The Breakdown - How Covid-19's Second Order Effects Could Make Humanity Stronger, feat. Emerson Spartz

Episode Date: April 6, 2020

Second order effects are things that happen as unexpected outcomes of something else happening. These effects can create surprising causal chains.  Take this for example: A pandemic makes everyone need to work from home leads to an increase in video calling leads to Walmart reporting that people are buying more shirts, but not pants.  Emerson Spartz is one of the world’s foremost thinkers on virality and the internet. He founded Mugglenet - the world’s biggest Harry Potter fan site - as a middle school drop out, and would later found and raise tens of millions for Dose.  In the past weeks, Emerson started an open crowdsourced document on the Coronavirus’ second order effects that has, itself, gone viral, especially among venture capitals and other investor circles trying to understand what the world looks like on the other side of this.  Emerson brings a surprisingly optimistic perspective on where this could lead a generation of people who are now more fully plugged in to the internet than ever before.

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 Monday, April 6th, and today we have something a little bit different that I'm really excited about. It has obviously been a tremendously trying time for the last few months as the real implications of coronavirus and the economic. shutdown became clear, this is something that I think will leave permanent changes to big parts of our economy, our psyches, or society as a whole. And so today I have a guest who's basically been obsessively thinking about what all those implications are. So it started with him just trying to think about the second order effects of the coronavirus crisis. Take, for example, people buying

shirts but not pants because they're on Zoom calls. It's a second order effect. or actually a third order effect after being on Zoom calls because they have to work from home. This is something that Walmart is actually seeing. Sales of shirts are up, but not pants. So my guest, Emerson Sparts, started a document on Google, got a friend involved, and they got a whole much more people involved, and now thousands and thousands of people are contributing to this document around second order effects of this corona crisis that is across dimensions of family, business, and so much more. Emerson shares a little bit about his background at the beginning of our conversation, but he is a true, true multi-hyphenate, and someone who is just obsessed basically with learning.

That, I think, is his hallmark. Now, he turns that into lots of really, really interesting projects. His real focus historically was virality, right? So he dropped out of middle school and started MuggleNet, which very quickly became the biggest Harry Potter fan site in the world. And that led him into create an entire media company based around virality and social media and understanding that. So his background is kind of diverse and interesting, but it all comes back to trying as much as he

can to learn about everything and develop new mental models. So he's kind of an interesting Sherpa or a guide to this conversation. But one of the things that makes this interview so different is that it's actually full of a lot of optimism about what happens on the other side. And at core, that optimism comes from, I think, a place of discovering what happens when all of humanity learns to use the tools of creation of the internet really well. He has a lot of ideas for how that might be a net good for us. And so obviously the phrase creative destruction, we're in the destruction phase right now, but there is something good that can come out of this as well. As always, I want to make sure that we're never minimizing the real pain that people are feeling, the real dislocation on

so many different levels, economically, psychologically, etc. This is a trying time and it continues to be, and unfortunately, I think it will continue to be for a while, right? There is no normal on the other side of this. There's only what's left and what we rebuild, and at least in this conversation, we're focused on that last part, what we rebuild. So I hope you enjoy it, and I'll catch you back here soon with the wrap-up. Now, as always, these interviews are edited extremely lightly. There's some excited profanity capturing the actual energy. So keep that in mind as you're listening, and let's dive in. All right. I'm here with Emerson. Emerson, thanks so much for joining.

Excited to be here. Okay. So I'm super excited for this episode. I think, you know, you put a context around something that I've been thinking about for weeks and weeks and weeks now, which is, I tweeted out a few weeks ago, are you in the this changes nothing or this changes everything camp, right? And it is purposefully binary. And obviously what I wanted to see is what people wanted to jump in with in terms of particularly around that it changes everything. And I've been in this kind of, it changes everything in camp, not in some kind of glib way, but in these very specific ways. And so you've put together this project or kind of convened, I would say, this project around second order effects coming off of the coronavirus crisis. And I want to get into what that actually means. But first, can you just give a little bit of your background for people who might not know all of your various enterprises extending back to middle school for you? Yeah. So I'll cover it a little bit differently, too, because I'm going to say a bunch of weird and I'm going to make a whole bunch of wildest. unsupported claims. And so if I establish a little bit more credibility in advance,

it'll make it more sense. So when I was 12, I convinced my parents to let me drop out of school and homeschool myself. Month later, created MuggleNet, which is the number one Harry Potter website. So that was my whole adolescence was running that. I built that to about 50 million monthly visitors and or monthly page views. And then eventually I decided to go to college for fun, got bored, was going to drop out and start another business. But before I did, I set a goal of reading one nonfiction book every single day. And business, politics, psychology, technology, basically just trying to build the most robust category,

like library of mental models possible, so that I'd be able to make the best and highest fidelity large-scale predictions. And so I ended up building all these different systems and maximized mobility to retain the information and apply the information. And then eventually end up starting another business. I was always really obsessed with virality. Like to me, the ability to make things go viral was like the close, as you get to having a superpower.

And so I just really obsessed over understanding, wanting to understand how people think and how systems work as much as possible. And then I just started experimenting like crazy with different types of virality engines. And some of them worked. And then fast forward, ended up raising $35 million, did that whole thing. And building a media company with 50 million monthly visitors. And so I'm excited to kind of take some of those lenses and apply them to this current situation. virality in particular. Actually, a lot of my ideas came from studying epidemiology and virology.

