0:00
J Cal, what's it feel like to be a guest on your own podcast today? I'm excited. Oh god, so delightful.
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0:03
You did a great job by the way.
0:05
Really like the punch up to the formatting where you actually put the questions in.
0:10
Yeah, I think it's cuz I want us to all agree on the stuff we want to grok on, you know?
0:13
In a professional TV show, they would have pre-interviews with everybody, get all their positions, then they put the positions into the document and they you know, they basically do what is called a pre-interview.
0:23
Or here's another idea, you could do your job.
0:25
Well, I mean Do your job. How about that? How about you try that? How about that?
0:28
Or you know, or how about I turned you three miserable into actual likable people in 91 episodes, which nobody thought was possible.
0:37
I actually think I'm becoming less likable the longer I'm on this show.
0:40
But I think THAT'S I THINK THAT CORRELATES WITH ALL OF US.
0:45
ALL OF OUR LIKABILITY JUST HELLO and welcome to the All-In Pod.
1:05
I am your moderator for today, out of the hot seat, doing the easy beat, Dave Friedberg.
1:13
I'm joined today by our esteemed panel, back from his European shopping spree, our national treasure, America's favorite dictator, Chamath Palihapitiya.
1:24
Chamath, how are you feeling? I'm feeling great.
1:27
You're okay, you're recovered? Yeah, good.
1:29
I'm a little I have I got a little head cold though.
1:30
Oh, well, sorry to hear that. Hope it's not COVID 2. 0. No, I tested. I'm COVID negative. Thank god. Okay.
1:36
Also with us as usual from his emergency bunker ahead of the US Civil War, the Rain Man, David Sacks. How are you, David? Good.
1:44
Happy with the late start this morning, I'm sure.
1:47
And of course, everyone's favorite ski bum, producer of the Woodstock of tech conferences, the one and done All-In Summit in Miami, Jason Calacanis.
1:55
Jason, what's it like to be a guesty today? Ah, it's so delightful.
2:00
When you said you wanted to moderate, that to me was chef's kiss.
2:04
I get to I get to comment and not be the moderator. I love it.
2:08
Yeah, so we're we're mixing it up a little bit today.
2:09
I'm going to take the lead.
2:11
J Cal's going to sit back.
2:11
Uh I'll say a couple of words before we start because I think last week we got a little nasty.
2:16
Uh definitely heard that from listeners.
2:19
Um you know, I I know I so I want to kind of just address it real quick and then we can uh kick off the show.
2:25
I I think it's important to say that none of us really started out doing this pod as a job or thinking that it would become a real regular thing, right?
2:32
We we started doing it for fun, ad hoc from time to time, and then it became this thing that people listen to and it became this thing that we started doing every week and people actually cared about it and suddenly became this real obligation.
2:44
It's almost like we got pregnant and had a baby and now it's like four men and a baby.
2:48
And so, you know, I think we all feel this like you know, challenging obligation that we never expected to take on of like taking care of the show, taking care of the pod.
2:56
And we all have like different points of view on what we want the pod to be and what we want it to become.
3:01
J Cal cares about, you know, getting up in the rankings and listening to the audience and ultimately has shared that he wants to monetize, but you know, at points.
3:10
We've not always agreed on different points about that.
3:13
You know, Chamath has the things he wants to bring to the table.
3:14
Sacks has things he wants to talk about.
3:16
And so, you know, it's really difficult kind of running the pod, managing the pod with four very different points of view, very different perspectives on what it is we all want to kind of get out of this over time.
3:27
And I think it causes us to get really frustrated with each other.
3:30
We end up having real fights.
3:34
You know, you have the biggest fights with your best friends.
3:35
You know, you really let loose and lash out.
3:37
I think last week I listened back, I was pretty contemptuous in my kind of retort to J Cal about hitting up on the inflation topic and I want to apologize to J Cal for doing that.
3:49
I think it was you know, I think yeah, I think it was a little rough.
3:51
But at the same time, I just want to point out like, you know, we're going to keep doing the show um because I think, you know, as much as we all disagree, as much as we fight and as much as we may even start to dislike each other uh and not get along, I think it's really important that we keep doing this and and I think restating that commitment and trying to do better is really important.
4:11
So, you know, we're going to try different stuff out, try and find ways to find common ground and keep doing the show productively with each other.
4:19
As one experiment this week, I'm going to moderate and we're going to, you know, try and take it that way.
4:22
But, you know, I just wanted to say those few words before we kick this off, guys, cuz I thought it was important, especially after the last couple of weeks.
4:27
I think it's been a bit of a struggle.
4:29
We've been having a tough time and I just want to be open about it and, you know, highlight that you know, as an example, you can fight with people, you can disagree with them, and you can still keep trying.
4:39
And I want to set that example.
4:41
I want us to keep doing that.
4:42
So, anyway, just thought that I would just like to say apology accepted.
4:48
And uh I thought that was a lovely opening.
4:52
One thing I I would just punch up there is the real reason we did this was because we missed each other.
4:56
We missed hanging out with each other.
4:58
And then this is, you know, something that's become more successful than any of us ever imagined.
5:06
It's got an audience size that is just, you know, hard to imagine how many people are listening to this, which then does put a little bit of pressure on it.
5:15
We we we want it to be great for the audience.
5:18
And I just want to say like I I don't take it personally when we when we battle on stuff.
5:21
Even with politics and Sacks and stuff like that. I respect each of you.
5:25
You are each brothers to me.
5:27
I love each of you deeply.
5:30
And when we fight and things don't work out, I look at it as like personal growth or progress towards some other goals that we each have.
5:36
The amount of support I've gotten in my career from David Sacks and Chamath has been unparalleled.
5:44
David Sacks was my first LP.
5:47
He encouraged me to create my first venture fund.
5:51
Chamath supported me relentlessly in my career, showed up for me every event I ever did, and I tried to do those same things for them.
5:58
You and I haven't done much business together, Friedberg, but I'm enjoying the business that we've started together. Yeah, starting to. Starting to.
6:05
And I and I showed up for both of your events when you needed me, doing some syndicates with you, and I I love doing this each week.
6:12
I love doing this each week.
6:14
Yeah, it's like like I think my point was it's a lot easier to be friends and have wine together and play poker together than it is to do a job together.
6:21
And this has become really a job.
6:23
And so, you know, you can have really good friends and then you try and start a company together or do a job together and you can hate each other.
6:29
Yeah, I think it doesn't mean that you guys stop being friends or that we should stop doing the work.
6:32
I think we should still keep trying to do the work, figure out a way to make it work.
6:35
So, anyway, that that was the point I wanted to make at this And and that's the end of my my statement. Those weren't prepared.
6:40
Those were just in reaction to yours.
6:42
I don't know if Sacks wants to say anything, but I doubt it. Okay, let's get this on.
6:47
you have any emotions right now?
6:47
Sacks, what are you feeling?
6:49
Yeah, I mean, Chamath, do you think grass-fed is better or THE REGULAR BILTONG?
6:57
SACKS AND I WERE TEXTING while you guys were We're hugging it out, talking about different kinds of jerky. Beef jerky.
7:04
While we were jerking each other off, you guys were researching jerky? Great. Okay.
7:08
I was recommending biltong to him. Oh, great. Awesome.
7:13
Speaking of jerky, let's get into Adam Neumann. Hey-o. Okay, so now Hey-o. Uh hey-o.
7:16
Okay, so first thing to talk about today and I kind of wanted to take it in a little bit of a different direction than I think all the other tech media have kind of addressed this.
7:27
You know, Adam Neumann is back.
7:27
He raised $350 million from Andreessen Horowitz.
7:31
There was an announcement this week for his new company called Flow, which as we understand it is trying to develop residential apartments, you know, in the same sort of vibe, quality, and attention to experience as maybe was intended with WeWork.
7:47
Uh and Flow, you know, seems to have um started, originated with Adam doing a bunch of acquisitions of real estate with his own capital, and now he seems to have turned this into a real business and raised money from Andreessen.
7:59
So, there's all the commentary and joking about Andreessen putting this money in, are they crazy, as well as all the, you know, commentary about Adam Neumann, how could anyone back him?
8:10
The guy was so awful the first time around.
8:14
Let me just do a quick round the horn with you guys, you know, initial reactions to the to the Adam Neumann deal.
8:19
And then I'd love to talk about founders having a second act because, you know, Adam happens to be high profile.
8:27
So, his failure was high profile.
8:30
But a lot of founders have a failed low profile first experience and come back and kick ass the second time around, and investors have taken notice of that.
8:39
And so, I'd love to to go there, but maybe we just do a quick reaction.
8:42
J Cal, I know you've talked about this on your other show.
8:43
Maybe you can kind of give us your your quick commentary on on the opportunity, the transaction, and what are people talking about with respect to this this deal happening?
8:52
You know, people are wondering why he's able to raise money.
8:53
And what I always tell founders is when you see these like weird fundings and you can't get your heads around them, it typically has to do with track record and credible audacity, Trump's prior blunders.
9:02
So, uh say what you will about Adam Neumann, he is audacious and he has credibility.
9:10
People forget his origin story.
9:10
They only remember the Masayoshi Son $4 billion and what happened and what he did with that.
9:17
And that was a complete cluster [ __ ] It went off the rails.
9:18
He did all kinds of inside dealing and and it was it was madness.
9:23
But before that, he did Green Desk.
9:25
He was a bootstrapped entrepreneur.
9:27
And then he created the category-defining co-working space, which to this day, when you say I need to get an office, the first thing people say is get a WeWork.
9:36
Just like they say take an Uber, just like they say Google it, just like, you know, any other verb that we talk about.
9:42
And so, it's very easy to dismiss him and say the tech industry has no morals, they just back they'll back anybody.
9:48
He has a publicly traded company that's in the market right now.
9:53
He defined the category, and And also put $300 million dollars of his own money at stake to buy these apartments.
10:00
Uh so, I think it's uh I would say the bet makes sense to me and I think it will make sense if we go into the bet uh which I'd love to hear everybody else's thoughts on.
10:09
It's an audacious bet because housing is one of the hardest industries to tackle and he already did it for commercial, so why wouldn't he have be able to do it for residential?
10:19
Sacks, did you see this opportunity in the market?
10:22
Did Did you guys take a look at it or have any points of view on it?
10:23
No, I mean we we don't write $350 million size checks.
10:28
So, it's just not something that we're going to take a look at.
10:30
For that matter, we don't really do non-software investments.
10:34
We don't do, you know, in the you know, physical world type investments.
10:40
And I've kind of learned that doing anything in the physical world with atoms is 10 times harder than doing anything with bits.
10:46
So, you know, one of my takeaways over the last few years is you know, we tend to like pure software models, not even hybrid or tech-enabled models because it really does take a 10x entrepreneur to do anything in the physical world. So, Yeah.
11:02
we you know, we software is kind of our knitting and we we like to stick to that.
11:07
Uh in terms of, you know, Andreessen Horowitz making this investment, here's what I'd say or or your larger topic of of repeat founders.
11:14
Look, most startups fail and most founders or good founders have an entrepreneurial streak in them.
11:18
And so, you combine those two things and there's going to be a lot of repeat second time founders, people who are fundamentally entrepreneurial and their first thing doesn't work out.
11:27
I think that that can be a positive thing to invest in because they've gotten some of their mistakes out of the way and they've learned from that experience.
11:35
So, I think the question we would just ask is what were the learnings and did they conduct their failed startup honorably?
11:41
You know, like if they lied to investors or misled investors, then obviously we don't want any part of that, but I don't think most failures are like that.
