0:00
And you're you're building this out of your garage, correct? Yeah. Yeah. Yeah.
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0:02
So, the blockchain application I'm actually like, you know, which excites me personally the most is reimagining enterprise software.
0:08
If you're going to be like Kardash whatever scale civilization where you're using like immense amounts of energy like that's going to have, you know, side effects and you're going to have to figure out how to manage that one way or the other.
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I mean, one of those is eventually Earth may just be like a a nature preserve and we all live in space or something.
0:30
But, okay, today I have the pleasure of interviewing Austin Vernon, who writes about engineering, software, economics, investing on the internet, but not that much else is known about him.
0:41
So, Austin, do you want to do you want to give us a bit about your background?
0:44
I know that the only thing the internet knows about you is this one little JPEG that you had to upload with your recent paper, but what uh what about an identity reveal or I guess a little bit of a background reveal to the extent that you're willing to comfortable sharing?
1:00
My degree is in chemical engineering and I'm kind of like a lifelong long love of engineering and also things like Toyota production system and stuff like that.
1:09
And I've worked as a chemical engineer like in a large processing facility.
1:14
I've done a lot of petroleum engineering. Let's see.
1:20
And then now, you know, I taught myself how to write software.
1:22
And now I'm working on kind of like more research, early commercialization of CO2 electrolysis. Okay. Yeah.
1:30
So, I'm I'm uh I'm really interested in talking about all those things.
1:33
Um but so I guess the first question I have is Alex Burgerer who's the um coco of open philanthropy.
1:38
Um he he asked this question when I asked on Twitter what I should ask you and you suggested I should ask you why so shady.
1:46
So what do you you have a I mean famously you have kind of like a anonymous personality uh pseudonymous thing you have on the internet. What's up with that? Uh yeah. Yeah.
1:56
when, you know, he I think he posted a tweet that said, you know, like I don't I don't know who this guy is or like if he's credible at all, but you know, his stuff sure is interesting.
2:06
That that really made me laugh and it was hilarious.
2:08
Um yeah, it just doesn't doesn't seem necessary.
2:10
I think I'm fine with my um my ideas being well known and and communicating, but I have I have less desire to be like personally famous. So Oh, Gotcha. Gotcha.
2:23
I wanted to start off with uh a sexy topic.
2:25
So, let's talk about using Starship as a kinetic weapon.
2:32
Uh I thought that was like one of the one of the more amusing posts you wrote.
2:35
Do you want to talk more about how this would be possible?
2:39
Um well, I think the main thing with Starship is like it's, you know, you're taking a technology and you're making it about 100 times cheaper for cargo and a thousand times cheaper for people.
2:53
So when things like that happen that drastically, uh, you're just like look looking at huge changes and it's it's really hard to anticipate what some of those can be when the change is that drastic.
3:03
So I think there's like a lot of moonbased, Marsbased stuff that, you know, doesn't really catch the regular public's eye.
3:10
And I think they also have trouble imagining some of the like pointto-point travel that could be possible.
3:18
But as far as like, you know, you start talking about it like as a weapon and I think that's um, you know, it lets pe people know they should be paying attention to this technology that and we certainly do not want to be second or third getting it and we should make sure that we're going to be first.
3:37
Yeah, I think you mentioned this in the post, but um, so as as recently the '90s, the cost of sending 1 kilogram to space was around 20,000.
3:44
More recently, SpaceX has rated to 2000.
3:46
And then there's like a lot of interesting questions you can ask when you ask what will be possible once we get it down to $200 per kilogram to send into orbit. Yeah.
3:57
So, one of them might be to manufacture these uh weapons that are not conventional ballistics, but do you want to talk about like why this might be an advancement over conventional ballistic weapons?
4:09
Well, regular conventional ballistic weapons are extremely expensive.
4:14
you know, this is more like a bomb truck, you know, but it's even like usually we think of like B-52 as the bomb truck and this could be even, you know, cheaper than the B-52 um delivering just like mass on target.
4:24
Uh, when you think about like how expensive it is to fly B-52 from like Barksdale, Louisiana all the way across the world, you could do it from South Texas or Florida with the Starship and get, you know, more missions per day and the fuel ends up being like when you go orbital, it takes a lot to get to orbit, but then once you're in orbit, your fuel consumption's pretty good.
4:49
So over long distances, it has a lot of advantage.
4:55
That's why the pointto-point works for like the longer distances.
4:57
There's really like a sweet spot with these weapons where you want it to be like pretty accurate, but you also want it to be cheap.
5:05
Like you're seeing that problem with like Russia right now is they have some like you know fancy parade style weapons that are really expensive like multi-billion dollar cruise missiles but they're missing like that you know $5,000 guided artillery shell or like that you know like $20,000 JDM that you can just like put massive or the you know the multiple launch rocket systems guided rockets.
5:28
They're really like short on all those because I think they had just had like a limited amount of chips they could get from the US into Russia to make these advanced weapons.
5:38
But yeah, so the it kind of the starship gives you just like a platform to deliver like you could, you know, pit jams in a shroud or you could just like you know have the iron unguided kinetic projectiles and it just becomes impossible for you know a ship to launch missiles to intercept yours.
5:55
If you cost if your cost is so low, you can just overwhelm them. Okay.
6:01
There there are a few terms there that uh neither I nor the audience might know.
6:05
So what is uh what what is JDM? What is shroud?
6:08
And why are chips a bottleneck here?
6:10
Uh like why why can't it just be any microcontroller?
6:13
So JDM is joint direct attack munition.
6:16
So, what we did is we took all like our Vietnam surplus bombs and we put this like uh little like fin kit on it and it costs like 20,000 bucks which is cheap for a weapon cuz it um you know the actual bomb costs like I don't know 3,000 bucks and then you it turns you know it into a guided weapon that before you're you were probably lucky to get within 500 meters of a target.
6:40
Now you can get it in with like 2 meters.
6:41
So the number of missions you have to do with your planes and all that goes down by like orders of magnitude.
6:49
So it's an absolutely like huge advantage in logistics and and just how much firepower you can put on a target.
6:58
And the uh and you know like we didn't even have to make new bombs.
7:00
We just put these kits on all our old bombs. Let's see.
7:04
Then the chips are a problem.
7:06
There's like this organization called Russi.
7:08
I think they're in in the UK.
7:12
that they've been tearing down like all these Russian weapons they found in Ukraine and they all have American chips in them.
7:17
So, you know, technically we were supposed to like they're not supposed to be able to get these chips and you know, Russia can't make a lot of its own chips and especially not the specialized kinds you might want for guided weapons.
7:30
So, they've been somehow smuggling in chips from from Americans to make their advanced weapons.
7:35
What is special about these?
7:35
I would assume that like they haven't like as far as I'm aware the trade with China is still going on, right?
7:41
And we get a lot of our chips manufactured from Taiwan or China.
7:44
So why can't they do the same?
7:46
It's the whole like integration like you know it's not just like a specific chip but like the the board.
7:50
It's like they're more like PLC's or um where you're like w almost have like wired in um programming and stuff like that.
7:58
You they come with like this like the to be able to do the guidance and all that stuff.
8:05
It all kind of has to work together.
8:06
I think that's the way I understand it. I don't know.
8:08
Maybe I don't have a really good answer for that one.
8:12
But they're hard to replicate is what matters.
8:15
Okay, that's interesting.
8:15
Um, yeah, and I guess that has a lot of interesting downstream effects because for example, India buys a lot of its weaponry from Russia, right?
8:22
So if if Russia doesn't actually have access to these, then other countries that buy from Russia won't have access to these either.
8:28
You had an interesting speculation in the post where you suggested that you could just keep these kinetic weapons in orbit like a sort of damocles really. uh almost literally.
8:42
That sounds like a really uh scary and risky scenario where I don't know you could have orbital decay and you can have these kinetic weapons falling from the sky and destroying cities.
8:51
Um do you think this is what it will look like in or could look like in 10 to 20 years? Well, yeah.
8:58
So, the the advantage of having on orbit is you can hit targets faster.
9:01
So, you know, if you're launching the rocket from Florida, you're looking at like maybe 30 minutes to get get there.
9:06
So, you know, target moves in that time.
9:08
Whereas, if you're on orbit, you can have them spaced out to where you're hitting, you know, within like a few minutes.
9:14
Um, so that's the advantage there.
9:16
When you actually look at like the you you really have to have like a two-stage system, I think, for most because, um, if you have like a really aerodynamic rod that's going to give you good performance in the low atmosphere, it'll get going too fast and just like burn up before you get there.
9:34
Um, you know, tungsten's maybe the only thing that you could have that could go all the way through.
9:42
That's why like the original concept use these big tungsten like rods the size of like a telephone pole.
9:50
But, you know, tungsten's pretty expensive and like just the rod concept, it kind of limits what you can do um if you just do the rods.
9:58
So, a lot of these weapons will have like that's what I was talking about like with the shroud like something that actually slows you down in the upper atmosphere and then once you're to the velocity where you're not just going to melt, then you open it up and let it go.
10:11
So, if you actually had it, you know, fall from the sky, some may make it to the ground, but um a lot would burn up.
10:18
So, the uh a lot of stuff that makes it to the ground is actually pretty light.
10:22
You know, it's like stuff that can kind of like float and has a large surface area.
10:26
Um yeah, so that's like the whole thing with Starship like there or not Starship but um Starlink all those satellites are meant to completely you know fall apart on de orbit. I see.
10:39
Like one of the implications of that is that these may be less powerful than we might fear because if um like if kinetic energy is mass times uh you know a velocity squared then you have to if there's an upper bound on the velocity and then the velocity is the component that grows um the kinetic energy faster then it suggests that you can upper bound the power these things will have you know what I mean? Yeah.
11:04
So, so even the tungsten rod, sometimes people like, you know, they're not good at physics or something, so they don't like do the math.
11:09
Um, they think it's going to be like a nuclear weapon, but it's really I think even the tungsten rod, I might have put it in there.
11:16
I think if I'm remembering correctly, like 10 tons of TNT or something.
11:19
It's like a big a big bomb, but it's not um, you know, it's not like a super weapon.
11:26
So, it that's I think I said in the post it really has like it's like advanced missiles where they're almost more defensive weapons.
11:32
So, I can keep you from pitting your ships somewhere, you know, and like, yeah, I could like try to bombard your cities, but I can't I can't take ground with it, you know?
11:40
I can't even like police seal lanes with it really.
11:44
I'd still have to have regular ships, you know, if I had this air cover essentially to, you know, go like enforce the rules of the sea and board freigherss and stuff like that. Yeah.
11:55
So, I you you speculated in the post, I think, that you could have like potentially the these uh you could like load this up with shrapnel and then it could like explode next to uh an incoming missile or an incoming aircraft.
12:07
Um yeah, could these get that accurate?
12:10
Uh because that was surprising speculation to me.
12:14
Uh yeah, I think like for ships I think it's pretty, you know, like I was like watching videos of uh you know how fast a ship can turn and stuff because you'd want to like release your shrapnel you if you're going to like do an initial target on a ship to like try to kill their radars and stuff.
12:27
You'd want to do it above the ceiling of their missiles.
12:32
So it's like how much are they going to move between your release where you stop steering and and that and it's really you know it's like maybe like thousand feet. So that's pretty simple.
12:39
you just like shrapnel the area.
12:41
The aircraft you would be steering all the way in.
12:44
So it it it's maybe actually I'd say it's doable, but it'd be pretty hard. Yeah.
12:52
And you'd actually maybe want to even go slower than you would with the ship attack.
12:58
You know, you need like a specialized package to do the aircraft.
13:02
But you can see these aircraft on um like if you have enough synthetic aperture radar and stuff like that, you can see them with satellites and then guide it in the whole way.
13:10
You could even like say load like heat seeeking missiles into a package that you know stop you know unfurls right next to them and launch conventional missiles too probably.
13:21
I mean that's that'd be pretty hard to do some of this stuff but it's just like kind of you know the things you might be able to do if you put some effort into it. Yeah.
13:29
The reason I find this kind of speculation really interesting is because uh when you look at the uh modern weaponry that's used in conflicts, it often seems like it just seems like directly descendant from something you would have seen in World War II or something.
13:43
It's it doesn't seem um like like if you think about like how much warfare changed between like uh 1900 and 1940, it's like yeah, the not even the same class of weapons anymore.
13:54
Um so it's interesting to think about possibilities like these where the entire um the entire category of uh weapons has changed. All right.
14:04
And that's because you know the same thing like you know our physical technology hasn't changed that much.
14:09
So it's it really has just made more sense to like put better electronics in the same tanks we have than to build like you're just not going to get we haven't learned enough about tanks to build like a new physical tank that's way better.
14:21
So, we just keep upgrading our existing tanks with better electronics.
14:25
So, they're they're they're much more powerful. They're more accurate.
14:28
You a lot of times they have longer range weapons.
14:30
They have better sensors.
14:32
So, the tank looks the same, but you know, it maybe has like several times more like killing power, whatever, what have you.
14:40
But, you know, the Ukraine war right now kind of they're using a lot of like 40, 50y old weapons.
14:47
So, that especially looks like that. Yeah. Yeah.
14:52
Um which which kind of worries you if you think about the stock piles our own military has.
14:55
I'm not well educated on the topic, but I imagine that we don't have the newest of the new thing, right?
15:00
Like we probably have maintained versions of decades old technology.
15:05
Uh you know, I mean, we spend so much.
15:07
We've got relatively this this kind of gets into like there's a lot of debate about like how ready our military is and for certain situations it's more ready than others.
15:16
Um, I'd say in general most people talking about it have the incentive to um downplay our capabilities because they want more defense spending or just there's lots of reasons.
15:30
So, I think we're probably more more capable than than what you might see from like, you know, some editorial in the Hill or whatever.
15:39
And I think just like us just sending a few weapons over to Ukraine and how successful they've been using them, I think shows a little bit of that.
15:47
But there's there's so much uncertainty when it comes to uh to fighting.
15:53
You know, especially when you're talking about like a naval engagement where there we don't just don't have that many ships in general, you can have some bad luck.
16:00
So I think I think that you know, you always want to be a little bit wary, you know, don't want to get overconfident. Yeah.
16:09
Yeah. And if um like if if the offensive tech we sent to Ukraine is potentially better than the defensive tech, um like it's very possible that even a ballistic missile that uh China or Russia could launch could sink like a battleship and then kill 2,000 uh you know a thousand
16:27
or whatever soldiers that are on board or I guess I don't know you think this opens up avenues for defensive tech as well or Yeah, I mean generally the the consensus is that um defensive technology has improved much more recently than offensive technology. And there's so
16:42
And there's so China this whole like strategy China has is they call um it's like area denial anti-access area denial A2.
16:52
Um and so that's basically just like missiles have gotten better because the sensors on missiles have gotten better.
17:02
so they can keep our ships from getting close to them, but you know, they can't really challenge us like in Hawaii or something.
17:08
And it really goes both ways.
17:10
I think people forget that.
17:10
So, yeah, it's like hard for us to get close to China, but you know, Taiwan has a lot of missiles with these new sensors as well.
17:18
So, I think it's probably tougher for China to get close to Taiwan than than most people would uh would say. Oh, interesting. Yeah.
17:27
C can you talk more about that?
17:29
because every time I read about this, people are saying that if China wanted to, they could uh knock out Taiwan's defenses in a short amount of time and take it over. Um, yes.
17:37
So, can you talk about why that's not possible?
17:42
Uh, well, it might be, but I think this gets the uncertainty thing, but Taiwan, you know, has actually one of the largest defense budgets in the world, and they've recently been upping it.
17:49
I think they spend like, I don't know, 25 billion a year, and they added like an extra 5 billion.
17:55
They've been buying a lot of anti-hship missiles, a lot of air defense missiles, stuff that like, you know, Ukraine could only dream of.
18:01
I think Ukraine's military budget was like two billion.
18:04
They have, you know, professional army.
18:08
They're gearing the And then the other thing is they're an island.
18:10
So, you know, like Russia could just like roll over the land border into Ukraine.
18:13
But, you know, I mean, almost there's just very few successful amphibious landings in history.
18:21
like some of the recent most recent ones were all you know the Americans in World War II in Korea.
18:26
So like the challenge there is is just you know it's kind of on China to like execute perfectly and do that.
18:34
So if they like had perfect execution then possibly but you know if like maybe their air defenses on their ships aren't quite as good as we think they could possibly be then you know they could also end up with half their fleet underwater within you know 10 hours. Interesting.
18:52
And how has your view of Taiwan's defensive capabilities?
18:54
How like how has the Ukraine conflict updated your opinion of what might happen?
19:01
I didn't really know much about it and then you know I like started looking at like Wikipedia and stuff and like all this stuff they're doing and so you know the Taiwan just has like a lot of modern platforms like F-16s with our anti-hship missiles.
19:15
They actually have a lot of their own.
19:16
They have indigenous fighter bombers, indigenous anti-hship missiles because you they're worried we might not always sell them to them.
19:23
They've even recently gotten these long range cruise missiles that could possibly target leadership in Beijing.
19:30
So I think that makes it uncomfortable for, you know, the Chinese leadership.
19:36
Like if you attack them, you're going to have to go live in a bunker.
19:40
Um, so there there's lots of like, you know, but again, there's I'm not like the full-time military analyst or something, so there's a lot of uncertainty around around what I'm saying.
19:50
It's not it's not a given that China's just going to roll over them.
19:54
Yeah, that's comforting to hear.
19:54
Let's talk about an area where uh I have a little bit of a point of contact.
19:59
Um, I thought your blog post about software and the inability of it to increase productivity numbers.
20:07
I thought that was super fascinating.
20:09
So, before I ask you questions about it, do you want to do do you want to lay out the thesis there? Yeah.
20:15
So, the uh Yeah, if there's one post I kind of like felt like I caught lightning in a bottle on is that one.
20:19
It really like everything I wanted to put in it just like fit together perfectly, which is usually not the case.
20:24
But yeah, I think I think the idea is the world's so complex and we really underestimate that complexity.
20:35
And if you're going to like digitize processes and automate them and stuff, you have to capture all that complexity basically at the bit level and that's extremely difficult.
20:44
And then you also have like diminishing returns where like the easily, you know, automatable stuff goes first and then it's like increasing corner cases to get to the end.
20:53
Um, so you just have to write like more and more code basically.
20:59
And so that's why we don't see like runaway productivity growth from software is because we're fighting, you know, all this increasing complexity. Yeah.
21:11
Have you have you heard of the waterb theory of complexity by the way? Uh I don't think so. Okay.
21:16
It's it's it's something that comes up in compiler design, but the idea is that there's like a fixed amount of complexity um in a system and if you try to reduce it, uh what you'll end up doing is just you'll end up migrating the complexity elsewhere, right?
21:28
the complexity elsewhere, right? So I think an example that's used of this is is when they try to program languages that are uh uh not type safe something like Python you can say oh like it's a less complex language but really you've added complexity when when I don't know
21:44
two different types of numbers are interacting uh like a like a float and an int right um you've added complexity there uh that I mean as your program grows that complexity exponentially grows of all the things that could go wrong when you're making two things interact that in a way that you you were expecting not to. So yeah, the the idea is um you you
22:01
So yeah, the the idea is um you you can just choose where to have your complexity, but you can't get rid of that complexity. Yeah. Yeah. Yeah.
22:10
Yeah. Yeah. Yeah. That's I think there's like this there's kind of like an interesting thing when you start pairing it with management theory and like how it kind of starts tying into some of my other posts is that for a long time when you add up like all the factors the most complex thing we were doing is is you know high volume car manufacturing and
22:29
so we got a lot of innovations and organization from car manufacturers like the assembly line then you had Sloan at GM basically you know creating the way the modern corporation is run then you have Toyota production system but arguably now creating software is actually the most complex thing we do so there's like all these kind of like squishy concepts that underly like
22:56
Toyota production system that software has had to learn and like reimagine and adopt and you know you see that with like agile where oh well we can't have long release times we need to be like releasing every day which is like you know we're limiting inventory there or um you know there's just there's like a whole thing especially that's showing up in software that existed in car
23:20
manufacturing where you're talking about you know reducing communication so like Jeff Bezos kind of like now famously said you know I want to reduce communication which is counterintuitive to a lot of people this is like age-old in car manufacturing where you you have like Toyota has these cards that go between workstations and they tell you what to do. So people normally think of
23:40
So people normally think of them as limiting inventory, but it also tells the worker exactly what they're supposed to be doing at what pace, at what time.
23:49
And the assembly line is like that, too.
23:50
You just like know what to do because you're standing there and there's a part here and it needs to go on there.
23:55
Um, and it comes by at like the pace you're supposed to work at.
24:01
And there's it's like so extreme that there's this I think it's a famous paper but it's by like list cyverson and Levit and they went to a car factory and like you know studied how like the defects propagated in cars and stuff and once a like a car factory gets up and running like it doesn't matter if what workers you put in there like if workers are sick or you get new workers like the defect rate is the same.
24:25
So like everything is just like all the knowledge is built into the manufacturing line and there's like these concepts around like idiot proofing and everything like that that um are very similar to like what you'll see you had Uncle Bob on there.
24:39
So Uncle Bob, you know, says like only put one input into a function and stuff like that because you'll mix them up otherwise.
24:48
So it's kind of like this.
24:50
The Japanese call it like pokey.
24:50
It's like you you make it where you you can't mess it up.
24:54
That's another way to like reduce communication and then software of course you have APIs.
24:59
So I'm really interested in this overall concept of like reducing communication and reducing um how much cooperation and like and everything we need to run the economy. Right. Right.
25:13
They speaking of the Toyota production system like one thing they do to reduce that defect rate is if there's a problem um all the workers in that chain are forced to go to the place where the defect or problem is and fix it uh before doing anything else.
25:27
And I guess the idea there is this will give them context to understand what the problem was, how to make sure it doesn't happen again and also prevent a buildup of um inventory in a way that like keeps making these defects happen or it just keeps uh keeps accumulating um inventory before the place that can fix the defects is able to take care of them, right? Yeah. Yeah. Exactly. Yeah.
25:51
Yeah. Um but you know I I think uh one interesting thing about uh software and complexity is you I think you said a little bit earlier that software is a place where complexity is the highest uh in our world right now and one of the interesting things is yes that's true but you I guess software gives you the
26:08
choice to interface with the complexity you want to interface with and I guess that's just part of specialization in general but you could say like for example um uh a machine learning model is like really complex uh but ideally you get to a place where that's the only kind of complexity you have to deal with. You're not having to deal with the
26:23
You're not having to deal with the complexity of like how is how is this program compiled um like how you know like how are the libraries that I'm using? How are they built?
26:31
You can you can like fine-tune and work on the uh complexity you need to work on.
26:35
It's similar with like app development, right?
26:38
Burn Hobart has this blog post about Stripe as solid state.
26:40
I forget the exact title of the blog post but the basic idea is that Stripe hides all the complexity of the financial system.
26:48
It charges a higher fee, but you can just kind of treat it as an abstraction of a tithe you have to pay and it'll just take care of that entire process and you can focus on your comparative advantage. Yeah.
27:01
And it's it's really actually very similar in like car manufacturing and Toyota production system if you really get into it.
27:06
It's it's very much the same conceptual framework.
27:08
Well, so there's like this whole idea like in Toyota projection system, everyone everyone works at the same pace, which you kind of talked about, but also like your content, your work content is the same.
27:20
Like there's there's there's no room for not standardizing like a way you're going to do things.
27:26
So everyone like gets together and they're like, "All right, we're going to this certain part.
27:31
We're going to put it together this certain way at this little micro station and it's going to be the same way every time."
27:37
That's part of like how they're, you know, reducing the defect rates.
27:42
And then if you, you know, like if your assembly pro is too long, like it's longer than what your like time aotment is to stay in touch with the rest of the process, then you just keep breaking it down into smaller pieces.
27:56
And so, you know, each each person only has to know like a very small part of it.
28:01
And even the, you know, even like the the overall engineering team, you know, has all sorts of strategies like this to there's all they have all sorts of like tools to like help them break up all these processes into very like small parts and to make it all like hold together. still very very hard.
28:19
But um it's kind of the like a lot of the same ideas is you're taking away like the complexity of making like a $30,000 car or 30,000 part car where everyone's just focusing on their one their one little part and they don't care how what someone else is doing. Yeah.
28:37
But the uh uh but the interesting thing also there is it seemed like there you need one person who knows how everything fits together because one of the uh from what I remember one of the tenants of the Toyota production system was you need to have a global view.
28:51
So I mean in that book um was it the machine or the other one the Toyota production system book but anyways they were talking about examples where people would try to optimize for local efficiencies.
29:01
efficiencies. I think they they especially point to like Ford and GM for trying to do this where they would try to make machines run all the time and locally you could say that oh this machine or oh this process is super efficient you know it's always outputting stuff but it ignores how that
29:16
u that added inventory or that process had a bad consequence for the whole system and so it's interesting if you look at a company like Tesla that is able to do this really well the interesting thing is that Tesla is run like a monarchy um and this one guy has this like total global view of how the entire process is supposed to run. Where
29:34
Where do you have these inefficiencies?
29:35
You have some great examples of this in the blog post.
29:39
But yeah, I think one of the examples that I think was it the Toyota production system book.
29:43
But anyways, this guy goes to this factory and the author and he asks um is this like an efficient factory?
29:49
And the guy's like, "Yeah, this is totally efficient.
29:51
There's nothing we can do adopting the Toyota way to make this more efficient."
29:54
And so then he's like, "Okay, let me look."
29:56
look." and he finds that in one of the so they're like treating steel in some way but it's only it should only take a couple of seconds and the main process does only take a couple of seconds but some local manager decided that it would be more efficient to ship uh their parts
30:11
out to get the get the next stage of the project uh process done somewhere else and so this is like locally cheaper but the result is that it takes weeks to get these parts shipped out and get them back and so that means that the actual time that the parts spend getting processed is like 0.1% of the time which
30:27
processed is like 0.1% of the time which makes the whole process as a whole super inefficient right so I don't know it seems like the implication is you need uh you need like a a very like monarchical structure with like one person who has a total view in order to run such a system or am I getting that wrong
30:43
um not necessarily I mean you do have to like make sure you're not um optimizing locally but I think it's the same you know you have that same constraint in software but I think a lot of times people are just like running over it because processing has been getting so much cheaper, you know, and I like people are expensive. So, like if you can save
31:01
So, like if you can save development time, you know, it it just ends up, you know, the the trade-offs are different when you're talking about like the tyranny of like physical items and stuff like that.
31:12
It um you know, it get the constraints get a little more severe.
31:18
But I think you have like the same the same overall.
31:20
you know, you still have to fight local optimization, but the level you have to is probably different with physical goods.
31:25
I was thinking about like the the smart grid situation from like a software perspective.
31:30
And um like there's this problem where like okay, I'm putting my solar farm here and it's impacting somewhere far away and that's then like creating these like really high upgrade costs, you know, that cost two or three times more than my solar farm.
31:46
Well, you know, the the obvious thing would be if you're doing software is like you're like going to break all these up into smaller sections and then you wouldn't be impacting each other and all that and you could you could work and focus on your own little thing.
32:00
But the problem with that is if you're going to like disconnect these areas of the grid is that the equipment to do that is extremely expensive.
32:07
You know, like it's not like I'm just like going to hit a new tab and open a new file and and start writing a new function.
32:15
Um, and not only that, but you still have to like actually coordinate how these this equipment is going to operate.
32:22
So, if you just like let the grid flow as it does, everyone knows what's going to happen because they could just calculate the physics.
32:28
So, if you start adding in all these checkpoints where humans are doing stuff, then you have to like actually interface with the humans and and the the amount of things that can happen really starts going up.
32:38
And so it's actually a really bad idea to to try to part all this stuff off just because the like the reality of the the physical laws and the equipment you need and everything like that. Okay. Interesting.
32:54
And then I think you have a similar uh sort of like cosine argument in your software post about what why vertically integrating software is is beneficial.
33:02
Do you want to explain that thesis? Yeah.
33:06
And I think it's just like, you know, it actually gets to what we're talking about here where it allows you to to avoid like the local optimization because, you know, a lot of times, right, you're trying to build like a software MVP and you're like tying together like a few services, they don't do quite what you need.
33:22
So if you like try to scale that, like it would just break.
33:24
Um, but if you're like going to take a really complex process like car manufacturing or distribution, retail distribution or you know like the home buying process or something, you really have to vertically integrate it to be able to create like a decent end toend experience um and avoid that that you know local optimization.
33:48
Um, and you know, it's just very hard otherwise because there's no you you just can't coordinate effectively if you have like 10 different vendors trying to do all the same thing.
34:02
You end up in like just constant like vendor meetings where you're like trying to decide what the specs are or something instead of giving someone the authority or giving a team the authority to just go start building stuff.
34:13
Then you if you look at these companies like they have to implement these decentralized somewhat decentralized processes when they get too complex but at least they have like control over how they're interfacing with each other you know like Walmart has vendors control their own stock you know they don't like tell the vendor we need X parts it's just like it's on you to make sure your shelf is stocked. Yeah. Yeah.
34:39
Yeah. Yeah. So I what was really interesting to me about this part of the post was I don't know I guess I had this vision of or I had heard of this vision of where software is heading where everybody will have a software as a service company and they'll all be interfacing with each other in some sort of cycle where they're all just calling each other's APIs and um and that like yeah basically everybody and their
35:02
mother would have a SAS company um and it's the implication here was from your argument was the given the necess ity of integrating all this complexity vertically in a coherent way, then the winners in software should end up being a few big companies, right, that compete with each other, but still uh I think that's especially true when you're like talking about like you're combining bits and atoms. Um,
35:24
Um, you know, maybe less true for like pure software.
35:31
the physi like the physical world is just so much more complex and so the constraints it creates are pretty extreme you know compared to like you could maybe get away with more of like everyone their mom having an API in like a pure pure software world right yeah I guess you might think that
35:50
in the other kind of world even in the physical world given that people really need to um focus on their uh comparative advantage they would just try to outsource the software parts to these API But is there any scenario where the learning curve for people who are not in the firm can be fast enough that they
36:08
can keep up with the complexity because you know there's huge gains from specialization um and competition that go away if this is the world we're forced to live in and then I guess we have a lot of counter examples I guess we have a lot of examples of what you're talking about like Apple is you know the
36:24
high most uh the biggest market cap in the world right and famously they're super uh vertically integrated Um and yeah obviously their their thing is combining hardware and software but um yeah is there any world in which it can keep uh that kind of benefit but have it be within multiple firms? This is like a post I've got on my list
36:42
This is like a post I've got on my list I want to write that the the blockchain application I'm actually like you know which excites me personally the most is um reimagining enterprise software because like the things you're talking about like hard typing and like APIs is just like basically built in to some of these protocols.
