The Breakdown - From Proof of Health to UBI: How Everything Changes Post COVID-19, Feat. Joe McCann

Episode Date: April 21, 2020

Joe McCann currently works in cloud and AI at Microsoft and has spent decades in tech, crypto, and open source communities. He recently wrote a piece called “A New, New World Order” all about the second and third order effects of Covid-19.  In this conversation, Joe and NLW discuss: Localism and the beginning of the end of globalization The return of domestic manufacturing  The ‘Roaring 20s’ of Inflation The inevitability of Universal Basic Income in response to inflation QE infinity and the US’s nationalization by proxy National healthcare as national security and why microbes are this decade’s terrorists  Proof of health, and why it’s likely to be implemented on a blockchain

Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The breakdown is distributed by CoinDesk. Welcome back to the breakdown. It is Tuesday, April 21st, and today we are continuing our exploration of what comes next. We've been in this crazy, liminal, in-between moment where it feels, like the superstructure of the economy and society around us is shifting in ways that are both

new, but also accelerated by virtue of the coronavirus and the shutdowns and the economic fallout from all of that. And I think we're now at a point where a lot of us are trying to make sense of what happens next. How do we understand the second, third, fourth order effects in a way that allows us to actively walk towards them or understand our place within them, rather than just kind of letting them happen to us. I think there's a real hunger to interact and act upon the future rather than just letting it act upon us as we have been acted upon by this COVID-19 crisis. So today my guest is Joe McCann. Joe is a really interesting, very diverse thinker. He's currently at Microsoft. He's spent years in the open source community, in technology communities,

in the crypto communities. He's been a regular markets trader and a crypto trader. He's run crypto startups and fundraised in the venture capital market. So really interesting and diverse perspective. But he recently published an essay called the New New World Order. And today we effectively go through a bunch of his arguments. This is an essay that was a way for him to explore the second and third order effects. It starts with localism and the beginning of the end of globalization, leading into the roaring 20s of inflation as manufacturing comes back home and UBI becomes the backstop from the sticker shock of prices of goods inevitably rising in the U.S. We talk about how QE Infinity has expanded the wealth inequality gap and why it's created

nationalization by proxy. We talk finally about this idea of national health care as national security and why microbes are this decade's terrorists. We even get into proof of health and why a blockchain might be the right way to deal with proof of health, an inevitability he believes, given that we already have a world structured on proof of identity. It's just the next logical step. It's a fascinating conversation. It's a fascinating essay, and I really encourage you to read the whole piece. But for now, without any further ado, let's dive into this conversation about the new, new world order. As always, long interviews are edited very, very lightly. So knowing that, let's dive in.

All right, we are here with Joe McCann. Joe, how's it going? Doing pretty good. How are you? I am well. Thank you so much for hanging out today. So as we were just talking about before, you wrote this awesome essay, republished this awesome essay over the weekend called the New World Order. And, you know, we've been talking a lot about on the breakdown, this theme of second order effects and trying to wrap our heads around what the world post-COVID-19 looks like. And so that's where I want to kind of spend a bunch of our effort today. But before that, I wanted to just wonder if you would give everyone a sense of who you are, how you relate to the Bitcoin and Crypto World, what you spend your time on,

just so they have context before we dive in. Yeah, sure. So I am professionally, I've been a technologist and a trader for about 20 years. currently at Microsoft in the cloud and AI division. But prior to that, most recently, actually, I was running quant trading at Passport Capital as a hedge fund in San Francisco exclusively for cryptocurrencies. Prior to that, I was a CEO and founder of an open source enterprise software company called Node Source, which is the Node.js company.

So my background is colorful. It's kind of all over the place. But as it relates to, crypto and my interest in it, as a trader on Wall Street back in, it was a while ago, 15 years or so ago, when I realized that trading was kind of moving all to machines and algorithmic trading for stocks and bond options, et cetera, it kind of took a lot of the, I'll say, the fun or competitive nature out of trading and just moved it towards software. And as crypto kind of bubbled up over the past 11 plus years, I saw kind of like a resurgence in trading,

but also a huge sort of new paradigm shift around the innovation of trading, especially an asset that's 24-7, 365, has really no rules around it, and the data and information being all open, which is very different than Wall Street. So that's what kind of got me back into crypto more heavily. I've read the Bitcoin white paper early on and kind of got it straight away from a technological standpoint and understood the power of how disruptive blockchain could and should be. But I'm also a trader at heart. And back in 2010, 2011, there just wasn't, there was no real market opportunity from a trader standpoint. That has obviously completely changed today. And it's one of the reasons why I still keep a pulse on a lot of the trading activity

around crypto. You know, it's interesting. So we're recording this on Monday. Oil has hit $0 a barrel. And I was just joking on Twitter that it's the year of things that we never could have imagined being possible, being possible. And I feel like that it's one of those things that we couldn't have imagined possible is that every market in the world would all of a sudden look like crypto markets in terms of volatility and unpredictability. Yeah, it's interesting you say that because as a trader on the street many years ago, I traded on a desk where we were called volatility chasers. We would basically chase or trade anything that was volatile. So we didn't even know what the company did. We just knew that the stock was up 10% pre-market or was down 20% pre-market or during, you know,

