Dwarkesh Podcast - Austin Vernon - Energy Superabundance, Starship Missiles, & Finding Alpha

Episode Date: September 8, 2022

Austin Vernon is an engineer working on a new method for carbon capture, and he has one of the most interesting blogs on the internet, where he writes about engineering, software, economics, and investing.We discuss how energy superabundance will change the world, how Starship can be turned into a kinetic weapon, why nuclear is overrated, blockchains, batteries, flying cars, finding alpha, & much more!Watch on YouTube. Listen on Apple Podcasts, Spotify, or any other podcast platform. Read the full transcript here.Follow Austin on Twitter. Follow me on Twitter for updates on future episodes.Timestamps(0:00:00) - Intro(0:01:53) - Starship as a Weapon(0:19:24) - Software Productivity(0:41:40) - Car Manufacturing(0:57:39) - Carbon Capture(1:16:53) - Energy Superabundance(1:25:09) - Storage for Cheap Energy(1:31:25) - Travel in Future(1:33:27) - Future Cities(1:39:58) - Flying Cars(1:43:26) - Carbon Shortage(1:48:03) - Nuclear(2:12:44) - Solar(2:14:44) - Alpha & Efficient Markets(2:22:51) - Conclusion Get full access to Dwarkesh Podcast at www.dwarkesh.com/subscribe

Okay, today I have the pleasure of interviewing Austin Vernon, who writes about engineering, software, economics, investing on the internet, but not that much else is known about him. So, Austin, do you want to give us a bit about your background? I know that the only thing the internet knows about you is this one little JPEG that you had to upload with your recent paper, but what about an identity review or I guess a little bit of background reveal to the extent that you're willing to comfortable sharing? My degree is in chemical engineering, and I'm kind of like a life-long love of engineering, and also things like Toyota Production System and stuff like that.

And I've worked as a chemical engineer, like in a large processing facility. I've done a lot of petroleum engineering. Let's see. And then now, you know, I taught myself how to write software, and now I'm working on kind of like more research, early commercialization of CO2 electrolysis. Okay, yeah. So I'm really interested in talking about all those things.

But so I guess the first question I have is Alex Berger, who is the co-ceo of Open Philanthropy. He asked this question when I asked on Twitter what I should ask you. And you suggested I should ask you, why so shady? So you have, I mean, famous you have kind of like an anonymous personality, pseudonymous thing you have on the internet. What's up with that? Yeah. Yeah, I think he posted a tweet that said, you know, like, I don't know who this guy is or like if he's credible at all.

But, you know, his stuff sure is interesting. That really made me laugh. I mean, that's hilarious. And it just doesn't seem necessary. I think I'm fine with my ideas being well known and communicating, but I have less desire to be, like, personally famous. I gotcha, I gotcha. I wanted to start off with a sexy topic. So let's talk about using Starship as a kinetic weapon.

I thought that was like one of the more amusing posts you wrote. Do you want to talk more about how this would be possible? Well, I think the main thing with Starship is like it's, you know, you're taking a technology and you're making it about 100 times cheaper for cargo and a thousand times cheaper for people. so when things like that happen that drastically you're just like looking at huge changes and it's it's really hard to anticipate what some of those can be when the change is that drastic so I think there's like a lot of moon-based, Mars-based stuff that you know doesn't really catch the regular public's eye and I think they also have trouble imagining some of the like point-to-point

travel that could be possible but as far as like you know you start talking about it like as a weapon and I think that's you know it lets people know they should be paying attention to this technology that and we certainly do not want to be second or third getting it and we should make sure that we're going to be first yeah I think you mentioned this in the post but um so I as recently the 90s the cost of sending one kilogram to space was around 20,000 more recently SpaceX has brought it to 2000 and then there's like a lot of interesting questions you can ask when you ask, what will be possible once we get it down to $200 per kilogram to send into orbit? Yeah, so one of them might be to manufacture these weapons that are not conventional ballistics,

but do you want to talk about like why this might be an advancement over conventional ballistic weapons? Well, regular conventional ballistic weapons are extremely expensive. You know, this is more like a bomb truck, you know, but it's even like usually we think of like B-52 as the bomb truck. And this could be even, you know, cheaper than the B-52, delivering just, like, mass on target. When you think about, like, how expensive it is to fly B-52 from, like, Bartsdale and Louisiana all the way across the world, you can do it from South Texas or Florida with the starship and get, you know, more missions per day.

And the fuel ends up being, like, when you go orbital, it takes a lot to get to orbit. but then once you're in orbit, your fuel consumption's pretty good. So over long distances, it has a lot of advantage. That's why the point-to-point works for the longer distances. There's really like a sweet spot with these weapons where you want it to be like pretty accurate, but you also want it to be cheap. Like you're seeing that problem with like Russia right now is they have some like, you know, fancy parade style weapons that are really expensive, like multi-billion dollar cruise missiles.

But they're missing like that, you know, $5,000 guided artillery shell or like that, you know, like $20,000 J-DM that you can just like pit massive or the, you know, the multiple launch rocket system, guided rockets. They're really like short on all those because I think they had just had like a limited amount of chips they could get from the U.S. into Russia to make these advanced weapons. But yeah, so the kind of a starship gives you just like a platform to deliver like you could you know, pit J-Dams in a shroud or you could just like you don't have the iron. unguided kinetic projectiles and it just becomes impossible for you know a ship to launch missiles

to intercept yours if you cost if your cost is so low you can just overwhelm them okay there are a few terms there that uh neither i and or the audience might know so what is uh what is jdm what is shroud and why are chips a bottleneck here uh like why can it just be any microcontroller so jdm is joint direct attack munition. So what we did is we took all like our Vietnam surplus bombs and we put this like a little like fin kit on it and it costs like 20,000 bucks which is cheap for a weapon because it, you know, the actual bomb costs like, I don't know, $3,000. And then you, it turns, you know, it into a guided weapon that before you were probably lucky to get within 500 meters of a target and now you can get it in with like two meters. So the number of missions, you know,

you have to do with your planes and all that goes down by like orders of magnitude. So it's an absolutely like huge advantage in logistics and just how much firepower you can put on a target. And the, you know, like we didn't even have to make new bombs. We just put these kits on all our old bombs. Let's see. Then the chips are a problem.

There's like this organization called Rusey. I think they're in the UK. But they've been tearing down like all these Russian weapons. they found in Ukraine, and they all have American chips in them. So, you know, technically, they're supposed to, like, they're not supposed to be able to get these chips. And, you know, Russia can't make a lot of its own chips, and especially not the specialized kinds

you might want for guided weapons. So they've been somehow smuggling in chips from Americans to make their advanced weapons. What is special about these? I would assume that, like, they haven't, like, as far as I'm aware, the trade with China is still going on, right? And we get a lot of our chips manufactured from Taiwan. under Tidda. So why can't they do the same? It's the whole like integration. Like, you know, it's not just like a specific chip, but like the

the board. It's like they're more like PLCs or, um, where, um, where you like almost have like wired in, um, programming and stuff like that. And they come with like, just like the, to be able to do the guidance and all that stuff. It all kind of has to work together. I think that's the way I understand it. I don't know. Maybe I don't have a really good answer for that one. But they're hard to replicate is what matters. Oh, that's interesting. Yeah, and I guess that has a lot of interesting downstream effects because, for example, India buys a lot of its weaponry from Russia, right? So if Russia doesn't actually have access to these, then other countries that buy from Russia won't have access to these either.

You had an interesting speculation in the post where you suggested that you could just keep these kinetic weapons in orbit like a sort of Damocles, really, almost literally. that sounds like a really scary and risky scenario where I don't know you can have orbital decay and you can have these kinetic weapons falling from the sky and destroying cities do you think this is what it will look like in or could look like in 10 to 20 years well yeah so the advantage of having on orbit is you can hit targets faster so if you're launching the rocket from Florida you're looking at like maybe 30 minutes to get get there so you know target moves in that time, whereas if you're on orbit, you can have them spaced out to where you're hitting,

you know, within like a few minutes. So that's the advantage there. When you actually look at like the, you really have to have like a two-stage system, I think, for most because if you have like a really aerodynamic rod that's going to give you good performance in the low atmosphere, it will get going too fast and just like burn up before you get there. You know, tungsten is maybe the only thing.

that you could have that could go all the way through. That's why I like the original concept. Use these big tungsten like rods the size of like a telephone pole. But, you know, tungsten's pretty expensive. And like just the rod concept, it kind of limits to what you can do. If you just do the rods. So a lot of these weapons will have like, that's what I was talking about like with the shroud,

like something that actually slows you down in the upper atmosphere. And then once you're to the volumin, where you're not just going to melt, then you open it up and let it go. So if you actually had to fall from the sky, some may make it to the ground, but a lot would burn up. So a lot of stuff that makes it to the ground is actually pretty light. It's like stuff that can kind of like float and has a large surface area. Yeah, so that's like the whole thing with Starship, like there, or not Starship, but Starlink. All those satellites were meant to completely, you know, fall apart on.

the orbit. I see. Like one of the implications of that is that these may be less powerful than we might fear because if like if kinetic energy is mass times, you know, a velocity squared, then you have to, if there's an upper bound on the velocity and then the velocity is the component that grows the kinetic energy faster, then it suggests that you can upper bound the power these things will have. You know what I mean? Yeah. So even the tungsten rod, Sometimes people, like, you know, they're not good at physics or something, so they don't, like, do the math. They think it's going to be like a nuclear weapon, but it's really, I think even the tungsten rod, I might have put it in there. I think if I'm remembering correctly, like 10 tons of TNT or something, it's like a big bomb, but it's not, you know, it's not like a super weapon.

So that's, I think I said in the post, it really has like, it's like advanced missiles where they're almost more defensive weapons. So I can keep you from putting your ship somewhere. You know, and like, yeah, I could like try to bombard your cities, but I can't, I can't take ground with it. You know, I can't even like police sea lanes with it, really. I'd still have to have regular ships, you know, if I had this air cover essentially to, you know, go, like, enforce the rules of the sea and board freighters and stuff like that. Yeah, so I, you speculated in the post, I think, that you could have, like, potentially these, you could, like, load this up with shrapnel and then it could, like, explode next to an incoming missile or an incoming missile or an incoming missile or an. incoming aircraft. Yeah, could these get that accurate?

Because that was surprising speculation to me. Yeah, I think for ships, I think it's pretty, you know, like I was like watching videos of, you know, how fast a ship can turn and stuff because you'd want to like release your shrapnel. You know, if you were going to like do an initial target on a ship to like try to kill their radars and stuff. You'd want to do it above the ceiling of their missiles. So it's like how much are they going to move between your release where you stop steering and that and it's really

it's like maybe like a thousand feet so that's pretty simple you just like shrap in all the area the aircraft you would be steering all the way in so it's maybe actually I'd say it's doable but it'd be pretty hard yeah

and you'd actually maybe want to even go slower than you would with the ship attack you know you need like a specialized package to do the aircraft but you can see these aircraft on like if you have enough synthetic aperture radar and stuff like that. You can see them with satellites and then guided in the whole way.

You could even like, say, load like heat-seeking missiles into a package that, you know, stop, you know, unfurls right next to them and launched conventional missiles too, probably. And that'd be pretty hard to do some of this stuff, but it's just like kind of, you know, the things you might be able to do if you put some effort into it. Yeah, the reason I find this kind of speculation really interesting is because when you look at the modern weaponry that's used in conflicts. It often seems like, it just seems like directly descended from something

you would have seen in World War II or something. It doesn't seem, like, if you think about like how much warfare changed between like 1900 and 1940, it's like, yeah, they're not even the same class of weapons anymore. So it's interesting to think about possibilities like these where the entire, the entire category of weapons has changed.

All right, and that's because, you know, the same thing, like, you know, our physical technology hasn't changed that much. So it really has just made more sense to, like, pit better electronics in the same tanks we have than to build it. Like, you're just not going to get, we haven't learned enough about tanks to build, like, a new physical tank that's way better. So we just keep upgrading our existing tanks with better electronics. So they're much more powerful. They're more accurate. You know, a lot of times they have longer range weapons. They have better sensors.

So the tank looks the same, but, you know, it may be as like several times more like killing power. What have you? But, you know, the Ukraine war right now kind of, you know, they're using a lot of like 40, 50-year-old weapons. So that especially looks like that. Yeah, yeah, which kind of worries you if you think about the stockpiles our own military has. I'm not well-educated on the topic, but I imagine that we don't have the newest of the new thing, right? Like we're probably have and maintain versions of decades old technology.

You know, I mean, we spend so much. We've got relatively, this kind of gets into like there's a lot of debate about like how ready our military is and for certain situations it's more ready than others. I'd see in general most people talking about it have the incentive to downplay our capabilities

because they want more defense spending or just there's lots of a reason. So I think we're probably more capable than what you might see from like, you know, some editorial in the hill or whatever. And I think just like us just sending a few weapons over to Ukraine and how successful they've been using them, I think shows a little bit of that. But there's there's so much uncertainty when it comes to fighting, you know, especially when you're talking about like a naval engagement, whether we just don't have that many ships in general, you can have some bad luck. So I think, I think the, you know, you always want to be a little

bit wary, you know, don't want to get overconfident. Yeah. And if, like, if, if, if the offensive tech we sent to Ukraine is potentially better than the defensive tech, um, like, it's very possible that even a ballistic missile that, uh, China or Russia could launch could sink like a battleship and then kill 2,000, uh, you know, a thousand or whatever soldiers that are on board. Or I, I, I guess I don't know. You think this opens up avenues for defensive tech as well? Yeah, I mean, generally the consensus is that defensive technology has improved much more recently than offensive technology. And there's the China, this whole like strategy China has is they call, it's like area denial, anti-access area denial, A2AD.

