a bunch of kids in college. We think this is part of the new American dream — that what we’re doing in Harlem needs to happen all over the country, in places where kids have failed.

Professor Blasco: And for those of you — I’m sure many people here saw the movie Waiting for Superman — the title was coined by you. Can you tell us what that title meant?

Geoffrey Canada: At the time I had said this, we never thought that was going to be the title of the movie. But I was explaining what it feels like to grow up in a place where only a superhero could save you. Kids growing up where people are murdered, where you see violence — domestic violence and regular violence — where you’re afraid to go to school because of gangs. You think this neighborhood is so horrible that you need a superhero.

And so when I found out there was no such thing as superheroes, I literally started crying. I told that story to Davis Guggenheim, and they ended up saying, “You know what, that should be the name of the movie.”

My sense is that there are still lots of places in this country where kids are waiting for anyone to come in and save them. And that’s just not the kind of America I think we have to have.

In 2013 — Stan and I grew up in a time when this country was in turmoil. We lived through the assassination of President Kennedy, of Bobby Kennedy, of Martin Luther King. That happened when we were both growing up as young people, and it looked like America had lost its soul. But there was a commitment made that we were going to level the playing field for poor children in this country, and we just have not kept that commitment.

Professor Blasco: It’s fundamentally unfair that where you’re born and who your parents are really determines your lot in life. And as you said, the old deal was: you come to this country, you put your kids in public school, you work hard, and what comes out the other end is a better life. That’s not the case anymore — except in places that happen to be lucky enough to have great schools.

So speaking of a great school — what are the essential elements of a great school? It’s tough to scale, it’s tough to duplicate and clone Jeffrey Canadas. What are the essential elements you see time after time in a great school?

Geoffrey Canada: Look, I think the examples right here — folks from Teach for America, from KIPP, maybe from Achievement First — there are folks out there running schools in places like Harlem that are successful, and they all have the same fundamentals.

One: they actually use data. It seems sort of crazy that in my business, people are having a debate about whether or not we should collect data on whether teachers can teach and children are learning. In no other business would you even entertain the thought of not collecting data. It’s like — say you sell cookies. “Is anybody buying the cookies?” “Well, I don’t know, we didn’t count.” Only in education do people say we don’t think it’s right to count. Yet we have kids failing, and no one is willing to say: in this classroom — same kind of kids — kids are learning; in this classroom, kids are failing. Why? We don’t want to know. That’s a crazy business model.

Two: trained professionals. In our country, we get teachers from the bottom third. In Scandinavia, they get them from the top third. If you have really smart people teaching kids complicated things, they’re probably going to learn better. You don’t need a PhD from a school of education to figure that out.

We have denied science in our business. One of the things that came out when I was graduating ed school in ‘75: kids in communities like Harlem, if you see where they end up in June and where they start in September, you see this “melt.” They’re losing significant ground. That came out in ‘75, and every five or ten years we proved the same thing again. So here’s the issue: kids lose ground in the summertime.

Now, all of you don’t have PhDs in education, but something might occur to you — what you might do if you faced this problem. If kids are losing time over the summer, you might come out with one idea. How is it that no place in America has decided they’re going to run school for kids in the summertime? No place. So who cares what the science says — people have a system they don’t want to change. And it’s the adults who don’t want to change it.

Part of the challenge we have in our business is that we’ve got to take the science of what works, and people have to stand back and let children be first. Yes, people in my school have to work in July. We said, “Well, that’s terrible.” Most people have to work in July. I know, I know, I know. And people say, “He’s a cruel guy.” But I think the profession — we have to treat teachers and educators like professionals and say, “We’re holding you to a set of standards, and you’ve got to meet those standards, or else you can’t be there.”

Here’s a controversial thing I say — people think it’s controversial; Stan and I don’t think it’s necessarily controversial: if you’re a teacher and you cannot teach, we think you should get another job. What sense does that make to say I’m “against teachers” because of that? If barbers were lousy and I said you should get another job, they’d say, “Oh, he hates barbers.” Only in education do they use this tactic so that you get no change, no innovation.

And part of what we need in our schools is innovation. Some of it’s going to fail. Every time something fails, they say, “See, I told you — you’ve got lousy charter schools.” Yeah, sometimes things fail. But in any other business, things fail. Someone talked me into getting a Palm Pilot — said, “Jeff, if you get this thing, it’s the latest invention.” Didn’t turn out so well. I don’t think anyone stopped innovating in technology because something failed. Only in education do they terrorize you about failure — so afraid that you won’t try anything, except what you’re doing, which is failing. That doesn’t make any sense.

In any other business, in any endeavor, you have to risk good to get great. What I’m saying is: you don’t have to risk good — you have to risk mediocre and below to get great.

Professor Blasco: Let’s talk about Harlem Children’s Zone. It started in what year?

Geoffrey Canada: Well, I’ve been there for 30 years, but we actually started this new strategy — in terms of our 97 blocks — about 15 years ago.

Professor Blasco: And you rolled out one grade at a time, starting with what age?

Geoffrey Canada: We start with kids literally from birth.

Here’s one of the things that people don’t understand about our work. We have our own schools — our charter schools, Promise Academy — which we’re very proud of. But we also work with kids in all of the traditional public schools in our zone. There are nine schools in our zone, and we have staff in all of those schools.

When I say we have a thousand kids in college, only about 70 of those kids are from Promise Academy from last year. And this year we graduated another group, so there’ll be about 150 kids out of that thousand from our Promise Academy. The rest are from the traditional public schools. Our commitment to young people in our zone is: whether you go to our school or another school, we’re going to stay with you and make sure these kids graduate high school and go to college.

Professor Blasco: Let’s talk data and results. Before Harlem Children’s Zone and Promise Academy — what was the high school graduation rate in Harlem approximately?

Geoffrey Canada: High school graduation rates were around 30%.

Professor Blasco: 30% for kids in Harlem. And fast forward — what is the percentage of your high school students that graduate?

Geoffrey Canada: Our high school graduation rates are in the high 90s.

Professor Blasco: You wouldn’t even find that at some private schools. But rightly so — that’s not the goal. The goal is college. So before Harlem Children’s Zone, what percentage of high school students attended college?

Geoffrey Canada: It was in the low teens — probably 13 to 14%.

Professor Blasco: And of the graduates of Harlem Children’s Zone and Promise Academy, what percentage attend college?

Geoffrey Canada: We get about 83% of our kids to attend college every year.

Professor Blasco: But it’s not simply schools, as you said. It’s preschool, after-school, arts, healthcare. So tell us why all those things.

Geoffrey Canada: I’ll tell you a little secret that people don’t want to really talk about. The best we’ve been able to figure out in this country around educating and preparing our young people for the workforce is something we would consider somewhere between middle and upper-middle class. If you just looked at the data and said, “Which kids in America are really doing okay?” — that would be the group. Not the wealthiest kids, but they have these basic standards.