something happened during the day or the Fed would announce their, you know, cutting interest rates or raising interest rates. the markets would go crazy around 2.30 Eastern time and things got really volatile. But that has subsequently been sort of dampened for the past decade plus with the Fed's monetary policy of kind of keeping the volatility relatively subdued. And that has serious consequences. It has what I call or what I think Teleb followers would call a tail risk event where you've kind of you've pushed out this volatility, these little nix and cuts over the past 10 years to some

massively explosive event where assets get repriced really quickly and volatility reenters the market. But as it relates to crypto and how things are all trading like crypto now, that's what's so interesting is that if you've been trading Bitcoin, especially or crypto in general, especially using any leverage, these 20, 30, 40 percent swings are just part of the deal. you just don't think to see that in the oil markets or in the bond market or the stock market, not at the level that we've seen it over the past six weeks. And so frankly, I think it's actually given crypto traders an edge in trading some of these because the intestinal fortitude of managing positions with 20 to 30 percent swings or, you know,

seeing oil quite literally print zero today is something that you could only imagine. in trading crypto. And I think it actually is a bit ironic that the volatility associated with trading Bitcoin right now is nothing in terms of trading some of these other sort of traditional or legacy assets. Perfect segue for getting into this. I think he touched on a bunch of the themes actually from this piece. So the new, new world order. I guess let's start by what was the inspiration for actually writing this. I mean, it feels like a piece where you just like needed to sit down and actually think through how all these second order effects

were going to relate to one another. But what was the context for it, I guess, for you? Yeah, it's a great question. So I actually love writing. And I don't really get to do it enough for various reasons. You know, our attention spans tend to be a little preoccupied these days. But I do really enjoy writing. And I think the thing that I was trying to, I didn't expect it to kind of blow up the way it did. I see patterns and have seen patterns for my entire life for various reasons, whether it's living in a bunch of different locations around the world, experiencing different cultures, working in different professional settings,

whatever these sort of experiences might be, you can start to sort of discern or distill patterns from stuff. And when you see these kind of giant, macro secular paradigm shifting things happening vis-a-vis COVID, the global financial crisis, 9-11, these kind of like cornerstone big moments in human history when they happen. What I look for are the things that I don't think other people are looking for. And that's where these kind of interesting patterns intersect and potentially lead towards you know, pretty dramatic changes, whether it's in terms of human behavior, you know,

interesting new inventions or ideas or the fall of certain ideologies or the rise of other ones. That was really the impetus. It's like I just saw all of these kind of connecting points and had to find a way to weave it into something that made sense. I did not expect it to be 7,000 words and I actually kind of cut myself off because I'm like, nobody's going to read this. this is 28 minutes long on medium. It turns out there are people that will still read a long form piece as long as it's got something compelling to say. Amen.

You're talking to the guy whose newsletter is called Long Read Sunday. So I love it. But what I want to do, I guess, is usually I would just jump around in the conversation. But I think let's start by actually going through in the first sequence, at least, the first couple bits that you put together, starting with localism. That was your first section. And so you started with the beginning of the end of globalization has begun. And really, it's an interesting section that has a lot to do with this idea of financialization.

So talk to me about financialization and how it relates to the beginning of the end of globalization. Yeah, great question. So the term localism, I'm not by any main taking credit for it. I think it was surfacing around the internet recently, is, is, is, is not de-globalization, but it's kind of like an inversion of globalization. And so my claim or assertion here that the beginning of the end of globalization has begun is largely more along the lines of the pendulum is swinging away from globalization. So 40 years ago or over the past 40 years, and I use this 40 years, you know,

duration throughout the piece because I think it's important in terms of how big changes take that are secular in nature. and global for that matter. Over the past 40 years, we've seen, particularly in the United States, which let's be clear, is the largest customer and the biggest market for anybody on the planet, we've seen the U.S. kind of dismantle and remove a lot of these international trade barriers, whether they're things through things like NAFTA or other policies that have been put in place to, you know, more or less look for cheaper means of production of goods and services and create this sort

global market or globalized market, if you will. At the same time in the 1980s, we started to see an uptick in the fascination of financial engineering. There's a woman that wrote a book called Makers and Takers, which I recommend to people all the time. It spells out how the financialization of America has fundamentally changed corporate America and incentives. around it. And I kind of dive into a couple of things in the piece that spell out why the dismantling of international trade barriers coupled with this financial engineering has created what I see as potentially devastating implications for U.S. trade and ultimately supply chain management, manufacturing, creation, and finally, innovation. And what is financial engineering?

So I'll give you an example. There are all kinds of unique ways that a CFO at a Fortune 500 company can calculate their earnings or their revenue or do certain things to tweak, you know, capitalization rates or utilization rates and change the way that the numbers ultimately work out. That's kind of like a tactical way of doing financial engineering. The other ways of doing financial engineering or the incentives around it are anything we can do to grow the stock price. And if you grow the stock price by doing things like laying off, you know, tens of thousands of workers or shuffling money around as opposed to investing in research and development or capital expenses, you can absolutely, in fact, increase the price. of the stock, but you're not actually doing anything long-term to build kind of an innovative or sustainable business. And I use GE and Jack Welch as an example because the Wall Street's

sort of media arm, whether it's, you know, Bloomberg, CNBC, Financial Times, Barron's, and I'm not calling them out as bad actors, but this is the cohort of folks that dominate financial news. They actually have held Jack Welch in such high as steam as this incredible CEO who created so much value for General Electric. And unfortunately, that's just simply not true. What he did is he created value for the shareholders. He caused GE's market cap to swell to $400 billion. But the way he did that was not by investing in R&D or CAPX.