37:02
Um, so I think it it just really has a lot of exciting implications for how much you can decentralize software development and you can but you know the thing is you can still do that within the firm.
37:18
So I think I think I mentioned this is like you know if the government's going to place like like all these like rules on the edge of the firm like it it makes transactions with other firms expensive.
37:29
Um, so if you internal transactions can be cheaper because they're avoiding like the the government, you know, reporting and taxes and all that kind of stuff.
37:37
So I think you'd have to think about how these technologies can reduce transaction costs overall and decentralize that, but also what are the the costs in between firms.
37:54
Yeah, it's really interesting if there are if the costs are logistic or if they're um if they're based on the knowledge that is housed as you were talking about, you know, within within the factory or something.
38:05
Um cuz if it is just, you know, uh logistical and stuff, it's just like you had to report any outside transactions, then yeah, that does imply that a technology like blockchain could help.
38:16
But if it's just that yeah, you need to be in the same office.
38:20
And if you're not, then you're going to have a hard time keeping up with what the new requirements for the API are, then maybe it's that yeah, maybe the inevitability is that you'll have these big firms that are able to vertically integrate. Yeah.
38:31
Like for these big firms to survive, they have to be like somewhat decentralized within them.
38:34
So I think you have you're you're going to the same place as just like what what does it like you know what's our fra like how are we viewing it? What's our perception?
38:44
you know, so even if it's like a giant corporation, it's going to have like very independent business units um as opposed to uh you know, something like, you know, a 1950s corporation. Yeah.
39:00
Burn Hobart, by the way, has this really interesting post that you might enjoy reading when you're while you're writing that post.
39:04
um uh it's like type safe communications and it's about that Bezos thing about how uh yeah his his strict style for how to communicate and how little to communicate.
39:15
Um there's many examples in uh Amazon protocols where you have to the only way you can like put in this report is in this place you had to give a number.
39:25
You can't just say this is very likely you have to say like we we project x% increase or whatever.
39:30
So it has to be a percent or and you you know there's many other cases where there's they're strict about like what type definition you can have something have in the in written reports or something and it it has a kind of the same consequence that uh type strict languages have which is that you can keep track of what the value is through the entire chain of the the flow of control.
39:52
So you've got to keep work content standardized.
39:57
Um so we've been hinting at the Kosian um the Kosian analysis to this.
40:00
I think we just talked about it indirectly but yeah for the people who might not know um the yeah so the coast has this paper called the theory of firms and he's trying to explain why is the case that we have firms at all like why not just have everybody compete in the open market for employment for anything like uh why do we have jobs?
40:17
Why not just have you you can just like hire a secretary by the day or something.
40:21
And the conclusion he comes to is that if you by having a firm you're reducing the transaction cost.
40:27
So you know people will have the same knowledge about like what needs to get done.
40:30
Um you obviously you're reducing the uh transaction cost of like the the contracting, finding labor um blah blah blah.
40:37
And so the conclusion he comes to is the more the transaction costs uh are reduced within people in a firm as compared to the transaction cost uh between different firms, the bigger firms will get.
40:49
Um and yeah so I I guess you're uh that's why the implication of your argument was that there should be bigger tech firms right? Yes.
40:59
Yes definitely because they can basically decrease the transaction costs faster within and then even at the limit you know if you have large you know large transaction costs outside the firm between other firms that are artificially imposed then it will make firms bigger and then so what does the world look like in that scenario?
41:18
So will we just be like these Japanese companies uh these huge conglomerates who are just uh you you rise through the ranks from the age of 20 till you die or is that what software will turn into?
41:32
uh you know I it could be I mean I think I think it will be lots of very large companies unless you know there's some kind of change in in interfirm transaction costs and again that could possibly come from blockchain like technology but you probably also need
41:49
you know better regulation to make that cheaper and then you would have smaller firms but again I'm not you know in the end it doesn't really matter like you'd be like working in like your little unit of the big bank of Corp or whatever. So it it
42:02
So it it it may not I don't know what that would look like, you know, like as like a personal level, but Yeah. Yeah.
42:12
Um okay, so speaking of these Japanese companies, let's talk about uh car manufacturing and uh um everything involved there. Yeah.
42:18
So yeah, we we we we kind of uh hinted at a few elements of the toaway in lean production earlier, but do do you kind of want to give a brief overview of what that is?
42:28
Uh so we can compare it to potentially other systems.
42:33
You know, I think like all these kind of like lean Toyota process like systems, they they do have a lot of similarities and you know, mostly you want to even out your production so you're producing very consistently and you want to, you know, break it into small steps.
42:52
You want to limit the amount of inventory you have in your system so that there's and when you do this it makes it easy to see like how the process is running and limit defects and and you know the the ultimate is you know you're really trying to reduce defects because they're very expensive.
43:14
That's maybe it's it's it's a little bit hard to summarize.
43:16
I think that's my best shot at it there quickly off the top of my head. Yeah.
43:21
I I the the the interesting thing about the the Toyota system.
43:23
So at least um when that the machine was released they talk about that book was released I think the '90s um and they went to like the history of Toyota and one of the interesting things they talked about was there there was a brief time where the company ran I think was this after World War II?
43:37
Uh but anyways uh you know the company ran into some uh troubles.
43:40
They needed to reduce um they needed to lay off people to not go bankrupt.
43:45
They had much more debt on books than they had assets.
43:49
And so yeah they they wanted to lay off people but um the obviously the people were not happy about this.
43:57
So there were like violent protest about this and um in fact I think the US uh the US written constitution like gave strong protections to labor that um they hadn't had before.
44:09
So which which made it um which gave labor even a stronger hand here.
44:13
Uh and so anyway, so the Toyota comes to this uh agreement with the unions that they'd be allowed to do this like onetime layoff to get the company on the right track, but afterwards they could never lay somebody off.
44:25
Um and then so they which would mean that like a person who works at Toyota works there from the time they graduate college or high school till they die, right?
44:33
Um and I I I don't know like that's that's that's super intense in a culture.
44:39
I mean in software where you have the average tenure at a company is like one year that the difference is so much and uh there's like so many potential benefits here.
44:46
I guess a lot of drawbacks too but one is ob obviously if if you're talking on a time scale of 50 years rather than one year the um the incentives are way more aligned between the company and the person cuz like any any anything you could do in like one year is not going to have a huge impact on your stock options uh in that in that amount of time.
45:04
But if you're planning on hope, if this company is your retirement plan, then you have a much stronger incentive to make sure that things at this company run well.
45:11
Um, which means yeah, you're you're probably optimizing for the company's long-term uh cash flow yourself.
45:17
Uh, and also, yeah, there's obviously benefits to having that um that knowledge build up in the firm from people who have been there for a long time.
45:26
But yeah, that was an interesting difference.
45:28
Uh, one of the interesting differences at least.
45:31
I mean I I I think there's like a diminishing returns to how long your tenure is going to be.
45:36
Like maybe one year is too short, but there's a certain extent to where, you know, if like you grow faster than your role at the company, then then it's time to switch.
45:46
And you know, maybe that's like it's going to depend on the person, but maybe like five years is a good a good number.
45:53
And so if you if you're not getting promoted within the firm, then your human capital is being wasted because you could go somewhere else and and and have more responsibility and perform better for them.
46:03
Um, and another interesting thing about like you that story is almost all lean turnarounds, you know, or like we're going to implement something like Toyota production system, they come with no layoff promises because um, you know, if you're going to increase productivity, that's why everyone's like, "Oh gosh, I'm going to get laid off."
46:22
So instead, you just you have to uh increase output and take more market share.
46:26
What you do, it's a it's it's like um it's kind of like burning your bridges, right?
46:33
So you this is the only way you you really like the process really requires like complete buy in because a lot of your ideas for how you're going to standardize work content come from your line workers um because that's what they're doing every day.
46:44
So you can't if you don't have their buy in then it's going to fail.
46:49
So that's why it's really necessary to have those kind of clauses. Yeah. Yeah. That that makes sense.
46:54
Yeah. Yeah. That that makes sense. Was it in your post or in the book where they talked about um no I think it was in your post where you said if if somebody makes their process more efficient and therefore they're getting like more work allotted to them then
47:08
obviously they're going to stop doing that right so um uh which means that I don't know do you got to give more dime downtime to your best workers or something uh or the people who are more creative in your company I was just going to say like you know if you're like a you know worker at a plant
47:23
then usually they have like small a lot of times like for that level employee like actually small rewards work pretty well like um a lot of people used to like on drilling rigs used to like if you met certain targets like give the guys like $100 Walmart gift cards um so sometimes like small to reward you
47:44
know new ideas stuff like that works but because the whole system has to row together like if you just improve like one part of the process it doesn't it may not help you you know you have to be like improving all the right process process and stuff. So, normally it's
47:55
process and stuff. So, normally it's much more collaborative like there's some engineer that's looking at it and like all right this is our is where we're struggling or we have our defects here and then you go get together with like you know that supervisor and the workers in that area then you know you all figure out like what improvements could be together because usually the people already know like this is like
48:17
you know you see a problem at the top and you're just now realizing it and then you go talk to the the people doing the work and they're like oh yeah I tried to tell you about that like two weeks ago and then you figure out you know a
48:28
better process from there based on your recommendation and Stephen Molino's recommendation I recently read uh the goal and after reading the book I'm much more understanding of the value that consultants bring to companies
48:41
potentially because before you could think what is a 21-year-old uh who just graduated college what do they know about manufacturing like what are they going to tell this plant that they didn't already know how could they possibly be adding value and afterwards
48:54
it occurred to that there's so many abstract concepts that are necessary to understand in order to you know like uh to be able to increase your throughput and uh so now I now I guess I can see how like somebody who's generically
49:07
smart but doesn't have that much industry knowledge might be able to contribute to a plan like but what value consultants could be bringing you I think I think there's like you know this applies to consultants or like young
49:19
engineers like a lot of times you put young engineers like just right in the thick of it like you on like working in production or process like right on the line where you're talking to the you know workers the most. And there there's
49:30
And there there's really two advantages.
49:32
There's several advantages of that.
49:34
One, the engineer learns faster because they're like actually seeing the real process.
49:40
And um the other is there's there's like easy opportunities for them to still have um a positive impact on the business because there's just like $100 bills laying on the ground just from going up and talking to your workers and learning about stuff and figuring out problems they might be having and things like that that could that could help you lower costs.
49:59
I think I think there's a lot of consultants that you know I I don't know how the industry goes but I would guess there's like you know I know Accenture has like 600,000 employees or something like or maybe I don't know if that many but it's just a large number in a lot are doing more basic tasks and then you know the there are some people that are doing like the high more high level stuff that's probably a lot less. Yeah. Yeah.
50:24
There there was a there was a quote from one of those books that said at toida we don't like consider you an engineer unless you need to wash your hands before you can have lunch. Um um yeah. Okay.
50:35
So in in your in your book about oh sorry not your book in your in your blog post about the car manufacturing you you talked about Tesla and then you know what was really interesting is that in a footnote I think you mentioned that you bought Tesla stocks in 2014 which also might be interesting to talk about again when we go to the uh market uh and alpha part but anyways. Yeah.
50:57
So okay so and then you talk about Tesla using something called metal manufacturing.
51:02
So if if you want to first of all like how did you know in 2014 that that Tesla was headed here and then yeah what is metal manufacturing and how does it differ from uh the Toyota production system. Yeah.
51:14
So yeah I just like was goofing around and made that up.
51:16
Someone actually emailed me and they were like hey like what is this metal manufacturing?
51:20
I want to learn more about this.
51:21
It's like well sorry I just kind of like made that up.
51:23
Um so I thought it sounded funny but yeah I think I think it's really the idea that there's there's this guy dimming. Yeah. W.
51:32
W. Edward was doing and he like had a lot of found a lot of the same ideas that Toyota ended up implementing and like they you know Toyota you know respected his ideas a lot and and America never really except for the
51:48
software industry recently never really like got fully on board with this in manufacturing and so this new and of course it's like software people that are you know coming and implementing this in manufacturing and it's like the American way of doing things. Cuz when you look
52:03
Cuz when you look at like these manufacturing processes, like the best place to save money and optimize is like before you ever build the process or the plant. It's it's very early on.
52:15
And so I think if there's like a criticism of Toyota, it's that they're they're optimizing too late and they're not like creative enough in their production technology and stuff.
52:27
They're very conservative and like you know that's why they have you know hydrogen cars and not battery cars even though they in you know came out with the Prius which was like the first you know large sales hybrid.
52:41
Um so yeah I think this this whole like what Tesla's doing with really just making Dimming's ideas our own and really just like Americanizing it with like this you know like oh we want to cast this because that'd be easier.
52:56
Well, we can't because we don't have an alloy.
52:58
Well, we'll invent the alloy, you know. I love it. It's great.
53:00
And mostly I just like Tesla because they do such like I I'd agree with their like engineering principles and stuff like that.
53:07
And so I didn't know that their the company would come to be so valuable.
53:11
Um it's just like I was just always reading their stock reports and stuff.
53:15
I'm like, well, I at least need to buy some stock so that I'm so that I, you know, have a justification for spending all this time reading their 10Ks and stuff.
53:22
I want to get a little bit uh more in detail in the the exact difference here.
53:29
So, so so lean production I guess is yeah they're able to produce their cars without defects and without um you know matching demand or whatever.
53:39
Um and then so but what what is it about their system that prevents them from making the kinds of innovations that Tesla is able to make?
53:48
It's just it's just too too incremental.
53:51
It's it's like it's it's it's so hard to get these processes working.
53:53
So the faster you change things like it's it becomes very very difficult to like change the whole system.
54:00
So one of the one of the advantages Tesla has is well if you're making electric cars like you have just a lot less parts. So that makes it easier.
54:07
And then also they're like you know once you start like doing the really hard work of basically like digitizing you know like you know they don't have speed limit dials.
54:18
speed limit dials. you start just removing parts from this from the thing and and you can actually then start increasing your rate of change even faster and it makes it it hard to get behind you know if you have these like old dinosaur processes but some I think
54:35
there's someone there's like a YouTube channel called the limiting factor and he actually went into like the the detailed like numbers on what it costs for Tesla to do their giga casting which saves like tons of parts and deletes like you know zillions of thousands of robots from their process. Um
54:50
Um and if you already have like an existing stamping line and all that where you're just changing the dyes based on your model then like it doesn't make sense to switch to the casting.
55:01
But if you're building new factories like Tesla is well then it makes sense to do the casting and you can build new factories very cheaply and comparatively and much easier.
55:10
So there's a little bit of like you know they have lots of they just have lots of like technical data I guess you could say in a software sense.
55:19
Yeah that's super interesting.
