Dwarkesh Podcast - Byrne Hobart - FTX, Drugs, Twitter, Taiwan, & Monasticism

Episode Date: December 1, 2022

Perhaps the most interesting episode so far.Byrne Hobart writes at thediff.co, analyzing inflections in finance and tech.He explains:* What happened at FTX* How drugs have induced past financial bubbles* How to be long AI while hedging Taiwan invasion* Whether Musk’s Twitter takeover will succeed* Where to find the next Napoleon and LBJ* & ultimately how society can deal with those who seek domination and recognitionWatch on YouTube. Listen on Apple Podcasts, Spotify, or any other podcast platform. Read the full transcript here.Follow me on Twitter for updates on future episodes.Timestamps:(0:00:50) - What the hell happened at FTX?(0:07:03) - How SBF Faked Being a Genius: (0:12:23) - Drugs Explain Financial Bubbles(0:17:12) - On Founder Physiognomy(0:21:02) - Indexing Parental Involvement in Raising Talented Kids(0:30:35) - Where are all the Caro-level Biographers?(0:39:03) - Where are today's Great Founders? (0:48:29) - Micro Writing -> Macro Understanding(0:51:48) - Elon's Twitter Takeover(1:00:50) - Does Big Tech & West Have Great People?(1:11:34) - Philosophical Fanatics and Effective Altruism (1:17:17) - What Great Founders Have In Common(1:19:56) - Thinkers vs. Analyzers(1:25:40) - Taiwan Invasion bets & AI Timelines Get full access to Dwarkesh Podcast at www.dwarkesh.com/subscribe

Okay, today I have the pleasure of bringing Bern Hobart again for the second time now, who writes at the diff.com. The way I would describe Byrne is every time I have a question about a concept or an event in finance, I Google the name of that event or concept into Google, and then I'd put in Burn Hobart at the end of that search query. And nine times out of ten, it's the best thing I've read about that topic. And it's just like just so interesting, right? It's just like the most schizophrenic and galaxy brain takes about how, you know,

the discourses of, you know, Machiavelli's discourses relate to big tech or like how source, the theory of reflexity explains hiring in finance and tech. So just very interesting stuff. I'm glad to have him back on again. Yeah, great to be back. Awesome. Okay. So at first I really want to jump into the FTX saga.

What the hell happened? Let me just like leave an open-ended question for you. Yeah, so I think the first thing to say is that there's a lot we don't know. There's a lot we may never know because so many of the decisions that FTCS were made through self-auto deleting encrypted chat. So, like, there are some holes we will never be able to fill in. The lack of accounting is also going to make it tough. Like, basically, I think you can tell a bunch of different stories here. The really obvious one is fraud, and you can debate over exactly when it started, like,

One version of the story, which is getting some currency, is that SPF had this entity Alameda, and it was supposed to be this really hot crypto trading fund, but maybe it was a Ponzi scheme all along. And then maybe at some point that Ponzi scheme started to run short on cash, so we decided to start an exchange, and the exchange got more cash, and then he used the cash to pay off free some bashes or whatever. I think that's one version. And then kind of the maximally exculpatory version, which actually is still really bad, is Alameda was a real company. They really made money trading.

They took tons of risks, and SBF has talked about why he thinks that's a good thing, that FTX cut some corners when they were raising money and that they had really bad internal accounting, and that basically the extended entity of Alameda and FTX sort of lost track of whose money was where, and it ended up with Alameda spending FTX customer money, which I think it's like one way to look at that is like if you think okay fraud is like twice as bad as just incompetently losing money well it's not as if we get a $4 billion fraud instead of $8 billion fraud everyone would be like well that's that's fine that's normal like why are you giving it's kind of hard time like it's bad no matter what you know running a big company that is systematically important in crypto and then having that company completely vaporized over the course of a couple days really really bad and worth understanding what happened but it's partly worth understanding what happened because there are just different solutions that present themselves, depending on what you think the story is. If the story is fraud, it's actually a lot harder to solve because there are just a lot of

a lot of people who are willing and able to commit fraud and to lie. If the story is bad accounting, then that's actually a lot more solvable because then you could say things like the solution is make sure you never invest in a crypto exchange that doesn't have a real auditor and make sure that they have like their, proof of reserves calculation and it's happening consistently and that you can audit that. You know, there are different solution sets. And then I think the actual story is going to be somewhere in the middle of extreme risk tolerance plus extremely poor accounting plus fraud at some point.

But I suspect the fraud actually happened pretty late, you know, if it happened, which I think there's like, you know, 80% chance that there was some level of fraud versus pure incompetence. but if so, I think, may have happened fairly late in the story and as kind of a last desperate move. And I think part of what drives the response to what happened with FTCX and Alameda is that if you think the story is pure fraud, it's very easy to say you would never do that. Like, I could say very easily. I would definitely never start a Ponzi scheme and then start another bigger Ponzi scheme to pay off the first Ponzi scheme. That's not me.

That's not most people. But I think if you draw this scenario where they discover at some point like a couple months ago or even a month ago, they realized, hey, we actually, there's a billion dollars plus that was supposed to be customer money, but we thought it was Alameda money and we actually spent it and now it's gone. We've lost it. What would you do in that circumstance? And I think the ideal answer is, well, I'd immediately come clean and, you know, step down and commit myself to getting everyone paid back and made whole. I think there's also the possibility. that, you know, I would like the answer, the realistic answer is more like, well, I would scramble and try to make sure that that didn't cause the company to collapse and try to pick up to back later. And so at that point, you've sort of backed your way into fraud through earlier episodes of incompetence. But I think, like, one of the problems with the fraud story is frauds have to be good at accounting because they have to, like, you know, there's very rough schematic sense. They have to be twice as good at accounting as everybody else,

because not only do they have to have the real books that tell them how much money the business has and whether or not the next check they're at will bounce, but they have to have the fake set of books and they have to have a way to make those tie out with one another. So they actually like frauds, accounting frauds tend to be fairly sophisticated. They tend to really dive into edge cases. I was reading up on MF Global, which was a big futures brokerage that collapsed in part because they were dipping into customer funds and making some investments they shouldn't have. And they did a lot of clever and shady stuff.

One of the things they would do is there was one point where they were transferring money at the last minute out of their customer funds in order to make margin calls. And what they would do is they would send the wire from the customer account to a different company account. And they'd send it a couple of minutes before the wires closed for the night. And then they would send this email right after the wires closed saying, hey, we just realized we set this transfer from a raw account, got to reverse tomorrow. But that gave them at least one night of enough liquidity to survive. Now, you can only do that kind of fraud if you are actually keeping really close track of where your money is, where it's supposed to be, what the rules are so that you know exactly how to break those rules. I don't think SBF, I don't think FTCS was in any position to commit that kind of fraud. I think that they could have, if they tried to do something like that, like they'd wire the money from an account that didn't have any money in it or something or send it to the wrong account.

There are these stories about them accidentally burning a bunch of USD. by sending it to an address that didn't exist or something like that. Like, the operational slipups actually make it harder for them to have committed fraud, and it's unquestionable at this point that their record keeping was very bad. Yeah, yeah. To your point about the fraud being harder, I mean, it's like a classic story about if you just tell the truth, you know, it's just going to be much easier for you. You just don't have to keep track with that many things.

But the one thing I'm, I've been thinking about, I interviewed him for like an hour, and before that, I tried to do it. quite a bit of research into how FTCS worked and what was going on. And I had this impression that this guy was like the most competent, genius that had ever graced finance. And this was like a common impression. This wasn't just, but it turns out that, you know, they were like, it just like, out of sheer incompetence,

he loses track of billions of dollars, the internal operations. It just like him putting together spreadsheets and throwing them around and putting emojis on Slack messages asking for payments. And I just like, I want to understand how it is that this guy put out the impression out there that he is just hypercompetent. And it turns out that it's like the opposite. It's not even that he's mediocre. It's the opposite.

Right. Yeah. So I think you can tell a couple stories there. Like one story. And I know I've been saying a lot, like you can tell multiple stories. There are multiple stories that fit the facts. We have lots of different, different weird things to explain and therefore many different weird explanations that fit them.

So I think one version is, okay, he's never all that smart and decided that he could just play up this weird, you know, eccentric genius thing. And that would, that would be able to get away with it. And, you know, there are these anecdotes about how someone told him to cut his hair and he said, no, I have to look kind of crazy for this. And so, you know, that fits in. And it is kind of, like, it is kind of an MIT thing to do that to, like, play up your eccentricity because you know they're these super brilliant, very eccentric people. And you can, you can be like them.