In fact, he reduced it. He also fired 112,000 employees within his first five years. And the majority of the market cap for GE actually came from its financial services armed GE Capital, which I believe peaked in 2000 at making up something along the lines of $96 billion dollars worth of their market cap. So the point that I'm trying to make is that folks like GE are now suffering because instead of folks, on the long term and investing for innovation and new capabilities, they decided to shuffle money around in this unique sort of financial wizardry, if you will, to prop up the share price. And that coupled with this kind of this move away from relying on cheap labor and services

outside of the United States is one of the reasons why I lead into this thought of, well, this is going to have to change. We're going to actually have to treat not only the impacts of things like share buybacks that artificially inflate the price of a stock, but also things like, hey, if we're reliant on our pharmaceuticals to come out of a place like, I don't know, China, that's probably a national security interest that we should actually look deeper into. So there's a bunch of stuff that's really interesting here. One is this theme, which is coming up more and more of a recognition of the stock market and stock prices as a political utility, right, as a political scoreboard more than as a measurement of expected future earnings from dividends

or whatever else it might have once been. And the interesting thing about that is that I don't think that this recognition is necessarily new, but you're starting to see the popular narrative have specific boogeyman that can point to vis-a-vis financialization such as buybacks, right? The fact that buybacks are such a point of conversation as it relates to these bailouts, I think, validates your point that there's a shifting narrative here. Now, interestingly, the way that you kind of end this section has to do with this prediction around domestic manufacturing, which is something that I think a lot of folks are waking up to and having a conversation.

And one of the things that's kind of fascinating to me about that is that it's largely bipartisan, right? This awakening. Now, some people on both sides of the aisle have had this as a. as a major hot point issue for a while. But for a lot of folks who are just kind of like run-of-the-mill, you know, haven't really thought about it before, the idea of domestic manufacturing and having control over at least key supply chains being an important issue is really on the rebound right now, probably with

pretty big implications for how the next couple decades of American industry are designed. Yes. I mean, I completely agree. I think the interesting thing here is that on the one hand, you know, you could say the right or the Republican Party or conservatives, whatever you want to call the right in the United States. They have been all about your sort of free markets, pro-capitalism, you know, whatever it is to basically get rich, right? Make more money. And if you work hard, you deserve to take more and the government deserves it take less and all this good stuff. And on the left, you know, you've got this kind of like this idea that, well, if the people at the top are making so much money, it's difficult for working class Americans to actually also make money.

So we need to have some level of fairness associated with the market that we're creating for employment. And the kind of sticking point for both of these that oddly enough is aligning these two very, very. fractured political ideologies is the idea that we no longer should be relying on, frankly, China or other countries to manufacture goods because they're cheap, because it is now causing this sort of national security risk. I mean, the fact that we don't have, you know, cotton swabs of readily available or, you know, sort of gloves or in New York City, I saw something along the lines the hospital workers were looking for rain ponchos for protective gear. I mean, this is, this is wild to think that this is the case. But when you continue to abstract away

domestic manufacturing for goods like that, and more importantly, the innovation around developing new, like kind of the modern assembly line, we kind of put ourselves in this very weak position. And it is a bipartisan issue at this point to say that, hey, maybe we should decouple our dependency on China and do stuff more at home. I think there's a guy named Matthew Stoller, who's a staunch liberal Democrat who shares this view. And as I mentioned in the piece, Larry Cudlow, who was, you know, famously known for being a CNBC, you know, financial news pundit, is now one of Donald Trump's financial advisors has also floated this idea of actually paying the moving cost for companies to leave China income home. So to your point, this is not an issue that folks in the United States

political spectrum are wildly divided on it. If anything, it's a galvanizing kind of issue that I think will bring a lot more people together. Well, and interestingly, so two things. First, Japan in its stimulus package actually included incentives for companies to bring industry back home from China in the most recent kind of COVID-19 stimulus. So that's an example, a template for that happening elsewhere around the world. But also, I don't know if you saw it yet, but Biden's first big, full-throated attack on Trump since really consolidating this thing came out maybe yesterday or the day before. I saw it because Joe Scarborough had gone viral with a tweet saying it was the most devastating

political ad he'd seen in, I don't know, a decade or something like that. And it's literally two minutes of Biden accusing Trump of being soft on China. So not only is this a thing where like the there's not clear political lines the way you might have thought, but it's actually a race to see who can be the most, the most kind of focused on this megatrette. But of course, there are implications, right? This whole document effectively is an exploration of second order effects, which have third order effects. So the next part of this piece is effectively a third order effect of what it means to bring, manufacturing home, and you call it the roaring 20s of inflation. That's correct. Yeah. So the the roaring 20s reference is hopefully, if folks have studied

U.S. history at all, a reference to the 20s in the 1900s when we had this kind of boom, economic boom, and it was post-World War I, and it was great time in America. I actually think that we will see as a result of domestic manufacturing a move back toward inflation. So again, over the past 40 years, the United States has seen a constant and steady decline for the most part of inflation. And the Fed even for the past 20 plus years has had a quote, Fed inflation target that they tried to map to. It's typically around 2%. But we've seen even over the past decade, they've barely been able to produce inflation mainly because of the the monetary policies that they put in place around quantitative easing, et cetera.