So I looked like the cookie guy who was referencing things like are not in totally inappropriate marketing context. So it's been a fun confluence of interest. Okay, great. So perfect. This is the background you get maybe how Emerson joins this party. Talk to me about second order effects. How did you start getting thinking about this? What is a second order effect. And then what is this project that you initiated? Okay. So, all right, so in situations like this, basically when there's a tremendous amount of volatility, so we're going through one of those periods right now where most people think about time as happening linearly, but time doesn't really work like that, especially with markets, right? So you have periods where, you know,

years happen in weeks, and you have periods where weeks happen in years. So this is one of those periods where there is just years of stuff happening, you know, in, you know, every day. My actual, my favorite way, speaking of mental models, the most interesting one for this, which I've mentioned, I think, on the podcast before, but Stephen Jay Gould was a biologist, looked at evolutionary biology, and he popularized a theory called punctuated equilibrium. And basically, what he went and found is that evolution didn't happen on this continuous scale, kind of like we thought, right? It didn't just go up kind of at a very predictable way.

there were these long periods of nothing happening and these moments of explosion, right, where tons and tons of stuff happened very, very quickly. And he called that punctuated equilibrium. And this is a punctuated equilibrium moment in so many ways. Absolutely. That's actually one of my favorite mental models. And, yeah, so we're going through one of those periods right now. And so, like, if you literally just plot out how much area there isn't at the curve in these periods of punctuated equilibrium,

like all the stuff happens in these brief windows. So that means it's very exciting if you're the kind of person who likes to you know, if you're looking for leverage, basically, and I think of myself as basically being a hunter for the mother of all leverage points. So I just spent a ton of time researching a wide variety of different subject areas and topics and industries. And I just look for the, you know, the white whale of mispricings, right? And so these are the windows where, you know, you can actually, you know, you could actually beat the market because there is no smartest guys in the room who have everything figured out because too much is happening too quickly. And I see beat the market.

in a more metaphorical way. But anyway, so there's this window where tons of stuff are happening. Nobody has, basically, the better your mental model stack is, the more clear your picture of reality is. And I've spent a lot of time basically bulking up like crazy to build out this stack, just like you would if you were a weightlifter, right, like building those muscles to be able to see the world more clearly in situations like this. So just for fun, I and my friend Michael Simmons, we just started like writing down tons of

second order effects of coronavirus. because I'd spent a bunch of time talking to other entrepreneurs and kicking around ideas. And, I mean, the amount of content that's coming online every day right now. I mean, all of humanity is working on this to some extent. So it's, you know, people, everyone in every industry likes to say that their industry has this, you know, tidal wave of information just flooding in. But those now look like trickles compared to what's happening right now. As humanity has its collective sites set on a single common enemy for the first time in history.

So we just decided we just started dumping it. ideas in a document. And then the ideas list got really long and we started sharing with some friends and then they started contributing to. And all of a sudden, it just became this real thing where there's just thousands of people that are contributing to it and categorizing and cataloging as many second and third order effects of coronavirus as possible. And it's really interesting because there's so many things where everyone has their own kind of unique skills and experiences and windows in the world. So the list is getting long real fast. Yeah, it's super interesting. So you posted about this, I think, on Fridays when I saw it.

And I was like, okay, we have to do this podcast because it's fascinating. And like I said, it gives context to talk about all these different things, which I haven't had context for. Right now, there's more than like 75 people actively looking at the page as we're speaking, right? I just saw a comment go up. So it's super, super interesting. Talk to me.

What defines second order effects, third order effects. I think that people have like an intuitive sense of what that is. But maybe let's walk through a specific example that gets people, gives people a context for that. then we can just dive into, you know, I think our plan for this is really to just look across the spectrum of some of these second order effects and discuss them in the context of Corona. Yeah, totally. So second order effects are a super useful mental model. And I'll just give an example. So a first order effect would be like cars are invented. So once cars are invented, then the second order effects of cars being invented would be things like, you know, manufacturing

has a scale or like gas stations are now created. There's accidents that suddenly happen. Roads are paved. You know, people were complaining about how horse manure would pile up in the streets when horses were growing, but then cars obviously replaced the horse manure problem. So those are all examples of second order effects. And then third order effects are just one further downstream in the causal chain, right? So as you have more accidents, there are products like car insurance that are created. As you have more gas stations, there are gas station networks that are created. As you have more roads, then eventually you have more highways. And so it's really exciting right now with, you know, I mean, the chaos is a ladder, right?

So obviously there's tremendous hardship and suffering happening in the world as a result of this. but there's also tremendous opportunity, like the Chinese character. So that's the way that I think about it. So this is, I think this is a relevant context for this. We're now firmly past the place, I believe, where we can expect things to just return to normal. Bologi last week said, he tweeted out something that just perfectly encapsulated this for me. He basically said, I don't think people understand that there's no normal to return to on the other side. of this. And so in a lot of ways, this list reads like a set of what that new, that disruption

to normal is going to look like, right? So you guys have organized it into personal business, investing, education, government, and other, which is kind of a grab bag of things at the moment. I thought maybe we could start at personal because I think that some of these are the most intuitive, just for people who are still wrapping their head around this idea of second order effects, right? Yeah, absolutely. So let's look at family, right? So if you look at this, the chart, it's, you know, the second order impact is husband, kids, and wives spend 10x as much time together.

Yeah. For sure, isn't this just an interesting start? So there's one, like, really high-level pattern that's happening here is that basically humanity is in, so if you're confused about why, like, government responses seem to be so wildly inadequate, it's because if you think of humanity as a person, humanity is basically in fight or flight right now, right? Fight or freeze.

So humanity is basically freezing, and no one knows what to do. And we're not using our humanity's prefrontal cortex to make rational decisions yet. So we're doing all kinds of terrible things. And one of the effects of being in this freeze phase is that people aren't doing anything. They're going anywhere. They're at home, right? And so I'll just rattle off some of the interesting kind of implications of people being stuck at home together from a family perspective. So obviously just way more sex is kind of an obvious one.

People have nothing to do. They're together. That just tends to happen. although not necessarily with other people, you know, not like promiscuous or cheating or things like that, but, you know, sex, like monogamous sex. So that would lead to more babies, which could lead to an overwhelm of hospitals starting nine months from now, especially hospitals that aren't especially in good shape to be able to handle that increased load. So that might lead to an increase in home births, right?

And then people having to, like, look up, you know, training for how to, like, deliver babies at home because they don't want to go risk getting infected in the hospital or entrepreneurs starting up, like, you know, mobile clinics or, you know, there's just, so many different things to think about. You've got abuse, it increases in abuse. You've got increases in arguments, divorce rates, which could lead to more couples counseling, more divorce lawyers, virtual midwives. There's a lot of different angles to kind of to dive into. Well, I think one of the things that's interesting about this example as well that is relevant for our conversation more broadly is that a lot of these phenomena can have

equal and opposite impacts, right? It's just based on context. So for some people, you're likely to see, you know, coming togetherness like you pointed out, right? Like more kids, more things happening, re-evaluation of prioritization of families. Like that's definitely a theme that I've seen a lot, right? I noticed that the first few days when everyone was locked down, all the tweets were about people complaining about how hard it was, right? Or recognizing how hard it was. And then a few days later is mostly about like people's moments with their family, right?

