Austin Vernon - Energy Superabundance, Starship Missiles, & Finding Alpha

Speaker 1 Okay, today I have the pleasure of interviewing Austin Vernon, who writes about engineering, software, economics, and investing on the internet, but not that much else is known about him. So, Austin,

Speaker 1 do you want to give us a bit about your background? I know that the only thing the internet knows about you is this one little JPEG that you had to upload with your recent paper, but

Speaker 1 what about an identity reveal, or I guess a little bit of a background reveal to the extent that you're willing to

Speaker 1 comfortable sharing?

Speaker 2 My degree is in chemical engineering, and I'm kind of like a lifelong love of engineering and also things like Toyota production system and stuff like that.

Speaker 2 And I've worked as a chemical engineer like in a large processing facility. I've done a lot of petroleum engineering.
Let's see. And then now, you know, I taught myself how to write software.

Speaker 2 And now I'm working on...

Speaker 2 kind of like more research early commercialization of CO2 electrolysis.

Speaker 1 Okay, yeah. So

Speaker 1 I'm really interested in talking about all those things.

Speaker 1 But so I guess the first question I have is Alex Berger, who's the co-CEO of Open Philanthropy.

Speaker 1 He asked this question when I asked on Twitter, what I should ask you, and he suggested I should ask you, why so shady? So

Speaker 1 you have, I mean, famously, you have kind of like an anonymous personality, pseudonymous thing you have on the internet. What's up with that?

Speaker 2 Yeah, yeah.

Speaker 2 I think he posted a tweet that said, you know, like,

Speaker 2 I don't know who this guy is or, like, if he's credible at all, but, you know, his stuff sure is interesting. And that really made me laugh.
And that was hilarious.

Speaker 2 Yeah, it just doesn't seem necessary. I think

Speaker 2 I'm fine with my

Speaker 2 ideas being well known and

Speaker 2 communicating, but I have less desire to be personally famous.

Speaker 1 Oh, gotcha, gotcha. I wanted to start off with

Speaker 1 a sexy topic. So

Speaker 1 let's talk about using Starship as a kinetic weapon. I thought that was like one of the more amusing posts you wrote.
Do you want to talk more about how this would be possible?

Speaker 2 Well, I think the main thing with Starship is like it's,

Speaker 2 you know, you're taking a technology and you're making it about a hundred times cheaper for cargo and a thousand times cheaper for people.

Speaker 2 So when things like that happen that drastically,

Speaker 2 you're just like looking at huge changes. And it's really hard to anticipate what some of those can be when the change is that drastic.

Speaker 2 So I think there's like a lot of moon-based Mars based stuff that you know doesn't really catch the regular public's eye and I think they also have trouble imagining some of the like point to point travel that could be possible but as far as like you know you start talking about it like as a weapon and I think that's

Speaker 2 you know, it lets people know they should be paying attention to this technology.

Speaker 2 And we certainly do not want to be second or third getting it and we should make sure that we're going to be first

Speaker 1 yeah i think you mentioned this in the post but um so i as recently the 90s the cost of sending one kilogram to space was around 20 000.

Speaker 1 more recently spacex has rided to 2 000 and then there's like a lot of interesting questions you can ask when you ask what will be possible once we get it down to 200 per kilogram uh to send into orbit yeah so one of them might be to manufacture these uh weapons that are not conventional ballistics.

Speaker 1 But do you want to talk about why this might be an advancement over conventional ballistic weapons?

Speaker 2 Well, regular conventional ballistic weapons are extremely expensive. You know, this is more like a bomb truck, you know.
But it's even like usually we think of like B-52 as the bomb truck.

Speaker 2 And this could be even, you know, cheaper than the B-52

Speaker 2 delivering just like mass on target.

Speaker 2 When you think about like how expensive it is to fly a B-52 from like Barksdale and Louisiana all the way across the world, you can do it from South Texas or Florida with the Starship and get more missions per day.

Speaker 2 And the fuel ends up being like when you go orbital, it takes a lot to get to orbit, but then once you're in orbit, your fuel consumption's pretty good.

Speaker 2 So over long distances, it has a lot of advantage. That's why the point-to-point works for like the longer distances.

Speaker 2 There's really like a sweet spot with these weapons weapons where you want it to be like pretty accurate, but you also want it to be cheap.

Speaker 2 Like you're seeing that problem with like Russia right now is they have some like, you know, fancy parade style weapons that are really expensive, like multi-billion dollar cruise missiles, but they're missing like that, you know, $5,000 guided artillery shell or like that, you know, like $20,000 JDM that you can just like pit massive or the you know the multiple launch rocket system guided rockets.

Speaker 2 They're really like short on all those because I think they had just had like a limited amount of chips they could get from the US into Russia to make these advanced weapons.

Speaker 2 But yeah, so the kind of the Starship gives you just like a platform to deliver.

Speaker 2 Like you could, you know, pit JDAMs in a shroud, or you could just like, you know, have the iron unguided kinetic projectiles.

Speaker 2 And it just becomes impossible for, you know, a ship to launch missiles to intercept yours if you cost, if your cost is so low. You can just overwhelm them.

Speaker 1 Okay.

Speaker 1 There are a few terms there that

Speaker 1 neither I nor the audience might know. So

Speaker 1 what is JDM? What is Shroud? And why are chips a bottleneck here? Like, why can't it just be any microcontroller?

Speaker 2 So JDM is joint direct attack munition. So what we did is we took all our Vietnam surplus bonds and we put this like

Speaker 2 little like fin kit on it and it costs like 20,000 bucks. which is cheap for a weapon because it um you know the actual bomb costs like i don't know three thousand bucks

Speaker 2 and then you it turns you know it into a guided weapon that before you're you were probably lucky to get within 500 meters of a target now you can get it in with like two meters so the number of missions you have to do with your planes and all that goes down by like orders of magnitude so it's an absolutely like huge advantage in logistics and and just how much firepower you can put on a target

Speaker 2 and the uh and you know like we didn't even have to make new bombs we just put these kits on all our old bombs.

Speaker 2 Let's see, then the chips are a problem. There's like this organization called Russi.
I think they're in

Speaker 2 the UK, but they've been tearing down like all these Russian weapons they found in Ukraine, and they all have American chips in them.

Speaker 2 So, you know, technically we're supposed to, like, they're not supposed to be able to get these chips. And, you know, Russia can't make a lot of its own chips.

Speaker 2 And especially not the specialized kinds you might want for guided weapons.

Speaker 2 So they've been somehow smuggling in chips from from americans to make their advanced weapons what is special about these i would assume that like uh they haven't like as far as i'm aware the trade with china is still going on right and we get a lot of our chips manufactured from taiwan or china so why can't they do the same it's the whole like integration like you know it's not just like the specific chip but like the the board it's like they're more like plcs where um where you like why almost have like wired in um programming and stuff like that

Speaker 2 and they come with like this, like the to be able to do the guidance and all that stuff. It all kind of has to work together.
I think that's the way I understand it. I don't know.

Speaker 2 Maybe I don't have a really good answer for that one,

Speaker 2 but they're hard to replicate, is what matters.

Speaker 1 Okay, that's interesting.

Speaker 1 Yeah, and I guess that has a lot of interesting downstream effects because, for example, India buys a lot of its weaponry from Russia, right?

Speaker 1 So if Russia doesn't actually have access to these, then other countries that buy from Russia won't have access to these either.

Speaker 1 You had an interesting speculation in the post where you suggested that you could just keep these kinetic weapons in orbit, like a sort of Damocles, really, almost literally.

Speaker 1 That sounds like a really scary and risky scenario where, I don't know, you could have orbital decay and you can have these kinetic weapons falling from the sky and destroying cities.

Speaker 1 Do you think this is what it will look like in, or could look like in 10 to 20 years?

Speaker 2 Well, yeah, so the advantage of having on-orbit is you can hit targets faster. So if you're launching the rocket from Florida, you're looking at like maybe 30 minutes to get there.

Speaker 2 So a target moves in that time. Whereas if you're on orbit, you can have them spaced out to where you're hitting within like a few minutes.

Speaker 2 So that's the advantage there. When you actually look at like the

Speaker 2 you really have to have like a two-stage system, I think for most, because

Speaker 2 If you have like a really aerodynamic rod that's going to give you good performance in the low atmosphere, it'll get going too fast and just like burn up before you get there.

Speaker 2 You know, tungsten is maybe the only thing

Speaker 2 that you could have that could go all the way through.

Speaker 2 That's why I like the original concept. Use these big tungsten like rods the size of like a telephone pole.

Speaker 2 But you know, tungsten is pretty expensive and like just the rod concept, it kind of limits what you can do.

Speaker 2 if you just do the rods. So a lot of these weapons will have like, that's what I was talking about, like with the shroud, like something that actually slows you down in the upper atmosphere.

Speaker 2 And then, once you're to the velocity where you're not just going to melt, then you open it up and let it go.

Speaker 2 So, if you actually had it, you know, fall from the sky, some may make it to the ground, but

Speaker 2 a lot would burn up. So, the

Speaker 2 a lot of the stuff that makes it to the ground is actually pretty light. You know, it's like stuff that can kind of like float and has a large surface area.

Speaker 2 Yeah, so that's like the whole thing with Starship, like there, or or not Starship, but Starlink. All those satellites are meant to completely, you know, fall apart on deorbit.

Speaker 1 I see. Like, one of the implications of that is that these may be less powerful than we might fear because

Speaker 1 if like if kinetic energy is mass times, you know, a velocity squared, then you have to, if there's an upper bound on the velocity, and then the velocity is the component that grows the kinetic energy faster, then it suggests that you can upper bound the power these things will have you know what I mean yeah so so even the tungsten rod sometimes people like you know they're not good at physics or something so they don't like do the math

Speaker 2 they think it's going to be like a nuclear weapon but it's really I think even the tungsten rod I might have put it in there I think if I'm remembering correctly like 10 tons of TNT or something it's like a big a big bomb but it's not

Speaker 2 you know it's not like a super weapon so it that's I think I said in the post it really has like it's like advanced missiles where they're almost more defensive weapons.

Speaker 2 So I can keep you from pitting your ships somewhere, you know, and like, yeah, I could like try to bombard your cities, but I can't, I can't take ground with it.

Speaker 2 You know, I can't even like police sea lanes with it, really.

Speaker 2 I'd still have to have regular ships, you know, if I had this air cover essentially to, you know, go like enforce the rules of the sea and board freighters and stuff like that.

Speaker 1 Yeah, so I, you, you speculated in the post, I think, that you could have, like, potentially these, uh, you could, like, load this up with shrapnel and then it could like explode next to uh an incoming missile or an incoming aircraft um yeah could these get that accurate uh because that was surprising speculation to me

Speaker 2 uh yeah i think like for ships i think it's pretty you know like i was like watching videos of uh you know how fast a ship can turn and stuff because

Speaker 2 You'd want to release your shrapnel, you know, if you were going to do an initial target on a ship to try to kill their radars and stuff.

Speaker 2 You'd want to do it above the ceiling of their missiles. So it's like how much are they going to move between your release where you stop steering and that.

Speaker 2 And it's really, you know, it's like maybe like a thousand feet. So that's pretty simple.
You just like shrapnel the area. The aircraft, you would be steering all the way in.
So it's maybe actually

Speaker 2 I'd say it's doable, but it'd be pretty hard, yeah. And you'd actually maybe want to even go slower than you would with the ship

Speaker 2 attack. You know, you need like a specialized package to do the aircraft.
but you can see these aircraft on um

Speaker 2 like if you have enough synthetic aperture radar and stuff like that you can see them with satellites and then guide it in the whole way you could even like say load like heat-seeking missiles into a package that you know stop you know unfurls right next to them and launch conventional missiles too probably

Speaker 2 i mean that's that'd be pretty hard to do some of this stuff but it's just like kind of you know, the things you might be able to do if you put some effort into it.

Speaker 1 Yeah, the reason I find this kind of speculation really interesting is because

Speaker 1 when you look at the

Speaker 1 modern weaponry that's used in conflicts, it often seems like it just seems like directly descendant from something you would have seen in World War II or something. It doesn't seem...

Speaker 1 Like

Speaker 1 if you think about like how much warfare changed between like 1900 and 1940, it's like, yeah,

Speaker 1 they're not even the same class of weapons anymore.

Speaker 1 So it's interesting to think about possibilities like these where

Speaker 1 the entire category of uh weapons has changed

Speaker 2 all right and that's because you know the same thing like you know our physical technology hasn't changed that much so it's it really has just made more sense to like put better electronics in the same tanks we have than to build it like you're just not going to get we haven't learned enough about tanks to build like a new physical tank that's way better so we just keep upgrading our existing tanks with better electronics so they're they're they're much more powerful they're more accurate you know a lot of times they have longer range weapons they have better sensors so the tank looks the same but you know it maybe has like several times more like killing power whatever what have you but you know you the ukraine war right now kind of

Speaker 2 you know they're using a lot of like

Speaker 2 40 50 year old weapons so that especially looks like that

Speaker 1 yeah yeah um which which kind of worries you if you think about the stockpiles our own military has i'm not well educated on the topic but i imagine that we don't have the newest of the new thing right like we'll probably have

Speaker 1 maintained versions of decades-old technology.

Speaker 2 You know, I mean, we spend so much. We've got relatively

Speaker 2 this kind of gets into, like, there's a lot of debate about, like, how ready our military is. And for certain situations, it's more ready than others.

Speaker 2 I would say, in general, most people talking about it have the incentive to

Speaker 2 downplay our capabilities because they want more defense spending or

Speaker 2 just there's lots of reasons. So I think we're we're probably more capable than

Speaker 2 what you might see from like, you know, some editorial in the hill or whatever.

Speaker 2 And I think just like us just sending a few weapons over to Ukraine and how successful they've been

Speaker 2 using them, I think shows a little bit of that.

Speaker 2 But

Speaker 2 there's so much uncertainty when it comes to

Speaker 2 fighting, you know. Especially when you're talking about like a naval engagement where we just don't have that many ships in general, you you can have some bad luck.
So, I think

Speaker 2 you always want to be a little bit wary. You don't want to get overconfident.

Speaker 1 Yeah. And if

Speaker 1 the offensive tech we sent to Ukraine is potentially better than the defensive tech,

Speaker 1 it's very possible that even a ballistic missile that China or Russia could launch could sink like a battleship and then kill 2,000,

Speaker 1 you know,

Speaker 1 1,000 or whatever soldiers that are on board. Or I guess, I don't know.
You think this opens up avenues for defensive tech as well?

Speaker 2 Yeah, I mean, generally the consensus is that defensive technology has improved much more recently than offensive technology. And there's China, this whole like strategy China has is they call

Speaker 2 it like area denial,

Speaker 2 anti-access area denial. A2AD.

Speaker 2 And so that's basically just like missiles have gotten better because the sensors on missiles have gotten gotten better. So they can keep our ships from getting close to them.

Speaker 2 But, you know, they can't really challenge us like in Hawaii or something. And it really goes both ways.
I think people forget that.

Speaker 2 So yeah, it's like hard for us to get close to China, but you know, Taiwan has a lot of missiles with these new sensors as well.

Speaker 2 So I think it's probably tougher for China to get close to Taiwan than most people

Speaker 2 would

Speaker 2 say.

Speaker 1 Oh, interesting. Yeah, can you talk more about that? Because every time I read about this, people are saying that if China wanted to, they could

Speaker 1 knock out Taiwan's defenses in a short amount of time and take it over.

Speaker 1 Yeah, so can you talk about why that's not possible?

Speaker 2 Well, it might be, but I think this gets sort of the uncertainty thing. But Taiwan, you know, it has actually one of the largest defense budgets in the world, and they've recently been upping it.

Speaker 2 I think they spend like, I don't know, 25 billion a year, and they added like an extra 5 billion.

Speaker 2 They've been buying a lot of anti-ship missiles, a lot of air defense missiles, stuff that like, you know, Ukraine could only dream of. I think Ukraine's military budget was like 2 billion.

Speaker 2 They have a professional army.