We can get to that later. So the challenge with bringing domestic manufacturing home is twofold. One, assuming we can train our workers quickly enough to adopt modern assembly line or assembly processes and train them how to use the robots and the machinery to actually manufacture goods at home. Well, we don't have the same environmental or labor laws that places like Southeast Asia, and particularly China actually has. So a worker in say, and I use this in the piece, in Shenzhen, is significantly cheaper than a worker in Columbus, Ohio. And so this cost ultimately would have to get passed onto the consumer, right? So imagine you try to build an iPhone in the

United States. An iPhone today retails for whatever $1,1100. It would be significantly higher than that because we don't have, number one, the supply chain efficiency associated with manufacturing an iPhone like they do in China. And two, most importantly, labor costs would be an order of magnitude higher. And I think that's the key thing that will change in this kind of new paradigm shift, if you will, as it relates to inflation, the belief that if we see, number one, national security issue around securing our supply chain and manufacturing at home, then two, we have to see inflation come back, which is something that the Fed has not been able to more or less create or manage over the past 10 to 20 years.

So you have an interesting theory for how we deal with, how we deal with this or an inevitable, call it fourth order outcome now at this point of a return of inflation, which is UBI. That's correct. So the the kind of fourth level of effect here of actually kind of moving domestic manufacturing home and then subsequently having inflation is, well, hey man, I don't want to pay $7,000 for an iPhone. or, you know, or $20 for, I don't know, like a box of Kleenex or whatever that the product actually is, right? Because inflation raises the prices of goods. That's what inflation more or less is in a general sense. So if we have our economy, which is right now still the two-thirds of the economy of our GDP actually is based on consumer spending, but the prices of goods become much more expensive.

and you also have a rough economy from a job standpoint, 20% of folks, there's a 20% unemployment rate, I think that will be published later this week. Those are the current estimates. Well, how do you prop that up? How do you get people to continue to buy stuff and consume stuff? And the only logical conclusion is universal basic income. And we've actually seen this already with these, quote,

stimulus checks, right? the $1,200 for the majority of Americans, how those have been doled out. And if they've even landed in people's accounts is still a mystery to me. But we basically had, you know, Republican talking points. And again, this is not, in my opinion, just specific to Republicans. There are also some Democrats that fit this bill. But primarily Republican talking points of, you know, anything associated with socialism is bad. We cannot have socialized anything.

And then overnight, that just completely changed. And we went from socialism as bad to depositing money in people's literal checking accounts. I mean, this is a profound shift. And the reason that I think this is super important to recognize is that when you kick something off like this, there is no stopping it. It doesn't, there's no, from here on out, we have to have this. and they may not call it universal basic income for political reasons, but that's more or less what this is, right? These stimulus checks are some form of income to enable folks to buy the goods and services, in theory, anyway, that are critical to living their life, which also continues to support a consumer-based economy.

If you put this in motion, there's no stopping it. And in fact, we saw this already happen with the Fed's monetary policy around quantitative easing. So quantitative easing is actually socialism for the rich. We saw this in 2008, the huge bank bailouts and the cheap money policy that was then put in place by Ben Bernanke is an example of socialism. It's just for the extremely wealthy. And so you didn't see sort of the rest of America sort of benefit from quantitative easing. And yet, once quantitative easing kicked off, there's no stopping it. We've actually had to sort of inject it with steroids, if you will, which is what J. Powell has done over the past few weeks with kind of propping up the markets, if you will.

So the logical conclusion for UBI is once you kick it off, there is no stopping it. So QE, which started in 2008, leads to QE infinity. universal basic income in 2020 leads to universal base income in infinity from here on out. So I think that the really interesting point that you make, which is a really key detail for tying QE and UBI together, is you have a line that says it would be political suicide for a politician to stop paying people to feed their families with their stimulus checks. And this, I think, is pointed because you could replace to stop paying the section that reads people to feed their families with for a politician to stop or to allow companies to go out of business, you know, before, right? And I think that that's what we have seen, you know, this, the shift in the Overton

window on what was simply expected from the government backstopping loss. This is what Chimoth has been screaming about on CNN. And, you know, there's more people, I think, now at least, you know, have been joking that FinTwit has been looking a lot more like Bitcoin Twitter lately, right, vis-a-vis the Fed. But I still think that this is a really important point that we're not just dealing with principles and morality. We're talking about systems of incentives and particularly the systems of incentives

around political leaders who can basically, like, already the idea of summoning the political will and wherewithal and having built the political coalition that can withstand doing something like letting a company go out of business, even an unpopular corporation is hard to imagine for most current politicians. So the idea of doing that on the level of kind of individual citizens, once that becomes a thing that is normalized, is just hard to imagine, right? I completely agree. And I mean, I think one of the sort of the more maybe less savory analogies is to use of like a drug dealer. You know, the second that you kind of offer something like this to someone, it's going to be

very difficult to take it away from them going forward. And I just can't imagine that, you know, with a very uncertain job market, at least in a short to intermediate term, a very uncertain kind of global political and economic outlook I just can't imagine that politicians are going to take the stimulus checks away. I mean, what incentive do you get as a politician if you play this kind of game theory out? What do you get from doing that? You've basically said, hey, we will do whatever it takes to bail out these corporations and these CEOs that are getting massive compensation package, by the way, that are completely tied,