They stopped complaining because it has just gotten normal again. And now, I don't want to be overly glib about that, but that's like one set of experience, whereas we have seen in every place a significant increase in domestic abuse calls, right? And places like New York and France, places that have been locked down for a while are having to deal with that. So the point here being that same context can create wildly different outcomes in these second order effects. Yeah, it's like the way that I think about this is just like how, so every proverb

that you've ever heard is people, every proverb is true because it's basically Proverbs represent compressed wisdom, like ideas that have been passed on, you know, for hundreds or thousands of years, but they're not true for everybody, right? So maybe 20% of people, like if you have two opposite proverbs, maybe 20% of people, like proverb B will be correct for their situation, or like 80% of people, proverb A will be correct to apply to their situation, right? And this is a different kind of manifestation of the same concept where like you, as we're basically, we've taken like the global, we've taken all of our existing systems and we've just shaken them up, right? And so one way that I also think about it is like,

there's really, really interesting data showing that when there are catastrophic events, events, it forces people out of their existing routines and they're forced to explore, right? So people get stuck in these explore, explore exploit local maximus, right? Where they are just, they're doing one thing. For example, like people, what happens is like you're on your daily commute, right? And most people just kind of, they explore a little bit to find the best way to get to work. And then they don't ever experiment ever again. And then, you know, they'll have, you know, something catastrophic will happen or they'll

have to close, they'll close down major highways. And then people are sort of forced to like go and experiment and try new things. And then fairly reliably, it seems, on average, about 5% of people find a faster route than the one that they've been driving their whole life when these things happen, which is when you think about you take that and then you generalize that to all different types of systems at all different scales across the whole world. There's going to be so much more exploring that goes on because people are forced to because they can't just go back into their existing routines like they were before. And so there's just so much innovation that's going to

come out of this as people are forced to confront new problems that they never had to confront previously or didn't know that they were supposed to try to confront previously. What are the most interesting examples of that that have started to pop up on this list? the domains that you find most interesting that you're seeing from this list. Okay, so I would say like 90% of all my thinking is basically about the implications of what happens when humanity merges with the internet, which is basically what's happening right now. This is a very real, in a very real sense. What, you know, Ernest Klein wrote in Ready Player 1, humanity is merging with the oasis right now.

As the world was crumbling, we were treated into the oasis. and it led to a explosion of art and creativity and beauty and pain and struggle and all things that make humanity, humanity, right? So basically, what are the implications of that? Because, you know, as people had increasingly shifted a larger and larger percentage of all their energy to their internet selves, and especially, you know, the younger you are, the more you are, right? So what are the implications of that, right?

So suddenly now we're in a situation where there's more free time for creative expression than, you know, perhaps ever before in history. And by a long shot, as most people have, like, most of the world has a very simple, similar routine, right, where they get up and they basically do some reasonably repetitive, you know, manual, you know, task for, you know, eight, ten hours or whatever. And then they go home and then they watch TV for about two-thirds of their time, and then they spend a little bit time on other stuff and they go to bed, right? So there's only like two giant chunks of people's time.

There's TV, which is basically where you teleport into the bodies of, you know, fictional characters and then you experience their world. vicariously, or you're doing your manual tasks at work. And I happen to be of the opinion that a large percentage of all the work that humanity does is not productive. And we could, you know, like greater bullshit jobs-esque kind of ways of looking at the world. And so one thing is to be interesting is, like, what are the implications as we see that a lot of people's jobs weren't actually creating value for the world and were make

work in various ways? So, but anyway, but the main thing I think about is like, okay, so humanity is now spending all their time online. We're stuck at home. We can't make money at our current jobs because we can't go anywhere, right? or frozen in place. So we have to, the internet is our, is our only way to interact with the rest of humanity.

So a lot of people are now finally in a position where they're like, okay, well, I guess I better learn how to use the internet and use it better, right? Not just use it at a base level, but like there's huge differences in the levels of how good people are using the internet, right? Most people don't even think to Google basic stuff. And they just spend a lot of time like solving pointless problems and humanity's already solved and they just learn how to remember to Google stuff, you know, tap into the global brain.

So anyway, so I think we're going to see this like flourishing of human creativity. in all kinds of fascinating ways. So, for example, one of the most important ways that you can create value for humanity right now is to learn to code. Obviously, not everybody, but just do the math on this at a very simple level, and you'll see how significant the implications of this are.

So there's about 20 million developers in the world right now. 20 million might seem like a lot, but in the context of 7.5 billion people, that's not a lot. So suddenly, if you have, let's say, just imagine like a billion people that are stuck at home and can't go anywhere, and I can imagine, you know,

tens of millions of those people, suddenly finding the motivation to learn a code. And then what happens as a result of, you know, doubling or even tripling the number of, you know, programmers in the world, like, think of all the, think of all the creativity that that could unleash, right? Or learning languages, like English, for example. So I travel a lot.

And one thing that's abundantly clear is English is, well, it's the language of science, it's the language of business, it's a language of the internet. And it's the language of opportunity. Because if you're in a third world country, if you know English and you have internet connection, like there are far more ways that you can make money. And so it really is like a. from a mobility perspective, like a wealth mobility perspective, there are a few things that are more high leverage than learning to code and learning English.

And suddenly now a lot of people have free time to learn those things. So I'm just really, really, really excited to see what happens. This is basically like a giant, like UBI kind of fantasy experiment, right? Where we don't have actual UBI right now, but we have something that's somewhat similar to it, where people have free time, right? Because that's where a lot of the UBI stuff gets, is interesting to explore. It's like what happens when people have free time. Most people just, you know, they're specialists, right?

They go to work, they do the one thing. and now they can actually go study all the other things. So there's just so much, so many interesting things to think about. Yeah, the specialist to generalist thing is really interesting. It's something that I noticed in the second order effects document, this idea that people have been kind of rooted via the education system and then work into highly specialized roles who now might find themselves with time to go explore other things.

