hello everyone and welcome back to conversations with Tyler today I'm honored to be talking with Patrick McKenzie here is Patrick's own description of himself and I quote the broad through line of my work is systems thinking applied to businesses I think
the social organization of the internet and its impact on the world are underestimated by almost everyone including Silicon Valley everything important to you in the world sits a top several infrastructure layers I am a
Storyteller for some of those layers and the people who build them an alternative description of Patrick that I might give you is he's a guy who moved to Japan for no leg reason at all and became famous by writing on the internet and now
everyone looks to him as a person who knows a lot about everything his substack is called bits about money and on Twitter you can find him at pattio 11 many people in fact call him patio 11 Patrick welcome thanks very much for having me why is it you still have to
sign the back of your credit card so like many answers uh the the true thing is that that is a bit of a misconception you actually don't have to sign the bit of your credit card in the Le legal realism sense in that uh you
can fail to sign the back of your credit card and go throughout your life untroubled by that fact and most people who do that will be untroubled the uh original reason for signing the back of the credit card was uh rather than authentication or authorization uh
meaning that uh the store clerk would thoroughly apply their forensic judgment in determining that the person signing the receipt and the person signing the credit card was the same person it was about solemnization that uh you are
making a uh solemn legally binding promise to the bank when you receive your card that you are good for charges made using that payment instrument uh and that was the reason for having the signature field that is also the reason
for having the signature field on um uh credit card receipts that you are promising to the merchant that you will pay them under the agreement that you have have with your bank now that everyone understands that when you hand
over your credit card that is a binding promise we don't really have that much Social need for that solemnization anymore and so it is this vestigial feature uh that is honored in the breach in a lot of places the vast majority of
Clerks uh won't even check signatures these days which people are sometimes annoyed by they put on the back of the card ask to see my ID that has no legal effect the clerk is not a a forensic investigator uh and the clerk also probably has far less knowledge of
credit card infrastructure than you do if you are writing ask to see my ID although if you're writing asks to see my ID you have a sort of bounded amount of uh knowledge about the credit card infrastructure so uh one of these little
idiosyncrasies of about the world that uh is uh uh will probably somewhat an anachronistic in a couple years and you're giving them your signature right by signing the back of the card if someone stole it they now have your card
and your signature yeah a lot of um what we would call pre-modern thinking about Security in terms of payments was not I I won't say not all that well thought out uh there there are choices that were made back then that were good in the era
they were made that are disastrously bad right now for example um if I had let's say a bank account and I have a secret controlling that bank account and that secret would allow me to take all of the money out of that bank account you might
think like how should I protect this secret and the answer you would come up in 2023 is not I want to print it in machine readable type on every check that I give to everyone um but in fact that is what we did back in the day uh
and many many tens of billions of dollars of check fraud happened over the years because of that uh issue and we sort of just like took the punches and uh developed a you know vast Shadow infrastructure to defang this like fundamental irreducible security hole in
the heart of te uh uh the checking system um so yeah uh putting your you know signatures that like the the handwritten physical signature has very terrible security properties anyone who has seen it can reproduce it they are
very easily reproducible by computers they are less easily reproducible by humans uh checking them for um correctness or consistency is uh ter there are the forensic uh uh analysts who go to court and and try to compare signatures against each
other if I were to say they were practicing witchcraft I think that would be an UNC thing to say I don't think it is necessarily untrue uh and so uh not a technology we would use in 2023 and going forward to uh secure anything that
we actually care about whom do you trust more your bank teller or the waitress to whom you hand your credit card a bank teller by a country mile although it is ultimately irrelevant uh so the reason to trust your bank teller
uh versus your waitress is that while those appear in say the United States context to be like jobs that are relatively similar on the social ladder they in fact are not uh and for all of the reasons that correlate with uh uh you
know class etc etc on uh whether someone is likely to uh to engage in malfeasance and also the built environment around bank tellers versus waitresses uh you are far less likely to get taken advantage of than a bank teller than a waitress but it is
ultimately irrelevant because in the case you are taken advantage of by either a bank teller or a waitress we have a uh extremely effective public private regulatory State machine which will make you whole for that uh and so
um it will be annoying but you won't actually lose money and so I go through my life spending very few Cycles worried about either individuals in the financial industry or individuals in the restaurant industry taking advantage of
my payment methods if I try to use my credit card and it's a false decline that is they won't take it when they should what's the most likely reason for that Gremlins uh the and it sounds like a joke but serious people so I used to
work in the payments industry stripe and I'm still an adviser there and uh say that everything I say is in my own opinion and stripe as a corporation does not actually endorse the existence of fiscal Gremlins I'm not sure I don't um
many people in the payments industry have spent a lot of time looking at like the true sort uh source of false declines and uh eventually the best you can do is reduce it to some sort of error term where you don't know specifically what system is at fault and
the credit card ecosystem while might present to you as a you know a single pan of glass that interact with just like you interact with a single pane of Glass on your iPhone is actually a stitch together Patchwork collections of
systems that ex have existed for the last several decades somewhere in that stitch together P Patchwork someone had a hiccup uh and then your credit card gets what we call spous decline um the rate of spous declines uh is something of a
trade secret but it is much higher than any rational human being would expect is a tolerable rate of uh you know spous false activity within a system uh and uh that that that has persisted for so many decades is an interesting sort of
collective action problem because it's a stitch together Patchwork of systems there's no unitor Authority saying uh you must you know commit to decreasing your rate of false declines by 50 basis points within the next two quarters or
