Odd Lots - John Arnold on Why It's So Hard To Build Things in America

Episode Date: June 20, 2024

Virtually everyone, across the ideological spectrum, has the view right now that it's too hard to build things (or get things done generally) in America. New infrastructure is thwarted by red tape and permitting. New housing is thwarted by YIMBYism. Even something that doesn't require much new construction -- like NYC's attempt to impose congestion pricing -- is difficult to get done after years and years of wrangling. What is the core problem? And what can be done to address it? On this episode, we speak with John Arnold, who started his career as an energy trader at Enron, before going on to found a highly successful energy hedge fund. Now in his role as the co-founder of Arnold Ventures, he works on policy solutions to address these key bottlenecks. We discuss how he goes about philanthropy to affect policy change, the problems he's identified, and what solutions could be put in place to improve domestic development.See omnystudio.com/listener for privacy information.

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Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, we're recording this on June 6th. And yesterday we got the news of New York City Governor Kathy Hockel, permanently putting a pause on a proposed congestion tax, people driving into the city of Manhattan from the outer boroughs or other states. And I have to say, like, reading about the whole thing, like, it kind of depresses me.

It's crazy that story. I'm sorry, but Joe saw me kind of going off on this in an internal chat room yesterday when the news kind of filtered out. But regardless of where you sit on the congestion pricing debate, I think we can all agree that a last minute you turn after years and years and years of public consultation, on this matter, after the installation of the machines that were supposed to take photos of everyone's license plate and actually get the fees, that this is not an ideal outcome to actually cancel the plans two weeks before they were supposed to go into effect. Yeah, look, I'm a neutral journalist at a mainstream publication. So I have no opinions on policy ever. It is not my job. But it does seem to me that there's something wrong. If you spend like probably $100 million dollars in studies and you talk about something for 16 years and you have all these things

and then it's like at the end it's like nah and it's like how do we like build anything in this country it's just surreal sorry the more i think about it the more i just like start laughing and then kind of crying as well it's just it's crazy but of course this comes up all the time in so many episodes we do whether it's around housing or whether it's about electrification or whether it's about installing offshore wind. Whatever it is, it seems like there is a major problem in this country about like how long it takes to plan things, how long it takes to get permits for things, the cost of construction. The crazy thing with the congestion tax, it wasn't even like a construction thing. You know, it's literally just tolls. It's not like they had to build some new bridges and, you know,

demolish tens of thousands of houses. Well, they still spend a lot of money on it. But yes, I take the point. It's not like they were building a new highway that would go through, you know, some native. neighborhoods or something like that. Right, right. It's also crazy to me. Anyway, I do think, like, you know, this recurring question of like, why is it so hard to build stuff or just actually, like, take any decisive policy towards anything? Seems like a real problem. Oh, absolutely. And even though this particular issue, I think we can all agree was very contentious. There are people who feel strongly on both sides. There are other things that I think have more collective public support and maybe certainly bipartisan support. So I think most of Americans, most politicians would agree, for instance,

that housing supply is kind of a bipartisan issue now. But even on something like that, where everyone kind of agrees, like, yes, this is a problem. We need more supply. We need places for people to actually live. There are all these questions about how you actually decide where to put those houses and then even more controversially. How do you fund that? Like, what does? does support for real estate, residential real estate actually look like? Where does the financing come from? How do you structure that? Is it the form of subsidies? Is it the form of incentives? Is it public-private partnerships? It just seems like there are so many points in the process at which you can kind of like get stuck. So many. So many. Anyway, I'm really excited because we do have

the perfect guest today. We're going to be speaking with someone who is extremely interested in this topic and sort of puts his money where his mouth is, spends a lot of money researching and trying to think up solutions to some of these things. We're going to be speaking with John Arnold. He's the co-chair of Arnold Ventures. Prior to that, he was a famed energy trader, made his fortune at Centaurus Energy. Prior to that, I learned he was the recipient of the single biggest cash bonus when he was a trader at Enron, where he was not accused of any wrongdoing. A bunch of people there obviously were. And now he is to philanthropy, co-chair, Arnold Ventures, as I mentioned, that among many other things, works on problems like this. In fact, they do a lot on health, criminal justice, higher ed,