It's kind of like, you know, a lot of people, they read about Steve Jobs and they're like, well, the secret to success is be this brilliant perfectionist who can always see the future and also be just a giant asshole to everyone you meet. And I'm going to try to do both of those things. And it turns out one of those is really, really easy to do. And then one of them is really, really hard. and you have to do both to BC jobs, but you can sort of give this service level impression of Jobsianness by just being really obnoxious to everyone. So I think some of it is, who does that?

But the other is that you can, if you get really good at just very narrow domain-specific stuff, you might miss what other stuff people have to be good at for that skill set to be valuable. And so I think, like thinking about his previous background where he worked at a prop trading firm and seemed to do well. It's Jane Street. They're very, very selective with who they hire, very hard to get in,

and they're very profitable, so good to get in. It's entirely possible that part of what happened was just that Jane Street has its operations people, they have their trading people, and there may have been enough siloing within that, that if your job is just identify discrepancies in ETF, prices and take advantage of them. You don't actually have to know things like, how do we figure out which kind of parties are credit worthy? How do we make sure we have enough liquidity? How do we have backup plans upon backup plans upon backup plans in case something goes wrong with our liquidity

situation? Because part of the Jane Street model seems to be. They're very, very opaque, but very opaque in terms of their trading operations. But part of the model seems to be that they want to be the trader who is there and trading and making a market when everything fell part. And what that means is that like the way you make the most money in trading is when markets are insanely volatile, volume is very, very high, and you're still trading. But the reason that markets get really volatile when prices collapse and there's a lot of chaos going on is that other people who would love to be trading can't trade because maybe the broker they use is suddenly insolvent and they can't get to a new broker. Their money is frozen. So, you know, if you, if you're planning to be

there when everybody else is out of the market, then you have to have lots and lots of contingency plans, and it's not enough to buy lots of deep out-of-the-money put options, as Jane Street does. You also have to make sure that you're buying those options from the counterparty who will actually send you the money when you need it, or, you know, that you want to structure those things, so the actual cash gets to your account at the time that it needs to be there. And that maybe is something that a prop trader should not be spending most of their time thinking about like you know it's one of those things where it's like you know if you if you own a house and you like if over the last 24 hours you learned a whole lot about electrical wiring or you learned

a whole lot about how plumbing works or how septic takes work like that's not good that means something very very bad happened in your house and you know it could be nice to be an expert on those things but if you suddenly became an expert it's because somebody else wasn't doing their job um so i think you could you could be a trader like that where they they can be very good at the the the finding little pricing discrepancies thing and have just no awareness of what the operation stuff is, especially because the better the operations team is, the less anyone else needs to be aware of them. Like you only email them when something is going wrong. So if nothing is going wrong, you never email them and then you forget they exist.

Yeah, yeah. That's a good point. In fact, in the interview, I did of him, he mentioned that I asked him, what is the difference between Jane Street and FTX? And he mentioned that at Jane Street, there was like this button he could press to like buy. And all that's, all the intermediaries, all the servers. It was just taken care of. And what was really funny is then he said, and just getting a bank account. And he goes, and let's talk about that. Just getting a bank account is so hard when you're an independent.

It apparently turns out it's so hard that you might have like commingled funds because you couldn't manage to separate them out. Yeah. No, that's crazy. You had this really interesting take. I think one point we were talking. about how every single market crash can be explained by the drug

that was common in the industry at the time. And we finally achieved like the hypergrade meth stage of, I forgot the name of that patch he was taking, but it's like stronger than Adderall or whatever, but So it was, I think it's saying every crash to be explained by the

drug they were taking at the time, that takes a little far. But I do think that the impact of drugs, of new drugs on financial markets, is underrated. And you can You have examples of this going back pretty far. Like there is some connection between caffeine consumption and like extraversion and risk-taking. Like you temporarily get a little bit more willing to do deals when you have consumed caffeine.

And in Lloyd's of London, before it was this insurance consortium, it was a coffee shop. It was Lloyd's coffee shop. So you do have some history of, you know, coffee shops being associated with financial centers. and then you know you have to zoom forward because we we just haven't had that many novel stimulants. I guess, you know, depressants, delirance, whatever. Like other drug categories probably just don't need to that much financial activity. Like I don't know what how someone would trade differently or invest differently if they had, you know, a really strong acid trip or took ecstasy or something.

But the stimulants where people can just consistently reuse them, they keep people alert, they make them active and wanting to do things. It seems like stimulants would have a connection with financial market. So, yeah, the theory is, like, if you look at the 1980s where a lot of, there were a lot of these hostile takeover deals where someone would find a company that's underperforming. And, you know, when you look at the spreadsheets and say, this company is underperforming, what you're often looking at is a story that is more like this company believes that they have this social obligation to the community where people work and that they have an obligation to give their customers a fairly priced product and maybe, and they give them really good customer service that it doesn't really pay for itself. that it's the right thing to do. Well, maybe, especially if you are a co-kehead with kind of co-head morality, you decide, well, that's not the right thing to do at all.

You should actually just take the money and we should fire these people and replace them with you for employees. So, you know, levering up a company and then, like, levering up in order to buy out a bigger company and then firing everyone and, you know, shutting down the pension plan and distributing the surplus to shareholders, like it is just very standard co-kept behavior. Whereas if you look at the mortgage-backed securities boom, it's structured products generally in the mid-2000s, the way that people made money in that was just by being very, very detail-oriented and being able to make these incredibly fine-grained distinctions between

different products that were basically similar, but one of them pays 5.7%, and one of them pays 5.75 and if you lever up that difference enough times, you're actually making really good money consistently. You're super boring, but maybe with enough adderol, it's actually very tolerable work that you can enjoy. So I do think that just like within stimulants, the difference between short-acting stimulants and long-acting stimulants does mean the difference between a hostile takeover boom and a structured products boom. And then, yeah, there's, I think the drug is called M-Sem or something, which is like a Parkinson's treatment. And there's some evidence from pretty small sample size studies that one of the side effects of this drug is compulsive gambling.

So, yeah, and the drug story, there have been very, very fun tweets about this claim. And then there have been these official denials from the company doctor. On the other hand, if you're a company that has a company doctor, maybe that says something about the level of medication you're consuming. And maybe the company doctor's job is partly to say, as a doctor, I can assure you, I would never give someone, you know, three times the normal dose of Adderall, just because their boss hired me to do that. specifically. Like, you know, like I think, you know, dealers don't exactly have like patient

confidentiality norms. Doctors do. So, so maybe you hire a doctor instead of a dealer specifically to get that plausible deniability. Other than drugs, I also want to like ask you about the, the phenotype of the founder. You wrote a post. I think it was like just a couple of weeks before this crash happened where you were pointing out that this idea of a founder who comes in shorts and a t-shirt and a crazy haircut. But by the way, so FTX had a barber who would come in every Tuesday to cut everybody's hair, or it might have been Thursday. And so he could have just sat in line and gotten his haircut.

Like that was completely unnecessary the way he dressed. And it was like very purposeful. But yeah, so if that archetype of a founder who's in a T-shirt and shorts, if that's been priced in and that's beta instead of alpha now, what is the new phenotype and physiognomy of the founder? Where are you looking for alpha? Well, I guess I would draw the distinction between like the physical type of someone versus their presentation and their dress. Yeah, I don't know.

I'm sure someone could run some interesting numbers on that, but I don't have a good sense of what exactly they'd get from that. But in terms of how people publicly present present themselves, my guess is that, yeah, there will be this swing towards investing in people who look a little bit. more formal, a little bit more boring. And these things are somewhat cyclical. Like, I think part of, you know, part of the norm on investing in, or, you know, treating, basically treating the suit as a negative signal is that a lot of investors have this view that when the MBA is come into an industry, a lot of the alpha is gone. And it is true that MBAs, at least, you know, there's, it's like a decent market timing signal, apparently, that if a lot of people from Harvard Business School go straight into some field. That field is probably

peaking. There's a little bit to that where the suit is some example of conformity. On the other hand, wearing a suit in Silicon Valley is an example of nonconformity. And I guess outside of New York, within the U.S., most of the time, wearing a suit as a tech company founder would be this weird sign that you're either like, you don't know what you're doing, you don't know what the right signals are, or, you know, you're about to testify to Congress, and that's why you have a suit now. Not generally a great sign, but maybe it is a sign that you are willing to do some more conformous things

and that you can pay attention to details, the details are boring, and that also that you are putting some, you're making some kind of financial investment in that particular appearance. So, yeah, I would guess that there is, there will be a tilt away from the hyper informal founders. But I also think that if you, treat that hyper-informality as either this attempt to gain the system and just say, like, I'm going to be as much, I'm going to try to remind people of Mark Zuckerberg, circa 2005, as much as possible so I can raise money and pretend to be the next big thing. That is, that's one thing people are signaling. And then the other thing is, they're just accidentally signaling total indifference to anything except the thing they're working on. And maybe that's a good thing, but maybe it's a good thing in unregulated domains and then a really, really bad thing in regulated domains. Like,

If you're investing in a medical devices company, you probably don't want a founder who just cannot focus on anything except the product because there are rules they have to follow and, you know, norms and things. And it gets bad if all they're focused on is this one element. You know, if the hyperfocus is like just right, perfectly calibrated, that's good. But then maybe adjusting your appearance is this way to say that you have correctly calibrated your hyperfocus. And you're going to get one thing right. And it's going to be really, really right. Like, you're going to get things right. They're going to be really, really right.