Yeah, exactly. Like basically, most people, you know, they're just, they're doing kind of like putting like one foot forward at a time to just, because they're just struggling to survive, right? They're just trying to pay the bills and keep the lights on and food on the table and so on. But this, obviously, like anything else, like obviously the financial pressure is significant, but there's nothing else you can do, right? You can't work if you're fired and no one will employ you because you don't have any skills

that are valuable right now, right? So you have even more pressure to learn how to create valuable skills to contribute to humanity on the internet. And one thing to that's interesting is like, so I was homeschooled, obviously. And I think homeschooling is a really useful, it's a really useful tool. It doesn't work for most people because it's difficult to structure it properly. And then there's tons of important socialization that happens in school. But there's a lot of kids who, like, homeschooling was one of the best things that ever happened to me.

And you can see that by the fact that I went from like just being a somewhat normal kid to like starting, you know, one of the internet's largest websites like a month later because my wings were, you know, unclipped. And I think there's tons of other, you know, people out there that are like that. And this is like, this is just that nudge that they needed to like really express themselves and pursue all kinds of weird diverse interests that they normally don't have the time energy to pursue. And then, yeah, there's, oh, and from a content creation perspective, oh my God, just think about, like, for a second, how many people, so ran a YouTube or, so if you ask

kids what they want to be when they grow up, it used to be not that long ago, like, that they want to be astronauts. If you ask them now, they say YouTubers, right? And what does that mean? Well, it basically means on some level, they want to be famous, but also they want to create. They're basically saying, like, I want to create. And I think that's really important that they want to create. Because, I mean, just look at what happened to China. Like, once China, like, you know, once we, you know, back in the 70s and 80s, we told essentially, you know, a billion people that for the first time they were allowed to dream, right, allowed to create. And obviously, that's been an extraordinary amount of wealth, you know, created from that. And so in some ways,

there's something similar here where, like, especially, again, you need to make money somehow. YouTube is a reliable way to make money. And so I can imagine, you know, I can imagine millions and millions and millions of people who otherwise weren't quite motivated enough to, you know, dive into, you know, content creation as a way to make money in a way to express themselves, suddenly, you know, being motivated to do that. And so I can see millions of new creators coming online, which interestingly would actually, I think, have the effect of having, you know, fewer ad dollars. Like basically, advertisers are spending less money because there's obviously the economies, you know, kind of shut down. So, of course, advertisers are going to cut their ad

budgets before they're going to cut, you know, other, you know, other parts of the business. So I can see, like, ad rates going down, especially when you factor in all these new contract creators coming online. But oh, my God, the types of new content we might see. It's just there's so many interesting parts of that. Yeah, it's taking me a lot to not start a, like, podcast training type business. So one of the things that's really interesting about podcasts in America versus podcast in China is that there's a much more ingrained, like you pay for an educational program via podcast model in China. Whereas obviously in the U.S., it's primarily entertainment and it's advertising driven.

But that doesn't mean that that's the only thing that it's ever going to be. I mean, podcasting is still so in its infancy as a medium. And one of the things that I think that's really interesting that people underestimate sometimes is that we have this model. Like, okay, so let's actually use this as a context to bring in the good news and the bad news for small business. The bad news is that small businesses are being wiped out, right? Like, I mean, just, you know, I was reading Dan Price runs gravity payments in Seattle.

He got well known for figuring out basically how to give every, employee a $70,000 minimum salary. He's been in the news over the last few weeks because, you know, small businesses are their primary business, right? They have 20,000 small businesses. But those businesses are just wiped out. Like it was like 50% overnight stopped, you know, being able to pay for their services. And so they figured out, basically they convened as a company and instead of doing layoffs, everyone agreed to a 20% cut. So they've been able to preserve their whole workforce. Yet, yeah, yeah, yeah. Really, really interesting guy, really interesting company. But he was writing that most small businesses have 27 days of revenue loss before going bankrupt, right? Well,

what day of the shutdown are we on at this point? I've heard it's even lower. Restaurants, I think, have something like 16 or 17 days worth of cash, usually. So you have this mass scale extinction of small businesses, even with these loans and stuff. Like, there's going to be so many people who are just hanging on that they can barely come back, which I think has, speaking of second order effects, has impact on commercial retail or sorry, commercial real estate, rather. Obviously, a ton of those businesses are going to come back in, which creates a whole new cycle of impacts. So there's a whole lot of bad in that. The interesting thing about what you're talking about with kind of a creator economy is we're used to thinking about

business models in terms of like actual businesses that have to support whole sets of teams and people. One of the things that I think is really fascinating about podcasts and YouTube, et cetera, is that it is, it makes viable basically businesses of one, you know, small businesses of one for a lot more people than you would expect, you know, or it's supplements income for people, right? Because with a niche audience, right, like almost any interest in the world, if you're a really great podcaster, you can get to 50,000, 100,000, 200,000 people who download it, right? Which is absolutely enough, I mean, add, ad cuts, add price cuts, notwithstanding to support an individual person, right? That's probably more than most average job. So there is like this interesting, people I think

underestimate the viability of the business model of, content for really, really niche areas. Yeah, it's like the perfect quarantine business because you don't have to normally, you know, if let's say hypothetically you wanted to make $30,000 to, you know, to get by in a normal business. Well, here, obviously the distribution cost being zero, make it such that you can afford to and also the startup costs are so low because you're just making content. So it's just such a no brainer for people to explore to.

One thing that's interesting too is like, so in thinking about second order effects, of something like this. So it just gets really overwhelming really quickly, especially, you know, if you change the assumptions of your model just a little bit. So, for example, if you seem, okay, the economy is basically completely shut down right now. And what that means is that no one's leaving their homes, which means they're not going to work, which means they're not making money. So if you want to, if you want to systematically catalog all the second word effects,

so what I started doing was I just started like literally imagining myself driving through the city and just looking at all the restaurants and all the businesses that I had already memorized from where I lived in Chicago and in San Francisco. And then just you take everyone with those businesses and you're like, what if they didn't exist? Or like, what happens if they didn't have money, right? Because I mean, what's going to happen here? Like you said, with 27 days cash, right? Is that basically just like any other market, right, the weekends get shaken out, you know, first, right?