public finance, all of which could probably make for a great specific episode of the podcast. John, thank you so much for coming on Odd Lots. It's a great honor to be on my favorite financial podcast. I do, thank you. I'm skeptical. I favor, but thank you. Thank you. Just accept the compliment, Joe, and move on. We'll take it. So we're going to get into all this permitting. And you had a great tweet yesterday. Actually, you did a little mini history of the congestion pricing in a tweet, starting in 2007. Mayor proposes awarded Fed Grant, 2008 plans finalized 2008 to 2017 stall, blah, blah, blah, environmental assessment, another delay, another delay,

and now the indefinite delay. I want to get into all that. But before we do, there are a lot of billionaires who want to give away their money and have philanthropies, et cetera. I get the impression that Arnold Ventures tries to solve these problems sort of differently or try to have a novel approach to giving your money away. What is the sort of driving philosophy behind what you do? Yeah, it might be good to start at the beginning of our philanthropic efforts. My wife, Laura and I came out of professional careers from the private sector. I was in energy trading for 17 years, kind of got burnt out after those 17 years.

My wife was an M&A lawyer. She kind of got burnt out. And we had this fledgling foundation at the time that was doing work in mostly in K-12 reform efforts. And I think a lot of people from the financial sector kind of got involved in those efforts in the 2000s. And then after 2008, we kind of got very interested in the public pension crisis that was happening, both the funding design and benefit design. We viewed as flawed and started working in that area. And then we got interested in criminal justice reform. And we stepped back and saw, wait a minute, like the tie amount.

amongst these three very disparate areas is that they're all related to public policy. It's all about the rules and incentives of the systems that drive behavior. And so we started thinking more and more about public policy as the framework for our philanthropic efforts and really believe that there's a shortage of philanthropy focus on this very important issue of policy. We think policies, the three assets. It's sustainable, it's scalable, and it's structural change. in a way that maybe funding programs is not.

But for a variety of reasons, it tends to be underfunded from the philanthropic community. It's changing a little bit. But that really led us down this pathway of getting involved in a number of areas of public policy, including infrastructure and the energy and climate and housing debates. How do you decide what you want to look at? Because I was searching for some of your previous projects, and there's a lot of them. So criminal justice reform is probably one of the ones that you're better known for, charter schools, which you just mentioned. But there are other things like

high drug prices, expensive college textbooks, even geoengineering, which I don't think a lot of billionaire philanthropists have even begun to look into. The quality of academic research, I think that's something you've been working on as well. But it seems like a very varied collection of interests that you have. It is. We kind of get drawn to issues where there starts to be bipartisan support, at least at a, we're at a suboptimal equilibrium. And so there starts to be some political consensus of desire for change. Now finding what the overlap is across the two parties can be a much more challenging endeavor. But so we're looking for those types of issues where at least one side is starting to move and there starts to be this political window that's

opening for reform. We're looking for areas that have promising ideas. Yeah, there's we're not necessarily going into areas saying, here's our idea. We're not the experts in it, but we survey the field and try to find out, oh, here's a promising idea. Maybe we can support this or test this or evaluate that in an idea. And I think, again, we're looking for areas that have this public policy focused to it, where it's about the rules and incentives of systems and how can we change it. And then we have to believe that we as an outside third party can have influence on a system,

which in some areas we can, and some I think we've had to turn away, thinking that it's not obvious how we can have a positive influence on those areas. This was going to be my next question, actually. But once you identify an area where there either is bipartisan support or the, I guess, first inklings

that this could have bipartisan support, what's the value proposition that you bring to the table? Because just to play devil's advocate, but, you know, if both sides of the aisle are interested in this, are discussing solutions, then maybe they can figure it out on their own. I wish it were that easy. Yeah.

I think most of our work centers around one of three roles. The first is providing tension in a system. So from a economist framework, it's often areas that have a concentrated benefits, diffuse costs area. So you can think about health care, where you have many companies that get 100% of their revenue from the system. they're very dedicated and inclined and very motivated to be involved politically. And so some of the strongest, if not the strongest, lobbies in D.C. are from the health care

industry, whether it's pharmaceutical or hospitals or physicians or insurers, PBMs, etc. And the costs of the system fall to individuals. It falls to the taxpayers. It falls to individual firms. None of those really have the incentive to put significant resources to counter the weight of industry. And so we see a role for trying to provide proper tension into a system. And so we're stepping in. Like, when you have everybody in D.C., every lobbyist, trying to advocate for more money into the system, we're stepping in saying, how can you bend the cost curve in health care without having any compromise on quality of care? And is a very

lonely position because, you know, again, there's not much incentive for others to do this. And a The second aspect we get involved in is the development and piloting of new ideas. I was talking about, we survey a field and try to see what are academics, what do practitioners, what are their ideas as to how the system could be performing better? And do they need resources in order to kind of more fully develop the idea or even start to test the idea? And then the third area we often get involved in is evaluation. I think this is a very underfunded aspect of public policy, is trying to figure out what works,

what doesn't. And this includes what programs work and what policies work. And I think that's led to some surprising findings over the years that things that seem obvious that they should be productive, should be efficient, turn out to have counterproductive aspects to them and might not be a good policy or a good program. What's an example of that, something that everyone thought, it's like, yeah, let's do this. And then when you actually looked at the results, no, it didn't. This is a small one, but I think it's very telling.

It is there was a program that was started, I think it was in the 80s or 90s of a scared straight, where the idea was, let's take high school students who were kind of starting on the pathway of misbehavior that people thought they might be going into criminal justice. involves individuals, and we'll take them into prisons and jails and show them how horrible it is in these places and try to, quote, unquote, scare them straight. And, you know, this program went on for a number of years, got federal funding, state funding, and then someone came around and did an evaluation. And they did a RCT, you know, put some people through the program, some people not. And it turned out after the fact that those that had gone through the program actually, you know, committed more crimes than those that didn't.

And so, you know, kind of had this theoretical background. But when you actually apply it in practice, you often get very different results than what the theory said or there are unintended consequences of those programs that are very hard to think about in advance. This is Tom Keene, inviting you to join us for the Bloomberg Surveillance podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information you need to excel. And I'm Alexis Christophores.

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Bloomberg's Surveillance, Essential Listening, each and every business day. One of the debates I see online a lot is whether it's productive from like a political standpoint to sort of always talking about worst case scenarios. And there's a lot of people that's like, oh, yeah, when you're talking about, say, climate, always err on the worst situation. And then there's other people who's like, no, like, let's actually talk about what the most likely situation is or whatever. And I find this sort of an interesting, I don't know, interesting side track. Interesting debate. No, absolutely. I've seen that argument before that if you're always focused on the worst case, then you're never going to do. anything, much less get out of bed in the morning. But, John, I wanted to ask you as well, in addition to the evidence-based approach, there's something else that you do that's a little bit different to a lot of other philanthropic organizations. And that is the actual structuring of the company. So Arnold Ventures, I think you have different aspects of the organization, but one big part of it is structured as a limited liability company versus, say, a charitable

Foundation or a donor advised fund. And I'm really curious why you decided to take that approach. Because to date, there aren't that many billionaires that have gone down that route. Zuckerberg is probably the big exception there. But how did you decide to take that line in terms of organizational structure? Part of this was a realization that research alone doesn't pass laws and that we had to have the political know-how and advocacy and comm strategies tied directly into our 501C3 work, kind of the more charitable work, the research focus. And so we created these two arms over the years. We had our C-3 and we had our C-4. They have different tax treatment. And so we had to have this Chinese wall between the two. And it became very annoying because we had some

employees that were with the C-3 and some that were with the C-4. Now, we're very strongly advocate that we want to put more research and more evidence-based findings into government into policy. And so trying to combine those organizations had a lot of synergy. And so what we did was we brought all employees up into this LLC and we could knock down the Chinese wall. There are a few negative tax consequences from that. But in the grand scheme, it wasn't that significant and we thought the benefits from having one organization where employees could both be experts on the research as well as sit and talk with policymakers to advocate for better policy, was the better approach. Let's get into some of the infrastructure and policy questions that we

let off with. You know, we're talking about this congestion pricing. 17 years was about to go into effect finally delayed at least indefinitely two weeks before it was about to go into effect. When you look at a story like this and you watch it and you see how long it unfolds and then never happens, is this being replicated across the country on smaller scales all the time that we don't see because they're not as big? And as you look at situation after situation, what do these have in common? I mean, this wasn't even an infrastructure project, which blows my mind. It was just basically increasing the tolls. But what's really going on here that it's so hard? to get a policy like this past.

Yeah, you're right that it's not an infrastructure project, but it was very illustrative and similar to the timeframe and journey that many infrastructure projects in the U.S. are now facing. And maybe we start back with, and the environmental framework for this country really got started in this three-year period between 1970 and 1973 under Republican Richard Nixon with bipartisan support. And this was the creation of the EPA. It was the creation of NEPA, the Clean Air Act, Clean Water Act, and Endangered Species Act.

And even today, that's really the framework that most of the environmental law is based upon. And those were enacted for good reasons and have been very effective policies as a whole. If you think back before 1970, there were a lot of environmental disasters in this country, from the Cuyahoga River catching on fire to the smog that you saw in L.A. and huge. in Pittsburgh to the oil spill in Santa Barbara. And so there was a reason why there was broad, both voter support and bipartisan support for this. And it's had good impact over the years. But it's changed.

And I'd say starting at the turn of the century, although that's not a hard turn, but two things happened. One was that the courts started becoming more aggressive about interpretation of these laws and made it harder and harder for developers to build things. And the second was that opponents to projects became smarter about how to utilize the laws to stall and ultimately cancel many projects. And one example of that is instead of filing all your objections to a project at the same time and let them be heard simultaneously, what opponents started doing was file one opposition. Wait a couple years as that chugged through the court system. when that got reconciled, then file your next claim, and then do your next claim. And so a process that should have taken two years to hear the oppositions and the complaints about it

ends up taking 10 years to do it. And that does several things, right? It greatly increases the cost to the developer to do it. It increases the time to bring these important infrastructure projects to the market. And it just provides this kind of general sense of malaise that's developed. across both the end users of these infrastructure projects as well as the developers. So I know you spent a lot of time in D.C. as part of your philanthropic push, but when you're talking to politicians or other policy makers or maybe even court officials or people

from the judiciary, is there a recognition that this is an issue now, that it is harder to build things or that it just takes longer? Absolutely. And I think the passage of the IRA really changed the discussion around permitting. And I think, you know, there was a growing sense around the difficulties that the environmental framework were creating for projects. But then the IRA passed. This kind of deregulation or this desire to look at the kind of environmental process was historically a Republican one or a conservative one, right? And then the IRA passes. And the CBO scores the environmental provisions at, I think, $391 billion. And then as the private sector and as environmental orgs spent time with that law and started thinking about what does this actually mean,

you started hearing numbers that were actually in excess of a trillion dollars. And this was kind of a secret that was going around the environmental community was, don't tell anybody, but this is a trillion dollars of new spending on environmental projects because they were modeling this on spreadsheets. And then the reality sets in. And the reality is that modeling things on spreadsheets versus actually building physical infrastructure is two radically different things. And so then the next 12 months was about, holy cow, like, we need to change and make it easier to build. Because instead of trying to stall and cancel projects. In order to have an energy transition in this country, we need to build a lot of things.

And so there's a lot of energy infrastructure that needs to get built. Now, the same rules that we're making it difficult to build clean energy infrastructure, we're also making it difficult to build traditional oil and gas infrastructure. And so today, you know, the Mountain Valley Pipeline, which has gotten very famous because of the discussions over the past couple years, is very near completion. but there's no other interstate pipeline that's in development after that. And the developers have pretty much given up because you've now had three major pipelines that ended up getting canceled or very significant delays that has greatly affected the economic

outcomes of those projects. And so developers are saying, we don't know what the rules are anymore to build these projects. And so we're not even going to start because we've seen three instances where they became financial arbitroses. And all this was happening on the energy side at the same time that the housing side really started to pick up. And this was coming from a lot of this originated in California, which a lot of well-known stories about the difficulty of building housing, especially in a workforce housing in California. And there started to be the creation of a YIMB movement and real questions about what are all these hurdles that are in the way of development.

and that helped disper this whole movement around the abundance agenda. And so all these things are coming together. And we see that there is now great political will from both sides politically, but also includes a lot of the environmental groups who had traditionally worked to kill projects and delay projects are now realizing they need to find projects to support. So let's drill deeper into this because we actually recently did a, interview with the CEO of Orsted Americas and slow permitting for offshore wind was one of the bottlenecks that he cited. I saw you've done something with a sort of like more advanced power lines

so that clean energy in one part of the country can be distributed to other parts of the country, etc. But what are the sort of specific issues that arise in permitting? Or maybe what are the specific types of reforms that would be necessary so that this trillion dollars, can actually get spent in some sort of relatively efficient manner that produces good. Like what are the actual issues at play here? Yeah, this applies, again, not only to clean energy, but to all energy infrastructure and kind of all linear infrastructure. You think about linear infrastructure, which includes rail and highways and transportation,