And you've identified what things matter and what things don't. Yeah, yeah. You'll lose track of your bank accounts. That's the dress itself. But I also want to ask about the other characteristics. You had this really interesting point in that blog post about how, you know, when you try to scout for talent when the talent is young, you're over indexing for parental involvement.

And I'm curious, if you had to identify somebody who had to be under the age of 18 or under the age of 20, what is the metric you're looking at that least indexes for parental involvement, where they're being forced or encouraged by their parents to do it? I think the closest you could get is something that is either totally illegible to the parent's status, like understanding of status or something that is actively low status. And it's hard to enumerate those and not just get swamped in, well, should this thing be low status? the high status, it's actually terrible to say that you'd ever want to hire someone who was really good at X for some value of X. But I do think that you, so basically the origin of that point was that I was arguing that when you, if you look at people who are at some percentile and they're in their 20s or 30s, like a lot of, like at a high percentile, like a lot of it has to be that they have some combination of talent and have tried really hard. There's probably been some element of luck. But over time, luck starts to, starts to wash. out, hopefully. But the younger you go, and this is partly just my experience of having kids,

like if you talk to your kids every day about multiplication, they will start doing multiplication at a pretty early age. And it's not that they are, you know, really, really smart and they got to multiplication a couple years early. It's that you push them in that direction and they were able to do it early. So like, the earlier you go, the more you are over-indexing on what the parents did, what they emphasized. And also what they told the kids was just part of the script. And And there are anecdotes about this from, none of the specifics come to mind, but I remember anecdotes about people who grew up in lower middle class or below circumstances, but would have one distant relative who owned a business. And that made them aware that they could own a business.

And this is like a thing they can do. It's part of the script now. And that wasn't the only reason that they would have started a business. But it could be a reason that they decided to do that when did. And you have to imagine that for everyone who had one uncle who owned a scrap dealer or something that maybe there are five or 10 or 50 people who grew up in similar circumstances had a similar level of inatability and just didn't have anyone in their social circle who demonstrated to them that this was something you could actually do. So I think getting back to the talent identification problem, but part of my thesis there was that it's really hard. And it's getting harder that you had Y Combinator going after the relatively young talent versus what the median VC was going after when YC started.

And then stuff like Pioneer and Emergent Ventures is going even younger. And the younger you get, the more it is this luck-driven thing that is about what they got exposed to, with the exception of prodigies. So I'd like to think that if I encountered an eight-year-old Mozart, I would be able to identify this person. as just an extraordinary talent where, like, even if their parents were making them practice 10 hours a day, they couldn't be that good without talent. And maybe something similar with the polar sisters where, okay, if I encounter a six-year-old who can routinely beat me at chess, and so I go Google some, you know, read some chess books and then go back and try to beat them again, and they're actually better and they're laughing at me and things.

Like, at some point you decide that this is actually natural talent. But there's, for a lot of other domains, there's just so much room for parents to push one. thing and do some combination of their kids' talent and their own emphasis to get their kids really good at it. And that's very hard to adjust for, especially because if you ask the parents, they're going to underestimate how much they over-emphasize things because to them this is just a normal thing that everyone should be interested in. And so you won't get a good signal from asking parents, and then you won't get a good signal from asking other people because they don't know how this family spends time at home. And, you know, if the medium family has more YouTube

in Netflix time and less, you know, less math practice time. That film is just going to assume it's pretty much their behavior as normal. It's a bit confusing because you also want to potentially include parental involvement in your estimate of how good this person will end up being. If you think, for example, that giving somebody a shot to get started programming early is actually a big factor in putting them on that sort of like loop where they get better by practicing and they enjoy it more or so on. You might expect momentum more than mean reversion

in that kind of like early start. Sure. So I think part of what this gets to is the question of what are you optimizing for when you're doing a talent search. And I think this is maybe one reason there could be some alpha left in talent search among people who are super young is that a lot of the academic institutions that are doing some form of talent search.

What they're pretty much optimizing for is how does this person do over the next year? So, you know, if someone is a math prodigy and they get to join the math team at that school, the school is not trying to optimize for, will this person be proving novel theorems when they're 25? It's really, will this seven-year-old be doing, you know, algebra by the time they're eight. And that's, that is still very tied to parental involvement, especially once, you know, parents like kids, they like structure. And if you tell them this is the appropriate next thing to do with your kid, then they're more likely to do it. So you can post on that momentum for a while. But what I think you, the trap you can run into is that you identify people who are like 95th percentile talent with 99th percentile, just super aggressive parents.

And that combination gets them to 99th percentile performance until they leave home. And then they never do whatever that thing is ever again because they didn't really like it. It was just something their parents pressured them into. Now, maybe the ideal would be you get 99% on both. So the parents are putting them up this trajectory, but the parents are actually aiming, you know, a very powerful rocket ship. And it's going to go right in the right direction, which is ideal. And I think there's a reasonable possibility that.

Like, I think there are, there's like some level of just imprinting that young kids have where a lot of kids learn about programming when they're very young. and that's something that they do from a very, very early age and that it becomes the thing that they work on for their entire career. Obviously, that has to be fairly new because it's not like they're, you know, from like anyone who was born before 1970, just had this constant yearning to program computers and could never satisfy it. Like, those kids found something else to do,

maybe a generation before it was repairing transistor radios like mine did when he was a kid. And maybe a century before that, it was experimenting by, building little internal combustion engines and seeing whether or not they explode, like Henry Ford did with his friends at school. And maybe before that, the earlier you got, the harder it gets to really map these activities to anything concrete that we understand and can relate to.

But there's probably some extent to which you can sort of direct kids into whatever the modern instantiation of this long-term enduring tendency is. And I guess one interesting example of that, I've been reading the Robert Carrow LBJ biography. And there's this bit towards the end of the first volume where LBJ is put in charge of this fundraising organization for Democrats in Congress. And when you read about it, he sounds like a traitor. He sounds like someone who was just born to be slinging currency derivatives or something because he is constantly on the phone, constantly picking up rumors, constantly sending money here and there and everywhere else. and he's like always sending money overnight and then sending someone to telegram the day before saying you're going to get a package from Lyndon Baines Johnson and you're welcome. So he's like, he's doing this thing where he's constantly relentlessly optimizing every little tiny detail of some very complicated process.

Clearly it requires enormous working memory, requires a very strong, basically a very strong poker face. Like he has to be able to differentiate between someone who is begging for money because they are at, they're pulling at 49. and with a little bit more money for newspaper ads, they'd get to 50.1% versus someone who just wants the money or just is constantly freaking out by their nature. So it requires a lot of the same character traits, but 1930s were just not a great time to go to Wall Street. Maybe if LBJ had been born at a slightly different time, that's just what he would have done and it would have been a very successful private equity executive or something. But sometimes these general skills, they can translate into a lot of different areas. And, they get honed into very specific skills through deliberate practice in those areas. So if you have that combination of natural tendency and some level of motivation, which in LBJ's case, his dad was also a politician. So he had this example of this is part of the life script. You can't do it.