largely to the stock price, we're going to keep bailing those folks out. But, you know, the folks that are serving folks at diners and, yeah, they don't deserve any more money. It just seems completely assidine to think that a politician would actually take, number one, take that view and number two, execute on it. Well, this is the problem. We've created a situation just vis-a-vis corporate bailouts that it almost implicates this, right? Because people, I think rightly are looking at the disparity in these two responses, right? You have a PPP program which ran out of money almost immediately, which was distributing up tens and 20s of millions of dollars to major franchises. It was clearly distributed on the basis of who had the best banking relationships,

right? And they're rightly frustrated. And so, of course, there's going to be this demand. It's going to be an extremely popular position to kind of try to equalize it. But they're not going to try to equalize it by doing less for the corporate sector. They're going to try to equalize it by doing more for everyone else. And I think that, you know, so one of the things, though, I did want to get you to talk just a little bit more because this is a point that I think is really important, especially for folks who are kind of new to the Bitcoin space and just coming into it. This idea of cantalone effects, the idea that this monetary stimulus has had the impact of artificially pushing people away from savings and into markets and has actually exacerbated

inequality because this is a layer of the inequality conversation, the wealth inequality conversation in America that we don't usually get to. And because we don't usually get to it, I think it leads to the ideologue kind of fracturing, right? Where my friends, and I'm sure your friends who don't spend time with this, when they see, you know, people who have a billion dollars over here and them, they get frustrated. And so it becomes kind of reductive and reduced to these simple things. Like, there should be no billionaires. We're really, we're talking about the, the, the, the, inherent implications of monetary policy. So you got into this a little bit. You said the problem with artificially stimulating the economy by expanding the money supply is that savers can't save for

retirement safely or with little to no risk. They must invest in risk your assets to get a return. So this is, I think, you know, the legacy of the last 10 years. I'd love you to just touch on that for a minute. Sure, yeah. So it's a pretty straightforward concept that I think is intentionally hidden from most people. You know, no one asks a question, why does my sales? savings account only give me 0.3% annual yield, right? I mean, why aren't we asking ourselves this question more frequently? I'm parking money in this bank. They're going to, in theory, use it to lend to other people or other businesses or something, so I should get some sort of return on that. And because the Fed has created a monetary environment that, you know,

for many years, and we're already back there now, was lending money at zero percent, that dramatically increases not only the supply of money available, but it de-incentivizes, or disincentivizes, I should say, savers because you can't make any money saving money. And so what's the purpose of money? Well, the purpose is then to spend it. And so you either spend it vis-a-vis a consumer or a business that's buying something that is then generating GDP for the economy. that's the kind of like furthest logical extension. Or you say, okay, well, I can't just continue to constantly buy stuff. I have to get a return for my money somewhere.

You invest in riskier assets because you have to generate some form of a return for, say, your retirement or, you know, the better sort of longer term standing of your finances. And where does that money flow? that money doesn't flow into safe investments. Treasury bonds are at record lows in terms of what you can get on them. I already mentioned the savings account. This then has money flow into what we call risk assets. So this stock market, venture capital. I mean, venture capitalists have raised records amount of capital every year, year over year for the past 10 years. Is that a coincidence with the amount of cheap liquidity? flooding the global market today? Probably not, right? Or excuse me, or probably is probably not a coincidence, right? It's directly associated with it. So the idea that folks are investing in real estate, in venture capital, in startups, in stocks, in these other riskier assets, then creates a mispriced asset, right? So stocks have been dramatically mispriced because people have no other

option but to put money into the stock market. houses have been mispriced because we've had nowhere else to park our wealth. Our belief is, I'm going to buy a home and in 10 years, five years, 20 years, whatever, it's going to be worth more money. It's operating as some sort of investment vehicle as opposed to a form of residence. All of this has risk baked into it in a way that most people don't see. And so what we saw over the past six weeks and we haven't seen it yet with the housing market is a dramatic repricing of the stock market,

which is and has been radically mispriced for the past 10 plus years. So that, I think, is the implication. But what we're seeing right now, right, is the Fed doing basically everything it can to prevent that from happening. And it seems like it's kind of working. I mean, what's your read on the markets right now

with regard to that specific repricing question? Yeah. So this is what's, you know, super messed up about the way that the markets are now functioning. In traditional, you know, capitalist views, if you will, the idea that a company, you know, gets hit on hard times or has a, hits a huge bump in the road or may have to go bankrupt or may have to restructure or something, this is part of how markets work. It's how it's supposed to work, free markets. its work. And the way that you can get a view into, say, the health or the long or short-term

benefits of, say, owning a stock in a company is the stock price, right? And if the stock price is all of a sudden nose diving, well, it's not necessarily looking that great for the shareholders, but it's also not looking that great for folks that are higher up the capital structure. So these are folks that actually own either preferred shares, not common stock, or they own, you know, corporate debt. For example, the majority of, you know, Fortune 500s have been more or less offering up bonds, corporate bonds, for the past, you know, many decades, but certainly heavily over the past few years, because interest rates have been so low that they'd be silly not to do these corporate issuances of bonds. But when bonds start to actually go down,

then there's real panic and risk in the market. And so what the Fed is doing, the Fed by law, is not allowed to buy stocks. It's not in their charter legally. However, what they can do is they can buy certain debt instruments. And they expanded the sort of spectrum of assets that they could buy, most recently, down to junk status bonds. And if you notice what has happened over the past few weeks with a lot of these sort of airline stocks and transport stocks like Ford, for example, et cetera, their stocks were taking a hit.