In that group, if their kids have emotional problems, they get them counselors. If they have health problems, they have decent health care. They make sure their kids get proper exercise and nutrition. If someone has a drug problem, they go and get help. We’ve tried to replicate all that for poor kids.

People get really exercised over this — “You’re doing all those things for poor kids?” But that’s what you do for your kids. It’s nothing extraordinary; this is not the ceiling, it’s the floor of what kids need. Middle-class folks don’t say, “Just because we have decent health care, counseling, and good schools, my kids are going to be fine, I don’t have to do anything.” They are worried. They are in there every day trying to make sure their kids have every advantage. We think we’ve got to do the same thing for poor kids in America.

And people have argued that you can’t afford it. I tell people it averages about $5,000 a year per child. I could cut that number in half if I counted adults — but I don’t want to cut the number in half. I want it to be sticker shock.

Because here’s the end result of us not doing our work: look at the cost of incarceration. In New York State it’s $60,000 a year. In the city of New York it’s $147,000 a year to incarcerate someone. So someone is arguing with me about the $5,000. For $5,000 I have to get kids on grade level, keep them on grade level, get them through high school, get them into college, keep them healthy, keep them eating well, keep them exercising. You know what you get for the $147,000? People who can’t hold jobs. People who can’t take care of their families. You get nothing. And everybody is totally happy paying that price.

In California — I think you all know what’s happening with the prison population here — and people are arguing about the pennies we’re spending on these kids trying to save their lives. This gets back to this issue of equity. If we don’t protect these investments, if we don’t go after the entitlements, they’re going to slaughter all of the supports for poor kids — it’s going to be even less for them.

Professor Blasco: Let’s talk about this friendship. Both of you went to the same small school — Bowdoin College — but you didn’t know each other in college, correct?

Geoffrey Canada: No, we didn’t.

Professor Blasco: You were there a couple years before. But both from Bowdoin. Before we shift gears to Stan — can you talk about how this friendship began, and what Stan has meant to the Harlem Children’s Zone as a partner?

Geoffrey Canada: Well, I met Stan — he was on the board of the Robin Hood Foundation, and they visited us in Harlem. We both love Bowdoin; we’re both very fond of the school. And he was just intrigued that there were three African-Americans who had gone to Bowdoin — me and two other guys — who were doing something significant in the Harlem community.

You know, Stan is a numbers kind of guy, and he really wanted to make a difference. He felt like he saw something at the Harlem Children’s Zone that could make a difference. We never thought that we would have an impact on the whole nation — we didn’t think the president was going to replicate it. We just thought we could change what America feels like for a few thousand kids in Harlem.

We didn’t know one another very well. We had different political views — and still do, I’m trying to avoid that whole issue, but you’ll probably hear some of that before the night is out. But the question, for both of us, was: could we really make a difference?

I was a little concerned that someone who did not come from an environment like the one I grew up in might not stay the course. You have no idea how aggressive the growth has been at the Harlem Children’s Zone. There is no way I could have done it without Stan. No one else would have taken a bet like that on an idea — never assuming anybody would care or hear about it or know anything about it.

We both love this country. We love our city. And we love those kids in Harlem. And there was no reason for me to suspect that a guy like Stan would love kids from Harlem. In my growing up, that was never something you would just assume — that a guy working on Wall Street would care that much for the kids. But it’s not just his wallet — his home is opened up for our kids. All of my kids know “Mr. Stan,” and they all want to go to Mr. Stan’s house.

I get a kick out of it because when the kids come, they always ask me, “Mr. Canada, is this your house?” And I’m like, “No, this is not my house. My house does not look like this.” But if you want kids to really understand the promise — kids who have not a clue what it means to really make it, because they’ve not seen that vision, they’ve not been to places where everybody is striving to make it a better world — I think the exposure that Stan and my other board members have given these kids helps change their lives.

It’s been an interesting relationship. It’s decades in the making, and there’s a lot more time I think we’re going to be together.

Stan Druckenmiller: David, I remember that day like it was yesterday. I was riding at Robin Hood — we used to have our board meetings on site with the grantees — and I was riding up with the executive director and he said the guy who ran this place went to Bowdoin. It resonated with me that there were three African-Americans who went to Bowdoin.

I could give a damn that they went to Bowdoin. What struck me — and we’re talking 1993 — was: I walked up this set of stairs, like four sets of them, and there were four Black men. Robin Hood had a lot of nonprofits, but most were run by women. And a big issue in the African-American community in Harlem is dysfunctional families and not a lot of fathers around. To see four African-American men doing the good fight — I remember I went back, and there was an article on him in Time Magazine. Specifically, he had a third-degree black belt, and a couple of kids in the neighborhood had some drugs or something, and this maniac went into the apartment and practically tore down the door and got the kids and the parents. Very tough love — we’ll leave it at that.

You know, it’s funny — they were just four guys. But I knew I had a winner. I knew I had to back this guy.

Fast-forward five or six years: we’re doing all the after-school stuff. He walks in one day and says he’s got this idea — we’re going to carve out 100 square blocks in Harlem and change the community. I said, “Well, that’s great.” And then he says, “Now for the bad news: our budget, which is like a million or two million, is now going to go to $7 million.” I said, “Okay, that’s fine.” But if we do Phase Three, it’s going to be $64 million. And I’m going — Jesus Christ. This is the late ’90s, and I’m already seeing that the tech thing is a problem, and I’m trying to figure out how to make a profit off everybody else’s misery — I’m a business guy — and now I figure out the misery is about to be mine.

But it shows you my belief in this man. There’s not another human being I’ve met — and I’m sure I won’t meet one — who I would have followed on something like that. I said, “Let’s go.” But one thing — we had a board that wasn’t really good on the money side. And I said, “There’s only one condition: you’ve got to fire the whole board, make me chairman, and I’ll pick a new board.”

And by the way, the $7 million didn’t go to $64 million — it’s $105 million now. And he’s still producing great ideas. I’ve had some good investments in my time, but this man is the best one I ever made.

Geoffrey Canada: And so this is a life lesson for you students. To think I used to boo when the business school was graduating — don’t do that. There’s some folk here; be nice to them. Who knew?

People get all the credit for doing stuff, which is fine — I’ll take it. But the truth of the matter is, had there not been Stan, this would have never happened. You heard the numbers. When we told people those numbers, people even thought Stan was crazy. That is not just getting there — that’s every single year you have to build something that’s going to raise $100 million. In Harlem of all places. People never spend that kind of money in places like Harlem. That’s unheard of.

Stan Druckenmiller: I don’t know any other place — wealthy people on the Upper East Side — who thought they wanted to come in and fund work in Harlem.

Geoffrey Canada: He’s kidding. He’s giving me a hard time.