But he also had the example of his dad was broke after a while. And so he had this example of what not to do and ended up making good money for himself in addition to his political career. Yeah, yeah, yeah. I'm glad you brought in the biography. I'm reading it right now as well. and the other biography by Robert Caro, the power broker, just for the audience,

the last episode, or the second to last episode in the feed is, but we go deep into, deep into that biography and talk about why it might be inaccurate in certain respects. But what it is accurate, and I think what Caro has a genius in, is talking about the personalities of these great, great men about the people who have really shaped their cities or their countries for decades and centuries.

there's many places where, I mean, I'm sure this is true for you, if you understand, like, the economics of an issue he's talking about, there's a lot to be left to CARRA's explanation. But the actual, like, the sort of breakdown of the personalities is just so fascinating and worth reading Cara for. But, you know, come to think of it. So maybe the difference between the cases where you want to price in the parents' involvement and the ones where you don't is where in situations like maybe being a politician where it really, it's about building a network, building know-how, building this sort of inarticable knowledge from an early age. It might be the case that in those situations, just having connections and having parental involvement gets you far. But if it's like becoming a programmer, sure, you'll like have done data structures by the time you're 16. But eventually you'll get to the

point where, you know, everybody knows the basics. And now you actually had to do interesting and cool things in computer science. And now you're like a 95th percentile spatial reasoning IQ is not going to get you that far. But let me ask you about the Cairo biography because you had a really interesting comment that I've been wondering about as well in your review of the book or in your comment about the book. You said, it's worth speculating on how many LBJ level figures exist today, perhaps in domains outside of politics and how many Cairo level biographers there are who could do them justice. So do you have some idea of who these figures are or if not that,

at least what areas you'd expect them to be in? I think a lot of people who are close to that tier and have some of the same personality types are in sales and corporate development and stuff like that where they're building a big network. They are constantly building out this giant levered balance sheet of favors. You know, favors owe to them, favors they owe to other people. And like all forms of leverage, it does allow you to grow a lot faster, but you occasionally want these big blowups. So that's one place I would look. I think if you try to look at the more, you know, pure executive founder types, then it gets

harder to find someone who would have exactly that kind of personality. It's like part of what made LBJ's methods work was that he was adjacent to a bunch of these really big institutions. And he could sort of siphon off some of the power that these institutions had and in some cases could make them more powerful. So I'm about a third of the way through master of the Senate right now. So it's just getting to the point where it's really getting cooking and really making the Senate more more effective than it used to be and also making it an organization where someone where it's less seniority based. So you kind of you need to be attached to something much bigger than yourself for that particular skill set to work really well.

That said, you could have a really big impact because it is it's another form of leverage. So if you are one of 100 senators, or at that point at that point it was 96 senators, and you're able to exert a lot more influence and be the equivalent to 40 senators, for example, then you can get a whole lot done because it's the U.S. Senate. But if you have that same kind of skill set and you're the CEO of your company, well, you're already in turn of the company. There's only so much extra force you can exert. So you kind of see a figure with exactly that kind of personality trade in a case where there are big institutions that have slowed down somewhat. And this is another interesting point that is raised early in the Senate, is that the Senate was getting old. And if you look at these long-term charts of average age of politicians, we're definitely in a bull market for extremely, extremely old politicians in the U.S. right now. But we've gone through cycles before.

and one of the things that tends to cause a reset is a war where wars, among other things, cause this huge reset in social capital. So the people who made mistakes in the early stages all get discredited, and then the social bonds that people forge from actually fighting alongside one another

and the prestige you get from actually being part of the winning side, that is very hard to replicate. And so you end up with much younger people in positions of a lot more power. Whereas the way that that worked a decade and a half earlier was in the 1930s, there just weren't a lot of organizations that were hiring heavily and looking for really ambitious young people who were going to shake things up, but the U.S. government was.

So that's how LVJ got in and started on its path was that the New Deal created these big programs like the National Youth Administration, and they needed people like Johnson to run them. So when you look at an industry that is aging, it's usually an industry where ambitious people stay away from it. They recognize it's becoming more seniority focused and there's just less going on. But there becomes this huge opportunity when the aging stops because a bunch of people either retire or they get discredited and have to leave. And suddenly the average age of the industry ratches down. And you can basically look at the set of opportunities that were missed over the previous decade, for example, because the industry was. whatever this institution was was to risk averse, you get to take all of those opportunities at once.

So you have tons and tons of low-hanging fruit when that shift happens. So I think that's the other thing to look for is look for cases where there's some institution, some part of the economy or society that has just been slowing down for a long time, clearly getting to the limit of whatever its current operating model is, hasn't found a new model, and there's someone young and disruptive who's just entering it. I mean, maybe the place to look for the next LBJ is someone doing independent films and someone who looks at the top box office results and sees that everything is a spinoff of a spin off of a spin off and it's, you know, 50% Marvel and says this is disgusting. We have to destroy it and I'm going to build something completely different. Like maybe that person is actually the kind of LBJ archetype.

Now, the other half of this question is the Kero archetype. And part of what I found fun about this was that I felt like Kero had this kind of, he was kind of disgusted with himself when he realized how similar some of his methods were to LBJs because he's writing this story about this guy who will do anything to make a sort of friendship, but it's really a fake friendship just to accomplish his goals. And he's constantly doing the reading that other people aren't doing and doing the work and making the calls and reiterating and reiterating, just endless patience. And then you read about how Kara works.

And he does things like move to DC for a while, talks to everyone in DC. friends people, moves to Texas, you know, moves to the hill country and gets to know people there. He has these anecdotes in the book. The book is like, it's sort of, has these hints of gonzo journalism where sometimes Kara will just narrate.

He will go from, here's what happened in 1946, to here's what happened to me in the 70s while he's talking to this guy about what he did in 1946. And sometimes you will basically come out and say, I waited until the person who paid this

bribe had Alzheimer's, and then I asked him if he remembered paying bribe, and he remembered that he did it and didn't remember he wasn't supposed to say it. So that's how I know. And there's this line that Caro keeps quoting from LBJ, which I think was from LBJ's speech coach days, or speech, like, debate team coach days where his line was, if you do everything, you will win. And Caro does everything. So I think probably the population of caros is smaller than the population of LBJ's because the people who

have that skill set, probably have ambitions other than writing the canonical book about one particular person, or writing two canonical books, two canonical works on two important people, but maybe a lot of those people are just doing things other than, I think. Man, there's so many threads there that I'm, like, tempted to just spend the rest of the episode just digesting and talking about that. But one thing that, like, there's so many interesting things about Caro's story and I guess the impact that's at. One of them is there's been this focus in terms of thinking about impact, especially in like circles like effective altruism of trying to crunch the numbers. And there's no reasonable crunching the numbers you could have come up with before the

power broker's written where you say, I'm going to spend, by the way, this is, he tries to downplay his accomplishments as a journalist before he wrote the power broker. But he was nominated for the Pulitzer Prize for his journalism before the power broker. So he's a, he's a a top level investigative journalist. And then you say, here's I'm going to spend my talents. I'm going to spend eight years looking into and researching every conceivable person who has even potentially been in the same room as or been impacted by Robert Moses. And I'm going to document all this. I'm going to write a book where that's like million words or something. And but in fact, that's, he probably didn't think about it this way, right? But what was the result?

That book probably changed how many of the most influential people who came up through politics, think about politics, think it would probably change how urban governance is done, how we think about accountability and transparency, if we're good or ill, right, depending in your perspective. And just that example alone really makes me suspect the sort of number crunching way of thinking about what to do. And rather just like, I don't know, I got to understand how, you know, from a precarious perspective, I got to understand how this guy accumulates power.

He does it and it like completely transforms, you know, how urban governance is done. Yeah, you know, it actually kind of looting back to the parental influence thing. I think part of what happened was that the more Carrow dug into it, the more he realized this is actually a big and compelling project. And there's this kind of fun phenomenon that you can get when you're researching something where you've read enough that when you read something new and you see that there's a footnote, you actually know what is going to be cited in that footnote. And maybe you've also read the thing about how the thing in that footnote is wrong and here's why. and you know, you're picking up information a lot faster. You get that nice convexity where you can skim through the stuff you know and everything you read is new information and challenges something about what you previously knew.

And that's just a really intoxicating feeling. And I can imagine that it's even more fun if you're actually digging up the primary sources. So, you know, if you're careful, you've gone through the New York Times archives, you've read through all of the external coverage of what people said about most of the time. And then you start talking to people and you realize here are things that were, that we got completely wrong. Like, we thought Moses didn't want X to happen. And it turns out that he kept scheming and plotting to make X happen and just wanted to pretend that it wasn't his doing. So I think that, but what happens is you build this ongoing motivation and then you can you can make something that you just wouldn't be able to make before.

And I think if you start out saying, I'm going to write a million words about how cities are run. you will probably fail. But if you keep writing another 500 words a day about how Robert Moses operated and what he did, and then you have some reflections throughout that on what that means for cities, then maybe you actually get there and yet. So, and maybe some of this is like you want to have an adversary. Like a lot of these, like the Carol books do seem partly to be this cross-examination of who he's writing about. And often he seems to have very mixed feelings.