there will be consequences uh there is limited visibility into what is actually causing the problem uh and so credit cards are an enormously lucrative business uh and for the longest time all players were like yeah Gremlins I don't
know what to tell you so um I know a little bit more to tell you than Gremlins but unfortunately some some of it is Trade Secrets uh and a thing that is not exactly a trade secret is that uh it is not the fact that in fact the case
that problems are not solvable in the world you actually can move the false decline rate by having the right people in the right places actually work on the false decline rate um strike has a number of things you can read it from various PR announcements uh and somewhat
shocking uh long-standing multi-decade problems frequently have the rough form where like if one executive anywhere carried about this and did the bare minimum of effort you would have somewhat surprising results on them relatively
quickly the thing that most uh surprised me on that score outside of the payments industry was when um I had this long running assumption that we're doing about as good as we can with rockets there the laws of physics are a thing
we've dumped billions of dollars into this problem and uh the smartest you know literal rocket scientists in the world at it and then Elon Musk came around and said actually you know I think we can uh cheat like the costs of uh getting things up to orbit by oh
three orders of magnitude and then if you had told me that in 1990 I well I would have been very young to aine about in 1990 maybe like 2005 if you had said that was like possible in 2005 i' say i' been against that seems
like a priority extremely uh unlikely to happen and now we have you know an existence proof of it happening and I'm reevaluating what I think about uh the world and how tractable various problems are in it if I buy a gelato for $7 they
make me sign with my finger on the screen and all I do is run my finger on the screen and it has nothing to do with my signature why doesn't the coast theorem eliminate this practice can you refresh my memory what the coast theorem is well just gains
from trade or reaped people don't do pointless things that benefit no one they would agree to take my payment with without running my finger on the screen and I wouldn't run my finger on the screen so uh ultimately that comes down
to a choice of various firms involved in the interaction uh it is the case that you can make a lot of credit card payments without doing any finger on the screen or signing receipt um small small dollar small Yen transactions in Japan
for example um there are various POS systems Point of Sales Systems in the United States that won't ask you to sign it if you're asking to rationalize this on um you know why does a smart team like I assume exists SE to uh make a a
signature input thing anyway uh there are anchors in our you know social practice about doing things and sometimes things uh persist in those anchors for far longer than they're um actually required or produce any sort of
value it would be my like dominant hypothesis um but I also think uh it is probably the case that toast could like you know build a flag to turn that off tomorrow uh and uh uh many people would not choose to turn it off for basically
irrational reasons in a country of near full employment why would anyone work in the debt collection sector it's ugly work you feel bad you have to abuse people maybe you try to intimidate them you might even make implied threats that if not illegal
they're in some gray area why do it is the wage so high so the wage is certainly not so High um as a background information for people uh I used to work in the other side of debt collection I was this uh random internet nobody that
uh ghost writing letters to debt collectors uh to uh uh attempt to get low sophistication individuals to assert their rights under various uh us consumer legislation um the typical debt collector is a high school graduate they
make uh plus or minus $15 an hour perhaps that is shifted a little bit as inflation has hit hard the last couple years but broadly speaking it's that uh it you know you have a pay scale there is not too different from McDonald's for
a much much worse working environment etc etc one reason uh and I think this is over advanced in the world but um is explan partially explanatory in this case is that um the existence of I'm about to use the word evil on anti don't want to use the word evil
you're allowed to use the word evil on this podcast evil um the existence of evil is an actual thing in the world and we our models of the world must include evil to be accurate models of the world there are some people who enjoy
inflicting suffering on others and if you enjoy inflicting suffering a de collection is a wonderful gig for you some people who enjoy inflicting suffering going to you know the police for example it's not the fact that all members of the police enjoy inflicting
suffering but that is like a major you know source of utility for at least some people who get that job another thing for debt collection is that um uh in the places where debt collectors actually live uh you know the the economy as a
whole can be near full employment but it in you know rural New York that might not be great uh it might not be quite uh so full employment and uh the you know for office jobs that are available a de collection call center or a you know
more salubrious call center might uh the the only office job available and so relative to the choices that are actually presented to you that might be uh the the most rational thing even if uh you hate the environment and turn out
in year and indeed the the uh turnover rate for debt collectors is astounding it's on the order of um oh I hate making up numbers to sound like I know what I'm doing it is higher than it is for fast food restaurants
which is already at close to 100% a year meaning in expectation they expect to uh to turn over the typical employee in less than a year and you think they leave because they don't like it or they leave because they're bad ated and they're
fired overwhelmingly they leave because they don't like it uh the um they're there is a production function for debt collectors in a way that there is far less of a production function for um mcdal employees uh certainly there
are ways to be a bad mcdow's employee but if considering like just the you know are you physically capable of like making a burger or not um almost everyone who McDonald's hires is actually like physically capable of making a burger there are orders there
there's probably at least an order of magnitude difference perhaps more in terms of like productivity of the amount of dollars collected uh per hour by debt collectors and so it is possible to be a you know net negative productive debt
collector and since your activity is tracked uh your employer will eventually come to uh understand about you uh but most people who leave don't leave because this is a job that is beyond their intellectual capability or because the
script they are given doesn't work or etc etc they leave because the job is sold St how did the maple cists change your overall view of the world and of humanity what's the model update so going back to evil as an actual thing in the world
um I often assume that large well-regarded professionalized Industries have a rate crime associated with them which rounds to zero and so I would assume like okay agriculture is relatively heavily regulated maple syrup is an Agricultural Product um the only
