Offline with Jon Favreau - The End of Big Tech as We Know It

Episode Date: March 26, 2023

Jon welcomes Max Fisher, Crooked’s newest team member, to the Offline family! Max, former New York Times reporter and author of The Chaos Machine, joins the show as a recurring contributor, bringing fresh commentary, segments, and even interviews to Offline. This week he and Jon put their heads together to decode AI hysteria, the TikTok ban, and whether big tech has passed its prime. For a closed-captioned version of this episode, click here. For a transcript of this episode, please email [e-mail] and include the name of the podcast. 

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freaked out. The researchers who work on AI seem freaked out. And something you keep seeing is these like interviews with the people who work on it, who develop it, who were like, there's a one in 10 chance that this will destroy humanity. If we started this podcast and it was like, you know, John, we have a great podcast today. And I think it's so powerful. There's a one in 10 chance it might destroy humanity. You wouldn't, as a listener to that, you wouldn't be like, wow, these podcast hosts, so brave, really, really brave.

They're just charging ahead anyway. They're just doing the hard work for us because they want to enlighten us. Right, you would say these people are off their fucking heads. And if you talk to people in Silicon Valley forever, this is how they've talked about new developments. Which is fine, but it doesn't mean that we have to say that they're correct. I'm Jon Favreau. Welcome to Offline. Hey, everyone. We're kicking off today's episode with some exciting news. My guest today is Max Fisher, who's been on the show before,

but is returning today as a new member of the Crooked Media family, who will be a contributor on Offline, Pod Save the World, and all kinds of other news and politics projects here at Crooked. Max, we're excited to have you. Hi there. I am so excited to be here. It's been in the works for a while. Going to be doing, like you said, a lot with Offline, Pod Save the World, which you can hear me on this week. We are cooking up some really exciting stuff, I think, on both shows and some other stuff in the network that we are excited about. But mostly, I'm just excited to be part of the team. I've said this to you off

mic, but I'm a big believer in the mission, which feels really crucial to me at this moment and where we are in our world, politics and technology. And also just the kind of audio world and format is something that I've been thinking a lot about. Writing a book on social media made me think a lot about our relationship to media and how we consume it and what it does for us. And I just really came to see what you all do here as something that is, I just think, good for people. And so I'm really happy to be part of it. Well, we are excited to have you. And it's interesting because after I read your book and had you on last time, I was like, wow, Max is just like right in line with everything we're thinking about here and then it worked out. I do think it was funny when we do like a welcome email for each new employee and then there's like a series of questions and one of them is like, what drew you to Crooked? And Max's was sunny weather and salvaging democracy i believe it was so we're

one out of two i was gonna say yeah and so then you move to la and it's been raining ever since i am so close to a nervous breakdown i cannot begin to tell you this is it we are i think we're in the last everyone else around the country who's like dealing with snow and awful weather is probably rolling their eyes right now but this is our last day of rain right here uh-huh this is it yeah we'll see promise i'm talking to hr after this all right so uh last time you were on we talked about your excellent book the chaos machine uh which you wrote after years of reporting on how the silicon valley ethos led to our current social media hellscape that ethos is once again dominating the news after the largest bank run in history led to the collapse of Silicon Valley Bank. And you came up with a

great pitch for an episode where we take on the question, is this the end of Silicon Valley as we know it? Have we reached peak Silicon Valley? You want to talk a little bit about what led you to that question? So I had been like a lot of people following there all of these what seemed like many separate like crises and disasters hitting Silicon Valley all at once. You have mass layoffs at all of the big tech companies at a time of record low unemployment. You have just staggering drops in stock prices. You have far fewer startups coming about. The social platforms feel stagnant. Facebook had this weird metaverse pitch that is suddenly not going anywhere. It seems like things are just kind of roiling.

And I didn't have, I should say the established narrative was that these things were generally disconnected. Or it was like there was a pandemic boom in technology and now there's a correction, but like everything is fine. And the more that I read about what happened at Silicon Valley Bank, the more I started to think like, actually, I think there is a common thread here. And I think there is something that explains why all of this is happening once and tells us a lot about the last 15 years in the technology boom and also about where Silicon Valley is going, where the internet is going, technology is going. And the thing that I kept coming back to is something that I had never thought about is that important in all of these different worlds, which is just interest rates. And it turns out that, to me, the big aha moment, the big skeleton key for understanding all of this, is that Silicon Valley was running on these crazy historic low interest. And we'll talk about like why and the mechanics of that, how it works. Interest rates for all of this time, interest rates are now up, way up for the first time since like 2009. And that turns out to be because that's

the foundation on which all of it is built. Now we're kind of seeing all of it crumble and start to like, I don't think it's going to end, but we're going to see, I think, a very different Silicon Valley in this new world of higher interest rates. Because, again, if you look at the timeline, the tech boom starts just as interest rates hit down to close to zero. And then interest rates start going up March of 22. And what do you know, the mass layoffs start a few months later. And we should say that as we're recording today on Wednesday, the Fed just announced another quarter point increase. So it's going to, it looks like higher interest rates are going to be with us for a while, even though, and some people had thought that maybe they wouldn't

raise them because of the banking crisis started by Silicon Valley Bank, but they're continuing on the path. Let's unpack this a little. You mentioned that there's one theory out there that this was sort of an overcorrection from the pandemic, everything that we're seeing. And when people say that, we were all stuck at home. A lot of people relied on products and services that tech companies provide. So tech companies hired and invested as if the way we live and work would permanently change. That hasn't come to pass. And now those companies are struggling to readjust. Do you think that is part of the explanation or is it just doesn't take into it?