Speaker 2 And then the other thing is they're an island. So

Speaker 2 Russia could just roll over the land border into Ukraine. But

Speaker 2 almost

Speaker 2 there's just very few successful amphibious landings in history. Like some of the most recent ones were all, you know, the Americans in World War II and Korea.

Speaker 2 So like the challenge there is just, you know, it's kind of on China to like execute perfectly and do that. And so if they like had perfect execution, then possibly.

Speaker 2 But, you know, if like maybe their air defenses on their ships aren't quite as good as we think they could possibly be, then, you know, they could also end up with half their fleet underwater within, you know, 10 hours.

Speaker 1 Interesting. And how has your view of Taiwan's defensive capabilities,

Speaker 1 like how has the Ukraine conflict updated? Your opinion of what might happen?

Speaker 2 I didn't really know much about it. And then, you know, I started looking at Wikipedia and stuff and all this stuff they're doing.
And so

Speaker 2 Taiwan just has a lot of modern platforms, like F-16s with our anti-ship missiles. They actually have a lot of their own.

Speaker 2 They have indigenous fighter bombers, indigenous anti-ship missiles, because they're worried we might not always sell them to them.

Speaker 2 They've even recently gotten these long-range cruise missiles that could possibly target leadership in Beijing. So I think that makes it uncomfortable for the Chinese leadership.

Speaker 2 If you attack them, you're going to have to go live in a bunker.

Speaker 2 So there's lots of like, you know, but again, there's, I'm not like the full-time military analyst or something. So there's a lot of uncertainty around

Speaker 2 what I'm saying. But it's not a given that China's just going to roll over them.

Speaker 1 Okay, that's comforting to hear.

Speaker 1 Let's talk about an area where

Speaker 1 I have a little bit of a point of contact.

Speaker 1 I thought your blog post about software and the inability of it to increase productivity numbers. I thought that was super fascinating.
So, before I ask you questions about it,

Speaker 1 do you want to lay out the thesis there?

Speaker 2 Yeah, so the yeah, if there's one post I kind of like felt like I caught lightning in a bottle on is that one. It really like everything I wanted to put in it just like fit together perfectly,

Speaker 2 which is usually not the case. But yeah, I think I think the idea is the world's so complex and

Speaker 2 we really underestimate that complexity.

Speaker 2 And

Speaker 2 if you're going to like digitize processes and automate them and stuff, you have to capture all that complexity basically at the bit level. And that's extremely difficult.

Speaker 2 And then you also have like diminishing returns where like the easily automatable stuff goes first and then it's like increasing corner cases to get to the end.

Speaker 2 So you just have to write more and more code basically.

Speaker 2 And so that's why we don't see runaway productivity growth from software is because we're fighting all this increasing complexity.

Speaker 1 Yeah, have you heard of the waterbed theory of complexity, by the way?

Speaker 2 I don't think so.

Speaker 1 Okay,

Speaker 1 it's something that comes up in compiler design, but the idea is that there's a fixed amount of complexity in a system.

Speaker 1 And if you try to reduce it, what you'll end up doing is just you'll end up migrating the complexity elsewhere, right?

Speaker 1 So I think an example that's used of this is when they try to program languages that are

Speaker 1 not type-safe, something like Python, you can say, oh, like it's a less complex language, but really you've added complexity when,

Speaker 1 I don't know, two different types of numbers are interacting like a float and an int, right?

Speaker 1 You've added complexity there

Speaker 1 that

Speaker 1 I mean, as your program grows, that complexity exponentially grows of all the things that could go wrong when you're making two things interact that are in a way that you were expecting not to.

Speaker 1 So, yeah, the idea is

Speaker 1 you can just choose where to have your complexity, but you can't get rid of that complexity.

Speaker 2 Yeah, yeah, yeah.

Speaker 2 I think there's like this, there's kind of like an interesting thing when you start pairing it with management theory and like how it kind of starts tying into some of my other posts is that for a long time, when you add up like all the factors, the most complex thing when you're doing is

Speaker 2 you know high-volume car manufacturing. And so we got a lot of innovations and organization from car manufacturers like the assembly line then you had sloan at gm basically

Speaker 2 you know creating the way the modern corporation is run then you have toyota production system but arguably now creating software is actually the most complex thing we do so it there's like all these kind of like

Speaker 2 squishy concepts that underlie like Toyota production system

Speaker 2 that software has had to learn and like reimagine and adopt and you know you see that with like agile where oh we can't have long release times we need to be like releasing every day which is like you know we're limiting inventory there

Speaker 2 or

Speaker 2 yeah there's just there's like a whole thing especially that's showing up in software that existed in car manufacturing where you're talking about you know reducing communication so like Jeff Bezos kind of like now famously said, you know, I want to reduce communication, which is counterintuitive to a lot of people.

Speaker 2 This is like age-old in car manufacturing, where

Speaker 2 you have like Toyota has these cards that go between workstations and they tell you what to do.

Speaker 2 So people normally think of them as limiting inventory, but it also tells the worker exactly what they're supposed to be doing, at what pace, at what time. And the assembly line is like that, too.

Speaker 2 You just like know what to do because you're standing there and there's a part here and it needs to go on there.

Speaker 2 And it comes by at like the pace you're supposed to work at.

Speaker 2 And there's, it's like so extreme that there's this, I think it's a famous paper, but it's by like List, Cyverson, and Levitt.

Speaker 2 And they went to a car factory and like, you know, studied how like the defects propagated in cars and stuff.

Speaker 2 And once a car factory gets up and running, like it doesn't matter if you, what workers you put in there, like if workers are sick or you get new workers, like the defect rate is the same.

Speaker 2 So like everything is just like all the knowledge is built into the manufacturing line. And there's like

Speaker 2 these concepts around like idiot proofing and everything like that that

Speaker 2 are very similar to like what you'll see you had Uncle Bob on there. So Uncle Bob, you know, says like only put one input into a function and stuff like that because you'll mix them up otherwise.

Speaker 2 So it's kind of like this, the Japanese call it like pokey yoke. And it's like you you make it where you can't mess it up.

Speaker 2 And that's another way to like reduce communication. And then software, of course, you have APIs.
So I'm really interested in this

Speaker 2 overall concept of like reducing communication and reducing um how much cooperation and like

Speaker 1 and everything we need to run the economy right right they speaking of the toyota production system like one thing they do to reduce that defect rate is if there's a problem um

Speaker 1 i all the workers in that chain are forced to go to the place where the defector problem is and fix it uh before doing anything else and i guess the idea there is this will give them context to understand what the problem was, how to make sure it doesn't happen again, and also prevent a buildup of inventory in a way that like keeps making these defects happen or just keeps keeps accumulating inventory before the place that can fix the defects is able to take care of them.

Speaker 2 Right. Yeah.
Yeah. Exactly.

Speaker 1 Yeah.

Speaker 1 But you know, I think one interesting thing about software and complexity is you, I think you said a little bit earlier that software is a place where complexity is the highest in our world right now.

Speaker 1 And one of the interesting things is, yes, that's true, but you, I guess, software gives you the choice to interface with the complexity you want to interface with.

Speaker 1 And I guess that's just part of specialization in general. But you could say, like, for example,

Speaker 1 a machine learning model is like really complex.

Speaker 1 But ideally, you get to a place where that's the only kind of complexity you have to deal with. You're not having to deal with the complexity of like,

Speaker 1 how is this program compiled?

Speaker 1 Like,

Speaker 1 how are the libraries that I'm using? How are they built? You can you can like fine-tune and work on the complexity you need to work on. It's similar with like app development, right?

Speaker 1 Bern Hobart has this blog post about Stripe as solid state. I forget the exact title of the blog post, but the basic idea is that Stripe hides all the complexity of the financial system.

Speaker 1 It charges a higher fee, but you can just kind of treat it as an abstraction of a tithe you have to pay, and it'll just take care of that entire process and you can focus on your comparative advantage.

Speaker 2 Yeah, and and it's it's really actually very similar in like car manufacturing and Toyota production system if you really get into it. It's it's very much the same conceptual framework.

Speaker 2 Well so there's like this whole idea like in Toyota projection system every way everyone works at the same pace which you kind of talked about but also like your content your work content is the same like there's there's there's no room for not standardizing like a way you're going to do things.

Speaker 2 So everyone like gets together and they're like, all right, we're going to this certain part, we're going to put it together this certain way at this little micro station.

Speaker 2 And it's going to be the same way every time.

Speaker 2 And that's part of how they're, you know, reducing the defect rates. And then if you,

Speaker 2 you know, like if your assembly pro is too long, like it's longer than what your like time allotment is to stay in touch with the rest of the process, then you just keep breaking it down into smaller pieces.

Speaker 2 And so,

Speaker 2 you know,

Speaker 2 each person only has to know like

Speaker 2 a very small part of it.

Speaker 2 And even the, you know, even like the overall engineering team, you know, has all sorts of strategies like this to,

Speaker 2 they have all sorts of like tools to like help them break up all these processes into very like small parts and to make it all like hold together. Still very, very hard, but

Speaker 2 it's kind of like a lot of the same ideas.

Speaker 2 is you're taking away like the complexity of making like a $30,000 car or 30,000 part car where everyone's just focusing on their one, their one little part and they don't care how, what someone else is doing.

Speaker 1 Yeah, but the uh, uh, but the interesting thing also there is it seemed like there, you need one person who knows how everything fits together because one of the

Speaker 1 from what I remember, one of the tenants of the Torata production system was you need to have a global view.

Speaker 1 So, I mean, in that book, um, was it the machine or the other one, the Torata Production System book?

Speaker 1 But anyways, they were talking about examples where people would try to optimize for local efficiencies.

Speaker 1 I think they especially pointed to like Ford and GM for trying to do this, where they would try to make machines run all the time.

Speaker 1 And locally, you could say that, oh, this machine or, oh, this process is super efficient. You know, it's always outputting stuff.
But it ignores how that

Speaker 1 added inventory or that process had.

Speaker 1 a bad consequence for the whole system. And so it's interesting if you look at a company like Tesla that is able to do this really well, the interesting thing is that Tesla is run like a monarchy.

Speaker 1 And this one guy guy has this like total global view of how the entire process is supposed to run. Where do you have these inefficiencies? You have some great examples of this in the blog post.

Speaker 1 But yeah, I think one of the examples that, oh, I think, was it the Toyota Production System book?

Speaker 1 But, anyways, this guy goes to this factory and the author and he asks, is this like an efficient factory? And the guy's like, yeah, this is totally efficient.

Speaker 1 There's nothing we can do adopting the Toyota A to make this more efficient. And so then he's like, okay, let me look.

Speaker 1 And he finds that in one of the, so they're like treating steel in some way, but it's only it should only take a couple of seconds and the main process does only take a couple of seconds, but some local manager decided that it would be more efficient to ship their parts out to get the

Speaker 1 next stage of the project process done somewhere else. And so this is like locally cheaper, but the result is that it takes weeks to get these parts shipped out and get them back.

Speaker 1 And so that means that the actual time that the parts spend getting processed is like 0.1% of the time, which makes the whole process as a whole super inefficient, right? So, I don't know.

Speaker 1 It seems like the implication is

Speaker 1 you need a very monarchical structure with one person who has a total view in order to run such a system, or am I getting that wrong?

Speaker 2 Not necessarily. I mean, you do have to

Speaker 2 make sure you're not optimizing locally, but I think it's the same.

Speaker 2 You have that same constraint in software, but I think a lot of times people are just running over it because processing has been getting so much cheaper.

Speaker 2 People

Speaker 2 are expensive so like if you could save development time you know

Speaker 2 it just ends up you know the the trade-offs are different when you're talking about like the tyranny of like physical items and stuff like that it um

Speaker 2 you know you get the constraints get a little more severe

Speaker 2 but i think you have like the same the same overall you know you still have to fight local optimization but the level you have to is probably different with physical goods.

Speaker 2 I was thinking about like the smart grid situation from like a software perspective. And

Speaker 2 like there's this problem where like, okay, I'm putting my solar farm here and it's impacting somewhere far away.

Speaker 2 And that's then like creating these like really high upgrade costs, you know, that cost two or three times more than my solar farm.

Speaker 2 Well, you know, the obvious thing would be if you're doing software, is like you're going to break all these up into smaller sections. And then you wouldn't be impacting each other and all that.

Speaker 2 And you could work and focus on your own little thing. But the problem with that is,

Speaker 2 if you're going to disconnect these areas of the grid, is that the equipment to do that is extremely expensive.

Speaker 2 It's not like I'm just going to hit a new tab and open a new file and start writing a new function.

Speaker 2 And not only that, but you still have to actually coordinate how

Speaker 2 this equipment is going to operate. So if you just let the grid flow as it does,

Speaker 2 everyone knows what's going to happen because they could just calculate the physics.

Speaker 2 So if you start adding in all these checkpoints where humans are doing stuff, then you have to actually interface with the humans, and

Speaker 2 the amount of things that can happen really starts going up. And so, it's actually

Speaker 2 a really bad idea to

Speaker 2 try to

Speaker 2 card all this stuff off just because of the reality of the physical laws and the equipment you need and everything like that.

Speaker 1 Okay, interesting. And then I think you have a similar sort of like Cosian argument in your software post about why vertically integrating software is beneficial.
Do you want to explain that thesis?

Speaker 2 Yeah, and I think it's just like you know, it actually gets to what we're talking about here, where it allows you to avoid like the local optimization because

Speaker 2 you know, a lot of times, right, you're trying to build like a software MVP and you're like tying together like a few services, they don't do quite what you need.

Speaker 2 So, if you like try to scale that, like it would just break. Um,

Speaker 2 but if you're like gonna take a really complex process, like car manufacturing or distribution retail distribution or you know like the home buying process or something

Speaker 2 you really have to vertically integrate it to be able to create like a decent end-to-end experience

Speaker 2 and avoid that that you know local optimization

Speaker 2 and you know it's just very hard otherwise because there's no you you just can't coordinate effectively if you have like 10 different vendors trying to

Speaker 2 do all the same thing, you end up in like just constant vendor meetings where you're like trying to decide what the specs are or something instead of giving someone the authority or giving a team the authority to just go start building stuff.

Speaker 2 And then, you know, if you look at these companies, like they have to implement these decentralized,

Speaker 2 somewhat decentralized processes when they get too complex. But at least they have like control over how they're interfacing with each other.

Speaker 2 You know, like Walmart has vendors control their own stock. You know, they don't like tell the vendor, we need X parts.
It's just like, it's on you to make sure your shelf is stocked.

Speaker 1 Yeah, yeah.

Speaker 1 So what was really interesting to me about this part of the post was, I don't know, I guess I had this vision of, or I had heard of this vision of where software is heading, where everybody will have a software as a service company and they'll all be interfacing with each other in some sort of cycle where they're all just calling each other's APIs.

Speaker 1 And

Speaker 1 basically everybody and their mother would have a SaaS company.

Speaker 1 And the implication here was, from your argument, was the given the necessity of integrating all this complexity vertically in a coherent way, then the winners in software should end up being a few big companies, right, that compete with each other.

Speaker 1 But still,

Speaker 2 I think that's especially true when you're talking about you're combining bits and atoms.

Speaker 2 You know, maybe less true for like pure software.

Speaker 2 Like the physical world is just so much more complex.

Speaker 2 And so the constraints it creates are pretty extreme, you know, compared to like, you could maybe get away with more of like everyone and their mom having an API in like a pure, pure software world.

Speaker 1 Right.

Speaker 1 Yeah.

Speaker 1 Yeah, I guess you might think that in the other kind of world, even in the physical world, given that people really need to focus on their

Speaker 1 comparative advantage, they would just try to outsource the software parts to these APIs.

Speaker 1 But is there any scenario where the learning curve for people who are not in the firm can be fast enough that they can keep up with the complexity?

Speaker 1 Because, you know, there's huge gains from specialization and competition that go away if this is the world we're forced to live in. And then I guess we have a lot of counter examples.

Speaker 1 I guess we have a lot of examples of what you're talking about. Like Apple is

Speaker 1 the biggest market cap in the world, right? And famously, they're super vertically integrated.

Speaker 1 And yeah, obviously obviously their thing is combining hardware and software. But

Speaker 1 yeah, is there any world in which you can keep

Speaker 1 that kind of benefit, but have it be within multiple firms?