buyers of maple syrup by The Container full are quote unquote real companies and therefore I would expect rounds to zero supply chain fraud uh in maple syrup and it turns out that the amount of supply chain fraud in maple syrup is
actually like quite higher than zero and the chain of custody for like cars of maple cup is much less much less uh sort of regimented than you would expect that chain of custody to be and there are smaller uh uh buyers of maple Sy not on the scale
of you or me but on the scale of like a you know Boutique maple syrup Refinery uh who just don't do as many checks as the large producers or suppliers Etc do uh and so it is possible to steal millions of maple dollars uh millions of
dollars of maple syrup and sell it on the black market which kind of blew my mind um and in this sort of rhymes with how uh tide the well-known detergent in the United States is used to say is used as a commodity on the criminal and
semi-criminal systemd less criminal uh undergrounds uh in that um uh TI can be resold uh online marketplaces are getting a lot of the attention but like the traditional way to use TI as a as a currency uh for uh people who uh have had less access to
Dollars was to uh resell the the tide to a corner Bodega and since the corner Bodega can uh easily verify that the tide hasn't been tampered with because the tide seals on it uh and has basically uh unlimited uh willingness to
do small dollar transactions that make money uh that was you know a way to recycle tide that which had been stolen or which had been acquired in means that we're not stealing but also not exactly the official way of getting tide uh and
recycle it into the more or less legitimate economy in so far as we think that the you know Corner Bodega is like more or less legitimate um which I think is a complicated story do you ever encounter sectors where there's less
fraud than what you would been expecting or is there just more evil all around and you were naive and now you're wiser so I broadly think people uh overpredict evil and underpredict competence and then I I thought I was sophisticating for believing this and
then got to my adult life and realized oh wait you know evil actually exists I need to increase my prediction but maybe not to the level that uh uh Society generally predicts it um places where there is much less fraud than I expected
it to be one place where we detect much less fraud than I would expect us to detect is in um insider trading and other forms of uh obviously illegal Market manipulation uh and I'm undecided on whether that is it is truly truly rare relative to
the size of all Market participation or we are just abominably blad at detecting people that uh do it with like a B+ student level of uh uh you know execution ability uh because when the SEC announces like hey we we got
this person for insider trading here is the evidence they did it on their work computer at Goldman Sachs after Googling how do I get away with Google uh insider trading on uh their work computer at Goldman Sachs and that is barely an
exaggeration by the way uh and then they left a you know huge paper trail and uh and this repeats in all the sec's press releases and so I'm wondering am I getting a biased look at the world or are we only detecting um the dumbest
possible criminals or uh is it that no one you know does insider trading after they achieve some level of competence because there are easier ways to make money that don't involve going to prison um for a while and continuing I thought that crypto was
sort of um drawing a lot of the fraud out of the uh more traditional sectors of the economy because if you do it in crypto it wasn't that wasn't fraud but was fraud that you would get away with and make a sub substantial amount of
money uh doing and you could do it in broad daylight and still get invited to the best parties um but I don't think that is fully explanatory and you know my model is that there should be much much more fraud happening in the legitimate parts of the economy than
there is in crypto and yet we can see like the obvious frauds in crypto and the uh investigation of those obvious frauds and we don't have nearly that level of visibility into the it and the real economy and so I continued to be
conflicted by this as we're speaking in October 2023 Elon Musk has suggested that he will take X formerly Twitter and turn it into some kind of universal payments app uh what's the chance he can succeed with this and if you're bearish
on it what's the fundamental problem um if he hypothetically does that he will likely hypothetically be uh attempt incal negotiations with a company that I previously worked for and so I'm absolutely not speaking for them uh in
uh in the following as a neutral Market Observer it seems extremely unlikely that uh that uh you will successfully embed patents into the um Twitter experience the X experience these days I feel journalists uh like feel some sort
of obligation to call it X now that the official name is X Twitter will always be Twitter for me so I'll call it Twitter the the thing that users expect to get out of Twitter doesn't involve payments doesn't invol doesn't typically
involve uh interaction with uh uh with uh businesses or even um generally with like individuals that they're on a repeated inter interactive basis they get an entirely different basket of goods out of it and simply grafting payments onto that basket of goods will
not make people adopt the payments and I understand from a product management perspective how you believe that that would be fantastically valuable if you got it to work because the super apps that exist in large portions of Asia are
fantastically valuable businesses and they have figured out um sort of Loops that get users to adopt it for one feature and then adopt all the other features because it's already on your phone and the bis Dev to get it
pre-installed on all the phones and etc etc etc this is much harder than that gloss I'm just giving a it um but yeah the fundamental reason why I'm extremely bearish on uh it happening for Twitter and I would put the percentage that's
below 1% far below 1% uh is that this is very very hard uh and uh it feels unlikely to me that the organization that is Twitter is um resourced or competent enough to make this happen uh which I will say I'm an enormous fan of
Twitter I think it is actually one of the um descriptively one of the most important products that exists on the internet uh because it has um not solved but ameliorated a lot of uh Cross organization coordination problems that happen in very important
places it is broadly underappreciated how Twitter is the the message bus the sort of sub Rosa um coordination mechanism for the United States federal government for every counterparty that the United States federal government or
any agency or individual in faces for the media for everything and so people like see Twitter and they see celebrities post posting and uh you know the the phenomenon that is posting and etc etc and oh to a very real degree it is like an integrated part of the
operating system that is the world but that doesn't mean that you can graft fam on it onto it and succeed just because you want to if I go to Western Union and sent money to Mexico why are the fees and transfer costs so high it doesn't seem
like it should be that hard so this is an enormously frustrating thing for me because um the the crypto industry has been saying why are Western Union fees so high and and yet very few people in the crypto industry seem to do like the like