11:50
And um and so, as long as the founder I think conducted themselves honorably, had some good learnings, it's certainly not a disqualifier for their next startup.
11:58
I mean, Chamath, you've been open in the past about startups that waste money and do the kind bars and red brick, you know, offices and you know, easy living at the office.
12:10
There's no better example of over-the-top exuberance as there was at WeWork, right?
12:15
I mean, does that indicate to you that this guy doesn't have a clue in terms of how to be prudent with investors' capital and he's not backable or how do you think about it?
12:23
I have a couple thoughts.
12:25
The first is that WeWork um is a really interesting business.
12:31
But that business had been built many times before and it's called the REIT.
12:36
And I think what Adam was able to arbitrage was a period of time where he pitched a non-real estate investor a technology company that was really just a real estate investment trust.
12:49
And that's why he was able to get these incredibly heady valuations.
12:51
I think the peak valuation of WeWork was like 45 or 50 billion dollars.
12:55
But what happened, which is that when WeWork ultimately went public the collective intelligence of the public markets imposed a REIT-based valuation model on WeWork and it is now a 3.
13:08
6 billion dollar public company.
13:13
And I don't think you can dunk on Adam for that.
13:15
It's hard to build any kind of company, let alone a 3.
13:17
6 billion dollar company and he was instrumental in that, so he should get some amount of credit.
13:24
But the reality was that he was pitching people that didn't want to hear about a business that was a real estate investment trust.
13:31
They wanted to hear about some technology and all of these other things, but ultimately when you stripped it away, it was a REIT.
13:38
Now, you started again and from the outside in not knowing anything cuz we don't know anything what it looks like is the beginnings of another REIT except focused on residential. Mhm. Right?
13:48
So, when you buy hundreds or thousands of apartments.
13:53
But again Same pig, different lipstick.
13:55
The the the the issue at hand though is that again, he has found a technology investor to buy a technology story and again, time will tell whether there is a technology business here, but if it ultimately is an amalgamation of a bunch of apartments
14:12
with some sort of, you know, interconnected technology that helps enable a better community or what have you those kinds of REITs have also been built before and REITs are valued in a very structured way in on this thing called FFO, funds from operations. And you know what the upper bound
14:29
And you know what the upper bound evaluation is, which is if you go and, you know, look in the stock market the most valuable REIT in the world is a company called Prologis.
14:35
They have about a billion square feet under management.
14:40
They're about a hundred billion dollar company.
14:42
WeWork has about 45 million square feet under management. They're a 3.
14:45
6 billion dollar company.
14:47
So, if you just interpolate from those two data points on the residential side, Adam's going to have to buy, you know, if you think an average apartment is 1,500 square feet, he has to buy, you know, 665,000 more apartments in order for that to be Prologis scale.
15:04
You know, I don't know, to invest at a billion dollar valuation or 1.
15:08
5 or 2 or whatever the number turns out to be makes sense if you think the upper bound is unlimited, but if you think the upper bound is three or four billion, the only reason to do it, by the way, it still makes sense for Andreessen to do it.
15:18
And this is why I think people get tilted.
15:22
Because now this comes to my second point which is that what Adam Neumann is able to take advantage of is a very obvious, powerful understanding of the venture capital business model that other founders don't, especially the ones that dunk on him.
15:39
And let me just explain this.
15:41
We talked about this last week.
15:41
The only mistake I think that SoftBank really made was a velocity of money mistake which is not setting the investment cycle of their Vision Fund to be 10 years instead of five.
15:55
Well, every other fund has a five-year investment cycle, too, including A16Z.
15:59
And so, when you have tens of billions of dollars under management, guys, guess what?
16:02
They have the same problem SoftBank did except with just a different quantum of capital.
16:06
They want velocity of money.
16:11
And so, if a founder comes and asks for 350 million dollars it actually in a perverse way makes your life easier because now that's saying yes once versus saying five or six times to people asking for 50 million dollars or heaven forbid 350 times for people asking for a million dollars.
16:28
And so, if you're if you're in that seat, Chamath, if you're the in the investor seat, are you putting all that capital once with the one guy who's managed that money before or do you want to find the guy who has it or the gal who has it?
16:41
You have to understand the Andreessen business model.
16:44
Andreessen Horowitz business model is to become Blackstone but for technology.
16:48
They have like 30 billion AUM now, right?
16:50
Right, which is still, you know, a drop in the bucket. like that, yeah.
16:55
So, if if you look at Blackstone, right? A trillion.
16:57
Blackstone is a hundred plus billion dollar market cap company. Right? Built on three pillars.
17:01
Credit private equity and real estate.
17:04
You can make the argument that technology is near is as important as those three categories.
17:09
And so, you know, if I think it's pretty obvious that Andreessen is trying to build a publicly ownable security that represents all things in technology.
17:22
So again, I don't think that they're necessarily out to generate massive returns for LPs.
17:29
They want to become a credible, reliable institution for to absorb hundreds of billions of dollars.
17:35
And so, ultimately the objective you think is to end that technology Their Their ultimate goal is to is for Andreessen and Horowitz to monetize the equity of Andreessen Horowitz.
17:45
Of the management company.
17:47
Yeah, that's the goal and that's a that's a by the way, that's a laudable goal.
17:50
It's really hard to build a business.
17:52
They've built an incredible business and then they should get credit for that. Sacks, do you agree?
17:57
Well, I mean, they are they I think Chamath's right that their stated goal is to build like a larger institutional VC type investor.
18:04
I mean, doesn't Andreessen have a portrait of J. P.
18:10
Morgan hanging on his wall or something?
18:11
I mean, they want to turn VC from being like a little craft business to something larger and more institutional.
18:17
So, yeah, I'm sure they jump at the chance to write a 350 million dollar check if they believe in the company.
18:22
But can can I shift this conversation just for a second?
18:24
So, I've done a lot of commercial real estate investing.
18:26
I think there are reasons to think that Flow, this new company, could actually be better than WeWork. And let me just explain.
18:33
So, with WeWork you know, if you talk to commercial office space owners, landlords, about WeWork like 10 years ago, what they would have told you is yeah, look, that model's great, but we want tenants who are high credit and sign long-term leases. Why?
18:51
Cuz they're not worried about what happens in a bull market, they're worried about what happens in a recession.
18:56
And they want to make sure they can cover their bank debt.
18:58
So, landlords have always cared not just about rents, but also about having high credit long-term leases.
19:07
What WeWork basically did is arbitrage that.
19:10
Of course, it was a much better deal for startups because if you're a startup you don't have to go through a complicated process to sign a lease, you could just go month-to-month at a WeWork and you'd be willing to pay a premium for that.
19:20
So, WeWork's business worked great during an up market because they would rent space for say 50 bucks a foot, lease it for a hundred, and they would capture the spread.
19:27
The problem is the business was highly levered to a boom cycle.
19:32
And at the first recession or bust cycle all of a sudden they're going to have massive vacancy because everyone can leave and all of a sudden their rents go below their the rents they're collecting go below the rent they're paying and the arbitrage goes away.
19:45
They magnified that problem by making two mistakes.
19:47
Number one, they signed a lot of top of market leases, right?
19:50
They were signing leases at a hundred dollars plus per foot in hot markets.
19:54
And the other thing is they didn't seem to have a lot of financial discipline.
19:56
You know, I guess that show kind of makes fun of these sort of bacchanalian parties they had and so forth like that.
20:03
You can get away with a lack of spending discipline if you're a 90% gross margin business like a Google, but when you're a real estate business who's got real cogs, not having spending discipline is actually a problem.
20:16
So, for all those reasons, I think we were kind of contained the seeds of its own implosion inside of their model and they needed to manage or mitigate those risks a lot better.
20:27
That's not to say though that it wasn't a great product.
20:29
I mean, for every It was in the early days.
20:30
It was an amazing product.
20:31
Yeah, I mean, in the early days Sachs to your point, they were taking under market, like really low cost per square foot space, like in the Tenderloin, and then selling it for, you know, Bryant and Third Street rents, right?
20:47
I mean, that was the arbitrage and it worked.
20:49
It's only they lost that discipline, sounds like, in the second half of the company's history. Right.
20:54
What I think is interesting about Flow is that it's sort of multi-family, these apartment type buildings.
20:58
Those tend to be, you know, let's call it 1-year leases anyway, and they're owning them.
21:03
They're not leasing from a landlord.
21:05
They're basically So, Chamath's right.
21:06
It's basically a standard apartment replay where Newman is going to create a consistent experience and brand across the country.
21:14
I'm not sure that's really been done before where there's like a brand for apartment living. Never been done.
21:19
Yeah, and so actually it it's pretty simple in terms of measuring if it's going to work or not, which is simply can Adam Neumann deliver lower vacancy rates and higher rents.
21:29
And then, you know, buy apartment buildings at market prices.
21:31
So, in other words, that's the arbitrage is can he extract more rent and less vacancy from apartment units by creating this national brand and this experience But this is But you guys ever Yeah, go ahead. But this is my point.
21:45
Everything you talked about is how we would actually do a teardown of any other REIT that was looking for money, David.
21:51
You know, we would look at what is the FFO?
21:54
Ultimately, it's like, you know, what's the implied cap rate and what's the FFO?
21:58
Can you get paid for owning this?
21:58
How much do you have to spend and can you get paid?
22:00
And this is where I this is where I think like, you know, trying to then, you know, so if if if on the if on the inside of it, what what instead it was not that, but it was pitched as some, you know, convoluted technology play, it's a little bit harder to believe.
22:15
Again, we don't know the details, so maybe it's a play. I Sure.
22:19
Actually, what I would say building on Sachs and Chamath's, if they are going to do 700,000 apartments, you can actually put some numbers on this.
22:27
You know, 700,000 apartments, you think they can get an extra 100, maybe 150 bucks out of a renter?
22:31
I think they could for like that experience, right?
22:34
People pay a little premium.
22:34
They're not going to pay 300 more, 400 more, because then they would just get a larger apartment and, you know, they they could spend that money cuz they it would be better spent.
22:41
If they have 700,000 of those, you're talking about a billion dollars in revenue a year.
22:45
That's with 700,000 apartments.
22:48
Okay, 10 times profits, you know, whatever, 10 billion dollar valuation.
22:51
If Andreessen Horowitz is buying in at 1.
22:53
5 or 2, like Chamath is saying, is probably correct, somewhere in that range. They bought 20%.
22:56
Okay, yeah, maybe they get a six or seven bagger out of this, but it's a six or seven bagger on a big number, 350.
23:01
It's not like a 20x or a 50x.
23:03
And you also get the branding, which I would not under value here of being the firm that backs bad boy entrepreneurs and is like willing to go there and support founders.
23:19
it's a real positive for Andreessen.
23:20
It's like, look, yeah, I You know, you you just raised a ton of money. Well, guess what?
23:24
You got to put that money out because it's not as if they're going to think to themselves, "Oh, I really only want to run this fund over 3 years instead of 2."
23:30
They're not thinking that.
23:32
They're like, "I want to keep going out because I think their business model works by taking as much oxygen in the room as possible, which means to be actively fundraising always."
23:43
That's it's tied it's true of Blackstone, it's true of Apollo, it's true of Carlyle, it's true of KKR.
23:48
Any of these publicly traded um investment managers, they live and die by their ability to constantly be raising funds, which implicitly means you have to constantly be writing funds.
24:02
The returns decay, but that's okay because now you're feeding your you know, you're taking money from pension funds and other institutional limited partners who are fine because their hurdle is like 6 or 7%.
24:14
So, if you deliver 11%, you still look like a genius because you can absorb so much money.
24:20
So, Andreessen wins by showing that Adam Neumann goes and picks him.