Speaker 2 This is like a post I've got on my list I want to write.

Speaker 2 The blockchain application I'm actually like, you know, which excites me personally the most is

Speaker 2 reimagining enterprise software.

Speaker 2 Because like the things you're talking about, like hard typing and like APIs, it's just like

Speaker 2 basically built in to some of these protocols.

Speaker 2 So I think it just really

Speaker 2 has a lot of exciting implications for how much you can decentralize software development.

Speaker 2 And you can, but you know, the thing is, you can still do that within the firm. So I think

Speaker 2 I mentioned this as like, you know, if the government's going to place like

Speaker 2 all these like rules on the edge of the firm like it it makes transactions with other firms expensive

Speaker 2 So if you internal transactions can be cheaper because they're avoiding

Speaker 2 the government reporting and taxes and all that kind of stuff. So I think you'd have to think about how these technologies can reduce transaction costs overall and decentralize that.

Speaker 2 But also what are the costs in between firms?

Speaker 1 Yeah, it's really interesting if there are if the costs are logistic or if they're

Speaker 1 if they're based on the knowledge that is housed, as you were talking about, you know, within within a factory or something.

Speaker 1 Because if it is just, you know, logistical and stuff, it's just like you had to report any outside transactions, then yeah, that does imply that a technology like blockchain could help.

Speaker 1 But if it's just that, yeah, you need to be in the same office. And if you're not, then you're going to have a hard time keeping up with what the new requirements for the API are.

Speaker 1 Then maybe it's that, yeah, maybe the inevitability is that you'll have these big firms that are able to vertically integrate.

Speaker 2 Yeah, like for these big firms to survive they have to be like somewhat decentralized within them so i think you have

Speaker 2 you're going to the same place as just like what what does it like you know what's our friend like how are we viewing it what's our perception you know so even if it's like a giant corporation it's going to have like

Speaker 2 very independent business units um

Speaker 2 as opposed to uh

Speaker 2 you know something like you know a 1950s corporation

Speaker 1 yeah bern hobart Hobart, by the way, has this really interesting post that you might enjoy reading while you're writing that post.

Speaker 1 It's like type-safe communications, and it's about that Bezos thing, about how,

Speaker 1 yeah,

Speaker 1 his strict style for how to communicate and how little to communicate.

Speaker 1 There's many examples in

Speaker 1 Amazon protocols where you have to, the only way you can like put in this report is in this place, you had to give a number. You can't just say this is very likely.
You had to say, like,

Speaker 1 we project an X percent increase or whatever.

Speaker 1 So it has to be a percent or and you you know there's many other cases where there's like they're strict about like what type definition you can have something have in the in written reports or something and it has a kind of the same consequence that uh type strict languages have which is that you can keep track of what the value is through the entire chain of the the flow of control so you've got to keep uh work content standardized

Speaker 1 um so we've been hinting at the cosian um the cosian analysis to this I think we just talked about it indirectly, but yeah, for the people who might not know,

Speaker 1 so the Coast has this paper called The Theory of Firms, and he's trying to explain why it's the case that we have firms at all.

Speaker 1 Like, why not just have everybody compete in the open market for employment, for anything? Like, why do we have jobs? Why not just have,

Speaker 1 you can just like hire a secretary by the day or something. And the conclusion he comes to is that if you, by having a firm, you're reducing the transaction cost.

Speaker 1 So, you know, people will have the same knowledge about like what needs to get done.

Speaker 1 You're obviously reducing the transaction cost of like the contracting, finding labor,

Speaker 1 blah, blah, blah.

Speaker 1 And so the conclusion he comes to is the more the transaction costs are reduced within people in a firm as compared to the transaction cost between different firms, the bigger firms will get.

Speaker 1 And yeah, so I guess

Speaker 1 that's why the implication of your argument was that there should be bigger tech firms, right?

Speaker 2 Yes, yes, definitely. Because they can basically decrease the transaction costs faster within.
And then even at the limit, you know, if you have

Speaker 2 large transaction costs outside the firm between other firms that are artificially imposed, then it will make firms bigger.

Speaker 1 And then, so, what does it look like in that scenario? So, will we just be like these Japanese companies, these huge conglomerates who are just

Speaker 1 you rise through the ranks from the age of 20 until you die? Or

Speaker 1 is that what software will turn into?

Speaker 2 You know,

Speaker 2 it could be. I mean, I think it will be lots of very large companies unless there's some kind of change in inter-firm transaction costs.

Speaker 2 And again, that could possibly come from blockchain-like technology, but you probably also need

Speaker 2 better regulation to make that cheaper.

Speaker 2 And then you would have smaller firms. But again, I'm not you know, in the end, it doesn't really matter.
Like you'd be like working in like your little unit of the big big bank of corp or whatever.

Speaker 2 So

Speaker 2 it may not,

Speaker 2 I don't know what that would look like, you know, like as like a personal level.

Speaker 1 Yeah, yeah.

Speaker 1 Okay, so speaking of these Javanese companies, let's talk about car manufacturing and

Speaker 1 everything involved there. Yeah, so

Speaker 1 we kind of hinted at a few elements of the Tuit away in lean production earlier, but do you kind of want to give a

Speaker 1 brief overview of what that is

Speaker 1 so we can compare it to potentially other

Speaker 2 you know i think like all these kind of like

Speaker 2 lean

Speaker 2 toyoprocess like systems they they do have a lot of similarities and you know mostly you want to

Speaker 2 even out your production so you're producing very consistently and you want to

Speaker 2 you know break it into small steps and you want to limit the amount of inventory you have in your system so that there's

Speaker 2 and when you do this it makes it easy to

Speaker 2 see like how the process is running and limit defects and and you know the the ultimate is you know you're really trying to reduce defects because they're very expensive

Speaker 2 that's maybe it's it's it's a little bit hard to summarize i think that's my best shot at it there quickly off the top of my head Yeah,

Speaker 1 the interesting thing about the Toota system, so at least when the machine was released,

Speaker 1 that book was released, I think, the 90s.

Speaker 1 And they went to the the history of Toyota. And one of the interesting things they talked about was there was a brief time where the company ran, I think it was, was this after World War II?

Speaker 1 But, anyways,

Speaker 1 the company ran into some troubles. They needed to reduce, they needed to lay off people to not go bankrupt.
They had much more debt on books than they had assets. And so, yeah,

Speaker 1 they wanted to lay off people. But

Speaker 1 obviously, the people were not happy about this. So there were like violent protests about this.
And

Speaker 1 in fact, I think the U.S., the U.S. written constitution gave strong protections to labor that they hadn't had before,

Speaker 1 which gave labor even a stronger hand here.

Speaker 1 And so anyway, so the Toyota comes to this agreement with the unions that they'd be allowed to do this one-time layoff to get the company on the right track.

Speaker 1 But afterwards, they could never lay somebody off.

Speaker 1 And then so the which would mean that like a person works at Toyota works there from the time they graduate college or high school till they die, right?

Speaker 1 And

Speaker 1 I don't know, like, that's, that, that's, that's super intense in a culture. I mean, in software where you have average tenure at a company is like one year.
The difference is so much.

Speaker 1 And there's like so many potential benefits here. I guess a lot of drawbacks too.
But one is

Speaker 1 obviously if you're talking in a time scale of 50 years rather than one year.

Speaker 1 The incentives are already more aligned between the company and the person because like any any anything you could do in like one year is not gonna have a huge impact on your stock options uh in that in that amount of time but if you're planning on hope if this company is your retirement plan then you have a much stronger incentive to make sure that things at this company run well uh which means yeah you're you're probably optimizing for the company's long-term uh cash flow yourself uh and also yeah there's obviously benefits to having that um uh that knowledge buildup in the firm from people who have been there for a long time but yeah that was an interesting difference uh one of the interesting differences at least I mean,

Speaker 2 I think there's like a diminishing returns to how long your tenure is going to be. Like,

Speaker 2 maybe one year is too short, but there's a certain extent to where,

Speaker 2 you know, if you grow faster than your role at the company, then it's time to switch. And, you know, maybe that's like, it's going to depend on the person, but maybe like five years is a good number.

Speaker 2 And so if you're not getting promoted within the firm, then your human capital is being wasted because you could go somewhere else and

Speaker 2 have more responsibility and perform better for them.

Speaker 2 And another interesting thing about that story is almost all lean turnarounds, you know, where like where we're going to implement something like Toyota production system, they come with no layoff promises because

Speaker 2 you know, if you're going to increase productivity, that's everyone's like, oh gosh, I'm going to get laid off. So instead, you just have to

Speaker 2 increase output and take more market share. What you do,

Speaker 2 it's a, it's, it's, it's like um but it's kind of like burning your visuals right so you this is the only way you you really like the process really requires like complete buy-in because a lot of your ideas for how you're going to standardize work content come from your line workers um because that's what they're doing every day so you can't

Speaker 2 if you don't have their buy-in then it's going to fail so you that's why it's really necessary to have those kind of clauses

Speaker 1 Yeah, yeah, that makes sense. Was it in your post or in the book where they talked about,

Speaker 1 no, I think it was in your post where you said, if somebody makes their process more efficient and therefore they are getting like more work allotted to them, then obviously they're going to stop doing that, right?

Speaker 1 So

Speaker 1 which means that, I don't know, do you have to give more downtime to your best workers or something?

Speaker 1 Or the people who are most creative in your company?

Speaker 2 I was just going to say, like, you know, if you're

Speaker 2 a worker at a plant, then

Speaker 2 usually they have like small, a lot of times like for that level of employee, like actually small rewards work pretty well. Like

Speaker 2 a lot of people used to like on drilling rigs used to like if you met certain targets, like give the guys like $100 Walmart gift cards.

Speaker 2 So sometimes like small to reward new ideas, stuff like that works.

Speaker 2 But because the whole system has to row together, like if you just improve like one part of the process, it doesn't, it may not help you.

Speaker 2 You know, you have to be like improving all the right process and stuff. So normally it's much more collaborative.
Like there's some engineer that's looking at it and like, oh, all right, this is our,

Speaker 2 is where we're struggling, or we have our defects here. And then you go get together with like, you know, that supervisor and the workers in that area.
And then,

Speaker 2 you know, you all figure out like what improvements could be together. Because usually the people already know.

Speaker 2 Like, this is like, you know, you see a problem at the top and you're just now realizing it. And then you go talk to the

Speaker 2 people doing the work and they're like, oh, yeah, I tried to tell you about that like two weeks ago, man.

Speaker 2 And then you figure out, you know, a better process from there.

Speaker 1 Based on your recommendation and Stephen Molino's recommendation, I recently read The Goal.

Speaker 1 And after reading the book, I'm much more understanding of the value that consultants bring to companies potentially. Because before you could think, what is a 21-year-old who just graduated college?

Speaker 1 What do they know about manufacturing? Like, what are they going to tell this plant that they didn't already know? How could they possibly be adding value?

Speaker 1 And afterwards, it occurred to me that there's so many abstract concepts that are necessary to understand in order to, you know, like to be able to increase your throughput and uh so now i now i guess i can see how like somebody who's generically smart but doesn't have that much industry knowledge might be able to contribute to a plan like

Speaker 1 what value consultants could be bringing you know i think i think there's like

Speaker 2 you know this applies to consultants or like young engineers like a lot of times you put young engineers like just right in the thick of it like you know on like working in production or process like right on the line where you're talking to the you know workers the most and there's really two advantages there's several advantages to that one the engineer learns faster because they're like actually seeing the real process

Speaker 2 and um the other is there's there's like easy opportunities for them to still have

Speaker 2 a positive impact on the business because there's just like $100 bills laying on the ground just from going up and talking to your workers and learning about stuff and figuring out problems they might be having and things like that that could that could help you lower costs.

Speaker 2 I think there's a lot of consultants that

Speaker 2 you know, I don't know how the industry goes, but I would guess there's like, you know, I know Accenture has like 600,000 employees or some like, or maybe I don't know if that many, but it's just a large number in a lot are doing

Speaker 2 more basic tasks. And then, you know, the there are some people that are doing like the high, more high-level stuff, but it's probably a lot less.

Speaker 1 Yeah, yeah.

Speaker 1 There was a quote from one of those books that said, At to it, we don't like consider you an engineer unless you need to wash wash your hands before you can have lunch.

Speaker 1 Yeah. Okay, so

Speaker 1 in your book about, oh, sorry, not your book.

Speaker 1 In your vlog post about the car manufacturing, you talked about the Tesla.

Speaker 1 And then, you know, what was really interesting is that in a footnote, I think you mentioned that you bought Tesla stocks in 2014, which also might be interesting to talk about again when we go to the market and alpha part.

Speaker 1 But anyways, yeah, so okay, so and then you talked about Tesla using something called metal manufacturing. So, if you wanna, first of all, like, how did you know in 2014 that Tesla was headed here?

Speaker 1 And then, yeah, what is metal manufacturing and how does it differ from the Toyota production system?

Speaker 2 Yeah, so yeah, I just like was goofed around and made that up. Someone actually emailed me and they're like, hey, like, what is this metal manufacturing? I want to learn more about this.

Speaker 2 And it's like, well, sorry, I just kind of like made that up.

Speaker 2 I thought it sounded funny. But yeah, I think it's really the idea that

Speaker 2 there's this guy, Dimming, Dimming, yeah, W. Edwards Deming,

Speaker 2 and he

Speaker 2 found a lot of the same ideas that Toyota ended up implementing. And like they, you know, Toyota respected his ideas a lot.
And

Speaker 2 America never really,

Speaker 2 except for the software industry recently, never really got fully on board with this in manufacturing.

Speaker 2 And so this new, and of course it's like software people that are, you know, coming and implementing this in manufacturing. And it's like the real American way of doing things.

Speaker 2 Because when you look at like these manufacturing processes, like

Speaker 2 the best place to save money and optimize is like before you ever build the process or the plant, it's it's very early on.

Speaker 2 And so I think if there's like a criticism of Toyota, it's that they're they're optimizing too late and they're not like creative enough in their

Speaker 2 production technology and stuff, they're very conservative.

Speaker 2 And like, you know, that's why they have you know, hydrogen cars and not battery cars, even though they invent, you know, came out with the Prius, which was like the first, you know,

Speaker 2 large sales hybrid.

Speaker 2 So, yeah, I think this, this whole, like, what Tesla's doing with

Speaker 2 really just making Deming's ideas our own and really just like Americanizing it with like this, you know, like, oh, well, we want to cast this because that'd be easier.

Speaker 2 Well, we can't because we don't have an alloy. Well, we'll invent the alloy.
You know, I love it. It's great.
Mostly, I just like Tesla because they do such,

Speaker 2 like, I agree with their engineering principles and stuff like that. And so, I didn't know that the company would come to be so valuable.

Speaker 2 It's just like I was just always reading their

Speaker 2 stock reports and stuff. I'm like, well, I at least need to buy some stock

Speaker 2 so that I have a justification for spending all this time reading their 10ks and stuff.

Speaker 1 I want to get a little bit more in detail in the exact difference here.

Speaker 1 So, lean production, I guess, is, yeah, they're able to produce their cars without defects and without

Speaker 1 matching demand or whatever.

Speaker 1 And then, so, but what is it about their system that prevents them from making the kinds of innovations that Tesla is able to make?

Speaker 2 It's just too incremental.

Speaker 2 It's like

Speaker 2 it's so hard to get these processes working. So the faster you change things, like it's, it becomes very, very difficult to like change the whole system.

Speaker 2 So, one of the one of the advantages Tesla has is: well, if you're making electric cars, like you have just a lot less parts, so that makes it easier.

Speaker 2 And then, also, they're like, you know, once you start doing the really hard work of basically digitizing,

Speaker 2 you know, like stuff like you know, they don't have speed limit dials, you start just removing parts from this, from the thing, and you can actually then start increasing your rate of change even faster.

Speaker 2 And it makes it hard to get behind, you know, if you have these like old dinosaur processes.