Why do you think that basically the interest rate explanation is more salient than that one? Right, right. So to understand this, I think it helps to kind of articulate how the like tech economy works, how the Silicon Valley venture capitalist economy works, because you see that all of this makes sense and all of it starts to like fit together. Why is this one complete picture? So you, John, are a venture capitalist. Your job is to raise money and then to invest that money into tech companies to return a profit. And as a venture capitalist, you really are like one of the lords of Silicon Valley, this small community that really decides like who are the winners and losers and that reaps a lot of the benefits from it, even though these are not historically the most famous people that we associate with Silicon

Valley. So the way that works is that you borrow a bunch of money, which in the era of low interest rates is very easy to do because you can borrow a ton of money and you don't have to worry too much about interest payments, or you get a bunch of money from institutional investors like pension funds. And pension funds are really eager to give you money because again, low interest rates, there's not a lot of good safe investments out there, or not safe investments, investments with a good rate of return. But if they give it to you, the venture capitalist, and you say, I can give you this great rate of return in the technology world, they say, okay, great, here's a billion dollars or a hundred million dollars. And then what you do is you go out and you find a bunch of little tech startups to plow that money into.

And you find someone who has an app that transcribes podcasts and emails you a transcript of it the next day, let's say, and you say, here's $10 million and I want a giant share of your company. And what I'm not in this for, I'm not in this for, you know, in 10 years, you're going to start making a profit. And then I'm going to get a little bit of that profit. What I want is what's called an exit. I want you to get as many users as you can as quickly as possible so that we can go to Wall Street. We can go to the possible so that we can go to Wall Street. We can go to the stock market.

We can go to NASDAQ and say, this company is worth a lot of money. We're going to go public. And then I can get my cash out. So what you do, the startup with that $10 million, because your costs are very, very low because it's just an app. It's the internet economy. So it doesn't cost very much to start a company. You mostly use that for user acquisition. And you get millions and millions of users. And then two years later, you go to the

New York Stock Exchange and you say, hey, we're going public and you should give us a lot of money for this startup. Because look at this chart of user rates going to the moon. Now, we don't have any profit. We're not making any money. But you can see we're going to make more and more users. And this is, of course, how the social media companies start. It's how all the internet startups started. And we're going to get all these users and one day we'll make money. And then there's also a generation of the Ubers and the delivery apps where maybe it's not free, but it's heavily subsidized, again, by that VC money. Wall Street goes crazy. And they say, we want to value this company at 10 times what the venture

capitalists valued it at. We're going to value it at $500 million, not because it's making any money, because we think it's going to in the long run. And why do they value it so highly? Low interest rates. Because where else are you going to plow your money? Where else are you going to put it that you can get a nice, healthy rate of return? You can also borrow like the venture capitalists.

You can borrow a lot of money. The interest rates are so low, you're not worried about paying those interest payments, you're just thinking, okay, this app is one day going to be worth a ton of money. So I want to put money into it. So the share price will go up and up the venture capitalist, you've just made 10 times on your investment. So you just made a ton of money, which you used to go plow into more and more startups. And because you're so rich,, you think that you're the master of the universe and the smartest genius alive. Wall Street is happy to stick by these companies, even though they don't make any money. Again, interest rates are still low. all of a sudden there are much better investments out there that get a nice rate of return, which is of course what happened to Silicon Valley Bank too. You can go out and buy a mortgage-backed security that will get you 5% now because interest rates

are higher. If you're an investor and you have a share in this company that has a bunch of users, but doesn't have any profits, suddenly you want dividends. Yeah, because at that point then a financial advisor will tell you, well, you could put your money in these VCs, but like, it's a little riskier. There's a safer investment that now that interest rates are a little higher is going to get you a pretty stable, steady return. It's going to be much more stable and predictable than what you're going to get out of a VC. Right. And you want, VCs won't give you dividends. What you want is dividends. So you went, VCs won't give you dividends. What you want is dividends.

So you say, I want to put my money in CVS. I want to put my money in Walmart. And everybody starts pulling their money out. All of a sudden, there's not unlimited free money from low interest rates to get these big startups. All of a sudden, there's not things that are sending them to 10 times valuation. And even the big established 10 companies, their own investors are saying,

well, where are my dividends? I don't care as much about the share price rising in 10 years. I want some cash now. And you see this like devastating shockwaves that this sends completely throughout the valley because the interest rates going up just ends the basic financial model, which is also the same financial model that produced, you know, Ubers and a whole generation of the like Uber for X and produced the social media companies whose model was always get as many users as you can as quickly as possible. And we'll spend money to get them and we'll make a profit later. Yeah, I will say I am not a business or finance expert, but I was always a little confused about the crazy high valuations placed on companies that hadn't even figured out how to monetize their service or product yet. Right. Yeah. I always think of Netscape, which is still cited in Silicon Valley as this amazing success story because