college undergraduate level thing that one would do to answer that question which is why don't you read their annual report and see what they spend all the money on what they spend all the money on is uh retail points of Presence by
the customer in both countries uh so the 50% of the cost of um like 50% of all revenue taken in by Western Union goes to have a physical point of presence uh by you sending it and by you know without loss of generality a Mexico um
do those have to exist could you do them cheaper eh you might be able to but the problem the problem such it is is like most of the cost or most of the uh complexity is by a Bo in Mexico and uh there's not one single like AA Mexico
where you just replace this one branch uh you have to you know coordinate this uh worldwide change in behaviors to like materially compress that fee uh and so that is why the the fees are so high another reason why the fees are so high
is um uh regulation and this one is we as a society could choose to do things better and have not chosen these yet and but I wish we would um due to uh anti-money laundering and know your customer requirements the amount of compliance drag on small um transfers of
value in the world is very very large the rationale for it such that there exists a rationale is that well if you can do small uh transfers of value uh easily without proving your identity then you could do large transfers of
value by breaking it up into small transfers of value that are UNS surveilled and then that would enable crime and terrorism and tax evasion and so even if you are sending typical transfer might be $200 to Mexico you
have to go through this song and dance about uh proving your identity to the uh transfer agent they have to be regulated yada yada y and that entire edifice imposes a lot of costs and a lot of things that are um undesirable from user experience
perspective and uh both in terms of like people will tell you that they don't enjoy them and in terms of if you were to you know Implement two parallel procedures the one that didn't require um that level of uh regulatory hoop
jumping would have a higher success rate by equivalently motivated people uh so um this is one so I'm a longtime cryptos skeptic and one of the things that uh I think I see eye to eye on with the crypto folks is that uh you know AML and
kyc impose enormous costs on society then where we differ is they think oh I will make a technological solution to this and just ignore all the laws uh and I think well to the extent that we believe this is true we should probably
work on changing the laws and regulations and and or uh changing how we Implement them in products that are actually valuable why your bank parking lots usually so empty so this is a straightforward result from queuing theory if you can believe it um
so uh queuing Theory SL uh operation science by the way tremendously underunderstood by uh many people to whom it is professionally relevant um that isn't thing so uh when you think of your typical stoping in a bank you go in
perhaps you deposit a check perhaps you talk to the teller you probably think I will have like three minutes of D all time uh and so you expect to be in and out but the thing that the bank really wants to optimize for is new account
opening new account opening requires uh 30 to 60 minutes plus plus of Dell time depending on uh uh what type of account you are opening uh and then when you like back out that variability it turns out that gratuitously over-provisioning uh uh the parking
space almost all of the time maximizes for not losing new account opening at a few like very limited Windows per year and those very limited windows can make or break the uh the uh Branch's ability to contribute to their larger financial
institution the number of accounts a bank uh uh actually opens per year in terms of checking accounts per branch is like that is a number that one can have access to in various places and depending on the bank and the locality
Etc it's between 200 and 500 and so if you turn away like a single customer or two customers in a row to open accounts because you had three parking spaces where you could have had seven you've done a very outsized amount of damage to your financial institution
and thus over-provision the parking in all the places so I should infer that I shouldn't keep much money in my checking account that's a correct inference from that the the margin for the bank must be fairly High which means my return all
things considered is relatively low so um I I don't think you even need any inside knowledge about Bank to know that one should not keep much money in a checking account H they um or a CD One does for the bank anything what might do
with the bank to ask you the Willie Sutton question why do people try to rob banks it seems like a low return activity the form of crime where you're most likely to be caught it largely is a low return activity uh the FBI uh is uh
so they published that on this and the uh the median that a bank uh bank robber gets is about $88,000 uh and it is the worst possible way to uh to uh earn $88,000 because a career Bank Thief uh the other word for that is a long-term guest of the United
States government it is impossible to get away with for over an extended period of time um the uh uh you know not to give people advice on becoming criminals but if one wanted to describe like a criminal that was using their
faculties to the best of their abilities credit card fraud is so amazingly more lucrative than uh uh than Robin Banks you can do it without ever threatening anyone you can do it with only about as many you know as much sophistication
about how the system works as the typical uh Bank Thief has uh and indeed you do see like casual fraud um by you know unsophisticated let's say nonprofessional criminals high school students Etc who you know earn or gain access to Value through that c casual
fraud much more than they would if they if they uh stuck up a bank and therefore you know the people that actually do stick up banks are overwhelmingly drug addicted they're overwhelmingly well disproportionately struggling with uh
you know uh mental illness etc etc uh it is H not a um not uh that big risk that by the way is also a reason why Banks um it's part of part of a few reasons why banks are not optimized to defeat people doing bank robbery which surprising to
many non-sp specialists if you uh join a bank one of the first things they say uh is in the event of a bank robbery don't be a hero this does not matter to us at all comply with all demands get them out of the bank as quickly as possible do
not fight do not Chase etc etc partly that is due to the um the liability risk uh the you know uh the way the US system views these things the net present value of a young Bank employee is worth a lot more than $8,000 and if they get you
know shot on their way out the door the bank might be liable for millions of dollars of a settlement to that individual whereas if the person walks away with $8,000 okay but the other part of it is that the banks truly aren't at
Material risk from losing cash in robberies how old were you when you moved to Japan and why did you do it moved to Japan almost right after University I suppose um would have been 20 uh and uh the original reason and I wish I had a
copy this article I should post it on my wall somewhere um I had gone to University of Washington University in St Louis to study uh computer science and I had uh uh was worried because the Wall Street Journal said uh the Doom bust means