And so that's basically just like missiles have gotten better because the sensors on missiles have gotten. better so they can keep our ships from getting close to them. But you know, they can't really challenge us like in Hawaii or something. And it really goes both ways. I think people forget that. So yeah, it's like hard for us to get close to China. But, you know, Taiwan has a lot of missiles with these new sensors as well. So I think it's probably tougher for trying to get close to Taiwan than than most people would say. Oh, interesting. Yeah. Can you talk more about that? Because Every time I read about this, people are saying that if China wanted to, they could knock out Taiwan's defenses in a short amount of time and take it over. Yeah, so can you talk about why that's not possible?

Well, it might be, but I think it's a guess of the uncertainty thing, but Taiwan, you know, has actually one of the largest defense budgets of the world. And they've recently been upping it. I think they spend like, I don't know, $25 billion a year. And they added like an extra $5 billion. They've been buying a lot of anti-ship missiles, a lot of air defense missiles, stuff. that like you know Ukraine could only dream of I think Ukraine's military budget was like two billion they have you know professional army they're gearing the and then the other thing is they're an island so you know like Russia could just like roll over

the land border into Ukraine but you know I mean almost there's just very few successful amphibious landings in history like some of the recent most recent ones were all you know the Americans and World War II in Korea so like the challenge there is just, you know, it's kind of on China to like execute perfectly and do that. And so if they like had perfect execution, then possibly. But, you know, if like maybe their air defenses on their ships aren't quite as good as we think they could possibly be, then, you know, they could also end up with half their fleet underwater within, you know, 10 hours. Interesting. And how has your view of Taiwan's defensive capabilities? How, like, how has the

Ukraine conflict updated your opinion of what might happen. I didn't really know how much about it. And then, you know, I started looking at like Wikipedia and stuff and like all this stuff they're doing. And so, you know, the Taiwan just has like a lot of modern platforms like F-16s with our anti-ship missiles. They actually have a lot of their own. They have indigenous fighter bombers, indigenous anti-ship missiles because, you know,

they're worried we might not always sell them to know them. They've even recently gotten these. long-range cruise missiles that could possibly target leadership in Beijing. So I think that makes it uncomfortable for the Chinese leadership. Like if you attack them, you're going to have to go live in a bunker. So there's lots of like, you know, but again, I'm not like the full-time military analyst or something. So there's a lot of uncertainty around what I'm saying. It's not a given that China's just going to roll over them.

Yeah, that's comforting to hear. Let's talk about an area where I have a little bit of point of contact. I thought you're a blog post about software and the inability of it to increase productivity numbers. I thought that was super fascinating. So before I ask you questions about it, do you want to lay out the thesis there? Yeah. So if there's one post, I kind of like felt like I caught lightning in a bottle on it is that one. It really like everything I wanted to put in it just fit together perfectly, which is

usually not the case. But yeah, I think the idea is the world's so complex and we really underestimate that complexity. And if you're going to digitize processes and automate them and stuff, you have to capture all that complexity basically at the bit level. And that's extremely difficult. And then you also have like diminishing returns where like the easily, you know, automatable stuff goes first and then it's like increasing corner cases. to get to the end.

So you just have to write more and more code, basically. And so that's why we don't see like runaway productivity growth from software is because we're fighting, you know, all this increasing complexity. Yeah. Have you heard of the water vet, the area of complexity, by the way? I don't think so. Okay. It's something that comes up in compiler design.

But the idea is that there's like a fixed amount of complexity in a system. and if you try to reduce it, what you'll end up doing is just you'll end up migrating the complexity elsewhere, right? So I think an example that's used of this is when they try to program languages that are not type safe, something like Python, you can say, oh, like, it's a less complex language.

But really, you've added complexity when, when, I don't know, two different types of numbers are interacting like a float in an int, right? You've added complexity there that, I mean, as your program grows, that complexity exponentially grows of all the things that could go wrong when you're making two things interact that are in a way that you were expecting not to. So, yeah, the idea is you can just choose where to have your complexity, but you can't get rid of that complexity.

Yeah, yeah, yeah. I think there's like this, there's kind of like an interesting thing when you start pairing it with management theory and like how it kind of starts tying into some of my other post is that for a long time, When you add up like all the factors, the most complex thing when you're doing is, is, you know, high volume car manufacturing. And so we got a lot of innovations and organization from car manufacturers, like the assembly line.

Then you had Sloan at GM basically, you know, creating the way the modern corporation is run. Then you have Toyota production system. But arguably now creating software is actually the most complex thing we do. So there's like all these kind of like squishy concepts that underlie like Toriota production system that software has had to learn and like reimagine and adopt.

You know you see that with like agile where we can't have long release times we need to be like releasing every day which is like you know we're limiting inventory there or yeah there's just there's like a whole thing especially that's showing up in software that existed in Carbman

manufacturing where you're talking about, you know, reducing communication. So like Jeff Bezos, kind of like now famously said, you know, I want to reduce communication, which is counterintuitive to a lot of people. This is like age old and car manufacturing where you have like Toyota has these cards that go between workstations and they tell you what to do. So people normally think of them as limiting inventory, but it also tells the worker exactly what they're supposed to be doing at what pace, at what time. And the assembly line is like that too.

You just know what to do because you're standing there and there's a part here and it needs to go on there. And it comes by at like the pace you're supposed to work at. And it's like so extreme that there's this, I think it's a famous paper, but it's by like List, Severson and Levitt. And they went to a car factory and like, you know, studied how like the defects propagated in cars and stuff.

And once like a car factory gets up and running, like it doesn't matter if you what workers you put in there like if workers are sick or you get new workers like the defect rate is the same so like everything is just like all the knowledge is built into the manufacturing line and there's like these concepts around like idiot proofing and everything like that that are very similar to like what you'll see you had uncle bob on there so uncle bob you know says like only put one input into a function and stuff like that because you'll mix them up otherwise So it's kind of like this, the Japanese call it like Poki Yoke. And it's like you make it where you can't mess it up.

And that's another way to like reduce communication. And then software, of course, you have APIs. So I'm really interested in this overall concept of like reducing communication and reducing how much cooperation and like and everything we need to run the economy. Right, right. Speaking of the Toyota production system, like one thing they do to reduce that defect is if there's a problem, all the workers in that chain are forced to go to the place where the defector problem is and fix it before doing anything else. And I guess the idea there is

this will give them context to understand what the problem was, how to make sure it doesn't happen again. And also prevent a buildup of inventory in a way that keeps making these defects happen or just keeps accumulating inventory before the place that can fix a defect is able to take care of them. Right. Yeah, yeah, exactly. Yeah. But you know, I think one interesting thing about software and complexity is, I think you said a little bit earlier that software is a place where complexity is the highest in the world right now. And one of the interesting things is, yes, that's true, but you, I guess software gives you a choice to interface with the complexity you want to interface with. And I guess that's just part of specialization in general. But you could say,

like, for example, a machine learning model is like really complex. But ideally, you get to a place where that's the only kind of complexity you have to deal with. You're not having to deal with the complexity of like, how is how is this program compiled? Like, you know, like, how are the libraries that I'm using? How are they built? You can, you can like fine tune and work on the complexity you need to work on. It's similar with like app development, right? Burn Hobart has this blog post about Stripe as solid state.

I forget the exact title of the blog post, but the basic idea is that Stripe hides all the complexity of the financial system. It charges a higher fee, but you can just kind of treat it as an abstraction of a tithe you have to pay. And it'll just take care of that entire process and you can focus on your comparative advantage. Yeah. And it's really actually very similar in like car manufacturing and Toyota production system if you really get into it. It's very much the same conceptual framework. well so there's like this whole idea like in toyota projection system every everyone works at the same pace which you kind of talked about but also like your

content your work content is the same like there's there's there's no room for not standardizing like a way you're going to do things so everyone like gets together and they're like all right we're going to this certain part we're going to put it together this certain way at this little micro station and it's going to be the same way every time That's part of like how they're, you know, reducing the defect rates. And then if you, you know, like if your assembly process is too long, like it's longer than what your like time allotment is to stay in touch with the rest of the process, then you just keep breaking it down into smaller pieces. And so, you know, each, each person only has to know, like, a very small part of it. and even the you know even like the the overall engineering team you know has all sorts of strategies

like this to there's all they have all sorts of like tools to like help them break up all these processes and a very like small part and to make it all like hold together still very very hard but it's kind of like a lot of the same ideas as you're taking away like the complexity of making like a 30,000 car or 30,000 part car where everyone's just focusing on their way. on their one little part and they don't care how what someone else is doing. Yeah, but the, but the interesting thing also there is it seemed like there, you need one person who knows how everything fits together because one of the,

from what I remember, one of the tenants of the Toyota production system was you need to have a global view. So, I mean, in that book, was it the machine or the other one, the Toyota Production System book? But anyways, they were talking about examples where people would try to optimize for local efficiencies. I think they especially pointed to like Ford and GM for trying to do this, where they would try to make machines run all the time.

And locally you could say that, oh, this machine or oh, this process is super efficient. You know, it's always outputting stuff. But it ignores how that added inventory or that process had a bad consequence for the whole system. And so it's interesting if you look at a company like Tesla that is able to do this really well. The interesting thing is that Tesla is run like a monarchy. and this one guy has this like total global view of how the entire process is supposed to run. Where do you have these inefficiencies? You have some great examples of this in the blog post.

But yeah, I think one of the examples that, I think was it the Toyota Production System book? But anyways, this guy goes to this factory and the author and he asks, is just like an efficient factory? And the guy's like, yeah, this is totally efficient. There's nothing we can do adopting the Toyota way to make this more efficient. And so then he's like, okay, let me look. And he finds that in one of the, so at the, at the, they're like treating steel in some way, but it's only, it should only take a couple of seconds. And the main process does only take a couple of seconds.

But some local manager decided that it would be more efficient to ship their parts out to get the next stage of the process done somewhere else. And so this is like locally cheaper, but the result is that it takes weeks to get these parts shipped out and get them back. And so that means that the actual time that the parts spend getting processed is like 0.1% of the time, which makes the whole process a whole super inefficient, right? So I don't know. It seems like the implication is you need a very monarchical structure with like one person who has a total view in order to run such a system or am I getting that wrong?

Not necessarily. I mean, you do have to like make sure you're not optimizing locally. But I think it's the same. You know, you have that same constraint in software. But I think a lot of times people are just like running over it because processing has been getting so much cheaper. You know, And like people are expensive.

So like if you could save development time, you know, it just ends up, you know, the, tradeoffs are different. When you're talking about like the tyranny of like physical items and stuff like that, you know, the constraints get a little more severe. But I think you have like the same, the same overall. You know, you still have to fight local optimization. But the level you have to is probably different with physical goods. I was thinking about like the, this.

smart grid situation from like a software perspective. And like there's this problem where like, okay, I'm putting my solar farm here and it's impacting somewhere far away. And that's then like creating these like really high upgrade costs, you know, that costs two or three tons more than my solar farm. Well, you know, the obvious thing would be if you're doing software is like you're like going to break all these up into smaller sections. And then you wouldn't be impacting each other and all that.

and you could work and focus on your own little thing. But the problem with that is, if you're going to disconnect these areas of the grid, so the equipment to do that is extremely expensive. It's not like I'm just going to hit a new tab and open a new file and start writing a new function. And not only that, but you still have to actually coordinate how this equipment is going to operate.

So if you just let the grid flow as it does, everyone knows what's going to happen because they could just calculate the physics. So if you start adding in all these checkpoints where humans are doing stuff, then you have to actually interface with the humans. And the amount of things that can happen really starts going up. And so it's actually a really bad idea to try to card all this stuff off just because of the reality of the physical laws and the equipment you need and everything like that. Okay, interesting. And I think you have a similar sort of like Kocene argument in your software post about why a vertically integrating software is beneficial. Do you want to explain that thesis?

Yeah. And I think it's just like you know, it actually gets to what we're talking about here where it allows you to avoid like the local optimization because, you know, a lot of times right, you're trying to build like a software MVP and you're like tying together like a few services. They don't do quite what you need. So if you like you like. like try to scale that like it would just break. But if you're like going to take a really complex process like car manufacturing or distribution retail distribution or, you know, like the home buying process or something, you really have to vertically integrate it to be able to create like a decent end-to-end experience and avoid that, that, you know, local optimization. And, you know, it's just very hard. otherwise is there's no you just can't coordinate effectively if you have like 10 different

vendors trying to do all the same thing you end up in like just constant like vendor meetings where you're like trying to decide what the specs are or something instead of giving someone the authority or giving a team the authority to just go start building stuff and then if you look at these companies like they have to implement these decentralized somewhat decentralized processes is when they get too complex, but at least they have, like, control over how they're interfacing with each other. You know, like Walmart has vendors control their own stock. You know, they don't, like, tell the vendor, we need X parts.