the investors in it made a ton of money because they put a bunch of money in. Two years later, it went on the New York Stock Exchange. But then the company collapsed and it never made any money at all. But it's still it's like, well, he got a lot of users. And of course, the founder of it, Mark Andreessen, is now one of the biggest venture capitalists in Silicon Valley. rich and rely on such rich investors that rising interest rates maybe doesn't affect them as much because they're not really looking for safe investments. They're in this because they really want to take a bet on some of these companies. Do you think that rising interest rates is going to, like, there's probably an argument that maybe they won't affect,

there'll be a readjustment, but they won't sort of kill Silicon Valley as we know it because there's enough money out there from some of these really wealthy VCs and investors and LPs that it's not going to change it too much. Let me give you some numbers because I was staggered by the numbers that we're already seeing the drop in VC investments. They're already calling it the venture capital winter. So a few big VC funds, according to one analysis I read, made between 2021 and 2022, made half as many investments in terms of cash and overall investments that they had in 2021. Remember, only the second half of 22 is the actual VC crisis.

The number of startups that raised $100 million plus in the past year has dropped by 71%. So almost a total collapse in startups raising a ton of money. The number of startups whose valuation crossed the $1 billion line, which is very meaningful in Silicon Valley. They call those unicorns, the companies where they've raised enough money that the valley thinks it's worth a billion dollars or more, dropped by 86% in just a year.

So they basically don't exist anymore, which is more apt to the name of unicorns. The average startup valuation fell by 56%. So we're already starting to see this. And generally the take from financial analysts, which is it's predictive, so who knows, but is that you are only going to see more money fleeing this because the financials of it just don't make sense anymore, which is not an investment that is an attractive. And these VCs were always playing with house money. It was for like angel investors,

a class of them, it's their cash and those people are still there, but it was always pension funds. It was always loans and they don't have that anymore. Here's what I don't understand though. It's like everyone knew that interest rates wouldn't stay as low as they were forever. Right. And if you're, so if you're like an investor or a VC or a founder, like you've got to be thinking, okay, well, the party's not going to last forever here. But you do think that if you thought the party was going to go forever because it had nothing to do with interest rates, it was because of you.

So you think they've told themselves? I think they've absolutely told. I think that they have really been high on their own supply for decades, but especially the last 15 years. It's the culture up there, man. Yeah. It just really, you tell each other that. And this is something that even gets parodied on if you watch the Silicon Valley HBO series. You know what's funny?

After prepping for this episode last night, I watched the pilot. I went back and watched the pilot. Oh, nice. It's precious, right? Yes. Yeah, yeah. And that was years ago. That went on for seven seasons.

Yeah. But it is. I mean, it really is. I know we're going to talk more about some other stuff happening there now, but it really is part of the culture that if you made an app and that app raised $10 million and the app makes a fart sound, probably the fart sound app is going to change the world. And probably you're the greatest genius who ever lived. And everybody was making money because you're playing with house money because interest

rates are so low. You can only win because the rare times when you do lose, the losses are borne by your investors, by someone outside of the valley. So it's just, it's this culture of just, man, if you're here and you got a startup and you got a valuation, then you are just an elevated being who really should be in charge of all human affairs. Well, and I look, and I've dealt with some of these companies, you know, in my past life, when I was a briefly a consultant and you walk into some of these companies and it's like, why is there so much free kombucha like where who's paying for this they haven't figured out how to monetize the louisiana state pension fund is paying for the free kombucha yeah but it's i mean it's funny because when we started crooked like we i mean we

got lucky right like we didn't take we didn't take any investor money at first right for like the first five six years right and when we were thinking of like how to invest the money and like make money, it was just like, well, we can't be spending money on anything fancy that's going to put us into debt because then we have to borrow money. We don't want to borrow money if we don't have to borrow money. Yeah. Like that was just our mindset. And I guess it's just because we didn't have like business backgrounds. Right. I wouldn't feel very comfortable if I was running this place and we had taken a bunch of money and everything then was dependent on us figuring out a business model to pay back the money. I mean, I realize that's how most startups happen.

But that's dicey. Well, it's funny. Like Silicon Valley Bank shows how this mindset was completely flipped. And it was like, you should take as much money as you can get because that means your company is worth more and also investors want to give you more money than you want and more money than you need because then it's a bigger stake and they're bidding against each other and that's why all of these like the fart app startups have a hundred million dollars they need to go park in this bank yeah well we and we did have that too we had some investors being like oh we'll give you a bunch of money to start and like take half the company you

know right and it's like yeah well that's cool to get the idea was cool if we were like wow we get that much money but why would we give up half the company when we don't need to take that much money right but it is this culture that like you should take you should take the free money if it's offered to you right right and you should take it because there's always going to be more of it and there really was a belief that it was always going to keep coming even though and it it's wild now because everyone is looking at Silicon Valley Bank and being like, you morons, Fed was very clear interest rates were going to go up. Everything about your business model was premised on low interest rates. Why didn't you

diversify your investments? And there was just not, people were just not making the connection, even when they were in banking, that this was going to have a lot of effects on them. Let's talk about how bad this might get for the tech industry and what the future looks like for both smaller startups and then the tech giants like Meta, Google, Twitter. What's happening at the bigger, more established companies that have either gone public or had crazy high valuations over the last decade? So last year, and this, again, mostly just the second half of the year, there were, according to one tracker that I found, and these numbers are, it depends on how you measure it, the big tech companies had 161,000 layoffs last year, I know, in a time of record low unemployment. And this year so far, it's 150,000 and it's March. It's only March. Yeah. Facebook, which I picked out just because