transmission, pipelines. All these things have gotten very, very difficult to build in the 21st century. So the question is kind of what to do, and that's where things often kind of start to bog down. There's been kind of extensive negotiations between Senator Manson and Senator Brasso in the Senate, and they've been reported days away from potentially releasing a bill that it starts to address this, and the framework that they've mentioned would do a lot of things. And I think the question is that oil and gas has traditionally had exceptions on some of the the environmental framework. And so everybody talks about NEPA and the categorical exemptions

that certain industries have from the NEPA process. And so oil and gas has a lot of exemptions from that. Clean energy generally doesn't. So things like geothermal, the transmission that's necessary to unlock the wind and solar resource, and then even things like sighting of wind turbines all end up tied up in a lot of environmental process that either stall or make them uneconomic. And so the question is, do you bring clean energy down and make it at an equal basis to oil and gas and make everything easier to build? Or if we do nothing, and oil and gas is becoming harder and harder to build, and everything across the energy spectrum becomes very difficult to build. So going back to one of the specifics, one is what is the role between federal and state

on trying to permit things? And so there's this inherent tension between needs of society and the preferences of a community. Right. Like we need energy, we need transportation, mining, workforce, housing, et cetera, right? But individual neighborhoods usually prefer that that be built somewhere else. And so the question is, what's the right tension in that system? between society versus the community, and that really boils down to federal versus state and local. And so the question that needs to be addressed is, especially on a lot of these linear infrastructure projects, where are projects of national significance that need the ability for the federal government to come in and permit it because it's of national strategic interest?

The second issue is around these judicial reforms. And again, allowing these objections to come in, allow them to be heard, but that the opponents to projects need to present those objections in a timely manner, and the courts need to hear those objections and rule on them in a tiny manner, and the agencies need to respond to anything that's coming out of those rulings in a timely manner. And I think kind of the combination of those two things is really what the permitting reforms are looking like. I'm Matt Miller.

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I'm Matt Miller in New York. And I'm Hannah Elliott in Los Angeles. Subscribe today wherever you get your podcast. guess. So I have two questions on permitting reform. And the first one is, if we agree that speed of build out is important here in addition to actually freeing up the financing, then why didn't the IRA just include permitting reform from the beginning? And then secondly, you know, you mentioned NEPA, the National Environmental Policy Act. What do we give up in permitting reform? Because, you know, I imagine a lot of these rules and regulations exist for a reason. And so I would also think there would be

some sort of tradeoff in maybe liberalizing some of those rules. Yeah, let me start with the second question. And that's, it's about balancing the interests of the system. And so the United States has gone through a history where it just built everything and barreled through neighborhoods. And I think Robert Moses in the 40s and 50s was the great example. of this and on one hand he got a lot of things built on the other hand a barrel through neighborhoods created a lot of pain and a lot of inequitable outcomes particularly amongst the poor and minority groups and so that's not the right way to do it but I think there's growing consensus that where we are today where it's very very

difficult to build anything is also gone too far in the other extreme so again it's about balance neighborhoods and communities need to to be heard. Objections need to be heard and litigated. We need to find the best way to do these projects, but we can't let perfect be the enemy of the good. And a lot of these times, like, we need to build stuff. We need to build transportation infrastructure. We need to build housing. We need to build energy infrastructure. There's going to be tradeoffs with every project. No project's going to be perfect. And so the question is, what's the right standard? With regards to, why weren't these in the IRA bill? And that was just the congressional rules about what could be part of reconciliation and pass with 50 votes versus requiring 60.

And the parliamentarian ruled that permitting reform was not a financial issue and therefore needed 60 votes and needed regular order. And so Senator Manchin, as part of the negotiation, came to an agreement with Leader Schumer that Schumer would bring to the floor a permitting reform bill in the future. And that came very close. Senator Manchin realized that it didn't have the 60 votes. And so it never actually came to the floor. But discussions and negotiations have been continuing ever since. You know, I'm very fascinated by this idea that many problems come down to one extreme. motivated but small opposition, whether it's a community, whether it's the 1% of people on Long Island

who get into the city via car, whatever it is, that they end up having more cloud or influence in a way than a bunch of other people who don't even really know about the project or don't think about or can't see its tangible impacts. On something like permitting reform at the national level, who are the interests as you've identified them making some of these votes harder to get to the floor or get to 60 votes? So the environmental organizations are doing a lot of soul searching today, I would say. I've talked to a lot of them, and it's not correct to put them all into one grouping. There's a wide variety of them that have varying views on this.