And obviously with just in time supply chains, one thing interesting to you about just in time supply chains is that they exist at all scales. It's not just inventory. Like, and this is one of those like anti-fragile shocks that just, that causes, you know, all the, the most fragile members of the population to die. So there's just going to be, oh, man, the number of opportunities for like new value creation as all those existing players get shaken out is just really, really, really interesting to think about. So let's talk actually about the manufacturing and supply chains. I think it's actually a bridge to, you know, one thing that I want to be careful of is not being like, you're basically firmly on the creative side of creative destruction, but we're like, that's what you're thinking about, but we're living through the destruction, right? And I think that part of the reason to spend time focusing on the creative side is to help people figure out,

it's almost like getting a preview of the future and figuring out what it's going to mean to make better decisions in the short term. So one of the things that I've been thinking about a lot, and I'm sure you've seen this too, is this is this is creative. a major shift in people's thinking around manufacturing supply chains and just globalization in general, right? You have so many people from, you know, blue states, red states, whatever, who are like, you know what, we actually probably need to be able to make things here, you know?

Like the idea of having entire sets of goods that are important be made exclusively other places seems not to be working right now. And the interesting thing is that if that gets operationalized, right? you know, there's so many things that I think you're likely to see, right? Government creating new incentives to manufacture here and all this sort of stuff, right? What people actually work on might also change, right? You know, I don't necessarily think that it fundamentally ends the gig economy and side hustles and things like that, but you're going to see a lot more jobs of people actually building things, right? And that's going to have its own impacts in terms of what decisions they make

about education. I think one of the players it feels to me least, likely to come out of this well as higher education. Yeah, I could not agree more with that. Because it's also interesting thing. First of all, here's a really, really interesting fact. So supply chains have been so fragile for so long that I was, so when I first started considering the implications of Just in Time supply chains and the coronavirus impacts of it. And I was, by the way, I was panicking back in like mid-January about all this.

Can you define Just-In-Time supply chains for people to? Oh, yeah. Basically, that you see that you, if you had a manufacturing plant, you'd have like piles of there so that if your supply chains, for whatever reason, you couldn't get you stuff, then you could just still keep operating, right? But as technologies like the shipping container were invented and became popularized back in the 70s, costs to ship things globally plummeted, right? Shipping costs went from like, let's say, 50% of the cost of the product down to 7% if you make it overseas.

So what happened was, obviously, people just moved their manufacturing to whatever the cheapest place in the world was to make it, because it only cost 7% extra to ship it across the oceans. So the result was that people didn't store inventories anymore because why would you bother store inventories you can just order it from China and it's there like five seconds later, right? So the result is that we were able to move much faster because we had all this energy stored as inventories, right? Again, you have a pile of like stuff at your manufacturing plant, but that pile of stuff isn't creating value for the world, right?

It's potential energy. It's not until you actually manufacture it and people are using it that it converts into kinetic energy where it creates value, right? Same thing of money, right? Money that's sitting there and not being used is potential energy, but once that money is loaned or spent, it converts into kinetic energy and it creates value, right? that increases the velocity of money, which increases wealth, right? And the faster the money moves, the more wealth is created in general. And so, so once I started thinking about the implications of

just-in-time supply chains, which basically increases the overall fragility of the world, because we can't withstand shocks to the system because we don't have supplies laying around, right? So it's like having no safety buffer, right? Like imagine if you're climbing Everest and you only have one oxygen canister and that oxygen canister breaks or something, right? Then you're, you're super f***. So you need to carry extra ones with you. And we basically got rid of all extra auction canisters because of these technologies, which means that a lot of, you know, businesses are going to go under because they didn't have the reserves to get through it, right? So this is just a reminder of the importance of having those reserves and also having

robust systems built. So for example, so even the supply chain. So I started like just consuming a bunch of supply chain content and I was going through all the trade websites and listening all the podcasts. And like they weren't even talking about supply chain implications. Most of them weren't talking about supply chain implications until shockingly late after it was already, to me, abundantly clear that supply chains were going to be a huge, huge, huge problem moving forward, which just shows how little energy was really put into thinking through the implications of these things and how not ready humanity was for all this, which is why Taleb called this a white swan, right? Because like pandemics have been, a thing humanity's been

dealing with since forever, like actual forever. And if you were paying attention, you would have noticed that the CDC had a budget, a couple billion dollar budget, which is embarrassingly small, and that something like this was just bound to happen. It was just a question of when. at what scale? And thank God this isn't Ebola or smallpox, right? Because we're going to get through this. It's going to suck, but we're going to get through it. So pandemics historically, obviously are correlated with cities, right? Rise of cities, more population density, more people. I think cities are another really interesting thing to consider in the wake of this idea of, you know, your first point of the internet merging with humanity, right? Now, I say this as someone

who lived in Chicago for a few years, then was in San Francisco for a decade and now lives in the Hudson Valley, right? A couple hours outside of New York City. And that was a really intentional life decision to be, like, rooted in the geographic empire of one of the most important cities in the country, but also decidedly away from it, right? And that was a decision that came from just a personal bias and like style of life decisions. And also from the fact the viability of as basically an independent, you know, consultant, content creator, et cetera, I live on the internet, right? That's really where my business is conducted. I think it's interesting to consider how many people are, like how this changes the perceived

essentialness of the city. Yeah. So, okay, so my thinking on this is basically that you, there's two, okay, so cities are one of the most important technologies humanity's ever created for increasing the velocity of ideas and wealth. Basically what cities do is we, it's a form of concentrated energy, right? So when you're in a city, especially a dense city like Chicago or San Francisco, you just bump into other smart talented people with resources all the time. And so you can go from an idea, can form that in your head, and then you can just bump into a whole much people who are relevant to executing that idea in a really short period of time. And you can find the capital and the people to execute on it.

And so ideas go from birth to real world execution in increasingly short period of time. And that's why there's like fascinating data showing how basically the bigger the city is, the faster the velocity of all the socioeconomic and anything that's, any metrics that have to do connecting with people, just increase by, so the exponent is 1.15, which basically means if you double the size of the city, then you increase the number of patents per capita by 115%. You increase crime also. It's not just a good thing, it's also a bad thing. So crime increases by 115% if you double the size of the city. So you increase city by 100%. You increase how much investment capital there is. You increase wealth per capita. You increase education per capita.