that engineering employment will cease in the United States of America all future Engineers will be hired in uh China or India at if fraction of us prevailing wages and I thought oh shucks The Wall Street Journal is never wrong
but I really wanted to be an engineer clearly uh the successful engineers in the future will be playing event diagram game where they do one hard thing that is engineering and one hard thing that is speaking a foreign language and I thought speaking foreign
languages is hard because it's the only class in high school that I did not get an A in for showing up Spanish but I thought well there's very little Advantage uh for an American in my position uh to uh speak Spanish because
uh there are many Americans who speak Spanish better than I ever will and uh the amount of trade in software between the United States and Spanish speaking countries is uh presumably lower than it is with other countries so I made a
spreadsheet and uh you know uh trying to quantify things like what population of country what percentage of their uh professional adults are capable of doing business English uh you know what's the size of their software industry how much
software do Microsoft sell there etc etc etc d uh sort by column H descending and Japan was at the top of the list so I thought okay I'm going to learn Japanese and then I'm going to uh go to Japan after University for just a few years to
get better at business Japanese then I'm going to come back to America get a job at Microsoft in a Japan facing role and I will have a nice safe job uh in the tech industry despite what the uh the Wall Street Journal says about the tech
industry uh ceasing to hire Americans for the positions that I actually want to do uh and it turns out that there was a great deal of rigor there chasing a conclusion that had actually absolutely no basis in fact it is not the case that the tech
industry stopped hiring Americans in the last 20 years um but it also led to what was ultimately one of the most important decisions in my life I went over to Japan I lived there for 20 happy asterisk years I met my wife over there
etc etc so uh I often mention this to people as an example of you can have great reasons for doing something and have that utterly not matter uh and also the um I tried to tell sophisticated people that other people who they have a
high degree of regard for like some sophisticated people for whatever reason have a high degree of regard for me even people you you you have a high degree of regard for sometimes make very large decisions based on very small amounts of
data or like very small amounts of consideration with regards to that decision and therefore you should update your world model about that and like you know be very careful about saying things like oh the tech industry is so over
haha as a joke because like it is quite possible that someone would listen to that and just perceive the surface level uh uh meaning of it and then the tech industry would lose the services of someone who in expectation it might very
much want want to have had the services of in 20 years how hard was it learning how to read Japanese uh it continues to be a project um so and this is after 20 years right yep and so granted my feelings in this are partly filtered through the lens of I'm
something of a writer in English and so I'm not benom Maring myself against the typical student of the Japanese language but I'm much moing myself against my own Proficiency in reading and writing English uh and so I feel an enormous
Camp when my proficiency in Reading Writing Japanese relative to my proficiency in English um and and that weighs on me um if you if you step out of the Mi view of the world uh the point at which I was an effective professional
at reading and writing Japanese was maybe two to three years after I got to Japan so after a total of six years of study and I was not the most diligent student during those six years uh I think if you not a Heritage reader of
Japanese or Chinese you should like Benchmark it at least three years to be uh you know professionally capable at it if you're doing a startup how is that evaluated in the Japanese marriage Market extremely poorly historically um
uh the the both in the United States and in Japan one of the most influential works of fiction ever is the social network and uh I I Bang the Drum on this a lot that the uh The Social Network raised the status of Entrepreneurship
for Proto entrepreneurs worldwide and thus um we can see it in the data there was a uh there was a wave of applications to places like my combinator that will disclose that data uh but also like see it in the actual narratives of people who went on to
found companies that uh uh became worthwhile unfortunately that gets exp punished out of the public narrative because you don't want to um tell you know serious people oh yeah I totally started doing a startup versus going to Google because uh you know the social
network gave me social permission to doing so but that is a real thing anyhow to Japan in the uh I was once walking around Tokyo and uh there was a group of preschoolers being led around by their uh their uh caretaker and one of the
asked me in Japanese uh Hey Mis what's your job this is at about 10:30 in the morning for context and I said I am an entrepreneur and uh preschooler mind you said Y which means uh just as I thought he is unemployed and uh uh that is like the
form of Too Perfect anecdote to encapsulate a broader Society zist with respect to uh entrepreneurship um and like many things about this gets you know there's all sorts of like ases you can put on that too like Japan loves
entrepreneurs in the same fashion that like Catholicism loves Saints but they all happened a while ago uh the uh uh and uh you know these are things that are in the uh uh that are changing over time etc etc but um broadly
speaking entrepreneurs are uh extremely uh undervalued in the Japanese dating Market you United the following IDE idea on your blog and I quote most people want to become wealthy so they can consume social status Japanese employers
believe this is inefficient and simply award social status directly that's not you writing but it's you sighting can you explain sure so um people in the professional managerial class devote an extreme amount of uh care into their career and time U and so
by their revealed preferences uh this matters to them exceptionally uh and in the United States it's it's often said that this is because you want to you know earn a lot of money and buy like the big house so you can bring your
friends over to the big house and show them that you're successful and so you have India of um respected institutions endorsing you which is H the sort of like more gets it field the world um the the analogues of the US professional
managerial class in Japan are similarly overworked treated even more terribly uh to a substantial degree like there is an ingrained culture of uh abuse in Japanese uh labor employer relations where that culture um there are parts of it in the United States but not to
nearly the same degree now the thing that you are uh trying to do if you are um a salary man is not you get the promotion so that uh you uh earn more money because you will not earn appreciably more money and indeed you
will not earn appreciably more money than the false course of just taking social promotions through your entire life uh the the thing you are trying to do is get a higher um both true and sounds too too good to be true uh there there was a um there