Their corporate bonds were also started to take a hit, which was implying, you know, a really bad future setup for these companies. But the second that the Fed can actually buy these bonds, they act kind of like a floor to supporting the price. And so if a corporate bondholder is no longer worried that the company is not going to go under because the Fed is there to kind of buy their bonds and support the price of bonds, well, then they can kind of relax a little bit. And that also then has a downstream effect on common shareholders. If the bondholders are less worried that the company is going to go under,

then I should be less worried as a common shareholder and the common stock price then rips higher. That's exactly what's happened since the May 23rd bottom when we started to see the Fed and basically start buying up a lot of these corporate bonds and other forms of debt to prop these companies up. The problem with this is that everybody that's ever taken a finance course or has an MBA that has learned about how to value public companies or companies in general, those are all useless now because you can no longer get accurate price discovery or make an accurate determination for what the value of a company is,

when the federal government would just step up and save those companies from failing. So do you think, I mean, this is kind of your argument that we are effectively showing now the U.S.'s version of how it nationalizes companies and industries? Absolutely. I think that the key thing that dawned on me was we are now nationalizing by proxy.

We're not actually going in and saying, We're just going to take this company over, kind of like how in France, I use the example of Air France, is a nationalized airline. There is no, I mean, there's American Airlines, but they're a for-profit company, right? They're a publicly traded company. They're not owned by the United States. And how un-American is that, right? Could you imagine politicians today trying to tow the party line, whether the Democrats or Republicans, by going out and nationalizing companies? unbelievable political risk associated with that.

But we also can't just let those companies fail, right? There's too big of a risk to the broader economy. And frankly, even from Trump's perspective, his reelection chances go dramatically down if there's a recession in play. Right. So this idea of propping up these companies via corporate bond buying and junk bond buying is not a direct nationalization, but it's a nationalization by proxy. They're basically saying, hey, look, we are going to prop these companies up. We know that they're critical to the health of our economy and the functioning of our economy, et cetera, et cetera. But we're not going to do the

socialism approach. We're not going to do the explicit nationalization approach. We're just going to do it by these corporate bond buying. So in my mind, you're still nationalizing the business, right? Like if United Airlines, for example, and I'm not picking on that, they're just using them as an example, if they all of a sudden have all of their flights overnight for the next three months get canceled and no one is no one is flying, as a private business, guess what happens? You go out of business. Like you go bankrupt. There is some sort of restructuring process that takes place. But if a government believes that, hey, you know what, it's pretty critical that we enable these airlines to keep this airline. company to keep flying because we have, you know, national security reasons or it's, it promotes

train or whatever the thing, the reason might be. Well, that government would step in and just nationalize the company and now it's a part of the federal government and then, you know, there's no sort of failure, if you will. The government is effectively propping it up and making sure that it still functions. That is exactly what's happening right now, except United Airlines is not owned by the federal government. It's still owned by its bondholders and shareholders. It's et cetera. And it doesn't have sort of some, some sort of regulations or restrictions associated with how they can conduct business or what they're going to do. The government just wholeheartedly said, hey, we've got your back, right? It's not our, you know, we understand you didn't manage your company appropriately or you didn't plan for a raining day or you spent, you know, X number of billions of dollars of the past 10 years buying back your stock as opposed to, I don't know, investing in other areas where you could. potentially weather this storm, we're just going to go ahead and prop you up. And to me, that is one of the most profound things that's happening in plain sight

that I don't think a lot of people are really paying attention to, is that these industries are now coming with their hands out to the federal government, basically saying we need $50 billion bailout. That's what we're opening with, right? Now, imagine you were sitting at the negotiating table. Let's say you work in private equity and you're going to go, negotiate a company that's failing. Are you just going to say, here's all the money and, you know, everything's good to go? No, you're going to, you're going to try to ask or take as

much as you can from that business to make sure that this business recognizes who's actually in control here, who actually has the leverage. And that's not what's happening with these negotiations with these industries. The executives of these companies are telling the government what they need and the government's granting it to them. And to me, that's just not how capitalism works. That is, in fact, nationalization. A couple weeks ago on the show, Pomp was on. And he basically made the assertion that these companies think that the government is the

stupidest guy in the room. And they're taking full advantage of it right now. That's the way he put it. The government thinks that they are the stupidest guy in the room? No, no, no, that these companies think that the government's, the stupidest investor in the room, right? The stupidest person that they could go to money. They're not going and offering equity on the markets or trying to restructure. They're just going straight to the handout because they think they can get away with it effectively. Oh, absolutely. And I would be doing the same thing, right? If you,

if you know, I had a startup where I raised money from venture capitalists and fundraising is a brutal experience. It is super hard and painful and all this stuff, right? If I could just go directly to a source and say, I need this amount of money and they're pretty much going to write me the check for it, I would be absolutely doing the same thing. But the problem, though, again, and this is where we get into this kind of socialism for the rich eventually leads to socialism for all, is this is what the playbook was written in 2008 for how to do this type of thing. Because there was no playbook prior to this, right? Ben Bernanke and the Fed at that time had to figure out, and Hank Paulson had to figure out how they could you know, prop up the financial system so it didn't completely collapse. And now we have that playbook.