You increase everything that involves humans coming in contact with each other. And vice versa. The flip side is also true. There's actually a point. 85 exponent on the resource allocation required. So, for example, if you double the size city, you increase the city by 100%. It only takes 85% as many roads, right? It only takes 85% as much oil and natural gas and wiring and pipes and all the other infrastructure

that's needed to connect with people because it's just more efficient to have people closer together. So cities are super important for innovation. However, interestingly, there's like a secondary, there's like a whole separate world that was created called the internet, where you can live in virtual cities and not just physical cities. And that's basically what you're doing right now, right? So you're engaging in experiment, which is unusual for like smart ambitious people, don't usually typically decide to go and move to

rural areas, but you can totally do it. You just have to be extra skill that like, you know, inhabiting as a citizen this new world called the internet where you can then Twitter is, essentially like a giant city, right? It's actually, I would argue Twitter is more like a giant, it's more like a country. And then each little tribe on Twitter is like its own city, except it's, It's just like you have in real cities where you have people that are into different topics of the same thing on Twitter. And Twitter is just like this fascinating kind of intellectual potluck where everybody kind of brings their ideas and things that they have discovered that are interesting to the table.

And if you're really good at using the internet, oh man, it's just a, it's a true cornucopia of like delight for polymaths and autodidacts. Well, one of the things that I think is really interesting is that I don't think that you, I don't think that a person could make the type of decision that I made without having done their stint in the city. Like there's a part of me that feels like the cities that we choose to spend our 20s in are becoming kind of like an extended college experience, especially in terms of the networking that used to be promised to you through college, right? Like part of the premise of colleges that I think hasn't necessarily held up as well as times have changed is that you get this really powerful network, right, that you get to be a part of. And maybe that's true the higher up the, you know, the exclusivity you get.

But by and large, it's the cities that you spend your time and that creates your professional networks that you carry with you for the rest of your life. I went really deep on, I mean, not just cities, but we both have context in like the Summit series community, right? And these places that are themselves of a virtual kind of a network that connects people, that creates just more opportunity to then make a different day-to-day decision because is that those networks continue to exist, you know, without daily or weekly maintenance being in a particular city.

Yeah, absolutely. And the people who migrate from the physical, and most people obviously have a mix of, like, internet world and physical world, Adam's world and bits world. Obviously, the more skilled you are using both, the more effective you can be, but you can totally just use one or the other. And many do, right? Typically, the older you are, the more you lean on the Adams world and the younger you are, the more you lean on the bits world.

And it's pretty clear where humanity is heading right now. One thing I think is really interesting is seeing how humanity is organized to fight coronavirus. So as governments, you know, move slowly and plod and bongle things, at the same time, I've never seen. So I hang out in certain activist circles and I just watch how the organization movements happen. And I try to intervene when I think there are opportunities to do so that are high leverage. But oh my God, the number of different organizations I've seen spring up just in the past couple weeks. how many different individual people have like become entrepreneurs overnight coming up with either novel techniques to create masks or ventilators or you name

it right and I know people have been reaching out to me like wanting to help wanting help with their projects and just seeing like infinite discords and telegrams and email lists and like Zoom calls and using all the new technologies that humanity has um these technologies have been on for a while now but just the scale at which humanity is using them now as tools to think together. It's like, it's, I sort of just kind of imagine it like, you know, everyone, so, you know, humanity has seven, you know, point five billion neurons, right? We're all neurons in the collective global brain. And this is just, this is one of those giant shocks that's like causing us to, like, reform all these new connections and use all these new tools available. It's just,

one thing that's crazy is like how many people have like gotten by in life so far, not figuring, not knowing how to use these technologies, uh, to engage. And now everyone's basically being forced to. And the result is that like as humanity, as, as, you know, let's say that 20% of humanity, was just pretty bad using technology. They would, you know, a bit here and there, right? But generally, you know, good old fashioned handshakes and, you know, looking in the eye kind of people, right? And now they're being forced to use this technology.

And like, I can see it with my parents, for example, like my mom in particular. My dad's always been excited about new technology. But like my mom is like now suddenly like really, it's starting to be really motivated to embrace these technologies. And it's really interesting to just consider what the implications of that are because each of these technologies are basically thinking tools. They're all extensions of our mind, right? In the same way that the phone is like an extension of, you know, of your mind

because the phone is your gateway to humanity, right? So you can think with 7.5 billion people every time you pull your phone. And your computer is obviously the same thing. And, you know, like the screen is like an extension of your eyes. And so it's just, it's really, really, really fun to think about what that means. One of the interesting implications. So I agree that I've also seen, you basically have people who thought that they were generationally exempt, kind of from needing to care about technology. or just, you know, whatever, like basically our parents and our parents' parents, who, you know,

used the very barest minimum, but who are now discovering these tools and discovering that they're fun, they're interesting, they allow them to do things, et cetera, right? They're no longer intimidated by them. They've been forced through that fear barrier. I think that this is, one of the things that I worry most about on the other side of this scenario has to do with retirement and retirees. it just seems like we have an unfathomable perfect storm of destruction, right? I think that I'm not sure that markets are really pricing in a lot of these second order economic effects yet, right? So, if you see stock market declines, you obviously have people who have been promised that their retirement is predicated on stock market pumping out 7.5% per year forever, right? That's how their

financial planning has gone. So you have that. For folks who have invested in real estate, which is that, you know, was previously at all-time highs, right? You are going to need to start selling that at a time that no one's buying, no one's able to buy, right? Millennials not being able to buy real estate just got an even bigger knock to it. Let's say that some need to get other jobs. Well, you can't get jobs because a lot of them are being automated away, right? I think that certain types of, quote-unquote, low-skilled jobs, right? The checkout people, et cetera, are just going to be, this would be a killing blow for them, right?

because people will be concerned about actual health outcomes. And then you have probably continued restrictions on senior citizens as we deal with kind of rolling waves of this over the next couple years, which seems like anyone who's plausibly looking into how the economy comes back online, you know, is thinking in those terms. So it's kind of this like very troubling set of things. And I'm not sure. I don't know what the path to, I don't know how the internet solves that. but I do think that at least there's some potential in the fact that, like I said,

or you know, you said we're kind of over this fear barrier and people are discovering these tools. Yeah, it's, it's, so one thing that's going to be interesting to think about is, like, what are the implications from an inequality perspective? Because I haven't been of the opinion that we have plenty of money to take care of everyone if we're better at organizing the resources we have. Now, as far as how to do that, well, that's much harder, right? And I tend to side with the simpler, more straightforward solutions like UVI versus, like trying to do top-down, really complex bureaucracies required to integrate and,

distribute the resources. But it'll be clear. I mean, it's going to be coming increasingly clear here, the necessity of doing that because people need to pay the bills and then keep the lights on and they need food. So one thing, so there's a really great book called The Great Lever, which basically there are four separate inequality leveling shocks, war, famine, or no, war, plague, revolution, and state collapse.