24:25
Andreessen wins because they have the ability to write a $350 million check.
24:30
Andreessen wins because they have $350 million less that they have to actually put into the hands of other entrepreneurs.
24:35
Now, they can do it with just one check.
24:37
So, it's a multi-faceted win for them and it's a multi-faceted win for Newman.
24:42
I think there's also brand value for the entrepreneurs that have had failed startups or issues with their first startup exploding and knowing that there's still a second bite at the apple.
24:52
I remember a survey and I I just tried to pull it up, but I couldn't find it.
24:55
So, I may be wrong on this, but First Round Capital years ago surveyed uh or did an analysis of all the investments they had made and I think one of the biggest predictors of success in a startup was that it was the founder's second startup.
25:11
And so, if you've had failings the first time around, you're more likely to have learned from those failings to improve your performance the second time around.
25:18
And so, as an entrepreneur, I look to Andreessen Horowitz after this investment and think, you know, these guys will still back, you know, great entrepreneurs even if things went sideways or there was an issue the first time.
25:28
And And you've got, you know, the ultimate kind of case for that.
25:32
Okay, speaking of Andreessen, I'm going to move us along.
25:33
You guys wanted to cover this topic, not my favorite topic just because I want to be careful about uh you guys decide what you want to say, but um I'm going to bring up the the Andreessen NIMBYism thing in Atherton.
25:47
You guys wanted to cover this, right? Yeah, thumbs up. Sure.
25:50
I mean, I mean, it's like Okay.
25:53
Well, I mean, Everybody's talking about, why wouldn't we?
25:57
Everyone's talking about it.
25:57
Okay, so during COVID during COVID, Marc Andreessen wrote a an essay uh called Build.
26:04
And I'm going to read an excerpt.
26:06
He says, "You don't just see the smug complacency, the satisfaction with the status quo, and the unwillingness to build in the pandemic or in health care generally.
26:13
You see it throughout Western life and specifically throughout American life.
26:17
You see it in housing and the physical footprint of our cities.
26:21
We can't build nearly enough housing in our cities with surging economic potential, which results in crazily skyrocketing housing prices in places like San Francisco, making it nearly impossible for regular people to move in and take the jobs of the future."
26:34
And then last week, uh Mark and his wife, Laura, submitted a letter to the town of Atherton um to uh fight against uh multi-family housing saying, "I'm writing this letter to communicate our immense objection to the creation of multi-family overlay zones in Atherton.
26:51
Please immediately remove all multi-family overlay zoning projects from the housing element which will be submitted to the state in July.
26:56
They will massively decrease our home values, the quality of life ourselves and our neighbors, and immensely increase the noise pollution and traffic." Sachs.
27:08
I'm just going to hand the mic over.
27:10
Well, I mean, I'm happy to defend the residents of Atherton on this.
27:13
I'm going to take the contrarian standpoint.
27:17
But does anyone I I I I was going to do the same.
27:18
I thought you guys were all going to say something, so go ahead.
27:21
look, I mean, do we have a a problem where housing is too hard to construct in the state of California?
27:26
Yes, and there's a bunch of reasons for that.
27:28
The permitting process is Byzantine, it takes years.
27:31
All those delays cost money.
27:34
The tenant rights movement has gone so far that landlords basically can't um, you know, it's almost impossible to evict anybody, and that makes it so no one wants to be a landlord, so no one wants to build these um multi-family uh buildings uh or or buy them.
27:49
And then, you know, you've got like all these uh taxes.
27:51
So, you just in Cali- in in San Francisco, for example, they just passed a 6% transfer tax where if we talked about this in the show, when they basically just took 6% of my home, and there's like nothing you can do about it.
28:02
So, there's a lot of reasons why people don't want to invest in more housing in California, and I think that this Atherton example is sort of cherry-picked because what this is is really zoning, you know.
28:14
Um there are these suburbs, and it's not just Atherton.
28:19
I mean, you got the East Bay as well, where people live in these areas that are zoned for single-family residences as opposed to multi-family, and that determines the character of the neighborhood.
28:29
Now, if you go buy a house in one of those neighborhoods with that zoning, then that's what you expect to be the case.
28:35
I mean, you have to spend more money buying a house in that neighborhood because you're investing in the character of that neighborhood.
28:41
So, it is unfair to the residents of that neighborhood for a developer to come along and say, "Hey, I'm going to change the character of this place so I can make money.
28:51
I'm going to take a bunch of single-family lots, turn them into multi-family apartment complexes or something like that."
28:58
So, I can understand why the residents would be against that.
29:00
So, I would differentiate between legitimate reasons for zoning and then um things that the state or cities have done to uh undermine the market for housing, basically creating frictions or impediments to the market for housing.
29:14
Now, it is the case that as cities get bigger and need to free up land that you might need to rezone.
29:19
But the areas that you should look out for that should make sense, right?
29:23
I mean, I don't think you go off to Atherton and change the character of that neighborhood so that you can buy five more units.
29:31
You should You should look at Why not look at the areas around, say, public transit, like the BARTs and so forth, where you could basically go up around there and it would make sense for the neighborhood.
29:43
I mean, the example I would give to kind of paint an extreme picture is say you own a farm in the countryside, someone buys the farm next to you and then decides they want to build a 50-story tall skyscraper next to your farm.
29:56
You would have a serious objection because I think that the I mean look look at the town of Venice in Italy.
30:01
I mean Chamath you've you've you've been there recently but um you know communities local communities can define the character of their community by by by making zoning laws that you know allow a small city to remain like a small city.
30:16
I've also always been against this notion that we should allow any developer to build any size building anywhere they want in San Francisco which has been an ardent cry from Silicon Valley progressives for years that we need to let them build let them build but at the end of the day I moved to San Francisco 22 years ago and it was a small quaint city.
30:34
It felt like a small city and building skyscrapers made it more congested, made it less inviting, made it feel more industrial and it wasn't appealing to me as a resident.
30:43
And I think that residents need to have the right to define what they want their community to be.
30:47
The question it brings up then is where do you build?
30:51
Because all residents everywhere would want to block family housing multi-family housing skyscrapers.
30:55
So I mean Chamath I don't know if you have a point of view to counter what we're saying but you know how to how do we think about solving this problem at scale if everyone wants their their local communities to remain quaint and interesting and and not be built out.
31:08
Well I I I think I think that's true for people who can afford really nice homes in the suburbs. Right.
31:14
But there are a lot of people that live in highly dense housing in urban environments and I think that's where we need to focus first.
31:21
If you look at the data, California needs to build 3.
31:23
5 million extra homes by 2025. That's a rule right?
31:29
That's like a So David's right like focusing on a town with a population of 7,000 people is not going to solve the 3.
31:35
5 million homes we need to build.
31:39
And it brings up a bigger question which is then who is going to pay for all the physical infrastructure that's going to be required.
31:43
Let's just say you're able to actually double the population of Atherton to 14,000.
31:48
Well you know you I I live near that area so what I'll tell you is Atherton has uh bad flooding.
31:52
They you know Sachs actually used to live near there too so Sachs can can confirm this.
32:01
You know depending on when it rains huge pockets of water just collect everywhere.
32:05
That infrastructure's bad. There are no sidewalks. Right?
32:07
So you kind of walk just on the road.
32:12
There's cars whipping by uh you know could pick you off at any moment.
32:16
Now those were decisions that as David said the residents of that town made decades ago because of the lifestyle that it created and they traded away a highly dense urban environment.
32:30
Whereas if you just moved a mile you know south there are parts of Menlo Park and parts of Palo Alto that are already in a situation to absorb very dense housing where you could put that extra 7 or 8,000 people pretty easily in a much what do you what do you do when those people in that neighborhood in Menlo Park say I don't want another apartment building here.
32:50
I want it to be down the road in Atherton. Right?
32:52
How how do you resolve this conflict?
32:54
And I just want to remind everyone in September Governor Newsom signed these bills right?
33:00
He signed 31 affordable housing bills which mandate by zip code and by city and by town the building of affordable housing to create equity in this problem or which basically means all these cities and all these towns are now scrambling to figure out how do we meet our state mandated objectives of new affordable housing in our zip code or in our town.
33:20
No and by the way look I I I mean look the and I think exactly as you said what will happen now is it goes to some state commission and I think that state commission can issue some sort of penalty or something so you know it's it's I think the the residents will pay for that freedom if you will to to not have that building happen.
33:40
But again I just go back to it doesn't solve the crux of the problem.
33:42
The crux of the problem is we need to solve this housing crisis in the order of magnitude of millions of homes. Okay?
33:52
And so millions of homes can only be absorbed mostly in cities.
33:59
So the real conversation and you know is I have more sympathy for the residents of Atherton than I do for residents of the city of San Francisco. Okay?
34:08
Because there is dense housing in San Francisco.
34:10
There already is an infrastructure social services that were designed and built. There are sidewalks. Again simple example.
34:20
There are stoplights you know in San Francisco that a lot of these towns don't actually have.
34:24
Now again that was a decision they made 50 years ago and they would have to change that decision but my point is like there are there are places that are already shovel ready and the real question is why can't we build hundreds of thousands of units.
34:39
And so this is a good article to write because it's a tony neighborhood and you know there's a few thousand folks but I think the real issue won't get solved until we figure out how to green light hundreds of thousands and millions cuz we are 3. 5 million homes short. J Cal what do you think?
34:53
I mean are you Well I you know the the truth here is that this is not about Atherton.
34:58
This is every town every city in California is fighting all development because if you fight the development well yeah you would obviously have less traffic and supply and demand your homes become more valuable.
35:09
The the place that's fought it most of all is San Francisco in the city where you cannot convert homes, you cannot take your Victorian and make it into a a town home and then if you look at what's actually happening here what they're fighting against and you know this is the hypocrisy of it is you know these are town homes.
35:23
This isn't like a 20-story you know giant apartment building.
35:30
They're town homes and they're going to be $3 million each and they're not going to be for scary people and criminals and ruining people's quality of life.
35:36
It's going to be the venture partner or the receptionist or not even the receptionist it's going to be a venture partner.
35:43
It's going to be a CTO at a tech company who's going to be able to buy this and then be that much closer to work.
35:47
And so it does reek of hypocrisy and there's a really simple solution here which is you know there are Caltrain stations up and down the peninsula.
35:57
There are you know in some places you have other municipal transportation along those corridors.
36:05
They should build up and they should build 10-story apartments etc.
36:07
Redwood City did this recently.
36:09
We've all been there and seen the apartments there. They're gorgeous.
36:11
They're 60 you're talking about you're talking about the exact kind of solution we need because instead of trying to solve 100 units here or there, Redwood City did an incredible job.
36:20
They solved it in the scale of tens of thousands of units.
36:24
And it completely changed the downtown of Redwood City. It is and it's awesome.
36:29
It's awesome and and so what it's afraid of. So what it's afraid of.
36:31
This is NIMBYism at its worst in my mind.
36:33
I'm I'm not going to specifically make it about Marc Andreessen.
36:36
I think everybody you know has the right to live in the neighborhood they want.
36:39
They they get to state their feelings.
36:40
I think what we need to do is convince people and I think there's two really good arguments here.
36:45
Number one, do you want your chef You're you're saying convince people to let their neighborhoods change. Is what you're saying?
36:51
To let them evolve modestly to have homes that their own children or their own chefs and housekeepers and associates.
36:59
We all know people in the in the area who have bought apartment buildings for their nannies because you couldn't get a nanny or you couldn't get a chef so you you bought some unit in Redwood City and you rented it for your nannies or whatever.
37:09
But we don't know all the people that have done Not everyone has done that.
