The Prof G Pod with Scott Galloway - No Mercy / No Malice: Welfare Queens
Episode Date: August 20, 2022As read by George Hahn. Follow George on Twitter, @GeorgeHahn. https://www.profgalloway.com/work-from-office/ Learn more about your ad choices. Visit podcastchoices.com/adchoices Learn more about your... ad choices. Visit podcastchoices.com/adchoices
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I'm Scott Galloway, and this is No Mercy, No Malice.
Dig deep into most major tech products or companies,
and you'll find they were built on the back of U.S. taxpayer funding.
Yet the biggest critics of the government are also some of its biggest beneficiaries.
Tech billionaires are the first to shitpost American leaders,
even as they continue to harvest wealth from their lending hands.
This week, Welfare Queen, as read by George Hahn.
What's the most successful venture capital firm in history?
Kleiner Perkins and Sequoia Capital backed many internet-era success stories.
And Dreesen Horowitz? No.
One organization towers above.
This firm was there before the first transistor was printed,
and it will be there after we receive brain implants.
One investor funded the computer, the internet, speech recognition,
last-mile distribution, mapping the human genome,
the core technologies of fracking, and the first horizontal shale drill.
And today, it's driving down the cost of solar and wind power below that of coal.
Even better news?
If you're a U.S. taxpayer, you're a limited partner.
Founded in 1776 by general partners Washington, Jefferson, and Madison,
and headquartered today in a Boarts corporate campus in the District of Columbia, the U.S.
government is the world's premier funder of technological and commercial innovation.
The Inflation Reduction Act, IRA, is being hailed slash hated as a climate bill, but it's really just the most
recent investment by Eagle Capital. Opponents of the legislation claim it's a poor investment.
Eagle Cap's track record suggests otherwise, and we can expect big returns.
The IRA, awful name, will direct $369 billion to a variety of clean energy initiatives, largely through tax credits.
The largest investments are for solar, wind, and nuclear power been offering tax credits for wind and solar since the 1990s.
Just since 2010, the cost of solar has dropped 85%, and the price to harness wind energy has been halved.
Public funding through R&D and tax credits, has been instrumental to that
progress. 90% of U.S. coal-fired power is now more expensive to operate than replacement wind
or solar sources. And that's not for lack of investment in coal. Conservative accounting
puts government subsidies for coal at $20 billion per year, and the IRA includes investments in
carbon capture technology intended to support coal energy for several years. Eagle Cap's $528
million loss on solar cell manufacturer Solyndra, which declared bankruptcy in 2011,
was a notable miss. But failure is inherent to venture investing. One analysis
found the best-performing VC firms have more money-losing investments than the average funds.
The key difference is the magnitude of their successes and aggregate portfolio returns.
Solyndra was a miss, but the $30 billion Department of Energy loan program that funded it
turned a profit. There are many notable wins. One business that took a $465 million loan from the
same program in its early days? Tesla. You likely didn't know that, as its CEO spends more time
shitposting America than crediting it.
Early-stage, future-leaning research is riskier and requires large amounts of patient capital.
Private industry struggles to justify long-term mammoth investments in deep science.
The most enduring societies have one thing in common.
Their governments play the long game.
In the 1960s in the U.S., this meant computer and networking technology. At its peak, federal R&D spending approached 2% of GDP. The most cutting
edge work was done by the Defense Advanced Research Projects Agency, DARPA, which developed
or funded the development of almost every building block
technology of our tech infrastructure, from the internet and the mouse to graphical user
interfaces and GPS.
More recently, DARPA has been a major funder of AI projects, notably speech recognition.
Both Dragon and Siri spun out of DARPA.
Speech illuminates the difference between government and private R&D. In the 1950s, private Bell Labs, aka the phone company,
did pioneering work on speech recognition, but only on phone digits 0 through 9.
The government also invests upstream by supporting public education and universities.
Stanford established leadership in engineering thanks to a unique three-way partnership between the university, industry, and government contracts,
centered around the Stanford Research Institute, where many DARPA innovations have been created.
Mark Andreessen coded Mosaic, the first consumer-friendly graphical web browser – it was the precursor to Netscape Navigator – while attending the publicly funded University of Illinois
and working at the federally funded National Center for Supercomputing Applications.
Again, did you know that?
Why would you?
According to an MIT study,
technology developed at universities and then licensed to industry between 1996 and 2010 created $388 billion in GDP and 3 million jobs.
Double-click on any major tech product or company and you'll find government-funded tech. Apple, Intel, and Qualcomm were all beneficiaries of a loan program
similar to the one that funded Solyndra and Tesla.
Google's core algorithm was developed with a National Science Foundation grant.
Economist Mariana Mazzucato, in her book The Entrepreneurial State,
calculates that U.S. government agencies have provided roughly a
quarter of total funding for early-stage tech companies, and that in the pharmaceutical
industry, a sector requiring immense experimentation and a willingness to fail,
75% of new molecular entities have been discovered by publicly funded labs or government agencies.
Fifty years from now, the field most likely to spawn more value than digital computing
is genetics. And similar to digital computing, genetics is an eagle-cap portfolio industry.
The Human Genome Project costs U.S. taxpayers $3.8 billion,
was completed under budget and two years ahead of schedule,
and has generated $966 billion in economic activity and $59 billion in federal tax revenue.