Professor Blasco: Before you present your slides — let’s talk about your career. Where did you grow up?

Stan Druckenmiller: I grew up in small towns in South Jersey until I was 9, and then I moved to Richmond, Virginia, and was there until I was 18.

Professor Blasco: And what did you study in college? What were your early career aspirations? You didn’t always want to be an investor.

Stan Druckenmiller: I was an English major my first two years, and I wanted to be an English professor. My first semester of my junior year, I took a course in economics so I could read the newspaper, because I wasn’t very good at it — even though I was supposedly an English major. I fell in love with the subject and crammed an economics major in. I think 18 out of my last 21 courses were economics courses — something absurd like that. And then I wanted to be an economics professor. I wanted to teach. I love teaching.

Professor Blasco: So you have teaching in your genes — it sounds like it called early.

Stan Druckenmiller: Well, I also have a dropout in my genes, because I went to get my PhD in economics at Michigan — and lasted a semester and a half. Anyway, I dropped out, went to work construction for six months. Then — my first marriage, which was a practice marriage — in at 22, out at 23. Don’t get married at 22, okay? Actually, she cut him, not me. She lived in Pittsburgh, and she was more connected than I was. I got a job at Pittsburgh National Bank through her stepfather.

Professor Blasco: For those who aren’t in the financial services industry — can you explain what exactly a hedge fund manager does, and how is that different than a traditional money manager, in simple terms?

Stan Druckenmiller: I have no clue. “Hedge fund” has become the wildest term out there under the most gigantic umbrella. But I think the original concept was: you were able to borrow money, so if you had $100, you might invest $120 or $130. And your fees were a percentage of the profits you made for your client. Pre-hedge fund, you would just charge 1% of whatever the client gave you.

Under the hedge fund format, really the only two things they have in common is: they generally use leverage, and they generally charge the client as a percentage of profits.

Professor Blasco: And you started your company, Duquesne Capital, in 1981, I believe. How old were you when you started your first fund, and how much did you raise?

Stan Druckenmiller: I was 28 years old. I was 27 when I was director of investments for Pittsburgh National Bank — running $6 billion. I was doing a pretty good job because the Shah of Iran went under, and I had no experience whatsoever, so I said, “This is easy — let’s put all our money in oil stocks and defense stocks.” If I had been a little older and wiser, I would have diversified. It went up a lot, so everybody thought I was a genius. I wasn’t a genius. I just didn’t know any better.

So I go to this dinner in New York — I’m making $43,000 a year — and I give a presentation on gold. And the guy says, “You don’t sound like you’re from a bank. Why don’t you start a firm?” I said, “With what? I’m worth about four grand.” And he says, “Well, I’ll pay you $10,000 a month just to talk to me.” So I started Duquesne Capital.

He said, “You can raise money.” Well, I’m such a good salesman — after a year and a half, I’d raised $900,000. That’s what I started with: $900,000.

Two years later, the guy who paid me $10,000 a month to talk to him — I woke up one morning and he was going to jail. He had some scheme, and it cost Chase Bank $256 million. By then I was up to a grand total of $7 million, with a 1% fee. For those of you who went to the wrong school — I know all USC people can do the math — I had $70,000 a year in revenues, and my overhead was $160,000. I was in deep, you know what. So that’s how it started.

Professor Blasco: You started small, but still — at 28 years old, to raise a million bucks is no easy feat. In the introduction, I did say that at the time you retired in 2010, your firm was managing $12 billion, so the growth was pretty stratospheric.

Give us a couple quick answers to educate us. What is a typical annual return for a hedge fund these days? What’s a good hedge fund return?

Stan Druckenmiller: I’d say people are pretty happy and pretty proud with about 12%.

Professor Blasco: 12% a year. So over the course of 30 years that you ran your fund, what was your average annual return?

Stan Druckenmiller: 30.4%. But who’s counting?

Professor Blasco: And how many down years?

Stan Druckenmiller: Zero.

Professor Blasco: Zero. So the question I had — “Have you invented a time machine yet, and can we go back and invest in your fund?” — the answer is no, unfortunately. You must have made a lot of people a lot of money.

Can you talk about your investment philosophy and why you got those types of results? How did you do it?

Stan Druckenmiller: Well, my idea of risk control is a little non-conventional. I like putting all my eggs in one basket and watching the basket very carefully.

I think — I don’t know what they teach at Marshall — but at most business schools they teach a lot of nonsense called “risk-adjusted return” and diversification. As a money manager, if you look at a normal portfolio, most people will make 70 to 80% of their money that year on two or three ideas, even though they’ll have 30 or 40 things in their portfolio. My concept was to put into those two or three ideas that I had the most conviction in.

I was also lucky to travel across asset classes — I traded commodities, currencies, bonds, and equities. It gave me the discipline: if I didn’t have a good idea in equities, I was happy to have no equities. Same thing with bonds. So when you have a quiver with a bunch of arrows in it, you can usually find something to put a lot of money into.

The only other thing I’d say is: too many investors look at the present. The present is already in the price. You have to think out of the box and visualize 18 to 24 months from now — what the world is going to look like, and what securities might trade at. What a company has been earning is ridiculous; it doesn’t mean anything. What you have to look at is what people think a company’s earning and what they think it’s going to earn. If you can see something two years out that’s going to be entirely different from conventional wisdom — that’s how you make money.

My first boss used to say, “The obvious is obviously wrong.” If you invest in conventional wisdom, you’re going to lose your butt — because everyone’s already there.

Professor Blasco: Let’s talk quickly about philanthropy, and then we’re going to go to your slides. In 2008 you had a big year publicly. It was reported that you made a quarter of a billion dollars. In 2009 you were listed as the most charitable person in the United States, giving away $700 million to foundations supporting medical research, education, and anti-poverty. Why do you give, and how do you decide where to invest your philanthropic dollars?

Stan Druckenmiller: Well, the first reason I give is because I can. I don’t know where it came from — I was given a gift. I’m good with compounding money. I’m a competitive person, I’ve got an ego problem, I like winning. But it really doesn’t give you that much satisfaction.

It is a great irony to me that my wife and I get honored when we go places for giving, and people think you’re nice people. I don’t do it to be a nice person. First of all, it’s a privilege and it’s fun. When you have this much money, and there are so many things out there to be done, to be able to give and shape things and direct things — it really is a source of great pleasure and satisfaction. To be able to meet people like Jeff, who is in the trenches — what he does compared to what I do, it’s not even close — but to be able to fund them and maybe make a difference through their efforts, while still doing what I do for a living because I love it — it’s fun, to tell you the truth. You can make a difference. What could be a better life than doing well and doing good?

Why wait until you’re gone to give money? To see it at work during your lifetime — it’s just a great way to live. There are statements out there about guys being greedy for not giving money away. I think they’re stupid. They have no idea the joy they’re missing.