was a chart of Engineers at the company that I that I worked at uh back in the day when I was a salary man and uh there was a young man I'll call him tanakasan which is not his actual name uh and tanakasan had a couple weeks of
seniority uh versus me and my role the company and so in the default uh ordering of the you know social hierarchy of Japanese company uh he would be above me on this chart that is pasted on wall and it's paced down wall for an actual business purpose because
you know if someone's out of the office that day you WR they are absent or at a customer site or etc etc but the order matters everyone knows the order matters and one day I watched two young uh O's office lady with the coinage in Japan um
uh going up to the chart and uh they they had tanakasan name in one hand and my name in the other hand and uh and one of them asked the other which of these goes first and uh the first one said well tanakasan has seniority it should
be him and the the second one said yeah but tanakasan really screwed the pooch on that last project and uh the second and uh the other one said oh yeah good point and there there was like a l like this like moving hand hands up and down
and a significant glance between each other and said yes that is the correct ordering with Patrick Kap versus dakason and tiny little anecdote that shows much more about the the the shape of the world a huge amount of the effort
involved in the culture that is Japanese saland is convinc the people that matter to you who are most of your Social Network at work who will be there at your wedding who your boss will give a speech at your wedding because that is
the culture that we operate in that you have made it um if you are you know ambitious etc etc etc there there are people who decline to participate in this same in the same fion as people decline to participate in the unit stat
it's but um that is the the broad accepted outline of the culture and how is it that your Ambitions Rose steadily in this environment you weren't beaten down you weren't discouraged you didn't just fly home either right but you kept
on setting your sights on something higher what what was that like inside you interestingly uh from having the perspective of being around people who are incredibly ambitious the last couple of years and whose ambitious had positive social purpose one of the great
result great regrets of my life is that in my 20s uh I had so little ambition and was so beaten down uh and didn't uh uh take more aggressive actions to exit out of the situation I found myself in um the uh I remember uh so after I quit the
salar man job which by the way salar man is a full-time employee of Japanese Company the company owns you body and soul and return it credibly promises to at least historically credibly promises you to insulate you from all
risk uh I uh worked at jobs are described by that for about six years burned out terribly um made a socially appropriate excuse to quit uh which is the one thing that you as a salary man are not allowed to do uh and uh uh and I remember April 1st 2010 uh
thinking I could get on plane right now with nothing but clothes on my back close the Japanese chapter of my life uh entirely and walk into Jeff Lawson's office in San Francisco uh who the CEO of twio he doesn't know me but I think
after walk into his office I can B borrow or steal a job there and just do something much more impactful important personally fulfilling Etc uh over the next couple of years uh the thing that I've doing the last couple
years but I'm not willing to like call it quit on this Japan Adventure yet I do enjoy living here working here is terrible I will try to you know carve out a little uh some some seets of living for my tiny uh internet software publishing
operation that I was running at the time uh and and see what happens and then indeed the thing that happened three months later is that that uh met the young lady who eventually became my wife and so uh we were off the races uh but um
uh you know there were other hypothetic wasn't it efficient in some regards that you had so many years out there in the wilderness so to speak because you learned so many things you're still young right you have a whole big long career ahead of you and by avoiding
becoming famous too early you had this super hyped up learning curve that you're now still benefiting from is that true or false um I want it to be true I I think that it is falser than most people who would say that would would give credit for
um uh I know many people liked the musical Hamilton I also like the musical Hilton but uh uh the the thing about the character where he feels like he's running out of time despite that maybe not being a rational is a a Str struggle
I've often had um I I know rationally speaking I have at least 20 plus years in my my career left uh and also know that uh you know uh there there is a level of uh energy and health that I had access to in my 20s that I no longer
have access to uh and so I feel some counterfactual regret as to the things that I actually spent that energy and health on which was you know running a World of Warcraft raid Guild and uh uh being a Japanese salary man for many
years um I did not think that six years as Japanese salary man optimized for me learning all the things I think I could have extracted most of the signal from that experience and six weeks to six months and then left but felt myself
socially constrained from doing so um uh there's uh um I definitely don't regret moving to Japan because of the you know uh other nonprofessional not effects on my life but uh the the degree to which my you know career SL impact on the world know
ex personal life ex family ex- raising two wonderful children and being married to a wonderful life um the degree to which that is enhanced by you know my level of understanding of business Japanese or ability to function in a
Japanese office environment etc etc seems to be like rather Limited uh versus you know my ability to write well in English um I will say one thing about the experience is that having a lot of free time on your hands in the uh in the
evenings and know outlet for English was a um great push in the right direction of writing more than most people do in their 20s uh and uh the the um compounding effects of writing more are responsible for uh both a lot of the good stuff that has
happened to me and a lot of the good stuff that I've been able to accomplish in the world uh so crypto questions yeah why why hasn't tether collapsed yet right people have run at it many times not too long ago I think the price fell
even to 93 which is dangerously low it bounced back it seems they can always redeem what if it isn't a fraud I pre-commit that if it is not a fraud uh I should have enormous egg out my face on the other hand like we you know there there exists
sufficient evidence on the public record in the cftc case and Etc that at times in the past it has been an out andout fraud that had have you know essentially no uh no backing and uh that they had done forensic accounting on it and for
their examination period was about 18 months and said that it was less than uh less than uh backed in more than 75 days in the examination period And so like from one sense I can claim victory you know it's a it's a fraud I was saying it
was a fraud before it was cool that the government now acknowledges that they did fraud things at some point fast but I think it should also collapse like it is not just a you know tinkering around the margins fraud but there is actual a
huge amount of actual criminal activity there um one sort of the naive answer is like do we expect frauds to collapse quickly probably no um Mid off uh was active for 17 or 18 years uh and the uh only thing that uh actually brought his fraud to light well
various kenti knew about it the thing that made it undeniable was being unable to meet Redemption requests in the wake of the global financial crisis and made off importantly did not cause the global financial crisis of all the crimes in
the world he was innocent of that one but people uh said Bernie you have all this money for me you alone among all the in uh the people I invest my money with uh have avoided this crisis which is great because now I need money can
you wire it to me uh and uh he did not have the money to wire and that's how his his CR came to life so to a certain extent it not collapsing is like you know the thing that we expect to happen on every day until it collapses C
graphically um uh and the thing that we would expect the collapse to happen with is uh my dominant narrative is like some form of government in action against uh their reserves that were custodi in some financial institution in New York
followed by the public uh uh uh the public disclosure of that action which might not be a total freezing but enough to start the Domino and then a classic run on the bank and then um you know the the pipes get overwhelmed yada yada yada and price
goes down um substantially below 93 in a famous uh interview on uh Bloomberg uh tether's character witness one Sam binman freed said that he believes that uh it is astoundingly unlikely that tether is worth true cents like 30 but
you could equival to whether it's worth like 99 Cents or a dollar and a penny um uh I think there is a material chance it is like truly worth something like 30 uh potentially negative after you you know add government fines and other actions
on top of it so uh I continue to expect that to happen Circa late October 2023 Bitcoin is priced as high as 33k why is that surely it's good for many things then right it's been through a lot of price knocks right it's not a bubble in the
sense that no one has ever asked why is the price so high it's been crashed what five six times since its origin and it keeps on coming back is it a proven asset class some things have a price and have liquidity at the moment and you can
trade them and that on one hand that is evidence right and on the other hand that is not necessarily dispositive uh and so I feel intellectually obligated to say I was saying that Bitcoin was overpriced at $17 I still like believe
that to be true in a lot of uh senses meaning if counterfactually it was $17 today and say it was overpriced at 17 um do I believe it is overpriced at 33 K relative to like the amount of actual utility that's uh demonstrated in the
world and the tens of billions of dollars that have been injected into creating infrastructure for abolute BS um but uh like some sense of epistemic humility uh you know uh the have been watching that ticker for over a decade now and the ticker and you know Market
participants keep voting against my view uh and question why is it because of manipulation surely yes but that is not a full explanation uh and you know is it because of like some amount of utility I I think the amount of realized utility
by Bitcoin and you know I'm a great crypto skeptic but if you were to say Okay hold your nose for a moment and and steal me on the case for crypto utility uh tell me about your favorite projects Etc uh I we point out a lot of things
that weren't Bitcoin that you know involve some sort of like intellectual descent in like Community Crossover with Bitcoin but like Bitcoin as itself is clearly not the best product that crypto has come up with um uh and yet you know
the the market says it is by like a comfortable margin the most valuable product that crypto has come up with uh and I uh I don't know how to square that Circle um a 100 years from now if we were all to look back as historians and
say oh the internet that was in fact a big mistake what's the most likely scenario that could bring about such a judgment I do not have a super developed point of view uh with respect to the like whether AI is going to end the
World um I think relative to most well-educated people um I think that can't be uh dismissed out of hand uh people who spent a long time uh thinking about have spent a long time thinking about it and the uh the arguments Advanced against them uh by people who
dismiss it out of hand are like clearly less than powerful arguments um but I wouldn't put a very high percentage percentage chance in it which I say to excuse the following if the human race does not exist in 100 years it is almost
definitionally because of the ad the uh uh some knock on consequence of the invention of the internet and if the human race ceases to exist and the internet like was necessary in the causal path to get to there then I would
regret the internet in every other case I would not regret the internet I I I I have an ulence and love for it in a way that people in our social class in the United States are aggressively socialized out of having abulance and
true love for anything I think that the internet is the capital g capital W great work of the human race in a lot of respects uh that um it is magical it is uh a encapsulation of the best things about our society that is also tremendously
instrumentally useful in making uh all the good things better and ameliorating all the problems over like sufficiently long time scales uh and so you know it seems like naturally to me at that like this is extremely important this is extremely
valuable it seems extremely underrated by almost everyone including people who like would consider themselves uh you know great fans of the internet but say oh you know like I'm a great fan of the internet but I'm a great fan of like
penicillin too I think like in aggregate internet the internet is obviously more important than penicillin by many orders of magnitude is it more important than medicine I will bite that bullet the internet is more important than medicine
like the entire institution of medicine from time in Memorial to you know uh reasonable uh like extrapolations of what we can do right now um is it more important than writing you couldn't have the internet without writing so uh
writing was very important to get to the development at the internet that might be one of the most important things about writing was that like writing got us to the internet and that sounds like a little bit of uh I know people will take that pull quote and say oh this
this crazy [Music] non-intellectual person but I I think that there is a reasonable case for it when you ran vaccinate CA which helped people in California get access to covid vaccines what is it you learned about
Talent what is it I learned about Talent yeah because you had to run it with other people right what did you learn dealing with the people getting them to cooperate with you what was the surprise it was a lot of non-traditional Talent right was a lot of
non-traditional talent I the word learn is funny because it it uh you know you there there's some embedded expectation of surprise like you didn't know something and then you you came to know something there was a thing that I would have put a high
probability on prior to vaccin that vaccin increased my Credence on uh which is that uh relative to credential uh talent in institutions like you know uh throw a dart at the dartboard about let's say County Health departments for