It's just like, it's on you to make sure your shelf is stocked. Yeah, yeah. So what was really interesting to me about this part of the post was, I don't know, I guess I had this vision of, or I had heard of this vision of where software is heading where everybody will have a software as a service company and they'll all be interfacing with each other in some sort of cycle where they're all just calling each other's APIs

and like yeah, basically everybody in their mother would have a SaaS company and the implication here was, from your argument was given the necessity of integrating all this complexity vertically in a coherent way, then the

winners and software should end up being a few big companies that compete with each other but still I think that's especially true when you're like talking about like you're combining bits and atoms. You know, maybe less true for like pure software. The physical world is just so much more complex. And so the constraints it creates are pretty extreme, you know, compared to like you could maybe get away with more of like everyone their mom having an API and like a pure software world. Right.

Yeah. Yeah. I guess you might think that in the other kind of world, even in the physical world, given that people really need to focus on their comparative advantage, they would just try to outsource the software parts to these APIs. But is there any scenario where the learning curve for people who are not in the firm can be fast enough that they can keep up with the complexity? Because, you know, there's huge gains from specialization and competition that go away

if this is the world we're first to live in. And then I guess we have a lot of counter examples. I guess we have a lot of examples of what you're talking about. Like Apple is, you know, the biggest market cap in the world, right? And famously, they're super vertically integrated. And, yeah, obviously their thing is combining hardware and software. But yeah, is there any world in which you can keep that kind of benefit, but have it be within multiple firms? This is like a post I've got in my list.

I want to write that the blockchain application. I'm actually like, you know, which excites me personally the most is reimagining enterprise software because like the things you're talking about like hard typing and like APIs is just like basically built in to some of these protocols. So I think it just really has a lot of exciting implications for how much you can decentralize software development. And you can, but you know, The thing is you can still do that within the firm.

So I think I mentioned this is like, you know, if the government's going to place like all these like rules on the edge of the firm, like it makes transactions with other firms expensive. So if you, internal transactions can be cheaper because they're avoiding like the government, you know, reporting and taxes and all that kind of stuff. So I think you'd have to think about how these technologies can reduce transaction costs overall. and decentralized that, but also what are the costs in between firms? Yeah, it's really interesting if there are, if the cost are logistic or if they're,

if they're based on the knowledge that is housed as you were talking about, you know, within, within the factory or something. Because if it is just, you know, logistical and stuff, it's just like you had to report any outside transactions, then, yeah, that it does imply that technology, like, blockchain could help. If it's just that, yeah, you need to be in the same office. And if you're not, then you're going to have a hard time keeping up with what the new requirements for the API are.

Then maybe it's that, yeah, maybe the inevitability is that you'll have these big firms that are able to vertically integrate. Yeah, like for these big firms to survive, they have to be like somewhat decentralized within them. So I think you have, you're going to the same place as just like what, what does it like, you know, what's our friend, like how are we viewing it? What's our perception, you know? So even if it's like a giant quarterback.

It's going to have like very independent business units as opposed to you know something like you know a 1950s corporation Yeah, burn Hobart by the way has this really interesting post that you might enjoy reading when you're while you're writing that post It's like type safe communications and it's about that Bezos thing about how Yeah, his his strict style for how to communicate and how little to communicate there's many examples in Amazon protocols where you have to the only way you can like put in this report is in this place you have to give a number

you can't just say this is very likely you ought to say like we reproject X percent increase or whatever so it has to be a percent or and you know there's many other cases where there's they're strict about like what type definition you can have something have in the in written reports or something and it has kind of the same consequence

that type strict languages have which is that you can keep track of what the value is through the entire chain of the flow of control. So you've got to keep work content standardized. So we've been hinting at the Kosian analysis to this. I think we just talked about it indirectly. But yeah, for the people who might not know, the, yeah, so the COS has this paper called the theory of firms. And he's trying to explain why is the case that we have firms at all? like why not just have everybody compete in the open market for employment for anything like

why do we have jobs why not just have you you can just like hire a secretary by the day or something and the conclusion he comes to is that if you by having a firm you're reducing the transaction cost so you know people will have the same knowledge about like what needs to get done um you obviously are reducing the transaction cost of like the contracting finding labor um blah blah and so the conclusion it comes to is the more the transaction cost are reduced within people in a firm as compared to the transaction cost between different firms, the bigger firms will get. And yeah, so I guess that's why the implication of your argument was that there should be bigger tech firms, right?

Yes, definitely. Because they can basically decrease the transaction costs faster within. And then even at the limit, you know, if you have large transaction costs outside, the firm between other firms that are artificially imposed, then it will make firms bigger. And then, so what does the world look like in that scenario? So will we just be like these Japanese companies, these huge conglomerates who are just, you rise to the ranks from the age of 20 until you die? Is that what software will turn into? You know, it could be, I mean, I think it will be lots of very large companies unless, you know,

there's some kind of change in inter-firm transaction costs. And again, I could possibly come from blockchain like technology, but you probably also need, you know, better regulation to make that cheaper. And then you would have smaller firms. But again, I'm not, you know, in the end, it doesn't really matter like you'd be like working in like your little unit of the big, big bank of corp or whatever.

So it may not, I don't know what that would look like, you know, like as like a personal level but yeah yeah um okay so speaking of these japanese companies let's talk about car manufacturing and uh um everything involved there yeah so yeah we we we kind of uh hinted at a few elements of the to it away in lean production earlier but do you do you kind of want to give a brief overview of what that is uh so we can compare it to potentially other systems you know i think like all these kind of like lean So the process like systems, they do have a lot of similarities. And mostly you want to even out your production.

So you're producing very consistently. And you want to break it into small steps. You want to limit the amount of inventory you have in your system so that there's. And when you do this, it makes it easy to see like how the process is running and limit defects. And you know, the ultimate. is you're really trying to reduce defects because they're very expensive. It's a little bit hard to summarize.

I think that's my best shot out of there quickly off the top of my head. Yeah, the interesting thing about the Toyota system, so at least when the machine was released, that book was released in the 90s. And they went to like the history of Toyota. And one of the interesting things they talked about was there was a brief time where the company ran, I think it was this after World War II? But anyways, you know, the company ran into some troubles.

They needed to reduce, they needed to lay off people to not go bankrupt. They had much more debt on books than they had assets. And so, yeah, they wanted to lay off people, but obviously the people were not happy about this. So they were like violent protest about this. And in fact, I think the U.S. written constitution gave strong protections to labor. that they hadn't had before, which made it, which gave labor even a stronger hand here.

And so anyway, so the Toyota comes to this agreement with the unions that they'd be allowed to do this like one-time layoff to get the company on the right track. But afterwards, they could never lay somebody off. And then so the, which would mean that like a person works at Toyota works there

from the time they graduate college or high school till they die, right? And I don't know. that's that's that's that's super intense in a culture i mean in software where you have average tenure at a company's like one year the difference is so much and uh there's like so many potential benefits here i guess a lot of drawbacks too but one is obviously if if you're talking to time skill of 50 years rather than one year the um the incentives are right more aligned between the company and the person because like any anything you could do in like one year is not going to have a

huge impact on your stock options uh in that in that amount of time but if you're planning on hope if this company is your retirement plan, then you have a much stronger incentive to make sure that things that this company run well, which means, yeah, you're probably optimizing for the company's long-term cash flow yourself. And also, yeah, there's obviously benefits to having that knowledge build up in the firm from people who have been there for a long time. But yeah, that was an interesting difference, one of the interesting differences at least. I mean, I think there's like a diminishing returns to how long your tenure is going to be. Like, maybe one year is too short, but there's a certain extent to where, you know, if like you grow faster than your role at the company, then it's time to switch.

And, you know, maybe that's like, it's going to depend on the person, but maybe like five years is a good number. And so if you're not getting promoted within the firm, then your human capital is being wasted because you could go somewhere else and have more responsibility and perform better for them. another interesting thing about like you that story is almost all lean turnarounds you know or like where we're going to implement something like toyota production system they come with no layoff promises because you know if you're going to increase productivity that's everyone's like oh gosh i'm going to get laid off so instead you just you have to increase output and take more market share what you do it's a it's like um it's kind of like burning your bridges right So this is the only way.

You really, like the process really requires like complete buy-in because a lot of your ideas for how you're going to standardize work content come from your line workers because that's what they're doing every day. So you can't, if you don't have their buy-in,

then it's going to fail. So that's why it's really necessary to have those kind of clauses. Yeah, yeah, that makes sense. Was it in your post or in the book where they talked about, no, I think it was in your post where you said,

if somebody makes their process more efficient, and therefore they are getting like more work a lot of to them that obviously they're going to stop doing that right so um which means that I don't know do you have to give more downtime to your best workers or something or the people who are more creative in your company I was just going to say like you know if you're like a you know worker at a plant then usually they have like small a lot of times like for that level employee like actually small rewards work pretty well like a lot of people use

used to like on drilling rigs used to like if you met certain targets like give the guys like a hundred dollar walmart gift cards um so sometimes like small to reward you know new ideas stuff like that works but because the whole system has to row together like if you just improve like one part of the process it doesn't it may not help you you know you have to be like improving all the right process and stuff so normally it's much more collaborative like there's some engineer that's looking at it and like all right this is our is where we're struggling or we have our defects here and then you go get together with like you know that supervisor and the workers in that area then you know you all figure out like what improvements could be together

because usually the people already know like this is like you know you see a problem at the top and you're just now realizing it and then you go talk to the the people doing the work and they're like oh yeah I'll try to tell you about that like two weeks ago man and then you figure out you know a better process from there based on your recommendation and stephen malino's recommendation I recently read the goal. And after reading the book, I'm much more understanding of the value that consultants bring to companies potentially, because before you could think, what is a 21-year-old who just graduated college? What do they know about manufacturing? Like, what are they going to tell this plant that they didn't already know? How could they possibly be adding value? And afterwards,

it occurred to me that there's so many abstract concepts that are necessary to understand in order to be able to increase your throughput. And so now I guess I can see how like somebody who's generically smart but doesn't have that much industry knowledge might be able to contribute to a plan. Like what value consultants could be bringing? I think there's like we get, you know, this applies to consultants or like young engineers. Like a lot of times you put young engineers like just right in the thick of it like, you know, like working in production or process like right on the line where you're talking to the

you know, workers the most. And there's really two advantages. There's several advantages of that. One, the engineer learns faster because they're, like, actually seeing the real process. And the other is there's, there's, like, easy opportunities for them to still have a positive impact on the business because there's just, like, $100 bills laying on the ground just from going up and talking to your workers and learning about stuff and figuring out problems

they might be having and things like that that could that could help you lower cost i think i think there's a lot of consultants that you know i don't know how the industry goes but i would guess there's like you know i know eccentric has like 600 000 employees or some like or maybe i don't know that many but it's just a large number and a lot are doing more basic tasks and then you know the there are some people that are doing like the high more high level stuff that's probably a lot less yeah yeah there was a there was a quote from one of those books that said add to it we don't like consider you an engineer unless you need to wash your hands before you can have lunch um yeah okay so in your in your book about oh sorry in your in your

blog post about the car manufacturing you you talk about the Tesla and then you know what was really interesting is that in a footnote I think you mentioned that you bought Tesla stocks in 2014 which also might be interesting to talk about again when we go to the market and off part but anyways yeah so okay so and then you talk about the Tesla using something called metal manufacturing so if you want to first of all like how did you know in 2014 that that Tesla was headed here and then yeah what is metal manufacturing and how does it differ from the toida production system yeah so yeah just like was goofing around and made that up someone actually emailed me and they're like hey like what is this metal manufacturing i want to learn more about this and it's like

well sorry i just kind of like made that up um they thought it sounded funny but yeah I think it's really the idea that there's this guy, Deming, yeah, W. O. O. It was Deming. And he, like, had a lot of, found a lot of the same ideas that Toyota ended up implementing. And, like, they, you know, Toyota, you know, respected his ideas a lot. And America never really, except for the software industry recently, never really, like, got fully on board with this in manufacturing. And so this new, and of course, it's like software. people that are, you know, coming and implementing this in manufacturing.

And it's like the real American way of doing things. Because when you look at like these manufacturing processes, like the best place to save money and optimize is like before you ever build the process or the plant. It's it's very early on. And so I think if there's like a criticism of Toyota is that they're they're optimizing too late and they're not like creative enough. and their production technology and stuff, they're very conservative.