And so you get some very kind of moderate ones who have done the modeling and realize that in order to get to a lower carbon future, we're going to have to build a lot. and that requires changing some of the environmental framework. And then you have some groups, particularly with the environmental justice community, who have very legitimate concerns about how infrastructure has been built in the past and are highly reluctant to make the process easier because they are scared that things are going to be built in the same way that they have in the past and don't trust the system. And again, there's good reason why they should be skeptical of this.

But I think that's kind of across that spectrum, the environmental community is trying to figure out what to do. And there's been a lot of discussion, I will say. In this community, I, again, have been parts of a lot of these discussions. And I think the trick is how do you find a bill that gets support from the majority of the environmental community and also has support from industry? And that gets 60 votes. And the reality is, you know, it has to get Republican votes as well as Democratic votes. And so it has to make everything easier to build. It cannot be a bill that just focuses on clean energy.

Again, it's impossible to, you know, virtually impossible to build an interstate pipeline today. Yeah, there's the pause on LNG export permitting that has industry up in arms. And so a bill that is a compromised bill is going to make building energy. infrastructure across the board easier. So I love talking to you about specific examples, and I know you're based in Texas, and of course you have an energy trading background. So I feel like we would be remiss if we didn't ask for your thoughts on the Texas power grid in particular.

And if that's something that has come up on your radar, either by dint of your interest in policy or the mere fact that you are in Texas. and maybe you have experienced some of the issues that have sprung up from various problems in the past couple of years. I've thought about it and I've been a part of some of the problems that have developed. You know, the goals of the energy system are how do you make energy affordable, reliable, sustainable to the environment and secure? Now, on the energy security, that's less of a concern for the United States because of the quantities and diversity of the energy resource within our boundaries. So now we think about reliability versus affordability and environmental sustainability. And at times you can find things that don't have trade-offs in that.

But sometimes there are trade-offs. And so one of the trade-offs is reliability versus affordability. Do you want to build a system that's four-nine's reliable or five-nine's reliable? And there's a cost difference to doing so. And so different communities, we're talking about different states and different NERC regions, you know, Urquot versus PJM, for instance, have come to different preferences on that spectrum. And I think Texas being Texas has always prioritized being low cost. And as part of that, there's a tradeoff on some of the reliability issues. It's been exacerbated by the enormous power

or demand growth that we've seen in Irkot. So it's struggling just to keep up with the system. And utilities now across the nation are starting to face some of these similar challenges. There was this 15-year period roughly from 2007 to 2022 where load growth across the nation was relatively flat. That kind of hid. There were some areas that were growing, like Texas slash Urquat. There were some areas where load was actually contracting as energy efficiency gains were happening.

But utilities are now facing load growth kind of across the board. So they're being asked to deal with that. They're being asked to deal with bringing more intermittent resources onto their grid and dealing with the reliability associated with that. They're being asked to decrease the greenhouse gas emissions on this system. And then last, how do you not end up with significantly higher bills to the customer? So, yeah, I said had utilities and the grids only been tasked with two. two of those challenges, they'd be very easy.

They could probably handle three, but doing all four at once right now, which is what most utilities are facing, especially in Texas, has been an enormous challenge. And I think it carries enormous risks. And that's the reason why we need to build a lot of energy infrastructure in this country. Otherwise, they're going to be very significant brownouts and blackouts in this decade. And nobody wants that. A rare quadrilemma that sounds. like I want to pivot a little bit to housing. And, you know, there are a lot of people,

particularly on the internet that, you know, the Yimbys and, you know, permitting and all this stuff, we've got to build more and build more vertically. And, you know, let's just have one staircase in a multifamily building instead of two, et cetera. When you look at the overall, like the cost of affordability, whether it's rent, et cetera, how much do you attribute of that to various regional and local permitting policies versus other aspects of the housing economics industry that don't automatically sort of create abundant housing? It's a combination of the two. And I think there's no one solution that makes housing affordable tomorrow.