And then throughout all of human history, The argument is that basically those are the four things that led to the, you know, when inequality would basically increase consistently for, you know, decades or centuries. And then one of those four things or, you know, plague revolution and state collapse would happen. And then there would be a giant leveling of inequality. And the reason why is because basically rich people have more to lose, right? So if you're only living a subsistence level, you just can't lose that much compared to somebody

who owns, you know, 1% of the collective GDP. And so this is clearly one of those situations where that's possible. And so, you know, if people can't pay the bills and can't feed their families, then that's when you get really, really, really, you know, problematic, like revolutionary conditions, right? And so it's just going to be necessary to distribute resources from the haves or the have-nots in some capacity, right? You know, whether it's printing unlimited money and then doing it indirectly or it's doing it a more direct way of some kind of resource distribution. But so from that frame, this is clearly one of those moments in history where that kind of large-scale change is possible. And it's weird to be in that situation, although it does seem like it was inevitable for a long time now, but these things often are.

Yeah, I mean, obviously the Bitcoiners in the audience, which is kind of like the core listeners here. A lot of this stuff feels like the acceleration of trends that were already existing. that have their roots in 2008 and earlier, you know, in terms of the role of the government in the economy, largely speaking. You know, a phenomenal percentage of GDP this year is going to be government spending. You have, you know, these facilities being set up not just to backstop American business and American credit lines, but currency lines all around the world. You know, there's a really interesting thesis that I was reading from someone on Twitter that, you know, that, you know, basically the folks who are interested in Bitcoin are seeing the inflationary pressure on the

other side of this, right, based on the world's demand for dollars, based on the shortage of dollars, and looking to Bitcoin, right, as this very clear alternative. And I think you are seeing some interesting anecdotal evidence of people getting interested in Bitcoin for that reason, right? Having the halving happen at the exact same time as this mass quantity of bees and kind of really reinforces that core narrative point. But someone pointed out that it may be, you know, the other thing that we're seeing is U.S.D. pegged stable coins have exploded this year, right? Significant increases,

billions of dollars of new inflows, right? New stable coins created. And it may be that part of that is not kind of, you know, U.S. hyperinflation or anything like that, but actually people around the world, right, who are in less stable monetary regimes who want exposure to cash who can't get in. So it could be that Bitcoin becomes something that isn't just about, that isn't kind of dependent on U.S. hyperinflation, but is in fact an answer for people who are trying to get out of their local currency regime, which is being devalued relative to the dollar. Yeah, I mean, one thing that always pops my head in these kind of situations. So I've spent a lot of time being very wrong about trying to predict future price movements

of cryptocurrencies, although fortunately I've gotten the macro trends largely right. But basically, okay, so in times of extreme chaos like this, we're in a period of extraordinary punctuated equilibrium, that tends to be good for the incumbents or for the, you know, for the challengers versus the incumbents. And so there's all kinds of counter trends. And so I tend to just my head spins into and then explodes when I try to think about the secondary effects of all the macro landscape in general. Because on one hand, you've got like governments gaining, you know, possibility of extraordinary new powers and Orwellian police states, you know, the probabilities of those outcomes seem to be going up, these kind of situations

and all for very sensible reasons. Like it seems like the authoritarian countries have done a better job of managing the virus response so far. And so it's hard to argue with their current success. On the other hand, there's all kinds of really alarming, you know, consequences of that, of those, you know, giving up the liberties that usually come with those. But just chaos and volatility is just good for innovation in general. So lots of interesting things to think about there. All right.

So we've kind of been very high level at a lot of these things, which I think is obviously that's where my perspective tends to sit and live. But maybe let's go through just a few of these second order effects that are much more specific and tangible that have got you interested. Yeah. So one thing that pops in my head right away is there's a quote that I love, which basically that a real problem has the ability to eliminate all the non-real problems. So it's easy to create a bunch of fake problems that don't exist or exist all in your head.

And this is true at the humanity level too, right? So there's a bunch of like low leverage problems that we might be focusing on. And this is one of those shocks that forces us to confront the real problems. And so some implications of that are things like, okay, so we have an economic freeze, which leads to a decrease in fossil fuels, right? So we're going to get all kinds of really interesting data on what happens if you just shut down the global economy. And we're going to be able to make new decisions with that new data on what the best interventions are,

right? Like how do we allocate resources efficiently there? Or like social distancing. So right now, we're all engaged in social distancing. But in some ways, that's not true. What we're actually just doing is physical distancing. We're not allowed to be in person together, but we can still be social. So again, our having to use all these new tools.

And so we're getting all these new skills using these new tools. And that leads to interesting new behavioral patterns too. Like you can't see people in person, then you're using technology to connect with them, which means that you might connect with very different people than you would otherwise, right? You might talk to the same five people on a regular basis, like every day. But suddenly you're hanging out on Facebook more and you're like, oh, maybe I should connect with these old friends because they're there, I see them on Facebook, right? Or things like, you know, like, okay, so loneliness, right, is an obvious problem. Mental health.