Like he, you know, with, I think one of the, one of the really interesting things in the years of Lyndon Johnson is the Carrow's description of Coke Stevenson and how we contrast him with LBJ because it's really clear that Carrow's politics are completely opposed to Stevenson's and that when Caro's writing about LBJ, there's like the good stuff he did, which is the great society and his participation in the New Deal. And then there's a bad stuff, which is anything that wasn't bad. And so he clearly likes what LBJ accomplished and despises the person and then really likes the person of Koch-Steinson and kind of wishes him well, but also doesn't actually want people like that to be in charge of anything. And so it's like a, you know, it's partly, partly Caro debating with his subject and interrogating his subject and partly care of debating with himself and asking these very longstanding questions about whether or not justified the end. ends and, you know, would it be worth it to not have a great society in exchange for not letting LVJ steal an election in 1948? And I don't think that, like, if he's good at his writing, he shouldn't be coming to firm conclusions on that. And he should be presenting this very, very mixed picture where you really only get the things you really want if you also accept that there

are some very bad things that come along with that. As long as the things you want come from powerful, ambitious people who will do anything to win. Yep, yep. No, and it's worth remembering that it takes them a decade to write each of those volumes and each of, I guess, in the case of the Powerbroker or that entire book, but in the course of a decade, just imagine how many times you would change your mind on a given subject. And you really notice this when you read different paragraphs of, like, for example,

the Powerbroker, where you notice early on, if you just read the first third or the first half of the Powerbroker, you're like, clearly Carrow is like writing about Robert Moses, the way he writes about Robert Lyndon Johnson, where it's like, yeah, this guy had some flaws, but like, look at the cool shit he did and the awesome stuff he did for New York. And then the tone completely changes,

but you got to remember, he's just writing this so many years in between. I do want to talk about the thing about, you know, young people being able to, you know, young people, I guess a war being a catalyst for young people entering an arena. I did an interview

of Alexander Mekker Kieribitsky, I forgot his last name, but anyways, he wrote a really interesting book about Napoleonic Wars. And this is actually one of the things we talked about. There's a line from war in peace where one of the Russian aristocrats is mad that his son is joining the war. And he goes, you know, is that man Napoleon? You've all seen him. And now you all want to, like, go off to war. And I'm curious, like, filmmaking doesn't seem like we're super quantitative and super smart and super competent, like somebody who has Thymos and the desire to dominate and the desire to achieve recognition.

I mean, do you really think he's making films? Like, where is he really? Is he like still trying to start a startup or is that like now a decade too old? And now he's trying to dominate some other arena. I mean, maybe the laymancers, we don't actually know because the way, like, you know, Paul Graham has that essay about the trope of startups starting in garages. and I think it's called the power of the marginal.

And it's all about how the really interesting projects are the ones that can barely get off the ground because they're so weird and so out there that there's no infrastructure to support them. And what that ends up doing is selecting for people who are extremely passionate about that project and also people who are extremely willful and will get impossible things done.

So it's hard to just rattle off a bunch of examples of that because your hit rate would be like 99 things out of 100 are just like things you read one fun blog post speculating about and they're actually never going to happen and then one of them maybe you're right but it's very hard to tell which one it is and if it were easy

venture capital would not have such skewed returns so maybe it is like harder to optimize for what area do you look for maybe it's actually easier to do the meta optimization of identifying

the things you would quit quit podcasting and go work on given the opportunity. And it's good to have that sort of dreadless. I have that mental list of like, you know, if someone at Spotify ping me and they're like, we really need a product manager who can help us display classical music such that we don't list like tons of redundant information in the first 50 characters of the track name and the actual incremental useful information in the 10 characters that you have to wait for it to scroll through unless it doesn't actually scroll through.

Like if someone ping me, it was like, we really need someone to fix that. Can you come and do this? I'd be sorely tempted. Feel the same way about Google Finance. Like, if someone emails me and says you have a mandate to make Google Finance good, I'd be tempted.

But I think thinking of like what industries would have that kind of pull for you and then what can you do to really dig into those industries, you probably find the proto-successful people in spaces like that versus trying to optimize in advance for, well, if I were, you know, if I were someone who thinks like nobody else thinks and were a true natural contrarian and also had spent several years learning about different opportunities, which one would I have ended up picking? Because then you're sort of magicing away all of the things that actually make the person you're looking for worth looking

for. So, yeah, can't quite be done that way. Yeah, yeah, yeah. I want to go back to that thing you said a moment ago about how you couldn't have written a million words that were as impactful about just, you know, how cities work. But if you just wrote 500 words at a time about how Robert Moses accumulated power did the things he did, you can actually have a really interesting and influential piece of work. Is that how you see the diff? That you can't write one million words at a time about where technology is going, what's happening with the productivity slowdown, what's happening with all these. emerging industries. But if you just write 2,000 words a day about what's happening with any particular company or industry, then you can compile this really interesting overall worldview about finance and tech. That's the hope. And I might be projecting things about my own

attention span onto on to Carrow when I say that you can't just set out to do a million words on topic X and then do it. But I do think, you know, I hope that I am by increments producing something that is a lot more than the sum of a bunch of business profiles and a bunch of, you know, strategy breakdowns and things like that. Like, um, and that's, that's one of the reasons that I spent time on things like reading

Machiavelli and thinking about how Machiavelli's thoughts, not just, not just the, the totally cynical, amoral stuff, but, um, the other stuff he read at the same time, which he may have met more seriously about how to build a sustainable and good republic, rather than how to be a, uh, completely amoral monarch. Um, I try to read that kind of, of thing because I do think that it's valuable to have that more grounded view of the human condition. And I think that it contributes a lot to writing about these individual companies. Like, you know, technology changes a lot.

Humans change very slowly. So if you want to understand technology, you do have to study the specific object level case. So what is this thing? What does it do differently? What is it a substitute for what are the compliments to it, et cetera? But if you're trying to understand things like, why did this company? company do X? Like, why did they fire, fire this person and not that person? And why did they choose to acquire this other business? Why is the CEO dumping tons of money into this thing that

seems like it doesn't make much sense? Well, you can find lots of historical examples of people in power making these decisions that just get continuously worse and continuously more costly and they refuse to back down. Sometimes they turn to be right. Sometimes they turn to be very, very wrong, but you'll find more examples of that if you go back further in history. And they're often just a lot more fun to read about. Whereas, like, you know, if you, you can read about things like Ford spending too much money on the Edsel and it not working out or IBM investing a ton in the 360 and not working out very nicely. But, you know, you can also go back to the Iliad and read another case where sunk cost fallacy dominated rational, strictly rational decision making. And, you know,

only divine intervention could ultimately lead to a good outcome for the attacker. And even then, maybe not such great outcome, all things considered. That particular question about where, trying to predict if somebody is overstepping or if they're making the best bet of their life is something that I've been trying to think about. And I really have no reasonable method for, I mean, if you think about like what Elon Musk is doing with Twitter. Is this like Napoleon trying to conquer Russia? And it's

this super ego-filled and pride-filled, you know, completely illogical bet from somebody who has just had like 20 consecutive wins in a row and he thinks he's invincible? Or is it like Elon Musk like 20 years ago where he's like, yeah, I did PayPal and now let's

build some rockets and let's build some electric equals. Yeah, exactly. And in each of these cases, there's there's like so many analogies to like complete bust and there's so many analogies to oh this is just like part one of this grand plan

and how do you figure out which one is happening like how do you distinguish the visionary from the collapsing you know a star um the cynical answer is you wait about 200 years and then you write about how it was obvious

all along like yeah you you really don't and I mean even there are a lot of cases that are actually still ambiguous. So like Alexander, you know, conquered most of the known world, least most of the world that, that people knew of around where he grew up, and then just goes to Babylon and drinks himself to death and that's the end. Right. You know, there could have been an alternate story where he gets his life together a little bit and runs a giant sprawling empire. On the other hand, like reading the story battle to battle, A lot of it, it actually is basically this Ponzi scheme where every time he conquers a city,

he gets enough, enough loot to pay off the people he hired to help him conquer the city, and then has to move to the next city because they want to get paid again. And so he's sort of, you know, was sort of being chased by his obligations the entire way through until he finally got just ahead of them enough to get a lot of loot and a lot of land that could give to people instead of just giving them money. sort of given him like bars of silver and things. So, yeah, even that story, it's very hard to say, you know, he rolled the dice a bunch of times and he won every time. So clearly he was just one of those people who were born to win. Maybe it was sort of like he actually backed himself into a bunch of corners over and over and over again and then desperately fought his way out every single time and then was just completely sick of it and burnt out by the time he was in his early 30s.

In terms of how you would figure it out in advance, like I think. some of it does come down to getting a sense of whether they're responding to circumstances or whether they actually have a long-term plan. But then there's probably nothing more dangerous than a long-term plan that someone actually has the means to execute. You know, five-year plan does not have a good connotation. Stalin had some of those and didn't turn out well for a lot of people. So even within that, there's some difficulty in evaluating. Like I think, there's kind of that metacinical layer where if they don't know what they're doing, then probably it's dumb luck

that they keep succeeding. If they do know what they're doing, then maybe you hope that the world is lucky enough that they get unlucky and can't actually pull off whatever it is that they're planning to do. Maybe, I guess another thing would be, is there like an end state that they can get to? I think someone like Alexander, he basically just kept going until he couldn't go any farther until his troops were basically on the point of mutiny,

and then just turned around and went not all the way home, but went to like the nicest place halfway home and hung out there and partied. But, you know, if the story, if you look at someone, if the story is less about conquest and more about reconquest and restoration of something, then there are these natural limits. You can say, like, you go this far and you don't go any farther because you've actually finished your task. So something like, you know, I think, like, I don't actually know who was, who, which generals were on the other side of Napoleon. But the ones who chased him out of Russia, like, for them, the master plan was not, we're going to conquer all of Europe.