It's an enormous system that even aggressive legislative changes are going to take a lot of time to work their way through the system. You're constrained by the supply chain of building houses, which includes labor, the number of home builders, includes kind of the financing available, et cetera. But I think there is this question of, does the ability to build housing reduce housing costs? And I think you can find examples where that might not be true. I think there are some very narrow instances. You know, I think Bay Area might be one of those where if you build another 100 units of

housing, does that just create more jobs than create more demand for housing? housing. That's true in this very narrow sense if you're just looking at one community doing a thing. And I think that brings back this broader question of, you know, what's the role and responsibility of an individual town or city on building workforce housing? And I think what the kind of game theory will show is every community wants the community next door to build that housing. They want to maintain their sense of community. They don't want change.

You know, kind of the status quo bias kicks in. And everybody says, like, yes, we need more affordable housing, more workforce housing, more housing in general. Build it next town over. Now, if every town says that, then you got a problem. And this is why I think there's a role for the states to step in. And this is what you've seen in California, where we can. can't count on individual towns and cities to solve this problem on their own because the incentives

just don't align with the needs of people of society. But from the bigger picture from the state of California, they're looking in saying the economic vitality of our state is dependent upon getting more people to come to the state and not just have this aging population that creates a lot of problems with workforce and with the needs of aging populations. And so it is vital to the economic vitality in order to build more housing in California. And therefore, there needs to be state rules and mandates and incentives that get you to that answer. I'm going to play, like, I guess a bonus round of odd lots type stuff where I just ask you about various things that have come up on the podcast as problematic before. And going back to...

Texas ties, I feel like I have to ask, the Jones Act, is that something that you would ever consider getting interested in? As a long-time listener of the podcast, I can attest to the number of times has this come up. It's one where I don't say the political viability. And so we stayed away. Say more. Unions are very much against repeal of the Jones Act. And I think there is a sense that we need a shipbuilding industry for national defense purposes for unforeseen events in the future. And therefore, in order to have one, you have to kind of subsidize one because we are not competitive building ships in America vis-a-vis the rest of the world.

So therefore, we can either create large subsidies or mandates. And we've chosen to do the latter and create this mandate that any intra-US shipping has to be on a U.S. flag vessel and it built in the U.S. And therefore, we have some semblance of a shipbuilding industry in the country. Would we have more success if we paired that mandate with subsidies or maybe just like a big public program or using the Navy or whatever to just construct more Jones Act compliance ships? It would be difficult. I mean, a lot of things now the federal government has decided just to subsidize.

And again, like you can either use sticks or carrots. in order to change behavior. And IRA was a great example where 99% of the provisions and there are carrots. There's a methane fee that's a stick. But on the Jones Act, it's tended to be on the stick side, given where the federal debt and deficit are and the long-term risks associated with that. I'm not a strong advocate of doing more subsidies to industry. I just have one more question, but can you tell us about cross-state basis? baseball card trading arbitrage? Turns out people in New York and Canada like hockey cards much more than people in Texas do.

Okay. At least back in the late 80s, early 90s. I was a baseball card collector when I was 12, 13, 14, and, you know, it was never really that into the individual cards, but was very interested in the business of cards. I just like, it's just so perfect as like go on into like billionaire energy. trader, I wasn't really interested in the players or whatever, but got really interested in the business and pricing of cards. But go on, go on. Tell us the rest of that. Yeah. And so, yeah, this was kind of a little boom period that happened late 80s, early 90s in the sports card industry,

kind of very much a bubble ended up being created. But there was a time when prices were very volatile. There was rising prices in general. But most importantly, there was kind of information. asymmetries. And so what a lot of the dealers knew was just their local market. You know, the Texas Rangers baseball cards would sell better in Dallas than hockey cards would sell in Dallas. And so they priced them as such. And meanwhile, you found other markets that, you know, were you had the inverse. And so I kind of created almost geographic arbitrage and had figured out a way through some of the early bulletin boards on the internet of being able to be on top of what both national pricing was as well as regional pricing disparities kind of across the sports

card market. And as I was in high school, this was kind of my evening and weekend job to make a few bucks and it ended up being pretty profitable. Geographic disparities. It sounds a bit like energy training and the grid. It's a lot like energy trading. I have just one more question, and it relates to, I guess, a sort of provocative point, but an important one and one that I'm sure you've addressed before. But I think it's fair to say that there is some public distrust of billionaires getting into policy making. And we can maybe go into why that's happened. But I'm sure you might reply that your sort of evidence-based approach maybe differentiates you from some others.