37:13
I know multiple or who have considered it.
37:15
And so that's the way you would convince NIMBY people to to evolve here.
37:19
And then there's a second one.
37:20
This has to do with work from home.
37:23
When you commute you know the issues of domestic violence, depression, drug abuse, substance abuse, alcohol abuse, all of that goes way up and it it's it's somewhere between 30 and 40 minutes of a commute you start to see people's quality of life seriously deteriorate.
37:39
And so if we want people to come back to offices which Apple just mandated last week, everybody's coming back three days a week like it or not Tuesdays, Thursdays and you pick the other Wednesday you want to come to work I guess.
37:52
If we want people to come back to work well yeah we're going to have to build some taller homes.
37:54
The CEOs, the founders of the companies, the founders of the venture firms, it's not about Marc Andreessen, it's about everybody.
38:01
They don't have to commute.
38:01
The office is within walking distance or a bike ride of their office.
38:06
People need to start thinking about their nanny, their chef, their firefighter and their employees.
38:11
Jason I I may have misread it but it wouldn't have solved the problem for the nanny, the chef, the teacher, the firefighter. $3 million units.
38:18
No they it wouldn't even be that because the way that it read cuz I read it said that it you would have qualified it by building what's called an ADU on your property. Yes.
38:28
So people would have people So people would have built it for their grandmother or their in-law.
38:30
A lot of people are doing that by the way.
38:34
my point is the law the law as proposed was already hacked and so it would never have accomplished what you were saying.
38:40
I think the answer to what you're saying is what Redwood City did.
38:42
It's what towns all around the country should be doing which is like in and around particularly like transportation hubs you should be green lighting a lot of dense housing.
38:52
But Jason those are not ADUs that sit on a property. No no.
38:56
Those are those are 500 and a And by the way those also required not just the infrastructure but it also requires the financing and all of the you know the banks and construction companies. to construct it.
39:06
That's not a problem in California.
39:08
The the opposition is the problem which is why the federal I'm sorry the state government's getting involved and superseding or trying to supersede what happens on a local level.
39:16
That's why Gavin Newsom is passing these things is because each town is refusing to do it.
39:19
But another possible solution is if Atherton is so good at blocking this stuff and they have so much money let them pay a penalty and have Redwood City or San Carlos or another neighborhood Millbrae that wants money and they want to build up.
39:34
Millbrae is building cuz that's where the BART station ends is in Millbrae. Just to keep this going.
39:38
They're building up there.
39:39
Well you're describing like are all these contortions in what should be a more free market for housing construction.
39:45
I mean, the reality is we've done so many things to distort the market Agreed.
39:49
with these labyrinthine permit process processes that delay projects for years and years to um you know, to all the taxes and and other rules. Yeah.
39:59
Well, Cuz that's how they fight it.
40:01
They fight it with all these environmental stuff.
40:04
zoning is a little different.
40:04
Yeah, so the NIMBYism factors into the permanent process, but but I would again, I would differentiate zoning.
40:10
Um but my point is just we've like so broken the free market for housing that we then come along and say, "See, the free market is not working.
40:18
We need more government mandates."
40:20
Look, is this happening in Miami? No, go to Miami.
40:22
There are cranes everywhere.
40:25
They're building Houston.
40:26
They're building multi-family or exactly.
40:28
So, in these frankly red cities, red states, which are much more lightly regulated, they're building a lot more.
40:35
But at the same time, it's not like New York, which is constrained, so you have to build up. Yeah.
40:40
But Houston has no zoning.
40:42
Yeah, New York City has always had a very non-sentimental view towards construction.
40:47
The city has always said, "Okay, if you want to build something bigger and better, you can.
40:54
Tear it down and start over."
40:54
I mean, they have like air rights and so on that you have to respect, but but New York City is never they by and large, they don't constantly um label buildings as historic and say you can't touch them and things like that.
41:07
It's New York City has always wanted to keep being dynamic and growing.
41:11
Um so, there are other places that just don't have this problem and they're able to achieve this growth without building an apartment complex like in the lot next to you with if you live in the suburbs and have a single-family residence.
41:23
I mean, so I I just think like the you know, the the politicians in California have so thoroughly broken the market for housing and now what happens is you get an article like this that's basically scapegoating the residents of a suburb as being the source of the problem when they didn't create this problem.
41:41
They're just fighting to keep the status quo.
41:43
So, they're perpetuating it.
41:44
I would say it's the best way to like so first of all, I've no special love for Atherton.
41:49
I lived there for a couple years and it's kind of like a Stepford community.
41:52
I mean, I had to move back to the city.
41:55
Yeah, well, I'm like, you know, somehow I'm just more comfortable stepping over dirty needles and excrement.
41:58
Um You're voting with your dollars.
42:01
So, I I moved back to San Francisco, but Masochist.
42:06
Yeah, but look, Atherton's like a really weird place because It's like uh Al Pacino in The Devil's Advocate. Go ahead, Sachs.
42:13
In in addition to there being no sidewalks, there's literally no offices, there's no grocery store, there's no commercial real estate of any kind. There is no downtown.
42:21
There is there you know, so I don't know like where the hook is that you would all of a sudden put an apartment complex.
42:27
I mean, you're literally going to be building it in someone's backyard.
42:30
So, the character of that neighborhood just doesn't support it and I think you know, people coming together to form their own cities, you know, under the principle of subsidiarity should be allowed reasonable freedom to basically construct a city as they want in the way that they want to live.
42:45
And there are other cities that competition, Friedberg.
42:49
There's other cities that competition.
42:50
Houston has no zoning essentially.
42:52
So, you can if you have a lot and you want to make it into a school or uh a hotel or a restaurant, you you can do it.
42:58
And then outside of Austin, you you kind of have that same thing.
43:01
People build all kinds of weird compounds and stuff out there.
43:04
following any of the between those cities and I think San Francisco's losing.
43:07
Yeah, are you guys following any of the startup cities that are being built where there's like a new city being built from the ground up and any of those seem like viable places? Cul-de-sac, you mean?
43:16
I don't know the names of any of them, but Cul-de-sac is one, yeah.
43:18
I mean, are these real are these real projects?
43:19
Are we going to see these emerging like next-gen cities that you know, could be viable places to move to and live or is it really just about you know, transforming some of these cities that are less regulatory and that's ultimately what will win in the market?
43:33
part of why the the regulation has gotten so perverted in a lot of these towns is because you've been able to gerrymander how you know, these public school districts get funded. Yeah.
43:40
And so, you know, why folks are so protective of of it is is again and and you know, to to underscore one of Sachs's points, this is much more prevalent in Democratic states and Democratic cities where you know, coastal elites have really gerrymandered these school districts and that's a large reason why they uh they don't want a lot of building.
44:05
They want to protect the tax base and they want to be able to funnel those specific tax dollars into a few schools for their kids and that's it. Yeah.
44:15
And so, it's a it's That is actually a really good point, Chamath.
44:17
People don't know this undercurrent which is up and down the peninsula.
44:20
By the way, this is the dirtiest little secret in these in these Democratic states.
44:25
Again, mostly Democratic, but if you look inside of California and a couple of other states, how horrendously gerrymandered it is.
44:32
So that you can basically redistrict in a way to cordon off tax dollars to only then sent to one or two public schools that sit inside of your area, your zip code because that's what the law says.
44:44
It's a zip code oriented scheme. It's perverse.
44:46
It's created incredibly horrible incentives for people.
44:51
So, I think David is right, which is that there's a there's a contortion of laws that come together that underlie some of these decisions that then manifest in a petition like this and etc.
45:00
They all need to get cleaned up.
45:04
And Chamath, it's it's it's even worse than that because the same people who have rigged it so that all their tax dollars stay in their non-developing community, then they're overfunding their public schools.
45:14
They could have easily afford private, but they're using all that money for just their private school and the one in the town next to it, East Palo Alto, whatever, they have no money.
45:23
And then, these people have the audacity to fight against school choice so that those poor people can't take tax dollars and then pick a a better school.
45:30
So, it's hypocrisy all the way up and down and you know, I think this is why people are largely moving to different places around the country and it's a competition between states and cities.
45:40
Okay, we're going to go from super local to global.
45:42
Um you know, this is a topic I wanted to talk about today cuz I want to bring together a couple of of threads and get your guys' take on you know, all of these things kind of coming together and what it means for foreign policy and um how things might play out on the global stage in the next um you know, call it years to decades.
46:03
Xi Jinping, it's been reported this week is taking a trip to Saudi Arabia.
46:12
You know, this is just a few weeks after uh Joe Biden made his trip uh to Saudi Arabia.
46:16
I'll read a just an excerpt.
46:16
Um he's going to end his more than two years of self-imposed in-person diplomatic isolation and his first trip is going to be to Saudi Arabia.
46:27
Uh you know, this is uh from unnamed Saudi sources. So, it's unclear.
46:29
This isn't an official statement.
46:30
Uh this is just reporting.
46:34
You know, it The Wall Street Journal reported in March that after six years of negotiations, China and Saudi Arabia are getting close uh for China to start paying uh um uh paying yuan uh for oil that they would be buying from the Saudis.
46:48
Um so, there's an important kind of economic tie-up that may be emerging that that could affect the US dollar and the uh the importance of the US dollar on on the global economic stage.
47:00
And meanwhile, this week as well, it's been reported that China is doing military exercises with Russia inside Russia.
47:07
So, there is um an extension of China and their influence and their economic tie-ups and their military activity with both China uh sorry, with both Russia and Saudi.
47:17
I also want to highlight another important point that came out this week.
47:21
Uh Saudi Aramco reported their earnings.
47:23
The largest earnings ever for a company.
47:28
48 billion dollars of net profit in a quarter.
47:31
That is more profit than Microsoft, Apple, Facebook, and Tesla combined in a single quarter.
47:38
It is the most profitable business.
47:38
And Saudis have been very public about their intention of divesting their interest in Saudi Aramco, which is their state-owned and state-run oil company, and moving into other businesses.
47:49
Over the past couple of months, um it's been reported that they've accumulated a nearly hundred billion dollar equity portfolio owning stocks like Alphabet, Zoom, Microsoft, and others.
48:00
It's also been reported that they own over a hundred and sixty billion dollars of US Treasuries.
48:06
So, the US is very dependent in the private equity community and the VC community and in the public markets on Saudi dollars.
48:14
Saudis have been large holders of US dollars.
48:16
And now through China, it looks like the Saudis may be having a tie-up that brings them closer to China uh through this trade relationship with the yuan and the visit from Xi Jinping while China is actively exercising um you know, their military inside of Russia.
48:31
Is the future a China-Russia-Saudi axis?
48:35
And should we be concerned and should we be changing any of our tactics on foreign policy, David Sachs, as this um you know, set of threads plays out over the next couple of months and and you know, going ahead?
48:47
Yes, I think we do need to make some changes.
48:49
Biden's backing away from this now, but in his first year, he declared the Saudis to be pariahs and he did push them into China's arms.
48:57
What was the point of that?
49:00
Biden recently had to go to the Middle East to basically beg Saudi Arabia to increase their production of oil.
49:04
So, he's already acknowledged the policy didn't work and one of the reasons it didn't work is because simultaneously with declaring these allies to be enemies, he basically restricted US energy production.
49:17
Which is, you know, strategically undermined.
49:19
So, And and the US has military bases in Saudi Arabia.
49:22
Very strategic assets for the US military. Yeah, let's listen.
49:25
And we sell them weapons.
49:28
The US relationship with Saudi Arabia is always going to be complex.
49:30
They're a complicated friend to have, but it's much better to have of as a friend than basically drive them into China's arms.