55:19
The analogy is actually quite it's like Microsoft has probably tens of thousands of um software engineers who are just basically service it servicing its technical debt and making sure that the old systems run properly whereas a new company like Tesla doesn't have to deal with that.
55:36
The thing that's super uh um interesting about Tesla is like it's what is Tesla's market cap is like way over a trillion, right?
55:44
And then Toyota's is like 300 billion and Tesla is such a new company like the fact that you have this Toyota which is like legendary for its production capacity and it's a production system rather and like this this like company that's like less than two decades old is like worth many times more is it's it's kind of funny.
56:03
Yeah, I would I would say that in that measure I don't like market cap, you need to use enterprise value in the when you start these these old car companies have so much debt that if you look at enterprise value the uh it's not so jarring like literally you know like I don't I can't remember what like GM's worth like 40 billion or something and then they have like $120 billion in debt.
56:25
It's like so their enterprise value is is like five times more than their than their uh market cap.
56:33
What is enterprise value?
56:35
Enterprise value is basically like what is the value of the actual company before like you have any claims on it.
56:42
It's the market cap plus your debt. Simple.
56:44
The most simple but basically you know if you're the equity holder like and the company gets sold like you have to pay the debt first.
56:51
So you only get the value what's left over after the debt.
56:55
So that's why market cap is when Tesla has very little debt and a lot of market cap and then these other guys have a lot of debt with less market cap.
57:04
It skews the the comparison. Yeah. Yeah.
57:06
Yeah. Yeah. And then uh I mean one of the interesting things it's similar to your post on software um is that yeah it seems like one of the interesting themes across your work is automating processes often leads to decreased um decreased
57:21
eventual throughput because you're probably adding capacity in a place that you're just adding excess capacity and you're also making the money-making part of your operation less efficient by having making have to interface with this automated part. And it's it sounds
57:34
And it's it sounds like there's a similar story there with car manufacturing, right? Yeah.
57:40
I think I think if we tie it back into like what we were talking about earlier, automation promotes local optimization and premature optimization.
57:48
So a lot of times it's better to figure out like you know instead of like automating a process to make a really hard to make part you know you should just figure out how to make that part easy to make.
57:59
Then after you do that, then it may not even make sense to automate it anymore or you know get rid of it all together.
58:05
Then you just delete all those robots. So yeah. Yeah, it's interesting. Okay.
58:09
So let's talk about your uh let's talk about your the project uh that you're working on right now, the CO2 electrolyis.
58:17
Um do you want to do you want to explain what this is and like what your current approach is?
58:21
How what is going on here? Yeah.
58:27
So, I think just overall like electrofuels right now are like super underrated because you're about to get hopefully some very cheap electricity from like solar or you know it could be maybe some wind possibly even if we get really lucky some nuclear geothermal and it will make sense to make like liquid fuels or natural gas or something just from electricity and air essentially.
58:53
Um so there's there's many there's like a whole spectrum of of ways to do this.
58:59
So um CO2 electrolysis is one of those and way you know it's basically you take water electricity and CO2 um and and a catalyst and then you make more complex molecules like carbon dio or carbon monoxide or formic acid or ethylene or ethanol or methane or methane. Those are all options.
59:24
Um, but it's it's important to point out that right now I think if you added up all the CO2 electrolyers in the world that they you know you'd be measuring their output in kilograms per day.
59:35
And of course like the products I just mentioned we make millions of tons per day of.
59:40
So there's like a massive scale up if it's going to have um a wider impact and and so there's some debate.
59:46
I think the debate for the whole electrofuels sector is how much are you going to do in the electrolyer.
59:54
So one one company that I really like their approach that is different than mine is Terraform Industries and they want to make methane which is the main constituent of natural gas but they're just making hydrogen in their electrolyer and then they you know capture the CO2 and then put into a methation reaction.
1:00:13
So everything they're doing is like already world scale basically like you know we've had hydrogen electrolyers power um you know fertilizer plants with that you know provide them with the hydrogen that they need.
1:00:27
We've you know methanation happens in like all ammonia plants and several other examples it's well known very old um and methanation is like hydrogen CO2 combine and make water um and methane. Yeah. Yeah.
1:00:43
So their approach is like the more conservative, but if you add if you do more in the electrolyer, like I'm going to make the methane actually in the electrolyzer instead of adding this other process, you could potentially have a a much simpler process that has less capex and scales downward better.
1:01:00
Like you don't need traditional chemical engineering like heavily favor scaling.
1:01:05
So with the more like terraform processes, you know, they're playing as like absolutely ginormous factories.
1:01:09
you know, these these can take a long time to build.
1:01:13
So, like one of the things they're doing is um you know, they're having to fight like the the complexity that creeps into chemical engineering every every step of the way because if they don't, they'll end up with a plant that takes 10 years to build and that's not their goal.
1:01:28
Um you know, like it takes 10 years to build a new refinery because they're so complex.
1:01:33
Um so yeah, so that's like kind of where I am.
1:01:38
I'm like more on the speculative edge.
1:01:39
Um, and it's not clear yet which products will be favorable for which approaches. Okay. Yeah.
1:01:47
And you're building this out of your garage, correct? Yeah. Yeah.
1:01:51
So, that's where like the electrolyers, everything with electrochemistry is like a flat plate instead of a vessel. So, it scales down.
1:01:59
So, like I can have a pretty good idea of what my, you know, like 100 square centimeter electrolyer is going to do if I make it quite a bit bigger.
1:02:07
you know, I I have to worry about like, you know, how my flow might interact in the larger one and, you know, make sure the mixing's good.
1:02:14
But it's it's pretty straightforward because you're just like making your flat plate a larger area, whereas the uh you know, the scale is different than scaling a traditional chemical process.
1:02:28
I'm curious what how cheap energy has to get before this is um this is uh efficient.
1:02:34
And I if you're turning it into methane or something like that presumably for fuel is the entire process uh energy positive or uh like how cheap would energy electricity you need to get before that's the case?
1:02:49
Uh so yeah so there's different products and different methods so different crossovers.
1:02:52
So like Terraform Ministries they're shooting for like $10 a kilowatt a megawatt hour uh for electricity.
1:02:56
Um but again their process is simpler, a little less efficient than a lot of the other like products are a little like also have like better premiums like just worth more per ton than methane.
1:03:11
worth more per ton than methane. So your your crossover happens somewhere in between 10 and $20 a megawatt hour which is I mean that's pretty right now solar it's maybe like 25 maybe it's a little higher because panel prices have gone up
1:03:24
in the last year but you know I think the expectation is they'll come back down and so getting down to like 15 where you start having crossovers for some of these products like ethanol or ethylene or methanol um you know it's not it's not science fiction. Yeah, I
1:03:37
Yeah, I think uh in Texas where I live the um that's where it's at, right?
1:03:43
The cost of energy is like 20 or something uh dollars per megawatt hour.
1:03:47
Well, not this summer, but uh yeah, recent a lot of times in in Texas, the uh the wholesale prices are around like 25 to 30. Gotcha. Um Okay.
1:03:58
So, a lot of the actual details you said about how this works went over my head.
1:04:03
So, what is a what is a flat plate?
1:04:06
I guess before you answer that question, can you just generally describe the approach like what what is uh what is it what you're doing to form to convert CO2 into these other compounds? Well, yeah.
1:04:16
Like so it just I mean it literally just like looks like a you know an electrolyer.
1:04:20
You're like you have two sides, an anode and a cathode and they're just smushed together like this because um the electrical resistance um if you put them far apart makes it uses up a lot of energy.
1:04:31
So either you smush them together as close as you can and then you're basically just like trading electrons back and forth.
1:04:42
On one side you're turning CO2 into a more complex molecule and on the other side you're taking apart water.
1:04:50
And so when you take apart the water you, you know, kind of like balances out the equation, balances out your electrons and everything like that.
1:04:56
I need I probably need to work on that uh that elevator pitch there, huh?
1:05:00
Okay, I guess but the basic idea is you need to put uh you need to put like power in to convert uh CO2 into these other compounds.
1:05:10
The inputs are electricity, water and CO2 and the output is usually oxygen and like whatever chemical you're trying to create is along with some side reactions.
1:05:21
And then these these chemicals you mentioned I think ethanol, methane, formic acid are are these all just uh fuels or are they uh what are the other uses for them?
1:05:29
Uh so the idea a lot of people are taking like a hybrid approach with carbon monoxide.
1:05:33
So this would be like 12 co would be they've raised a lot of money to do this have like a 100 employees or something.
1:05:39
Um you can take that carbon monoxide and make hydrogen and then you have s gas to make liquid fuels.
1:05:47
So like they want to make all sorts of chemicals but one of the main volume ones would be like jet fuel. Let's see.
1:05:53
Formic acid is like a it's like the small it's the little the small fry of all these.
1:05:59
It is um like a additive in a lot of things like uh preserving hay for animals, stuff like that.
1:06:07
Um then ethanol, you know, there's people that want to like there's like this company that makes um ethylene which goes into pla plastics.
1:06:18
It makes like polyethylene which is the most produced plastic or you can burn it like in your car although I think ethanol is a terrible vehicle fuel.
1:06:28
Um but then you can also just make ethylene straight in the electrolyer also.
1:06:36
So there's kind of like a there's many paths.
1:06:37
So you know which path wins is is kind of like an interesting race to see. Yeah.
1:06:43
Yeah. the um the the the ability to produce jet fuel is really interesting because in your energy super abundance paper you talk about um you know like you would think that even if even if we can electrify everything in solar and when it becomes super cheap that's not
1:06:58
going to have an impact on the prices to go to space for example but I I don't know if a process like this is possible then it's like some way to um I guess in financial terms you can think like add liquidity and then like turn basically this cheap um solar and wind into jet fuel through this indirect process. So
1:07:13
So that like uh the price to send stuff to space or to uh I guess just you know have like a cheap plane flights and whatever all of that goes down as well.
1:07:24
It basically sets like a a price ceiling on the price of oil you know and whatever whatever you can produce this for is like the ceiling now.
1:07:30
Um which is like maybe the the way I think about it. Yeah.
1:07:36
Um so do you want to talk a little bit of like how your background led into this project?
1:07:41
this is your full-time thing, right?
1:07:42
So, I don't know if I'm right about that, but uh where did you get this idea and like how long have you been pursuing it and you know, what's the progress and so on?
1:07:51
You know, I've always loved chemical engineering and I love working at the big processing plant because you it's like kid in a candy store.
1:07:56
I would just like my you know, if I had extra time, I just like walk around and look at the plant. So, that was so cool.
1:08:01
But the uh like the plant where I worked at like their uptime was like 99. 7%.
1:08:10
like it just so like if you wanted to change anything or do anything new like it terrified everyone because they're like and you know that's how they like earn their bonuses was like run the plant you know 100% uptime all the time.
1:08:23
Um so that that just wasn't a good fit for me and also like you know so I thought always wanted like my own chemical plant but you know it's like billions of dollars to build plants so that it was like a pretty big step.
1:08:35
So I think this new technology like you know there's like a window where you might be able to build like smaller plants you know until it it optimizes to be you know hard to enter again.
1:08:52
Oh and and then while why will become hard to enter again what will happen?
1:08:58
Well, you know, if someone figures out how to build a really cheap electrolyer and they, you know, just keep it as intellectual property, then, you know, it would be hard to rediscover that, you know, and compete with it.
1:09:10
Uh, and then so how how long have you been working on this?
1:09:13
Uh, about not quite a year, but yeah, I actually thought got this idea to work on it from writing my blog.
1:09:17
So, when I wrote the uh heating fuel post, I didn't really know much about there's another company in the space, Prometheus Fuels.
1:09:25
I'm like, "Oh, this is an interesting idea."
1:09:26
And then I got talking to um a guy named Brian Helgman and uh he's like you should you should do this but not like what Prometheus is doing.
1:09:34
And so then I started looking into it and I liked it.
1:09:37
So I've been working on it since. Yeah.
1:09:40
It's it's interesting because if energy does become as cheap as you suspect it might.
1:09:44
And if um if this process works then yeah this is like a trillion dollar company probably right the patents and everything.
1:09:51
Uh yeah, I mean maybe there's like with chemical plants there's like a certain limitation where like your physical limitations like you know like you there's only so many places that can have a good like are good places for chemical plants.
1:10:04
Um you start getting hit by like transportation and all that.
1:10:08
So like you know you can't you can't just like produce all the chemical for the entire world in Texas and like transport it all around. It it wouldn't work.
1:10:16
So you're talking about like a full globe spanning thing and then at that point you know if you're like building factories all over the world someone's going to you know like figure out what your intellectual property is and all that.
1:10:30
So you would have to like keep keep innovating you know to stay ahead of the competitors and I think that would limit your you know ultimately it's a commodity so you're making commodities so you don't have the same kind of defensibility that um you know other sectors do. I see. Yeah. Yeah. Yeah. Okay.
1:10:50
There's not like network effects I guess. Yeah. So so yeah.
1:10:54
So not only like if you try to you know so like what you know what I was talking about this is not quite consistent maybe with what I just said about like harder to enter so you but I think like what happens is like the scale starts increasing as you go on so there's certain even though like this is easier to scale down there's certain elements that are are very much hard to scale and then the organization as well.
1:11:20
So, but you only need a few competitors to basically you'll end up with like early on a few competitors that continue to grow against each other and limit the the margins and it' hard be hard to be like the fifth, you know, 30 years down the line.
1:11:36
What is the state of this project right now?
1:11:38
So, are you guys planning on starting a company?
1:11:39
And um yeah, like what what are the what are the milestones you guys are shooting for?
1:11:45
Right now it is just me but um you know I have like a a family of engineers.
1:11:51
We're all engineers so it's kind of like you know loosely supported by right now by by other people in my family as well.
1:12:00
they're participating some.
1:12:02
Um, but yeah, basically I just have to like get, you know, I've already done a lot of the theoretical design work.
1:12:09
I did just like a very cursory level to make sure it makes sense and like, you know, the cost will be reasonable and stuff like that.
1:12:16
So then now it's like working on the electrolyer to basically meet the targets you need for like reliability and product concentration and um energy costs.
1:12:29
And also then just like is it manufacturable because right now a lot of electrolyers like they use in the in the labs like they're literally smaller than a postage stamp and they're very difficult to make. So Okay, I see.
1:12:41
And had you started working on this before or after you had quit your job?
1:12:47
Um Oh yeah, after I I quit my job like five years ago or something.
1:12:50
I was doing like software stuff in between. Oh yeah. What did you work on?
1:12:56
I worked on several projects.
1:12:56
I have one that's like a a data service that is um some like oil and gas data service that's somewhat successful um has paying customers but it's still relatively small. Okay. Okay. Uh I see.
1:13:09
And then uh yeah so it seems like your blog is pretty recent, right?
1:13:15
Like you started about started that about a year ago.
1:13:16
What what what encouraged you to do that? Well, let's see.
1:13:20
I was curious about um like cryptography in general, but specifically for blockchains.
1:13:26
And so I uh like you know I wanted to be able to read the the Bitcoin white paper and understand some of this like IPFS.
1:13:33
So I figured the best way to do it was um and I thought you know people talk about like oh yeah you should write blah blah blah.
1:13:41
Um so I did like oh create an IPFS blog.