Now, recall, General Motors received a bailout back in, I think, 2009. So industry leaders are looking at this going, hey, we know how this works. So why don't we just go do the same thing, as opposed to, you know, going to private equity or going to a sovereign wealth fund or going to some other form of investment dollars. You know, Warren Buffett famously executed one of the greatest trades over the past decade. And you'll have to fact check me on this. But I believe he cut a deal with Bank of America back in 2008. That was a $10 billion preferred stock investment, more or less. So I believe he got preferred shares with a bunch of other fancy Whizbank warrants that only Warren Buffett can put onto a deal. And he ultimately netted about $12 billion from

that deal. Those are not happening right now. And if you're the CEO of a company, why would you? Why wouldn't you just go directly to kind of the most, the dumbest, the most obvious investor in the room, which would be the U.S. government? So there's a ton more in this essay, the second order effects. You go into everything from working class divisions to vocational training thriving and the implication for universities to video as a new platform to global behavior changes. But since I've kept you for coming up on 45 minutes, it'll be an hour before we get through this anyways. I want to maybe kind of shift for just a few minutes and maybe by way of kind of wrapping up into this kind of this section, this three-part section you have on the idea of one, national health care as national security, two, the likelihood of us seeing proof of health. And three, this idea of trusting less than verifying and why proof of health might actually be a legitimate and real-world use case for blockchains. Yeah, that sounds great.

As I was writing this, I was trying to think what is the kind of main key thing that I want people to take away from this? And it's hard because as you mentioned, I cover a lot of different topics and they do kind of intersect and wind together in some respects. But if there was one thing I want people to take away from this is that there is now an obvious reason for a national health care system. in the United States, and that is because it is now a national security interest. And the implementation of it is something that you had mentioned around this proof of health, and this is where blockchain can come in, et cetera, et cetera. But let's stop for a second and kind of discuss this national health care as national security concept that I'm asserting here.

So for decades, the United States has become the most armed country in the world. We dwarf every other country in the terms of a number of handguns and rifles and assault weapons that citizens actually carry. In addition to that, we outspend every other country on defense except for China by an order of magnitude. And we do, I think, about four or five X what China does on an annual basis. So we are very capable of defending ourselves. Yet somehow a microbe has brought the country to its needs. You can't shoot a virus. You can't drone bomb it.

You can't torture it. You can't do any of these war-type tactics against a virus. And so how do we defend against the current virus and future viruses? My argument is that through universal immunity, I think we have to actually truly invest in healthcare as almost national defense. You can see what happened after 9-11. We seriously over-indexed and caused two wars in two different countries that cost many people lives, not just Americans, but people all around the world, particularly the countries that they were being fought in, trillions of dollars of U.S. Treasury spent.

spent on these wars. But we really haven't had a terrorist attack on home soil since. Now we have this virus that has more or less attacked the United States. Are we going to allow that to happen again? Likely will see us over indexing similar to what we did with 9-11 and creating bureaucracies and potential agencies. Like we created Homeland Security after 9-11. We passed the Patriot Act after 9-11. Something similar, a similar pattern will likely surface for managing these microbes as the new terrorists, right? That's kind of the line that I use is that this decade's terrorists are, in fact, microbes. And how do we defend against that?

Well, you have to have an immunity plan for your population. You have to have folks that can be alive, well, healthy, but also, once those folks are alive well and healthy, they can then go back into their communities, they can go back into stores, they can buy things, they can work, they can generate economic output, et cetera. But there's only one problem. How do we know that you're actually immune? How can we be sure that you are in fact carrying the antibodies or you've received the vaccine or something along these lines? And this is where I get into this concept of, proof of health or digital immunity, you're going to have to be able to not tell someone that you've

had a vaccine or not show them a piece of paper that says, yeah, I've got the coronavirus, you know, vaccine and I'm good to go. There's going to have to be some way to prove it. And in my opinion, the only way to implement something like this is by leveraging a public blockchain. And I'm not going to pick some, you know, Bitcoin, Ethereum, it doesn't matter. the idea that a decentralized system of record that is tamperproof, that is globally redundant, that is fault tolerant, that cannot be coerced by a nation state or a company or an individual, but also enables you to easily verify data that exists on this chain from basically anywhere in the world, is the only way I think that we can actually genuinely do this at a global scale.

And I'll give you an example, right? So if, let's say the United States determines, all right, we're going to create this kind of proof of health, digital passport, if you will, we're just going to run it on our, you know, Microsoft Azure Cloud, or we're going to run it in Amazon's AWS or our own data centers, et cetera, et cetera. Well, there's two problems with that. One, how do I go to Canada? how does a Canadian come to the United States or anybody for that matter? And then two, well, is the system that we're using in the United States similar to what people in England are using? And is that different than people in South Africa? So you need this kind of universal agreed upon standard, which is non-trivial to pull off.

Let's be very clear for how everyone is agreeing on how to validate a level of immunity or healthness, if you will, of an individual. And so if you can get every leader in the world and they're kind of like, you know, top tier health officials to agree on what the standard looks like for proving your health, and they all successfully implement that standard, how can we trust each other? You can't. And I think for anybody that's been in Bitcoin or understanding decentralized or distributed systems or peer-to-peer systems, understands that one of the biggest value props that Bitcoin and or blockchain bring to, I would say, technology and humanity in general is the minimization on trust of people or institutions. We're seeing and have seen, and I've tweeted about this for quite some time now, a full breakdown of trust in our institutions. If you need any further proof, just look at what's happening with coronavirus. The breakdown in trust in institutions continues to erode, and there needs to be some way that we can all kind of trust each other without having to actually trust each other.