And that's why they have hydrogen cars and not battery cars, even though they came out with the Prius, which was like the first large sales hybrid. So yeah, I think this whole, like what Tesla is doing with really just making Deming's ideas our own and really just like Americanizing it with like a little, you know,

like oh well we want to cast this because that would be easier well we can't because we don't have an alley well we'll invent the alloy you know i love it it's great and mostly i just like tesla because they do such like i'd agree with their like engineering principles and stuff like that and so i didn't know that their the company would come to be so valuable it's just like i was just always reading their stock reports and stuff i'm like well at least need to buy some stock so that um so that i you know have a justification for spending all this time reading their 10 ks and stuff and stuff I want to get a little bit more in detail in the exact difference here. So lean production, I guess, is, yeah, they're able to produce their cars without defects

and without, you know, matching demand or whatever. And then so, but what is it about their system that prevents them from making the kinds of innovations that Tesla is able to make? It's just, it's just too incremental. It's like, it's, it's so hard to get these. process is working. So the faster you change things, like it's, it becomes very, very difficult to like change the whole system. So one of the one of the advantages Tesla has is well, if you're making electric cars, like you have just a lot less parts. So that makes it easier. And then also they're like,

you know, once you start like doing the really hard work of basically like digitizing, you know, like, you know, they don't have speed limit dials. You start just removing parts from this from the thing and you can actually then start increasing your rate of change even faster. And it makes it hard to get behind, you know, if you have these like old dinosaur processes. But some, I think there's someone, there's like a YouTube channel called The Limiting Factor. And he actually went into like the detailed like numbers on what it costs for Tesla to do their gigacasting, which saves like tons of parts and deletes like, you know, zillions of thousands of robots from their process. and if you already have like an existing stamping line and all that where you're just changing the dyes based on your model

then like it doesn't make sense to switch to the casting but if you're building new factories like Tesla is well then it makes sense to do the casting and you can build new factories very cheaply comparatively and much easier so there's a little bit of like you know they have lots of they just have lots of like technical debt I guess you could say in a software sense yeah that's super interesting The analogy is actually quite, it's like Microsoft has probably tens of thousands of software engineers who are just basically servicing its technical debt and making sure that the old system is run properly, whereas a new company like Tesla doesn't have to deal with that. The thing that's super interesting about Tesla is like it's, what is Tesla's, what is Tesla's market cap is like way over a trillion, right? And then Toyota's is like 300 billion. And Tesla is such a new company. Like the fact that you have this Toyota, which is like legendary for its production capacity and it's a production system rather. And like this company that's like less than two decades old, this like worth many times more is it's kind of funny.

Yeah, I would say that in that measure, I don't like market cap. You need to use enterprise value. And when you start these companies, these old car companies have so much debt that if you look at enterprise value, it's not so jarring. Like literally, you know, like, I don't know. can't remember what like GM's worth like 40 billion or something and then they have like 120 billion dollars in debt it's like so their enterprise value is like five times more than their than their market cap. What is enterprise value? Enterprise value is basically like what is the value of the actual company before like you have any claims on it? It's the market cap plus your debt

simple. The most simple but basically you know if you're the equity holder like in the company get sold, like you have to pay the debt first. So you only get the value of what's left over after the debt. So that's why market cap is when Tesla has very little debt and a lot of market cap, and then these other guys have a lot of debt with less market cap. It's queues the comparison. Yeah. And then one of the interesting things, it's similar to your post on software is that, yeah,

it seems like one of the interesting themes across your work is automating processes often leads to decreased, decreased eventual throughput because you're probably adding capacity in a place that you're just adding excess capacity and you're also making the money making part of your operation less

efficient by having it, making a habit interface with this automated part. And it sounds like there's a similar story there with car manufacturing, right? Yeah, I think if we tie it back into what we were talking about earlier, automation promotes local optimization and pre-bature optimization.

So a lot of times it's better to figure out like, you know, instead of like automating a process to make a really hard to make part, you know, you should just figure out how to make that part easy to make. And then after you do that, then it may not even make sense to automate it anymore. Or, you know, get rid of it all together. Then you just delete all those robots. Yeah, yeah, it's interesting. Okay, so let's talk about your, let's talk about sure the project,

that you're working on right now, the CO2 electrolysis. Do you want to explain what this is and like what your current approach is? So how what is going on here? Yeah. So I think just overall like electrofuels right now are like super underrated because you're about to get hopefully some very cheap electricity from like solar or you know, it could be maybe some wind, possibly even if we get really lucky, some new. geothermal and it will make sense to make like liquid fuels or natural gas or something

just from electricity and air essentially. So there's many, there's like a whole spectrum of ways to do this. So CO2 electrolysis is one of those. And it's basically you take water, electricity and CO2 and a catalyst and then you make more complex molecules like carbon dioxide or formic acid or ethylene or ethanol or methane or methane those are all options but it's important to point out that right now I think if you added up all the CO2 electrolyers in the world that you know you'd be measuring their output in kilograms per day and of course like the products I just mentioned we make millions of tons per day off. So there's like a massive scale up if it's going to have a wider impact. And so there's some debate. I think the debate for the whole

electrofuels sector is how much are you going to do in the electrolyzer. So one company that I really like their approach that is different than mine is terraform industries and they want to make methane, which is the main consensure of natural gas. But they're just making hydrogen and their electrolyzer, and then they, you know, capture the CO2 and then put into a methanation reaction. So everything they're doing is, like, already world scale, basically. Like, you know, we've had hydrogen electrolyzers, power, you know, fertilizer plants with that, you know, provide them with the hydrogen they need. We've had, you know, methanation happens in, like, all ammonia plants and several other examples. It's well known, very old. And methanation is, like, hydrogen,

and CO2 combine and make water and methane. Yeah, so their approach is like the more conservative, but if you add, if you do more in the electrolyzer, like I'm going to make the methane actually in the electrolyzer instead of adding this other process, you could potentially have a much simpler process that has less CAPEX and scales downward better. You don't need traditional chemical engineering, like heavily favor scaling. So with the more like terraform processes, you know, their plan is like absolutely ginormous factories, you know. These can take a long time to build.

So like one of the things they're doing is, you know, they're having to fight like the complexity that creeps into chemical engineering every step of the way. Because if they don't, they'll end up with a plant that takes 10 years to build and that's not their goal. You know, like it takes 10 years to build a new refinery because they're so complex. So yeah, so that's like kind of where I am. I'm like more on the speculative edge. And it's not clear yet which products will be favorable for which approaches. Okay. Yeah.

And you're building is out of your garage, correct? Yeah, yeah. So that's where like the electrolyzers, everything with electric chemistry is like a flat plate instead of a vessel. So it scales down. So like I could have a pretty good idea of what my, you know, like 100 square centimeter electrolyzer is going to do if I make it quite a bit bigger. You know, I have to worry about like, you know, how my flow might interact in the larger

one and, you know, make sure the mixing is good. But it's pretty straightforward because you're just like making your flat plate a larger area. Whereas the, you know, the scale is different than scaling a traditional chemical process. I'm curious what, how cheap energy has to get before this is, this is, this is, uh, it's efficient. And if you're turning it into methane or something like that, presumably for fuel, is the entire process energy positive or like how cheap would energy electricity need to get before that's the case? So yeah, so the different products and different methods of different crossovers. So like Terraform ministries, they're shooting for like $10 a kilowatt a megawatt hour for electricity.

But again, their process is simpler, a little less efficient. than a lot of the other, like, products are a little, like, also have, like, better premiums, like, just worth more per time than methane. So your crossover happens somewhere in between $10 and $20 a megawatt hour, which is, I mean, that's pretty right now solar. It's maybe, like, 25. Maybe it's a little higher because penal prices have gone up in the last year, but, you know, I think the expectation is they'll come back down.

And so getting down to, like, 15, where you start having crossovers for some of these products, like ethanol or ethylene or methanol. Yeah, it's not science fiction. Yeah, I think in Texas where I live, that's where it's at, right? The cost of energy is like $20 or something, dollars per mega one hour. Well, not this summer, but recently, a lot of times in Texas, the wholesale prices are around like 25 to 30. Gotcha. Okay, so a lot of the actual details you said about how this work.

works went over my head. So what is a what is a flat plate? I guess before you answer that question can you just generally describe the approach? Like what is what is it what you're doing to for to convert CO2 into these other compounds? Well yeah like so it just I mean it literally just like looks like a you know an electrolyzer you're like you have two sides anode and a cathode and they're just smush together like this because um the electrical resistance um if you put them far apart, it makes it, uses up a lot of energy. So you smush them together as close as you can. And then you're basically just like trading electrons back and forth. On one side, you're turning CO2 into a more complex molecule. And on the other side, you're taking apart water. And so when you

take apart the water, you know, kind of like balances out the equation, balances out your electrons and everything like that. I probably need to work on that, uh, in that elevator pitch there, huh? I guess with the basic idea is you need to put electricity, uh, you need to put like power into convert, uh, CO2 into these other compounds. The inputs are electricity, water and CO2 and the output is usually oxygen in like whatever chemical you're trying to create is, along with some side reactions. And then these are these chemicals you mentioned, I think ethanol methane formic acid, are, are Are these all just fuels or are they, what are the other uses for them? So the idea, a lot of people are taking like a hybrid approach with carbon monoxide.

So this would be like 12CO would be they've raised a lot of money to do this, have like 100 employees or something. You can take that carbon monoxide and make hydrogen and then you have to send gas to make liquid fuels. So like they want to make all sorts of chemicals, but one of the main volume ones would be like jet fuel. let's see formic acid is like it's like the small it's the little

the small fry of all these it is like an additive and a lot of things like preserving hay for animals stuff like that then ethanol you know there's people that want to like there's like

this company that makes ethylene which goes into plastic plastics it makes like polyethylene which is the most produced plastic. Or you can burn it like in your car, although I think ethanol is a terrible vehicle fuel. But then you can also just make ethylene straight

in the electrolyzer also. So there's kind of like a, there's many paths. So, you know, which path wins is kind of like an interesting race to see. Yeah, the, the ability to produce jet fuel is really interesting because in your energy superabundance paper, you talk about, you know, like you would think that even if, even if we can electrify everything in solar and when it becomes super cheap, that's not going to have an impact on the prices to go to space, for example. But I don't know, a process like this is possible, then it's like some way to, I guess in financial terms, a good thing, like add liquidity and then like turn basically this cheap solar and wind into jet fuel through this indirect process so that like the price to send stuff to space or to, I guess just, you know, have like, like, cheap plane flights and whatever all of that goes down as well it basically sets like a

price ceiling on the price of oil you know and whatever whatever you can produce this for is like the ceiling now um which is like uh maybe the the way i think about it yeah um so do you want to talk a little bit of like how your background led into this project this is your full-time thing right so we're i don't know if i'm right about that but uh where did you get this idea and like how long have you been pursuing it and you know what's the problem progress and so on. You know, I've always loved chemical engineering and I love working at the big processing plant because it's like kid in a candy store.

Like I was just like, you know, if I had extra time, I'd just like walk around and look at the plant. So that is so cool. But the like the plant where I worked at, like their up time was like 99.7%. Like it just so like if you want to change anything or do anything new like it terrified everyone because they're like and you know, that's how they like earn their bonuses was like run the plant. you know 100% up time all the time um so that that just wasn't a good fit for me and also like you know

so i thought always wanted like my own chemical plant but you know it's like billions of dollars to build plants so that it was like a pretty big step so i think this new technology like you know there's like a window where you might be able to build like smaller plants you know until it it optimizes to be you know hard to enter again oh and then while while will become hard to enter again what will happen well hey you know if someone figures out how to build a really cheap electrolyzer they you know just keep it as intellectual property then you know it would be hard to rediscover that you know and compete with them uh and so how long as have you been working on this uh not quite a year but yeah i actually that got this idea to work on it

from writing my blog. So when I wrote the heating fuel post, I didn't really know much about, there's another company in the space, Prometheus fuels. I'm like, oh, this is an interesting idea.

And then I got talking to a guy named Brian Helgman. And he's like, you should do this, but not like what Prometheus is doing. And so then I started looking to it and I liked it. So I've been working on it since. Yeah. It's interesting because if energy does become as cheap as you suspected might,

and if, if this process works then yeah this is like a trillion dollar company probably right if you're going to get the patents and everything yeah i mean maybe there's like with chemical plants there's like a certain limitation where like your physical limitations like you know like there's only so many places that can have a good like are good places for chemical plants um you start getting hit by like transportation and all that so like you know you can't you can't just like produce all the chemical for the entire world in texas and like transport it all around, it wouldn't work. So you're talking about like a full globes-bainting thing.

And then at that point, you know, if you're like building factories all over the world, someone's going to, you know, like figure out what your intellectual property is and all that. So you would have to like keep innovating, you know, to stay ahead of the competitors. And I think that would limit your, you know, ultimately it's a commodity. So you're making commodities. So you don't have the same kind of defense. that you know other sectors do i see yeah yeah okay there's not like network effects i guess yeah so so yeah so yeah so not only like if you try to you know so like what you know what i was talking about this is not

quite consistent maybe with what i just said about like harder to enter so you but i think like what happens is like the scale starts increasing as you go on so there's certain even though like this is easier to scale down. There's certain elements that are very much hard to scale and then the organization as well. But you only need a few competitors to, basically you'll end up with like early on a few competitors that continue to grow against each other and limit the margins. And it would be hard to be like the fifth, you know, 30 years down the line. But is the state of this project right now? So are you guys planning on starting a company and yeah, like what are the what are the milestones you guys are shooting for right now it is just me but um you know i have like

a family of engineers we're all engineers so it's kind of like you know loosely supported um right now by by other people and my family as well they're participating some um but yeah basically i just have to let get you know i've already done a lot of the theoretical design work and it just like a very cursory level to make sure it makes sense and like you know the cost will be reasonable and stuff like that so then now it's like working on the electrolyzer to basically meet the targets you need for like reliability and product concentration and energy costs and also then just like is it manufacturable because right now a lot of electrolyzers like they use in the in the labs like they're literally smaller than a postage stamp

and they're very difficult to make so okay I see And had you started working on this before or after you had quit your job? Oh, yeah, after. I quit my job like five years ago or something. I was doing like software stuff in between. Oh, yeah? What did you work on? I worked on several products.