Take a guy like Buffett, who is revered around the world. Good for him. But the man never gave away a penny until he was 70 years old, and then he hands it all over to Gates to do the fun parts. The fun is getting in there, watching great people like Jeff Canada operate, sourcing them, and working with them. Just writing a check is not what it’s about.

Geoffrey Canada: Yeah. And I’d say thanks. I can’t imagine — of all your investments — that there’s been a higher return than investing in this. It’s really spectacular.

Professor Blasco: Let’s talk about what we’re here to talk about: generational equity. You’re applying these great powers of predicting the markets and what’s going to happen in the world. Can we get the slides started so Stan can take us through what we’re looking at?

Stan, I do want to thank you for not spending all the money on graphics. You got the Berkeley one — and it’s not my fault, it’s your fault. I sent you the USC one. It says, “September 26, Jeff Canada and Stan Druckenmiller.”

Stan Druckenmiller: Nice job, David. Thank you.

Professor Blasco: The stage is yours.

Stan Druckenmiller: The first thing I’d like to say — because I have a message for the students — is that Jeff and I grew up in a time when not only were the assassinations and other problems in our country occurring, there was something called the Vietnam War. It was pretty clear, if you were in high school, that there was a real threat that in your very near future you might be going over into the rice paddies, getting bullets shot at you, and possibly facing death. And because of that, young people in the United States started a movement. We brought down a president — we brought down Lyndon Johnson. And I think if you look between the lines, we sent Mr. Nixon on his way too, although he certainly helped himself into that exit.

I’m going to present some stuff to you tonight, and I really want you to listen carefully, because I think your generation faces a clear and present danger. It’s not as obvious as it was with us, where we were facing possible death. But it’s very, very serious. And instead of them blowing up your house overnight, your house may be eaten by termites. It doesn’t matter whether it blew up overnight or it took 15 or 20 years — you still lose your house. I am hoping to inform you tonight. I can’t start a movement — that’s up to you. I barely even know how to use Facebook; in fact, I’m not on it.

But let’s just go through what’s been going on — which really has been 40 years of wealth transfer from you to the current elderly generation, and from your future children to them. And it’s about to get a whole lot worse because of the baby boom and the demographics. The share they’ve been taking from your generation — there are about to be a lot more of them taking it.

[Slide 1: Federal Government Budget Outlays]

This chart is simply federal government budget outlays as a percentage, going back many years. As you can see, when Jeff and I were in high school, about 28% of federal outlays went to what we would call transfer payments or entitlements. That number, over the last 40 years, has gone to 68%.

[Slide 2: Government Spending on Children vs. Elderly]

So where has that money gone? It certainly hasn’t gone to the young. The blue line is children — age 15 and under — and the red line is the elderly. As you can see, the share of government spending going to the elderly has completely rocketed since 1960. In fact, if you go back to 1960, about 20% of budget outlays were spent on children and the elderly combined. Those numbers are now 50% on the elderly and 15% on children. And when you hear the kind of stuff Jeff was talking about earlier, that’s frankly a tragedy.

[Slide 3: U.S. Poverty Rates by Age]

These are U.S. poverty rates. As you can see, back in the period I’m talking about — when we started out — the poverty rate for the elderly was about 30%. Because of a lot of government spending and other programs, that has come down to 9%. And I think this is a magnificent accomplishment — one we should all be very proud of.

The problem is: look at what’s happened to the poverty rate of children. It’s actually risen — from 20% to 23% over that period. So when you hear in the United States about how we’ve cured poverty and all the progress we’ve made, it’s only been made for the elderly. Our children’s poverty rate is currently higher than it was 30 or 40 years ago.

[Slide 4: U.S. vs. Other OECD Countries — Child Poverty]

Just to show you how unusual that is — look at where the USA stands among the top 35 countries in children’s poverty rate. We are second to last. Given the wealth we have, this is a disgrace.

[Slide 5: Consumption by Age Group, 1960 vs. Today]

This is a little complicated, but let me see what I can do.

The Y-axis is age and the X-axis is percentage of spending relative to the average income of a 45-year-old — a good representative level for the American workforce. If you go back to 1960 and look at the 40-year-old: they were spending about 65% of what an average 45-year-old made, and obviously saving the rest. However, a 90-year-old was spending about 50% of what the average 45-year-old made.

Fast forward to today: the 40-year-old is still spending about 60% of what a 45-year-old makes. The 90-year-old — who is unemployed — is spending 140% of what the 45-year-old makes. So back in 1960, a 40-year-old used to spend 40 or 50% more than a 90-year-old. Now a 90-year-old spends almost twice what a 40-year-old spends.

This just shows you the huge shift in wealth and spending benefits that have gone to the elderly. You can see in pink and yellow — public and private health spending — you can’t even find the pink in 1960.

[Slide 6: Change in Net Worth by Age Group, 1983–2010]

Here’s a few consequences. This is an astounding chart, and I think every young person in the room should look at this very carefully.

This is the change in net worth for certain age groups between 1983 and 2010. The average 30-year-old in 1983 was worth more than the average 30-year-old in 2010. Think about that: over a 30-year period, the net worth for the 30-year-old of each period has actually dropped. I’m not going to tell you that the 30-year-old today isn’t better off in some ways — he’s got an iPad, he’s got the internet. But his net worth has actually dropped. And my guess is that’s never happened in the history of this country before.

Now look at the 75-year-old: a 75-year-old in 1983 compared to a 75-year-old now — he’s worth 150% more than the one in 1983. So over the same time period, the net worth of a 30-year-old has dropped while the net worth of a 75-year-old has more than doubled. We’ve had a massive transfer of wealth and spending toward the elderly over the last 40 or 50 years.

[Slide 7: Demographics — Baby Boom]

Now, imagine a pie. The elderly used to eat this much of it, and now they’re eating this much of it. Children and elderly used to eat about the same. The problem is, you’re about to get a whole lot more eaters. And the reason is demographics.

When World War II ended, a lot of people came back to the United States and — well, absence makes the heart grow fonder — there was a lot of something going on that was making babies for a while. The birth rate basically averaged about 3.0 children per woman, and peaked in 1957 at 3.7. That has dropped to 2.0 today. To put that in perspective: we have 100 million more people in America today than we had in 1957, but they made more babies in 1957 than we’ll make in 2013.

The consequence of this is pretty dire from an economic sense. 1947 plus 65 equals 2012. For the next 22 years, 11,000 seniors are going to be added to those entitlement payrolls every day. Every day. In 2030 — how many of you have been to Florida? In 2030, the average population in the United States is going to be older than the average population in Florida.

[Slide 8: Worker-to-Retiree Ratio]

Now here’s why this is so ugly. Over the next 30 years, the 18-to-64 population is going to grow 17% — because you guys aren’t doing your job and having babies. But the 65-and-over population is going to grow 102%.