it's a good example, which for a long time in the last like six or seven years was one of the largest companies in the United States by market valuation saw its share price drop from a high of $380 a share to $90 a share, which is a staggering drop. And it's back up to, it's $206 today after the layoffs. I expect that will drop again a little bit after the rate increase. But you just see just across the board, this just gutting in value because investors are fleeing. On average, according to one estimate by the firm Kroll, established companies lost an average 56% in value on the stock market last year, more than half, it's pretty bad. And newly listed or recently listed companies lost 63% in value. So the

general consensus is that the music has stopped in the market. And this will also change sort of the services and products that these bigger, more established companies provide as well, right? Like for somewhere like Uber or Postmates or an Airbnb, right? Like they're dealing with two things. One, just inflation across the board. And also the dynamic where they were able to offer their services at lower prices, partly because they just had all this money. Right.

And now that they don't have this money, they can't do that. Right. And not only do they not have that money, but it's pushing in the opposite direction where now their investors are saying, instead of me putting money into you, you give me money and you start giving me dividends, which is reasonable. I see how they get there. So the era of the Uber for X, I think has got to be

over. There's also, there's a lot of startups that we don't hear about outside of Silicon Valley, but that will develop some program or algorithm or app or some widget, like an enormous amount of innovation in Silicon Valley and features and new things that get developed are startups where they get a bunch of money, develop something that is very technical so you and I don't know about it, and then sell it to a big company. And if those go away too, you're going to see a lot less innovation and growth in the existing companies because they're not going to have those startups to launch. And a big question in my mind is, you're going to see a lot less innovation and growth in the existing companies because they're not going to have those startups to launch. And a big question in my mind is what this is going to mean for the social media companies

because they're losing. Advertising has been the center of their business forever. And if that pie is shrinking, that is really bad for them, which you again see in the stock price. You already see Facebook and Twitter trying to switch to subscription services. I was going to say, well, and Twitter is the most notable example here. Where is it? Yeah. And I think we all know about it because of Elon Musk. We've talked about it, but it's like they are, you know, there's ads all in the feed that are just garbage ads. There's this subscription service that has not done well.

Right. Twitter blue. Yeah. And it's clear that they still like need more people on the platform for longer. Right. But at the same time... The platform's getting worse.

The platform's getting worse. Yeah, yeah. Instagram... And I wonder if that's not... I mean, we can say that it's... We can debate how much that has to do with Elon Musk's terrible management of the company. I think he's doing great.

Yeah. You take the opposite side of that. That's right. Yeah. Yeah. Here's a take. But I wonder if that will spread to the other social media platforms as well. That's the big question. And I don't want to be, I think we just don't know. I think that like some takes get like a little too hot. And especially from who are like you know i'm very critical of social media i think there's a lot of people who are critical of social media being like this is it this is the death spiral and it's definitely possible like if you look at instagram is a good like leading edge case of this because

unlike twitter they have like a lot of money they're owned by meta at facebook the platform is just like everybody agrees that it's worse because there are so many ads on it because they're so much more desperate to get that incremental dollar out of each eyeball as they're getting like not that same growth because they have that pressure on them. Now, does that actually lead people to exit the platforms in huge numbers so then they lose a ton of money? I don't know. They still make billions of dollars. So I think they're going to be around with us for a long time. But that era of historically low interest rates, I think that's going to be an anomaly and they're going to have to figure out some new status quo. And it's probably as smaller companies. I mean, they're

certainly going to test how annoying they can be with the ads. Like I think Instagram just instituted that when you search on Instagram, the search results are going to now have ads as well. Yeah. So it's like and you're right. Does that like push a bunch of people away or does it just annoy you to a certain degree and that that we don't know. I mean the mark in their favor is that they're the big incumbents and it's going to be much harder to launch competitor now because you're not going to get that startup cash. So the threat of rising the threat that rising interest rates pose to the tech industry obviously comes to a head with the collapse of Silicon Valley Bank, which, you know, basically everyone know now started when a bunch of founders and venture capitalists like freaked out in a group thread and triggered a run on the bank.

Then a bunch of VCs spent the next few days screaming in all caps on Twitter that the government better step in and guarantee that all deposits are safe. These are some of the same people that spent the last several years opposing government regulation in general and specifically more oversight of Silicon Valley Bank. Doesn't inspire much faith in the VC community's ability to help usher in the next great era of innovation, does it? It's been a real emperor has no clothes moment, I think, following a few really rough years for the image of Silicon Valley in the world, which people in Silicon Valley are aware of. They're aware that the sheen is really off. And I think this is a big cherry on top, just seeing how moronic this whole thing was, that these are supposed to be the masters of the Valley and they like triggered their own bank run for no reason.

The like response to it, I think is really underscored that like people have just fucking had enough with these people. Like it just, it's like we had January six, we had these years of like, nobody trusts the tech companies anymore, which is wild.