But even when you're taking a more rigorous scientific methodology to addressing some of these large-scale problems in the American economy and you're looking at all the evidence, it feels like there's still a question over who gets to decide, I guess, what evidence matters. And this is maybe where you get into questions of unfairness or the idea of like, why do billionaires get to say that this is the thing that we should be looking at or a thing we should be paying attention to? What would be your response to those sort of criticisms? I think it's a very fair take and that we need to think about what our role is in society and why, because we have resources, you know, why do we get to play in some of these areas? And I think about the counterfactual and that, again, a lot of our role that we see is providing tension in systems that if we were not involved in the health care system, in the higher ed system, in infrastructure, and criminal justice and electoral reform and energy and all these areas, the ones who would have the political power, the ones who would be funding the lobbies and have the political strategy would solely be, in some cases, lows with an economic incentive of the system. And so the one thing we bring is that we don't have financial incentive or financial conflict on things that we're advocating for.

Whereas almost everybody else in D.C. or a state legislature who's out there lobbying, the reason they are paying a lobbyist, the reason they're investing that money is exactly because they have a financial stake in the system that they're trying to protect. And so we're providing that tension in the system, and we're not the ultimate arbiters, right? The politicians, the political system decides, but they should have all the facts whenever the politician, whenever the policy makers are making the decisions, are passing laws. They should get the full scope and have as much information as they can. And I think that's what our role is. John Arnold, so great to have you.

Really appreciate you taking the time. Thank you for coming on the adlock. Great. Thank you. Tracy, I found that to be a great conversation. I feel like this idea of like interest asymmetry is sort of at the heart. And it's obvious in some sense, but it's like as a sort of framework to think about the difficulty in doing things. Like a very useful idea. You know, I on a day-to-day basis, I wasn't really thinking that much about the congestion,

pricing thing, but I'm sure that the representatives of, you know, the various neighborhoods in Long Island where you might have a lot of working class commuters or people in trades having to come in on their vans were extremely motivated by this particular question. Oh, absolutely. You know, the thing I thought was interesting was the example of the filings against proposals. Yeah, yeah. And the idea that I think everyone has this like sense that things have become more complex and they're might. be various reasons behind it. But one of them surely has to be that people are getting better every day at just dealing with the existing system. And so you see things like more sophisticated legal strategies where instead of unloading a bunch of protestations or counterclaims against

one particular project at one moment in time, you get that slow drip process of filings, which ends up gumbing up the system. And it is reasonable to say, like, I don't think we've seen a good response to those more sophisticated strategies that are aimed at gaming the system. Tracy, have you ever seen that website WTF happened in 19701? I'm serious. I've never looked at it, but I've heard of it. So it's like basically this whole thing of like life started getting more expensive and a bunch of stuff

going downhill. And the conceit of the website is that 1971 is when Nixon took us off the gold standard. And so it's like, oh, if we only return to gold, then, you know, all these lines would go in the other direction. But I think it's also very interesting that that was exactly also the time when some of these big NEPA and other related permitting things first started getting kicked into gear. That three years that he identified 1970 to 1973. and I would just put forth that if you are very sort of like obsessed with the idea that a bunch of things started changing in 1970, maybe doing something on the monetary side, but it might also be worth looking into how policies that affected the cost of construction, cost of energy, etc., also changed during that exact time. You know, you need Joe, you need John Arnold to spend a bunch of money rigorously testing the theory that 1971 changed everything. Or he could just buy the website and just change the entire premise of the website.

So a bunch of people go there and get different ideas. That too. All right. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

I'm Joe Wisenthall. You can follow me at the stalwart. Follow our guest, John Arnold. He's at John Arnold FnDTN. I think that stands for a foundation. Follow our producers, Carmen Rodriguez at Carmen Armin. Dashel Bennett at Dashpot and Kel Brooks at Kilbrooks. And thank you to our producer, Moses Andam.

For more Oddlots content, go to Bloomberg.com slash Oddlots, where we have transcripts, a blog, and a newsletter. And you can chat about all of these topics 24-7 in the Discord with fellow listeners, discord.gg slash oddlots. And if you enjoy Oddlots, if you want us perhaps to do an episode on why everything started going wrong in 1971, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to you. all of our episodes absolutely ad-free. All you need to do is connect your Bloomberg account with Apple Podcasts. In order to do that, just find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening. On April 4th, 23, around two in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco.

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