I have one that's like a data service that is like a oil and gas data service that's somewhat successful. Has cut paying customers. But it's still relatively small. Okay. Okay. I see. And then, yeah, so it seems like your blog is pretty recent, right? Like, you started about, I started that about a year ago.

What, what, what, what encourage you to do that? Well, let's see. I was curious about, like, cryptography in general, but specifically for blockchains. And so I, like, you know, I wanted to be able to read the, the Bitcoin white paper and understand some of this, like, IPFS. So I figured the best way to do it was, and I thought, you know, people talked about like, oh, yeah, you should write, blah, blah, blah, blah. So I did like, oh, I'll create an IPFS blog. I did that and learned a lot. And, you know, it was not the most reliable blog when I was, like, running it on my own droplet and everything.

So thankfully, I, like, migrated to a service that has much more uptime than my own server. Yeah, so then, like, you know, I wrote several, like I wrote, you know, posts. Basically, to learn about it, I wrote posts about, like, hash functions and, um, private key cryptography. So then I could understand like the white papers and like actually, you know, what they're doing with the math and everything and the cryptography. And eventually like, you know, I had this blog. So it's kind of like how space suit will travel at blog all right. So my first non-cryptotopic was on like building it, how to build a cheaper house or, you know, like it's difficult to reduce like home construction costs. And that kind of like,

like, you know, like made it on Hacker News and all that. It's like, oh, maybe actually people want to read this stuff. So I just kind of been writing since then in my spare time. I don't know if I actually interned for Protocol Labs, which is a place that built IPFS. Oh, yeah? And yeah, so I got a chance, I got a chance to learn a lot about it. And then, yeah, like trying to learn about how Pilecoin exactly works. That part was the, that threw me into a world for a while.

But, yeah, it's really. interesting. I actually had a blog on IPFS. I mean, it was kind of just a toy thing, not the one they actually ended up writing on, but yeah, it's kind of interesting. The thing is, so obviously, like, at the moment being, it's like nobody else is going to seat it for you. So you have to, you got to use like a centralized service anyways, like pinata, but it is a fun exercise. Yeah, it's just like running it off a droplet and on DigitalOcean. And that, you know, if you use the, like, direct content hash, it works pretty well. even if you're like linking through your ENS name.

But the problem is, of course, like when I was first doing this, like the fees on Ethereum were so high that I didn't want to change that link all the time. So I tried to use the pinning feature with like IPNS and like going through because you know, Cloudflare does the ETHLINK and then they look up your, you know, whatever your IPNS name is. And then they try to go find it. So the part that was breaking for me was like Cloudflare couldn't always find my server. using IPNS. But if you switch to

so I still have an IPFS but if you like the service I'm using called FLEC, they basically go directly to the content hash but on DNS it's cheap to change. You can change it in

one minute. So if you it's like Ethereum fees got lower. I might switch back to that but you know I don't want to like eventually and I think it will be. But you know If it's like one cent transactions, then it would be no big deal to just change the content hash every time you updated your website. What is the reason for having it on Ethereum? Just for fun.

It is inconvenient, I guess, if your content hash is changing every time you update the website. So you got to keep re-updating the actual where people can find the site or use something, some other service to take care of it. I mean, yeah, if transactions are cheap, then you just have like, you know, you can automate it all. and then just cost you a little bit of money each time and it'd be fine. But, you know, it was like $50. So I'm not going to like pay $50 the post a blog post. Yeah, yeah, yeah. And then you find that typo.

It's like, oh, gosh, can't be that. Okay, yeah, so let's talk about your, you have a paper that you recently released with Eli Dorado on energy superpundance. And you have lots and lots of interesting speculation in there for what might be possible if energy gets a lot cheaper. I think, I think we should just jump into it. So, like on the big picture, as I'm sure were, per capita energy use since the 1970s has not gone up. Before that, there's this thing called the Henry Adams curve where per capita energy use would increase two percent a year.

And then, you know, after 1970, that was no longer the case. Ironically enough, right after the Department of Energy was created. But nonetheless, we've still had economic growth since 1970s. I mean, it's been slower. But even though per capita energy hasn't increased, per capita GDP has increased. So is, I think in the paper's abstract or the introduction, you talk about like why increasing energy use is necessary for increasing economic growth.

But doesn't that pattern suggest that you can still have a decent economic growth about having to use energy or have you just not come across the constraints yet? I mean, you just have diminishing returns, you know, like you can only, there's like physical limits to how efficient things could be. And as you get closer to that efficiency limit, it's harder and harder and takes more and more effort. So there's some diminishing returns there where if you can just like like it like so a perfect example of what we were just talking about is oil is quite expensive and natural gas is expensive too. While oil is easy to transport, you know, you can produce it anywhere in the world and get anywhere else pretty cheaply. Natural gas is extremely expensive to transport, but it's very useful fuel and for also like, you know, making fertilizer or anything else.

So if you just have like, you know, independent energy, because not everyone has natural gas or the economic capability to extract natural gas using like traditional processes. So if you have, can just like build these natural gas factories where you're just using sunshine and water and air, then all of a sudden everyone has has access to natural gas, even if you don't have any, you know, you weren't blessed with easily attainable natural gas reserves. I think there's really this whole story about like the tyranny of geography here when it comes to energy is there are some countries that have like extreme electricity use per capita. But it's like Iceland and Norway where they have like crazy amounts of hydropower and then people build aluminum plants there and stuff like that. But you know, then you have places like in Africa where they have no coal, very little gas. you know, they're just like energy starved.

You know, their transportation system sucks, so you can't transport coal in. The hydropower is there's only so much of it may not be close to where their cities are. So if you start, like, adding solar to the mix for them, like, in some of these other technologies, it could really be an incredible increase of energy availability for them. And, you know, they aren't even, like, meeting the, I think we talked about that in the paper. where we're like looking at doubling rich world use, but it would be more like 10x for, you know, if you live in Africa.

Yeah, yeah. And then so I wonder if that's the case, then if energy becomes that abundant, then does the bottleneck in terms of what our civilization needs will just be the resources that are used to, that are the backbone of the things the energy is doing? So I don't know, like the actual resources that are necessary to build the factories

and the raw raw materials or to what extent can even that be? I would argue the ultimate limit is like oh, it's really human capital. And what more abundant energy does is it allows you to redeploy human capital away from trying to figure out how to use scarce energy sources

into just like, just like, you know, you can waste some of it now or like here's like an example I love about trucking. So I love trucks. Not as big a fan of freight trains. The freight trains are like extremely efficient.

Like literally they get like, you know, they're like, I can't remember. It's like 10 times more efficient than a truck or something. Like they use just very little fuel. But if you're going to like, you know, the train doesn't come by all the time and like they may not hold to the schedule. you have to aggregate your product with the other stuff or your raw materials and it adds a lot of cost to your production

like Toyota production system runs on trucks not trains and for the reason is the truck is just like extremely flexible like it comes when you need it it goes when you need it and even then you know people still complain about truck drivers but like not showing up

when you want them so when you have cheaper energy you know like this electric certification and automation of trucking, you are going to shift a huge amount of goods from trains to trucks. And it's going to just have like huge knock on effects all across the economy. It's more specialization. You know, you can go. There's a lot of products that, you know, you're just limited on your suppliers because of transportation is expensive. It reduces working capital because a lot of times it takes longer on trains. Similar stuff like smaller,

ships, more air freight. Like one thing that shocked me is Eli was telling me about like how the elasticity of demand for air freight is just like insane. You didn't decrease the cost a little bit. Demand goes to the roof. So I'm pretty sure that there'll be some kind of like there's like you know, you always think like, oh, we can't do this with batteries and then someone comes up with like a more clever idea. So even if you have like a 500 mile range limit for your freight plane, you know, the first The freight doesn't care if you have to stop, like, every 500 miles to refuel or recharge, and you can go overland on almost all these routes. Like, you know, you could go up through, like, Japan and the Aleutian Islands,

or you could go overland from China to Europe, charge just wherever's convenient. And, you know, if that electric plane has half the operating cost of the jet plane, like the amount of freight you're moving on airplanes will go way up and it'll go down. you know, on ships. And then everyone will be better off because, like, right now, if you're a shipping company, you have, like, real working capital problems because your stuff sits on boat for, like, a month, and you've got to finance that and do all this stuff. And then, you know, what if things change in the meantime, you know, like, oh, I don't really

want that product anymore. So the air freight is just, like, an absolute economic, just, like, booster. So if you could make that cheaper, it's really exciting. but it uses way more energy. So it did. An analogy that it just occurred to me is like you could imagine that if, um, confrontational power,

if Moore's law had stopped in 2005, we would still have a lot of interesting applications using, uh, compute and the effects of the computer would still have permeated society. But obviously a lot of things that are like possible today, uh, with computers would have just, uh,

like, they just wouldn't have been tried or been popular. possible in that kind of world. Okay. I mean, all your engineers would be, you know, working on optimization instead of building new products. Yeah. I think in Jay Store Hall's new book on, we're not putting you away at this point, but his book on Where's My Flying Clark?

One of the points he makes is that GDP growth has been probably overstated because a lot of what counts as GDP growth has just been increasing the efficiency of existing machines to make them use less energy, which doesn't, but it still doesn't result in like, more total resources or goods or services being produced. But yeah, instead of like making the laundry machine more efficient, you can just like create a new kind of machine that may use,

need to use more energy. Yeah, okay, that's interesting. Okay, and then so for this vision to come to pass, do you need energy to, is it just enough that energy becomes super cheap or do you need advances in the ability to store that energy as well, right? So if like, if, if, I don't know, lithium batteries are with the bottleneck,

it doesn't matter if you can get energy super cheap if you can't put them in appliances or cars or planes or whatever I think the important thing to think about here is that our air current energy is so expensive especially electricity. It's quite with our energy resources which are basically third role.

It's quite difficult to make electricity comparatively. And so what we use electricity for is like stuff we really want to use electricity for. So, like, it's hard to imagine that, you know, we're not going to turn our air conditioner off. Like, we're going to run it. And so we're willing to pay a lot of money for that electricity to run our air conditioner. Whereas, like, if you look at really closely at a lot of the use cases that use, like, tons of extra energy, they're much more flexible in how they use the energy.

And there's not a whole lot of storage involved. Like, if you're looking at, you know, growing crops or making metal, thing for rocket full or making chemicals. You can design these processes to run when the energy is available. And

so the batteries are really going to be for keeping your air conditioner on where you're willing to pay a lot of money. So I don't really see the batteries and storage as a limit. Okay. So I guess I didn't I guess I didn't like if you have something like

like air freight, right? If that's the thing we're concerned about, like wouldn't you need some way to store that electricity for air freight? Or maybe you can just convert it to jet fuel. Is that what you're saying? Yeah, I was thinking more like grid storage. But yeah, like in the in the transportation, I mean, transportation is going to dominate battery demand.

It's going to be like grid storage with like tiny in comparison. But I think there's like you're basically getting to the point we're making batteries out of dirt. Because that's how you scale it. So, you know, if you're making. batteries out of like carbon and iron and phosphate you know you're just there's like it's just how many battery factories you want to build you know and there's plenty of lithium it's just you have to build the lithium mines I don't really see any hard limits there eventually once you build all the factories

then then you're pretty much ready to go and then so is is the point you're making with the alternative batteries that even if they're less um even if they're like worse than lithium batteries, they'll, we'll have just so much energy that it doesn't matter. Like, even if we lose a lot of it, that that's fine. We'll just use whatever we can take. Or are you saying that we'll produce batteries with other chemistries that are as good as lithium batteries or better? You know, right now the shortage is really nickel. So, um, like in the very short term lithium is kind of starting to be kind of starting to be kind of shortage. But it just, there's plenty of lithium and it won't be. So like the lithium iron phosphate or like

whatever, what there's like a huge amount of substitution into right now. because it's avoiding nickel. And it's not quite as good as some of the nickel chemistries, but for a lot of applications, like it just doesn't matter, a lot of cars and everything like that. And you're going to have, you know, like the aircraft and stuff, paying the premium for the high energy density batteries. And eventually there are technologies that, you know,

they just use less and less materials because they're just better batteries, like some of these concepts around solid state. And I'm not sure, you know, if those will come to fruition, and if they'll be really that much better when they do come. But I think, you know, there's lots of opportunities for substitution down the line. What is solid state, by the way? Right now all our batteries. The lithium, like they charge and discharge through the lithium ion going back and forth

between the cathode and the anode and it travels through a liquid. And the liquid is electrolyte, which means ions can travel through it. So solid electrolytes are a little more challenging, kind of hard. That's why we don't have them. So you get rid of the liquid and it's just like the ion has to travel through a solid instead. And the promise is like it could be like a much higher energy density and theoretically cheaper too just because it's like weighs less and stuff. But there's like all sorts of problems around like they degrade faster or, you know, battery. have like six different areas that you have to hit the requirements.