The master plan was like, we're getting our country back. And then we're going to chase him far enough that he doesn't feel like he can just wait a year and do this again when it's not winter. So maybe that's another way to constrain it. But then you end up naturally selecting for less ambitious people. It's like one way to, one way to have these guardrails on your behavior is just don't have very big ambitions. So you might, and in that case, those people are also stuck responding in circumstances. So maybe you just end up with many different iterations of the same thing on different scales,

where everyone is stuck in certain historical circumstances. They have their skills. They have their opportunities. They can go after some things. Maybe they achieve great things. maybe they completely fail, but either way, eventually their luck runs out or they run out of ideas and then there's nothing to accept go home or just keep trying until, like keep being bolder until you eventually fail. On Musk particularly, I don't really, I don't really understand it.

I think there's like a remote possibility that he actually has a bunch of specific concrete ideas for how to increase Twitter's free cash flow and how to pay down the debt and make it a more profitable company. Maybe he just had that sense that it was overstaffed and that it should survive with a smaller headcount. And if you cut head count enough, then you end up with a profitable business. It could also just have been fun and seems fun so far. And I think like that, you know, the pursuit of fun is not to be discounted.

Like you, if you're super rich, you can afford to do all sorts of things, varying levels of entertainment, but it may be that the only thing that is actually like truly novel thrill-seeking fun opportunity is something like by Twitter and then turn it into, you know, what it is. And it is like there's, I think Ross dot out of this point about how the nature of Twitter's legitimacy has changed and that now it is a, it is under the rule of a single monarch instead of ruled by these sort of faceless bureaucracies. So now, you know, if something, if Twitter does something you don't like, there's actually a specific person you can blame. And because you have Twitter, you can actually yell at that person and potentially get an answer. Whereas if Twitter

bans you because you made a joke and the joke looked like it was serious, there's really, there's no recourse. And, you know, there's nothing lower status than someone, like, arguing with someone in authority about how serious or they should take your jokes. It's like, you know, it's like a weird component of, and it works both ways. So, like, there's, I think I started noticing this years ago because there are these underscore TXT Twitter accounts where they're just posting out of context comments

from some niche community and the comments always sound deranged. In a lot of cases, to me, the comments read as someone who is doing a bit. They're playing a role. They know it's funny. They're exaggerating for their friends. And then you take it out of context

and read it as totally seriously. And then you get to say these people are all like this and they're all crazy. But it is like a marker of high status. to be able to not get jokes and to, you know, be able to be, like, righteously angry at someone because they made a joke. And if they'd been serious, that would have been an appalling thing to say, but they obviously weren't.

If you can get away with saying, no, I actually don't think it was a joke at all. These people are humorless and they must have been totally serious. Then that's actually, you know, that's cool. That's high status. Makes you impressive. But, yeah, Musk's rule as this more, you know, personal monarch. I think it speaks to this question of legitimacy. Like, why do people trust moderation and why do they trust sites to operate in the way that they do?

And you can either say these are like really high quality institutions. So, you know, you can take the discourse as the oblivion approach and say, we built these systems such that anyone can be dropped in and can do a reasonably good job. It's very hard for bad people to do a very bad job because there are so many checks and balances. Or you could say, no, we actually trust this one person to do a really exceptional job. job that nobody else can do and we don't want institutional constraints on them. Those philosophies go in and out of fashion and like even within systems that nominally don't change. You know, the U.S. was a lot closer to that kind of centralized system with personal legitimacy invested in one person under FDR than it was under Calvin Coolidge. And under Coolidge was a lot more of like

there's this institution. There are a bunch of rules. People follow the rules. You have this nice New England guy who, you know, he gives an annual update, a state of the union, but it's just written down and then he has a clerk read it to Congress. You know, you're not betting on charisma. You're not betting on judgment. You're just betting that the rules are pretty good. And as long as things keep working according to the rules, they'll keep on working. Yeah, yeah, yeah, yeah. No, the Musk example is like the sort of consumption by like playing this game. It's similar to how some people will load up of like a horribly broken game of Siv where their civilization is losing because it's gotten so good at the game that they just need like some noob to send them their safe file of which is like complete complete carnage

and they're losing their cities and stuff. And then then the fun is you like load this up and you try to win anyways. But you know, one thing you've written about it, I find really interesting, we're both fans of Fukuyama's book, The End of History. and if you read the last quarter of that book, you'll come up with the impression that he actually, I mean, it just completely contradicts,

I don't know, the first three quarters of the book where he's just saying, you know what, actually these men at the end of the end of history are these pathetic last men who have no desire for recognition, they just want to be comfortable. And you've made the comparison with that and big tech, at least before the crash.

And one of the things Fukuyama talks about in the book is once there is a great war, once there is a struggle that requires the first men of history who can withstand adversity and can accomplish great things, you won't have them around by the time that, you know, like things have gotten comfortable for a while. Are there enough first men left in companies like Twitter and Facebook that now they do face adversity? They can, you know, just like reboot and go into wartime again? Yeah. I suspect they are. I think I think Tolkien gets it right. that just because someone is born a Hobbit and they live in Hobbiton and they have this nice comfortable life,

like they still have that capacity for and yearning for adventure and that in the right circumstances, they will rise to the occasion and go ahead and do it. And this seems to happen with a lot of countries when they face these great stresses. Like sometimes a civilization just can't withstand it and it collapses and, you know, the sea people just take everything and then you have no civilization left and you're all just back to six seasons farming. But in a lot of other cases, even if they ultimately don't survive,

they go through a very long decline because they do fight to maintain what they have for an extended period. So I think, yeah, like even trying to determine a mechanism by which you can eradicate that thirst for glory and that ability to rise to the occasion, it's hard to think of,

I mean, unless you think there's like, unless it's like microplastics or something. Maybe that does constitute the end of history, in which case, hopefully we exported enough microplastics to make sure that we don't have any last pockets of thumos. Sort of like the Scott Alexander rip about the step nomad invasion risk

where it's an existential risk that comes along every couple hundred years. Yeah, you want to avoid that. But yeah, it's like part of I think part of having that kind of the most and thirst for glory should be that you can't actually habituate your, you can't be so habituated to a life of ease and comfort and lack of difficulty that you just, you won't actually respond appropriately when there's an external threat that you need to respond to. Then, you know, maybe, maybe you weren't, you weren't first man material after all if, if you can't and you just want to stay on your couch.

So, yeah, I'm sure we can sort of deplete that reserve. And there were, I think definitely, like, post-World War II U.S. was definitely a country where there were a lot more people who had taken very serious risks. They'd gone through, you know, a lot of hardship. On the other hand, so I recently read that book, The Economics of World War II, which was comparing a bunch of countries and how their economies performed in World War II. And one of the things that sort of about the U.S. was that in a lot of terms, of material consumption, the US wasn't really that much,

didn't really look like a country going through a war. Like in most other countries, you saw this decline in literally how much food people had to eat, and especially how much protein and fat they had to eat. And so I think a lot of places, calories intake had dropped by like a third by the end of the year, or by the end of the war. And then in the U.S., calorie consumption actually went up. So U.S. was like on the home front was,

inconvenienced by the war and things like gas and tires were hard to get, but people were still eating well, whereas in a lot of other parts of the world, people, they were literally going hungry so that their country could continue to fight the war. So maybe there's like, you know, there's some level of hormetic response where you suffer a bit because your country is contributing to this and then you're, you're, you're hardier for it and the country has accumulated a lot of social capital and, you know, you had to get really good at organizing and building things. And then maybe there is some level of, there's some level of suffering from conflict where you've just, you've totally had enough. And you're never doing anything like that ever again.

And you're just, you're done. And then I think one of the interesting things to consider is like the extent to which different countries fit into that model. So one of my, I'm very interested in Japan and Japanese industrial policy and how the Japanese post-war recovery went. And one of the annoying things about that is like, I thought that was the question. was how did Japan have this wonderful post-war recovery? But when you look at a lot of the institutions involved, they don't start in 1945 or in 1951 or whatever. They actually start before World War II.