49:38
And the reality is, whatever you think about the regime there and how oppressive it is, first of all, we don't get to choose the people running these countries.
49:45
That's the lesson we should have learned over and over again from all these failed regime change operations.
49:49
Second, do we have any reason to believe that if that regime got toppled, it would get replaced with something better?
49:55
I think we all know that if the regime there fell, it would probably be replaced with something fundamentalist that we would like even less.
50:03
And certainly if another nation were to basically dominate the region like Iran, that would be worse for us as well.
50:10
So, our relationship with them is complicated, but ultimately they should be, I think, allies of the United States, and we should not be working overtime to push them into China's arms.
50:20
And I think similarly with Russia, we've basically declared ourselves to be engaged in this proxy war with Russia, which strategically, there's just nothing in it for us.
50:31
You can sympathize with the people of Ukraine all you want, but it's dangerous.
50:34
You've said that in the past.
50:36
I mean, I think the question is, does this China military exercise in Russia indicate an escalation of our conflict with China to you?
50:46
Um, you know, or is this something that, you know, just kind of par for the course in terms of you know, uh, neighbors, you know, conducting Mearsheimer just had an article in Foreign Affairs talking about uh, the Ukraine war, reminding us that it's still going on.
50:58
I think people somehow think that this war is just stable and it'll settle into forever war status, kind of like like Afghanistan.
51:05
These conflicts in the Middle East have just gone on forever.
51:07
It's actually very dangerous.
51:09
It could always escalate out of control.
51:12
And as long as it's going on, I think we just have to remember that it's going on.
51:15
It poses a huge global risk.
51:15
And I would say that one of the things that, again, we should be aware of is this idea that even though we have problems and conflicts with multiple nations, we still don't actually want to push them into each other's arms.
51:30
Again, the Soviet Union and China during the Cold War being the key example.
51:34
I mean, this principle of geopolitics goes back thousands of years to the Romans, right?
51:38
Et divide et impera, divide and rule.
51:40
You do not want to unite your enemies.
51:42
And what we've done here is we keep pushing them together.
51:47
You know, China and Russia historically have not been friends.
51:50
They share long borders together.
51:52
Neighbors generally have problems with each other.
51:55
These are nations with serious conflicts or differences of interest, and we've made it really easy for China to to turn Russia into the junior partner in that relationship.
52:07
Chamath, do you think US foreign policy needs to change and that we're setting up this, you know, um, axis of conflict, um, this this axis of allies, uh, that we don't want to have the allies and, you know, would you kind of advise and and also, you know, do you get concerned about this oil yuan trade, where there may be some, you know, economic tie-ups that that really could affect, uh, uh, you know, the the dollar as a reserve currency? Look, couple things.
52:34
I I think it's really dramatic to kind of paint it in these stark kind of like bipolar terms.
52:41
I think we are post all of that.
52:44
So, I I understand how in the Cold War, it was easy to fall into binary definitions of good and evil, one and zero, us versus them, team A versus team B.
52:55
But in 2022, I don't think that's how things work anymore.
52:56
We're in a highly interconnected, highly global world. It's very complicated.
53:01
Uh, dollar flows are real time, they're massive.
53:07
Cooperation is real time, it's all over the world, it's with every country.
53:09
So, it allows every country actually the first chance that they've ever really had to maximize their own potential for their own citizens, and that's really what every country's goal is. Right?
53:21
And so, in that lens, look what just happened today.
53:25
Gazprom said they're going to shut off Nord Stream 1 just for a, you know, a few days, right?
53:29
But as a result of that, EU nat gas has just gone absolutely nuclear and just closed at all-time highs.
53:36
14x, 14x where it was pandemic, uh, you know, price per unit for year ahead.
53:41
So, if you So, if you take a step back, we are at max energy production with all of the capacity all around the world, 100 plus odd million barrels a day. Okay?
53:52
Global productivity absorbs that.
53:56
There is very little room right now to expand that without pushing the date in which that capacity is available out until, you know, 2028 to 2030.
54:04
So, effectively, a decade from now.
54:09
So, if you're in this situation and you're a country with vast natural resources, of which I'll just remind us America is one.
54:18
I think the most important thing you can do for your own citizens is to monetize these petrochemicals now.
54:24
Get it out of the ground in a reasonable way.
54:27
Sell them in the marketplace because there's demand for it.
54:31
Take that money and reinvest it in your people.
54:34
And I think if you look at it that way, the best run countries are responding to this moment in time like any company would.
54:41
How do you maximize demand and sell the product you have to the most number of customers globally?
54:47
And so, I think the Middle East is doing an incredible job.
54:49
The US, by the way, by passing the IRA, finally, I think, is on the right footing because, and we can talk about this in a moment, but the path to permitting and the path to clean up, and by the way, it puts fossil fuels on a level playing field with with clean energy alternatives.
55:06
Emerging alternatives, yeah.
55:08
The best thing that could have happened, okay?
55:09
So, I think we're all behaving in a very rational, market-focused way.
55:18
And so, I would focus less on trying to dramatically kind of resolve these things as a few countries versus everybody else.
55:24
I don't think that's what's happening. Yeah, much more complex.
55:27
Much more complicated than that.
55:28
But I think this this simple explanation is people with resources in the ground of the country in which they rule have a responsibility, if they believe that there's market demand to absorb that, so that they can take the revenue that comes from it and reinvest it in their people.
55:45
That is true for the United States, it's true for Saudi Arabia, it's true for every country in the world.
55:48
Yeah, I mean, Saudi Arabia is clearly making these investments, right?
55:51
Not just on, Yeah, and by the way, I mean, like also housing and new industry and education.
55:56
And then by the way, Saudi Saudi Arabia is becoming And Saudi Arabia is becoming much more liberal as a result, too, right?
56:02
The education standards, yeah.
56:03
And and And if you look at the investment, like, you know, you didn't You You didn't need to go to Dave Swensen and understand portfolio allocation, although I think the guys in Saudi are smart enough to have probably done it.
56:15
But if you're If you have a lot of money coming from one kind of business, and you need to make sure that you can diversify so that you can reinvest over a long period of time.
56:25
If you look at countries that had huge petrochemical-related revenue flows, the Nordics, what did they do?
56:31
They stood up these huge sovereign wealth funds, and those sovereign wealth funds went abroad, and they bought all kinds of non-correlated assets to those petrochemicals.
56:42
That is the same thing that Saudi's doing now.
56:44
Financial Financial security for their people.
56:46
But it's like it's like what is the furthest uncorrelated asset from oil?
56:50
It turns out it's Apple, Facebook, Meta, and Google.
56:51
And US US Treasuries, yeah. Yeah, Uber.
56:54
Hey, J So, J Cal, let me Let me ask this contrarian question for you because you you often talk about the authoritarianism, uh, of these states, Saudi, China, Russia.
57:07
You know, it seems to me as we observe what's going on in Saudi, and maybe the case could be made in China to some degree, although there are steps taken back, but also in Russia, that the US influence, the the the economic and the political influence associated with these these foreign policy conversions, could they maybe be driving these these these countries to be more liberal?
57:29
these countries to be more liberal? You know, we're seeing in in Saudi now that women can drive, that there's new industry, that there's education, that there's a technology industry booming, that the You don't need to have a turnover of government and a turnover of
57:44
what is often classified as authoritarian regime for the operating model to be influenced by the West in such a way that change happens more slowly, and you do see liberalism emerge in these countries with better educational standards, more equality, more more human rights. And so, do you think we're kind Cuz you
58:01
And so, do you think we're kind Cuz you often kind of paint a picture that it's bad guys versus us.
58:04
You know, do you not think that we're making an influence on these places locally and that we're seeing that I would take exception to like it's bad guys versus us.
58:12
I don't I don't think we want to create a legion of dictators, and nor do I think that's what this is.
58:17
I would actually agree with Sachs.
58:17
We should be embracing these folks, um, and having strong relationships with them, even though we are fundamentally different, uh, operating systems for our countries, democracies versus we should be embracing we should be You So, you think we should have a relationship with Putin? Just to 100%.
58:30
I mean, and we did, right?
58:33
I mean, uh, Obama was making some progress on that, and we we did some great work, um, when And obviously, Trump has a very, very long-standing, very deep, we don't know exactly how deep relationship with, uh, Putin.
58:47
And we we did great work with We I mean, they did the He did his pageant over there. I'm making some jokes.
58:54
They bought a lot of apartments there.
58:55
Yeah, that was a That was a joke. Okay, go on.
58:57
Just a little joke there, but who knows what will happen over time, I suppose. Okay.
58:59
But we did great work with China in terms of containing North Korea's nuclear, uh, ambitions, right?
59:05
And so, there are things we can collaborate on.
59:09
I think the most important thing though is that while we are embracing them, building fabric between them, communication, trade, whatever it is, we are not relying on them.
59:16
And that And that's really what we have to look at when it comes to the kingdom because if not for the fact that the kingdom won the, you know, born on top of, you know, oil fields, uh, lottery, we would not be, uh, in a deep relationship with this country.
59:31
They're living under a 10th century you know, rule uh in terms of how they treat women, gay people, etc.
59:36
And the human rights is an important issue.
59:40
And we wouldn't have a deep relationship with them if we didn't have to deal with the oil, but we do.
59:43
And so, what I think we really need to be focusing on here is maintaining great relationships with them.
59:48
Yeah, we don't want to drive them to each other's arms, but to Chamath's point, I I don't think they're creating the Legion of Doom to take on the US.
59:55
I think they're just doing what's in their economic interest, and we need to do what's in our economic interest, which really is investing in nuclear, investing in solar, batteries, wind, and even and wrist jewels.
1:00:04
And that means what's in the interest of the free world. And Europe, exactly.
1:00:11
And if we are independent of them, then we don't have to go over there and kiss the ring like Biden had to do.
1:00:15
We don't have to, you know, deal with excuses uh when they do horrible things like murder Khashoggi or, you know, just this past week they put uh Salma al-Shabab in jail.
1:00:28
She's a PhD student uh from the University of Leeds.
1:00:30
She's now going to go to jail for decades because uh when she went back to Saudi Arabia on vacation, this happened last week um gentlemen, because she retweeted people.
1:00:39
And so, these human rights violations, the murder of Khashoggi, all these things add up, the Uyghurs, etc.
1:00:43
And and we'll have a better ability to negotiate and lead them as the shining city on the hill when we work on being that shining city on the hill and we're not dependent on them.
1:00:54
And that's really what I think we have to focus on is reducing the dependency on these countries.
1:00:57
I think we all agree on whether it's medical devices, PPE, drugs, making our iPhones or or oil uh to keep us running. And then so does Europe.
1:01:06
And that's where nuclear comes in.
1:01:08
Speaking of reducing dependency, you know, uh Joe Biden signed the Inflation Reduction Act.
1:01:12
Some people have said this is the most important bill signed in years if not decades uh by uh you know, um passed by US Congress, signed by a president because it touches on so many points um that folks believe will really move the needle with respect to climate change.
1:01:36
Chamath, I think you made an interesting point in our group chat, and I think maybe we should start there, which is, you know, at the end of the day, the systems of industrial production on planet Earth were made in such a way that we never accounted for the costs of the external output of these systems.
1:01:54
output of these systems. Meaning, we can burn fuel, put CO2 into the atmosphere, or put methane into the atmosphere in the case of animal agriculture, and we get a low-cost product that we consume, and ultimately no one
1:02:09
specifically pays for the cost of the carbon going into the atmosphere, which I and, you know, many scientists would argue is having an anthropogenic effect on um the warming of the planet and and more catastrophic weather and and and all these other risks that we're now facing. And so, the idea was, you know,
1:02:25
And so, the idea was, you know, first principles, you should tax people for tax industry, tax businesses for the production of atmospheric carbon that causes an effect that we're all going to have to pay to repair over time.