1:13:44
Um, I did that and learned a lot and you know it was not the most reliable blog when I was like running it on my own droplet and everything.
1:13:53
So thankfully I like migrated to a a service that has much more uptime than than my own server. Yeah.
1:14:03
So then like you know I wrote several like I wrote you know post basically to learn about it I wrote posts about like hash functions and um private key cryptography.
1:14:12
private key cryptography. So then I could understand like the white papers and like actually you know what they're doing with the math and everything and the cryptography and and eventually like you know I had this blog so it's kind of
1:14:25
like how spac suit will travel at blog right so like my first non crypto topic was on like building a how to build a cheaper house or you know like it's difficult to reduce like home construction costs and that kind of like you like made it on hacker and all that. It's like, oh, maybe actually people
1:14:43
It's like, oh, maybe actually people want to read this stuff.
1:14:45
So, so I just kind of been writing since then in my spare time.
1:14:50
I I don't know if if um uh I actually interned for Protocol Labs, which is a place that built IPFS. Uh um Oh, yeah.
1:14:58
And yeah, so I I got a chance I got a chance to learn a lot about it and then um yeah, like trying to learn about how Filecoin exactly works.
1:15:05
That that part was the that threw me into a whirl for a while.
1:15:08
But um yeah, it's it's really interesting.
1:15:11
I actually had a blog on IPFS.
1:15:13
Um, I mean it was like kind of just a toy thing, not not the one I actually ended up writing on, but yeah, it's kind of interesting.
1:15:19
The thing is though obviously like at the moment being it's like nobody else is going to seed it for you.
1:15:23
So you have to you got to use like a centralized service anyways like piñata.
1:15:26
But it is a fun exercise.
1:15:28
Yeah, I was just like running it off a droplet and on Digital Ocean and that you know if you use the the like direct content hash it works pretty well even if you're like linking through your ENS name.
1:15:42
But the problem is of course like when I was first doing this like the fees on Ethereum were so high that I wanted I didn't want to change that link all the time.
1:15:52
So I tried to use the the pinning feature with like IPNS and and like going through because you know Cloudflare does the ETH.
1:15:59
link and then they look up your you know whatever your IPNS name is and then they try to go find it.
1:16:06
So the the part that was breaking for me was like Cloudflare couldn't always find my server using IPNS.
1:16:13
But if you switch to D, so I still have an IP, it's still an IPFS.
1:16:18
But if you like the service I'm using called Fleek, they basically go directly to the content hash.
1:16:26
Um, and but the on DNS it's cheap to change.
1:16:29
You know, you can change it in in one minute.
1:16:30
So So if you if like Ethereum fees got lower, I I might I might switch back to that.
1:16:35
But um you know I don't want to like eventually and I think it will be but you know what if it's like 1 cent transactions then it would be no big deal to just change the the content hash every time you updated your website.
1:16:49
What is the reason for uh having it on Ethereum just just for fun?
1:16:54
It is inconvenient I guess if your content hash is changing every time you update the website.
1:16:57
So you got to keep re-updating the actual um where people can find the site or use something uh some other service to take care of it.
1:17:04
I mean, yeah, if if transactions are cheap, then you just have like, you know, it'd be all you could automate it all and it just cost you a little bit of money each time and it'd be fine.
1:17:11
But, you know, it was like $50, so not going to like pay $50 to post a blog post. So, yeah. Yeah. Yeah.
1:17:18
And then you find that typo, it's like, oh gosh, can't fix that. Okay. Yeah. Yeah.
1:17:25
So, let's talk about your you have a paper that you recently released with um Eli Dorado on energy super pundants and you have lots and lots of interesting um speculation in there for what might be possible if energy gets a lot cheaper.
1:17:36
I think uh I think we should just jump into it.
1:17:39
So, okay like on the big picture as as you as I'm sure aware um per capita energy use since the 1970s has not gone up.
1:17:46
use since the 1970s has not gone up. Uh before that there's this thing called the Henry Adams curve where peret energy use would increase 2% a year and then you know after 1970 that was no longer the case u ironically enough right after the department of energy was created but
1:18:02
nonetheless uh we've still had economic growth since 1970s I mean it's been slower but uh even though per capita energy hasn't increased um per capita GDP has increased so is I think in the paper's abstract or the introduction you talked about like Hawaii increasing energy use is necessary for increasing economic growth. But doesn't that
1:18:19
But doesn't that pattern suggest that you can still have decent economic growth without having to use energy or have we just not come across the constraints yet?
1:18:29
I think you just have diminishing returns, you know, like you can only there's like physical limits to how efficient things could be and as you get closer to that efficiency limit, it's harder and harder and takes more and more effort.
1:18:38
So there there's some diminishing returns there where if you can just like like it like so a perfect example what we were just talking about is oil is quite expensive and natural gas is is expensive too while oil is easy to transport.
1:18:56
You know you can produce it anywhere in the world and get it anywhere else pretty cheaply.
1:19:00
Natural gas is extremely expensive to transport but it's very useful fuel and for also like you know making fertilizer or anything else.
1:19:09
So if you just had like you know independent energy because not everyone has natural gas or the economic capability to extract natural gas using like traditional processes.
1:19:19
So if you have can just like build these natural gas factories where you're just using sunshine and and water and air then all of a sudden everyone has has access to natural gas even if you don't have any you know you weren't blessed with easily obtainable natural gas reserves.
1:19:36
And I think that's there's really this whole story about like the the tyranny of geography here when it comes to energy is there are some countries that have like extreme electricity per capita but it's like Iceland and Norway where they have like crazy amounts of hydro power and then people build aluminum plants there and stuff like that.
1:19:56
But you know then you have places like in Africa where they have no coal, very little gas.
1:20:04
Um you know they're just like energy starved.
1:20:07
you know, their transportation system sucks.
1:20:08
So, you can't transport coal in um the hydro power is there's only so much of it may not be close to where their cities are.
1:20:15
So, if you start like adding solar to the mix for them like it it and some of these other technologies, it could really be an incredible increase in energy availability for them.
1:20:26
You know, they aren't even like meeting the I think we talked about that in the paper.
1:20:30
We're like looking at doubling rich world use but it would be like more like 10x for you know if you live in Africa. Yeah. Yeah.
1:20:40
And then so I wonder if that's the case then if energy becomes that abundant then does the bottleneck in terms of what our civilization needs will just be the resources that are used to that that are the backbone of the things the energy is doing.
1:20:56
So I don't know like the actual resources that are necessary to build the factories and the raw raw materials or to what extent can even that be I would argue the ultimate limit is like oh is really human capital.
1:21:08
Um, and what a more abundant energy does is it allows you to redeploy human capital away from trying to figure out how to use scarce energy sources into just like just like, you know, you can waste some of it now.
1:21:26
Or like here here's here's like a an example I love about um trucking. So I I love trucks.
1:21:32
not a not as big a fan of freight trains, but freight trains are like extremely efficient.
1:21:40
Like literally, they get like, you know, they're like I I can't even remember.
1:21:44
It's like 10 times more efficient than a truck or something.
1:21:47
Like they use just very little fuel.
1:21:47
Um, but if you're gonna like, you know, the train doesn't come by all the time and like it may not hold to the schedule and you have to aggregate your your product with the other stuff or your raw materials and it adds a lot of cost to your your production like you know Toyota production system runs on trucks not trains.
1:22:07
Um, and for the reason is the truck is just like extremely flexible.
1:22:12
like it comes when you need it, it goes when you need it, and even then, you know, people still complain about truck drivers, but like not showing up when you want them.
1:22:18
But um so when you have cheaper energy, you know, like this electrificification, automation of trucking, you are going to shift a huge amount of goods from trains to trucks and it's going to just have like huge knock-on effects all across the economy. more specialization.
1:22:42
You know, you can go there's a lot of products that, you know, you're just limited on your suppliers because transportation's expensive.
1:22:47
Um, it reduces working capital because a lot of times you're you're it takes longer on trains.
1:22:53
Similar stuff like smaller ships, more air freight.
1:22:56
Like one thing that shocked me is Elive was telling me about like how the uh elasticity of demand for air freight is just like insane.
1:23:05
you decrease the cost a little bit, demand goes to the roof.
1:23:07
So, I'm pretty sure that there'll be some kind of like there's like, you know, you always think like, oh, we can't do this with batteries and then someone comes up with like a more clever idea.
1:23:19
So, you know, even if you have like a 500 mile range limit for your freight plane, you know, the freight doesn't care if you have to stop like every 500 miles to refuel or recharge and you can go over land on almost all these routes.
1:23:35
Like, you know, you could go up through like Japan and the Illutian Islands or you could go overland from China to Europe, charge just wherever's convenient.
1:23:46
And you know, if that electric plane is has half the operating cost of the jet plane, like the amount of freight you're moving on airplanes will go way up and it'll go down, you know, on ships and and then everyone will be better off
1:24:02
because like right now, if you're a shipping company, you have like real working capital problems because your stuff sits on boat for like a month and you've got to finance that and do all this stuff and then you know what? what
1:24:11
what if things change in the meantime, you know, like, oh, I don't really want that product anymore.
1:24:18
So, the air freight is just like an absolute economic just like booster.
1:24:22
So, if you can make that cheaper, it's it's really exciting, but it uses way more energy.
1:24:29
So an analogy that had just occurred to me is like you could imagine that if um computational power if Mo's law had stopped in 2005 we would still have a lot of interesting applications using uh compute and the effects of the computer would still have permeated society but obviously a lot of things that are like possible today with computers would just um like they just wouldn't have been tried or been possible in that kind of world. Okay.
1:24:59
I mean all your engineers would be uh you know working on optimization instead of building new products. Yeah.
1:25:06
Yeah. I think um I think in uh J Store Hall's new book on not book new at this point but his book on words by flying car one of the points he makes is that GDP growth has been probably overstated because a lot of what counts as GDP growth has just been increasing the efficiency of existing machines to make
1:25:23
them use less energy which doesn't which still doesn't uh result in like more total resources or goods or services being produced but yeah instead of like making the laundry machine more efficient you can just like create a new kind a machine that may use need to use more energy. Yeah. Okay. That's Yeah. Okay. That's interesting. Okay.
1:25:40
And then so for this vision to come to pass, do you need energy to is it just enough that energy becomes super cheap or do you need advances in the ability to store that energy as well? Right.
1:25:49
So if like if um if if I don't know lithium batteries are the bottleneck um does it matter if you can uh get energy super cheap if you can't like put them in uh you know appliances or cars or planes or whatever?
1:26:03
I think I think the important thing to think about here is that our our air current energy is so expensive especially electricity it's quite it's quite with like our energy resources which are basically thermal it's quite difficult to make electricity comparatively um and so what we use electricity for is like stuff we really want to use electricity for.
1:26:23
So like it's it's hard to imagine that, you know, we're not going to turn our air conditioner off.
1:26:29
Like we're going to run it and so we're willing to pay a lot of money for that electricity to run our air conditioner.
1:26:36
Whereas like if you look at really closely at a lot of the use cases that that use like tons of extra energy, they're much more flexible in how they use the energy.
1:26:46
Um and and there's not a whole lot of storage involved.
1:26:50
Like if you're looking at, you know, growing crops or making methane for rocket or making chemicals, like you can design these processes to run when the energy is available.
1:27:04
Um, and and so the batteries are really going to be for keeping your air conditioner on where you're willing to pay a lot of money.
1:27:15
So I don't really see the batteries and storage as a limit. Okay.
1:27:19
Uh, so I I guess I didn't uh I guess I didn't like if you had something like um like air freight, right?
1:27:24
If if that's the thing we're concerned about, like wouldn't you need some way to store that electricity for air freight?
1:27:29
Or maybe you can just convert it to jet fuel.
1:27:32
Is that what you're saying?
1:27:34
Yeah, I was thinking more like grid storage.
1:27:36
But yeah, like in the in the transportation, I mean transportation is going to dominate battery demand.
1:27:39
It's going to be like like grid storage is like tiny in comparison.
1:27:42
Um, but I think there's there's like you're basically getting to the point where making batteries out of dirt because that's that's how you scale it.
1:27:53
So, you know, if you're making batteries out of like carbon and iron and and phosphate, you know, you're just there's like it's just how many battery factories do you want to build, you know, and there's plenty of lithium.
1:28:04
It's just you have to build the lithium mines.
1:28:06
I I don't really see any hard limits there.
1:28:08
eventually once you build all the factories then then you you're pretty much ready to go.
1:28:14
And then so I is is the point you're making with the alternative batteries that um even if they're of less um even if they're like worse than lithium batteries they'll we'll have just so much energy that it doesn't matter like even if we lose a lot of it that that's fine.
1:28:29
We'll just use whatever we can take.
1:28:31
Or are you saying that they can we'll produce batteries with other chemistries that are as good as lithium batteries or better?
1:28:35
You know, right now the shortage is really nickel.
1:28:38
So, um, like in the very short term, lithium's kind of starting to become a shortage, but it it just there's plenty of lithium. It won't be.
1:28:47
So, like the lithium iron phosphate or like whatever what there's like a huge amount of substitution into right now because it's avoiding nickel.
1:28:54
Um, and that it's not quite as good as some of the nickel chemistries, but for a lot of applications like it it just doesn't matter.
1:29:02
a lot of cars and everything like that and you're going to have, you know, like the aircraft and stuff playing paying the premium for the high energy density batteries.
1:29:10
And eventually there are technologies that you just use less and less materials because they're just better batteries like some of these concepts around solid state.
1:29:19
And I'm not sure, you know, if those will come to fruition and if they'll be really that much better when they do come.
1:29:25
Um but I think you know there's lots of opportunities for substitution down the line.
1:29:34
Uh what is solid state by the way?
1:29:36
Right now all our all our batteries um the the lithium like they charge and discharge through the lithium ion going back and forth between the cathode and the anode and it travels through a liquid and and the the liquid is electrolyte which means ions can travel through it.
1:29:52
Um, so solid electrolytes are a little more a little more challenging.
1:29:57
Um, kind of hard and so that's why we don't have them.
1:30:00
So you get rid of the liquid and it's just like the the ion has to travel through a solid instead.
1:30:08
And the the promise is like it could be like a much higher energy density and theoretically cheaper too just because it's like weighs less and stuff.
1:30:15
Um, but you there's like all sorts of problems around like they degrade faster or you know batteries have like six different areas that you have to hit the requirements and if you miss one then it's no good.
1:30:29
So they're kind of hard to improve in that sense.
1:30:33
Um yeah so I guess if the energy super abundance is going to come from solar and wind obviously these are intermittent sources of energy.
1:30:39
In that case, you would need there to be like progress in the battery storage, right?
1:30:46
That that's contingent on that, right? Yeah.
1:30:48
I think that's what I mean.
1:30:48
Like a lot of the extra energy uses that we talk about don't really require many batteries, if any batteries at all.
1:30:54
I mean, like like the transportation, yes, you have like batteries in that.
1:30:58
But if you're going to like have abundant like nuclear electricity or abundant geothermal electricity, like you still have to build all those electric vehicles.
1:31:09
You still need the batteries for that.
1:31:10
So like the extra batteries that solar and wind require over like geothermal I think could end up being pretty minimal.
1:31:16
I the way to maybe the way to think about it is is you know if you can have solar a farm that's going to give you $10 a megawatt hour electricity you know you just have you have to figure out how to utilize that.