And if you miss one, then it's no good. So they're kind of hard to improve in that sense. Yeah, so I guess if the energy superabundance is going to come from solar and wind, obviously these are intermittent sources of energy. In that case, you would need there to be like progress in battery storage, right? That's contingent on that, right? Yeah, I think that's what I mean. Like a lot of the extra energy uses that we talk about don't really require

many batteries, if any batteries at all. I mean, like the transportation, yes, you have like batteries in the, but if you're going to like have abundant like nuclear electricity or abundant geothermal electricity, like you still have to build all those electric vehicles. You still need the batteries for that. So like the extra batteries that solar wind require over like geothermal, I think it end up being pretty minimal. The way that maybe the way to think about it is, is, you know, if you can have solar a farm that's going to give you $10 a megawatt hour electricity, you know, you just have to figure out how to utilize that. And if you do, then you'll be very rich, you know, and you'll beat the guy who's paying $40 a megawatt hour from the,

from the more expensive traditional generators. Yeah, yeah. Before we get into which sources of energy are most promising. Let's just talk about some of the other implications of an energy super abundance. So, yes, I'll be talking a little bit about travel, but one thing that might be concerning with, like, air travel, at least for passengers, is if the bottleneck step there is like TSA and other regulations, to an extent will reducing the travel time or, you know, like, yeah, increasing flight speed or number of flights, to what extent will that have an impact on how

much time you had to spend in an airport or in transit. Well, so right now, if you think about, um, you know, like Airbus, they had this like super jumbo thing. Um, I can't remember what that plane, this number was. But like, none of the airlines really, like, loved it because it's, it's too big. It's too hard to get like everyone loaded and unloaded. And you really just like hit, um, dis-economies of scale. So the electric planes are likely to be just like tiny in comparison, like 10 passengers. So that's, it's easier to load and unload and you're going to fly out of smaller airports.

So, you know, you won't be going to like this giant regional airport that's just has all the parking problems and all the security. You'll be driving to like your neighborhood general aviation airport where there's like a small line to get through. And a lot of these small aircraft under certain situations even avoid some of the screening requirements because they're just not as dangerous, you know, if you only have a small plane, there's only so much damage you can do with it. I did not know that.

I got to start booking planes from the small airport or something to avoid the TSA. It's very nascent, but there's like some business models that are like coming down from like the netjet style to like a little more commercial. So it's like kind of like I think that they're trying to like hit a price point that's similar to first class. But you get you get to avoid all the airport craziness. So I think and I think I like I'm just kind of a believer in like if that existed, people would get angry enough that. they would loosen up a lot of the rules. It seems like impossible to change those rules now. But I think like the average person,

it just cost them like no time because most people don't even fly very much. Yeah, yeah, yeah. Yeah, do you want to talk about what your vision for what a city could look like if energy got a lot cheaper? I mean, in the paper, you have all kinds of interesting projections about drones and electric deliveries

and just the entire congestion of the 3D space. And I guess with tunnels as well, the, what does the city look like with energy super abundance? Basically, like, disaggregate the car to a certain extent where you're using, you know, not like inner city car trips or less because cheap flying is going to be cheaper. And it's going to be more convenient to like have the bots deliver your stuff. And, you know, the tunnels, I love the tunnels because, you know, I don't like taking people to land. So with tunnels, you can run, you know, new. roads and everything without imminent domaining and taking people's land away from them when they don't want to lose their land. And I think, like, it's, in that process, it makes people so

angry when you take their land that it's very expensive to eminent domain people, because they will fight you, you know, until, like, literally the sheriff has to show up and haul them away. So if you can go around that with tunnels using existing rideway, it just makes that, like, societal cost of doing some of this stuff significantly less expensive. And it's, you know, then just the engineering challenge. And I think there's really an opportunity now there. Like, boring company is the famous, but, you know, recently I think there's a hacker news another company that wants to do tunnels for electricity. and they have like this plasma boring machine concept. I mean, it's pretty, it seems pretty crazy right now,

but it's just one of those solutions that you're going to reduce the coordination cost across the whole economy and improve property rights. And so people should really try to build it. You mentioned one of these machines in your blog post on tunneling, and it was the SpaceX one. I forgot the name of it. But yeah, it's like this insane thing. it's um proof rock yeah exactly yeah it's you know it's like pretty big but it's apparently it's all

electric which is kind of insane um and uh yeah it can just like do it in one how how is it getting the material out like you're you just if you're just doing the tunneling in one step the problem that like most the tunneling is in soft soil and it just it's really kind of like it's it's kind of like difficult to drill through soft soil because of the materials handling. So like when you first start drilling an oil well through this stuff, like you actually have to limit your drilling speed and you don't even have to put any weight on the bit, like just the pumping fluid around basically like jets out the fluid. So that's kind of what you're doing with the boring machine and the soft soil stuff. So managing the spoils, which is like, you know, like they have like

muck carts a lot of times. I think maybe it's basic trying to do a conveyor belt. But you can also just make it a full liquid and pump it out. Like in the oil field, you know, we, we carry our cuttings in mud and we pump it. But yeah, and then they have the other big challenges they have to keep the walls from caving in on them. So that's like there's like a like current boring machines and soft soil spend enormous amount of time erecting these tunnel supports that keep it from collapsing in themselves. So it's kind of counterintuitive. It's actually dramatically fast. to bore and hard rock that is soft oil because you're because the soft soil you spend so much time like nonproductive time when the hard rock

you're just like blowing and going. Interesting. Yeah. Okay. And then so to get back to the to the cities. The you mentioned something in the paper. Yeah. Mercedes constant, which is the amount of like people's, but wasn't it that the amount of time

people spend a transport per day is the same? So if you just increase the amount of, uh, increase the speed in which they can move, but be talls or other kinds of things, then they can, they have a, uh, wider surface area in which they can explore, right? Yeah. So yeah, I don't know if like physically the cities will look that much different, but like, their effective economic size will be much larger because, you know, you could, you can live in, you know, like Cedar Rapids and, you know, commute to,

Minneapolis with some of these technologies. So your city in Cedar Rapids still looks the same. But, you know, like you can, you know, you don't have to work there. If you have a better job in Minneapolis, you could commute there, you know, three times a week or whatever it is, five days a week. Yeah, yeah, it's super interesting. But does that imply, by the way, that if the commute time stays the same and, like, people just get more spread out, if energy becomes cheaper, then neighborhoods and cities kind of

become this unwalkable mess out of like a Jane. Jacob's nightmare if the conglomeration goes away? I think it's actually the opposite. You know, like if you have tunnels and if you have, you know, some like these alternative methods to cars, then you use cars less. And I think like in many cities, you know, they never made sense for cars anyway because they were built before cars. So in New York City, you're never going to move everyone around on a car unless you build

tunnels you could then. But even then, I think, you know, there's other technologies there that make a lot of sense. And I think people like blockable. So, you know, even though I live in a city that's, that requires a car, like some of the hottest neighborhoods are like blockable neighborhoods where like the neighborhood is walkable itself. And then you just like drive your car to wherever else you need. But it's like the car is like hidden within the neighborhood. Okay, so interesting. I guess maybe we'll see more segregation than not in the racial sense or anything,

but in the sense that people will prefer to live in like these walkable neighborhoods, but they don't have any problem to like commuting to work using a VTol or something. So then you would have what you'd end up seeing is like these walkable neighborhoods and then like industrial zones that are like way far away distance wise, but not that far away, time wise. Right. And it's the same for like if you want to live in a small town that's just happened to be, you know, now it would be too far to commute to a city, but you could in the future.

Yeah, yeah, more choice, I see. So what is holding back of VTALs? VTal, by the way, is vertical takeoff and landing. This is what the reason you need to go to an airport is because you need like a large landing path to take off and land. The hope is that if you could just like vertically take off, then you would be able to like lift off from your roof or something. Obviously we've had prototypes of this kind of stuff since like the 30s.

What, like, why don't we have these widely available? Is the energy the constraint or is it something else? Well, I think in the past, you know, theoretically liquid fuels are dense enough, but they're too complex, too expensive. Because when you're turning heat energy into mechanical energy, it's just like a lot of weight and complexity comes with that. Like some of these old concepts, you know,

you have like all these engines and all that. And so if you electrify them, it really changes the game. And so just now we have, because it's not just batteries, it's the motors, it's the inferters, are now getting dense enough and small enough to make sense. But it takes time to get this stuff through FAA, you know, for better or worse. So, you know, it's like the technology hasn't been good enough, long enough to get stuff through FAA. And there is some limitations, I think, right now, a lot of people wouldn't use batteries.

like the batteries are just on the edge of good enough. Like, you know, you're going to have like a 50-mile V-tel, not like a couple hundred mile V-towl. But eventually, like, my like dream V-toll application is like a nuclear-powered quadcopter that carries like a container. So you can take the container like directly from, you know, the factory in Vietnam or wherever, directly to the people who are using it or the warehouse like in in Arkansas or, or whatever. Yeah, yeah. That would be interesting.

I mean, theoretically, you could have, like, these drones that are carrying, like, these huge payloads, um, weight wise. Yeah, but you wouldn't, you wouldn't necessarily want a large payload. You just want, like, the, whatever the customer wants, you know, you want to size your, your vehicle to deliver that payload. That's the most efficient. Oh, I see. Right.

Because you don't need to, it doesn't need to be like a shipping container or like a shipping vessel where you, you, you just have a, be cute okay i see okay um yeah yeah interesting uh and then what does this mean for computing so if energy gets a lot cheaper um i i guess bitcoin mining becomes uh well it doesn't necessarily become more profitable because other people's energy cheaper too but one of the other consequences is spinning up an a ws server just become trivial now and then uh building a deep learning model cost like nothing in terms of GPU time uh what would impact does it sound on competing yeah i mean i think the limitation would probably still be just like chips for a while until you figure out a better

production process for that. I think it'd be a while before it's like becomes energy. I think you know like smartphones really worry about energy. So there could be some interesting things with smartphones if you have like a very power dense like beta voltaic battery. It's like a nuclear battery, something like that where you don't have to worry about like running down your battery. but outside of smartphones I'm not sure that energy is like the limit for a lot of this computing

and one of the interesting things that's speculate about at the end of the paper is about a potential carbon shortage and I think in an email to Tyler Cowan he published on his block he um you said like by the end of the century we'll have a carbon shortage

because because I presumably because the process you talked about earlier the thing you're working on right if you can take CO2 out of the atmosphere. All right, so what is the probability that this ends up happening? Like, do you think it's like more than 50% by the end of the century or, or is it just speculation?

I think it's extremely high that it happens and it's, it's harder to put the timeline on it. By the end of the century might be like a little, if you, I think, I think I ran some numbers in there and like if you 10x current plastic production and then you're just like putting it landfilling at all. I think it was a little over like 100 years to get, and you're assuming like the rest of your carbon output is zero in that scenario. But it's probably pretty hard to do it like in a hundred, like by the end of the century without a lot of growth. But it's kind of the exponential thing can get you where, you know, like I think all the, you know, some large number of the carbon emissions have happened in the last 20 years. Like, and it was very small before

like 1950. So you know, you could kind of like get surprised at the back half the last 10 years, you know, it goes crazy. It makes it hard to predict. Yeah. Yeah. By the way, so in Wilma Castle's new book on long term, one of the things he specialates about is if society collapses and we need to restart, one of the things we'll need is coal or some other sort of like dense, easy to use fuel. And the problem is we've been burning up. easily accessible coal, like coal in places where we could just like dig up and find it. And so one of the things he's concerned about is like making sure we leave some easy, easily accessible coal silos around so that in case, you know, society collapses,

we can restart and use these to power up our like a second industrial revolution. I wonder if you could use a process like this with carbon sequestration to actually just build up these kinds of reserves. I don't know if like a long term is or somebody's like really interested in making sure we have that kind of resource, they could just use this process to, is that possible or? Oh, so actually there's a company called like Charm Industrial. They're basically doing that because they take trees and they do a process called fast pyrolysis. It's where you burn biomass without oxygen in oxic environment and it makes this bio oil.

And then they're injecting the bio oil down into wells and selling carbon. credit. So it's already happening, you could say. Oh, wow. And that that is easy to burn and stuff. Like, you could, yeah, if you, if you just want to like burn it for heat, it's, it's okay, but it's hard to refine. But this was like a, there are a lot of people that tried to do bio oil as an alternative for petroleum, like 20 years ago, like Clean Tech 1.0 and they, they all failed. So it makes me laugh that like they're reimagining the process to sell what are right now very expensive carbon credits. But you could do something similar.