1:02:41
So, you know, is that a point of view that you hold, Chamath, cuz you know, you kind of brought this up in our group text, but that's the that would be the the ideal scenario to resolve climate change is if you just tax carbon, we kind of, you know, have our have a real solution here, and that this whole bill is ultimately uh you know, meant to kind of resolve the fact that we simply cannot find a way to a carbon tax.
1:03:00
I actually think that what this bill did was killed the idea of a carbon tax.
1:03:04
I think it makes it completely unimportant, and it'll never see the light of day. Why?
1:03:15
I think it's because in the absence of what we did in the IRA, there wasn't a clear way of doing exactly what you said, which is letting people figure out what the equivalent trading price would be for burning a pound of coal versus, you know, generating the energy needed to run something off of nuclear.
1:03:36
There was no market clearing function for that.
1:03:41
And the reason is because you couldn't get an equivalent amount of capacity effectively available online so that they could compete one for one.
1:03:48
What we did through this IRA was essentially use money to create so many subsidies, and then to also green-light the way that incremental fossil fuel projects would come to market.
1:04:03
So that now they're actually going to be put on a level playing field in the broad open market so that they can compete.
1:04:10
When that happens, I think you will make those trade-offs better yourself, and as a result, I don't think that there will be a an a necessary offset mechanism that'll be required.
1:04:22
Because this plan will still get us to about 40% of the way there where we wanted it to be by 2030, which is still a pretty decent leap forward.
1:04:30
There is no plan that gets us to where we all need to be anyways, and I think that the appetite to go from this plan to where we need to be doesn't really exist.
1:04:42
So, I think that we're just going to have to kind of grit our teeth, get through the implementation of the IRA, and realize that this is the beginning of a probably 100-plus year project.
1:04:52
Nothing's going to get solved by 2050.
1:04:56
Maybe you'll see something done by 2100, probably not.
1:05:00
It'll probably be a 2150, 2200 kind of an objective.
1:05:03
And in that lens, I think like a whole bunch of business models got turned upside down.
1:05:07
So, I think carbon markets and carbon trading are not going to be the thing that we thought it was going to be.
1:05:15
I think stuff like direct air capture again are going to be toy projects off to the side.
1:05:19
I don't think that those are Those are not Those are not going to be credible businesses like we thought they were going to be.
1:05:26
Instead, the raw tonnage of dollars will do what America was able to do for solar and PV over 2000 to 2022, which is just crush the cost per watt into the pennies so that it can be equivalent to hydro, coal, and nuclear, and put everything on a level playing field, and then allow the market to figure it out.
1:05:47
Yeah, I mean, there's a lot of other stuff in this bill I I want to highlight for you guys.
1:05:51
I don't know if any of you looked at the CBO.
1:05:54
So, the CBO, the Congressional Budget Office, anytime a bill is being um voted on, they do an accounting analysis on how much spending and how much revenue there will be as a result of this bill for a 10-year period. awesome.
1:06:07
Yeah, I checked it out when And so, if yeah, if you look at every year for the next 10 years, the CBO score for this bill is that we're going to spend an incremental We're going to increase the deficit by $330 billion for the next 5 years.
1:06:19
And then we're going to decrease the deficit by $320 billion in the 5 years after that.
1:06:24
So, the net effect over 10 years is we're only spending $17 billion on the uh on the bill.
1:06:30
And then on the revenue basis, the expectation is we're going to generate $67 billion in revenue in the first 5 years, and then another $20 billion in the in the back 5 years.
1:06:41
So, this is actually being accounted for and presented as deficit reduction.
1:06:45
And that's because there's 87,000 new IRS agents being hired to go out and audit people and find new revenue, and there's a 15% corporate minimum tax being imposed on all companies.
1:06:56
And what this means is that companies, public companies, private companies doing over a billion in revenue historically paid taxes on a book basis, now they're paying taxes on a financial statement basis, meaning the actual accounting that they present to their shareholders.
1:07:09
Can I can I ask you guys a question?
1:07:11
How much was given to the IRS? 87,000.
1:07:14
Yeah, yeah, tens of billions, yeah. 80 billion.
1:07:18
How much do you think it would cost, I don't know, pick your pick the pick the most excruciatingly expensive third-party outsourcing firm you could, okay, to build an entire system to basically automatically review every single tax return and throw exceptions.
1:07:39
And machine learn and machine learn what fraud looked like or what misrepresentation.
1:07:45
I I let's say $5 billion.
1:07:45
It'd be the most expensive It'd be the most expensive piece of software ever written.
1:07:52
And this is what was so kind of like That was the only part of the bill that made not less sense to me.
1:07:56
I think like if you put really smart computers on the case, or gave it to DeepMind at Google and said, "Can you guys build this the system with machine learning and AI?" You'd be done.
1:08:07
tax and a simpler tax, which I guess this is trying to do.
1:08:09
You But you know, Freeberg, when I looked at this and you sent it, my initial reaction was, you know, this old adage, impossible for these guys to find 87,000 humans that want to work at the IRS, number one.
1:08:20
By the way, there's a funny video on the recruiting that's been going on for that, but yeah, go ahead. Yeah, it's pretty crazy.
1:08:24
I mean, you know, because like they were they were asking for people who were ready to like have guns and like put their body in harm and it's like at the IRS.
1:08:32
I I was like, "That that can't be real."
1:08:34
Anyway, the greatest This is what I got from this Excel spreadsheet.
1:08:35
The greatest tool for writing fiction is not Microsoft Word, it's Excel.
1:08:39
Like, there is no way this thing is netting out to zero.
1:08:43
Like, this thing's going to cost us a fortune.
1:08:46
Government is in shambles.
1:08:48
We don't know what we're doing.
1:08:48
I thought that the links you sent for the podcast with the pros and cons of um the carbon tax was really interesting because it is so complicated.
1:08:55
When I heard these tax experts explaining how you would implement a carbon tax, and the import and export, and then how often it would have to be tweaked, and then who decides what your corporate footprint of your watches, and and where did the minerals come from to make the watch, and who gets paid on carbon, it just seemed to me is a fool's errand.
1:09:15
It'd be much better to just What if your watch is made from diamond and not carbon?
1:09:18
Well, in that case, you should just pay a million dollars because you are the latest coastal elite.
1:09:25
And we should just start with yachts and watches.
1:09:28
Oh my What I realized was what we really need to focus on and you tell me what you think, Friedberg.
1:09:37
Instead of doing this carbon tax, which seems incredibly elegant, but we all know it's impossible to get consensus across hundreds of governments and locals to to to negotiate this.
1:09:44
It'll never happen, at least not effectively and in real time.
1:09:50
Wouldn't it be a much better technique to do what we do in venture, which is here are the biggest problems in the world.
1:09:55
Here are the which you in this case would be the biggest emitters.
1:09:58
Here are the best solutions.
1:09:58
Here are the teams working on the best solutions.
1:10:01
Let's give the teams working on the best solutions money to work down that list and if it happens to be, you know, ships coming from China, you know, with a bunch of containers on them and container ships, we we measure that.
1:10:12
And it you know, the the thing I've learned after the first 6 months of investing in carbon cuz we have a syndicate now with Molly Wood who's working with me on this climate syndicate.
1:10:21
We couldn't find a lot of great investments you know, that made sense that weren't, you know, asset heavy.
1:10:27
But then we started to find we found two great monitoring companies and they're monitoring air pollution and they're monitoring ship pollution and we made investments in both of those and that seems to be where we're at is we should be monitoring and figuring out where the carbon is and then trying to solve it based on which ones are the easiest to solve.
1:10:46
Let me just say two things on that.
1:10:47
Bill Gates has done a great job of this.
1:10:48
You can read his latest book or go to Gates notes and he's done exactly what you described, which is break it all down, show what we should do.
1:10:53
And that's actually how he's investing his own money.
1:10:56
He's putting his money where his mouth is.
1:10:57
So there's a really good blueprint for this.
1:10:59
He's done the best job of anyone I've seen.
1:11:01
The issue with the carbon tax is you have to come up with a consistent reliable way of measuring the carbon and then you have to do it consistently and broadly.
1:11:08
How do you miss you know, if you miss one factory or another, then you have to ratchet up the price over time.
1:11:12
So first thing is the challenge of how do you agree on measuring?
1:11:14
Second is how do you agree on broad accountability?
1:11:17
Third thing is how do you ratchet the pricing over time?
1:11:21
Fourth thing is how do you deal with the offshoring problem?
1:11:22
As soon as you start taxing companies in the US for carbon emissions, all the production's going to go offshore where they're not taxing for carbon emissions and there's no way to account for what they're doing offshore and this has been the challenge with China and India and so on.
1:11:35
because it's part of your first problem. Yeah, sorry.
1:11:37
Let me just hit the final one.
1:11:39
We'll come back to it, but the final big one is just the equity in carbon tax.
1:11:41
People have said that the ultimate increment in cost of production is going to adversely affect lower income people because they cannot afford the price of some stuff going up by 25 to 50% and it's really, you know, a luxury good a luxury kind of privilege to be able to pay for the incremental cost of stuff to account for the carbon offset needed.
1:12:01
So that that's that's the set of issues that have been pushed back against the carbon tax and it's why it's been impossible to get implemented and to really get into market.
1:12:09
Sorry, Chamath, go ahead.
1:12:10
No, I was just going to say part of the the problem in in in all of those issues if you offshore is still that there's people pushing for what's called the scope three accounting, which is like, you know, you got to go back to your supplier and your supplier's supplier and your supplier's supplier's supplier. Where does it end? It's impossible. Where does it end? It's it's not credible.
1:12:27
So, you know, I think that the bill has actually cleaned up a lot of future question marks about what we have to do as a country to go about doing our part for climate change and I think it probably creates a reasonable blueprint for everybody else and now they're going to have to do some version of the same thing.
1:12:45
And what's amazing is that if we actually pass this framework, which is still yet to be written around how to make permitting more seamless and efficient for these hydrocarbon projects, it will really unleash a massive torrent of both revenues back to the United States.
1:13:06
It'll increase our national security and it'll allow us to really kind of put a dent in this thing because it'll pull forward the amount of competition that it creates to actually get off those hydrocarbons, which is a I'll tell you I got I I got a notice from someone who's an investor So there's a lot of climate tech funds now.
1:13:23
A lot of funds Jake you said you got a syndicate in carbon, but there's a lot of funds and a lot of investors that are putting a lot of capital just into early stage climate technologies, which travels everything from energy to materials to food industrial and manufacturing and so on.
1:13:40
And I I got a note from one of these these these companies a startup that highlighted that the dollar 25 per gallon credit a tax credit for you know, clean production of fuel, which can which has to demonstrate a 50% emissions reduction in the manufacturing process will now make this startup profitable.
1:14:00
And by the way, you get an extra penny per gallon for every 1% reduction in emissions below that 50% threshold.
1:14:07
And so there's a lot of startups that I'm hearing about that their unit economic models were questionable before.
1:14:13
Now because of this bill, they are flipping profitable.
1:14:16
And so I personally think we are going to see a significant influx of venture capital and support for a lot of these climate tech and you know, new energy material and manufacturing projects that otherwise may have been held back because the subsidy will kickstart.
1:14:30
The question for me that I still don't have a good answer to is are they sustainable?
1:14:35
Over the long run, if this bill gets shut down or repealed and the funding sources stop and the subsidy stop, do these businesses survive or are we simply creating regulatory capture models like we did with other energy products in the past and with food?