There's all kinds of mental health issues that happen as a result of this. You know, the more resilient you are than the more likely you are to do well in a chaotic time like this, but, you know, there's lots of people that are struggling for all kinds of different reasons. And so one thing I can see happening is that, you know, if you are feeling lonely because you're isolated, as many people are, and you're not as good at or as comfortable using technology to connect socially with other people, then you have to get that social need met some other way. And one way of doing that that I think I can see hundreds of millions or billions people doing is just leaning more heavily on relationships with fictional friends, right? Like characters and TV, movies, books,

these are in a very real sense, like real friends of ours, right? Because when you're reading a book, you really are teleporting into the story. Like, you are teleporting into the protagonist, and you're seeing the world through the eyes of the protagonist. And so the protagonist's friends of your friends and so on. And then you, obviously, you stop reading the book and then you forget about it. You go back into your normal body. But one thing that can lead to is basically lines increasingly blurring between, you know, your internet friends and your fictional friends and your real friends. And so that's interesting to think about because that seems like an inevitability if you think about like the overall trajectory of technology throughout time. And just like how

I remember a long time ago, I got confused back in my Harry Potter phase. Like I kept getting confused between fan fiction and like canon in the Harry Potter world. But it was really embarrassing. And that was like a really narrow version of it. But like this is how like a lot of Black Mirror episodes start, which is obviously depressing to think about. But obviously Black Mirror is designed to be cautionary tales to force us to think about the role of technology and how to not get it up.

And so we can learn a lot of those lessons and make sure that we build the technology to be able to keep these relationships healthy and effective. But it's going to lead to a lot of innovation in those things. I mean, it sounds like there's, if I had to pick like a meta theme in some ways, actually, let me take it from this angle. At the end of these podcasts, I've been asking everyone kind of like, you know, reasons for optimism is reasons for pessimism. And I think that it's very

clear just listening to you that you have a lot of optimism coming out of this. And in some ways, it feels like the, the, the, the, the, the, the, the, the, the, some, you know, the TLDR is when the entire world joins the internet and learns how to use the internet, some amazing things could happen. Yeah, exactly. That's the best way to put it. And part of the reason I'm optimistic is because, well, I'm an entrepreneur. So you just have to be kind of pathologically delusional about how great everything is or you would never take the insane risks that being an entrepreneur requires. Also, people are so depressed right now that I feel sort of a moral obligation to try to help counterbalance that, the panic. Also, I already went through the panic myself

as I have been thinking about this for a long time. And yeah, so basically this is, so as humanity emerges of the internet, the implications of that are that, so for example, some people say, oh, this is going to lead to increases in nationalism, right? Because now we have to, we have to huddle up, right? We can't have open borders because open borders lead to more, you know, migration and, you know, foreigners coming in with their diseases and stuff, which is totally true. That can totally happen. But a lot of people spend way too much time thinking about physical borders and none of time thinking about non-physical borders. So physical borders are very real thing. Obviously, countries are like very real entities and there's relationships between countries

and there's people and ethnicities and groups. But I think it's actually, What people miss is like thinking about the other kinds of borders. Like there's, you know, we're connected in all kinds of ways that are very real. So, for example, there's any given moment. There's about 5,000 cargo ships, you know, traveling the world, taking stuff around, right? And each cargo ship has, like, thousands of individual containers in it, which is like thousands of individual trucks on each cargo ship. There's 300 undersea cables connecting every, you know, island in the world to the global brain, right?

And so in some ways, and you think about all the other ways that we're connected, too, via, like, pipes and wires and all the infrastructure, right, that we can't see this invisible. It's below the ground, right? Or it's electromagnetic infrastructure that's also invisible to the human eye. And so as a result of this, humanity learns how to think together and how to create together as like it's really easy for, especially, you see this a lot when you travel, like people get in these little bubbles, right? And they see the same handful of people every day, they do the same things every day. And their whole reality is very local, right? It's very like within a 200-yard radius of their where they wake up, right? And then maybe

another 200-yard radius where they go to work, especially in poor countries, where they don't move at all, right? They don't even leave their village. And so this is the first time that a lot of people are going to be moving. Now they're not going to be moving their bodies, but they're going to be moving their minds. And when they move their minds, once you learn how to move your mind instead of your body, you basically unlock the ability to move anywhere at the speed of thought, right, at the speed of light, because you can travel the world through your computer. And, you know, humanity first started learning to do this with, you know, with books and then with radio and then with TV, right? And so if you think about, like, what is local to you, like the people around you? So it used to be

the people around you were the people you could literally see with your physical eyes, right? And then obviously with books, you can then see with the writer's eyes. And then with radio, you could see with the, with the narrator's voice. And then with video, basically the size of your neighborhood increases to include seven billion people. Because when you watch a documentary, say, about a tribe in the Andes, you essentially travel to the Andes, right? And then the internet, obviously, is the first tool that's two directional, right? Because you couldn't really, you know, there was only one directional conversation between the content creators and you, in the other three mediums, but the internet is the tool that lets you contribute to humanity.

So basically, like, as far as like, you know, with the notion, like, how do we push the innovation out to the edges of the network, the internet is massively decentralized compared to these other technologies, obviously not as much as us, you know, crypto nerds would envision. But when you think about, like, a billion people suddenly, like, integrating into the global brain and exploring in all these nooks and crannies that they typically didn't have time for previously or the motivation to do previously, I think we're going to see. see a whole lot of really interesting flows information in all kinds of ways that we didn't see before. Like memes, for example, like, one thing is fast things when you watch memes evolve.

It used to be that memes were like super localized and contained. And now, like, memes get translated across languages so much faster. And yeah, the rate of innovation in like, in all different forms of memetics is accelerating rapidly. So there's lots of reasons to be really panicked and freaked out right now. There's also lots of reasons to be excited about it as well. Perfect note to end on Emerson. I think, you know, we've spent a lot of time. on this show with folks who are, you know, concerned, justifiably so, about the state of the global economy and what happens on the other side of this. It is nice. It is refreshing to have someone kind of walk through a number of these second order effects that aren't just disastrous, right?

And that could actually unleash new creative capacity. So thanks so much for hanging out. This is fun. As I said at the beginning, I never want to be minimizing of the pain that people are going through right now. and the real travails that we still have to face together. But I do think it's important that we take some time to zoom out and ask these questions, not just of how the world will change, but how we want it to and how we can exert agency to create outcomes that we believe are better. In the face of adversity, we create new things. We create new opportunities.

It's very cliche, but these are the most trying times are where we grow the most, we learn the most, we become potentially our best selves. But that takes focus and that takes diligence and it takes a willingness to do it. So I hope you enjoyed the slice of Emerson's brain that we just had here. I'll link to the second order effects document. I think it's super fascinating. And I hope you enjoy it as much as I did. For now, guys, that's it. Stay safe and take care of each other. Peace.