There's actually, you could do something similar just to make straight carbon and stuff if you wanted to. Okay. I see. The thing that I find interesting about this is often in the case of, um, global problems, people will early on identify that a thing is going to be a problem. But it often ends up being the case that they get the direction of the problem opposite. Like if you think about population, right? in the 70s people were like correct that global population is going to be a problem. The thing is it probably it seems like now the problem is going to be that the population might

decline too fast right now that it's going to grow exponentially. And I think this is like another example of this kind of thing where CO2 is going to be a problem either way. I'm not sure if it's going to be a problem we'll overproduce it or we'll have shortages. Yeah. I mean if you if you just think out like the large scale, if you're going to be like Cardash, whatever scale civilization, civilization, or you're using like condensed amounts of energy, like that's going to have, you know, side effects and you're going to have to figure out

how to manage that one way or the other. And I mean, one of those is eventually Earth may just be like a nature preserve and we all live in space or something. But yeah, yeah. Okay, let's talk about nuclear. It seems like you're much less optimistic about nuclear than you are about solar and wind. Do you want to do you want to explain why that it's a case? Yeah, well, especially solar more than southern wind. Wind, I think it's limiting because it's transmission problems. And again, you know, like you're, if you want to build out huge amounts of wind,

like some of these zero carbon, uh, plans call for, like you're going to have to take a lot of people's land to like build transmission lines and stuff. And again, really pisses people off and they fight hard and it becomes expensive. So, and it's not like, you know, the wind turbines are easy, are relatively easy to sight, like, because you pay people, you know, actually see, like, they never put above ground power lines on the people's land where they put the wind turbines. They're always underground, so at least they get to the county right away. But, like, when you get these giant transmission lines, like, you know, grain belt or something, like, they almost inevitably have to go across a lot of people's lands, and you can't just step them all in county and state rideaways because they're the pylons or something. so big. Sorry, what is a pylon?

The pylon is like what holds the wire up, the tall tower. So yeah, so solar is like it's much more flexible where it can go. And I think the solar getting cheaper, the opseals are just like pretty simple. It's like, well, gosh, it's expensive to fill with racking. Why don't we just lay the panels on the ground or like, gosh, that's glass we're encasing with is getting expensive. And we don't need it to last 80 years or 50 years. You know, we can just like put some plastic on it instead.

or we've gotten these, you know, the actual photovoltaic cells so cheap and like all the other labor and stuff is getting more expensive. Well, why don't we just add another layer and make more energy? So those are kind of like your solar solutions to get down to like $10 the megawatt hour and they're pretty straightforward. Whereas like nuclear is like, well, you know, the light water reactor can't get us there. Like let's instead cool our reactor with sodium, which, you know, catches fire when it, you know, explodes when it reacts with water and catches fire when it reacts with air. Or there's, you know, you could cool it with lead, liquid lead. That's an option.

Helium, which, you know, leaks a lot. Or you could do molten salts that like corrode everything. We don't really have anything that. And so I think when you start looking at, like, you know, this is for large reactors. So I think those solutions for very large reactors are pretty hard. It's pretty difficult. And there's a lot of reasons why do we make these weird choices. Well, there are a lot of stuff just reacts poorly, you know, when you expose it to neutrons and stuff.

So they have, they each have their own features that make them possibly good candidates. So that's, that's really where. And I actually think like regulation is actually kind of like a, it's oversold a little bit. And I think actually to the extent that if people were internally consistent, then they would see NRC as a regulatory success story. Because, yeah, the kind of background on this is my wife's mom and stepfather are nuclear engineers that have, like, worked, you know, from at all levels of nuclear power industry. So I get to ask them, you know, the general questions and learn a lot about it, which is nice.

It's very helpful for learning about it. But there's, like, back in the 80s, the nuclear power industry was like, in real. trouble because their competitors and coal and natural gas got deregulated. Most of the cost of coal is the rail getting there and the rail industry got deregulated. And then the natural gas industry got deregulated. So the cost of their alternatives was falling and they had the cost of, you know, they had to build more safety into their plants because of all these, you know, it wasn't just three mile island.

It was like Browns Ferry. It was Rancho, heco. All these like, you know, things that could have been. really scary and certain extent we got like a little bit lucky that we didn't have like a worse disaster you know they were just like relatively limited accidents at their sites so what the and like there's actually a time where nuclear power plants were selling for less than what their fuel was worth they had on in their plant like around there so what the industry did and what nRC did is they move to probabilistic risk assessment,

which is like, you know, usually the gold standard. Like, people are really happy that we use probabilistic risk assessment for commercial crew with NASA and SpaceX. And they want FDA to use more probability, you know, more expected value. So, and what this allowed was basically you're rolling up some of the rules and moving into the risk assessment. So, like, around 1980, like, nuclear power plants only ran about 60% of the time. They weren't very reliable.

They had all sorts of, like, unplanned outages, stuff like that. And these, the safest mode of operation is just running as designed. So the more consistent nuclear power is the safer it is. So the probabilistic risk assessment allows you to do repairs while you're running, which was kind of like discouraged before. So it'll be like if your main cooling pump is leaking before you'd be like, oh gosh, I hope we can make it. And then eventually it just fails and you shut down the reactor. And now it's like, all right, well, we have backups.

The safest thing to do is actually repair it now while the plant's still running and then get it repaired and put it back online. And so not only like to give you the idea of like the safety standards that NRC has, think for like the, the plant taking damage is like one time and 10,000 reactor years, and then for a large release is one in 100,000 reactor years. And there's 93 operating reactors at, you know, less than 93 sites. So like we should only see like a three mile island under the current standards, like, once every 100 years or so in a large release like a Fukushima type situation, like once every a thousand years. But, you know, they have like just in a few years in the 1970s, like the industry had like three or four of these like damage events, you know, at least. I don't know how many,

like, officially count, but probably at least three. So the safety is like God, incredible. And now the operating capacity is up to like over 90%. So the plants are just extremely reliable. And it lowers their cost because their costs are so fixed. And like, yeah, like can you compare it to, like a country like France, they've had a lot of liability problems with their nuclear fleet in the last couple years. Like this year, you know, their capacity factor, I think it's all, might barely be over 60%. And they have, you know, we have like 90 gigawatts nuclear. They have 60 gigawatts. So that's like makes a huge difference for Europe that those plants aren't running full out. And it's really, you know, you see a lot of charts about like, if Germany didn't

shut down this reactors, what would the, you know, energy balance be? But you don't see as many, like, if the French could run their reactors like American reactors, what would the energy balance be? So I think there's, I could go on about like how that integrates into new plants if you want about that. Yeah, I do. Yeah, because the line I've always heard on this for my bubble is like, oh, they haven't approved a new plant. The NRC has not approved a new thing since, um, uh, new plants since it was created. I guess they just approved the design for the new, uh, small modular reactors, which I guess I've looked your opinion on as well. But yeah, yeah.

So I'm very curious to hear this perspective. Well, okay, so think about it. In the 1980s, you had new sources of fuel, you had new competitors. You also, by the end of the decade, you increased the amount of your nuclear power plants ran by a lot. So a lot of these new power plants that people were thinking about building were at existing sites, like an extra reactor at Watts Bar or whatever. And, well, you, you know, you basically just got like a buy two, get one, free by running your plant better. So you don't really need them as much. So all those contributed to like just not making sense to build new nuclear power plants because the existing fleet ran better

and more competitors and electricity demands low down. So I think there's like a, you know, is it hard to get through NRC approval? Like yes, that last one, the mini reactor you're talking about took like, I don't know, 10 years or something. But, you know, when you think about like a probabilistic risk assessment, like, no one ever says, like, well, gosh, NRC's current standards of, like, a large release, which would basically happen one every thousand years, like, is that, you know, we're not arguing over that. We're just, like, talking past each other, I guess, instead. So to me, like, that's pretty reasonable risk level.

Like, you know, if you're going to, like, 10 times your reactors, and that means, like, almost certainly you'd have a Fukushima within your lifetime if you go with NRC standards. But it actually turns out that it's pretty cheap to do way better. You know, a lot of the reason why the plants weren't built may not necessarily been because of regulation, but because like the market conditions changed, you know, you have more competitors and the coal with the gas being deregulated. And then you also had, you know, increased production from the existing nuclear plants. So if you're going to build an extra nuclear plant or an extra reactor,

at an existing site, then you know, you might not have needed to anymore because you got so much more production out of your existing plants. And just stuff like they shorten the fueling time, just a lot of like all around improvements paired with electricity demand flattening that really made new plants not economic or not necessary. And, you know, really when we think about the probabilistic risk assessment, it just takes a lot of engineering time to get it through. Like if you look at how hard it was for SpaceX to get Falcon 9 and Dragon through NASA's,

lots of crew risk calculations, you know, it took years, took hundreds of millions of dollars. So it's kind of funny that like people see that as a success. And especially when the stakes were only like a few lives for people that volunteered for danger. And then you have like a nuclear power plant where we're going through the same probabilistic risk assessment and it could impact many more people's lives and it's like oh it's not

you know that's not good enough so I mean I think it would make more sense to argue about you know if the the risk factor you know how much risk should we take like with the actual numbers as opposed to just like oh I'm mad that we're not building nuclear power plants and actually it becomes just like

very inexpensive to actually to improve the risk probabilities because the old plants that we're running now, they have active safety systems, which means you have to maintain them and they have to work. So, like, if you want to, like, move the control rods back into the reactor, well, there's like a mechanism and a motor that does that, that can fail.

So that, you know, when you're calculating your risk, you have to calculate, oh, gosh, what if this motor fails? Or what if my control fails? or what if I don't have a properly trained operator to do it? And it's the same for the cooling systems. But there's new generation of plants. They have passive safety systems where like natural convection can cool the reactor in an emergency or the rods are more like dead man switch where, you know, if something happens, they just drop in from gravity.

And so the new power plants like this one that just got approved or the one they're building down in Georgia, you know, can be orders of magnitude safer than the, than the rest. running plants. And it's not really like a huge cost increase. You're just changing how you do these things. And in fact, like if you look at all these, like all the literature for them, they're actually supposed to be less complex and easier to build. But you know, you're talking about a project that it's so complicated. It takes thousands of workers, years and years to build working every day. And it's like if you're going to go through and do the engineering in great detail to prove that you're playing a safe under the probability of risk assessment,

it's going to take hundreds of thousands of hours of engineering time. I mean, it's going to take a long time. And that's why you see, I mean, investors are willing to pay that at this point, it's just like, you know, after you build it because of, you know, the rank and cycle and all that, is it going to generate economic power? And, you know, it's not necessarily going to. I think one way to think about this is my father in law, he always says, you know, when people ask them about why we're not doing more nuclear, he says, well, you've got to think about the politics first and the economic second. And those are like the important ones. And so people are submitting designs and when to build plants that are big enough to impact lots of people's lives. Even if that risk is very low, you know, some people still are bothered by that. But also they're selling an easily substitutable commodity in most cases. And so I think a lot of times,

on the political side, if you can substitute nuclear power, people will, even if it's coal or whatever. People don't really care that much about the emissions. Like, they just care about their electricity turning on. And I think you see the opinion changed very fast when nuclear power is no longer a substitute. Like all of a sudden, you know, Germany is like, well, we could turn our reactors back on or Japan. Same way. You know, they've had these reactors off for years, but now that there's an energy crunch, they're like, well, let's turn them back on. So I think the future for nuclear power, which would be a better future, is you create products that impact less people's lives or have the potential to impact less people's lives and also are not substitutable.

I think that means small reactors. Like if you have a battery that can power your phone or you have like a little battery out in your garage that can power your house. The real, you know, these are hard to make. There's a lot of problems, especially on power density. Like, you know, the nuclear is very energy dense, but not necessarily power dense. So you have to do a lot of work on that to get there. But one of the most exciting examples of recent nuclear technology is these people at some national labs and NASA got together and created this crusty reactor. It's like only one kilowatt, so it's small.

I think the thing weighs like 400 kilograms. It fits in the room. They got the whole project done in a couple of years for like less than $20 million. and it worked great. It's very safe just because partly because it's so small, but it has almost no moving parts. Like the whole thing is, you know, it has like a sterling engine on top and that's like the only moving part. So it's really, you know, and there's several startups now that are working on improving that technology and commercializing it. So that's the kind of like nuclear stuff that, you know, why I talk about small nuclear, micronuclear is really exciting to me.

because it has so much potential and when you start putting nuclear in that small form factor, there's no other energy source that can compete with it on energy density. So you can do things you could never do before. Whereas like selling to the grid

in a large power plant is like, well, I can do that lots of ways. And if you think through this lens and you see like the entire nuclear debate is, you know, the nuclear proponents trying to claim that nuclear is not substitutable and that we should pay more,

except the risk or whatever. And maybe we should, but it makes it hard to promote that technology. If you can have a phone that you never tried to charge, like people would love that. They'd be like, I don't care that's nuclear. I just have a phone that, you know, never goes dead. I guess the question is, to what extent are those,

is the lengthy and expensive process necessary for the probabilistic risk assessment? If there's like a way you could just have the process, not be more streamlined and have the same, be as effective in evaluating the harm. And then I guess another thing is if we haven't seen, it's like zero people or like very few people who have like directly died from nuclear, right? So is it just that we've gotten lucky or like you're saying that could have been like way more and we're just in a lucky timeline?

I guess I'll go backwards a little bit here on answering those questions. So more so than I think what people are responding to is just. Just because Fukushima didn't have, you know, airborne radiation, that was very dangerous. But people still got removed from their home, you know, and there's a lot of costs associated with that. And, you know, it's hard for me to believe that if we had a similar thing in the U.S., that there wouldn't be, you know, some type of mandatory evacuations that were really unpleasant. And if you could, you know, get your power from coal or natural gas without that risk, I mean,

a lot of people would make that trade-off. And I think the other thing with Fukushima is, as I understand it, like, they were able, because it was on the ocean with fast currents, they were able to use, like, a whole lot of seawater to keep the reactor from getting too out of control. But they were just, like, dumping, you know, a lot of the, like, radioactive stuff into the ocean, but it was dispersing quickly. It wasn't a big deal. So, you know, if you're on, like, a freshwater reservoir, like, most nuclear, most U.S.

power plants are like your risk equation might have been different there i don't know enough about it to know if that really matters but i think the main thing is because the precautionary principle people are still going to get removed from their homes and people don't like that um let's see making it fat i mean you can always streamline processes but the thing is like people are submitting designs that are extremely complex so whether your design is ultra safe or not safe at all to do all the engineering to prove that, cost about the same either way. So that's part of why these new plants are so much safer than the NRC standards. It's just not that hard to make them that much safer.