1:31:28
And if you do then you'll be very rich.
1:31:31
um you know and and you'll beat the guy who's paying $40 a megawatt hour from the from the more expensive traditional generators. Mhm. Yeah. Yeah.
1:31:43
Before we get into um which sources of energy are most promising, let let's just talk about some of the other implications of an energy super abundance.
1:31:51
So um yes some obvious we talked a little bit about travel but one thing that might be concerning with like air travel at least for passengers is if the bottleneck uh step there is like TSA and other regulations um uh to what extent will reducing the travel time um or or you know like yeah increasing flight speed or uh number of flights to what extent will that have have an impact on how much time you got to spend in an airport or in transit?
1:32:18
Well, so right now if you think about um you know like Airbus, they had this like super jumbo thing.
1:32:23
Um I can't remember what that plane it number was, but like none of the airlines really like loved it because it's it's too big.
1:32:33
It's too hard to get like everyone loaded and unloaded and you really just like hit um disconomies of scale.
1:32:40
So the electric planes are likely to be just like tiny in comparison like 10 passengers.
1:32:44
So that's it's easier to load and unload and you're going to fly out of smaller airports.
1:32:49
So, you know, you won't be going to like this giant regional airport that's just has all the parking problems and all the security.
1:32:55
You'll be driving to like your neighborhood general aviation airport where there's like a a small line to get through.
1:33:01
And a lot of these small aircraft under certain situations even avoid some of the screening requirements because they're just not as dangerous.
1:33:08
You know, if if you only have if you have a small plane, there's only so much damage you can do with it. Oh, I did not know that.
1:33:14
That's I got to start booking planes from small airports or something to avoid the TSA.
1:33:20
It's it's very nent, but there's like some business models that are like coming down from like the netjet style to like a little more commercial.
1:33:27
So, it's like kind of like I think that they're trying to like hit a price point that's similar to first class, but you get you get to avoid all the airport craziness.
1:33:37
So, I think and I think like I'm just kind of a believer in like if that existed, people would get angry enough that they would loosen up a lot of the rules.
1:33:45
It seems like impossible to change those rules now, but I think like the average person, it just cost them like no time because most people don't even fly very much. So, yeah. Yeah. Yeah. Um, yeah.
1:33:57
And do you want to talk about what your vision for what a city could look like if energy got a lot cheaper?
1:34:04
got a lot cheaper? I mean in the paper you're you have all kinds of interesting projections about drones and electric deliveries and um ju just the entire congestion of the 3D space and I guess with tunnels as well the what what does the city look like with energy super abundance basically like disagregate the car to a
1:34:22
certain extent where you're using you know not like inner city car trips are less because cheap flying is going to be cheaper and it's going to be more convenient to like have the bots deliver your stuff And you know the the tunnels I love the tunnels because you know I don't like taking people's land. Um so
1:34:38
Um so you with tunnels you can run you know new roads and everything without imminent domaining and taking people's land away from them when they don't want to lose their land.
1:34:51
Um, and I think like it's and that process is so people it makes people so angry when you take their land that it's very expensive to imminent domain people because they will fight you, you know, until like literally the sheriff has to show up and haul them away.
1:35:06
show up and haul them away. So if you can go around that with tunnels using existing rideway, it just makes that like societal cost of doing some of this stuff significantly less expensive and it's is you know then it's the engineering
1:35:24
challenge and and I think there's there's really an opportunity now there like Boring Company is the famous but you know recently I think there's an acron company that wants to do tunnels for um electricity you and they have like plasma boring machine concept. But I
1:35:38
But I mean, it's pretty it seems pretty crazy right now, but um it's just one of those solutions that you're going to reduce the coordination cost across the whole economy and improve property rights and so people should really try to build it.
1:35:58
You mentioned one of these machines in your blog post on tunneling and it was the SpaceX one.
1:36:01
I forgot the name of it, but yeah, it's it's like this insane thing. It's um proof rock. Yeah, exactly. Yeah. Yeah.
1:36:08
It's, you know, it's like pretty big, but it's apparently it's all electric, which is kind of insane.
1:36:12
Um, and uh, yeah, it can just like do it in one, how is it getting the material out?
1:36:17
Like you you just if you're just doing the tunneling in one step, the problem that like most the tunneling is in soft soil and it just it's really kind of like it's it's kind of like difficult to drill through soft soil because of the materials handling.
1:36:30
So, like when you first start drilling an oil well through this stuff, like you actually have to limit your drilling speed and you don't even have to put any weight on the bit.
1:36:39
Like just the pumping fluid around basically like jets out the fluid.
1:36:44
So that's kind of what you're doing with the boring machine and the soft soil stuff.
1:36:47
So managing the spoils, which is like, you know, like they have like muck carts a lot of times.
1:36:54
I think maybe SpaceX's trying to do a conveyor belt, but you could also just make it a full liquid and pump it out.
1:36:59
Like in the oil field, you know, we we carry our cutings in mud and we pump it.
1:37:04
But yeah, and then they have the other big challenge is they have to keep the walls from caving in on them.
1:37:10
Um, so that's like there's like a like current boring machines and soft soil spend enormous amount of time um erecting these tunnel supports that keep it from collapsing in themselves.
1:37:24
So it's kind of counterintuitive.
1:37:25
It's actually dramatically faster to bore and hard rock than it is soft soil because you because the soft soil you spend so much time like non-productive time where in the hard rock you're just like blowing and going. Interesting. Um yeah. Okay.
1:37:40
And then so to get back to the to the cities um the you mentioned something in the paper. Yeah.
1:37:48
Mercedes constant uh which is the amount of like people's but wasn't it that the amount of time people spend in transport per day um is is the same.
1:37:55
So if you just increase the amount of uh increase the speed in which they can move with V talls or other kinds of things then they can they have a wider surface area in which they can explore. Right. Yeah.
1:38:09
So yeah, I don't I don't know if like physically the cities will look that much different, but like their effective economic size will be much larger because, you know, you could you could live in, you know, like Cedar Rapids and you know, commute to Minneapolis with some of these technologies.
1:38:28
So your your city in Cedar Rapids still looks the same, but you know, like you you can you know, you don't have to work there.
1:38:37
If you have a better job in Minneapolis, you could commute there, you know, three times a week or whatever it is, five days a week. Yeah. Yeah. It's super interesting.
1:38:43
But does that imply, by the way, that if the uh if the commute time stays the same and that people just get more spread out, if energy becomes cheaper, then neighborhoods and cities kind of become this unwalkable mess out of like a Jane Jacobs nightmare if the conglomeration goes away.
1:39:01
I think I think it's actually the opposite.
1:39:03
you know, like if you have tunnels and if you have um you know, some like these alternative methods to cars, then you you use cars less.
1:39:11
Um and I think like in in many cities, you know, they never made sense for cars anyway because they were built before cars.
1:39:20
So, you know, in New York City, you're never going to move everyone around on a car unless you built tunnels, you could then.
1:39:24
But even then, I think, you know, there's other technologies there that make a lot of sense.
1:39:31
Um, and I think people like walkable.
1:39:34
So, you know, even even though I live in a city that's that requires a car, like some of the hottest neighborhoods are like walkable neighborhoods where like the neighborhood is walkable itself and then you just like drive your car to wherever else you need, but it's like the the car is like hidden within the neighborhood. Uh, okay. So, interesting.
1:39:53
I I guess maybe we'll see more um segregation then.
1:39:58
Not in the not in the racial sense or anything but uh in the sense that people will prefer to live in like these walkable neighborhoods but they don't have any problem to like commuting to work using a V tall or something.
1:40:07
So then you would what you would end up seeing is like these walkable neighborhoods and then like industrial zones that are like way far away distance-wise but not that far away time wise. Right.
1:40:18
And it's the same for like if you want to live in a small town that's just happens to be you know now would be too far to commute to a city but you could in the future. Yeah. Yeah, more choice. I see.
1:40:27
Um, so what is holding back a V talls?
1:40:31
VTOL, by the way, is vertical takeoff and landing.
1:40:34
This is what uh the reason you need to go to an airport is because you need like a large landing pad to take off and land.
1:40:40
The hope is that if you could just like vertically take off, then you would be able to like lift off from your roof or something.
1:40:45
Obviously, we've had um prototypes of this kind of stuff since like the 30s.
1:40:50
What like why why don't we have these widely available?
1:40:55
Is is the energy the constraint or is it something else?
1:40:58
Well, I think in the past, you know, theoretically liquid fuels are dense enough, but they're they're too complex, too expensive.
1:41:04
Um, because when you're turning heat energy into mechanical energy, it's just like a lot of weight and complexity comes with that.
1:41:13
Like some of these uh old concepts, you know, you have like all these engines and all that.
1:41:19
And so, if you electrify them, it it really changes the game.
1:41:22
And so just now we we have because it's not just batteries, it's the motors, it's the inverters are now getting dense enough and small enough to make sense, but it takes time to get this stuff through FAA, you know, for for better or worse.
1:41:38
So, you know, it's like the technology hasn't been good enough long enough to get stuff through FAA and there is some limitations.
1:41:47
I think right now they wouldn't a lot of people wouldn't use batteries and like the batteries are just on the edge of good enough like you know you're going to have like a 50 mile veto not like a a a couple hundred mile vetol but eventually like my like dream vetol application is like a a nuclearpowered quadcopter that carries like a container.
1:42:07
So you can take the container like directly from, you know, the factory in in Vietnam or wherever directly to the the people who are using it or the warehouse like in in Arkansas or whatever. Yeah.
1:42:22
Yeah, that would be interesting.
1:42:22
I mean, theoretically, you could have like these drones that are carrying like these huge payloads um weight wise. Yeah.
1:42:30
But you would you wouldn't necessarily want a large payload.
1:42:35
You just want like the whatever the customer wants, you know, you want to size your your vehicle to deliver that payload.
1:42:42
That's the most efficient. Oh, I see. Right.
1:42:44
Because you don't need to It doesn't need to be like a shipping container or like a shipping vessel where you you just have it be hoot. Okay. I see. Okay. Um Yeah. Yeah. Interesting.
1:42:55
Uh and then what does this mean for computing?
1:42:56
So if energy gets a lot cheaper, um I I guess Bitcoin mining becomes well it doesn't necessarily become more profitable because other people's energy is cheaper too.
1:43:05
But what are the other consequences?
1:43:07
Is spinning up an AWS server just become trivial now and then building a deep learning model costs like nothing in terms of GPU time?
1:43:16
Uh what impact does this have on computing?
1:43:20
Yeah, I mean I think the limitation would probably still be just like chips for a while until you figure out a better production process for that.
1:43:26
I think it's it'd be a while before it's like becomes energy.
1:43:29
I think you know like smartphones really worry about energy.
1:43:33
So there could be some interesting things with um smartphones if you had like a a very power dense like beta voltaic battery.
1:43:43
It's like a nuclear battery, something like that, where you where you don't have to worry about like running down your battery.
1:43:49
Um, but outside of outside of smartphones, I'm not sure that energy is like the limit for a lot of this computing.
1:43:58
And one of the interesting things you just speculate about at the end of the paper is about a potential carbon shortage.
1:44:02
And I think in the email to Tyler Cowan he published on his blog, he um you you said like by the end of the century we'll have a carbon shortage.
1:44:09
uh because because presumably because of the process you talked about earlier, the thing you're working on, right?
1:44:16
Uh if if you can take CO2 out of the atmosphere. All right.
1:44:20
So, what is the probability that this ends up happening?
1:44:23
Uh like do do you think it's like more than 50% by the end of the century or or is it just speculation?
1:44:30
I think it's extremely high that it happens and it's it's harder to put the timeline on it.
1:44:34
by the end of the century might be like a little if you I think I think I ran some numbers in there and like if you 10x current plastic production and you're just like putting it landfilling it all.
1:44:45
Um I think it was a little over like a hundred years to get and you're assuming like you're you're out the rest of your carbon output is zero in that scenario.
1:44:56
But it's probably pretty hard to do it like in a 100 in like by the end of the century without a lot of growth.
1:45:00
But it's kind of the exponential thing can get you where you know like I think all the you know some large number of the carbon emissions have happened in the last 20 years like and and it was very small before like 1950.
1:45:14
So you know you could kind of like get surprised at the back half the last 10 years you know goes crazy it makes it hard to predict. Yeah. Yeah.
1:45:24
By the way, so in uh Wcastal's new book on long-termism, one of the things he speculates about is if society collapses and we need to restart, one of the things we'll need is coal or some other sort of like dense, easy to use fuel.
1:45:38
And the problem is we've been uh burning up easily accessible coal, like coal in places we could just like dig up and find it.
1:45:47
And so one of the things he's concerned about is like making sure we leave some easy access easily accessible coal silos around so that in case you know society collapses we can restart and use these to power up our it's like a second industrial revolution.
1:46:02
I wonder if you could use a process like this um with carbon sequestration to actually just build up these kinds of reserves.
1:46:09
Um I don't know if like some a long termist or somebody's like really interested in making sure we have that kind of resource.
1:46:15
They could just use this process to uh Is that possible or Oh, so actually there's a company called like Charm Industrial and they're they're basically doing that because they take trees and they do a process called fast pyrolysis.
1:46:32
It's where you burn um biomass without oxygen in oxic environment and it makes this bio oil and then they're they're injecting the bio oil down into wells and selling carbon credit.
1:46:44
So, it's already happening.
1:46:45
You could say, "Oh, wow."
1:46:47
And that that is easy to burn and stuff. Uh like you could Yeah.
1:46:53
If you if you just want to like burn it for heat, it's it's okay.
1:46:54
But it's it's hard to refine.
1:46:56
This was like a There were a lot of people that tried to do bio oil as an alternative for petroleum like 20 years ago, like clean tech 1.
1:47:06
0, and they they all failed.
1:47:06
So, it makes me laugh that like they're reimagining the process to sell what are right now very expensive carbon credits.
1:47:16
But you could do something similar.
1:47:17
There's actually you could do something similar just to make straight carbon and stuff if you wanted to. Okay, I see.
1:47:22
The the thing that I find interesting about this is often in the case of um global problems, people will early on identify that a thing is going to be a problem.
1:47:33
But it often ends up being the case that they get the direction of the problem opposite.
1:47:38
Like if you think about population right in the 70s people were like correct uh that global population was going to be a problem.
1:47:47
The thing is though it probably it seems like now the problem is going to be that the population might decline too fast right now that it's going to grow exponentially.
1:47:55
And I think this is like another example of this kind of thing where CO2 is going to be a problem either way.
1:48:03
It just like it's I'm not sure if it's going to be a problem.
1:48:04
We'll overproduce it or we'll have shortages. Yeah.
1:48:07
I mean, if you if you just think at like the the large scale, if you're going to be like Kardash whatever scale civilization civilization or you're using like immense amounts of energy, like that's going to have um you know, side effects and you're going to have to figure out how to manage that one way or the other.
1:48:24
And I mean, one of those is eventually Earth may just be like a a nature preserve and we all live in space or something, but Yeah. Yeah.
1:48:33
Okay, let's talk about nuclear.
1:48:35
Um it seems like it seems like you're much uh less optimistic about nuclear than you are about solar and wind.