1:14:47
If you're not contribution margin positive today pre this bill in climate change and the bill is the only way that you get there, you're DOA. You just don't know it. Great point. Yep.
1:14:59
Sachs, the biggest line in this bill is the corporate minimum tax.
1:15:03
I don't know if you saw this, but 15% minimum tax applied to the accounting profit reported by any company over a billion dollars.
1:15:10
And they're estimating it'll generate 313 billion of incremental tax revenue over the next 10 years.
1:15:18
Do you have a point of view on whether this corporate minimum tax is going to cause an issue with startups and companies going public or valuation in the public markets or is this just, you know, hey, this should happen and it doesn't matter.
1:15:29
I mean, I don't know if you spent much time on this. Well, no.
1:15:31
I mean, I I think the the issue here is that why is it that these companies are able to pay so little taxes?
1:15:39
Well, the reason is cuz there's a zillion loopholes and incentives and tax breaks in the existing code that they're taking advantage of.
1:15:44
I mean, these large companies have lots of accountants and lawyers.
1:15:48
They're not deliberately violating the law.
1:15:50
They're scrupulously adhering to it and taking advantage of it.
1:15:54
So it's all these tax breaks that they're able to use to pay no taxes.
1:15:59
Well, what does this bill do?
1:15:59
You talk about the the spending on climate, you know, the 386 billion.
1:16:05
Most of it is tax incentives and some block grants.
1:16:08
So this is now the preferred form of you know, quote unquote spending in these bills are tax credits and incentives.
1:16:17
This is the way they're going to change people's behavior.
1:16:19
So in other words, the bill on the one hand is complaining that corporations don't pay enough taxes cuz there's too many tax breaks while on the other hand creating a whole slew of new tax breaks.
1:16:29
So there's a little bit of a contradiction there.
1:16:31
Again, why do all why are companies paying no taxes?
1:16:34
Because of the last 10 bills tax breaks that were supposed to move the behavior of businesses and consumers in a certain direction.
1:16:41
So just recognize that that's the case.
1:16:47
I think you also made a really good point about the phantom deficit reduction here.
1:16:50
So like you mentioned, and we see this in lots of bills, all the excess spending, all the deficit spending occurs in the first 5 years and all the deficit reduction occurs in the last 5 years.
1:17:01
Something always intervenes to prevent the savings from taking place.
1:17:06
like startup projections, right, Sachs?
1:17:08
Yeah, it's like we're we're going to my sales guy.
1:17:11
We'll cut the budget next year, you know?
1:17:12
And so just to give one example of this.
1:17:14
So this ACA subsidy extension.
1:17:14
So this is the Obamacare subsidy.
1:17:18
It's about 60 something billion a year.
1:17:22
They're extending it for 3 years, but they're assuming it's just going to die at that point as opposed to keep being extended.
1:17:27
And no one's going to want to vote to make that go away in 3 years.
1:17:36
Just that one item alone makes the deficit reduction in this bill go from 305 billion over the 10-year period to negative 155 billion.
1:17:44
So just that one item if you continue it and don't sunset it, just that one thing makes this a hugely deficit not reducing bill, but deficit increasing bill.
1:17:58
And so you wonder what problem is this bill really solving and they can't seem to agree on that.
1:18:01
I mean, first they're telling us it's a deficit reduction bill, then they're telling us it's a climate bill, then they're telling us it's an inflation reduction bill.
1:18:07
It seems to me that if they were really proud of this and believe in it, they would choose a name for the bill that actually reflected what it was.
1:18:13
Well, all bills would be named something for everyone, Sachs.
1:18:17
I mean, like that's how all these bills get in order to pass a bill bipartisan bill, you got to give something to everyone.
1:18:22
I mean, But this is mostly, you know, this is mostly a climate related bill.
1:18:26
You know, this is mostly this is mostly tax breaks and block grants related to I mean, there there's a huge tax issue with the the the IRS agents and the corporate minimum tax, but there's also a huge component on prescription drugs.
1:18:42
Chamath, I don't know if you spent any time looking at this, but Sorry, just on the IRS agent.
1:18:45
Can I can I say add one detail on that? Yeah.
1:18:48
So the claim of the administration and the sponsors of the bill is that this would not increase taxes on anyone sort of middle class.
1:18:54
And so the Republicans, I think this is one of the few politically smart things they did.
1:19:00
They introduced an amendment basically prohibiting these new 87,000 IRS agents from conducting audits of anyone making less than $400,000 a year, which was what Biden said, you know, he wouldn't increase taxes anyone below 400,000.
1:19:14
That amendment was rejected on straight party lines.
1:19:16
So this idea, yes, it's called the Crapo amendment.
1:19:18
It It 50/50 and Vice President Harris had to come in and and make the tiebreaking vote.
1:19:23
So obviously they know that there's going to be a lot of net new audits on people making less than 400. Yes, exactly.
1:19:30
So I mean my understanding of this is it's like small business owners, people who run a small business and a service business and are they really accounting for their books correctly?
1:19:40
Are they really expensing the right things? Etc.
1:19:44
Are they accounting for Yeah, they're going to get ramied by this because look, let's face it, billionaires are already getting audited.
1:19:51
You know, Elon had a tweet saying, "Listen, I get audited as a matter of course every year."
1:19:54
You know, these people already have So yeah.
1:19:56
Dude, I use a big four accounting firm. Yeah.
1:20:01
I mean this is I mean the amount of overhead this creates is crazy.
1:20:03
I have a partner at like Anderson that is literally like, you know, covered me like it covers a Fortune 500 [ __ ] company.
1:20:13
Put him in your your your Put him in your It's it's it's tens of people.
1:20:15
I mean, by the way, Sachs Sachs is right.
1:20:19
Like, if if you look at them, you know, the ultra wealthy, I I think it would be I would be shocked if any of those folks were actually evading taxes at all cuz it's impossible the way that this infrastructure runs.
1:20:32
Like, you know, you're getting K-1s from Blackstone.
1:20:34
What are you going to do?
1:20:36
Are you going to change that?
1:20:36
Like, you know, like do you guys even know the PIN number of your bank card? I have no idea. It's so complicated. Yeah.
1:20:42
Okay, so so my point is I don't think that if there is if there is cheating of taxes it's happening at that level.
1:20:52
What's happening at that level are much more structural issues like carried interest which they decided not to touch. Trust and estate law.
1:20:56
Trust and estate Those are Those No, I don't think that This my point. It's not mistakes.
1:21:03
There's nobody with a pencil really filling out a K-1 for Bill Gates, dummy. That's my point.
1:21:09
No, I know, but people can make mistakes.
1:21:10
What if a K-1 gets left off?
1:21:12
That's what I'm saying is when they find something it's usually easily Okay, doesn't happen. Doesn't happen.
1:21:16
Jason, when I get my tax return it's it's done by an accounting firm and I just sign it.
1:21:22
I don't I don't do anything. know that.
1:21:23
What I'm talking about is what are the IRS people going to find?
1:21:26
Is, you know, Well, I'll tell you what they're going to find.
1:21:27
They're going to find a lot of They're going to find a lot of middle class and upper middle class folks and they're going to have to focus on them because individually it may not represent a lot, but when you multiply it by the number of people inside the United States and this is what the Wall Street Journal and a bunch of other folks have been saying now.
1:21:46
When you apply 87,000 people and task them incrementally with doing a job, it's not going to touch these folks that are already audited.
1:21:55
It's going to touch the folks that are not audited and by and large a much, much larger majority of middle income and upper middle income people are not audited, which is why I think you could spend a lot less than 80 billion dollars and just build software that guarantees only those that should be audited are and uses machines to help figure out these leaks.
1:22:17
Or start simplifying the tax code because when you add this 15% minimum, Friedberg, what is that going to do to the strategy of a public company?
1:22:23
Okay, so we should show less earnings, put more to work.
1:22:27
Oh, we're not going to be able to depreciate this or, you know, whatever.
1:22:30
I mean, it's going to create all these second and third order impact impact that we don't know.
1:22:34
Well, I think Sachs's point is important, which is one that we don't yet have insight into, which is what is this going to cannibalize?
1:22:39
Because ultimately if there is a minimum tax, it doesn't make sense to pursue um incentives that create a tax break today.
1:22:48
And therefore those incentives won't be invested in.
1:22:50
Whatever those incentives are, I don't know what they are, you know, low income uh manufacturing zone development or whatever, who knows um you know, what they are um you know, come and build your business here and get tax breaks, etc. etc.
1:23:03
Local, state and federal tax breaks.
1:23:07
Um if those start to um get written over, then there's going to be really adverse effects and I think that that's something to watch.
1:23:13
I don't understand it well enough.
1:23:15
Certainly I'm not an accountant, but I I I I would be kind of uh worried about it and keeping an eye on that front.
1:23:20
I I do think the bigger question, which is a biotech one, the prescription drug price cap minimizes the profit that a number of pharmaceutical companies will be making.
1:23:31
It gives uh authority to go and negotiate prices.
1:23:33
This is the second largest line in the bill.
1:23:38
And there was a survey done by healthaffairs.
1:23:40
org on uh an R&D survey which said, "Will you guys reduce your your investment in new drug development?"
1:23:50
And I think that they came based on this bill and I think that they came up with some estimate that there would be um two uh the number two fewer drugs um that would be kind of, you know, made available per year because of reduced spending as a result of the price cap, which basically reduces revenue, which will uh in essence reduce R&D investment.
1:24:11
You know, uh guys like Bernie Sanders will say, "Hey, that's not true.
1:24:16
All that money's going to share buybacks and dividends uh and so on."
1:24:19
But it is a fact that those share buybacks and those dividends will still continue and if they are reduced, so will the R&D expense.
1:24:28
And if the R&D expense is reduced, fewer drugs will come to market.
1:24:33
And so, you know, there's also a question mark and people will debate this for the next decade, which is how much will this prescription drug price cap actually have an effect on R&D investment and ultimately on new drugs that come to market. Can I say something?
1:24:46
Sorry, let me just say my personal opinion is I don't think that this will have a huge effect.
1:24:49
I think this is an excellent part of the bill.
1:24:51
I think that the government should have authority to go and negotiate.
1:24:53
They're the largest buyer of these drugs and typically when the US government the federal government steps in to be the largest spender on a particular line, the cost of that line balloons like we've seen in healthcare, like we've seen in education, and like we've seen in military and defense spending.
1:25:13
And so I I'm hopeful that this will actually provide a more effective market force in allowing the biggest customer in the market to negotiate prices.
1:25:22
And that the the VCs instead of making 48% IRR, they'll ultimately make 28% IRR on the investments that they're making in biotech startups. Well, hold on.
1:25:31
What what what what what what exactly does it mean for the government to negotiate prices as opposed to the government just to fix prices?
1:25:39
I mean, isn't this just price fixing?
1:25:41
Well, in this in this example, who do you think is the right answer if they're the largest single largest customer, Sachs, right?
1:25:45
I mean, you know, and then they are the market.
1:25:49
I mean, what's the right thing to do?
1:25:52
Well, I mean, you're you're saying that these drug companies are going to make a lot less money.
1:25:56
Well, obviously that's going to have a downstream impact in the willingness to fund new drugs and new new invest new R&D. Yeah.
1:26:05
Now, no one likes pharma companies, so I'm not defending exorbitant profits or whatever, but I don't really know what it means for the government to say they're negotiating.
1:26:10
I mean, the government just tells you what it's going to be. And that's price fixing.
1:26:15
And these companies are going to adjust.