And a lot of your licensing is going to be, you know, you're going to spend the same engineering resources no matter what based on your plant complexity. So the, you know, that's like the difference why Cresty was able to go through so fast. You know, they went is, you know, their thing is very simple. They don't have very many moving parts. Like there's only so many things that can go wrong with it. And so I think that's what's exciting to me about these other startups is they have the potential to get through faster with less money.

And then there's real markets in like remote power, space, military, where people are willing to pay the premium for these initial models. Okay, I see. Okay, so you're not bearish on nuclear or the future, given the new designs with passive cooling and stuff like that. It was more like the old designs that you're pessimistic about. Is that correct?

Yeah, I mean, like if you look at what the cost of electricity is going to be from that, you know, if they ever build the reactors that just got proven or just got approved, like it's quite expensive. You know, I think usually it's around like $40, $50 a megawatt hour best case, but more likely

it could be up to like $80 a megload hour. So, you know, They're not building it, you know, in deregulated power markets because you, you know, you lose money. But there are places where it could make sense, you know, some places like in Europe have very expensive electricity. And Japan and Singapore and there's a lot of other places that are. Yeah, yeah. So there could be some markets in there, but, you know, that technology then still has to compete with those places building solar panels or, you know, all these other technologies that you could do. and then there's the whole argument

well nuclear can do this and that but you know I think the people building the reactors clearly don't want to build them in deregulated power markets because it's not economic you know that's why I'm excited about the small because there's alternative markets other than selling this

substitutable commodity that's very cheap well what is uh have you talked to Eli about this what is his opinion yeah so Eli finds out about these like new startups that fit this bill and sends me the information on him because he knows I'm excited about it. So I think he's also, you know, he also, like, of course, you know, his, like, specialty is, like, governmental affairs.

So there's still, I'm sure there's still lots of opportunity to improve the process at NRC. Like, recently, Impo, which is, like, the industry group, that's very much like a German-style industry group. It's very powerful. You know, their goal with NRC was, like, reduced the nuclear rules by, like, one-third. And then you also have NRC writing new standards for like Gen 4 reactors that's supposed to be done in a couple years. But Congress instructed them to do it. So there's lots of opportunity to try to improve the process.

But it's very complex. Like I'll give one example, the Browns Ferry accident. The main thing that came out of that was you can't have control cables for safety systems on redundant safety systems on the same cable tray. Because that cable tray catches on fire, you lose both systems. So it's very, very expensive to run extra cable trays and all the cable separation. And like that's actually one of the problems that's like delaying Vogel in Georgia right now is they had like 500 issues of sharing the same, like safety system sharing the same cable tray. So they have to like, you know, build all new cable trays and clean out the mess of the stuff they already built and redo it. It's super expensive.

So NRC is like tried. They tried a pilot program where they did like a performance-based safety on, you know, as opposed to like just the strict cable separation rule. And like I think O'Connie was one of the power plants that ended up being more expensive than just the simple rule. So the reality is often very complex. And I think when you have these complex plants, like it's just hard to do. So it can always be improved. But, you know, I think the small could end up greatly. out competing the large because they have less complexity.

Yeah, you had a small section in that piece about fusion where you, yeah, you're, you're especially pessimistic about fusion. What is your, what is your take on fusion? It's kind of the same thing. I'm not pessimistic about fusion. I'm pessimistic about fusion technologies that heat up water to make steam and run it through a steam turbine. Because they're not efficient.

It's just so expensive to do the, like literally like it just putting in like the steam turbine and the condenser and all that kind of stuff you need for that basically makes you uncompetitive on most on most deregular power markets. Yeah. So, I mean, there are startups who have plans to do direct energy conversion. I don't know how feasible those plans are, but, like presumably you think those are, in those cases you think Fusion and could have a big future? Yeah, yeah.

Again, like I don't know too much about the same as you. I don't know too much about their... specific technology, but if you're pursuing a direct conversion technology, it's just you're, you actually have a chance of success, you know. I think a lot of people I've talked to in like the fusion space, they're like, well, I can make, you know, electricity for $50 a megawatt hour. And because I'm fusion, people should pay me $50. And it's like, well, not everyone may want to pay you $50.

Yeah, yeah. I mean, it might involve an initial period of like large subsidy that we had to give electric, uh, electric vehicles and even solar. We had to give huge subsidies to solar in the beginning when we were at the beginning of the learning curve. So that might be necessary, though. Yeah. I mean, I really disagree with like the subsidies solar's hat actually. And I think it's just like if you actually look at the numbers, it proves the point.

Like the people say like, oh, because Germany did the feed-in tariffs that like made solar cheap. So if you had a country that's 1% of the population, they spent like a tiny portion of their GDP. And that was enough to scale the technology. well, you should just let some other fool do that, you know, and reap the benefits. So I would be supportive of taking away most of the subsidies for energy in general. Just to make sure I just that argument, you're saying that like, it's unlikely that the small subsidies that Germany gave were enough to actually make the difference. I'm just saying if they were, if it took such a small amount of subsidy to do it,

like someone will be foolish enough to do that. You know, in this case it was Germany. They spent a lot of money doing that. That was, you know, they're not reaping the business. benefit from. Yeah, it's not compatible with their environment. So, um, and their climate, I mean, yeah. So, I mean, we benefited from them doing that. We didn't have to, you know, we still do spend some subsidies on solar. And I think they're very like poorly designed. So I would be better just to get rid of them. But, but, but the thing with fusion, if you're just heating up,

heating up water to make steam is that technology. There's no learning curve for any more for steam engines basically. Because, you know, that, you know, that. technology so mature. I mean, now, so that's why some people are looking at like super critical CO2 cycles is because, well, maybe this could be a little cheaper than doing steam turbines. That's why that's some possibility there. But it's, and there's some other technologies that maybe someday you have like thermoelectric generators and stuff like that.

But I think the direct conversion technologies have just a massive advantage, not only in initial costs, but in ongoing operating costs. Okay. Okay, okay. There's one more topic I really wanted to talk about, which was, yeah, you have a this interesting posting post on where you can actually expect to find alpha, given that at least public markets are efficient. Do you want to, like, explain the basic thesis of that post before I ask you specific questions about it? Yeah, if I was going to, like, done that post down, like, I love Fama's original paper where he lays out this efficient market hypothesis thesis.

and you know he's like there's multiple types of information and so the first is you know if you just have like pricing data for stocks or whatever securities like you can be the smartest person in the world and you're not going to make any money doing that because it's just like random but the uh if you start incorporating more information like well it's in 10ks and all that like if you're like super super smart you might be able to make a little bit of money there um and you know we see that with people like Renaissance technologies, and you can debate about, you know, Warren Buffett and all that. But then there's the third category, which is like the strong type information. And it's basically you have legally acquired private information. And the, you know, you can make money that way

and be significantly less smart. So if you, if you want to like just take FAMAS paper and like, how do I make money? It's like, okay, well, I should find legal ways to acquire, you know, this information and then I don't have to be you know super genius to make money on it. Yeah, what I thought was really interesting in your post was you had this point about how one of the ways you can actually earn excess returns is through like labor, right? Like Buffett in the earlier as at least you would like go into these factories or companies and like interrogate every single piece of operations and whatever. And I thought that was an interesting twist on Pickety's thesis.

So I don't know if you've seen his stuff, but he has his claim that we're not only just capital earn more than the gains to capital are higher than the gains to labor, but the higher capital you have, the higher returns you can earn. Like, I guess Harvard has access to hedge funds that may be able to earn like excess returns. I thought yours was like an interesting, basically if you take this view, it's basically the inversion of Pickety because like over time as Buffett. has gotten wealthier, his returns have gone down because it's harder to like invest the marginal dollar more effectively. And as you said, with the medallion fund, yeah, they don't, they, they no longer accept outside money. And, uh, and then the, the interesting thing about labor is like, the reason that Buffett was able to earn those excess returns at the beginning was because of the labor he put in, right? So the interesting thing is like capital is just fungible with other

capital. So capital doesn't enjoy as high returns as like really good labor, really smart labor, which is like the opposite of the pickety thesis. And I think there was actually a paper, I think it was on marginal revolution a couple of years back. So I'm pulling from my memory here, so I could be missing a little bit. But basically it studied like all these businesses and what happened to the business after like a founder unexpectedly died. And like the profit just like, you know, and it looks like on, you know, these are capital returns. So it's like many people would see them. But then the, you know, the earnings just like drop like a rock.

because they lost some irreplaceable human capital there. And, you know, they didn't spend any time training because they died unexpectedly. Right, which also has an interesting implication for CEO pay, which is just that actually like, okay, in the Marxist sense, what is pay? It's like your pay is what it costs to replace you, right? And if it, if the, if Steve Jobs is so irreplaceable that, you know, if he goes away, like earnings are going to drop like a drop and like, rock and a stock price are going to drop like a rock. Actually, that means that he should get paid. Like, that's how expensive it is to replace him.

He may be like irreplaceable, right? So it's actually worth whatever like dozens of millions of dollars you're paying him. Yeah. Yeah. I'm generally a proponent for letting the market decide that. Yeah, yeah. Okay. And then another way you said, suggested that maybe a firms could earn excess returns is like

by developing unique brand, right? So like Y Combinator is probably able to earn excess return. and sort of normal venture capitalists because of their unique brand. Yeah, I thought that was really interesting. Do you want to talk more about that? I think it's just like a lot of this intangible capital and labor are compliments for regular capital. And I think you can see it too.

Like, you know, if you build a brand around that you're a good investor, like you can raise money from other people and charge the money on it, you know, more so than if you're just like a no name. I think there's lots of examples of that where building a brand or building relationships is extremely valuable and can just like specific knowledge can juice your returns. I mean, it's like a type of specific knowledge. Well, what do you mean? It's a specific knowledge? Well, I mean, to build a brand like Y Combinator, you have to like understand what tech founders want.

So they use that knowledge to create, you know, a place that's great to do, go to your startup. Yeah. Yeah, yeah, yeah. Interesting. Is the market for blogging efficient? So now there's actually financial rewards to blocking. You know, the effective ideas block prize. There's other kinds of grants like this.

You know, recently opened philanthropy a contest of you suggested cause your idea. You know, there's many prizes where like if you're good, it seems like if you're pretty, really good at blogging you could like earn six figures it seems given like the regularity in size of these prizes um yeah so is this a market that we should expect to be efficient i think it would be hard to measure like given my own experience like i'm blogging for free but the benefits i've gotten from learning about what i'm blogging about and then like a few connections i made that then help me like with what i'm my projects i'm working on you know like there's like huge returns could and it could be you know like if my project's successful like it could be just like almost immeasurable so yeah i would guess

it's very hard to measure and probably inefficient and that more people could blog because it's hard to predict the returns to what your blogging might have but i guess if you're going to do these blog prizes i don't know if the blog price you know because the blog prizes are about specific topics i don't know if that how much that helps the efficiency there yeah yeah let's take that part of it Now, let's just talk about the factor you mentioned, which is that you can, this is a regular thing you hear from people who write online, which is that the gains they get are huge, and that's also the case in my case. And so it's kind of interesting, I guess efficient market doesn't, like, just because

the stock market is efficient doesn't mean that everybody will put their money into the stock market, right? That's not the implication. So it's very possible that you have irrational actors who are not, like, invested in or like writing. But then the question is, given that you write something that's high quality, will it get noticed by the market. Like, we'll get the attention and broadcasting that it deserves.

And in my experience, actually, like, I guess this was the case. You mentioned that some of your first post ended up on Hacker News, right? So in that sense, that market was efficient. But, yeah, it seems to me that when somebody finds a good blogger, they, it's not hard for their initial post or, like, at least their subsequent post as they get better to gain an audience. Yeah, I do think, I do think that. I don't know what the counterfactual is.

We don't know about the people that didn't have posts to go to hackney's. So, like, it could have easily been, I mean, I think that what the alternative for me is I just would have blogged way less, you know, if one of those early posts hadn't gotten more attention. So, yeah, it's hard to know what the counterfactual is. How many people have just, like, abandoned blogs that did, like, three posts. And they would have written one more. Maybe it would have been better. yeah yeah okay awesome this has been a lot of fun thank you so much for uh i think we're two hours

over at this point so thank you so much for your time all right thank you i don't know if you have any other like other final thoughts or any other subjects that we should uh hit on or no you know i think i think we covered everything okay cool cool awesome and then just uh people can find you at um austin dot site okay austin mernardin that site um and then your twitter is i think it's vernon three austin okay and it'll also be on the show our description but yeah okay yeah thanks very much for coming on man this is a lot of fun all right thank you