What does that mean economically? Today, the working-age population has 4.71 workers for every older person they’re supporting in the entitlement system. In 2030, there are only going to be 2.4. Literally, the number of working people there to support the elderly is going to drop in half.

[Slide 9: Revenue vs. Outlays]

So here’s the problem. In red, you have outlays — primarily driven by entitlements and the demographic boom I just described. In blue, you have revenues — basically where tax rates have yielded over the last 40 years, which is about 18% of GDP. As the red continues to climb, the gap between the two continues to grow.

Now, if I lent Jeff some money and he agreed to pay me back at a future date, I think most people in the room would agree he has a debt. Well, in the United States we have something like a payroll tax. I’m sure some of you are already paying it. David, Jeff, and I are paying it. And we’re giving it to the government, and when we’re 65 they promise to start paying us that money back. Well, you know how the government accounts for that? They don’t call it a debt. They call it revenue.

[Slide 10: True National Debt — $205 Trillion]

So if you took those debts and put them on the government balance sheet — you have all these scaremongers running around talking about $17 trillion in debt. If you did the accounting that they do for any company in America — except maybe Enron, and Fannie and Freddie a few years ago — the debt today is not $17 trillion. It’s $205 trillion. All I’ve done is take that money that’s off balance sheet — those payments promised to me, you, and Jeff when we come of age — and put them on the balance sheet.

And there lies the problem. That fiscal gap is $205 trillion. And guess who’s going to pay for that?

[Slide 11: Generational Transfers]

The young people. The money my generation has been getting — this transfer that’s been going on for 30 or 40 years — because we’ve had this great lobbying arm called the AARP, we are actually going to be ahead of the game. We’re going to get $327,000 more in benefits than we put in. But the unborn — my great-grandchildren — they are going to be net payers of $420,000.

So when you hear President Obama say, “We’ve got to do something fair and balanced, and we don’t want to do this on the back of seniors” — how can they look you straight in the face when there’s a $700,000 inequity between today’s seniors versus future seniors?

And in the meantime, the Republicans on their side are talking about all the great cuts they’re doing — they’re not touching entitlements. This is where the money is. They’re cutting NIH grants, they’re cutting Head Start, they’re cutting food stamps. The only thing that’s not being touched is the only place there’s any real money, which is entitlements.

When we say entitlements, we’re talking about Social Security and Medicare as the largest obligations, and a bigger part of Medicaid than you would think. That first slide, which was 67% — when you net out Medicaid and unemployment benefits and such — about 51% goes to the elderly.

[Slide 12: Next 10 Years’ Budget Allocation]

Here’s what’s going to happen in the next 10 years, per the CBO budget endorsed by the administration: spending goes up $1 trillion. I’m okay with that. Of the trillion dollars, $875 billion goes to Medicare, Medicaid, and Social Security. How much do you think goes to children? $6 billion. And that includes what they’re going to get from Medicaid, because education spending is going down. So net that out: $875 billion on one side, $6 billion on the other. This whole budget fight is a fraud. This is where the money is, not where you’re hearing about in the newscasts.

[Slide 13: Why Act Now — Compounding Costs]

One of the things you’ll hear is: “This debt bomb doesn’t hit for 10 or 15 years.” First of all, I don’t even think you need to worry about a debt bomb to justify fixing this thing — it’s just grossly unfair. But if you want to talk about why you need to act now as opposed to later:

If you raise all taxes — income, payroll, capital gains, dividends — to 55%, the problem would supposedly go away. The economy would probably tank, and then you’d have another problem. Or you could cut all spending 36% — all of it. President Obama’s limousine, military, transfer payments — everything cut 36%.

But the key point of this chart: if you wait 30 years, you don’t have to raise taxes 55% — you have to raise them 71.6%. And you wouldn’t have to cut expenditures 36%, you’d have to cut them 44%. Simple: anybody here have a credit card and pay 18%? If you wait three or four years, you pay more money than if you pay now. That’s exactly the analogy here. The sooner we address this, the better — and the later we address it, the bigger the problem becomes.

[Slide 14: Transfer Payments vs. Investments]

This is the final slide, and probably the most heart-wrenching of all to me.

The red line is government outlays — payments to individuals, basically transfer payments. The blue line is investments. Investments include education, infrastructure, and R&D by the government.

Now, I understand I’m at the only university in the United States that has a lot of Republicans in it, and I know a lot of Republicans aren’t too high on government investments. But the blue line — let me tell you what came out of it over the last 40 or 50 years. Under Eisenhower: the interstate highway system — pretty good deal. There’s another thing that came out of it: GPS. The internet — yes, it was funded by a government program. NIH grants. The human genome project. All government investments.

Whether you like them or not, I think we can all agree: to cut out these kinds of investments, and the stuff we mentioned in Jeff’s programs, in order to fund transfer payments to the elderly — who are already doing awfully well — is a pretty tough deal.

Professor Blasco: Well done, Professor Druckenmiller. I’m going to ask two questions, and then we’re going to open it up to students.

First question: you’ve got two sides — one saying “only cut” and not raise taxes, the other saying you have to raise taxes. How do you view the capital gains tax, which has been hotly debated?

Stan Druckenmiller: Well, if you look underneath the hood, capital gains and dividends are just another subsidy from the young to the old. The average 60-year-old has five times the net worth of the average 30-year-old. So you’ve got the 30-year-old plumber paying a full income tax rate, and you’ve got the 65-year-old coupon clipper — or 60-year-old, in my case — paying a much lower rate on dividends and capital gains.

So frankly, I’d like to see them indexed up to an ordinary income level. However — and this is just my own view — I’d like to see the corporate tax rate cut to zero. Before everybody shrieks: you’re double-taxing them if you do otherwise. Secondly, if you cut the corporate tax rate to zero, a lot of corporations wouldn’t actually see a cut, because they’re already building plants in Puerto Rico and Ireland and doing fancy leasebacks and tax shelters to get it to zero anyway. You’d have economic actors making economic decisions instead of tax-oriented decisions, and I think it would be very good for the economy.

But at the very least, there is no justification in my mind for having capital gains and dividends at a lower rate than ordinary income.

Professor Blasco: That’s an excellent point. Final question for all of us: priority.

The U.S. government spends more on defense than the next 13 countries combined. Defense is 20% of the federal budget. Education is 2%. The estimated cost of the wars in Iraq, Afghanistan, and Pakistan — just the CBO’s number — is $2.5 trillion. The Brown University study, adding all the other costs like caring for returning warriors and the debt on money borrowed to finance the wars, puts the number at $6 trillion.

I heard this great quote: “Our schools are crumbling and we want to teach everyone in the world a lesson by bombing them.”