1:26:18
Yes, the government will pay less money in the near term.
1:26:20
In the long term, there could be reduced investment in R&D.
1:26:26
I think there'll be a balance of, you know, do you Don't all governments, Chamath Don't all governments I know that you're close to some of these uh drug companies.
1:26:33
Don't all governments negotiate um the purchase of these drugs and then if they don't like the price there are alternative drugs and they'll say, "Hey, listen, your drug is too expensive compared to these other two solutions, so we're going to buy this one primarily for our universal healthcare."
1:26:48
There's this interesting thing that happens, which is that there's a there's these drugs that are proprietary and under patent, okay?
1:26:56
These could be chemical drugs or they could be biologics, okay?
1:26:59
And eventually what happens is when they go generic, then folks will step in and make lower cost versions of those generics.
1:27:06
Like, you know, I mean, I'm on a statin.
1:27:08
I think a couple of you guys are on a statin.
1:27:10
Like, I don't it it it's it's Lipitor, but it's not Lipitor, right? It's atorvastatin.
1:27:14
It's like some generic drug that I just take, okay, as an example.
1:27:19
Um and uh there's a lot of folks that make that and the cost of those pills basically go to zero.
1:27:25
But there's a bunch of categories, particularly for biological drugs, where it's very different it's very difficult to make a what's called a biosimilar. This is a generic drug.
1:27:31
So long and short of it is there's all these classes of drugs that kind of like stand alone without enough competition.
1:27:41
And I think there are two ways to solve this problem.
1:27:42
One is where the government steps in, which I think is is good, but the better way has already is already been happening in the United States.
1:27:49
So, you know, there's a nonprofit, which is a collective between a bunch of hospitals, called Civica.
1:27:55
And I think that's a really interesting example.
1:27:56
And what those guys do was they said, "We're just going to create our own generic drug manufacturer and we're going to make the drugs we want.
1:28:03
We're just going to make them super cheap."
1:28:05
And, you know, they're they're in the midst right now of completing a massive facility uh I think it's in Virginia where they'll be able to make as much insulin as is needed for the entirety of America for no more than 35 bucks a dose. That's gangster. That's gangster. It's super gangster. We'll make our own.
1:28:27
And by the way, when California said they're going to make their own, what they really meant was that they're going to go and RFP it out and my hope is that they end up going with somebody like Civica who has the experience of actually building it.
1:28:38
Otherwise it's just going to California's just going to waste hundreds of millions of dollars.
1:28:43
if you don't know what RFP is. Request for proposal. Yeah.
1:28:45
But there are these emerging nonprofits that are basically doing the work of the government.
1:28:51
I think that's a better solution to what Sachs is actually Competition, right? Yeah.
1:28:54
It's kind of creates competition. Yeah, competition.
1:28:57
We got to move along cuz I think We're doing a great job, Friedberg, right?
1:29:01
Just one moderator to another, exceptional job.
1:29:02
You know, I appreciate it.
1:29:04
I think one of the interesting things sitting in in your seat, Jay Cal, is you see everyone else's face and you see the boredom and the annoyance that people experience during the the pod. Leave for a drink.
1:29:14
I think I think Chamath is eating Funyuns.
1:29:16
Uh Sachs is doing something.
1:29:19
jerky you shouldn't be don't tube it on the podcast please. Don't what?
1:29:26
Don't do it Jeffrey Tubin on this podcast.
1:29:31
Jeffrey Tubin was a CNN anchor who on Zoom accidentally no he masturbated on a zoom call with his what the [ __ ] does that have to do with beef jerky?
1:29:39
You said jerking and I just no I said I was eating jerky dummy.
1:29:43
You said you were jerking something that's all I heard I'm sorry.
1:29:45
Oh by the way so I am no longer fighting with Phil Hellmuth. I oh my God guys.
1:29:52
No so I was so mad at him.
1:29:55
Okay so you know I finish I finish this transaction I finish I finish the [ __ ] transaction to sell the Warriors.
1:30:02
You know this is a this is a 6-month or deal okay I started in November right I'm starting to sell things I decide I'm going to sell the Warriors I sell it to a large private equity fund in November December and then we had to wait for them to close the second fund and then we sold the rest of it and it closed in June or July.
1:30:22
And then I put out this tweet right like thanking everybody and thanking Hellmuth in the same line in which I I'm like I thank Peter Thiel and I thank Joe Lacob.
1:30:32
Everybody is happy except for Hellmuth who calls me and is angry and he's like I I you know he had this issue with how it was characterized that how he had introduced to me or something where he wanted credit for having done the deal or you know and I was like well Phil what if it hadn't made me money would you have just made me whole like what would you have done like it's like you were like the architect of this thing anyways I was so mad.
1:30:56
I just said I'm not talking to this [ __ ] anymore. I'm done with him.
1:30:57
I'm done I'm breaking up with him.
1:31:01
And he would call me when I was in Europe and I would ignore and I would get this incredible enjoyment from just pressing to voicemail.
1:31:07
He would send me text messages ignore.
1:31:11
And then I I mean this is always happens this way.
1:31:14
I didn't want to not call but she's like why didn't you ignore his phone call?
1:31:17
And I said I hate Phil I'm done with Hellmuth.
1:31:19
I told her the story she got so [ __ ] mad at me and then I had to send this text I'll just read you the text because I think it's just so [ __ ] hilarious.
1:31:28
I was going to ignore you for the rest of my life based on your tantrum with me earlier this year but Nat has convinced me to see where you are coming from in part.
1:31:36
Anyways we're good call me later.
1:31:41
He called ME ONE SECOND LATER.
1:31:44
I WAS WAITING HE HAD YOUR TEXT TO ME to open. I GET THIS PICTURE NAT.
1:31:57
ANYWAYS I'M I'M BACK IN THE GOOD WITH MUNGER.
1:32:00
Okay well you got to play poker.
1:32:00
Before we wrap Sax is going to give us instead of doing science corner we're going to do Mar-a-Lago corner.
1:32:08
Tell us what it's like Sax.
1:32:10
Yeah what is Mar-a-Lago like?
1:32:13
You've had your membership now for 18 months.
1:32:20
Give a shout out to this article because last week I took some heat because somehow I guess you're not allowed to question anymore the rectitude of the FBI J Edgar Hoover's FBI we're not allowed to question anymore or a lot of people feel that way.
1:32:31
There was an article that came out in Real Clear investigations just I think yesterday and what it exposed is pretty amazing.
1:32:40
The group the unit within the FBI that conducted the raid on Mar-a-Lago is the the same group that conducted the investigation into Trump back in 2016 that lied to the FISA court that had its members its leaders Peter Strzok were fired for basically wrongdoing.
1:33:01
Whose members are actually under investigation right now by the special counsel John Durham and you've got people who are on probation right now.
1:33:09
So this is the same unit that basically conducted the raid on Mar-a-Lago.
1:33:11
So I think there's still more to come out of about this but it's just amazing to me actually that Christopher Wray the head of the FBI Merrick Garland the head of the DOJ thought that this wouldn't create the appearance of a conflict of interest or impropriety the fact that you've got the same unit that previously was disciplined for wrongdoing in an investigation of Trump is the one conducting the raid on Mar-a-Lago. So pretty amazing. J Cal retort.
1:33:41
I'm sorry what were we talking about?
1:33:46
No I I just want to make I have I have a response child actors they're on camera right now.
1:33:52
I need these props good work. Nice props.
1:33:56
Sax what you're seeing there hold on Sax before you get back to Trump what you're seeing there is a family unit.
1:33:59
This is when a family gets together and expresses love towards each other but continue about Mar-a-Lago.
1:34:08
You could take a picture of this and you could send it to your friends on Christmas.
1:34:12
All right Jason you you are you do not accept the Real Clear investigation report that maybe there was some long-term I have actually some feedback it's nothing to do with Sax.
1:34:23
I just think a lot of times I get positioned as sometimes when I'm moderating I like to challenge Sax.
1:34:30
Last week I chose to stay out of it I let him go and I think one of the reasons people didn't like your comments last week Sax was other than you know J Edgar Hoover being dead for 50 years putting that aside and it being irrelevant I think the reason people didn't like it was because I didn't come back at you and question some of the things you were saying and so I think they felt it was an unbalanced discussion.
1:34:50
They expect me to do that but I don't want to be pinned as the adversary to to Sax's positions in every case because I'm an independent I'm a moderate I voted Republican I voted Democrat my whole life I voted for both of those parties.
1:35:04
But I do think that what's happening here is you know Trump is under five different investigations.
1:35:11
He's got a career of doing disgraceful criminal fraudulent things.
1:35:15
And I feel very bad for GOP friends I feel bad for Republicans because they have to carry water for him.
1:35:21
And it's they they put themselves in this really difficult position of defending him and you know we've talked on this podcast about January 6th.
1:35:29
We talked about voter fraud.
1:35:32
My good friend one of my besties David Sax has said he doesn't believe that the election was there was election fraud and he doesn't he did he thought January 6th was disgusting.
1:35:38
I'm not speaking for you that's what you said.
1:35:40
And so I think you know the fact that the Republicans feel they need to defend him constantly is one of the big problems here and I think on the other side the fact that the media is forcing Republicans to defend him and creating this narrative and this hysterics like oh my God see espionage Espionage Act he's doing espionage.
1:35:58
This might be very simple.
1:36:00
Trump lied cheated stole his whole career from Trump University to what's happening with you know the Trump Corporation now with his CFO and his nonprofit.
1:36:09
This is his life is a history of grifts and crimes and unethical behavior.
1:36:16
What the GOP needs to do is stop defending him and just let him go off into the sunset as Sax pointed out last week and that's what this podcast needs to do because there's no reason for me to sit here and do the left-wing talking points or for you know Sax to do the right-wing talking points.
1:36:31
The fact is first principles Trump's a grifter.
1:36:35
He's a Democrat who duped the GOP.
1:36:38
My point is not to defend every shady deal that Trump's ever done or even to defend Trump at all.
1:36:43
My interest is having a DOJ and FBI that's not politicized and is not used as a political weapon or to pursue political targeting or vendettas.
1:36:52
And the reality is at some point we're going to move past Trump as a country but the precedents that are created now are going to stick with us for a long time.
1:37:01
And the reality is we should not have an FBI and a unit within the FBI that is pursuing these political vendettas and in this article by Real Clear Politics the amazing thing yeah the amazing thing is Christopher Wray prohibited this unit from seeking warrants from the FISA court.
1:37:19
So he knew there was enough misbehavior last time to basically prohibit them but it seems to me that's a very narrow takeaway.
1:37:25
It seems to me that the takeaway should be we don't allow this unit to pursue Trump again because they committed so much wrongdoing Yeah be cleaner to have a clean unit right? Why won't they do that?
1:37:37
If that's if it's true cuz that is from a biased source and if it is true that would be good.
1:37:43
Look guys this has been a lot of fun J Cal thank you for letting me sit in your seat today. Yeah you did great.
1:37:46
You know I appreciate that it was it was a lot of fun maybe Sax would like to have a run in the seat at some point here.
1:37:55
But for your as your guest moderator for today I'm Dave Friedberg and this is your all-in podcast. Thank you bye-bye.
1:38:04
We'll let your winners ride. Rain Man David Sax.
1:38:11
And I said we open sourced it to the fans and they've just gone crazy. Love you Wes. Besties are back. Wait a Oh man.
1:38:34
We should all just get a room and just have a one big huge orgy cuz they're all just useless.
1:38:37
It's like this like sexual tension that they just need to release somehow. What? You're a big P. What? You're a pure P. What? We need to get merch. I'm going all-in. I'm going all-in.