And so you can actually sort of see World War II as part of this arc of the same historical process that continued post-war, which is Japan wanted to be economically self-sufficient and independent and a country that could determine its own fate. And during the last guess, aspect of imperialism, one way to do that was invade countries with lots of natural resources, take those resources, and then manufacture things at home. But when that became untenable,

then the next best option was be within the sphere of influence of the most powerful military in the world and be very closely tied to their import and export markets and then import everything you need under the production of the U.S. military and then export things to the U.S. in order to pay for those imports and basically run the same strategy just with someone else doing the military part. So, you know, in one sense, that was like a total defeat of the imperialist model. In another sense, it was like this strategic realignment, but actually basically same end goal and, you know, very, very different external facing view of that goal. But yeah, same ultimate idea. There's this book called Princes of the Yan, which is mostly about Japanese central banking policy,

but it has some early bits about how the structure of Japan's economy works. And the way the author describes it is that Japan, post-war Japan, had a war economy in peacetime with lots of centralized control and suppress consumption and lots of heavy industry, heavy manufacturing. That also a lot of companies in Japan, their modern structure dates back to the wartime period, sometimes the post-war, but sometimes literally the wartime period, including the biggest advertising agency in Japan was apparently like this. this wartime or immediately pre-war attempt to agglomerate all the smaller ad companies into one big,

more efficient company that would free a resource that could be used for building battleships and other stuff like that. So, yeah, it's kind of the same story just being expressed in a bunch of different ways. And I think you can you can look at other countries and try to see like what threads of continuity there are between the post-war and between the pre-war and post-war order, Tony Jy Jut's post-war book is a really phenomenal look at that question. And in a lot of cases, there's a surprising level of continuity. There are some things that totally broke and had to be totally reformed. And there are some things that just kept going exactly the way they've been going before.

Yeah, yeah, yeah. Everybody wants to be a first man, but nobody wants to go on a diet. Yeah. But you've mentioned this line before, but there's a line from how Asia works, where they're talking about the reparations that Korea got after World War II from Japan. and how they're using that to build up their industrial capacity. And there's like a line from one of the line managers or in the factory. He goes, listen, you guys had to work like 14 hours a day, seven days a week.

And the reason is this money is blood money. It's our blood. It's like this money was like gotten from like ripping your mother and killing your father. And if you can't use that money to like rebuild our country, like what good are you? You might as well just kill yourself. Right. Yeah. But.

Yes. Yeah. and based. But there's, and then you read about lean production. I was reading about lean production when I was, before I interviewed Austin Vernon. And in all these books,

they're talking about how America's, America was never able to replicate the productivity of Japanese lean production. And it's just because you're talking about Americans who have, you know, like trying to save up with their pensions and working eight hours a day and have hour-long lunches. And you just have these hardcore Japanese who, they just got it like World War II and they barely survived.

And, you know, like it just like the thymus is completely different. You just can't replicate that in America. Yeah, yeah, there's a, there's this book called The Reckoning about the U.S. Our industry and how it dealt with the rise of Japanese exports in the 70s and 80s. And when it's talking about the post-war recovery of Japan, there's this bit where I think, I think the character they're following works for a bank. and he, in the bank's office in some city in Japan, he likes to work in the room where there's a fire

because there's like a fire with this big pot of stew and the stew is the food that the employees will eat at the bank as part of their benefits package. And that's the only room in the bank that is warm enough that you can actually work. And that's just like, that is a level of material austerity that is inconceivable to me. And I can't.

I don't know anyone who grew up in such poor circumstances. I can't imagine it. And then it did not take very long at all for the country to significantly recover from that. And, yeah, other countries that also had this massive catch-up growth, where they went from very poor subsistence level or even below that in some cases to actually being middle income or even, you know, fairly rich countries. Yep, yep. I want to touch on the fact that Sandbank-Bain-Fried was an effective altruist.

that he was a strong proponent of risk neutrality. We were talking like many months ago, and you made this really interesting comment that in many belief systems, they have a way of segregating and limiting the impact of the most hardcore believers. And so if you're like a Christian, the people who take it the most seriously,

you can just make them monks so they don't cause that much damage to the rest of the world. And EAs don't have that, right? So if you're like a hardcore risk neutral utilitarian, you know, you're out in the world. You're like making billion-dollar crypto companies. As a side note, by the way, it's interesting.

A year ago, I feel like the meme was, oh, look at these useless rationalists. They're just reading blogs all day and they have all these, you know, mine palaces and whatever. And what good are they, you know? And then now everybody's like, oh, these richly neutral utilitarians are going to have wager our entire civilization in these 5149 schemes. Right. But anyways, yeah, I just want to get your commentary on.

on all this. Yeah. Yeah. Like I think it's a useful pattern to observe because, I mean, it goes back to that that point that human nature just doesn't change all that fast to the extent that it ever does. And that we've had the problem with different civilizations have had this problem of, okay, we've got some rules and we've got these beliefs. And they're generally going to guide people to behave the right way.

But they're going to guide people to be the right kind of normal person and not to be someone whose life is entirely defined by this incredibly strict. rigid whole code and by whatever you get if you take the premises of that and just extrapolate them linearly as far as they can go. And I think that gets especially dangerous with really smart people because you can give them a set of first principles and they can ask really, really interesting questions and come up with edge cases. And sometimes like, I think for some people like the first philosophy class where they encounter these edge cases, they just reject it as stupid and say things like, you know, I, you know, if you shove the fat man in front of the trolley, why do you think

the trolley would stop? The trolley would just kill him too. Like, this is dumb. And I think that it's like, it is useful to keep in mind that the thought experiments are designed to be implausible and they are supposed to be this intuition pumps. But the more you get this complicated, highly abstract economy where an increasing share of it is software interactive software. Well, software doesn't have that common sense break on behavior. And if you have this, very composable economy. You can find cases where first principles thinking actually is action guiding and can guide you to extreme behaviors. Unfortunately, those extreme behaviors are things like trading cryptocurrencies with lots of months of leverage. And, you know, we have, like,

it's maybe merciful that the atoms to bits interface has not been fully completed while we still have time to deal with, you know, malevolent, unfriendly EA. So that's good. But yeah, It is like, it's a problem that you come up with. You see it a lot. And you see a lot in different societies. And they do tend to have some kind of safety valve. Like if you really think that praying all day is the thing you should do, you should go do it somewhere else.

And you shouldn't really be part of what we're doing. And I think that's healthy. And I think in some cases it's like a temporary thing. Like you do that. You get it out of your system. And either you come back as this totally cynical person who doesn't believe in any of it, or you come back as someone who is still deeply religious. and is willing to integrate with society in a productive way.

And I think even within the monastic system, you do have different levels of engagement with the outside world and just, yeah, different levels of interaction. So I think that that's something that EA should take seriously as an observation, as like a design pattern for societies, that you typically don't want the people in charge to be the most fanatical people. And that because EA beliefs do tend to correlate with being a very effective shape rotator or a very effective manipulator, like symbol manipulator, and those skills are very lucrative

and money does have some exchange rate with power. Like you basically have a system where very smart people can become very powerful. And if very smart people can also become very crazy, then you tend to increase the correlation between power and craziness. And it doesn't take very long clicking through Wikipedia articles on various leaders in world history to say that you ideally do not want your powerful people to be all that crazy or your crazy people to be all that powerful. As far as what to actually do about that, I think one model is that smart people should be

advisors, but not in an executive capacity. Like they shouldn't be executives. Or like you don't want the smartest person in the organization also being the person who makes the final decisions for various reasons. But you do want them around. You want the person making final decisions to be reasonably smart. Like smart enough, they understand what the smart person is telling them and why that might be wrong, what the flaws might be. So that might be one model is that you want the EA's dispersed throughout different organizations of the world as someone working with non-EAs and kind of nudging them in an EA friendly direction, giving them helpful advice,

but not actually being the executive. One possibility is that every, other society got it wrong and that the monastic tradition was stupid and it has been independently discovered by numerous stupid civilizations that have all been around for much longer than effective altruism. So one possibility, you can't discount it. But I think if you run the probabilities, it's probably not the case. Yeah, yeah. And I mean, in general, it's always a little bit, the leaders who take ideas seriously don't necessarily have a great track record, right? like Stalin apparently had a book of like 20,000, a library of like 20,000 books. Like, if you listen to Putin's speech on Ukraine, it's, you know, laden with all kinds

historical references. Obviously, you know, there's like many ways you can disagree with it, but it's like a man of ideas. And do you want a man of ideas in charge of important institutions? It's not clear. I mean, the founding, I mean, well, founding fathers, I was going to say, you know, a lot of them were wordsmiths. And we basically had, we have whole collections of an non-explaining each other

through pamphlets, the capitalist papers. So in one sense, it was a nation of nerds. On the other hand, Washington didn't, as far as I know, did not have huge contributions to that literary corpus. So maybe that is actually the model. It's like you want the nerds, you want them to debate things, you want the debates to either reach interesting conclusions or at least tell you where the fault lines are, like what are the things nobody can actually come to a good agreement on?