Speaker 2 But some, I think there's someone, there's like a YouTube channel called The Limiting Factor, and he actually went into like the

Speaker 2 detailed numbers on what it costs for Tesla to do their giga casting, which saves like tons of parts and deletes like,

Speaker 2 you know, zillions of thousands of robots from their process.

Speaker 2 And if you already have like an existing stamping line and all that, where you're just changing the dies based on your model, then like it doesn't make sense to switch to the casting.

Speaker 2 But if you're building new factories like Tesla is, well, then it makes sense to do the casting and you can build new factories very cheaply comparatively and much easier.

Speaker 2 So there's a little bit of like, you know, they have lots of, they just have lots of like technical debt, I guess you could say, in a software sense.

Speaker 1 Yeah, that's super interesting. The analogy is actually quite, it's like what Microsoft has probably tens of thousands of

Speaker 1 software engineers who are just basically

Speaker 1 servicing its technical debt and making sure that the the old systems run properly. Whereas a new company like Tesla doesn't have to deal with that.
The thing that's super

Speaker 1 interesting about Tesla is like it's

Speaker 1 what is Tesla's market cap is like way over a trillion, right? And then Toyota's is like 300 billion. And Tesla is such a new company.

Speaker 1 It's like the fact that you have this Toyota, which is like legendary for its production capacity and it's a production system rather. And

Speaker 1 this company that's like less than two decades old is like worth many times more

Speaker 1 It's kind of funny.

Speaker 2 Yeah, I would say that in that measure, I don't like market cap. You need to use enterprise value.
And when you start, these old car companies have so much debt that if you look at enterprise value,

Speaker 2 it's not so jarring. Like literally, you know, like,

Speaker 2 I can't remember what GM's worth. 40 billion or something.
And then they have like $120 billion in debt. It's like, so their enterprise value is like five times more than

Speaker 2 their market cap.

Speaker 1 What is enterprise value?

Speaker 2 Enterprise value is basically like what is the value of the actual company before like you have any claims on it. It's the market cap plus your debt.
Simple, the most simple.

Speaker 2 But basically, you know, if you're the equity holder and the company gets sold, like you have to pay the debt first.

Speaker 2 So you only get the value of what's left over after the debt.

Speaker 2 So that's why market cap is when Tesla has very little debt and a lot of market cap, and then these other guys have a lot of debt with less market cap. It's Q is the comparison.

Speaker 1 Yeah. And then

Speaker 1 one of the interesting things, it's similar to your post on software

Speaker 1 is that, yeah, it seems like one of the interesting themes across your work is automating processes often leads to

Speaker 1 decreased eventual throughput because you're probably adding capacity in a place that you're just adding excess capacity and you're also making the money making part of your operation less efficient by

Speaker 1 having to interface with this automated part. And it sounds like there's a similar story there with car manufacturing, right?

Speaker 2 Yeah, I think, I think if we tie it back into like what we were talking about earlier, automation promotes local optimization and premature optimization.

Speaker 2 So a lot of times it's better to figure out like

Speaker 2 you know, instead of like automating a process to make a really hard to make part, you know, you should just figure out how to make that part easy to make.

Speaker 2 Then after you do that, then it may not even make sense to automate it anymore or get rid of it altogether. Then you just delete all those robots.

Speaker 1 Yeah, yeah, it's interesting. Okay, so let's talk about your

Speaker 1 project that you're working on right now, the CO2 electrolysis.

Speaker 1 Do you want to explain what this is and what your current approach is?

Speaker 1 What is going on here?

Speaker 2 Yeah, so I think just overall, electro fuels right now are super underrated because you're about to get hopefully some very cheap electricity from like solar or you know it could be

Speaker 2 maybe some wind, possibly even if we get really lucky some nuclear geothermal and

Speaker 2 it will make sense to make like liquid fuels or natural gas or something just from electricity and air essentially.

Speaker 2 So there's there's many there's like a whole spectrum of of ways to to do this. So

Speaker 2 CO2 electrolysis is one of those. And it's basically you take

Speaker 2 water, electricity, and CO2

Speaker 2 and a catalyst, and then you make more complex molecules like

Speaker 2 carbon monoxide or formic acid or ethylene or ethanol or methane or methane. Those are all options.

Speaker 2 But it's important to point out that right now I think if you added up all the CO2 electrolyzers in the world, that

Speaker 2 you'd be measuring their output in kilograms per day. And of course, like the products I just mentioned, we make millions of tons per day of.

Speaker 2 So there's like a massive scale up if it's going to have a wider impact.

Speaker 2 And so there's some debate. I think the debate for the whole electrofuels sector is how much are you going to do in the electrolyzer? So one

Speaker 2 company that I really like, their approach that is different than mine, is Terraform Industries and they want to make methane, which is the main constituent of natural gas, but they're just making hydrogen in their electrolyzer.

Speaker 2 And then they capture the CO2 and then put it into a methanation reaction. So everything they're doing is like already world scale, basically.

Speaker 2 We've had hydrogen electrolyzers power.

Speaker 2 you know fertilizer plants without you know provide them with the hydrogen they need we've had you know methanation happens in like all ammonia plants and several several other examples.

Speaker 2 It's well-known, very old.

Speaker 2 And methanation is like hydrogen and CO2 combine to make water and methane.

Speaker 2 Yeah, so their approach is like the more conservative, but if you add, if you do more in the electrolyzer, like I'm going to make the methane actually in the electrolyzer instead of adding this other process, you could potentially have a much simpler process that has less capex and scales downward better.

Speaker 2 Like you don't need traditional chemical engineering, like heavily favor scaling. So, with the more like Terraform processes, you know, their plan is like absolutely ginormous factories, you know.

Speaker 2 These can take a long time to build. So, like, one of the things they're doing is

Speaker 2 they're having to fight the complexity that creeps into chemical engineering every step of the way. Because if they don't, they'll end up with a plant that takes 10 years to build.

Speaker 2 And that's not their goal.

Speaker 2 You know, like it takes 10 years to build a a new refinery because they're so complex.

Speaker 2 So, yeah, so that's like kind of where I am. I'm like more on the speculative edge.

Speaker 2 And it's not clear yet which products will be favorable for which approaches.

Speaker 1 Okay, yeah, and then you're building this out of your garage, correct?

Speaker 2 Yeah, yeah. So that's where, like, the electrolyzers, everything with electrochemistry is like a flat plate instead of a vessel.
So it scales down.

Speaker 2 So like I can have a pretty good idea of what my, you know, like 100-square centimeter electrolyzer is going to do if I make it quite a bit bigger. You know, I have to worry about like

Speaker 2 you know, how my flow might interact in the larger one, and you know, make sure the mixing is good, but it's pretty straightforward because you're just like making your flat plate a larger area,

Speaker 2 whereas the uh

Speaker 2 you know, the scale is different than scaling a traditional chemical process.

Speaker 1 I'm curious what, how cheap energy has to get before this is

Speaker 1 this is

Speaker 1 efficient. And

Speaker 1 if you're turning it into methane or something like that, presumably for fuel, is the entire process energy positive? Or

Speaker 1 how cheap would electricity need to get before that's the case?

Speaker 2 So yeah, so there's different products and different methods, so different crossovers. So like Terraform Ministries, they're shooting for like $10 a kilowatt a megawatt hour

Speaker 2 for electricity.

Speaker 2 But again, their process is simpler, a little less efficient than a lot of the other

Speaker 2 products are a little like also have like better premiums, like just worth more per ton than methane.

Speaker 2 So your crossover happens somewhere in between $10 and $20 a megawatt hour, which is, I mean, that's pretty right now solar,

Speaker 2 it's maybe like $25, maybe it's a little higher because payment prices have gone up in the last year, but you know, I think the expectation is they'll come back down.

Speaker 2 And so getting down to like 15, where you start having crossovers for some of these products, like ethanol or ethylene or methanol,

Speaker 2 you know, it's not, it's not science fiction.

Speaker 1 Yeah, I think in Texas, where I live,

Speaker 1 that's where it's at, right? The cost of energy is like 20 or something dollars per megawatt hour.

Speaker 2 Well, not this summer, but

Speaker 2 recently, a lot of times in Texas, the

Speaker 2 wholesale prices are around like 25 to 30.

Speaker 1 Gotcha.

Speaker 1 Okay, so a lot of the actual details you said about how this works went over my head. So

Speaker 1 what is a flat plate? I guess before you answer that question, can you just generally describe the approach? Like, what is what is it, what you're doing

Speaker 1 to convert CO2 into these other compounds?

Speaker 2 Well, yeah, like, so it just, I mean, it literally just like looks like a, you know, an electrolyzer. You're like, you have two sides, an anode and a cathode.

Speaker 2 And they're just smushed together like this because

Speaker 2 the electrical resistance, if you put them far apart,

Speaker 2 makes it uses up a lot of energy. So

Speaker 2 you smush them together as close as you can, and then you're basically just like trading electrons back and forth.

Speaker 2 On one side, you're turning CO2 into a more complex molecule, and on the other side, you're taking apart water.

Speaker 2 And so when you take apart the water, you kind of like balances out the equation, balances out your electrons and everything like that.

Speaker 2 I probably need to work on that on that elevator pitch there, huh?

Speaker 1 huh?

Speaker 1 I guess what the basic idea is you need to put electric you need to put like power in to convert CO2 into these other compounds.

Speaker 2 The inputs are electricity, water, and CO2, and the output is usually oxygen and like whatever chemical you're trying to create is, along with some side reactions.

Speaker 1 And then these chemicals you mentioned, I think ethanol, methane, formic acid,

Speaker 1 are these all just fuels or are they

Speaker 1 what are the other uses for them?

Speaker 2 So the idea, a lot of people are taking like a hybrid approach with carbon monoxide.

Speaker 2 So, this would be like 12 Co would be, they'd raise a lot of money to do this, have like a hundred employees or something.

Speaker 2 You can take that carbon monoxide and make hydrogen, and then you have syngas to make liquid fuels.

Speaker 2 So, like, they want to make all sorts of chemicals, but one of the main volume ones would be like jet fuel.

Speaker 2 Let's see, formic acid is like a

Speaker 2 it's like the small, it's the little small fry of all these. It is

Speaker 2 like an additive in a lot of things like

Speaker 2 preserving hay for animals, stuff like that.

Speaker 2 Then ethanol, you know, there's people that want to like, there's like this company that makes

Speaker 2 ethylene, which goes into

Speaker 2 plastics. It makes like polyethylene, which is the most produced plastic.

Speaker 2 Or you can burn it like in your car, although I think ethanol is a terrible vehicle fuel.

Speaker 2 But then you can also just make ethylene straight in the electrolyzer also.

Speaker 2 So there's kind of like a, there's many paths. So, you know, which path wins is kind of like an interesting race to see.

Speaker 1 Yeah, the

Speaker 1 ability to produce jet fuel is really interesting because

Speaker 1 in your energy super abundance paper, you talk about,

Speaker 1 you know, like you would think that even if even if we can electrify everything in solar and when it becomes super cheap, that's not going to have an impact on the prices to go to space, for example.

Speaker 1 But I don't know, if a process like this is possible, then it's like some way to,

Speaker 1 I guess, in financial terms, a good thing, like add liquidity and then turn basically this cheap solar and wind into jet fuel through this indirect process so that like uh the price to send stuff to space or to uh i guess just you know have like a cheap uh plane flights or whatever all of that goes down as well it basically sets like a a price ceiling on the price of oil you know and whatever whatever you can produce this for is like the ceiling now, um,

Speaker 2 which is like maybe the way I think about it, yeah.

Speaker 1 Um, so do you want to talk a little bit of like how your background led into this project? This is your full-time thing, right? So, or I don't know if I'm right about that, but uh,

Speaker 1 where did you get this idea? And like, how long have you been pursuing it? And, you know, what's the progress and so on?

Speaker 2 You know, I've always loved chemical engineering, and I love working at the big processing plant because it's like kid in a candy store. Like, I'd just like,

Speaker 2 you know, if I had extra time, I'd just like walk around and look at the plant.

Speaker 2 so that was so cool but the uh like the plant where I worked at like their uptime was like 99.7% like it just so like if you wanted to change anything or do anything new like it terrified everyone because they're like and you know that's how they like earn their bonuses was like run the plant you know 100% uptime all the time

Speaker 2 so that that just wasn't a good fit for me and also like you know so I thought a lot always wanted like my own

Speaker 2 chemical plant but you know it's like billions of dollars to build plants so that it was like a pretty big step so I think this new technology like

Speaker 2 you know there's like a window where you might be able to build like smaller plants you know until it it optimizes to be

Speaker 2 you know hard to enter again

Speaker 1 oh and and then while why will it become hard to enter again

Speaker 2 what will happen

Speaker 2 well hey you know if someone figures out how to build a really cheap electrolyzer and they, you know, just keep it as intellectual property, then, you know, it would be hard to rediscover that, you know, and compete with them.

Speaker 1 And then so how long have you been working on this?

Speaker 2 About, oh, not quite a year. But yeah, I actually got this idea to work on it from writing my blog.

Speaker 2 So when I wrote the heating fuel post, I didn't really know much about, there's another company in the space. Prometheus Fuels.
I'm like, oh, this is an interesting idea.

Speaker 2 And then I got talking to a guy named Brian Helgman. and he's like, You should, you should do this, but not like what Prometheus is doing.
And so, then I started looking to it, and I liked it.

Speaker 2 So, I've been working on it since.

Speaker 1 Yeah, it's interesting because if energy does become as cheap as you suspect it might, and if

Speaker 1 this process works, then yeah, this is like a trillion-dollar company, probably, right?

Speaker 2 If you're going to get the patents and everything, uh, yeah, I mean, maybe there's like with chemical plants, there's like a certain limitation where like your physical limitations, like you know, like you, there's only so many places that can have a good like are good places for chemical plants um you start getting hit by like transportation all that so

Speaker 2 like you know you can't you can't just like produce all the chemical for the entire world in texas and like transport it all around it wouldn't work so that you're talking about like a full globe spanning thing and then at that point you know if you're like building factories all over the world someone's going to

Speaker 2 you know like figure out what your intellectual property is and all that so you would have to like keep innovating, you know, to

Speaker 2 stay ahead of the competitors. And I think that would limit your, you know, ultimately it's a commodity.
So you're making commodities. So

Speaker 2 you don't have the same kind of defensibility that

Speaker 2 other sectors do.

Speaker 1 I see. Yeah.
Yeah. Yeah.
Okay.

Speaker 1 There's not like network effects, I guess.

Speaker 2 Yeah. So so yeah.
So not only like if you try to, you know, so like what you know what I was talking about, this is not quite consistent maybe with what I just said about like harder to enter

Speaker 2 so you but I think like what happens is like the scale starts increasing as you go on so there's certain even though like this is easier to scale down there's certain elements that are are very much hard to scale and then the art organization

Speaker 2 as well so but you only need a few competitors to

Speaker 2 basically you'll end up with like early on a few competitors that continue to grow against each other limit the the margins. And it'd be hard to be like the fifth, you know, 30 years down the line.

Speaker 1 What is the state of this project right now? So are you guys planning on starting a company? And

Speaker 1 yeah, like

Speaker 1 what are the milestones you guys are shooting for?

Speaker 2 Right now it is just me, but

Speaker 2 I have like a family of engineers. We're all engineers.
So it's kind of like, you know, loosely supported

Speaker 2 by right now,

Speaker 2 by other people in my family as well. They're participating some.

Speaker 2 But yeah, basically I just have to like get, you know, I've already done a lot of the

Speaker 2 theoretical design work at just like a very cursory level to make sure it makes sense. And like, you know, the cost will be reasonable and stuff like that.

Speaker 2 So then now it's like working on the electrolyzer to basically meet the targets you need for

Speaker 2 like reliability.

Speaker 2 and product concentration and

Speaker 2 energy cost and also then just like is it manufacturable Because right now, a lot of electricalizers like they use in

Speaker 2 the labs, they're literally smaller than a postage stamp and they're very difficult to make.

Speaker 2 Okay, I see.

Speaker 1 And had you started working on this before or after you had quit your job?

Speaker 2 Oh, yeah, after. I quit my job like five years ago or something.
I was doing like software stuff in between.

Speaker 1 Oh, yeah? Wait, what did you work on?

Speaker 2 I worked on several products. I have one that's like a data service that is

Speaker 2 like oil and gas data service that's somewhat successful. It has kept paying customers, but it's still relatively small.
Okay. Okay.

Speaker 1 I see.

Speaker 1 And then,

Speaker 1 yeah, so it seems like your blog is pretty recent, right? Like you started about that about a year ago.

Speaker 1 What encouraged you to do that?

Speaker 2 Well, let's see. I was curious about

Speaker 2 like cryptography in general, but specifically for blockchains. And so I

Speaker 2 like, you know, I wanted to be able to read the Bitcoin white paper and understand some of this like IPFS. So I figured the best way to do it was,

Speaker 2 and I thought, you know, people talk about like, oh, yeah, you should write, blah, blah, blah.

Speaker 2 So I do like, oh, create an IPFS blog.

Speaker 2 I did that and

Speaker 2 learned a lot.

Speaker 2 And, you know, it was not the most reliable blog when I was like running it on my own droplet and everything. So thankfully, I like migrated to a service that has much more uptime than my own server.

Speaker 2 Yeah, so then like, you know, I wrote several, like I wrote, you know, posts to basically to learn about it, I wrote posts about like hash functions and

Speaker 2 private key cryptography. So then I could understand like the white papers and like actually, you know, what they're doing with the math and everything and the cryptography.
And

Speaker 2 eventually, like, you know, I had this blog, so it's kind of like how spacesuit will travel. Had blog will write.
So my first non-crypto topic was on

Speaker 2 like building it how to build a cheaper house or you know why it's difficult to reduce like home construction costs and that kind of like you know like made it on hacker news and all that it's like oh maybe actually people want to read this stuff so so i just kind of been writing since then in my spare time i i don't know if

Speaker 1 um uh i actually interned for protocol labs which is a place that built ipfs uh um oh yeah and yeah so i i got a chance i got a chance to learn a lot of uh about it. And then,

Speaker 1 yeah, like trying to learn about how Filecoin exactly works, that part was the, that threw me into a whirl for a while. But

Speaker 1 yeah, it's really interesting. I actually had a blog on IPFS.

Speaker 1 I mean, it was like kind of just a toy thing, not the one that I actually ended up writing on. But yeah, it's kind of interesting.

Speaker 1 The thing is, though, obviously, like at the moment being, it's like nobody else is going to seed it for you. So you have to, you got to use like a centralized service anyways, like Pinata.

Speaker 1 But it is a fun exercise.

Speaker 2 Yeah, I was just like running it off of Droplet and on DigitalOcean. And that, you know, if you use the

Speaker 2 like direct content hash, it works pretty well, even if you're like linking through your ENS name.

Speaker 2 But the problem is, of course, like when I was first doing this, like the fees on Ethereum were so high that I didn't want to change that link all the time.

Speaker 2 So I tried to use the the pinning feature with like IPNS and and like going through because you know Cloudflare does the eth.link and then they look up your,

Speaker 2 you know, whatever your IPNS name is, and then they try to go find it. So the part that was breaking for me was like Cloudflare couldn't always find my server using IPNS.

Speaker 2 But if you switch to, so I still have an IP, it's still on IPFS,

Speaker 2 but if you,

Speaker 2 like the service I'm using called Fleek,

Speaker 2 they basically go directly to the content hash.

Speaker 2 But they're on DNS, it's cheap to change. You can change it in one minute.

Speaker 2 So if Ethereum fees got lower,

Speaker 2 I might switch back to that. But

Speaker 2 I don't want to, eventually, and I think it will be. But if it's one cent transactions, then it would be no big deal to just change the content hash every time you update your website.

Speaker 1 What is the reason for having it on Ethereum?

Speaker 2 Just for fun.

Speaker 1 It is inconvenient, I guess, if your content hash is changing every time you update the website. So you got to keep re-updating the actual

Speaker 1 where people can find the site or use something, uh, some other service to take care of it.

Speaker 2 I mean, yeah, if transactions are cheap, then you just have like you know, it'd be all you could automate it all and it just costs you a little bit of money each time, and it'd be fine.

Speaker 2 But you know, there's like fifty dollars, so not gonna like pay fifty dollars to post a blog post,

Speaker 2 yeah, yeah, yeah.

Speaker 1 And then you find that typo, it's like, oh, gosh,

Speaker 1 okay, yeah, so let's talk about your.

Speaker 1 You have a paper that you recently released with um Eli Dorado on energy superpundance, and you have lots and lots of interesting speculation in there for what might be possible if energy gets a lot cheaper.

Speaker 1 I think we should just jump into it. So, okay, like on the big picture,

Speaker 1 as I'm sure where,

Speaker 1 per capita energy use since the 1970s has not gone up.

Speaker 1 Before that, there's this thing called the Henry Adams curve where per capita energy use would increase 2% a year. And then, you know, after 1970, that was no longer the case.

Speaker 1 Ironically enough, right after the Department of Energy was created. But

Speaker 1 nonetheless, we've still had economic growth since the 1970s. I mean, it's been slower, but even though per capita energy hasn't increased,

Speaker 1 per capita GDP has increased. So is it? I think in the papers abstract or the introduction, you talk about like why increasing energy use is necessary for increasing economic growth.

Speaker 1 But doesn't that pattern suggest that you can still have decent economic growth without having to use energy? Or have we just not come across the constraints yet?

Speaker 2 I think you just have diminishing returns.

Speaker 2 There's physical limits to how efficient things could be. And as you get closer to that efficiency limit, it's harder and harder and takes more and more effort.
So

Speaker 2 there's some diminishing returns there, where if you can just like, like so, a perfect example

Speaker 2 we were just talking about is oil is quite expensive. And natural gas is expensive too.

Speaker 2 While oil is easy to transport, you know, you can produce it anywhere in the world and get it anywhere else pretty cheaply.

Speaker 2 Natural gas gas is extremely expensive to transport, but it's very useful fuel and for also like, you know, making fertilizer or anything else.

Speaker 2 So

Speaker 2 if you just had like, you know, independent energy, because not everyone has natural gas or the economic capability to extract natural gas using like traditional processes.

Speaker 2 So if you have, you can just like build these natural gas factories.

Speaker 2 where you're just using sunshine and water and air, then all of a sudden everyone has access to natural gas, even if you don't have any, you know, you weren't blessed with easily obtainable natural gas reserves.

Speaker 2 And I think there's really this whole story about

Speaker 2 the tyranny of geography here when it comes to energy.

Speaker 2 There are some countries that have extreme electricity use per capita, but it's like Iceland and Norway, where they have

Speaker 2 crazy amounts of hydropower, and then people build aluminum plants there and stuff like that. But then you have places like in Africa where they have no coal, very little gas.

Speaker 2 You know, they're just like energy starved. You know, their transportation system sucks.
You can't transport coal in. The hydropower is, there's only so much of it.

Speaker 2 May not be close to where their cities are.

Speaker 2 So if you start like adding solar to the mix for them, like it and some of these other technologies, it could really be

Speaker 2 an incredible increase in energy availability for them. And you know, they aren't even like meeting the, I think we talked about that in the paper.

Speaker 2 we're like looking at doubling rich world use but it would be like more like 10x for you know if you live in africa

Speaker 1 yeah yeah and then so i wonder if that's the case then if energy becomes that abundant then does the bottleneck in terms of what our civilization needs will just be the resources that are used to

Speaker 1 that that are the backbone of the things that energy is doing so i don't know like the actual resources that are necessary to build the factories and the raw materials, or to what extent can even that be?

Speaker 2 I would argue the ultimate limit is like

Speaker 2 all it's really human capital.

Speaker 2 And what a more abundant energy does is it allows you to redeploy human capital away from trying to figure out how to use scarce energy sources into just like

Speaker 2 just like you know,

Speaker 2 you can waste some of it now. Or like, here's, here's like an example I love

Speaker 2 about trucking. So I love trucks.

Speaker 2 Not as big a fan of freight trains, but freight trains are like extremely efficient. Like literally, they get like,

Speaker 2 you know, they're like, I can't even remember. It's like 10 times more efficient than a truck or something.
Like they use just very little fuel.

Speaker 2 But

Speaker 2 if you're going to like, you know, the train doesn't come by all the time and like they may not hold to the schedule, you have to aggregate your

Speaker 2 product with the other stuff or your raw raw materials, and it adds a lot of cost to your production. Like, you know, Toyota production system runs on trucks, not trains.

Speaker 2 And for the reason, the truck is just extremely flexible. Like, it comes when you need it, it goes when you need it.

Speaker 2 And even then, you know, people still complain about truck drivers, but like not showing up when you want them.

Speaker 2 So, when you have cheaper energy,

Speaker 2 you know, like this electrification automation of trucking,

Speaker 2 you

Speaker 2 are going to shift a huge amount of of goods from trains

Speaker 2 to trucks, and it's going to just have like huge knock-on effects all across the economy. It's more specialization.

Speaker 2 You know, you can go, there's a lot of products that, you know, you're just limited on your suppliers because transportation is expensive.

Speaker 2 It reduces working capital because a lot of times it takes longer on trains. Similar stuff like smaller ships, more air freight.

Speaker 2 Like one thing that shocked me is Elive was telling me about like how the

Speaker 2 elasticity of demand for air freight is just like insane. You decrease the cost a little bit, demand goes to the roof.
So I'm pretty sure that there'll be some kind of

Speaker 2 like

Speaker 2 there's like you know you always think like oh we can't do this with batteries and then someone comes up with like a more clever idea.

Speaker 2 So you know even if you have like a 500 mile

Speaker 2 range limit for your freight plane, you know, the freight doesn't care if you have to stop like every 500 miles to refuel or recharge And you can go

Speaker 2 over land on almost all these routes. Like, you know, you could go up through like Japan and the Aleutian Islands, or you could go overland from China to Europe, charge just wherever's convenient.

Speaker 2 And, you know, if that electric plane has half the operating cost of the jet plane, like the amount of freight you're moving

Speaker 2 on airplanes will go way up and it'll go down, you know, on ships.

Speaker 2 And then everyone will be better better off because, like, right now, if you're a shipping company, you have like real working capital problems because your stuff sits on boat for like a month and you've got to finance that and do all this stuff.

Speaker 2 And then,

Speaker 2 you know, what if things change in the meantime? You know, like, oh, I don't really want that product anymore. So, the air freight is just like an absolute economic, just like booster.

Speaker 2 So, if you can make that cheaper, it's it's really exciting,

Speaker 2 but it uses way more energy. So,

Speaker 1 an analogy that had just occurred to me is like you could imagine that if um computational power if moore's law had stopped in 2005 we would still have a lot of interesting applications using uh compute and the effects of the computer would still have permeated society

Speaker 1 But obviously, a lot of things that are like possible today with computers would just

Speaker 1 like they just wouldn't have been tried or been possible in that kind of world.

Speaker 2 Okay, yeah, but I mean all your engineers would be

Speaker 2 you know, working on optimization instead of building new products.

Speaker 1 Yeah,

Speaker 1 I think in JSTOR Hall's new book on, we're not new at this point, but his book on Words by Flying Core, one of the points he makes is that GDP growth has been probably overstated because a lot of what constants GDP growth has just been increasing the efficiency of existing machines to make them use less energy, which doesn't, which still doesn't result in like more total resources or goods or services being produced.

Speaker 1 But yeah, instead of like making the laundry machine more efficient, you can just create a new kind of machine that may need to use more energy. Yeah, okay, that's interesting.

Speaker 1 Okay, and then so for this vision to come to pass, do you need energy to is it just enough that energy becomes super cheap, or do you need advances in the ability to store that energy as well, right?

Speaker 1 So if like, if

Speaker 1 I don't know, lithium batteries are the bottleneck,

Speaker 1 it doesn't matter if you can get energy super cheap, if you can't like put them in

Speaker 1 appliances or cars or planes or whatever?

Speaker 2 I think the important thing to think about here is that our air current energy is so expensive, especially electricity.

Speaker 2 It's quite with our energy resources, which are basically thermal. It's quite difficult to make electricity comparatively.

Speaker 2 And so what we use electricity for is like

Speaker 2 stuff we really want to use electricity for. So like it's it's hard to imagine that you know, we're not going to turn our air conditioner off.
Like we're going to run it.

Speaker 2 And and so we're willing to pay a lot of money for that electricity to run our air conditioner.

Speaker 2 Whereas, like, if you look at really closely at a lot of the use cases that use like tons of extra energy, they're much more flexible in how they use the energy.

Speaker 2 Um, and there's not a whole lot of storage involved. Like, if you're looking at

Speaker 2 you know, growing crops or making methane for rocket fuel or making chemicals, like you can design these processes to run when the energy is available.

Speaker 2 And

Speaker 2 so the batteries are really going to be

Speaker 2 for keeping your air conditioner on, where you're willing to pay a lot of money. So I don't really see the batteries and storage as a limit.

Speaker 1 Okay. So I guess I didn't.

Speaker 1 I guess I didn't, like, if you had something like

Speaker 1 air freight, right? If that's the thing we're concerned about, like, wouldn't you need some way to store that electricity for air freight? Or maybe you can just convert it to jet fuel.

Speaker 1 Is that what you're saying?

Speaker 2 Yeah, I was thinking more like grid storage. But yeah, like in the transportation, I mean, transportation is going to dominate battery demand.

Speaker 2 It's going to be like, like, grid storage is like tiny in comparison.

Speaker 2 But I think there's like, you're basically getting to the point where we're making batteries out of dirt.

Speaker 2 Because that's how you scale it.

Speaker 2 So, you know, if you're making batteries out of like, carbon and iron and phosphate, you know, you're just, there's like, it's just how many battery factories do you want to build you know and there's plenty of lithium it's just you have to build the lithium mines

Speaker 1 i don't really see any hard limits there eventually once you build all the factories then then you know you're pretty much ready to go and then so i is is the point you're making with the alternative batteries that um even if they're less um

Speaker 1 even if they're like worse than lithium batteries they'll we'll have just so much energy that it doesn't matter like even if we lose a lot of it that that's fine we'll just use whatever we can take or are you saying that they can, we'll produce batteries with other chemistries that are as good as lithium batteries or better?

Speaker 2 You know, right now, the shortage is really nickel. So,

Speaker 2 like,

Speaker 2 in the very short term, lithium is kind of starting to become a shortage, but it just, there's plenty of lithium, and it won't be.

Speaker 2 So, like the lithium iron phosphate are like whatever, what there's like a huge amount of substitution into right now because it's avoiding nickel.

Speaker 2 And that it's not quite as good as some of the nickel chemistries, but for a lot of applications, like it just doesn't matter. A lot of cars and everything like that.

Speaker 2 And you're going to have, you know, like the aircraft and stuff paying the premium for the high energy density batteries.

Speaker 2 And eventually there are technologies that they just use less and less materials because they're just better batteries, like some of these concepts around solid state. And I'm not sure

Speaker 2 if those will come to fruition and if they'll be really that much better when they do come.

Speaker 2 But

Speaker 2 I think there's lots of opportunities for substitution down the line.

Speaker 1 What is solid state, by the way?

Speaker 2 Right now, all our batteries,

Speaker 2 the lithium ion, they charge and discharge through the lithium ion going back and forth between the cathode and the anode, and it travels through a liquid.

Speaker 2 And

Speaker 2 the liquid is an electrolyte, which means ions can travel through it.

Speaker 2 So solid electrolytes are

Speaker 2 a little more challenging, kind of hard. So that's why we don't have them.
So you get rid of the liquid and it's just like the the ion has to travel through a solid um instead

Speaker 2 and the the promise is like it could be like a much higher energy density and theoretically cheaper too just because it's like weighs less and stuff um

Speaker 2 but there's like all sorts of problems around like they degrade faster or

Speaker 2 you know batteries have like six different areas that you have to hit the requirements and if you miss one then it's no good so they're kind of hard to improve in that sense.

Speaker 1 Yeah, so I guess if the energy support abundance is going to come from solar and wind, obviously these are intermittent sources of energy.

Speaker 1 In that case, you would need there to be like progress in the battery storage, right? That's contingent on that, right?

Speaker 2 Yeah, I think that's what I mean. Like a lot of the extra energy uses that we talk about don't really require many batteries, if any batteries at all.

Speaker 2 I mean, like the transportation, yes, you have like batteries in there.

Speaker 2 But if you're going to like have abundant like nuclear electricity or abundant geothermal electricity, like you still have to build all those electric vehicles, you still need the batteries for that.

Speaker 2 So like the extra batteries that solar and wind require over like geothermal, I think it end up being pretty minimal.

Speaker 2 The way that maybe the way to think about it is,

Speaker 2 you know, if you can have solar farm that's going to give you $10 a megawatt hour electricity,

Speaker 2 you know, you just have to figure out how to utilize that. And if you do, then you'll be very rich.

Speaker 2 You know, and you'll beat the guy who's paying $40 a megawatt hour

Speaker 2 from the more expensive traditional generators.

Speaker 1 Yeah, yeah.

Speaker 1 Before we get into

Speaker 1 which sources of energy are most promising, let us talk about some of the other implications of an energy superabundance. So, yes,

Speaker 1 obviously, we talked a little bit about travel, but one thing that might be concerning with like air travel, at least for passengers, is if the bottleneck step there is like TSA and other regulations,

Speaker 1 to what extent will reducing the travel time

Speaker 1 or

Speaker 1 increasing flight speed or number of flights, to what extent will that have an impact on how much time you had to spend in an airport or in transit?

Speaker 2 Well, so right now, if you think about,

Speaker 2 you know, like Airbus, they had this like super jumbo thing.

Speaker 2 I can't remember what that plane, its number was. But like none of the airlines really like loved it because it's too big.
It's too hard to get everyone loaded and unloaded.

Speaker 2 And you really just hit diseconomies of scale. So the electric planes are likely to be just tiny in comparison, like 10 passenger.

Speaker 2 So it's easier to load and unload, and you're going to fly out of smaller airports. So you won't be going to this giant regional airport that just has all the parking problems and all the security.

Speaker 2 You'll be driving to like your neighborhood general aviation airport where there's like a small line to get through and a lot of these small aircraft under certain situations even avoid some of the screening requirements because they're just not as dangerous you know if if you only have if you have a small plane there's only so much damage you can do with it i did not know that that's

Speaker 2 i gotta start booking planes from small airports or something to avoid the tsa it's it's very nascent but there's like some business models that are like coming down from like the net jet style to like a little more commercial so it's like kind of like I think that they're trying to like hit a price point that's similar to first class, but you get you get to avoid all the

Speaker 2 airport craziness. So, I think, and I think I'm just kind of a believer in like if that existed, people would get angry enough that they would loosen up a lot of the rules.

Speaker 2 It seems like impossible to change those rules now, but I think like the average person, it just costs them like no time because most people don't even fly very much. So,

Speaker 1 yeah, yeah, yeah.

Speaker 1 Yeah,

Speaker 1 do you want to talk about what your vision for what a city could look like if energy got a lot cheaper?

Speaker 1 I mean, in the paper, you have all kinds of interesting projections about drones and electric deliveries and

Speaker 1 just the entire congestion of the 3D space. And I guess with tunnels as well.

Speaker 1 What does a city look like with energy super abundance?

Speaker 2 Basically, like disaggregate the car to a certain extent where you're using, you know, not like inner city car trips or less because cheap flying is going to be cheaper.

Speaker 2 And it's going to be more convenient to like have the bots deliver your stuff.

Speaker 2 And

Speaker 2 the tunnels, I love the tunnels because

Speaker 2 I don't like taking people's land.

Speaker 2 With tunnels, you can run

Speaker 2 new roads and everything without eminent domaining and taking people's land away from them when they don't want to lose their land.

Speaker 2 And I think it's...

Speaker 2 And that process is so,

Speaker 2 it makes people so angry when you take their land that it's very expensive to eminent domain people because they will fight you you know until like literally the sheriff has to show up and haul them away.

Speaker 2 So

Speaker 2 if you can go around that with tunnels using existing right of way,

Speaker 2 it just makes that like

Speaker 2 societal cost of doing some of this stuff significantly less expensive. And it's you know then it's the engineering challenge.

Speaker 2 And I think there's really an opportunity now there. Like Boring Company is the famous, but recently I think there's in Hacker News, another company that wants to do tunnels for electricity.

Speaker 2 And they have like this plasma boring machine concept.

Speaker 2 I mean,

Speaker 2 it seems pretty crazy right now, but

Speaker 2 it's just one of those solutions that you're going to reduce the coordination cost across the whole economy and improve property rights.

Speaker 2 And so people should really try to build it.

Speaker 1 You mentioned one of these machines in your blog post on tunneling, and it was DS SpaceX1. I forgot the name of it, but yeah, it's like this insane thing.
It's proofrock. Yeah, exactly.
Yeah, yeah.

Speaker 1 It's, you know, it's like pretty big, but it's apparently solid-electric, which is kind of insane.

Speaker 1 And

Speaker 1 yeah, it can just like do it in one.

Speaker 1 How is it getting the material out? Like,

Speaker 1 if you're just doing the tunneling in one step?

Speaker 2 The problem that like most of the tunneling is in soft soil. And it just, it's really kind of, like, it's, it's kind of like difficult to drill through soft soil because of the materials handling.

Speaker 2 So like when you first start drilling an oil well through this stuff, you actually have to limit your drilling speed.

Speaker 2 And you don't even have to put any weight on the bit, just the pumping fluid around basically jets out the fluid.

Speaker 2 So that's kind of what you're doing with the boring machine and the soft soil stuff.

Speaker 2 So managing the spoils, which is like, you know, like they have like muck carts a lot of times.

Speaker 2 I think maybe SpaceX trying to do a conveyor belt, but you could also just make it a full liquid and pump it out. Like in the oil field, you know, we carry our cuttings in mud and we pump it.

Speaker 2 But yeah, and then they have the other big challenge is they have to keep the walls from caving in on them.

Speaker 2 So that's like there's like current boring machines and soft soil spend enormous amount of time

Speaker 2 erecting these tunnel supports that keep it from collapsing in themselves. So it's kind of counterintuitive.

Speaker 2 It's actually dramatically faster to bore in hard rock than it is soft soil because you because the soft soil you spend so much time like non-productive time or in the hard rock you're just like blowing and going

Speaker 1 interesting um yeah okay and then so to get back to the to the cities um

Speaker 1 the uh you mentioned something in the paper

Speaker 1 yeah mercedes constant uh which is the amount of like people's

Speaker 1 wasn't it that the amount of time people spend in transport per day um is is the same so if you just increase the amount of uh increase the speed in which they can move with V talls or other kinds of things, then they have a

Speaker 1 wider surface area in which they can explore, right?

Speaker 2 Yeah. So yeah, I don't know if like physically the cities will look that much different, but like their effective economic size will be much larger.
Because

Speaker 2 you could live in

Speaker 2 Cedar Rapids and

Speaker 2 you know, commute to Minneapolis with some of these technologies. So your city in Cedar Rapids still looks the same.

Speaker 2 But, you know, like you can,

Speaker 2 you don't have to work there. If you have a better job in Minneapolis, you could commute there three times a week or whatever it is, five days a week.

Speaker 1 Yeah, yeah. It's super interesting.
But does that imply, by the way, that if

Speaker 1 the commute time stays the same and people just get more spread out, if energy becomes cheaper, then neighborhoods and cities kind of become this unwalkable mess out of like a Jane Jacobs nightmare

Speaker 1 if the conglomeration goes away?

Speaker 2 I think it's actually the opposite. You know, like if you have tunnels and if you have,

Speaker 2 you know, some like these alternative methods to cars, then you use cars less.

Speaker 2 And I think like in many cities, you know, they never made sense for cars anyway because they were built before cars.

Speaker 2 So in New York City, you're never going to move everyone around on a car unless you build tunnels, you could then.

Speaker 2 But even then, I think

Speaker 2 there's other technologies there that make a lot of sense um

Speaker 2 and i think people like walkable so you know even even though i live in a city that's that requires a car like some of the hottest neighborhoods are

Speaker 2 like walkable neighborhoods where like the neighborhood is walkable itself and then you just like drive your car to wherever else you need but it's like the the car is like hidden within the neighborhood

Speaker 1 Okay, so interesting. I guess maybe we'll see more

Speaker 1 segregation then,

Speaker 1 not in the racial sense or anything, but in the sense that people will prefer to live in like these walkable neighborhoods, but they don't have any problem to like commuting to work using a VTOL or something.

Speaker 1 So then you would have what you would end up seeing is like these walkable neighborhoods and then like industrial zones that are like way far away, distance-wise, but not that far away time-wise.

Speaker 2 Right. And it's the same for like if you want to live in a small town that just happens to be, you know, now it would be too far to commute to a city, but you could in the future.

Speaker 1 Yeah, yeah. More choice, I see.

Speaker 1 So what is holding back back a vtols vtol by the way is vertical takeoff and landing

Speaker 1 this is what uh the reason you need to go to an airport is because you need like a large landing patch take off and land the hope is that if you could just like vertically take off then you would be able to like lift off from your roof or something

Speaker 1 obviously we've uh had um prototypes of this kind of stuff since like the 30s what like why don't we have these widely available is the energy the constraint or is it something else well i think in the past you know theoretically liquid fuels are dense enough, but they're too complex, too expensive.

Speaker 2 Because when you're turning heat energy into mechanical energy, it's just like a lot of weight and complexity comes with that.

Speaker 2 Like some of these old concepts, you know, you have like all these engines and all that. And so if you electrify them, it really changes the game.

Speaker 2 And so just now we have, because it's not just batteries, it's the motors, it's the inverters, are now getting dense enough and small enough to make sense.

Speaker 2 But it takes time to get this stuff through FAA, you know, for better or worse.

Speaker 2 So,

Speaker 2 you know, it's like the technology hasn't been good enough, long enough to get stuff through FAA. And there is some limitations.
I think right now they wouldn't, a lot of people want to use batteries.

Speaker 2 Like, the batteries are just on the edge of good enough. Like, you know, you're going to have like a 50-mile VTOL, not like

Speaker 2 a couple hundred-mile VTOL. But eventually, like, my

Speaker 2 dream VTOL application is like a nuclear-powered quadcopter that carries like a container.

Speaker 2 So you can take the container like directly from you know the factory in in Vietnam or wherever directly to the the people who are using it or the warehouse like in in Arkansas or whatever.

Speaker 1 Yeah, yeah. That would be interesting.
I mean theoretically you would have like these drones that are carrying like these huge payloads

Speaker 1 weight wise.

Speaker 2 But yeah, but you wouldn't you wouldn't necessarily want a large payload.

Speaker 2 You just want like the

Speaker 2 whatever the customer wants. You know, you want to size your

Speaker 2 vehicle to deliver that payload that's the most efficient.

Speaker 1 Oh, I see. Right.
Because you don't need to, it doesn't need to be like a shipping container or like a shipping vessel where you just have it be huge. Okay, I see.
Okay.

Speaker 1 Yeah, yeah. Interesting.
And then what does this mean for computing? So if energy gets a lot cheaper,

Speaker 1 I guess Bitcoin mining becomes, well, it doesn't necessarily become more profitable because other people's energy is cheaper too. But what are the other consequences?

Speaker 1 Is spinning up an AWS server just become trivial now and then building a deep learning model costs like nothing in terms of GPU time?

Speaker 1 What would impact does this have on computing?

Speaker 2 Yeah, I mean, I think the limitation would probably still be just like chips for a while until you figure out a better production process for that.

Speaker 2 I think it'd be a while before it's like becomes energy. I think, you know, like smartphones really worry about energy.
So there could be some interesting things with

Speaker 2 smartphones if you had like a

Speaker 2 very power dense like beta voltaic battery. It's like a nuclear battery, something like that,

Speaker 2 where you don't have to worry about running down your battery.

Speaker 2 But

Speaker 2 outside of smartphones, I'm not sure that energy is like

Speaker 2 the limit for a lot of this computing.

Speaker 1 And one of the interesting things you just speculate about at the end of the paper is about a potential carbon shortage. And I think in an email to Tyler Cowan that he published on his blog, he,

Speaker 1 you said, like, by the end of the century, we'll have a carbon shortage

Speaker 1 because

Speaker 1 presumably because of the process you talked about earlier, the thing you're working on, right? If you can take CO2 out of the atmosphere. Okay, so what is the probability that this ends up happening?

Speaker 1 Like, do you think it's like more than 50% by the end of the century?

Speaker 1 Or is it just speculation?

Speaker 2 I think it's extremely high that it happens and it's it's harder to put the timeline on it. By the end of the century might be like a little

Speaker 2 if you I think I think I ran some numbers in there and like if you 10x current plastic production and you're just like putting it landfilling it all

Speaker 2 I think it was a little over like a hundred years

Speaker 2 to get and you're assuming like you're you're out the rest of your carbon output is zero in that scenario.

Speaker 2 But it's probably pretty hard to do it like in 100 in a like by the end of the century without a lot of growth but it's kind of the exponential thing can get you where you know like I think all the

Speaker 1 you know some large number of the carbon emissions have happened in the last 20 years like and and it was very small before like 1950 so you know you could kind of like get surprised that the back half the last 10 years you know goes crazy it makes it hard to predict yeah yeah by the way so in uh Wilma Castle's new book on long-termism one of the things he speculates about is if society collapses and we need to restart, one of the things we'll need is coal or some other sort of like dense, easy to

Speaker 1 use fuel. And the problem is we've been burning up easily accessible coal, like coal in places where we could just like dig up and find it.

Speaker 1 And so one of the things he's concerned about is like making sure we leave some

Speaker 1 easily accessible coal silos around so that in case, you know, society collapses, we can restart and use these to power up our second industrial evolution.

Speaker 1 I wonder if you could use a process like this with carbon sequestration to actually just build up these kinds of reserves.

Speaker 1 I don't know if a long-termist or somebody's really interested in making sure we have that kind of resource, they could just use this process to...

Speaker 1 Is that possible?

Speaker 2 Also, actually, there's a company called like Charm Industrial.

Speaker 2 They're basically doing that because they take trees and they do a process called fast pyrolysis.

Speaker 2 It's where you burn biomass without oxygen in an oxic environment and it makes this bio-oil and then they're injecting the bio-oil down into wells and selling carbon credits.

Speaker 2 So it's already happening, you could say. Oh, wow.

Speaker 1 And that is easy to burn and stuff.

Speaker 1 Like you could.

Speaker 2 Yeah, if you just want to burn it for heat, it's okay, but it's hard to refine. This was like a...

Speaker 2 There were a lot of people that tried to do bio-oil as an alternative for petroleum like 20 years ago, like Cleantech 1.0, and they all failed.

Speaker 2 So it makes me laugh that like they're reimagining the process to sell what are right now very expensive carbon credits.

Speaker 2 But you can do something similar. There's actually, you could do something similar just to make straight carbon and stuff if you wanted to.

Speaker 1 Okay, I see.

Speaker 1 The thing that I find interesting about this is often in the case of

Speaker 1 global problems, people will early on identify that a thing is going to be a problem,

Speaker 1 but it often ends up being the case that they get the direction of the problem opposite. Like, if you think about population, right? In the 70s, people were like correct

Speaker 1 that global population was going to be a problem. The thing is,

Speaker 1 it seems like now the problem is going to be that the population might decline too fast, right? Now that it's going to grow exponentially.

Speaker 1 And I think this is like another example of this kind of thing where

Speaker 1 CO2 is going going to be a problem either way it just like it's i'm not sure if it's going to be a problem we'll overproduce it or we'll have shortages

Speaker 2 yeah i mean if you if you just think at like the the large scale if you're going to be like kardash whatever scale

Speaker 2 civilization where you're using like immense amounts of energy like that's going to have um

Speaker 2 you know side effects and you're going to have to figure out how to manage that one way or the other And I mean, one of those is eventually Earth may just be like a nature preserve and we all live in space or something.

Speaker 1 Yeah, yeah.

Speaker 1 Okay, let's talk about nuclear.

Speaker 1 It seems like you're much less optimistic about nuclear than you are about solar and wind.

Speaker 1 Do you want to explain why that is the case?

Speaker 2 Yeah, well, especially solar more than so than wind. Wind, I think, is limiting because it's transmission problems.
And again,

Speaker 2 you know, like you're... If you want to build out huge amounts of wind, like some of these zero

Speaker 2 carbon

Speaker 2 plans call for like you're gonna have to take a lot of people's land to like build transmission lines and stuff and again really pisses people off and they fight hard and it becomes expensive so

Speaker 2 and it's not like that you know the wind turbines are easy are relatively easy to site like because you pay people and you'll actually see like they never put above ground power lines on the people's land where they put the wind turbines they're always underground so at least they get to the county right away but like when you get these giant transmission lines like

Speaker 2 you know Grain Belt or something,

Speaker 2 they almost inevitably have to go across a lot of people's lands and you can't just stuff them all in county and state right away is because the pylons are so big.

Speaker 1 Sorry, what is a pylon?

Speaker 2 But the pylon is like what holds the wire up, the tall tower. So yeah, so solar is like it's much more flexible where it can go.
And I think the

Speaker 2 solar getting cheaper, the obstacles are just like pretty simple. It's like, well, gosh, it's expensive to fill with racking.
Why don't we just lay the panels on the ground?

Speaker 2 Or, like, gosh, this glass we're encasing with is getting expensive, and we don't need it to last 80 years or 50 years. You know, we can just like fit some plastic on it instead.

Speaker 2 Or, you know, we've gotten these, you know, the actual photovitallic cells so cheap

Speaker 2 and like all the other labor and stuff is getting more expensive. Well, why don't we just add another layer and make more energy?

Speaker 2 So, those are kind of like your solar solutions to get down to like $10

Speaker 2 a megawatt hour, and they're pretty straightforward. Whereas nuclear is like,

Speaker 2 well, you know, the light water reactor can't get us there. Like, let's instead cool our reactor with sodium, which

Speaker 2 catches fire when it

Speaker 2 explodes when it reacts with water and catches fire when it reacts with air.

Speaker 2 Or there's, you know, you could cool it with lead, liquid lead. That's an option.
Helium, which, you know, leaks a lot.

Speaker 2 Or you could do molten salts that

Speaker 2 like corrode everything. We don't really have anything that.

Speaker 2 And so I think when you start looking at like the, you know, this is for large reactors

Speaker 2 so I think the solutions for very large reactors are are pretty hard It's pretty difficult and there's a lot of reasons why

Speaker 2 Why do we make these weird choices?

Speaker 2 Well, there are a lot of stuff just reacts poorly you know when you expose it to neutrons and stuff so they have they like to each have their own features that make them possibly good candidates

Speaker 2 So that's that's really where and I actually think like regulation is actually kind of like a

Speaker 2 it's oversold a little bit. And I think actually to the extent that if people were internally consistent, then they would see NRC as a regulatory success story.

Speaker 1 Because

Speaker 2 kind of the background on this is my

Speaker 2 wife's mom and stepfather are nuclear engineers that have like worked, you know, from at all levels of nuclear power industry.

Speaker 2 So I get to ask them, you know, the general questions and learn a lot about it, which is nice.

Speaker 2 It's very helpful for learning about it. But there's

Speaker 2 like back in the 80s, the nuclear power industry was like in real trouble because their competitors in coal and natural gas got deregulated.

Speaker 2 Like most of the cost of coal is the rail getting there, and the rail industry got deregulated. And then the natural gas industry got deregulated.
So the cost of their alternatives was falling.

Speaker 2 And they had the cost of, you know, they had to build more safety into their plants because of all these, you know, it wasn't just Three Mile Island, it was like Browns Ferry, it was Rancho Heco,

Speaker 2 all these

Speaker 2 like,

Speaker 2 you know, things that could have been really scary. And a certain extent, we got like a little bit lucky that we didn't have like a worse

Speaker 2 disaster.

Speaker 2 You know, they were just like relatively limited accidents at their sites.

Speaker 2 So, what the, and like

Speaker 2 there was actually a time where nuclear power plants were selling for less than what their fuel was worth they had on in their plant,

Speaker 2 like they're out there. So what the industry did and what NRC did is they

Speaker 2 moved to probabilistic

Speaker 2 risk assessment, which is like, you know, usually the gold standard. Like people are really happy that we use probabilistic risk

Speaker 2 assessment for commercial crew with NASA and SpaceX. And they want FDA to use more probability, you know, more expected value.

Speaker 2 So, So, and what this allowed was basically you're you're rolling up some of the rules and moving into the risk assessment.

Speaker 2 So,

Speaker 2 like around 1980, like nuclear power plants only ran about 60% of the time. They weren't very reliable.
They had all sorts of like unplanned outages, stuff like that. And these

Speaker 2 the safest mode of operation is just running as designed. So,

Speaker 2 the more consistent nuclear power is, the safer it is.

Speaker 2 So,

Speaker 2 the probabilistic risk assessment allows you

Speaker 2 to do repairs while you're running, which was kind of like discouraged before. So it'll be like if your main cooling pump is

Speaker 2 leaking, before you'd be like, oh gosh, I hope we can make it. And then eventually it just fails and you shut down the reactor.
And now it's like, all right, well, we have backups.

Speaker 2 The safest thing to do is actually repair it now while the plant's still running and then get it repaired and put it back online.

Speaker 2 And so

Speaker 2 not only, like, to give you an idea of the safety standards that NRC has,

Speaker 2 I think for like the nuclear, the plant taking damage is like one time in 10,000 reactor years, and then for a large release, it's one in 100,000 reactor years.

Speaker 2 And there's 93 operating reactors at, you know, less than 93 sites. So, like, we should only see like a three-mile island under the current standards, like,

Speaker 2 you know, once every hundred years or so in a large release, like a Fukushima type situation, like once every a thousand years.

Speaker 2 But, you know, they had like, just in a few years of the 1970s, like the industry had like three or four of these like damage events, you know, at least.

Speaker 2 I don't know how many like officially count, but probably at least three.

Speaker 2 So the safety has like gone incredible. And now the operating operating capacity is up to like over 90%.

Speaker 2 So the plants are just extremely reliable and it lowers their cost because their costs are so fixed.

Speaker 2 And

Speaker 2 you compare it to like a country like France, they've had a lot of reliability problems with their nuclear fleet in the last couple years. Like this year,

Speaker 2 their capacity factory, I think I saw, might barely be over 60%.

Speaker 2 And they have, you know, we have like 90 gigawatts of nuclear. They have 60 gigawatts.
So that's like makes a huge difference for Europe that those plants aren't running full out.

Speaker 2 And it's really, you know, you see a lot of charts about like, if Germany didn't shut down its reactors, what would the energy balance be?

Speaker 2 But you don't see as many, like, if the French could run their reactors like American reactors, what would the energy balance be?

Speaker 2 So I think there's,

Speaker 2 I could go on about like how that integrates into new plants if you want about that. Yeah, I do.

Speaker 1 Yeah, because

Speaker 1 the line I've always heard on this for my bubble is like, oh, they haven't approved a new plant. The NRC has not approved a new thing since

Speaker 1 a new plan since it was created. I guess they just approved the design for the new small modular reactors, which I guess I have a low-terier opinion on as well.
But

Speaker 1 yeah, yeah, so

Speaker 1 I'm very curious to hear this perspective.

Speaker 2 Well, okay, so think about it. In the 1980s, you had new sources of fuel, you had new competitors.
You also, by the end of the decade, you increased the amount your nuclear power plants ran by a lot.

Speaker 2 So a lot of these new power plants that people were thinking about building were at existing sites, like an extra reactor at Watts Bar or whatever. And well,

Speaker 2 you basically just got like a

Speaker 2 buy to get one free by running your plant better. So you don't really need them as much.

Speaker 2 So all those contributed to like it just not making sense to build new nuclear power plants because the existing fleet ran better and more competitors and electricity demand slowed down.

Speaker 2 So I think there's like a you know, is it hard to get through NRC approval? Like yes, that last one, the mini reactor you're talking about took like, I don't know, 10 years or something.

Speaker 2 But you know, when you think about like a probabilistic risk assessment, like, you know, no one ever says, like, well, gosh, NRC's current standards of like a large release, which would basically happen one every thousand years.

Speaker 2 Like, is that exception? You know, we're not arguing over that. We're just like talking past each other, I guess, instead.

Speaker 2 So, to me, like, that's a pretty reasonable risk level.

Speaker 2 Like, you know, if you're going to like 10 times your reactors, and that means like almost certainly you'd have a Fukushima within your lifetime if you go with NRC standards.

Speaker 2 But it actually turns out that it's pretty cheap to

Speaker 2 do way better.

Speaker 2 You know, a lot of the reason why the plants weren't built may not necessarily have been because of regulation, but

Speaker 2 because

Speaker 2 the market conditions changed, you know, you had more competitors and the coal with the gas being deregulated.

Speaker 2 And then you also had increased production from the existing nuclear plants. So if you're going to build an extra nuclear plant or an extra reactor at an existing site, then you know

Speaker 2 you might not have needed to anymore because you got so much more production out of your existing plants. And just stuff like they shortened the fueling time and just a lot of

Speaker 2 all-around improvements

Speaker 2 paired with electricity demand flattening that really made new plants not economic or not necessary.

Speaker 2 And you know, really, when we think about the probabilistic risk assessment,

Speaker 2 it just takes a lot of engineering time to get it through.

Speaker 2 Like, if you look at how hard it was for SpaceX to get Falcon 9 and Dragon through NASA's loss of crew risk calculations, you know, it took years, took hundreds of millions of dollars.

Speaker 2 So it's kind of funny that people see that as a success. And especially when the stakes were only like a few lives for people that volunteered for danger.

Speaker 2 And then you have like a nuclear power plant where we're going through the same probabilistic risk assessment.

Speaker 2 And,

Speaker 2 you know, it could impact many more people's lives. And, you know, it's like, oh, it's not,

Speaker 2 you know, that's not good enough. So, I mean, I think it would make more sense to argue about if the

Speaker 2 risk factor, you know, should we, how much risk should we take, like with the actual numbers, as opposed to just like, oh, I'm mad that we're not building nuclear power plants.

Speaker 2 And actually, it becomes just like very inexpensive to actually

Speaker 2 improve the risk probabilities because the old plants that we're running now, they have like active safety systems, which means you have to maintain them and they have to work. So, if you want to

Speaker 2 move the control rods back into the reactor, well, there's like a mechanism and a motor that does that that can fail.

Speaker 2 So, that you know, when you're calculating your risk, you have to calculate, oh gosh, what if this motor fails, or what if my control fails, or what if I don't have a properly trained operator to do it?

Speaker 2 And it's the same for the cooling systems, but this new generation of plants have passive safety systems where like natural convection can cool the reactor in an emergency, or the

Speaker 2 rods are more like dead man switch, where you know, if something happens, they just drop in from gravity.

Speaker 2 And so, the new power plants, like this one that just got approved, or the one they're building down in Georgia, you know, can be orders of magnitude safer than the running plants.

Speaker 2 And it's not really like a huge cost increase You're just changing how you

Speaker 2 You do these things and in fact like if you look at All these like all the literature for them They're actually supposed to be less complex and easier to build but you know, you're talking about a project that

Speaker 2 It's so complicated it takes thousands of workers years and years to build working every day

Speaker 2 And it's like if you're going to go through and do the engineering in great detail to prove that your plant is safe under the probabilistic risk assessment, it's going to take hundreds of thousands of hours of engineering time.

Speaker 2 I mean, it's going to take a long time. And that's why you see, I mean, investors are willing to pay that at this point.
It's just like, you know,

Speaker 2 after you build it because of, you know, the Rankin cycle and all that, is it going to generate economic power?

Speaker 2 And, you know, it's not necessarily going to.

Speaker 2 I think one way to think about this is my father-in-law, he always says, you know, when people ask him about why we're not doing more nuclear, he says, Well, you got to think about the politics first and the economics second.

Speaker 2 And those are like the important ones. And so, people are submitting designs and when to build plants that are big enough to impact lots of people's lives, even if that risk is very low.

Speaker 2 You know, some people still are bothered by that.

Speaker 2 But also, they're selling an easily substitutable commodity in most cases.

Speaker 2 And so, I think a lot of times on the political side, if you can substitute nuclear power, people will, even if it's coal or whatever, people don't really care that much about the emissions.

Speaker 2 Like, they just care about their electricity turning on.

Speaker 2 And I think you see the opinion change very fast when nuclear power is no longer a substitute.

Speaker 2 Like, all of a sudden, you know, Germany's like, well, we could turn our reactors back on, or Japan, same way.

Speaker 2 You know, they've had these reactors off for years, but now that there's an energy crunch, they're like, well, let's turn them back off.

Speaker 2 So,

Speaker 2 I think the future for nuclear power, which would be a better future, is you create products that impact less people's lives or have the potential to impact less people's lives and also are not substitutable.

Speaker 2 And I think that means small reactors. Like if you have a battery that can power your phone or you have like a little battery out in your garage that can power your house,

Speaker 2 the real, you know, these are hard to make. There's a lot of problems, especially on power density.
Like, you know, the nuclear is very energy dense, but not necessarily power dense.

Speaker 2 So you have to do a lot of work on that to get there. But one of like the most exciting examples of recent nuclear technology is

Speaker 2 these people at some national labs and NASA got together and created this Krusty reactor. And only to, it's like only one kilowatt, so it's small.

Speaker 2 You know, I think the thing weighs like 400 kilograms, it fits in the room. They got the whole project done in a couple years.

Speaker 2 for like less than 20 million dollars and it worked great it's very safe just because partly because it's so small but it has almost no moving parts. Like the whole thing is,

Speaker 2 you know, has like a Sterling engine on top and that's like the only moving part.

Speaker 2 So it's really,

Speaker 2 you know, and there's several startups now that are working on improving that technology and commercializing it.

Speaker 2 So that's the kind of like nuclear stuff that, you know, why I talk about small nuclear, micronuclear, is really exciting to me.

Speaker 2 Because it has so much potential and when you start putting nuclear in that small form factor, there's no other energy source that can compete with it on energy density so you can do things you could never do before

Speaker 2 whereas like selling to the grid in a large power plant is like well I can do that lots of ways and if you think think through this lens then you see like the entire nuclear debate is

Speaker 2 you know the nuclear proponents trying to claim that nuclear is not substitutable and that we should pay more,

Speaker 2 accept the risk or or whatever. And maybe we should,

Speaker 2 but it makes it hard to promote that technology. If you could have a phone that you never tried to charge, like people would love that.
It'd be like, I don't care if it's nuclear.

Speaker 2 I just have a phone that,

Speaker 2 you know, never goes dead.

Speaker 1 I guess the question is: to what extent are those,

Speaker 1 is the lengthy and expensive process necessary for the probabilistic risk assessment?

Speaker 1 If there's like a way you could just have the process not be more streamlined and have the same,

Speaker 1 be as effective in evaluating the harm. And then then I guess another thing is, if we haven't seen, it's like zero people or like a very few people have like directly died from nuclear, right?

Speaker 1 So is it just that we've gotten lucky or like you're saying that could have been like way more and we're just in a lucky timeline?

Speaker 2 I guess I'll go backwards a little bit here on answering those questions. So more so than I think what people are responding to

Speaker 1 is

Speaker 2 just because like Fukushima didn't have airborne radiation, that was very dangerous. But people still got removed from their home,

Speaker 2 and there was a lot of costs associated with that.

Speaker 2 And it's hard for me to believe that if we had a similar thing in the U.S., that

Speaker 2 there wouldn't be some type of mandatory evacuations that were really unpleasant.

Speaker 2 And if you could get your power from coal or natural gas without that risk, I mean, a lot of people would make that trade-off. And I think the other thing with Fukushima is,

Speaker 2 as I understand it, like they were able, because it was on the ocean with fast currents, they were able to use like a lot of sea water to keep the reactor from getting too out of control.

Speaker 2 But they were just like dumping,

Speaker 2 you know, a lot of the

Speaker 2 radioactive stuff into the ocean, but it was dispersing quickly. It wasn't a big deal.

Speaker 2 So, you know, if you're on like a freshwater reservoir, like most nuclear, most US power plants are, like your risk equation might have been different there.

Speaker 2 I don't know enough about it to know if that really matters, but I think the main thing is because of the precautionary principle, people are still going to get removed from their homes and people don't like that.

Speaker 2 Let's see, I'm making it fat. I mean, you can always streamline processes, but the thing is, like, people are submitting designs that are extremely complex.

Speaker 2 So, whether your design is ultra-safe or not safe at all, to do all the engineering to prove that costs about the same either way.

Speaker 2 So, that's part of why these new plants are so much safer than the NRC standards. It's it's just not that hard to make them that much safer.

Speaker 2 And a lot of your licensing is going to be, you know, you're going to spend the same engineering resources no matter what based on your plant complexity.

Speaker 2 So the, you know, that's like the difference why Krusty was able to go through so fast. And, you know, they went is,

Speaker 2 you know, their thing is very simple. They don't have very many moving parts.
Like there's only so many things that can go wrong with it.

Speaker 2 And so I think that's what's exciting to me about these other startups is they have the potential to

Speaker 2 get through faster with less money. And then there's real markets in like remote power, space, military, where people are willing to pay the premium for these initial models.

Speaker 1 Okay, I see. Okay, so

Speaker 1 you're not bearish on nuclear or the future, given the new designs with

Speaker 1 passive cooling and stuff like that. It was more like the old designs that you're pessimistic about.
Is that a correct way?

Speaker 2 Yeah, I mean, like, if you look at like the, what the cost of electricity is going to be from that, you know, if they ever build the reactors that just got proven or just got approved, like, it's it's quite expensive.

Speaker 2 You know, I think usually it's around, like,

Speaker 2 forty, fifty dollars a megawatt hour, best case, but more likely it could be up to, like, eighty dollars a megawatt hour.

Speaker 2 So, you know, they're not building it, you know, in deregulated power markets because you, you know, you'd lose money. But there are places where it could make sense.

Speaker 2 You know, some places, like in Europe, have very expensive electricity.

Speaker 1 And Japan and Singapore, and there's a lot of other places that are. Yeah, yeah.

Speaker 2 So there could be some markets in there, but that technology then still has to compete with those places building solar panels or

Speaker 2 all these other technologies that you could do. And then there's the whole argument, oh, well, nuclear can do this and that.
But

Speaker 2 I think the

Speaker 2 the people building the reactors clearly don't want to build them in deregulated power markets because it's not economic.

Speaker 2 You know, that's why I'm excited about the small because there's alternative markets other than selling this substitutable commodity that's very cheap.

Speaker 1 Well, what is, have you talked to Eli about this? What is his opinion?

Speaker 2 Yeah, so Eli finds out about these like new startups that fit this bill and sends me the information on them because he knows I'm excited about it.

Speaker 2 So I think he's also you know, he also like of course, you know, his like specialty is like governmental affairs.

Speaker 2 So there's still, I'm sure there's still lots of opportunity to improve the process at NRC. Like recently, IMPO, which is like the industry group, that's very much like a German-style industry group.

Speaker 2 It's very powerful.

Speaker 2 Their goal with NRC was to reduce the nuclear rules by one-third.

Speaker 2 And then you also have NRC writing new standards for like Gen 4 reactors that's supposed to be done in a couple of years, but Congress instructed them to do it.

Speaker 2 So there's lots of opportunity to try to improve the process, but it's very complex. Like I'll give one example: the Browns Ferry accident.

Speaker 2 The main thing that came out of that was you can't have control cables for safety systems on redundant safety systems on the same cable tray because that cable tray catches on fire, you lose both systems.

Speaker 2 So, it's very, very expensive to run extra cable trays and all this cable separation.

Speaker 2 And, like, that's actually one of the problems that's like delaying Vogel and Georgia right now: they had like 500 issues of

Speaker 2 sharing the same like safety system sharing the same cable tray. So they have to like, you know, build all new cable trays and clean out the mess of the stuff they already built and redo it.

Speaker 2 Super expensive. So NRC has like tried, they tried a pilot program where they did like a performance-based safety on, you know, as opposed to like just the strict cable separation rule.

Speaker 2 And like I think

Speaker 2 Oconee was one of the PowerPoints that tried it. It ended up being more expensive than just the simple rule.
So

Speaker 2 the reality is often very complex. And I think when you have these complex plants,

Speaker 2 it's just hard to do. So it can always be improved, but

Speaker 2 I think the small could end up greatly out-competing the large because they have less complexity.

Speaker 1 Yeah, you had a small section in that piece about fusion where

Speaker 1 you were especially pessimistic about fusion.

Speaker 1 What is your take on fusion?

Speaker 2 It's kind of the same thing. I'm not pessimistic about fusion.
I'm pessimistic about fusion technologies that heat up water to make steam and run it through a steam turbine.

Speaker 1 Because they're not efficient?

Speaker 2 It's just so expensive to do the, like, literally, like, just pitting in, like, the steam turbine and the condenser and all that kind of stuff you need for that basically makes you uncompetitive

Speaker 2 on most deregular power markets.

Speaker 1 Yeah. So, I mean, there are startups who have plans to do direct energy conversion.
I don't know how feasible those plans are, but

Speaker 1 presumably you think those are, in those cases, you think fusion and could have a big future?

Speaker 2 Yeah, yeah.

Speaker 2 Again,

Speaker 2 I don't know too much about the same as you, I don't know too much about their

Speaker 2 specific technology. But if you're pursuing a direct conversion technology, it's just you're, you actually have a chance of success, you know.

Speaker 2 I think a lot of people I've talked to in like the fusion space, they're like, well, I can make you know electricity for $50 a megawatt hour and because I'm fusion, people should pay me $50.

Speaker 2 And it's like, well, not everyone may want to pay you $50.

Speaker 1 Yeah, yeah. I mean, it might involve an initial period of large subsidy that we had to give

Speaker 1 electric vehicles and even solar.

Speaker 1 We had to give huge subsidies for solar in the beginning when we were at the beginning of the learning curve. So that might be necessary, though.

Speaker 2 Yeah. I mean, I really disagree with the subsidy solars had actually.

Speaker 2 And I think it just like, if you actually look at the numbers, it proves the point. Like, the people say, like, oh, because Germany did the feed-in tariffs that made solar cheap.

Speaker 2 So if you had a country that's 1% of the population, they spent a tiny portion of their GDP, and that was enough to scale the technology, well, you should just let some other fool do that.

Speaker 2 You know, reap the benefits. So I would be supportive of taking away most of the subsidies for energy in general.

Speaker 1 Just to make sure I understood the argument, you were saying that

Speaker 1 it's unlikely that the small subsidies that Germany gave were enough to actually make the difference.

Speaker 2 I'm just saying if you if they were, if it took such a small amount of subsidy to do it, like someone will be foolish enough to do that. You know, in this case, it was Germany.

Speaker 2 They spent a lot of money doing that. That was, you know, they're not reaping the benefit from.

Speaker 1 Yeah, it's not compatible with their environment

Speaker 1 and their climate. I mean, yeah.

Speaker 2 So, I mean, we benefited from them doing that. We didn't have to, you know, we still do spend some subsidies on solar.

Speaker 2 And I think they're very like poorly designed.

Speaker 2 So I would be better just to get rid of them.

Speaker 2 But the thing with fusion, if you're just

Speaker 2 heating up water to make steam, is that technology, there's no learning curve for anymore for steam engines, basically. Because

Speaker 2 that technology is so mature. I mean, now, so that's why some people are looking at like super critical CO2 cycles is because, well, maybe this could be a little cheaper than doing steam turbines.

Speaker 2 That's some possibility there.

Speaker 2 And there's some other technologies that maybe someday you have like thermoelectric generators and stuff like that.

Speaker 2 But I think the direct conversion technologies have just a massive advantage, not only in initial costs, but in ongoing operating costs.

Speaker 1 Okay, okay.

Speaker 1 There's one more topic I really want to talk about, which was, yeah, you have this interesting post on where you can actually expect to find alpha, given that at least public markets are efficient.

Speaker 1 Do you want to like explain the basic thesis of that post before I ask you specific questions about it?

Speaker 2 Yeah, if I was going to like dumb that post down, like I love Fama's original paper where he lays out this efficient market hypothesis thesis.

Speaker 2 And you know, he's like, there's multiple types of information.

Speaker 2 And so the first is, you know, if you just have like pricing data for stocks or whatever, securities, like you can be the smartest person in the world and you're not going to make any money doing that because it's just like random.

Speaker 2 But the

Speaker 2 If you start incorporating more information, like what's in 10ks and all that, like if you're like super, super smart, smart you might be able to make a little bit of money there

Speaker 2 and you know we see that with people like rendizon's technologies and you can debate about you know Warren Buffett and all that but then there's the third category which is like the strong type information and it's basically you have legally acquired private information and the you know you can make money that way and be significantly less smart.

Speaker 2 So if you if you want to like just take Famous paper and like, how do I make money?

Speaker 2 It's like, okay, well, I should find legal ways to acquire, you know, this information, and then I don't have to be, you know, a super genius to make money on it.

Speaker 1 Yeah, what I thought was really interesting in your post was you had this point about how one of the ways you can actually earn access returns is

Speaker 1 through like labor, right? Like Buffett in the earlier years, at least he would like go into these factories or companies and like interrogate every single piece of operations and whatever.

Speaker 1 And I thought that was an interesting twist on Piketty's thesis. So I don't know if you've seen his stuff, but he has this claim that not only does capital earn more than

Speaker 1 the gains to capital are higher than the gains to labor,

Speaker 1 but the more capital you have, the higher returns you can earn.

Speaker 1 Like, I guess Harvard has access to hedge funds that may be able to earn like excess returns.

Speaker 1 I thought yours was like an interesting, basically, if you take this view, it's basically the inversion of Piketty because

Speaker 1 over time, as Buffett has gotten wealthier, his returns have gone down because it's harder to invest the marginal dollar more effectively. And as you said, with the medallion fund, yeah,

Speaker 1 they no longer accept outside money. And

Speaker 1 then the interesting thing about labor is like the reason that Buffett was able to earn those excess returns in the beginning was because of the labor he put in, right?

Speaker 1 So the interesting thing is, like, capital is just fungible with other capital.

Speaker 1 So capital doesn't enjoy as high returns as like really good labor, really smart labor, which is like the opposite of the piggity thesis.

Speaker 2 And I think there was actually a paper.

Speaker 2 I think it was on marginal revolution a couple of years back. So I'm pulling from my memory here.
So I could be missing a little bit.

Speaker 2 But basically, it studied like all these businesses and what happened to the business after like a founder unexpectedly died and like the profit just like you know, and it looks like on, you know, these are capital returns.

Speaker 2 That's like many people would see them.

Speaker 1 But then the, you know, the earnings just like drop like a rock like because they lost some irreplaceable human capital there and you know they didn't spend any time training them because they died unexpectedly right which also has an interesting implication for ceo pay which is just that actually like okay in the marxist sense what is uh pay it's like your pay is what it costs to replace you right um

Speaker 1 and if it if the if steve jobs is so irreplaceable that you know if he goes away like earnings are going to drop like a rock and like

Speaker 1 rock and the stock price are going to drop like a rock. Actually, that means that he should get paid.
Like if that's how expensive it is to replace him, he may be like irreplaceable, right?

Speaker 1 So it's actually worth whatever like dozens of millions of dollars you're paying him.

Speaker 2 Yeah, yeah. I'm generally a proponent for letting the market decide that.

Speaker 1 Yeah, yeah. Okay.
And then another way you said suggested that maybe firms could earn excess returns is like by developing unique brand, right?

Speaker 1 So like Y Combinator is probably able to earn excess returns to a normal venture capitalist because of their unique brand. Yeah, I thought that was really interesting.

Speaker 1 Do you want to talk more about that?

Speaker 2 I think it's just like a lot of this

Speaker 2 intangible capital and labor are complements for regular capital. And you know, I think you can see it too.

Speaker 2 Like, you know, you, if you build a brand around that you're a good investor, like you can raise money from other people and charge them money on it, you know, more so than if you're just like a no-name.

Speaker 2 So I think there's lots of examples of that where building a brand or building relationships

Speaker 2 is extremely valuable and can, just like specific knowledge, can juice your returns. I mean, it's like a type of specific knowledge.

Speaker 1 Well, what do you mean? It's just have a specific knowledge.

Speaker 2 Well, I mean, to build a brand like Y Cobinator, you have to like understand what tech founders want, so they, you know, use that knowledge to create, you know, a place that's great to go do your startup.

Speaker 2 Yeah, yeah, yeah, yeah.

Speaker 1 Interesting.

Speaker 1 Is the market for blogging efficient?

Speaker 1 So now there's actually financial rewards to blogging. That's not the effective ideas blog prize.
There's other kinds of grants like this.

Speaker 1 Recently, Open Philanthropy Contest of You Suggested Cause Earth.

Speaker 1 They have like, you know, there's many prizes where like if you're good, it seems like if you're pretty, really good at blogging, you could like earn six figures, it seems, given like the regularity and size of these prizes.

Speaker 2 um yeah so is this a market that we should expect to be efficient i think it would be hard to measure like given my own experience like i'm blogging for free but the benefits i've gotten from learning about what i'm blogging about and then like a few connections i've made that then helped me like with what i'm my projects i'm working on you know like there's like huge returns could and it could be you know like if my project's successful like could be just like almost immeasurable.

Speaker 2 So yeah, I would guess it's very hard to measure and probably inefficient in that more people could blog because it's hard to

Speaker 2 predict the returns to what your blogging might have.

Speaker 2 But I guess if you're going to do these blog prizes, I don't know if the blog prize, you know, because the blog prizes are about specific topics, I don't know if that,

Speaker 2 how much that helps the efficiency there.

Speaker 1 Yeah, yeah. Let's take that part of it out.

Speaker 1 Let's just talk about the factor you mentioned, which is that you can, this is a regular thing you hear from people who write online, which is that the gains they get are huge.

Speaker 1 And that's also the case in my case.

Speaker 1 And so it's a kind of interesting, I guess, efficient markets doesn't like, just because the stock market is efficient doesn't mean that everybody will put their money into the stock market, right?

Speaker 1 That's not the implication. So

Speaker 1 it's very possible that you have irrational actors who are not like invested in or like writing.

Speaker 1 But then the question is, given that you're writing something that's high quality, will it get

Speaker 1 noticed by the market? Like, will it get the attention and broadcasting that it deserves? And in my experience, actually, like, I I guess this was the case.

Speaker 1 You mentioned that some of your first posts ended up on Hacker News, right? So in that sense, that market was efficient. But yeah, it seems to me that when somebody finds a good blogger,

Speaker 1 it's not hard for their initial post or like at least their subsequent posts as they get better to gain an audience.

Speaker 2 Yeah,

Speaker 2 I do think that. And I don't know what the...
what the counterfactual is. We don't know about the people that

Speaker 2 didn't have posts to go to Hacker News.

Speaker 2 So like it could have easily been, I mean, I think that what the alternative for me is I just would have blogged way less, you know, if one of those early posts hadn't hadn't gotten more attention.

Speaker 2 So yeah, it's hard to know what the counterfactual is. How many people have just like abandoned blogs that did like three posts and they would have written one more, maybe it would have been better.

Speaker 1 Yeah, yeah. Okay, Austin, this has been a lot of fun.
Thank you so much for,

Speaker 1 I think we're two hours over at this point. So thank you so much for your time.

Speaker 2 All right, Thank you.

Speaker 1 I don't know if you have any other final thoughts or any other subjects that we should hit on or.

Speaker 2 No, you know, I think we covered everything. Okay, cool.

Speaker 1 Cool. Awesome.
And then just people can find you at austinvern.site. Okay, austinvernon.site.

Speaker 1 And then your Twitter is.

Speaker 2 I think it's Vernon3Austin.

Speaker 1 Okay. And it'll also be on the show description.
But yeah. Okay.
Yeah. Thanks so much for coming on, man.
This is a lot of fun.

Speaker 2 All right. Thank you.