My question to Jeffrey is: can we afford to fix schools when our economy isn’t sailing, our infrastructure isn’t in great shape, and our national debt is really getting a hold of us?

Geoffrey Canada: Well, it’s always interesting to me because I know a number of secretaries of defense, and as soon as they get out of that position, they say education is the most important thing for national defense. And I always wonder: why didn’t you say that when you were in office?

People do realize this. If you were to ask me — when I travel around America — what I’m most worried about, what scares me, it is the hundreds of thousands, indeed millions, of young people that I know are not going to be able to fit into our labor market, and we don’t have a clue of what we’re going to do. We’ve just decided we’re going to lock up huge numbers of these folks.

I think there is a reasonable reduction we can make in lots of federal spending, and the military would be one place to reinvest at home. I think what people don’t believe is that the investment will do any good. So we’ve got to change this equation where you actually know this investment is going to pay off and make the country better prepared.

If you look around internationally, many of the nations we’re competing with right now are making investments in their young people and understand that that’s really where this next war is going to be fought — on an intellectual level. I think we just haven’t prepared our country correctly. There are huge amounts of waste in lots of places, including the military, and I do believe we could cut that budget.

Stan Druckenmiller: Last night I was at Berkeley — knock me out, I went to Berkeley without Jeff Canada, I was there by myself. Of all places.

I’m sure it’ll shock you to know that at Berkeley, someone in the audience — before I even got to the defense slide — ripped my head off for criticizing the elderly. “What about defense?”

So here’s my view: do we need to be spending this kind of money on defense? Of course not — absolutely not. I’m the one who put the chart up there to show you we’re spending more than 13 countries combined, and absolutely we should cut defense spending. But I want to show you something.

Remember how much I said was going to be spent on Social Security, Medicaid, and Medicare — the growth over the next 10 years: $785 billion. If you cut defense spending to zero — zero — the growth in entitlements, just the growth, over the next 10 years will eat it all up. It’s all gone.

So should we cut defense spending? Absolutely. But it is minuscule compared to what’s going to go on with entitlements over the next 20 or 30 years. And that’s what you need to understand.

Professor Blasco: Excellent point. Let’s hear it for him. All right, USC students — there are two microphones in the aisles. We’ve got time for five or six questions.

Ben Brown: Hi, my name is Ben Brown. I’m an MBA candidate here at USC’s Marshall School of Business. I want to thank you guys very much for coming out here — it’s really meant a lot to me and the rest of the USC family. I also had the pleasure of serving with Teach for America for the past three years.

My question is for you, Dr. Canada. This is a question echoed from one of my first graders, Isabella. She asked me, “Mr. B, what happens after I go to college?” What happens to the students who are put through this pipeline once they graduate college? Because it’s hard enough for a lot of USC undergrads to get jobs. When these kids move back to inner-city Harlem — what goes on?

Geoffrey Canada: This is something that Stan and I and the board are really concerned about. Obviously the macro forces around employment and unemployment impact our kids disproportionately.

I think that no one guarantees you that you’re going to be a success in America — we only say that we’re going to try and give everybody the tools so they can compete equally. Do I wish the labor market was stronger right now so my kids would more readily be absorbed? Absolutely. Are we preparing them to compete fiercely for jobs? Yes. Can we guarantee they’re going to get them? We can no more guarantee that than anyone can.

We are thinking about how to connect them to internships and other things that help them learn the codes that allow them to be viewed as more employable. But one of the reasons we’re so concerned about investments like the ones Stan was talking about at NIH and other places is that the growth that has to happen in this country — we’ve been pretty good at stimulating that growth with a formula where public and private investments pay off together. We think that has to continue.

Can I guarantee they’re going to get jobs? No. Is it going to be hard? Yes. But there is no plan B. There is no plan B.

Student: Hi, my question is also for Dr. Canada. My question lies in the Promise Neighborhoods initiative across the country. Do you realistically think it’s going to be possible to replicate your success, and if so, what are the things that all these Promise Neighborhood initiatives can’t forget to do?

Geoffrey Canada: So one of the things I really insisted to the White House around Promise Neighborhoods was that it would require a match from the private sector. I did not think that the government putting up all the money would make these successful. Because a funny thing happens when government spends money: people just say everything’s working. You’re not going to run for re-election and say, “I messed up and this didn’t work.” So I think the only way to hold folks accountable is if people invest money from the private sector, because they actually want to see their money do well.

Right now there are 10 places that have been at this for a year. I would say a third are actually doing a pretty good job — they have things on the ground, they’re building their pipelines. About a third are uncertain. And about a third are really struggling. I think it’s early — it’s only been a year. This thing takes time.

The work we do is like running an emergency room. You’ve got to have an emergency room, even if it’s not perfect. Getting a great emergency room is a tough thing to do, and people know where the really good places are. That’s where we are with the Promise Neighborhoods strategy — it is the emergency room for communities that are dying. Are all of them going to be good? No. Are you going to get some good ones? Yes. Should the lousy ones be better? Absolutely.

Nick Lingenfelter: My name is Nick Lingenfelter. I’m a full-time MBA student, class of 2013. First and foremost, thanks to all three of you for your service to academia, to society, and to the economy. I’m a 13-year veteran of the United States Navy.

My question: short of hiring some evil empire to launch another Sputnik, what advice would you give me to convince my peers to invest in education? Post-Cold War, we saw the need to invest heavily in math and science, and we did that, and we’re seeing the benefits today. How do I convince my generation to do the same?

Stan Druckenmiller: I don’t know why I’m qualified to answer this because we’re talking about communication skills within your generation, but I would just point out the competitive challenges going on with China, India, Brazil, all around the world. When you combine that with the fiscal gap we’ve described, we’re in tough, tough shape. And if you look at where money is being made today and the way societies are going, intellectual content is going to be much more important than it was 30 or 40 years ago. Education is not only as pertinent as it was back then — it’s much more pertinent, because we’re in a knowledge economy and a service economy, which obviously favors intellect over physical skills.

Geoffrey Canada: The only thing I would add is: you’re so focused on trying to be successful yourself when you’re just getting into your career that it doesn’t feel like you can really focus on the common good for the larger community. Like, “Let me take care of me, and then I’m going to get to it.”

This particular issue around education, I think, would be an exception. If we don’t get this right, your ability to live in a country that has a robust business climate — safety, security, all of that — is going to be deeply compromised. And if you haven’t been to the places where it’s failed, we have failed cities here in this country where you go in and it’s just: “How did this happen?” It happened because we lost our way.

Stan and I are realizing our generation is exiting out. Someone has to really think about this common good. I think if we don’t think about both things right now — your own career and the larger community — it’s going to be very difficult for this next generation to be successful.

Shibo Zong: Hi, my name is Shibo Zong. I’m a current junior here at USC. I study finance. My question is more for Mr. Druckenmiller. Thank you all for being here.