And then you want someone who is not quite that smart, not really, into playing wars to actually make the final call. Yeah, yeah, yeah. No, that's a really good point. And I mean, like, forget about Jefferson. Think of like, if Thomas Payne was made president of the United States, that would be very bad news.

Yeah, yeah. Like, it was good to have, like, it's, and it's important to know, like, it's good to have, it's better to have some level of fanaticism than no fanatism. Right. There's like an optimal amount of the most, and there's like an optimal place for it. But I think, yeah, from a totally cynical perspective,

like, people, maybe they are at the front lines, doing things and taking risk, but also not making the decisions about who goes to the front lines. Or I think the other thing is like making sure that the person deciding where the front lines are and saying, you know, the front line is like, we keep France safe from the invaders and not the front line is Moscow. So get to Moscow and burn it down. There's a, the book, the mind of Neville, or not the mine, there's a recent Napoleon biography that I'm also in the middle of. It's been a, a good year for reading about power tripping people.

It does point out that technically France was actually declared, Napoleon had more countries declare war on him than he declared war on. So on average, on average France was fighting the defensive wars during the Napoleonic era. It's just, you know, they kept defending farther and farther from France. Yeah, yeah, yeah. Defense requires some strange kinds of offense often. Yes. Okay, so one like sort of meta question I've had is there in all other kinds of discourse,

there's this question about, you know, whether you're trying to figure out how to do which charities do the most good, whether you're trying to figure out which policies are best, whether you're trying to figure out how you should promote leaders, anything. There's a question of, there's like two kinds of discourse. There's one that's like, we've got these few dozen RCTs and let's see how we can extrapolate the data from these in the least theory-related way. And there's another where it's like, I've, I've just wrote a shit ton of classics and I'm like a thinking person. I think a lot about culture and philosophy. And here's my sort of like big, intricate world view about how these things are going to shape out. And investing is an interesting realm because there's both kinds of people and you can see the track records over long periods of time. So having seen this track record, is there any indication to you where there are this sort of first sort of microeconomic approach actually leads to better concrete results.

than somebody like Teal or Soros, who are motivated by a sort of intricate worldview that's based on philosophy or something. Which one actually makes better concrete predictions that are actionable? So I think typically the grates have some synthesis of the two. And it probably leans more towards big worldview than towards micro level observations.

I think one way to divide things is to say that the quants are all these microlevel observations. Like you could be a quant who does not actually know what the numbers mean, you know, doesn't know what the product is, doesn't know the time scale, it's just looking for patterns and finds them. And I mean, people have done it that way,

but it seems like quantitative strategies get more successful when you're doing that, you find some anomaly, and then you find an explanation to the anomaly. And the explanation might be some psychological factor you've identified, and maybe you find studies indicating that loss of version is real, and this affects how fast stocks go down versus how fast they should often go down, and that gives you a trading strategy.

Maybe it's something more mundane, like maybe there is some large investor who has some policy, like we rebalance between stocks and bonds on the first day of every quarter. And if you know that these and like the investors who have that policy control X trillion dollars of assets, and you know how they'll rebalance then at the end of every quarter, you know money is sloshing between stocks and bonds and that's predictable. So a lot of the quantitative strategies that have those theories behind them tend to blow up more rarely. because they sort of know why the strategy works, and then they know why it'll stop working. And data mining is always a risk.

If you find an anomaly and there's no explanation to keep repeating itself, one of the explanations is other people found the anomaly too, and they are exacerbating it by trading it. Then I think on the other end, like if you have these just totally theory-driven views, usually what kills these totally abstract theory-driven views is time. because a lot of the best abstract theories are you look at some part of the economy and you say, this is obviously unsustainable. And then the problem is you can say that at any point during its arc and it can look sustainable to other people for a very long time.

So like one of my favorite examples of this is that there's this snappy one liner that it's something, it's like looking at housing and it's like a subprime borrower who didn't put that down payment, is basically just a renter with, you know, with upside or something. It's like some line about how the economics are the same. And like, you know, these people are not actually safe borrowers. But the paper that it came from came out in 2001. And so if you had read that, it had been like, American housing market is broken.

People are massively overpaying for houses. They're all over leverage, collapse. You could have shorted housing stocks and then lost, you know, 400% of your money as home builders sort over the next four or five years. So usually one of the ways you get around that is like you have the high level theory. You say, okay, here's what's actually going on in the world. Like, here's what people don't understand. But you also have to have this lower level theory of here's what they think is going on.

Here's why things keep moving in the like keep ratifying the theory that they have. And then the next step is, okay, what actually breaks down that causes reality to collide, like perception to collide with reality? And then the other question of like, can perception? should actually undershoot in the same direction. So, you know, a lot of money was made by people who looked at the tech bubble in the late 90s, said this is going to blow up, and we're going to figure out when to short it, and then we'll short it. We know it'll just keep going down for a while, that it's not, you know, it wasn't that

the dot-coms were 20% too expensive. It's that most of them were worth zero. So those people made a lot of money by shorting after things started declining, knowing they would keep on dividing. But a lot more money was made by people in 2003 and 2004 saying, you know, this didn't actually discredit the internet. It's still a good technology. And it's not like we fundamentally can't make money online. It's that you can't make money online if you don't know what you're doing and you massively overspend. And there just aren't that many people online and no one's spending

money online yet. So a lot more money was made by people who were able to take advantage of the overshooting in the opposite direction rather than the people who figured out from first principles that the bubble had bubble characteristics and was eventually going to pop. And that just, it requires a lot more of this micro level analysis. So, you know, A lot of macro people are looking at what individual companies are doing and what they're saying and how consumer sentiment is changing month to month and all these other very low-level indicators where the indicators are not a thesis, but the indicators tell you something about when your thesis will become true. That's really interesting.

I'm just going to do some rapid-fire questions for you, Burr, now in the final few minutes. First, how can somebody be long AI but hedge for the possibility that Taiwan will be invaded? So you know, you want to, I don't know if I should put money into TSM, but I know that GPU users are going to be the next big thing or are going to be very important in the future. How do you make that position concrete? Oh, man. That's really hard. Like, I guess the next best thing would be looking at the Korean fabs because they are, they're

close, but I guess they don't produce the same chips. But I guess, I guess the bet would be that Korea is the country most likely to catch up to Taiwan in the event that, or mostly going to catch up to where Taiwan is today if Taiwan is no longer an option. But I think, like, if you're betting, if you're trying to make the AI bet conditional on Taiwan bet, I think a lot of what you want to do is actually think about how you underwrite the Taiwan invasion bet, because that's probably the thing with the bigger long-term impact. I mean, maybe, maybe not. It gets tricky. Like there's, you know, sometimes, sometimes geopolitical changes can just lead to these permanent inflection.

It's like we have the data on, there's some kind of emissions that you can measure that is the result of copper mining. And so we can see how much copper mining changes, changed year to year throughout history. And we do actually see like it was rising during the Roman Empire and then peaked and then went down and then didn't come back for like a millennium. So, yeah, sometimes there is a really unfortunate geopolitical inflection in underlying technology. But if you think about what that means in the real world, what it probably means is like that is the end. Like your big concern is not your portfolio in a world where we, where an invasion causes AI is the reason AI does not happen.

So, yeah, I would separate the invasion bet from the AI bet. And then I guess next best thing would be, I mean, the sad answer is Intel is maybe Intel and TSM are sort of America's last hopes on this. I think there's like you can you can tell a story where invasion becomes more and more likely and the U.S. does a sort of operation paperclip with no connotation about the political views of the engineers involved. But, you know, operation paper clips, all the best TSM engineers out to Arizona and has them all work on building those chips in the U.S. In which case, TSM is still, you know, still a play, although it's certainly lost some valuable assets. But that's a very

tricky question and it may be one of those things where it's kind of hard to hit. Like, there are, there are sufficiently bad things. You know, there's, there's not really a good meteor hedge like, you know, in the, in the minutes before the meteor hits us. Maybe, maybe treasuries do outperform equities, but you don't really care. Okay. Yeah, yeah, yeah. All right. I'll definitely have to have you on again in a few weeks because I, we've gotten through like, I don't know, like a quarter of the question. So, okay. But it was really interesting. This is like probably the most fun an episode I've done so far. Awesome.

Yeah, so just another plug. It's the diff.com. That's with 2Fs and the Twitter handle. What is your Twitter handle, Byrne? It's my full name at Byrne Hobart. Okay, cool, cool. Yeah, and highly recommend it for the most schizophrenic galaxy brain takes, visit the diff.com.

Awesome. Thanks, Ben. You bet. Hey, thanks for listening. If you enjoy that episode, I would really, really, really appreciate it if you could share it. This is still a pretty small podcast, so it is a huge help when any one of you shares an episode that you like.

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See you next time.