It's estimated the federal government's $3.3 billion in annual spending on genetics projects generates
$265 billion in economic activity annually. This number doesn't account for the improved
health outcomes and quality of life flowing from genetic breakthroughs, which have an estimated
value of $1 trillion per year and growing. One of Eagle Cap's recent wins in this space?
The Moderna COVID vaccine, the result of a $25 million DARPA grant to the company for developing
RNA vaccine technology. The biggest critics of the government are, oddly, some of its biggest
beneficiaries. Tech billionaires are often
the first to shitpost America, even as they continue to harvest wealth from the investments
taxpayers make via the U.S. government. In fact, the biggest bitcher may be the biggest financial
beneficiary. Elon Musk says we should get rid of all government subsidies. That, quote, the government is the biggest corporation with a monopoly on violence, end quote.
And last week, mocked Washington for hiring more employees at the IRS.
Let's be clear.
Elon didn't build an EV company in South Africa or start a rocket company in Canada. He built Tesla and SpaceX in the United
States, and both continue to be heavily dependent on U.S. government support. There would be no
SpaceX without NASA, its largest customer. Tesla built its Fremont factory with a $465 million DOE loan in 2010, and its first 200,000 cars benefited from tax credit subsidies of up to $7,500.
For years, the company was able to report profits
thanks to the sale of emissions credits to other car makers.
All told, the company has accepted an estimated $2.5 billion in government support.
Mark Andreessen says he's pro-gridlock because, quote,
when the government does things, it usually doesn't end well, end quote.
Except for providing the state-sponsored platform for his career,
the University of Illinois and NCSA.
Now Mark is making news because he's concerned about our nation's housing crisis.
We aren't building enough houses, he wrote recently,
and that's, quote, a driving force behind inequality and anxiety, end quote.
Except when the housing is near his house.
Another outspoken billionaire, Peter Thiel, says the U.S. government is socialist
and believes we have, quote, much worse outcomes than the Soviet Union in the 1950s, end quote.
His solution is to take up seasteading, i.e. building floating autonomous ocean communities
that aren't subject to regulations or taxes.
But Thiel's current venture, Palantir, is a government contractor that provides data analytics to the CIA, DOD, and other government agencies.
And these contracts make up almost 60% of its revenue.
Note, Palantir has lost money every year of its existence.
That feels like a Soviet outcome.
In his 1980 presidential run,
Ronald Reagan advocated tearing up our social safety net
on the manufactured claim that it offered nothing more than handouts for lazy people.
He popularized the notion of the welfare queen,
someone living large on the government dime,
having more children to generate more welfare income. It was a classist, racist stunt. And it worked. 22 states passed laws banning increased welfare payments to mothers who had additional
children, and we've been slashing and burning the government ever since.
Reagan's welfare queen was a caricature, a country club cocktail fantasy of the ungrateful
beneficiary of hard-earned tax money. The new welfare queens are tech billionaires.
The only difference is, they're real.
VCs claim they partner with entrepreneurs.
Many do.
Bring unique insight.
Most don't.
And care about the founder.
Read money.
What's clear is that the economic model of 20% carried interest, investors and VCs get 80% and 20% of the gains on capital,
respectively, has been flipped on its head regarding public investment, where investors,
taxpayers, often get less than the VCs and entrepreneurs they back. Ironically,
a Democrat held up the legislation until the most obscene tax break in our tax code was restored.
I hope someday somebody loves me the way Senator Sinema loves VC and private equity.
We're on vacation, and my kids candy and were 100% confident they should have unfettered access to their returns before, during, and after dinner as they earned it.
The gap in the math was that dad spent $38 on supplies, table, sign, market, pitcher,
cups, lemonade mix, etc.
Take this times a trillion and you're starting to get
warm regarding the relationship between taxpayers, Sand Hill Road, and the innovators they back.
A wonderful thing about our country is that the people who are most patriotic are the ones who've
made the greatest investment, veterans. Less heartening are the individuals who've registered
the greatest benefit, are the least grateful, and are often the most critical. VCs who relocate to
Miami and before buying sunblock disparage constantly the state they built their wealth in.
Also, mega welfare queens who cash EV subsidy checks and sell carbon credits as they mock the elected leaders who passed those laws.
By the way, nobody believes you moved to Florida or Texas for better governance.
You wanted the chance to recognize a capital gain at a lower tax rate
than the middle-class taxpayers who funded your infrastructure.
Fuck off.
The first trillionaire will likely be an entrepreneur
who builds a layer of innovation on top of the bold investment
American citizens are making to address climate change.
Let's hope they display more grace in citizenship
and our elected leaders demonstrate more backbone representing investors.
The lower 99.99%.
Life is so rich.
What software do you use at work? The answer to that question is probably more complicated than
you want it to be.
The average US company deploys more than 100 apps, and ideas about the work we do can be
radically changed by the tools we use to do it.
So what is enterprise software anyway?
What is productivity software?
How will AI affect both?
And how are these tools changing the way we use our computers to make stuff, communicate,
and plan for the future? In this three-part special series, Decoder is surveying the IT landscape presented by AWS.
Check it out wherever you get your podcasts. Hey, it's Scott Galloway, and on our podcast,
Pivot, we are bringing you a special series about the basics of artificial intelligence.
We're answering all your questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch
out for? And to help us out, we are joined by Kylie Robison, the senior AI reporter for The Verge,
to give you a primer on how to integrate AI into your life. So tune into AI Basics,
How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts.