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My guest today is John Arnold.
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John is probably the most famous energy trader of all time and certainly the most successful.
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One of the things John says was that he wanted to cultivate and build the best seat in his industry.
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The seat with the best perspective, with the most information, with the best systems.
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What's most interesting about John, after being the most successful energy trader of all time, you could argue that he's gone on to be the most innovative philanthropist as well.
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John has applied this idea of philanthropy to all different sectors and what's so exciting about this conversation is it feels like you're talking to a talented entrepreneur or a talented operator in all of these different fields who's willing to share exactly what him and his team have learned about what makes certain problems [music] manifest across our country.
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He has an incredible perspective not just on the things he's worked on but on his travels, on companies, on technology.
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This conversation is a reminder to me that cultivating the seat is such a powerful concept that we probably under invest in.
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Please enjoy this wide-ranging discussion with John [music] Arnold.
1:04
Everyone listening I think is somewhat interested in what's going on in China.
1:08
Your lessons that you shared were so interesting and I'd love you to just share some of the highlights from that trip and what you learned traipsing around, studying robotics, studying AI, everything else that you did.
1:17
What were your major takeaways from that trip?
1:20
>> The origination for the trip was this realization that China's gone through this transformation unlike any other that's happened in the world of both economic and cultural in the course of 30 years.
1:33
This is a country that has gone from you're really trying to replicate the West to in many ways leapfrogging it.
1:41
I was fortunate enough to spend a week running around, met with four or five companies a day that were all very open and kind of got to tour factories and it was really striking.
1:51
I came away incredibly impressed and also with a lot of questions about what happens to the rest of the world as the as this rise of China is happening.
2:00
The one big takeaway was just the speed and scale of which they can do things is unlike anything in the world.
2:09
They have this highly educated population.
2:11
It's a very entrepreneurial culture.
2:14
They've figured out how to get capital to these companies.
2:21
And they have this deep domestic market.
2:24
And so it allows them to um kind of build up these supply chains and agglomeration effects to create something that I don't think exists in the rest of the world where I were talking to a battery company and asking them are they looking at replicating factories elsewhere in the world, and one of their responses was every one of my suppliers is within 200 miles of here, and I can call them and meet with them same day.
2:55
And you can just can never get that.
2:58
And then kind of the scale of labor that they have and the flexibility.
3:01
If you need a thousand workers tomorrow, you can get that.
3:06
And again, it is a skilled workforce that's still very hungry, that's coming often times from poverty.
3:13
And so having this factory job, which in the West might not look very appealing, right?
3:18
For many people in China, it is highly appealing, right?
3:23
It's just kind of the first step up.
3:25
And so this combination of things has allowed them really to create this competitive force that the world is suddenly reckoning with over the past decade.
3:35
And it's really interesting to think about kind of what's the right response from Western countries, um you know, that don't want to cede their markets to China for obvious reasons.
3:46
Um but there's there's a lot that China can offer and so what's the right symbiotic relationship that the West should be having with China?
3:56
I think is this massive question that policymakers are grappling with and I wanted to try to dig into.
4:03
Which company visit was the most illustrative of these big lessons?
4:08
What was the company visit that looking back on the trip taught you the most?
4:11
I've been fascinated with the EV market in China, which kind of about 10 years ago was deemed to be a strategic market.
4:20
And you know, the way that the story is told is that China realized that they were behind on ICE cars and we're always be playing catch-up and that if they could leapfrog to the next technology, then they could have an advantage on the rest of the world.
4:38
And so right now there's apparently over 100 different manufacturers of EVs in China.
4:44
Now many of these are have a contract manufacturer and so you can send in your design and do your branding independently of the manufacturing.
4:56
But there's many manufacturers there who actually have their own plants.
5:00
So we went to this one for NIO, which is kind of the upscale Chinese car that's kind of in the 40 to 80 thousand dollar range, although they've recently released one that's below 10 thousand dollars. Wow.
5:12
Going to their factory and seeing number one how quickly that factory is built.
5:17
So they went from you know, the first shovel in the ground to the first car coming off the line in 17 months, which was just phenomenal.
5:27
And then second, the factory automation that that they had.
5:29
And there were certainly people on the assembly line, but much of the process was done via robotics.
5:36
And you you know, start looking at what are the plants that we have the auto plants we have in the United States.
5:44
We still have a plant that was originally built 100 years ago operating outside of Chicago.
5:52
Um kind of average age of US plant a little hard to get, but we kind of roughly 40 years.
5:56
Now, they've been upgraded over time and you know, there are certainly robotics in American car manufacturing, but I don't think they replicate what's happening with robotics in China.
6:07
And so they have this combination of being able to do things really quickly with a skilled but low-cost labor force and then add on the robotics has just allowed China to create a quality product at a price that nobody in the rest of the world has really been able to figure out yet.
6:27
Do you know anything about robotics or AI that just that surprised you?
6:30
The number of robotics companies, there's over 100 now in China.
6:34
As I understand the process, each five-year plan China specifies certain industries that are deemed strategic.
6:44
And then the head of the province gets evaluated on a number of factors.
6:47
You know, the head of the province is selected and not voted on.
6:51
And so the evaluation is based on things like employment and GDP growth, but then also are the industries that are being created there aligned with the five-year plan?
7:06
And there are also some subsidies coming down from top on those favored industries.
7:12
And so robotics is certainly one of them.
7:15
So then each province takes a couple companies that it favors and gives them subsidies and supports to try to get the winner or one of the winners to be in their province and then get the supply chain to develop around them and then all the associated jobs and GDP.
7:34
And so you get this massive competition that happens.
7:37
One of the end results is that most of these companies aren't very profitable today because there's just intense competition and a lot of times over capacity because of the province level subsidies and supports, but it also creates kind of uh yeah, this intense competition which is a term involution for it also creates better technology, right?
8:06
If you're faced with that type of competition to be one of the winners, you have to be fantastic.
8:13
Now, I think the question that China has is what do you do with those who are not the winners?
8:18
And do you have a process where the losers stay in the industry and keep kind of everybody unprofitable with the overcapacity or are they closed?
8:28
And so China has you know, started this new process of anti-involution of like trying to support the winners and make sure that they can build up to be healthy, strong companies and be really global competitors and not just kind of brought down by this overcapacity in the domestic market.
8:49
Obviously, there's tons about of understanding about what the state of China wants and is trying to accomplish, but if you add up all your conversations with all the people that you met across the week, how would you sum up what just the people that you met and interacted with wanted?
9:04
Like what it felt like they wanted and what was their attitude towards us?
9:07
It seems sort of increasingly adversarial from our direction to them, skeptical, worried about it, etc.
9:12
But just adding up your conversation, what was your felt sense of what the people wanted and were trying to accomplish and and felt about the US?
9:20
I was struck by just how much the two countries have separated you just in you know, since 2019.
9:25
The number of flights between the two countries is down 70%.
9:30
I talked to a couple expats who in Shanghai who said that the number of western expats was down 50 to 75% the number of American students studying there is down 90% and I started to push on this a little bit about what was happening.
9:45
Part of it was when China was starting to develop and trying to copy the West and one of the ways to do that was to bring over Western expats.
9:57
And I teach it in a Western business practices and all the aspects about how to run businesses and capital formation and allocation.
10:05
Those roles, those learnings have now been domesticated and so instead of firms, you know, paying multiples of the cost to bring over a Western professional to do it.
10:20
Those learnings are now domestic domestic and and so it's cheaper and they have those skills and so they don't need the West anymore and that was kind of one of the the big senses I got is you know, this confidence that's building there of, you know, we we used to try to just copy the West.
10:40
Now we're world leaders in many of these things.
10:43
We don't need the West coming to teach us things.
10:47
We're going to teach the West.
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12:37
I'd love to rewind the clock a little bit.
12:39
I mostly talk to investors on this show.
12:42
I rarely have talked to some of the world's great traders through history.
12:46
At a point in your career, you were probably the greatest active trader or one of them, certainly the best in your market.
12:52
I'd love you to describe what it's like to what what it takes to be truly excellent at that specific discipline.
12:59
If you think back on the time when you were at I'm curious when you thought think it was that you were sort of at the peak of your powers.
13:03
I'd love you to just take us in behind the behind the scenes a little bit of what it took for you personally to get to that stage since I talked to so much fewer of of people that have done this.
13:16
I might step back and think about my kids and what I think or what I want my kids to do.
13:20
One of the big components is do something that you're really passionate about, that you want to do, that is not kind of a job that you do for income.
13:31
But if you can have a profession that you love, that you have this real deep passion for.
13:42
And that's what I found with trading.
13:44
I just loved the battle, the puzzle, the game of it.
13:47
I would sit there from kind of 6:00 in the morning to 6:00 at night, um you know, at the desk and you know, either staring at the computer screen or uh doing some analysis.
14:02
And then, you know, go out with people from the industry that night and then dream about the industry and you know, in the shower in the morning I'd be thinking about it.
14:13
And just being so locked in, there were negatives associated with it.
14:16
Not sure I was a great person, a great friend, um a great partner for those times.
14:21
Um but I think just having that like dedicating your life to this craft uh for a time period um was one of the things that I think separated me.
14:40
Uh I think there's also some downside.
14:42
There is um consequences to doing so.
14:43
Um it's not the healthiest lifestyle.
14:50
It's um not healthy from a relationship relationship standpoint, not healthy from a physical standpoint.
14:58
Um and I think it's can be mentally exhausting.
15:00
And I think, you know, after doing that for 17 years, kind of this one thing and being so deeply intertwined with it, you know, at some point I just had to like step back.
15:09
If you think about like the second or third best natural gas trader that was active when you were active, [snorts] I'm so curious about the difference between you and them.
15:20
Another way of asking like if you turn it into advice for your kids, which I like that frame on it, what does it take to be number one in something versus like number two and three?
15:29
I don't know if I thought I was the best.
15:31
I felt I was among the best.
15:34
I had also managed to create probably the best seat in the industry. >> Say more about that.
15:40
So, my first job out of college was at Enron.
15:42
I started there when I was 21 years old in 1995.
15:47
It went bankrupt in late 2001.
15:51
Um so then I'm coming out and I'm trying to figure out what to do.
15:54
Uh and there were and I had a bunch of options.
15:57
And one is I could have stayed with the Enron trading floor, which ended up getting moved to UBS.
16:06
Um I kind of decided I wanted to do something that was a little bit more entrepreneurial and ended up kind of deciding to start my own hedge fund.
16:12
I had um yeah, I had kind of the classic hedge fund two and 20 structure.
16:20
And you know, now I was there wasn't an interme intermediary between me and the 20%.
16:25
All right, I was getting the 20%.
16:30
And so I had, kind of, you know, the best or as good of economics as almost anybody in the business.
16:37
And then we had very good financial returns early on.
16:40
And so that did two things.
16:42
Number one, like, [snorts] there was a lot of retained earnings and new investors came in.
16:46
And so we had, um a lot of risk capital.
16:51
And second was we had a very good investor base that trusted the team I had built.
16:59
Whenever we had a down month or a down time period, which we had, they weren't calling to redeem, but they would call up and say, "Do you need more capital?"
17:09
Um because we had earned their trust and we had done, you know, forced distributions along the way.
17:15
And so I'd set up this kind of really powerful seat where I had good economics, so I could hire the best people in the business that I knew of.
17:25
Um we had a lot of risk capital and had a very solid and stable investor base.
17:28
I like this concept of like developing the best seat in your in your industry.
17:33
Are there any other interesting or useful components to that?
17:36
If someone is listening and they're an investor or or even a you know, just a normal founder business person about setting up the best like structural advantage in a seat is it information flow? Is it other stuff? And I love this concept. We started at 2 and 20.
17:50
We did very well and had a lot of more demand for to invest than we had capacity.
17:57
We raised the fees over time and ended up at 3 and 35 by the end.
18:02
Um and that allows investment in the business.
18:05
And so, you can build up a fundamentals team that's the best in the business because you can just pay them more.
18:13
Um you can go do side projects.
18:16
Um like trying to get proprietary data sources um that give an advantage.
18:22
And you can pay the trading team and you know, the middle and back office more money.
18:28
And so, everything in the business starts to work and you have you know, the sense of excellence around the firm.
18:37
And that makes everybody better.
18:37
We're able to develop kind of proprietary uh trade entry system and kind of position management system.
18:45
So, things that you don't necessarily think about but are extraordinarily useful.
18:50
Being able to to buy any and all data, come up with proprietary data sources, have the best people trying to translate that raw data into something useful, and build the best fundamental models in the business.
19:05
I think all becomes part of the flywheel. It's a really scale.
19:07
Like it's the redeployment of your scale that let you do all that and get into all these fine-grain ways that you could be better than your competitors.
19:14
Yeah, I think that's right.
19:16
Can you tell me about the baseball card business that you built in high school?
19:19
And I I'm curious about it because I always wonder where the initial spark comes from.
19:23
You mentioned the importance of passion and that you just fell in love with energy markets.
19:27
I'm curious to sort of trace why you were entrepreneurial in the first place, what the formative things were, maybe where a chip on your shoulder came from to the extent there was one, in hearing about that business, but then also hear the story between that and and the discovery of passion for the energy market specifically.
19:41
I was always entrepreneurial.
19:45
I always wanted to make a dollar.
19:47
As a you know, 13, 14, 15-year-old kid, you kind of have limited options and you know, I didn't really want to work retail and cuz you weren't going to make very much money doing that.
19:57
I was uh in high school in the late '80s, early '90s, and this baseball card boom was happening.
20:09
And I remember, you know, even in middle school, first getting started, introduced into baseball cards.
20:17
It was when it was really kind of starting to take off around '87.
20:20
And it became clear to me that yeah, I guess in retrospect that, you know, this is this really interesting kind of financial instrument um that's, you know, very volatile, that information on pricing is not very uniform across the market, that there was a lot of geographic price differences that were happening.
20:46
Uh I managed to talk myself onto this bulletin board of of kind of baseball card dealers, which is when internet commerce is just kind of getting going and they just had this wholesale system um that was kind of real-time pricing in effect.
21:05
You know, you'd have people in New York were trying to buy hockey cards and people in Texas were trying to sell their hockey cards cuz there wasn't much demand for them and, you know, there was this these arbitrage opportunities that got created.
21:19
And I'm like, uh I I kind of know this from this bulletin board, you know, people in Montreal or New York or Buffalo, you know, are willing to pay X and I can buy these at, you know, Y and make that money and the sports card business kind of really started to boom and so there was more and more money coming into it, more and more cards.
21:40
I was living in Dallas at the time but would travel to, you know, Houston and Louisiana, Oklahoma.
21:44
Um you know, started getting on planes when I was 16 and going to to big card shows around the nation.
21:54
And I just always had this sense of value of what something was worth at the time.
22:00
And kind of turns out, you know, it was there were a lot of similarities between doing that and the trading.
22:06
I was, in a way, doing market making in in sports cards and I was taking advantage of arbitrage opportunities in sports cards and knowing what every product is worth at every moment, you know, kind of stuck with me and that was my mantra when I was trading gases that, you know, I knew what every month was worth um better than I think anybody else did and I would do that, you know, and I knew that every moment of the day.
22:39
And to do that it kind of took a intense focus and just like sitting there and just staring at the screen and listening to every trade that happens in the market, you know, all day long every day.
22:50
Um you know, it takes that that work and intensity.
22:53
Can you describe the actual instruments that you were trading?
22:56
Like when you were trying to put positions on and take them off, what what were those positions, what were they in on average, and I want to get into some of the nitty-gritty details just to give people a sense of how far you had to go to get an edge in this world as an analogy for how far you have to go to get an edge in in anything.
23:14
You know, this was the thing you you enjoyed, but what were you literally trading at in those days?
23:19
It was primarily futures and swaps that were kind of a look-alike to the future. I traded natural gas.
23:29
The hub for natural gas trading was Henry Hub in Louisiana.
23:34
And then there would be price differentials between what gas was worth in Louisiana versus gas in Pennsylvania or in West Texas or Colorado, for instance. Uh that's basis.
23:46
Uh I did that for a small part of my career, kind of those price differentials between one point and the hub in Louisiana.
23:51
Uh but most of my career in trading was trading kind of what we call the fixed price of natural gas.
23:59
And so this is, you know, if you're watching CNBC and on the ticker, it, you know, has a gas price, that's what I was trading.
24:05
>> And so in a given day, like how much volume and activity would there be?
24:07
Like how many decision key decisions would you make in a given day? So it changed over time.
24:12
I was for a long time the largest market maker in the business, um which I did both for uh because it was profitable, as well as, maybe more importantly, uh it allowed uh ability to put on and off positions um with lower slippage and with fewer people knowing what my position was.
24:39
And then also gave me insight into who was doing what in the market, and so I could start to build the psychology of the market.
24:45
I could, you know, see certain traders positioning certain ways and kind of try to reverse engineer what their thinking was, which helped me in trying to figure out how I wanted it positioned. >> Mhm.
24:56
May- maybe for those that are less initiated in the act of market making, just describe why what it does, sort of how it provisions like how you're provisioning liquidity for the market, but also why you were able to sort of cover some of your tracks by being that player in the market.
25:09
So, a healthy financial market exists for a reason.
25:15
And that reason is that there are commercial players, in this case producers or end users, who have exposure to the commodity that are willing to pay something to have somebody else to reduce their risk to the commodity price.
25:34
And they will pay something to the market for that risk management.
25:40
And if that exists, and so if you think about a producer of natural gas whose revenue is almost entirely based upon what the price of natural gas is at for a given month or even at the day-by-day, um there is this huge boom-bust that can happen because commodities are naturally kind of have this boom-bust cycle.
25:59
And so, businesses then, if you're exposed just to the spot price or kind of today's price, those businesses also go through a boom-bust cycle.
26:10
And so, many businesses will choose to hedge out fix some of their uh their forward revenue and reduce their exposure to any short-term swings in the market.
26:22
So, that's the demand for hedging.
26:25
And if there's demand, there has to be a supply.
26:27
There has to be somebody who's willing to take the other side of that trade.
26:30
And some somebody has to warehouse that risk, price the risk, and manage the risk.
26:37
And in aggregate, kind of that's what the traders as a whole have to do.
26:45
And then there's also speculators that come in.
26:47
The people who are warehousing that risk often um you know, they have to price that risk and so they have become experts in the pricing and how to hedge it.
26:59
And so there's often speculation that happens on top of that.
27:02
Um, as well as there can be speculators who are not actively market making but just have a view on natural gas or oil or gold or anything and you know, come in and want to put on a position and again they need liquidity and so somebody gets paid to provide that liquidity.
27:19
It strikes me as someone that looks at a lot of young companies that it is exciting. Energy is exciting.
27:26
Again, maybe it's just because of data centers and AI and the the the new demand uh, that's coming on stream for for power.
27:34
Does it feel that way to you?
27:34
I mean, I know you've you've looked at tons of companies.
27:36
I'm sure you're incredibly, you know, on top of energy markets today.
27:39
Do you feel like it's a good time if you're interested in this field like you were to go into it relative to 10 years ago when it seemed a little bit quieter?
27:47
I think it's more on the asset side today, but I think there's a enormous amount of innovation that's happening in energy assets.
27:53
So whether that is in new technologies like in batteries or geothermal or advanced nuclear.
28:04
I think also kind of all the data center development and the amount of money and capital that's in those fields and so the need for innovation that if you can make things even a little little bit more efficient there is enormous value that's created that a new company or a new individual can take advantage of.
28:27
And I think that's you know, one of the kind of characteristics of the energy industry broadly is that it is enormous.
28:34
All so if you can have a little edge in a a niche of the energy industry, there can be tremendous gains to to had.
28:46
And certainly like this mad scramble to build data centers and to power those data centers is creating enormous opportunities for new entrants to the market.
28:54
If you're describing the industry today to someone that knew nothing about how the US energy system works, what would be the high-level way that you would approach that problem of explaining it to somebody new?
29:05
Like here like here's just kind of the state of things today.
29:08
Maybe stepping back about what are the goals of the energy system.
29:12
I think about systems a lot these days and you know, what the incentives are, what the rules are, what the goals of a system are.
29:19
But in in energy, you can think about having a product that's affordable to the consumer, that's reliable, that whenever you want it, you can access it.
29:26
And you can think about times where there, you know, the gas lines in the 1970s or, you know, blackouts, right, when reliability hasn't been there.
29:36
Um think about having reduced emissions, a cleaner system, um and then kind of energy security.
29:45
And then maybe fifth, I'd say that it creates, you know, good jobs for you know, whatever country or whatever locale you're in.
29:54
And then, okay, you know, if you if you have those as goals, then how do you meet those?
29:59
You know, America's blessed with tremendous energy resources, has a lot of oil, gas, coal, has a lot of wind and solar resource.
30:08
Um and then there is, you know, we're a very innovative country and so you know, ability to deploy, you know, solar um and wind and thinking about um both traditional nuclear as well as advanced nuclear.
30:24
And so, we have all these inputs and we're trying to get to the system that meets those goals.
30:32
And then the challenge is and how do you devise policy and rules of the system to do so.
30:40
And that gets tricky because those the priority or the ranking of those goals changes from administration to administration.
30:51
And it's an industry that is slow.
30:51
It takes a long time to build the infrastructure.
30:59
And you need these stable supply chains in order to be able to meet the needs.
31:06
And you have these changing goals of it.
31:09
And so the industry gets sent you know, every four or eight years gets sent a different set of priorities or price signals about what we want as a society.
31:21
And then the industry has to scramble.
31:23
And then you throw data centers in here, which is just, you know, a load growth and being less concerned about price and more concerned about speed than any consumer of of energy that we've seen in this country maybe ever.
31:44
And so put it all in the mixing bowl and you know, try to get a system that works.
31:47
What is, if you could imagine a US energy future, I'd love to paint the poles and have you imagine the best possible scenario you can imagine for us 10 years from now and what the components of that system would be that are different than how it is today.
32:01
And maybe like the worst possible version of the system that you can imagine in 10 years.
32:05
Just to get a sense of having studied the system so carefully, I love your way of thinking about the competing goals and this weird, you know, this weird data center variable as well.
32:14
Maybe starting Well, let's start bad.
32:16
Like what would be the worst scenario that you can imagine that would get you concerned about the state of the US energy system in 10 years time or something.
32:23
The worst scenario is that the energy system becomes the bottleneck for both of US innovation as well as you know, individual flourishing in this country.
32:38
And, you know, on US innovation, you know, especially on on technology and AI data centers, it's largely around can we build, can we create the supply that industry is demanding.
32:53
And on individual flourishing, it's, you know, can we do so and and maintain and the affordability and reliability components that Americans have come to, um, not only desire but demand.
33:09
And there's this politics around energy and food and housing because we need all of those, right?
33:15
Those aren't optional for people.
33:19
Um, but there's this politics around it that if you start to lose affordability of any of those, then there is real tremendous kind of political ramifications of it.
33:31
And so you can start to see kind of if an energy system that goes bad will have a huge impact on politics of this country.
33:39
>> If you think about that bad case scenario both supply and demand-wise, um, I'm curious, starting with demand, how certain you feel that this increase, this big increase in demand for really the first time in decades in the US, how lasting it feels to you?
33:56
Does it feel pretty certain that we're just going to get a ton more data centers almost no matter what or demand for them anyway?
34:03
And then on the supply side, like what the reasons would be that we just failed to meet that demand?
34:06
Like what why we would stumble and and just not succeed?
34:10
Visibility through, uh, kind of 2030 is pretty clear.
34:14
The investments are being made.
34:18
The actors that are making these investments are the largest, most profitable companies that have ever existed on this planet.
34:28
They're also, many of them are growing at very healthy clips and so their free cash flow is increasing.
34:34
They you know, have the financial capability to execute on these plans and they're making the investments today.
34:43
I think the 2030s on is who knows?
34:46
The assumptions that you have to go into any model on this, you know, have such wide error bars and you extrapolate out that many years and you just create a garbage in garbage out model.
34:58
And what about our ability to meet that demand?
35:00
What would screw us up on the supply side most? I think it's policy.
35:04
It's gotten harder and harder to build in this country over the years.
35:09
And there's always this tension between what the needs of society are and what the preferences of a local community are.
35:17
And so everybody realizes we need transportation and housing and energy uh but all people also want it not in their neighborhood.
35:28
And so this is the whole NIMBY movement is yeah, we need affordable housing or workforce housing.
35:35
We need and a transportation. We need energy assets.
35:42
But don't put them by me and if you try to, I'm going to go fight you in the courts.
35:47
And for developers, time is money.
35:50
The opponents to projects have gotten very clever about how to use and have the existing regulatory laws to delay and delay projects and in doing so can often kill them.
36:02
I've been very uh focused, you know, through our foundation at you know, how do you do a permitting reform to make sure that the projects that are good, that are good for society as well as aren't unnecessarily painful to any community will get built.
36:22
While maintaining kind of the parameters that the bad projects don't get built.
36:27
Just NIMBYism and this difficulty in building is what would you know, lead to the problem of not being able to supply or the energy becoming the choke point for development of the United States.
36:42
And particularly kind of bringing it back to the first part of the conversation of China and just the speed and scale that they can build.
36:47
They don't have this problem. I'm confident of that.
36:52
And so, yeah, it is uh one of the biggest differences between the two countries.
36:57
And I I really worry about, you know, if energy becomes a choke point in the US, you know, it has real ramifications for the strategic ranking of this country.
37:10
If you're a politician, would you use the China story as fuel to the fire to try to communicate and market this concept that we're sort of getting lapped by someone that's sort of our, if not adversary, our competitor? >> 100%. Yeah.
37:24
Um, you know, not only is it a good narrative, but it's true.
37:27
If energy becomes the constraint, we will become less competitive vis-à-vis China.
37:34
>> If I was an uh and you mentioned the asset side being so exciting on the energy side, if I was a energy asset investor and I really wanted to fund stuff that would help us solve this problem where you got the joint growth in demand and this rise of NIMBYism, where does this whole thing break down?
37:53
Like, is it in transmission? Is that the problem?
37:55
Cuz presumably, if we could just produce lots of energy in remote places that nobody lived or cared and transport it efficiently, the problem would be solved.
38:02
Is that the right way to think about it?
38:03
Do you think about it differently?
38:05
I I want to get towards this like the best version of things you could imagine, you know, in 5, 10 years' time that would solve this problem and make us energy, you know, abundant and not slow.
38:14
Transmission is certainly a component of it.
38:16
It It's not the only component.
38:17
We can talk about supply chains, can talk about land use.
38:19
um, but transmission is a huge component of it.
38:25
Uh, I actually started a company, um, about 5 years ago trying to build interregional transmission lines because it was an industry that had become so difficult to permit and build that uh, that kind of private capital had largely given up trying to do new projects.
38:45
And it's one of the kind of solutions that can be a win-win-win for everybody.
38:53
We're not talking about the goals of the system, right?
38:55
It can reduce costs, it can increase reliability, it can reduce emissions, it can make, you know, the country more secure, it can, you know, create more jobs.
39:03
But yet, yeah, it gotten so hard to build these lines.
39:08
It is still very hard to build these lines that, you know, most of the developers who had gotten started with projects in the 2000s kind of gave up.
39:16
They started things uh, thinking these were going to be 5-year projects and they were 10-plus years in and many of them hadn't broken ground yet.
39:27
Again, this is part of the challenge of America, it just takes so long and part of this is, you know, there's not one entity that can just say, "Okay, do it."
39:35
You have to There are multiple veto points along the way.
39:41
Um, and you have to convince a lot of different actors of this project.
39:42
I talked to a lot of politicians, a lot of federal politicians, on both sides of the aisle.
39:49
Um, and one of the things I hear from almost all of them is this need to figure out how to permit and build faster and more efficiently in the United States.
40:03
So, there's very broad agreement on and at the top level.
40:08
You know, you can get disagreements about kind of the details about how to go about that.
40:12
I think I'm remain reasonably optimistic that we can get federal permitting reform done this year.
40:20
It'll be probably the only bipartisan legislation that happens besides maybe a budget, but there is this will that I sense uh that is kind of unlike any other issue in DC right now is that there is this realization that this this can't set the country back.
40:41
And you know, people will look at it for different reasons.
40:43
Again, people will have prioritized goals in different ways.
40:46
So, how can you do a bill that helps all of those goals?
40:49
And that's what we're shooting for.
40:51
What do you think about nuclear both new forms of fission, but also the you know, the panacea potential of fusion?
40:56
Promising, but very very difficult.
41:00
The innovation hasn't been proven.
41:02
We can build you know, the AP1000.
41:05
The AP1000 is kind of the the latest of the in a traditional nuclear power plant.
41:13
We know what's a very very costly electron.
41:15
It was the last power plant to be built nuclear plant to be built in the United States finished I think in 2024.
41:24
Vogal units three and four are AP1000s and a very advanced um safety uh design for a nuclear power plant.
41:36
Um you know, the Vogal plants were enormously expensive.
41:38
Um and if anything they've gotten harder to build since then because they require a very significant amount of labor in generally rural parts of this country.
41:51
At its peak uh Vogal had 9,000 uh laborers on site many of which were highly skilled craftsmen.
41:59
And trying to do that today in the United States is very difficult.
42:02
Um but we've proven we can build that.
42:05
We know it's a a high cost.
42:09
And so there's a lot of effort to do advanced nuclear.
42:14
And that's either kind of the um SMR, small modular reactor, that's fission, or through fusion.
42:20
And I think the question is we don't know what the economics of either of those are.
42:24
And one we don't know whether we can build a commercial fusion uh unit.
42:31
I think there's a lot of optimism in the industry.
42:37
Remains to be seen whether we can get there or not.
42:40
Um I think the greater question is what are the all-in economics of that?
42:42
And that's a big unknown.
42:45
Because at the end of the day, you're competing in a commodity market.
42:49
And we've seen that we're willing to pay a little bit more for a cleaner electron, um but we're not willing to pay a lot more for a cleaner electron.
42:59
So, it has to be cost competitive.
43:03
Um optimally, it is, you know, the cheapest electron is one that minimizes emissions.
43:10
And so, I think that's the promise of of nuclear.
43:12
These aren't coming anytime soon.
43:15
Even, you know, there are some pilot plants that are um being drawn up today.
43:22
Um you know, they may or may not have started construction on some of this.
43:24
I think most of these announcements are kind of for the PR.
43:30
By the end of this decade, I think we'll be have taken some small steps there.
43:37
But we're probably looking 10, 15 years to really have advanced nuclear be at any scale in the United States, and that's best case.
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44:47
What do you think about the basket of startups that have been launched and raised in some cases a lot of money about the prospects of good returns for those dollars that are going into these companies and projects either either today or the historical dollars that have gone in the last 5 years. So, it's surprised me.
45:05
In some ways I thought that some of these technologies were almost uninvestable from kind of the the VC side because of the such a long duration to get to kind of really a kind of free cash flow business.
45:23
I'm surprised at how much money. I think it's fantastic.
45:25
Um I think this has to be a public-private partnership where the government is putting in real capital into these because I I don't think they make sense as a kind of stand-alone investment without public support.
45:41
And I just the the time frame to commercial deployment, the amount of money that has to be raised for it um and the the fact that you don't you don't really know early on whether you're making progress or not.
46:01
There's a a of benchmarks to be overcome.
46:06
Um but until you actually build one, you don't really know what your economics are going to be, what your efficiency of the unit's going to be.
46:15
I worry that there's going to be a falling out in the industry.
46:20
Um there's probably too many uh SMR companies and it would be better if the industry can and of coalesce around three or four different technologies and focus the resources there.
46:32
It's a scary circumstance to imagine as an investor when funding dries up and free cash [clears throat] flow is still over the horizon, not even within, you know, the visible horizon or something.
46:41
I'm curious if there are other areas that you think that's less true, like solar and battery seems like a really interesting way of solving some of the problems in the energy markets.
46:52
Uh the cost curves for both look really cool and interesting.
46:54
I'm curious what you've learned about those two and just kind of generally what you think about that style of energy generation and storage. Solar has two trends.
47:01
One is technology and manufacturing costs keep going down.
47:08
The main technology is improving, manufacturing costs are going down, so the end product of a solar panel Mostly in China.
47:14
keeps getting cheaper, mostly in China.
47:17
And so the cost to develop a solar panel keeps falling.
47:22
Now, a solar panel doesn't get you what you want.
47:25
You want electrons at the location that load is at.
47:27
And so there's a lot of steps to go from a solar panel to electrons in the right location.
47:35
Some of those are inflationary, right?
47:38
The panel itself is deflationary, but it requires land, it requires uh labor, it requires access to transmission, it requires, you know, access to capital and the cost of capital, which you know, was falling for a long time and has now been increasing really over the past 5 years.
47:59
People love to talk about kind of the cost of solar panel and usually whenever you see these graphs, it's what's the cost of the panel and it's just kind of from top left to bottom right.
48:07
That's, you know, and meanwhile, I know the cost of a PPA, a power purchase agreement for solar is well off the lows.
48:19
We were kind of lows happened around 2020 and it's the cost again of delivered electrons from solar is, you know, probably 50% plus more expensive than they were at the cheapest point in 2020.
48:35
And it's because the panel itself again becomes a smaller and smaller percentage of the total cost of the system.
48:43
And so any advantage, you know, continued technological improvements or manufacturing improvements are just getting at a smaller and smaller percentage of the total cost and meanwhile, the inflationary aspects of the system, you know, become a bigger and bigger percentage of of total cost.
48:58
That being said, there's a lot of ideas about how to bring load closer to where the solar is being generated and, you know, can you use some type of, you know, automation, factory automation or robotics to kind of build the plant better, the solar field better and cheaper way that requires less labor.
49:20
And so there are advancements being done.
49:22
It's good to see that a lot of the data centers now are being yeah, that the developers or the end users are, you know, signing new PPAs with with the solar developers and so we've seen a tremendous amount of solar come onto the system.
49:41
I think it's also true that and I, you know, generally in a stable demand environment, each megawatt of solar that comes on is worth a little bit less.
49:51
The most valuable solar that came on was the first megawatt and then you get to a point where the supply of solar has exhausted the demand during the sunny parts of the day in a certain region.
50:05
And so as you bring on more solar, either you have to also bring on batteries or you have to bring on transmission to move it to a different place. And so that has a cost.
50:12
Battery costs have been declining as well.
50:15
I wonder if some of the same dynamics that happened with solar will start happening with batteries soon.
50:22
As the technology is getting better, the manufacturing gets optimized, you start running out of kind of the advancements that have significant cost uh ramifications for the battery system.
50:37
And it becomes more and more on what the input costs are.
50:41
And so we've seen lithium prices, for instance, just in the past few months be up more than 50%.
50:48
And that's going to translate into higher battery costs, all things being equal.
50:52
It's fascinating that it all comes back to the same problem of like labor.
50:55
Can we build these things?
50:55
Can we build them quickly? Permits.
50:57
Um a lot of our attention as a country maybe should just be there.
51:01
And we could sort of take for granted these falling cost curves, which are great, but not sufficient to have the the end system that we want.
51:06
If I was forcing you to invest in something related to the proliferation of data centers today, I'm curious how you would attack that problem.
51:17
So much excitement around these things, lots of companies that are predicated on the rise of data centers and the buildout of data centers.
51:27
What would it take for you to get excited about investing in something that was tied to that trend?
51:30
There's a number of companies that are trying to kind of make the buildout of the data center a less labor intensive through robotics.
51:40
That's an interesting source.
51:42
It could be a very crowded space though.
51:44
So it remains to be seen how good an investment that robotics companies will be.
51:49
From an energy standpoint, I think advanced geothermal is one of the most interesting components of the system today.
51:59
It is a base load energy source that is, you know, friendly to the environment.
52:06
Um it is coming down the cost curve.
52:07
It's still very early in this industry.
52:09
Um so, still it's unclear what costs are going to look like in a few years, but there is, you know, the skilled labor force that exists in this country already.
52:22
It comes largely from the oil and gas sector.
52:25
And you know, it the technology has now been proven out.
52:29
Um it's There's a lot of work to do to scale this.
52:34
It's kind of like early on in the shell gas or shell oil revolutions that, you know, it just starts out small because these companies have had to prove out the geology, have to prove out the techniques, have to prove out the management team.
52:50
And and you have to uh get to the project finance market in order to get a very low cost of capital to make these things really work.
53:01
And so, it takes time to get from kind of start up in the industry and even kind of getting all these steps proven to getting to where, you know, banks are willing to loan you money because they know it's going to work and they know they'll get repaid.
53:13
But, I can see kind of in 5 years that the geothermal industry could be uh the most exciting in the United States.
53:23
We've talked a lot about energy infrastructure specifically.
53:24
Are there other parts of US infrastructure, non-energy, that interest you most?
53:27
The housing discussions that are happening across the nation are really fascinating.
53:33
And a lot of the YIMBYism, or yes in my backyard, as a combatant to NIMBYism, you know, originated in California largely because California had some of the highest housing costs and the fastest growing housing costs and some of the the most stringent restrictions on trying to build new housing.
53:52
And it had gotten so bad that there you know, started to be this uh pushback against all of that.
54:01
And what we've seen is similar to permitting reform, there is this has become a very bipartisan issue of make it easier to build housing.
54:10
And we see it from, you know, not only California, but you see it in Montana, you see it in places like Austin and and in the Northeast.
54:21
And so, it has kind of superseded politics.
54:25
And I think politicians are now realizing that this affordability issue is front and center for voters.
54:34
And that's driving, you know, this renewed focus on cost of electricity, renewed focus on uh cost of groceries, and on housing.
54:44
And so, people are asking their mayors, governors, um federal government, "What about housing?
54:51
What are you doing to reduce the cost of housing and make it easier for people to buy that first house?"
54:56
And if you don't have a response as a politician, you're just not going to win a race these days.
55:03
President Trump came out and made this comment about, "Well, I want housing prices for those who have a house to go up."
55:09
He also talks about making it more affordable to buy a house.
55:12
And so, you know, you can't do both unless there is just a massive government subsidy.
55:18
And I think that's one of the risks of this affordability push is that it's been decades in the making um from all these regulations, all these restrictions on building things in this country.
55:31
There aren't easy solutions to overcome this besides just big subsidies. Right?
55:36
That the real solutions take time.
55:39
And the problem is that that window is longer than the political cycle.
55:46
And so, you know, if you're a politician and you're facing re-election every two or four years, you have to have an answer today about what am I doing that you can actually see in during my term.
56:03
And one of the easiest thing to do there is if you have access to the budget, which, you know, the federal politicians do, you just start subsidizing things, which makes the problem worse in the long term, but, you know, the electorate likes it in the short term.
56:17
I love to apply your sort of system thinking to some other areas that you've studied carefully and been in really involved with with the foundation.
56:23
But, before we do that, maybe to have you describe your goal for the foundation overall.
56:28
One of the things I've heard you say that's so interesting is that foundation should get less powerful over time.
56:32
Uh individual foundations, that is.
56:35
And as someone that's running a big one, that's an interesting interesting thought.
56:39
I'm curious why you think that.
56:40
So, yeah, maybe before getting to some of the things that you focus on, just frame why have a foundation if you just wanted it to get weaker over time.
56:47
Any institution gets less effective over time.
56:49
I think it's true of companies, I think it's true of countries, or, you know, governments.
56:55
I think it's true of foundations.
56:57
That, you know, you have your best, most innovative times when you're still relatively young as any organization.
57:07
And so, I'm very cognizant of, you know, some of the downsides of having perpetual foundations, and that they or one of the roles of a foundation is to take risks that the private sector and governments aren't incentivized to take.
57:26
There might be political risks, it might be economic risks.
57:31
And the foundations can provide because there's less accountability on foundations, they can provide that capital and resources to try things that others aren't willing to do. But those are risky.
57:45
Often times those will fail.
57:48
And I think organizations become more bureaucratic, more risk averse over time.
57:56
And so they're not able to do one of the main functions of a foundation.
58:01
There's this difference between charity and philanthropy.
58:07
Um you know, charities often, you know, designed to meet in the short term needs and philanthropy is more on you know, trying to create long-term solutions. We do both of those.
58:16
We're mostly on the long-term solution side, but you know, we also give money to our local food bank.
58:23
We, you know, give money to help the the local hospital. It's harder work.
58:27
It requires having bigger staff.
58:33
Uh it requires um having a a longer time frame and being willing to live with ambiguity and likelihood of failure on many of the the things that we're doing.
58:45
You know, I talked about the easiest money to raise is a university that's going to build a new building because a donor, you know, has trust in that institution.
58:56
And they know that if I give a dollar that you know, I can point at the brick that my dollar went to and you know, sometimes you even have your name on that brick.
59:06
And so you see directly, you know, like where your money's going.
59:09
A lot of the work that we do, which is um based on trying to improve these big systems in America, whether that is the health care system or the criminal justice system or infrastructure, uh our public finance system, uh education.
59:28
You know, it is long-term work and progress is slow, but we really act as this conduit between researchers and policy makers and trying to like you know, do this experimentation and do evaluations and research about what works and what doesn't in these systems and help people think about new ideas and how would you test them and how can we translate into something that's useful for policy makers to improve the outcomes of these systems.
1:00:03
>> What about criminal justice?
1:00:03
Like describe your work in that part of the world.
1:00:06
What progress have you made?
1:00:06
What progress do you think needs to be made to that system?
1:00:09
We first got involved in this.
1:00:13
We just started passively funding the Innocence Project.
1:00:15
And you know, the Innocence Project tries to go look at cases of you know, people that have been convicted of a crime and you know, do new DNA testing on some of the evidence and see whether that evidence that was used as part of the conviction actually points in you know, to them as the perpetrator of the crime or not.
1:00:36
And the Innocence Project has been able to overturn many, many, many convictions.
1:00:44
And you know, there's a lot of very sad individual stories there.
1:00:46
But I think most important from the Innocence Project is they're really looking at and know, what was this process that led to this wrong conviction and how do we improve the system to lead to fewer incorrect prosecutions and and convictions.
1:01:07
And so they were using the individual to try to improve the system.
1:01:10
And with that entry we started looking more and more into criminal justice system and we heard a lot of anecdotes about some of the inefficiencies or failures of the system.
1:01:21
And so, we kind of, you know, took a step back and say, "Okay, where can we try to help in the system?"
1:01:29
And there was a lot of the uh kind of crim- criminal justice principles um came from the great crime spike that happened in the '60s, '70s, '80s in this country.
1:01:43
It culminated with a bipartisan crime bill under Bill Clinton in the early '90s that was really about getting tough on crime.
1:01:50
And it was about kind of increasing the penalty um for if you're caught doing things.
1:01:58
And meanwhile, the researchers have kind of known for years that what's more important than the penalty, you know, if and when you're caught, is probability you get caught.
1:02:07
A lot of people who are who are committing crime, you know, don't have that you know, the ability to process if I get caught, will I have a 5-year sentence or a 10-year sentence, and that's going to change my behavior.
1:02:20
of it is more is am I going to get caught or not?
1:02:21
And then there was, you know, lots of questions about um things like how do you do pretrial detention, right?
1:02:28
This time between when you're arrested for a crime and this time when you're convicted in courts of a crime, and what should happen to you in that time frame.
1:02:39
And so, like we got asked to come into um New Jersey to help them think about that.
1:02:44
And you know, Kentucky, you know, a Republican state was one of the first to really try to redesign the system when their existing system was deemed unconstitutional.
1:02:54
And so, thinking about what's important in that decision process, and what many states have decided is what's important is, you know, are you a threat to others?
1:03:08
And what's the likelihood that you're going to come back for your trial?
1:03:10
And that should decide like do you need to be detained before you're convicted of the crime or can you kind of be be released back into the community?
1:03:20
And meanwhile, we have this cash bail system that's largely based upon do you have money to post to get out or not?
1:03:26
We've worked with a number of states, both Republican and Democratic states over the years trying to think about and if how do you, you know, align the process with what the goals of society are?
1:03:39
This kind of criminal justice reform um movement has had its ups and downs.
1:03:45
We were one of the very few philanthropies that was looking at it when we got started um close to 15 years ago um particularly on the adult side.
1:03:58
And then it became a very popular um uh movement and a lot of the people that were coming into it were coming in from a social justice and racial equity perspective.
1:04:10
And I think one of the things that distinguishes us is we always try to think about and what are the all the goals of the system?
1:04:15
Well, you know, there's the goals of the criminal justice system, right?
1:04:19
First and foremost, you can never lose public safety on it.
1:04:22
So, any reform you do, you know, can't have a trade-off of public safety.
1:04:27
But, you know, social justice and racial equity are certainly goals in that system.
1:04:30
We look at a lot of of ideas about how to improve it and we try to um figure out what are the trade-offs that exist, try to quantify them to the extent that we can, try to figure out you know, are there trade-offs?
1:04:44
You know, if you do one thing, you know, it could improve so social justice or racial equity, but there could be a trade-off on costs or trade-off of public safety.
1:04:52
Do you think that the best place to improve things is just that probability, subjective probability that you'll get caught?
1:04:58
Like is that where we should invest using technology especially invest, you know, the outsized amount of our time and attention cuz it seems >> [snorts] >> all it takes is one case if some guy's probability is low so you let him go and he commits another really bad violent crime or something and everyone freaks out and says shut this down.
1:05:14
Like uh it's like nuclear like three Three Mile Island happens and then you know, we get no nuclear forever.
1:05:19
Um does that mean that we should focus our attention on making people more scared that they'll get caught as the number one lever in the system? I think so.
1:05:31
The way you do that in a society where number one we there's not the public funds at the city level to really significantly increase the number of police.
1:05:42
Um and second is that communities are hesitant to have a lot more police in their neighborhood. >> Yeah. Right.
1:05:50
It's this kind of weird in that you know, communities don't want to lose the police they have Right.
1:05:56
>> but you also ask them they don't want a lot more police coming in.
1:05:57
You know, this and the status quo bias associated with it.
1:06:02
But and so you kind of the question is like you know, if you don't have a lot more money and um communities don't want a lot more officers just kind of walking around then then if what's the solution?
1:06:10
And I think there's a lot of interesting technologies that are being developed and and there's there's always this trade-off about then if security versus surveillance, right?
1:06:23
And or security versus privacy.
1:06:26
And I think this is one where you kind of each community has to figure out where they want to be on that spectrum and different communities are going to choose different different uh equilibriums there.
1:06:36
You walk down Midtown Manhattan might be the most surveyed place in the United States, right?
1:06:43
And it's also one of the wealthiest and then you know, I've been in the real-time crime center in Beverly Hills and and cameras everywhere and they have drones and you're just everything's being filmed.
1:06:58
Um and so like the wealthy communities have decided we want this and we're willing to trade some of our privacy for security.
1:07:04
Meanwhile, like a lot of the debate happens like um the assumption is that uh low-income people don't want that and that they want more privacy at the expense of security.
1:07:14
And I think there's real questions about that.
1:07:17
You see kind of the positive response that people have whenever crime goes down and the privacy that we're willing as individuals to give up on the internet. Right?
1:07:28
In order to get something we like, right?
1:07:30
The rewards of the internet.
1:07:31
We're willing to to give a lot of our privacy.
1:07:33
And so, I think there is this broad rethink now about kind of this trade-off and what tools are available and how to use the tools that, you know, don't lose the trust of the public and that, you know, minimize the chances that people are going to misuse any of these tools.
1:07:50
What about education as something upstream of of [snorts] crime?
1:07:55
Is there have you observed or discovered in your work uh useful or interesting relationship between those two things?
1:08:01
And how do you think about the system of education as well?
1:08:04
The first issue we got involved in was K-12 ed because the outcomes there are associated with kind of almost any outcome you could think about that matters, whether it's um you know, drug dependency or you know, economic outcomes or criminal outcomes. >> is strong.
1:08:22
Like better K through 12 equals better outcomes.
1:08:25
>> Yes, there's a strong correlation, right?
1:08:26
And then you try to like, okay, is there causation here, right?
1:08:27
If I can improve the education outcomes, does that change?
1:08:31
And I think, you know, um I think the answer is kind of generally yes.
1:08:37
I think the hard part is how do we improve educational outcomes?
1:08:41
And that's the question kind of United States has been struggling with for decades.
1:08:46
Um and we've been able to do it a little bit as society, um but we haven't we haven't cracked that nut.
1:08:55
What's maybe surprising is you know, this is true globally as well.
1:08:59
We've worked with a number of charter schools, worked with Teach for America over the years.
1:09:06
Almost every country around the world, you know, that has a significant K-12 system has come to America to try to figure out what we're doing because they're facing the same challenges on education that we are.
1:09:20
What makes you most hopeful in that area?
1:09:22
I had Joe Leman on the show talking about Alpha School last year.
1:09:25
That that seems young but extremely promising in some of the early results.
1:09:29
Uh I I always have to try to catch myself to be not too overly optimistic about technology solving all of our problems, but it it sure does seem like AI could solve a lot of the problems in education, maybe.
1:09:40
I'm curious what you think.
1:09:43
I think there's a lot of promise.
1:09:43
I think there's promise in Alpha School.
1:09:46
What my hesitancy to get too excited about is we've been hearing this promise from the EdTech industry for 20 years now.
1:09:54
We've adopted more and more technology in the classroom over that 20 years, and outcomes have gone down.
1:10:03
And you talk to any of these providers of an EdTech platform, and they have all this data they're going to show you about the remarkable results that they get from their students.
1:10:13
And then you step back, and you just never see it in the actual data, you know, applied in the real world.
1:10:19
Is that kind of like the solar thing where the solar, you know, the AI system is the equivalent of the solar panel?
1:10:24
Like it's getting better and better and cheaper and cheaper, but that's not actually the thing that matters.
1:10:28
It's more like the rest of the stuff in the system.
1:10:31
I think there's a question of, you know, how do you engage with kids?
1:10:37
You know, often times kids have short attention spans.
1:10:39
It's probably more true today than it's ever been.
1:10:42
And we can all probably think back about some remarkable teacher that we had that just captivated us and kept our attention for the full 60 minutes of a class.
1:10:51
And we can also think about teachers that were just terrible, and you know, you wouldn't pay attention at all.
1:10:58
And I think part of the challenge has been that sitting there staring at a screen often times just has not been an engaging format for people.
1:11:09
And the question is, you know, can this some combination of AI plus AR or VR try to create some type of more engaging um both content as well as the delivery of the content uh that we haven't seen before.
1:11:25
And so I I think there's promise there.
1:11:28
I want to be optimistic, but again like I'm so frustrated with the lack of results that we've seen from this field for decades with you a lot of promise being there for a long time and just seeing nothing.
1:11:39
I feel greedy asking you about all these different systems, but there's two more that I really want to hear about.
1:11:43
Uh those being health care and journalism, uh which is one that that I'm I'm personally interested in, of course.
1:11:48
Um maybe starting with health care.
1:11:53
Uh this everyone knows the headlines stats, you know, the percentage of GDP that that health care represents has ticked up steadily over time.
1:11:58
Outcomes uh in many cases haven't gotten better.
1:12:03
There's some countervailing things like GLP-1 seem to be sort of a a modern medical miracle of sorts that can address some of these problems and cost in the health care system.
1:12:10
When you assess that overall system, where does your attention get drawn?
1:12:13
What are the things you've discovered are most interesting and important?
1:12:16
We've had this kind of multi-decade financialization of the health care system.
1:12:21
And that's really driven up costs as you know, people have figured out, you know, ways to get in, start businesses, or consolidate businesses and take advantage of, you know, some of the regulations that exist in the field to maximize firm profits.
1:12:39
And you know, the health care um it violates kind of every principle of a uh competitive market from econ textbooks.
1:12:52
You know, thinking about, you know, even what information does the patient have?
1:12:59
What information does the payer have versus what are the incentives of the provider who has kind of this asymmetric information advantage and also, you know, gets to decide what treatments you need.
1:13:11
And so, you can load up all these market failures onto the system and that requires this huge system of regulations to try to overcome that.
1:13:25
And so, you know, if there were no market failures, then you could just say, like, okay, like, no need for government policy here, government regulation, we step back.
1:13:31
But with all the market failures, you need books and books and books and, you know, tens of thousands of pages of regs about how to deal with every certain thing.
1:13:43
Um, and you have, you know, a third-party payer, whether the government or a private insurance company for the vast majority of the system.
1:13:51
And so, you creates all these rules that then private industry will naturally try to seek and find out where's where's the gap in the rules.
1:14:02
And this happens in every industry.
1:14:04
Right now, one of the big things is skin substitutes.
1:14:07
So, if you get a burn, you need some type of new skin on um, there's regs about how those get reimbursed and the first 6 months whenever a product is released, they are there's, um, not history of the halos, that product's been priced before, so the federal government gives a lot more latitude on how a manufacturer of that product can price it for the first 6 months.
1:14:36
And then as the market starts to react, after 6 months, the government now puts more regulation on price.
1:14:44
So, what manufacturers have done is, you know, introduce a new product, let it be out there for 6 months, take that off the market, introduce a new one that's slightly different, you know, and the prices, you know, keep going up and there's, you know, some {quote} kickbacks.
1:15:00
It's just an example of this cat and mouse game that constantly happens on, you know, you know, um government or private industry writes a regulation and then everybody tries to figure out how to beat that.
1:15:14
And so, a lot of our work is, you know, trying to identify these and trying to correct and make the rules and incentives of the system be more aligned with the outcomes we care about as a country.
1:15:27
As a general matter, not just in health care, but in all of these systems that you've studied, is is it a conclusion that fewer rules are better?
1:15:35
Do you find yourself pro deregulation as a general matter? Not necessarily.
1:15:41
This is one of the reasons why I don't feel at home necessarily with either political party because I think different problems need different solutions and we are going to have a health care system that has, you know, third-party payers forever.
1:15:59
Um and the need for very tight regulation.
1:16:01
And, you know, if you look at K-12, for instance, um you know, it's a very different system, very different actors in the system and um you have fewer market failures and you can have maybe less regulation and you can regulate different things.
1:16:18
You can regulate outputs rather than inputs in the system.
1:16:21
And so, you know, I've been very favorable to um having the government try to get out of service being the service provider in K-12, right?
1:16:30
That, you know, the government doesn't do a great job of being both the regulator and the service provider that a traditional district is.
1:16:40
And that the government needs to choose one of those, and so it's not, you know, is regulation good or bad?
1:16:45
It's, you know, different systems need different types of regulation.
1:16:48
And there's always going to be this cat and mouse game between regulators and the private actors.
1:16:53
And we need to make sure that the regulators, you know, you know, both do a good job of devising the rules of the system up front and then are actively, you know, fixing it as they fail.
1:17:07
Finally, what have you learned about journalism?
1:17:09
It's it's a kind of one that stands out in contrast to some of these other, you know, massive countrywide systems that that you've studied and explored and and done things in and around.
1:17:18
What about journalism have you learned and what what does it need?
1:17:23
>> We got drawn to journalism um because, you know, view it it's called the fourth estate, that it's, you know, a check on both government and on private actors.
1:17:33
Um that there is a public good of, you know, both the dissemination of information, um as well as kind of the investigative um journalism that that many outlets do.
1:17:49
And trying to find the frauds and abuses and wastes that are happening.
1:17:54
And, you know, for a long time you had this package product of the daily city paper, and that's been largely the um you know, has fallen apart.
1:18:01
And so, the kind of that role of, you know, both coverage of local and state politics as well as kind of a lot of that investigative work, we feel is being under invested in.
1:18:19
And the commercial uh revenue potential of that is limited.
1:18:25
Our view is that there is a need for philanthropy to fund some of this.
1:18:28
The same way that philanthropy funds the opera house and museums, you know, and parks that having a vibrant journalistic outlet to oversee a lot of these things is that's necessary for a a vibrant community.
1:18:46
You get to see so many parts of the system probably more than almost anyone I've ever talked to.
1:18:52
What has you the most excited about the world? Innovation.
1:18:56
It's very easy to get pessimistic.
1:18:56
It's very easy to talk about the problems, to talk about the debt and deficit and all our political dysfunction.
1:19:04
Um and then you kind of step back and look at what this country's gone through since its formation and the number of challenges it's faced and that it's been so robust in being able to overcome those challenges historically.
1:19:21
>> [snorts] >> And you know, the innovation that that many have provided and created over the years and how that's improved quality of life for us and I think that's what we have to trust and have faith in will continue to do so in the future.
1:19:36
When I do these interviews, I always ask everyone the same traditional closing question.
1:19:39
What is the kindest thing that anyone's ever done for you?
1:19:41
When I was really deep into trading and about how it kind of created some unhealthy habits and started to change me.
1:19:48
At one point my brother pulled me aside and just said like you've changed and not for the better.
1:19:55
Took courage on his part to do and and I think it caused me to step back and think about did I agree with that or not and if of course like the the first instinct is to say no, you're wrong and then you know, that thought lingers and you know, start trying to see yourself as a third person would.
1:20:15
Um and and I started to think like you know, maybe he's right and what do I need to change in my life and you know, try to make these other parts of my life besides the business make the other parts of my life, you know, high performing as well.
1:20:31
I love the closing idea that saying something hard to someone you care about can be a great kindness.
1:20:37
A cool and unique answer, John.
1:20:39
Thank you so much for your time. >> Great to be here. Thanks.
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