1:48:43
Do you want to do you want to explain why that's the case? Yeah.
1:48:47
Well, especially solar more than so than wind.
1:48:49
wind I think is limiting because it's transmission problems and again you know like you're if you want to build out huge amounts of wind like some of these zero carbon uh plans call for like you're going to have to take a lot of people's land to like build transmission lines and stuff and again really pisses people off and they fight hard and it becomes expensive.
1:49:11
So, um, and it's not like that, you know, the wind turbines are easy are relatively easy to site, like because you pay people, you'll actually see like they never put above ground power lines on the people's land where they put the wind turbines.
1:49:24
They're always underground.
1:49:25
So, at least they get to the county right away.
1:49:26
But like when you get these giant transmission lines like um you know grain belt or something like they almost inevitably have to go across a lot of people's lands and you can't just stuff them all in county and state rideways because they're the pylons are so big. Sorry, what is a pylon?
1:49:44
Uh the pylon is like what holds the wire up the tall tower.
1:49:46
So yeah, so solar is like it's much more flexible where it can go and I think the solar getting cheaper the obstacles are just like pretty simple.
1:49:55
It's like, well, gosh, this it's expensive to build with racking.
1:49:59
Why don't we just lay the panels on the ground?
1:50:00
Or like, gosh, this glass we're encasing with is getting expensive and we don't need it to last 80 years or 50 years.
1:50:06
You know, we can just like fit some plastic on it instead.
1:50:11
Or, you know, we've gotten these, you know, the the actual photovotelic cells so cheap and like all the other labor and stuff is getting more expensive.
1:50:20
Well, why don't we just add another layer and make more energy?
1:50:22
So, those are kind of like your your solar solutions to get down to like $10 a megawatt hour and they're pretty straightforward.
1:50:28
Whereas, like nuclear is like uh well, you know, the light water reactor can't get us there.
1:50:34
Like, let's instead cool our reactor with um sodium, which you know, catches fire when it explodes when it reacts with water and catches fire when it reacts with air.
1:50:43
Um or there's, you know, you could cool it with lead, liquid lead, that's an option.
1:50:47
Helium, which, you know, leaks a lot.
1:50:50
Um or you could do molten salts that um like corrode everything.
1:50:55
We don't really have anything that and so I think when you start looking at like you know this is for large reactors um so I think those solutions for very large reactors are are are pretty hard.
1:51:08
Um it's pretty difficult and there's a lot of reasons why why do we make these weird choices?
1:51:14
Well there a lot of stuff just reacts poorly you know when you expose it to neutrons and stuff.
1:51:19
So they have they like to each have their own features that make them possibly good candidates.
1:51:23
Um, so that's that's really where and I actually think like regulation is actually kind of like a it's oversold a little bit and and I think actually to the extent that if people were internally consistent then they would see NRC as a regulatory success story because um yeah the kind of the background on this is my my wife's um mom and stepfather are nuclear engineers but I've like worked you know from at all levels of nuclear power industry.
1:51:55
So I get to ask them, you know, the general questions and learn a lot about it, which is nice.
1:52:00
Um it's very helpful for learning about it.
1:52:03
But there's like back in the 80s, the nuclear power industry was like in real trouble because um their competitors in coal and natural gas got deregulated.
1:52:13
Like most of the cost of coal is the rail getting there and the rail industry got deregulated and then the natural gas industry got deregulated.
1:52:21
So the cost of their alternatives was falling and they had the cost of, you know, they had to build more safety into their plants because of all these, you know, it wasn't just Three Mile Island, it was like Brown's Ferry, it was Rancho Heeko, all these like uh, you know, things that could have been really scary and certain extent we got like a little bit lucky that we didn't have like a worse um, disaster.
1:52:49
you know, they were just like relatively limited accidents at their sites.
1:52:54
So, what the and like there's actually a time where nuclear power plants were selling for less than what their fuel was worth they had on in their plant like around there.
1:53:05
So the what the industry did and what NRC did is they uh moved to probabilistic um risk assessment which is like you know usually the gold standard like people are really happy that we use probabilistic risk assessment assessment for commercial crew with NASA and SpaceX and they want FDA to use more probability you know more expected value.
1:53:31
So, and what this allowed was is basically you're you're rolling up some of the rules and moving into the risk assessment.
1:53:40
So, like around 1980, like nuclear power plants only ran about 60% of the time.
1:53:46
They weren't very reliable.
1:53:46
They had all sorts of like unplanned outages, stuff like that.
1:53:50
And these the safest mode of operation is just running as designed.
1:53:55
So, the the more the more consistent nuclear power is, the safer it is.
1:54:00
So the the probabilistic risk assessment allows you to do repairs while you're running, which was kind of like discouraged before.
1:54:08
So it'll be like if your main cooling pump is um leaking before, you'd be like, "Oh gosh, I hope we can make it."
1:54:16
And then eventually it just fails and you shut down the reactor.
1:54:18
And now it's like, "All right, well, we have backups.
1:54:21
the safest thing to do is actually repair it now while the plant's still running and then get it repaired and put it back online.
1:54:31
And so the so not only like to give you an idea of like the safety standards that NRC has um I think for like the the nuclear the plant taking damage is like one time in 10,000 reactor years and then for a large release is one in 100,000 reactor years.
1:54:47
And there's 93 operating reactors at, you know, less than 93 sites.
1:54:53
So like we should only see like a three mile island under the current standards like um you know once every hundred years or so in a large release like a Fukushima type situation like once every thousand years.
1:55:06
Um but you know they had like just in a few years in the 1970s like the industry had like three or four of these like damage events you know at least.
1:55:16
I don't know how many like officially count, but probably at least three.
1:55:19
So, the safety is like gone incredible.
1:55:22
And now the operating operating capacity is up to like over 90%.
1:55:27
So, the plants are just extremely reliable and it lowers their cost because their costs are so fixed.
1:55:34
Um, and like you compare it to like a country like France, they've had a lot of reliability problems with their nuclear fleet in the last couple years.
1:55:42
Like this year, you know, they're only their capacity factor, I think I saw might barely be over 60%.
1:55:48
They have, you know, we have like 90 gigawatts nuclear. They have 60 gigawatts.
1:55:51
So that's like makes a huge difference for Europe that those plants aren't running full out.
1:55:57
And it's really, you know, you see a lot of charts about like if Germany didn't shut down its reactors, what would the, you know, energy balance be?
1:56:04
But you don't see as many like if the French could run their reactors like American reactors, what would the energy balance be?
1:56:09
Um, so I think there's I could go on about like how that integrates into new plants if you want about that. Yeah, I do. Yeah. Yeah.
1:56:18
Because the the line I've always heard on this for my bubble is like, "Oh, they haven't approved a new plant.
1:56:23
The NRC has not approved a new thing since um new plant since it was created."
1:56:27
I guess they just approved the design for the new small modular reactors, which I guess I would love to hear your opinion on as well, but um uh but yeah. Yeah.
1:56:34
So I'm very curious to hear this perspective. Well, okay. So think about it.
1:56:39
You in the 1980s you had new sources of fuel. You had new competitors.
1:56:45
You also by the end of the decade you increased the amount your nuclear power plants ran by a lot.
1:56:49
So a lot of these new power plants that people were thinking about building were at existing sites like an extra reactor at Watts Bar or whatever.
1:56:57
And well you you know you basically just got like a buy two get one free by running your plant better.
1:57:05
So you don't really need them as much.
1:57:06
So all those contributed to like it just not making sense to build new nuclear power plants because the existing fleet ran better and more competitors and electricity demand slowed down.
1:57:18
Um so I think there's like a you know is it hard to get through NRC approval?
1:57:24
hard to get through NRC approval? like yes that last one the mini reactor you're talking about took like I don't know 10 years or something but you know when you think about like a probabilistic risk assessment assessment like you know no one ever says like well gosh NRC's current standards of like a large release which would basically
1:57:42
happen one every thousand years like is that you know we're not arguing over that we're just like talking past each other I guess instead so to me like that's pretty reasonable risk level like you know if you're going like 10 times your reactors and that means like almost certainly you'd have a Fukushima within your lifetime if you go with NRC standards. But actually turns
1:58:02
But actually turns out that it's um pretty cheap to like do way better.
1:58:07
You know a lot of the reason why the plants weren't built may not necessarily been because of regulation but because like you know like the market conditions changed.
1:58:17
you know, you had more competitors and the coal with the gas being deregulated and then you also had, you know, increased production from the existing nuclear plant.
1:58:29
So, if you're going to build an extra nuclear plant and or an extra reactor at an existing site, then, you know, you you might not have needed to anymore because you got so much more production out of your existing plants.
1:58:41
and just stuff like they shortened the fueling time.
1:58:44
Just a lot of like allaround improvements paired with electricity demand flattening that really made new plants not economic or not necessary.
1:58:59
And you know really when we think about the probabistic risk assessment, it just takes a lot of engineering time to get it through.
1:59:07
Like if you look at at how hard it was for SpaceX to get Falcon 9 and Dragon through NASA's loss of crew risk calculations, you know, it took years, took hundreds of millions of dollars.
1:59:19
So, it's kind of funny that like people see that as a success and especially when the stakes were only like a few lives for people that volunteered for danger and then you have like a nuclear power plant where we're going through the same probabistic risk assess assessment and you know it could impact many more people's lives and you know it's like oh it's not you know that's not good enough.
1:59:42
So, I mean, I think I think it would make more sense to argue about, you know, if the the risk factor, you know, should we how much risk should we take like with the actual numbers as opposed to just like, oh, I'm mad that we're not building nuclear power plants.
1:59:56
Um and actually it becomes just like very inexpensive to actually to improve the risk probabilities because the old plants that we're running now they have like active safety systems which means you have to maintain them and they have to work.
2:00:14
So like if you want to like move the control rods back into the reactor, well there's like a mechanism in a motor that does that that can fail.
2:00:24
So that you know when you're calculating your risk you have to calculate oh gosh what if this motor fails or what if my control fails or what if I don't have a properly trained operator to do it.
2:00:32
Um and it's the same for the cooling systems but this new generation of plants they have passive safety systems or like natural convection can cool the reactor in an emergency or the the rods are more like dead man switch where you know if something happens they just drop in from gravity.
2:00:50
And so the new power plants like this one that just got approved or the one they're building down in Georgia, you know, can be orders of magnitude safer than the than the running plants.
2:01:00
And it it's not really like a huge cost increase.
2:01:02
You're just changing how you you do these things.
2:01:06
And in fact, like if you look at all these re like all the literature for them, they're actually supposed to be less complex and easier to build.
2:01:14
But, you know, you're talking about a project that is so complicated.
2:01:19
It takes thousands of workers years and years to build, working every day.
2:01:26
And it's like if you're going to go through and do the engineering in great detail to prove that your plan is safe under the probabilistic risk assessment, it's going to take hundreds of thousands of hours of engineering time.
2:01:35
I mean, it's going to take a long time.
2:01:37
And that's why you see I mean, investors are willing to pay that at this point.
2:01:41
willing to pay that at this point. It's just like you know after you build it because of you know the rank and cycle and all that is it going to generate economic power and you know it's not necessarily going to I think I think one way to think about this is my father-in-law he always says
2:02:00
you know when people ask him about why we're not doing more nuclear he says well you got to think about the politics first and the economics second and those are like the important ones and so people are submitting designs and when to build plants that are big enough to impact lots of people's lives, even if that risk is very low. You know, some
2:02:17
You know, some people still are bothered by that, but also they're selling an easily substitutable commodity in most cases.
2:02:28
And so, I think a lot of times on the political side, if you can substitute nuclear power, people will.
2:02:32
Even if it's coal or whatever, people don't really care that much about the emissions.
2:02:38
Like, they just care about their electricity turning on.
2:02:38
And I think you see the the opinion change very fast when nuclear power is no longer a substitute.
2:02:46
Like all of a sudden, you know, Germany's like, "Well, we could turn our reactors back on." Or Japan, same way.
2:02:50
You know, they've had these reactors off for years, but now that there's an energy crunch, they're like, "Well, let's turn them back on."
2:02:54
Um, so I think I think the the future for nuclear power, which would be a better future, is you create products that impact less people's lives or have the potential to impact less people's lives and also are not substitutable.
2:03:11
And I think that means small reactors like if you have a battery that can power your phone or you have like a little battery out in your garage that can power your house.
2:03:22
The real, you know, these are hard to make.
2:03:24
make. there's a lot of problems especially on power density like you know the nuclear is very energy dense but not necessarily power dense so you have to uh do a lot of work on that to get there but one of like the most exciting examples of recent nuclear technology is these people at some
2:03:42
national labs and NASA got together and created this crusty reactor and only to it's like only 1 kilowatt so it's small you know I think the thing weighs like 400 kg it fits in the room they got the whole project done in a couple years for like less than $20 million and it worked great. It's very safe just because
2:03:58
It's very safe just because partly because it's so small but it has almost no moving parts like the whole thing is you know has like a sterling engine on top and that's like the only moving part.
2:04:07
So it's really um you know and there's several startups now that are working on improving that technology and commercializing it.
2:04:15
So that's the kind of like nuclear stuff that you know why I talk about small nuclear micronuclear is really exciting to me because it has so much potential and when you start putting nuclear in that small form factor there's no other energy source that can compete with it on energy density.
2:04:33
So you can do things you could never do before.
2:04:35
Whereas like selling to the grid in a large power plant is like well I can do that lots of ways.
2:04:42
And if you think think through this lens and you see like the entire nuclear debate is you know the nuclear proponents trying to claim that nuclear is not substitutable and that we should pay more accept the accept the risk or or whatever.
2:04:58
And maybe we should, but it it makes it hard to promote that technology.
2:05:03
If you could have a phone that you never tried to charge, like people would love that.
2:05:07
They'd be like, I don't care. That's nuclear.
2:05:08
I just have a phone that, you know, never goes dead.
2:05:13
I guess the question is to what extent are those um is the lengthy and expensive process necessary for the probabilistic risk assessment?
2:05:19
if there's like a way you could just have the process not be more streamlined and have the same uh be as effective in evaluating the the harm.
2:05:29
And then I guess another thing is if we haven't seen it's like zero people or like very few people have like directly died from nuclear, right?
2:05:38
So is it just that we've gotten lucky or like you're saying that could have been like way more and we're just in a lucky uh timeline.
2:05:45
I guess I'll go backwards a little bit here on answering those questions.
2:05:47
So more so than I think what people are responding to is just because like Fukushima didn't have you know airborne radiation that was very dangerous but people still got removed from their home you know and there's a lot of costs associated with that and you know it's hard for me to believe that if we had a similar thing in the US that there wouldn't be you know some type of mandatory evacuations that were really unpleasant.
2:06:18
And if you could, you know, get your power from coal or natural gas without that risk, I mean, a lot of people would make that tradeoff.
2:06:24
And I think the other thing with Fukushima is, as I understand it, like they were able because it was on the ocean with fast currents, they were able to use like a lot of seawater to keep the reactor from getting too out of control.
2:06:37
but they were just like dumping um you know a lot of the it's like radioactive stuff into the ocean but it was dispersing quickly. It wasn't a big deal.
2:06:47
So you know if you're on like a freshwater reservoir like most nuclear most US power plants are like your risk equation might have been different there.