Cause if you think like 2009, 2010, they were like around the world you would have like world leaders flying to silicon valley and being like you were the future how can we be like you i was part of the obama administration we were i mean look i still think you know one of the reasons that he got elected was because of facebook and i was you know with him on the trip and we went to facebook and he did like a town hall with zuckerberg yeah yeah and it's it's just it's it's staggering how much that has and how much they are now seen as a problem to be contained both in the sense that like silicon valley bank is it like emblematic of the nature of and they like

problems of the valley but also just the sense that like maybe vcs and all of this disruption they're doing the like hashtag disruption economy is actually bad for the broader economy. And all of this shutting down incumbents to get a new startup, there's this quote that I really like from a guy named Edward Agueso Jr. who was writing about the change in how we see the broader role of VCs in the United States after Silicon Valley collapsed. And he said, but venture capital isn't just wearing blinders. It uses capital as a weapon to crush the competition and corner a market. It works to rewrite laws and regulations as VC-backed firms try to do for the gig economy and the crypto industry. And I think that sense is reaching Washington too, that there's

just like, these people are bad and they're not helping anybody. And they're just like, there's not a constituency for them anymore. I think that the antipathy is particularly intense because take the financial world, right? Take Wall Street. They were never pretending that they are improving society. Right. There's like, we're a bunch of bankers who like making money.

Right. That's our deal. Yeah. These guys, the VCs and a lot of these Uber, Facebook. Right. Their promise was, you know, the world's problems can too. And like, again, when I was when I worked with some of them, some of it's like good faith, but just sort of ignorant. Right. Where it's just like you people in government, you're like a nuisance in politics. And we don't need we don't need the mess of politics to solve issues. We can just invent our way out of this problem, you know, and they really think that's going to happen. And by the way, we can make a lot of money doing it. Right. And so we can make money and we can do good and we can fix the world.

And it's like, yeah, I get it. I get that you can still make some money and do good things. Right. Like I'm on board with that. But to be so hostile towards the idea of government or see it as a nuisance. And then when something like the Silicon Valley bank collapse happens, sort of demand immediately that government steps in is just the height of, it just takes balls. I agree. And I think that's something that like, even with all of the very acute and in some ways like paranoid sense in Silicon Valley

that like they're out to get us, I don't think that they appreciate how far the conversation in Washington has advanced towards like pretty serious regulation uh i was very pessimistic the last time i was on here about whether the government would ever like actually step in or like not that it was unwilling to but whether it would be able to like actually regulate these technologies and it just got my sense talking to people there before I left to move out here to rainy Southern California, is that people are really coming around like on Capitol Hill in a very aggressive way to saying,

we maybe need to force a change in the underlying business of social media companies. That the idea of having these completely unmonitored, unconstrained algorithms that will maximize people's time online is really bad for our democracy and is a grave enough threat that we need to act on it pretty quickly through some form of regulation. Now, will that actually happen? I don't know about that. But I think that the willingness to actually take steps to force a change in the business model of the Valley, I think is a lot closer than people realize. Well, and the reason we should say that Washington is focused on it and that there's sort of support

on both sides of the aisle is because the public is there as well, right? Like I think a lot of folks in Silicon Valley would say, oh, these politicians are idiots who don't even understand social media in the first place. And that is definitely true for a lot of them but if you look at like polls about public trust and i mean faith in all institutions is down but i think big tech is there right support for regulation of big tech is has been on the rise and is certainly a majority of the public now supports regulation in both parties right it's this bipartisan thing We can talk about how they're not necessarily angry at the same thing. But I think that it's not just a bunch of politicians in Washington who are pissed at Silicon Valley. I think there is now a sort of widespread opposition throughout the public on a host of different

issues, whether it's privacy, whether it's monopolistic practices, you know, whether it's how, you know, an Uber treats gig workers, right? Like there's a whole host of issues where people have now looked at big tech and thought, maybe they're doing more harm than good right now. It actually kind of reminds me of the arc that the like Republican Party establishment has been on where there was this, like, we have to embrace Trump because we don't have any other choice. Like that was really the view in Silicon Valley during the Trump era. And I see how they got there, even though I don't love that they did. And it's just blowing up in their face because that's not a constituency, either in terms of the Trump people or the like base that they were trying to keep on the platforms

that is, um, that is going to work out for you if you try to build your business model around them. What, if any, lessons do you think tech leaders are taking from all this now that they see politicians in both parties coming after them, a public that has lost faith in the industry, Silicon Valley bank collapse and the response to that, which was not kind towards them. I get the sense that there was a real moment, especially after the summer of 2020 and after January 6th in Silicon Valley, not necessarily in the C-suite, but in the rank and file of the employees, which is a really important constituency because those people have a lot of power over these companies that social media has gone too far and like the critics are right and we need to rein it in and it really feels to me like that

view has kind of snapped back and that there has been a kind of like actually the tech lash went too far and people are criticizing us in ways that aren't fair. And you now hear this like derisive, like, can you believe they really think that social media caused January 6th is like kind of a common view. Like misinformation is misinformation. Misinformation is fake news. Yeah. Yeah. Or just, you know, just that like, sure, the platforms could have done better, but like people are way overstating the harm that it caused, or they're like, our critics are just like out to get us because they don't like us, or the media is just trying to invent a narrative. And so I get the sense that there is a lot more like, hunkering down and a like, we can and should ignore this because it's noise, it's bad faith, and nothing is going to happen. Well, let's talk about what might happen. Do you think the fact that political pressure on tech is now bipartisan will lead to new regulation or reforms? Or do you think the demands of both sides are too different or conflicting?