There’s obviously a huge generational inequity, and it’s a very timely problem. What do you see as a solution, and for aspiring businessmen and financiers like me, how can we help out?

Stan Druckenmiller: Well, one thing that kind of bugs me — even from the so-called right wing — is Paul Ryan’s idea to exempt everybody 55 and above so they have time to prepare. I’m not for that. I think we ought to freeze entitlements and take some sacrifice out of everybody right now. I don’t care whether they’re 55, 58, 85, or 90. As you can see, they’ve been eating a whole lot of pie.

Take myself as an example: in five years, I’m going to start getting $3,500 a month in Social Security. Ridiculous. Absolutely ridiculous. And that $3,500 a month is going to come out of programs that would otherwise go to his kids. Ridiculous.

And let me give you another statistic: if you are wealthy in this country, your life expectancy is five years more than if you’re poor or middle class. So I’m going to also collect five more years than the rest of society.

I want my money — I’m sorry — but I have told these guys in Washington: why don’t you at least means-test Social Security and Medicaid? Their answer is: “Once you start down that path, that’s like going from marijuana to heroin.” You know — if you means-test Stan Druckenmiller’s Social Security, the whole thing’s going to break down. That’s the same argument as: if you smoke a joint, you’re going to become a heroin addict. Only in this context do people say that, and it doesn’t make any sense.

So means-testing is one solution. But the big elephant in the room is obviously medical costs. And again, this has to be worked out in the political system — this is just Stan Druckenmiller’s opinion.

I would say two things on medical costs. Number one: malpractice reform is badly needed, because it’s a double killer. First, it transfers a lot of payments that should be going into the medical system to lawyers. Second, it encourages a lot of tests at the hospital that don’t need to be done. There’s been study after study showing we run 10 to 15 tests per patient in America when we should be doing one or two, with no efficacy whatsoever. But if you’re an insurance company or a doctor and you run all those tests, it’s a CYA policy so you don’t get sued.

And the other clear thing on medical costs: you’ve got to have the patient — the customer — have skin in the game. Nobody has any idea what their medical payments are, nor do they care, because it’s through this opaque system with a third-party payer. There was an article in the New York Times two or three weeks ago where a bag of saline that cost the hospital 44 cents — by the time the patient paid for it, it was $590. For a 44-cent bag of saline. Because by the time you get through this maze of paperwork, somebody else is paying for it and you don’t care.

I promise you, if there were no layers and you paid 30% of the bill, you would care that you paid $590 for something that cost 44 cents. To me: raise co-payments and start treating patients like customers, so they see the price and they shop.

Those are just a couple of ideas. And then the other stuff we talked about — capital gains tax, cut some defense. But the big elephant in the room is on the medical front.

Professor Blasco: Okay, last question. I apologize we have to cut it off, but they’ll stick around for a few minutes after so you can meet with them.

Fauon Jimenez: Hello, my name is Fauon Jimenez. I’m also a former English major from South Jersey. My question is for both of you. As an educational expert and as an investing genius — we’ve seen the federal government throw a lot more money at investing in higher education, and because of the way elasticities of demand work, a lot of that money is going directly to the colleges, and the students aren’t really seeing it the way we want them to. How would the two of you suggest the federal government invest in higher education so that more of it gets to the people who actually need it, and less of it gets to the universities that are already doing pretty well?

Geoffrey Canada: Well, I really can’t say that I’ve been focused on anything except the ed schools in this country. I’ve been really concerned that we don’t know whether or not folks who are going through those schools are actually helping kids. You’re going to a great school, but does that translate into folks who are actually better at working with struggling students? And I don’t think we know. I don’t think we have an accountability system in place that measures whether those folks are having an impact on young people.

I think Stan and I have both focused more on K through 12, and that’s really the area I have the most to say about.

Stan Druckenmiller: It is astounding — we work with Roland Fryer at Harvard on what works and what doesn’t work, and interestingly there’s not a high correlation between the amount of money spent and outcomes. The number one outcome predictor was expectations — which is thus why Jeff tries to make every student have college as a goal, so they’re not dumbed down with low expectations.

On higher education: probably the one great comparative advantage the United States has right now is our top 20 to 50 universities. There’s nothing like it anywhere in the world. Kids come from all over the world to be educated here, and a lot of them stay and end up being the most productive members of our society. Immigrants have been 41% of our population for 50 years.

But I read last week — correct me if I’m wrong, because I’m in California — apparently California spends more now on their prison system than they do on their entire educational system. And while a bunch of cuts were just made in higher education, you got an 11% increase for prison guards because of union pressure. There’s something a little wacky about that equation.

Geoffrey Canada: I would just say that I do believe escalating college costs are a real problem in this country. They have been rising much higher than any other measure, and it’s becoming something — we may have crossed a break-even point where the investments young people are making are not necessarily going to pay off in a reasonable time.

All of us borrowed money to go to school. Stan borrowed money, we all borrowed money, and you knew how long it would take to pay off that debt. There is nothing better than a college education if you’re looking for jobs in this country. But we are looking at escalating costs that may not be justified, and I think there’s going to have to be some pressure to really look at this issue.

Stan Druckenmiller: Sometimes when you look under the hood, you find some unintended consequences. Part of the reason I think higher education costs are going up so much is because of subsidization. It’s almost like the medical thing: a lot of students don’t feel the pain. Over half of them are on financial aid — which is a fantastic system and I’m totally for it — but loans are subsidized, and the student feels the pain 10 or 15 years later when they’re left holding the bag.

We’ve got all these suits going on in this country because people who were unqualified to have mortgages were given mortgages by banks. Well, I think to some extent, students have been encouraged to take out loans when the risk-reward wasn’t there financially. And one of the consequences: it’s caused artificial demand for education relative to the value. So the people who are screaming the loudest about the cost of education, by wanting to subsidize it more, may actually be making it an even bigger problem.

Professor Blasco: Thank you for your questions. We’re going to close with a final question, and let these guys give you their closing argument. And instead of me asking it, we’ve got a common friend who couldn’t be here tonight. He’s a graduate of USC and actually had the chance to work at the Harlem Children’s Zone and meet Mr. Druckenmiller. So could you please play our question from our good friend in Colombia?

Rafael: Hi, Jeff and Stan — it’s Rafael. I’m sorry I can’t be there today to welcome you to USC, but I know my fellow Trojans are there in force.

Working with you at the Harlem Children’s Zone was a privilege and nothing short of inspiring. I experienced firsthand what it looks like to help thousands of people in an effort to end the cycle of generational poverty, and those experiences, lessons, and friendships will be with me forever. I’m deeply grateful for the work that you both do and for being incredible role models to me.

Philanthropy is the driving force in my life, and I am determined to create pattern-breaking change in inequitable systems, especially education. Your work and inherent goodness reassure me that my ambitions are possible and motivate me to never give up.