example and they're heavily educated in their field they are credential there's a democratic process that ultimately back stops the Deion of count County Health Department um J Rando person on the internet can may be better at like
uh important facets of pandemic uh uh preparedness given um two to six weeks versus a like County Health Department that has prepared for exactly this problem for their entire professional career yes straightforwardly yes uh and uh and that
is a thing I would have believed in you know 2018 but now I have an existence proof of um now the work of County Health departments continues to be important etc etc I do want to eventually be able to make coalitions with people who are necessary to uh uh
to achieve impact in the world and part of being able to make coalitions uh implies not throwing them under the bus all the time uh but uh it is extensively underrated uh how effective non-sp Specialists can quickly become to be um
and how sort of spiky Talent uh is distributed and how the internet can act as a force for uh sort of like bringing together the right Spike spikes of that in a very fast fashion and uh creating leverage good with it if you had to
explain or Express in its most basic fundamental terms why people are afraid to negotiate more and negotiate harder what's that explanation there is a societal script a guest being greedy and it is such a fundamental script in so many
societies uh for so long that like I have a strong suspicion it might literally be baked into the operating system that is being a human uh and the notion of negotiating for salary or negotiating for anything else uh is something that you have to kind of like
go against that cultural and possibly even biological programming to be able to do now humans go against their cultural and biological programming all of the time uh in many important ways but like it requires an immense amount
of effort and most people don't devote that um effort or don't perceive themselves as uh being uh allowed to do that uh in ways about salary negotiation uh and then this creates crazy inefficiencies in the world like until quite recently I so I wrote One blog post about salary negotiation back in 2010 uh 2012 I wouldn't call it a blog post but between you and me and the Internet it's a blog post um and hundreds of thousands of people uh read
that every year and many of them choose to write me an email and say hey um I use the advice that you wrote in this I Can't Believe It's Not blog post uh and resulted in a plus you know 25,000 to $125,000 Delta in the salary I got and I
keep a folder in Gmail of U uh the aggregate impact of and stopped counting sometime after is like $10 million plus a year for like economic impact in uh from one blog post and what do I come to believe about this one I clearly uh under optimized my
uh selection of uh picking things to write about because like that was The Shining Star in my portfolio for so long and yet I never attempted to you know take the knowledge that it was The Shining Star and do more stuff like that
in the future um two like Society was hideously under optimized in that it took like one guy of no special skill in this field like writing for one day on the topic to un unlock tens of millions of dollars of value um and that's just
the stuff we know about presumably there are people who get a salary uh upgrade and do not email me about that and then um three like this implies that there are a lot of sophisticated actors who are making huge huge mistakes that uh could probably be
humiliated for about as you know as much effort that that blog post took to write but who have not taken that effort you've left Japan you've returned to the United States you chose Chicago why Chicago uh straightforward reasons on
this one um my parents live in Chicago uh and my family grew up here um uh I I feel a little bit of pain at the phrase I left Japan I'm uh you know an American who who lived in Japan for many years and I expect at the future to at some point be an American
living in Japan but at the moment I'm an American living in the United States mostly for family reasons what has most surprised you about returning to Chicago I'm having more de difficulty with dealing with culture shocks and my
children who have never known an Asian other than Japan or my wife who's not materially spent uh time outside Japan uh and the Shak is coming in like ways and big ways at the same time um you know as those of you who have been
present in the United States for last 20 years know uh the United States is a different country in 2023 than it was when I uh you know uh uh kind of sort of left in 2004 and so even though I'm like someone who followed much of the news
about this on the internet a lot of it has hitting me like quite hard in the face uh all it once um there are some things that like creep up over time that are not that uh uh noted but like really obvious if you if you only experience uh
Living in America on like once every 20 year increments one of those things is like portion sizes are so much larger than they were when I was growing up uh to to a degree where there are many restaurants that attempt to serve me
things that are um the act of attempting to serve that would put me off the the notion of eating because it does not seem to be designed to be an amount of food edible by a normal person with my anchor for what normal people ate in like the you
know late 1990s um and this is not just me saying this by the way you can like you know look at uh pictures of McDonald's portion sizes over time and and track them as they go up into the righted um uh the there are a lot of little things
that Japan does right uh it seems to um I call it the will to have nice things in the United States in many places lacks the will to have nice things and suffers the uh consequences of that uh and you know these are just a million little paper cut annoyances like
the delivery company deciding to deliver my bed uh to the middle of the front yard because they I couldn't get into the house uh and you know we are a rich and Powerful nation that puts up with such obviously suboptimal things
like that and I'm hitting a lot of them all at and it is uh causing a degree of culture shock um reverse culture shock rather last question what is it you plan to learn about next I have an answer to this question it is uh more of the engineering reality
of uh uh geothermal heat and uh electricity extraction between 6 and 10 km below the surface of the Earth because I'm going to be uh doing a tiny bit of prob B to work on behalf of a um uh nonprofit organization that is
time to popularize that technology as part of the uh energy mix up for the next couple of years and you're bullish on it I take it I think I'm bullish on it uh the um uh met Jamie who's the founder of this organization uh two
years ago and it was the um have you ever had that idea that just sticks with you and like torments you in your dreams that's the thing that you can't get out the head your head even as you uh go through many other things in life like
this has for your little professional connection to all the things that that I've ever done but is the idea that uh uh that will not let me uh alone in my Quiet Moments and so I will have to exercise it by by learning about this
and and seeing if uh it if the field deserves to to have its current hold on me and if not I will find something else to raffle on but if yes then should probably do something with that knowledge Patrick McKenzie thank you very much thank you very much