What do you think? I feel like you know this better than I do. I mean, I think there's some overlap on privacy. Yeah, that's true. That's possible for right for reform. I think there's some overlap on monopolistic regulation. There's some cases that are moving forward on that too. Yeah, there's a bill now that's got bipartisan support

that would like, you know, prevent an Amazon from advertising Amazon products on its platform, right? And sort of step on some of the other small businesses that are there. But that's even that, which is like pretty mild, has been sort of stuck for a while, even though it's got bipartisan support. So I do think that there's like some overlap, but then I think the problem is Republicans don't want bank regulations. They don't want content moderation. I mean,

both parties are on the opposite sides of the content moderation debate, right? Democrats probably want more content moderation. Republicans are screaming about free speech. So it's hard to square that circle. I don't think Republicans want to do anything to sort of help gig workers. I don't think they want rich people to pay more taxes, right? They don't want more regulation. So I do think it's going to be, you get a lot of, you know, yelling from both sides of the aisle about this. But when it comes down to actually crafting regulations and you get to specifics, I think it's harder. I mean, to the extent that the Biden administration can act on its own, there's possibility there. But in terms of actual legislation getting passed, I don't know.

One thing that I think will be interesting is the like, there are some big antitrust investigations ongoing right now. And I don't think people think that like, they're going to come out and say, we're breaking Facebook into a million pieces. But you know, the fines have already been pretty big. I don't think it's unreasonable to expect that they get larger. And the consensus in the past is that like, you find Facebook $300 billion, but it doesn't matter because they make that back the next day. And like, well, we don't live in that world anymore. Right. I do think it's interesting on the monopoly stuff that I guess just last week, someone had reported that Ron DeSantis talked in a meeting about breaking up Google,

that Google needs to break up Google. And of course, you know, Democrats like Elizabeth Warren have been talking about breaking up some of these big tech companies for a while. So you could get some bipartisan agreement around breaking up some of the big monopolies. It's something they've been talking about for a while. And I know that the like, Francis Haugen view, which I'm pretty sympathetic to, is that if you break them up, you actually heighten the incentives that make them bad because now they're more desperate for cash. Whereas if, like, YouTube is part of the Google empire, they can, like, be a little bit softer on how much money they have to make. But even if it's just a, like, regulatory gun that gets held against them to be like, can you guys please try to cool it on the next election? I mean, in some ways, maybe that's fine. Maybe if it's just like get them to be a little fake responsibility for three

months every two years. And that's something. I mean, my, my issue here is that the problem that you and I have with these social media companies, which is sort of maximizing engagement and destroying democracy that way by just keeping us on these platforms that break our brains, breaking up the companies isn't going to fix that yeah you know you break off instagram for meta instagram still going to be instagram right that's still addictive um you know and so like i don't know that sure we want more competition but i don't necessarily know that more competition it could it could fix some price issues right and and you could get some new startups and new platforms. And that's great. But I don't know that the incentive structure with competition is towards the kind of platforms that would not do the damage to democracy that they're currently doing.

Right. Because how do you change those underlying incentives without changing like capitalism, basically? I have been a little bit persuaded, and I don't know how to like bring this about, but as a model of regulation to treat them basically like cigarette companies. And just to say, we are just going to take as an assumption as a matter of course, that this product is harmful and it's always going to be designed to be harmful. And these companies are going to want to harm as many people as they possibly can with this product. So what we're going to do is not try to be like, Philip Morris, why don't you make a nice cigarette that's good for us? But be like, what are the things we can going to do is not try to be like Philip Morris. Why don't you make a nice cigarette that's good for us?

But be like, what are the things we can do to interrupt Philip Morris's ability to deliver cigarettes to people, interrupt people's ability to acquire cigarettes, restrict their advertising, restrict their reach to kids, especially, which I feel like there's a barbiturism one for sure. A big test case here that's happening this week, you know, is the bipartisan push to ban the Chinese owned TikTok for fear that the Chinese government could use the algorithm to spread propaganda or just spy on people. So their CEO just told Congress this week, the company now has more than 150 million active users in the United States. You have some elected officials, progressives, Jamal Bowman, some others who are now defending TikTok and saying, basically, there's a whole bunch of young people in this country who want to be on TikTok. It's a free speech. Some of them are content creators making money. And what are we going to do? We're going to just shut this down for all these young people. You got a lot of young people who are mad about it. How do you think an outright ban or even a

sale of TikTok to an American company might affect the broader tech industry? It's definitely good for Silicon Valley because TikTok is just eating their lunch. Just absolute, like all of the users that you really, really want for your social media company, they're going to TikTok. The young people, the people who are really heavy users. And so any forced investment, which feels to me like a likelier outcome than a ban because a ban is so extreme. But a forced investment is still a big change for the company because they really rely on bite dance for a lot of things. It's really good for the incumbents.

And like on some level, like this is still a legislature that represents the economic interests of the United States. And like, even if they don't like Facebook, like, wouldn't you rather an American company is making that money than a Chinese company? There's part of me that looks at their rationale for this and is like, come on, guys, really? You're alarmed about TikTok because there were some cases of spying on users

and because you're worried that it's addicting young people and because it's unhealthy. And it's like, well, I know some other apps that are like that. I can think of a few other companies that that fits. Oh, yeah, no. I mean, I think the best case for it is, well, we have control.