My question for both of you is: how can my generation bring change to Washington? Millennials tend to have an outsized sense of purpose. We’re eager to serve and to change the world, but are increasingly negative about the political process. There’s a consensus that politics is a circus and rarely produces any tangible results. Besides voting for candidates that support our issues, what can we do to reverse this trend and get more of us involved?

Stan Druckenmiller: Everywhere I’ve gone on this tour, I’ve gotten asked this question. And to tell you the truth, I can’t give you the specifics. What I know is this: I’m here because I see a big, big problem down the road. That’s how I’ve made my living — identifying problems down the road. This is the most obvious and easiest one I’ve seen throughout my whole career. And your generation is at risk.

My generation took down a president when he was doing the wrong thing to us — in the Vietnam War. We didn’t have Facebook. We didn’t have Twitter. We didn’t have Tumblr. We didn’t have all this social media. Now there are 70 million young people out there. I don’t know the mechanism. If I did, I’d make it go viral myself. I don’t know the specific answer of how to implement it.

What I do know is: you can get it done. Let’s just look at the last election. I don’t think there is any group more responsible for getting Barack Obama elected. And look at the key voting issues — one of them is gay rights, and we have gay marriage laws breaking down throughout the country. Another is the environment, and now you see all the new rules with the EPA being implemented. Those are very important issues. But you’ve got to put this on your priority list.

I’m all for gay rights. But your gay friends are not going to have jobs in 20 years if you don’t deal with this issue. So I implore you: there are 70 million of you. You have the power. You’re getting your butt kicked by the AARP — you’re just sitting by oddly while they take advantage of you.

I’ve given up on Washington. I make a lot of money; you’d think I have political access. I can’t move Washington on this, because their job is to get reelected and they know old people vote and you don’t. So it has to be up to you. That’s why I’m going around the country trying to get you stirred up. I implore you to act.

Professor Blasco: I really appreciate you coming out tonight. Thank you. Before I give you the closing point, Mr. Canada — it looks like this is going to be a fight. Not only do older people vote more regularly and more issue-specifically than young people, but they also have power that this generation doesn’t — lobbyists, influence in Washington. There’s no counterbalance for the young people of America. So you’re going to this fight — are you someone they can count on if they need something?

Stan Druckenmiller: Yes, I am. And that’s why I’m here. My dream is that somebody in one of these presentations we do comes back working on the problem. Someone out there comes up with a solution — not to the policy problem, but to the political thing. My instinct is that it’s social media, but I’m a 60-year-old washed-up money manager. I don’t have the answer to that question. I know the problem. I’ve explained the problem to them. They have to do it themselves. Because Washington is not going to do it.

But I disagree with you — they have a lot of power. They have 70 million votes. And again, we’ve seen them influence other things. My own answer to the “why don’t they act” question is: there’s just ignorance. And by the way, I think your grandparents — I don’t think it’s greed. I think 90% of grandparents, if they knew these numbers, would be willing to contribute to the solution. I really do.

Professor Blasco: Good point. Mr. Canada — why does this have to change now, and what can they do?

Geoffrey Canada: Well, let me tell you one of the things that I find inspiring. Stan and I grew up in a time when our country was so polarized around issues of race that there was literally a war going on in America. It was not unusual to see pictures of people being beaten, dogs being set on people, fire hoses. We were both young when they blew up those little girls in that church just because they happened to be Black. So we’ve seen a country that has gone through a really radical transformation. This country is not what it was. And when I look out at the audience and who the new America is, I see a totally different group of folks — people unfettered by all of that baggage from my generation.

The case we’re making today is not that we want to take anything from seniors. It’s really not. It sounds like maybe we want to take away their Medicaid or Social Security — that is not what we’re saying. We are talking about modest reforms that will bring equity to the generations.

I believe, like Stan says, that this generation has tools that were not available to us in the ’60s — to actually bring this movement forward. The thing you’re going to find is that you are going to hear nothing but budget debates and arguments from both sides, and you will see why Stan and I have said Republicans are terrible and Democrats are terrible. This is something that no one is going to solve for you if you don’t do it for yourself.

But I feel like this generation is totally up to that. A very small number — Stan and myself and a handful of folks — decided that we were going to put a stake in the ground and try to figure out how we were going to end generational poverty in one of the most distressed communities in this country. It takes action. It takes sometimes strange bedfellows to get together to make things work. But the great thing about this country is that individuals have a lot more power and influence than they think.

We have, I think, the most creative generation that has ever been on the face of the earth when we look at the brilliance of this generation. So I am hopeful that you all will solve this. And if you don’t, I will blame you. I will accuse you. I will talk bad about this generation for years to come.

This is something that Stan and I are committed to. We have no ulterior motive around this — this is really about what we think is good for this country.

I will just end on this: there have been two other times that Stan has shown me charts like the ones you’ve seen here today. Both times they predicted a future almost to the month of what would happen. The second time he did it, it was around the mortgage crisis — a year before the crisis ever hit — and he predicted to the month when this thing was going to fall apart.

So here I am, a non-financial guy looking at charts just the same way you look at them, and saying, “But Stan, if this is true, then starting in the fall, this whole thing is going to fall apart.” And he said, “Yes.” And we went to Washington — he and I — and we made the case to try and save this country. And no one would listen. We almost watched America destroyed, and it wasn’t for lack of information or knowledge — it was that people wouldn’t act.

So this time, we said: we can’t trust Washington. We have to go to the people who are going to be directly impacted by this and make our case to them, and trust that in the end they’re going to act and do the right thing to save America. That’s why we’re here. And we wish you Godspeed.

Professor Blasco: All right. We’d like to thank our guests and give them a little piece of USC to take with them as they continue on this great tour.

It’s rare to get either one of these guys to speak. To get both of them is very lucky. It’s good to be lucky. It’s good to be part of the Trojan family. And it’s good to know the Wersin family — Dick and Brian — who are good friends and part of the USC family. They’re the ones who put this together. Please help us thank Dick and Brian Wersin.

Brian Wersin: Well done, brother. It all started with an email in 2010 from Brian to Jeff, and the badgering didn’t stop until this year — and luckily it all came together.

Outside this auditorium is a statue at the center of our campus. It’s affectionately called Tommy Trojan — our leader and mascot. And on the back of that statue are inscribed five traits of the ideal Trojan: faithful, scholarly, skillful, courageous, and ambitious. You certainly embody all of that — plus inspiring, and successful, and all those other things that you’ve heard.

So as a small token of our appreciation, the students and faculty of USC would like to present both Jeff and Stan with these Trojan Awards.

Professor Blasco: Congratulations! One more time — Jeffrey Canada, Stan Druckenmiller. Come on up and say hello. Have a good night. Thank you.