2:06:56
I don't know enough about it to know if that really matters, but I think the main thing is because the pro precautionary principle, people are still going to get removed from their homes and people don't like that. Um, let's see.
2:07:10
Making it f I mean, you can always streamline processes, but the thing is like people are submitting designs that are extremely complex.
2:07:16
So whether your design is ultra safe or not safe at all, to do all the engineering to prove that costs about the same either way.
2:07:28
So that's part of why these new plants are so much safer than the NRC standards is just not that hard to make them that much safer.
2:07:34
And a lot of your licensing is is going to be, you know, you're going to spend the same engineering resources no matter what based on your plant complexity.
2:07:42
So the uh you know that's like the difference why Crusty was able to go through so fast.
2:07:48
You know they went is you know their thing is very simple.
2:07:51
They don't have very many moving parts.
2:07:52
Like there's only so many things that can go wrong with it.
2:07:55
And so that I think that's what's exciting to me about these other startups is they have the potential to get through faster with less money and then there's real markets in like remote power, space, military where people are willing to pay the premium for these initial models. Okay, I see.
2:08:15
Um Okay, so you're so you're not bearish on nuclear the future given the new designs with passive uh uh passive cooling and stuff like that.
2:08:22
It was more like the old designs that you're pessimistic about. Is that a correct? Yeah.
2:08:28
I mean, like if you look at like the what the cost of electricity is going to be from that, you know, if they ever build the reactors that just got proven or just got approved, like it's it's quite expensive.
2:08:38
You know, I think usually it's around like $40 $50 a megawatt hour best case, but more likely it could be up to like $80 a megawatt hour.
2:08:47
So, you know, they're not building it, you know, in deregulated power markets because you, you know, you lose money, but there are places where it could make sense.
2:08:58
You know, some places like in Europe have very expensive electricity and Japan and Singapore and there's a lot of other places that are Yeah. Yeah.
2:09:06
So there there could be some markets in there, but you know that technology then still has to compete with those places building solar panels or or you know all these other technologies that you could do and you know then there's the whole argument oh well nuclear can do this and that but you know I think the the people building the reactors clearly don't want to build them in deregulated power markets because it's not economic.
2:09:30
You know, that's why I'm excited about the small because there's alternative markets other than selling this substitutable commodity that's very cheap.
2:09:39
Well, what what is uh have you talked to Eli about this or what is his opinion? Yeah.
2:09:43
So, Eli finds out about these like new startups that fit this bill and sends me the information on because he knows he knows I'm excited about it.
2:09:50
So, I think I think he's also you know he also like of course you know his like specialty is like governmental affairs.
2:09:59
So there's still I'm sure there's still lots of opportunity to improve the process at NRC.
2:10:02
Like recently IMPO, which is like the industry group that's very much like a German style industry group. It's very powerful.
2:10:10
Um you know their goal with NRC was like reduce the nuclear rules by like one-third and then you also have NRC writing new standards for like Gen 4 reactors that that's supposed to be done in a couple years, but Congress instructed them to do it.
2:10:24
So there's lots of opportunity to try to improve the process, but it it it's very complex.
2:10:29
Like I'll give one example, the Browns Ferry accident, the main thing that came out of that was you can't have control cables for safety systems on redundant safety systems on the same cable tray because that cable tray catches on fire. You lose both systems.
2:10:45
So it's very very expensive to run extra cable trays and all this se cable separation.
2:10:51
Um, and like that's actually one of the problems that's like delaying Vogle in Georgia right now is they had like 500 issues of sharing the same like safety system sharing the same cable tray.
2:11:04
So they have to like you know build all new cable trays and clean out the mess of the stuff they already built and redo it. Super expensive.
2:11:12
So NRC has like tried they tried a pilot program where they did like a performance-based safety on you know as opposed to like just the strict cable separation rule and like I think um Okone was one of the power plants that tried it ended up being more expensive than just the simple rule.
2:11:30
So the uh you know the reality is often very complex and I think you when you have these complex plants like it's just hard to do.
2:11:37
So it can always be improved, but you know, I think the small could end up greatly out competing the large because they have less complexity.
2:11:49
Yeah, you had a small section in that piece about fusion where you Yeah, you you were especially pessimistic about fusion.
2:11:55
Uh what what is your what is your take on fusion?
2:11:59
Well, I'm not it's kind of the same thing.
2:12:00
I'm not pessimistic about fusion.
2:12:02
I'm pessimistic about fusion technologies that heat up water to make steam and run it through a steam turbine because they're not efficient.
2:12:10
It's just so expensive to do the like literally like it just fitting in like the steam turbine and the condenser and all that kind of stuff you need for that basically makes you uncompetitive at most on most deregular power markets. Yeah.
2:12:25
So I I mean there's startups who have uh plans to do direct energy conversion.
2:12:29
I don't know how feasible those plans are, but yeah, like presumably you think those are in those cases you think fusion and uh could have a big future. Yeah. Yeah.
2:12:38
I don't again I like I don't know too much about the same as you.
2:12:40
I don't know too much about their specific technology, but if you're pursuing a direct conversion technology, it's just you're you actually have a chance of success.
2:12:51
You know, I think a lot of people I've talked to in like the fusion space, they're like, "Well, I can make, you know, electricity for $50 a megawatt hour, and because I'm Fusion, people should pay me $50."
2:13:00
And it's like, well, not everyone may want to pay you $50. Yeah. Yeah.
2:13:06
I mean, um, it might involve a initial period of like large subsidy that we had to give electric um, uh, electric vehicles and even solar.
2:13:13
I like we we had to give huge subsidies to solar in the beginning when we were at the beginning of the learning curve.
2:13:18
So that might be necessary though. Yeah.
2:13:21
I mean I I really disagree with like the subsidy solar had actually and and I think it just like if you actually look at the numbers it proves the point like the people say like oh because Germany did the feed in tariffs that like made solar cheap.
2:13:34
So if you had a country that's 1% of the population they spent like a tiny portion of their GDP and that was enough to scale the technology.
2:13:42
Well you should just let some other fool do that you don't reap the benefits.
2:13:46
So I I would be supportive of of taking away most of the subsidies for energy in general.
2:13:53
Just to make sure I understood that argument you're saying that like it's unlikely that the small subsidies that Germany gave were enough to actually make the difference.
2:13:59
Is that Well, I'm just saying if you if they were if it took such a small amount of subsidy to do it like someone will be foolish enough to do that, you know, in this case it was Germany.
2:14:08
They spent a lot of money doing that.
2:14:10
That was, you know, they're not reaping the benefit from. Yeah.
2:14:14
It's not compatible with their environment.
2:14:16
So, um, and their climate I mean, yeah.
2:14:19
So, I mean, we benefited from them doing that.
2:14:21
We didn't have to, you know, we still do spend some subsidies on solar and I think they're very like poorly designed.
2:14:29
So, I I would be better just to get rid of them.
2:14:31
But, but but the thing with fusion, if you're just heating up heating up water to make steam is that technology, there's no learning curve for anymore for steam engines basically because you know that technology is so mature.
2:14:44
I mean now so that's why some people are looking at like super critical CO2 cycles is because well maybe this could be a little cheaper than uh doing steam turbines.
2:14:51
That's what that's some possibility there.
2:14:54
But it's and there's some other technologies that maybe someday you have like thermmoelectric generators and stuff like that.
2:15:01
But I think the direct conversion technologies have just a massive advantage not only in initial cost but in ongoing operating costs. Okay. Okay.
2:15:11
Um there's one more topic I really want to talk about which was yeah you have this interesting post on where you can actually expect to find alpha uh given that at least public markets are efficient.
2:15:23
I do you want to like explain the basic thesis of that post before I ask you specific questions about it.
2:15:30
Yeah, if I was like done that post down like I love FMA's original paper where he lays out this efficient market hypothesis thesis and you know he's like there's multiple types of information and so the first is you know if you just have like pricing data for stocks or whatever securities like you can be the smartest person in the world and you're not going to make any money doing that because it's just like random.
2:15:52
But the uh if you start incorporating more information like what's in 10ks and all that like if you're like super super smart you might be able to make a little bit of money there.
2:16:03
Um and you know we see that with people like Renison's technologies and you can debate about you know Warren Buffett and all that but then there's a third category which is like the strong type information and it's basically you have legally acquired private information and the you know you can make money that way and be significantly less smart.
2:16:26
So if you if you want to like just take FMA's paper and like how do I make money?
2:16:30
It's like okay well I should find legal ways to acquire you know this information and then I don't have to be you know a super genius to make money on. Yeah.
2:16:42
What I thought was really interesting in your post was you had this point about how one of the ways you can actually earn excess returns is um through like labor, right?
2:16:52
like Buffett in the early years at least they would like go into these factories or companies and like interrogate every single piece of operations and whatever.
2:17:02
And I thought that was an interesting twist on Picad's thesis.
2:17:03
So I don't know if you've um seen his stuff but he has this claim that well not only does capital earn more than uh the the gains to capital are higher than the gains to labor but the high more capital you have the higher returns you can earn.
2:17:18
um like I guess Harvard has access to hedge funds that may be able to earn like excess returns.
2:17:24
excess returns. I I thought yours was like an interesting basically if you take um this view it's basically the inversion of picky because uh like o over time as Buffett has gotten wealthier his returns have gone down because uh it's harder to like invest the marginal dollar more effectively and
2:17:40
as you said with the medallion fund yeah they they no longer accept outside money and uh and then the the interesting thing about labor is like the reason that Buffett was able to earn those excessive returns in the beginning was because of the labor he put in right so the interesting thing is like capital is just funible with other capital. So
2:17:55
So capital doesn't enjoy as high returns as like really good labor, really smart labor, which is like the opposite of the pigity thesis. Yeah.
2:18:05
And I think there was actually a paper, I think it I think it was on marginal revolution a couple years back.
2:18:11
So I'm pulling from my memory here, so I could be missing a little bit, but basically it studied like all these businesses and what happened to the business after like a founder unexpectedly died and like the profit just like you know and it looks like on
2:18:26
you know these are capital returns as like many people would see them but then the you know the earnings just like dropped like a rock like they lost some irreplaceable human capital there and you know they didn't spend any time training them because they died unexpectedly. Right. Which also has an interesting Right.
2:18:41
Which also has an interesting implication for CEO pay, which is just that actually like okay, in the Marxist sense, what is uh pay?
2:18:48
It's like your pay is what it costs to replace you, right?
2:18:53
Um and if it if the if Steve Jobs is so irreplaceable that you know if he goes away like earnings are going to drop like a rock and like uh rock and stock price are going to drop like a rock.
2:19:04
Actually, that means that he should get paid like if that that's how expensive it is to replace him.
2:19:08
He may be like irreplaceable, right?
2:19:09
So, it's actually worth what whatever like dozens of millions of dollars you're paying him. Yeah. Yeah.
2:19:15
I'm I'm generally a proponent for letting the market decide that. Yeah. Yeah. Okay.
2:19:21
And then another way you said suggested that maybe uh firms could earn excess returns is like by developing unique brand, right?
2:19:27
So like Y Combinator is probably able to earn excess returns to a normal uh venture capitalist because of their unique brand. Yeah.
2:19:35
I thought that was really interesting.
2:19:36
Do you want to talk more about that?
2:19:37
about that? I think it's just like a lot of this intangible capital and labor are compliments for regular capital and you know I think you can see it too like you know you if you build a brand around that you're a good investor like you can raise money from other people and charge
2:19:57
them money on it you know more so than if you're just like a no-name so I think there's lots of examples of that where building a brand or building relationships um is extremely valuable and can just like specific knowledge can can juice your your returns. I mean it's like a
2:20:13
I mean it's like a type of specific knowledge.
2:20:17
Well, what do you mean have specific knowledge?
2:20:20
Well, I mean to build a brand like Y Combinator, you have to like understand what tech founders want.
2:20:24
So they they you know use that knowledge to create you know a place that's great to do go do your startup. Yeah. Yeah. Yeah. Yeah. Interesting.
2:20:34
Um, is the market for blogging efficient?
2:20:40
So now there's actually a financial rewards to blogging as you know the effective ideas blog prize.
2:20:44
There's other kinds of grants like this.
2:20:46
You know recently open philanthropy a contest of you suggest a cause they have like you know there's many prizes where like if you're good it seems like if you're pretty really good at blogging you could like earn six figures.
2:20:56
It seems given like the the regularity and size of these prizes. Um yeah.
2:21:00
So, is this a market that we should expect to be efficient?
2:21:06
I think it would be hard to measure like given my own experience, like I'm blogging for free, but the benefits I've gotten from learning about what I'm blogging about and then like a few connections I've made that then help me like with what I'm my projects I'm working on, you know, like there's like huge returns could and it could be, you know, like my project's successful like it'd be just like almost immeasurable.
2:21:29
So yeah, I would guess it's very hard to measure and probably inefficient and that more people could blog because it's hard to predict the returns to what your blogging might have.
2:21:40
But I guess if you're going to do these blog prizes, I don't know if the blog prize, you know, because the blog prizes are about specific topics.
2:21:47
I don't know if that how much that helps the efficiency there. Yeah. Yeah.
2:21:52
Let's take that part of it out.
2:21:54
out. Let's just talk about the factor you mentioned which is that you can this is a regular thing you hear from people who write online which is that the gains they get are huge and that's also the case in my case and so it's kind of interesting I guess efficient markets
2:22:07
doesn't like just because the stock market is efficient doesn't mean that everybody will put their money into the stock market right that's not the implication so it's very possible that you'll have irrational actors who are not like invested in or like writing um
2:22:19
but then the question is given that you write something that's high quality will it get uh noticed by the market like will get the attention and uh broadcasting that it deserves and in my experience actually like I guess this was the case you mentioned that your some of your first post ended up on
2:22:34
hacker news right so in that sense that market was efficient but yeah it seems to me that when somebody finds a good blogger they um it's it's not hard for their initial post or or like at least their subsequent post as they get better to gain an audience. Yeah, I do think I
2:22:48
Yeah, I do think I do think that and you know I don't know what the what the counterfactual is.
2:22:53
You know, we don't know about the people that didn't be, you know, didn't have posts go to hacker news.
2:23:00
So like it could have easily been I mean I think that what the alternative for me is I just would have blogged way less, you know, if if one of those early posts hadn't hadn't gotten more attention.
2:23:11
So yeah, it's hard to know what the counterfactual was.
2:23:13
How many people have just like abandoned blogs that did like three posts and they would have written one more.
2:23:19
Maybe it would have it would have been better. Yeah. Yeah.
2:23:22
Okay, Austin, this has been a lot of fun.
2:23:24
Thank you so much for uh I think we're two hours over at this point, so thank you so much for your for time. All right, thank you.
2:23:32
I don't know if you have any other like other final thoughts or any other subjects that we should uh hit on or No, you know, I think I think we covered everything. Okay, cool. Cool. Awesome.
2:23:40
And then just uh people can find you at um Austin Vernon. Okay. Austin Vernon.
2:23:48
Um and then your Twitter is I think it's Vernon 3 Austin. Okay.
2:23:54
And and it'll also be on the show description, but yeah. Oh yeah. Yeah.
2:23:58
Thanks so much for coming on, man. This is a lot of fun. All right. Thank you. [Music]