We can do this because it's a foreign-owned yeah i agree yeah of course they're always there's also the precedent you said that if you ban tiktok here then what are other countries going to do to other american tech companies that's a good point right like so you sort of that there's that that you have to worry about as well but i I think it's also a fascinating case in that, because you brought up the smoking example, right? Like people, cigarettes aren't good for you, people still smoke. And you're already hearing a lot of young people and a lot of people just in general who are like, well, I love TikTok. All I do is I watch videos on TikTok. It's fine, it's harmless. And it is hard to convince people that these social media platforms are bad for them. It's a more extreme version of the problem that we had with YouTube for a while, where it was very hard to demonstrate and show and convince people that YouTube was harmful.

Because like a Twitter, you log on and you can see the whole platform. You can see all of it. It's very easy to understand the experience. It's very easy to study. It's easy to know how shitty it is. It's a very- You get on Twitter, you know it's shitty, right? And I get it. Like, I've been on TikTok. You watch some videos and you're like, that seems harmless. Now, an hour of your life just passed.

Right, right, yeah. Right? And you didn't do anything, but I get why it seems safer. Right. It's very siloed. So the people who are having the bad experience, it's not going to be as visible to you or me. And to be candid, like, we do not have as much research yet on TikTok as we do in the other platforms. So I actually don't feel like I have a great sense for how harmful it is relative to the other platforms. Now, it's built on the same fundamental principles, which over and over again have led to the exact same direction. So it sure stands to reason. And when you talk to like election disinformation researchers, they are like very concerned about TikTok. But it is true that I don't have in the same way I feel like I did with Facebook, Twitter, YouTube.

Like here's some like hard evidence that shows like who it's harming, how it's harming them. Other than the fact that, like you said, it is extremely addictive, which is a problem in and of itself especially for young people who you know it's time that they need to be forming social bonds i do think that the algorithm with tiktok is particularly powerful in terms of being able because you don't choose right what you get there right it's just feeding you stuff right and even on twitter there's not like a bunch of like if you get fed some misinformation or propaganda there there's not people jumping in to say, oh, this is wrong or whatever. Like, it's just you and your and whatever the algorithm thinks is good for you. Right. And I think so. I think it is a tool for spreading propaganda or misinformation.

If that's what the owners of the algorithm want. Right. In this case, the Chinese government. I think it could be more powerful than some of these other platforms. Yeah, that's a good point. I agree. All right, so we've been talking all episode about whether we've hit peak Silicon Valley. I do think over the last few weeks, we've hit peak AI freakout.

Oh, my God. Everybody needs to take a breath. Especially with the arrival of ChatGPT4 from OpenAI. I believe Google's chat AI model. I think it's called BARD. RIP. Yeah, that's how it's due. And Chat GPT-4 is a language model that can apparently ace the bar exam and AP biology.

The journalists who report on AI seem freaked out. The researchers who work on AI seem freaked out the researchers who work on ai seem freaked out uh google ceo a couple years ago has said that ai is the most important thing humanity has ever worked on and is more profound than electricity or fire real quote and he is not prone to hyperbole and his quote actually got even weirder after that he it just as a like offhand example, said that, oh, it might cure cancer. But also we have to worry about the downside, which is forgetting what defines us as human beings. So it's like people, and this is like really representative. This is what it's just like the human era is over.

It's over. Like we had a really nice run, but now the like, the robots are in charge and the like, and something you keep seeing is these like interviews with the people who work on it, who develop it, who were like,

there's a one in 10 chance that this will destroy humanity, but it also might elevate us into a plane of pure being, a pure enlightenment. So like I have to work on it anyway. And I cannot stress enough that you should not take these quotes at face value. This is just like, this has always been how people in Silicon Valley talk about everything they do, that it's going to end humanity or save the world because it's just that powerful. bit and on his podcast and he brought up the point about the 10 chance and he was like would you work

on a project where there was a one in 10 chance that it could wipe out humanity probably not and yet these people are like all right i mean 10 but i'm going to keep going because of because of that higher plane of enlightenment i guess but that doesn't mean that they're right right that's like and if like if we started this podcast and it was like you know john we have a great podcast today and i think it's so powerful there's a one in ten chance it might destroy humanity you wouldn't as listen to that you wouldn't be like wow these podcast hosts so brave really really brave they're just charging ahead anyway right they're just doing the hard work for us because they believe in the future they want to enlighten us right you

would say they have such good takes are off their fucking heads and that's if you talk to people in silicon valley forever this is how they've talked about new developments which is it's fine but it doesn't mean that we have to say that they're correct my question on this is like to the extent that these people could be right which i'm i'm leaving open the possibility right like we're at the very early stages of the ai revolution here we're only beginning to see both the use cases and how it can be abused, right? You were there at the beginning of the social media era when we were all like, oh yeah, I was going to connect everyone and bring it to their community. And now it's sort of like, you know, destroying democracies all over the world. But how do we trust this iteration of

Silicon Valley with what is perhaps the most important thing humanity has ever worked on um when they couldn't even figure out how to manage social media apps or their own bank without causing massive damage they're gonna they're gonna be a mass run on chat gpt i just it does seem like we're at this moment where okay there's this new thing ai could be really great could be really scary one in ten chance it ends humanity. And these guys who just fucked up the bank, we're going to say, okay, it's all in your hands now. So I am, let me give you my perspective of someone who does not know how to program anything at all. I am like 90% less optimistic and also 90% less pessimistic as I feel like everybody else who's talking about this.