And in my opinion, the only way to do that is to hash your information, store it on a chain, and have someone be able to actually verify against that. I'm open to other suggestions, but the idea that a diplomatic solution to trusting data that's coming out of, say, say, Iran, North Korea, China, or even the United States, depending on where you sit, is just crazy. You're not going to be able to actually trust this stuff going forward. And if we treat health care as strongly as we do national defense, well, you're going to have to believe that we're going to take every measure possible to make sure that, you know, folks from other countries that don't align with this aren't getting into our country. and we create this sort of isolated or even more alienated global environment. So obviously there are so many changes here. I guess as you're sitting and thinking about this, as you reflect on it now,

how much of this feels inevitable versus things that we still have some ability to influence as regular people? And if there is any room for influence, what are the levers right now do you think to actually avoid outcomes that we find undesirable? I mean, obviously, we didn't even get into the privacy implications of what you were just talking about because that's an entire additional podcast on its own. But that's a concern, right? Like, do you think these forces are beyond anyone's control or can they be shaped in if so, how? Yeah, it's a great question. I mean, what I was trying to do as I was writing this piece is, you know, not necessarily predict the future, but try to use pattern recognition to help. me think about how to shape the narrative of what the future could potentially look like.

And if we just look at something like 9-11 and what has transpired since then at the policy level, at the trade level, at the financial level, so many things have changed since then that are paradigmatic in nature. And with this shift around coronavirus, I see a similar. pattern. Now, are we going to have a kind of health care defense organization? I mean, frankly, I hope so, because this is a serious problem that you cannot simply throw money at. You need to have a strategy and treat this as a bipartisan issue that everyone rallies behind to be like, yes, we must defeat the microbe terrorist. Just like back in 2001, we had to defeat the terrorists. Now it's what's defeat the virus.

We need that kind of rallying cry. But what will I think, and unfortunately inevitably happen, is you will see a rise in encroaching on folks' privacy. You will see a rise in the surveillance state. But like, let's be clear, we're already there, right? I mean, the fact that people would be concerned at this juncture about their privacy to help them actually be well. enough to go out in public just seems ridiculous to me. The surveillance that has been put in place, certainly in the United States, let alone in places like China over the past 20 years, is huge. And those implications we haven't entirely felt yet. But my belief is that if there's any way

that we can potentially influence this, it's similar to what happened with Apple and Google when they partner together to help, you know, sort of pioneer or bootstrap this contact tracing capability within iPhones and Android devices. They put strong encryption at the foundational level and a level of sort of anonymity with understanding how to best serve the needs of contact tracing while also preserving privacy. So I think as more and more folks get familiar with, the concept of the power of strong encryption in cryptography, the power of trust minimized systems, hopefully we start to see sort of a sea change event with folks thinking more holistically about, well, am I just going to sign that sort of terms of service?

Am I just going to allow this type of information out there? And if I am, what are, in fact, the ramifications of that? This is why I think that these conversations are so important because ultimately when citizens lose, it's often because they lose the narrative, right? They lose the ability to shape what the future is supposed to look like. And they kind of just go along with whatever is happening around them. And that's very easy to do, right? It's hard to be constantly cognizant and aware of everything.

And one of the things that I love about this essay and about this sort of, this type of thought process is walking through these implications. Again, to your point, it's not prediction so much as understanding rationally based on what stimuli and inputs we have now. What would then happen? Well, what is then likely to happen from that? What is then likely to happen from that? And I think by giving people a sense and ability to walk through that theoretical, they can decide whether that is desirable to them or not. And if not, well, then begins, I guess, the long journey of figuring out what the hell to do about it. But that's a, that's a, That's kind of the journey of a lifetime, right?

But, Joe, this is awesome. I really appreciate the chance of getting to dive into this with you. I love how much thinking went into this. Yeah, really appreciate the time. Yeah, it's my pleasure. Thanks for having me. So I think a key thing to remember about this essay is this isn't exactly Joe making predictions

so much as following a logical thought process, following a logical thought train that allows him to kind of see if this happens, then this likely happens, then this likely happens, then this likely happens. And I think that that's a really useful mental model for looking at the world. But I would encourage everyone to go do their own versions of this thought progression around second order effects to figure out what comes out on the other side. Because the reality is, and I kind of alluded to this at the beginning of the intro of this

conversation, we are currently acted upon by the world. We are all kind of stuck in our houses and feel very little agency. But the future is to some extent what we make of it. We all have varying degrees of power to influence outcomes, and some things end up having the force of feeling like inevitability. But there's much more room to shape the future to have it be what we want it to be than I think we give ourselves credit for. So do the work to actually think through your own second, third order effects,

what you believe will happen. And when you see something you don't like, fight against it in whatever way you have, using whatever levers of power you have. And then tell me about it on Twitter. I'm at NLW. Maybe we'll talk about it on the breakdown. Thanks, as always, guys, for listening. I really appreciate it.

You can now subscribe via Twitter or get these podcasts via Twitter at Breakdown NLW is the podcast handle. And for now, guys, be safe. And as always, take care of each other. Peace.