And I will tell you why, because one of the things I researched in the book was the last big AI freak out that we had like 10 years ago over what we then called artificial intelligence, which was machine learning, or then there was a later iteration called deep learning. And that was what now the thing that we're calling, there's no like actual like artificial intelligence has arrived the thing that exists now is just something called large language models right the last round of programs that everybody thought were going to like change the way that like the species like existed in the world where it was these systems they developed that much like the programs now they didn't actually know how they worked because they were self-governing so when you people raise that now as a reason to be scared that's not actually new that's been around for a

while it's machine learning programs they were training them much in the same way the new programs they're they're like training them on these like games that they play with text basically that like look really showy the last round they trained on playing chess against human players and then later playing this thing called go which is a like much more complicated game so it was seen as this like big brass ring and artificial intelligence and there was this moment like 10 years ago when all of a sudden these ais went from like couldn't really play chess very well couldn't play go very well we're not very smart to all of a sudden they could beat any player on Earth, and they were defeating grandmasters.

And this happened in the blink of an eye. And there was, understandably, this freakout, especially among the people who worked on it, that's like, this is it, guys. These machines can now wipe out humanity. They're smarter than us. They think faster than us. You have no idea what's coming. These machines are growing in power so exponentially that the revolution could come in six months. It could come in three weeks because we don't know how smart it's going to get next. And it turns out what that gave us,

the end point of this incredible deep learning super intelligence was Spotify autoplay, Google Translate, which is cool, and YouTube rabbit holes. And those are legitimately very impressive technologies, and they have had a profound effect on the world, but it's very different than the predictions that we got last time around that said because this did a very impressive parlor trick, it's going to conquer humanity, and we have to rethink who we are as a species and like look at what the large language models are doing they're doing buff presidents

and it's cool i mean what they are right now i think is a um a better google right they're good for search sure right because now we're at the point with google where you search for something and then you're like going through pages and pages of results trying to figure out the right thing. And there's a lot of sponsored content there. And with ChatGPT4, you can ask like, oh, I'm looking for this and it's a little bit better. But I think the point is it's very difficult to predict either the upside or the downside of a lot of these innovations. But don't know having gone through the social media era i don't know that we're in a good position that's true right to actually build this the right way so that it's mostly upside and less downside right and you know you look at places

like open ai which is originally a non-profit and then after a while they were like actually there's a lot of money to be made here and so now we're going to take a huge investment now we're going to have a private company and all and so that part worries me because the the profit motive as it's done to social media if you connect that with ai you know that's uh and and to the our larger point about like what's happening with the tech industry venture capital investors have already funneled 3.6 billion into 269 AI deals in the United States from January through mid-March, according to PitchBook, which found that nearly half of the $40.5 billion in AI startup funding in the country last year was concentrated in Bay Area companies. There was this Washington Post profile the other

day about what they're calling Cerebral Valley, which is just like all these young people flocking to hacker houses again in Silicon Valley because of AI. So it could end up saving the tech industry. That is true. That is the, all of the- And destroying humanity, of course. It's good for tech, bad for humanity. Well, the, like, to your point about we did a,

like we, as like with the world, we, the world did a bad job with this last time around because we had this deep learning technology and what we got was youtube and facebook and it was really bad for us that is also something that like cuts against my pessimism because all of this money all of this energy all this research it's going to be harnessed by and for for-profit companies that are going to look for dividends for their investors in the next quarter so like the i think sometimes when people talk about this they talk about it it's just like anything is possible we have no idea where this could go but like we do know where it's going to go it's going to go towards how can we get some cash so that our share price will go

up how can we like have a youtube that will be more engaging? How can we like get more subscribers to Spotify and make some money? And that like both limits the potential harm, but also means that it's going to be probably a kind of harm that we have seen before from Silicon Valley. Yeah. And then I'll end on a note of optimism, even though I just had a lot of pessimism, is that I do think the difference is at the beginning of the social media era, we were all like, oh, they're right. It's going to connect all of us and bring us together. One community, the internet,

is going to connect the world, stuff like that. And now we're all a little more skeptical. Yeah, now we know. Of the promises. Now, I mean, because the AI revolution is beginning with a massive freakout. Right, yeah. So maybe that's a good thing

in that it will get us to a point where we're not going to believe as easily the promises that the people who are working on this stuff tell us. That's a great point. We know that this new line of cigarettes is harmful and addictive and we don't think that it's really good for us. So we should smoke as many of them as we possibly can. Right. But we might anyway. I might anyway. Max Fisher, good to have you here at Crooked and offline. I can't wait to talk more about this stuff in the future. Yeah, man, it's going to be great.

Offline is a Crooked Media production. It's written and hosted by me, Jon Favreau. It's produced by Austin Fisher. Emma Illick-Frank is our associate producer. Andrew Chadwick is our sound editor. Kyle Seglin, Charlotte Landis, and Vassilis Fotopoulos sound engineered the show. Jordan Katz and Kenny Siegel take care of our music. Thanks to Michael Martinez, Ari Schwartz, Amelia Montooth, and Sandy Gerard for production support.

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