Albert Wenger - World After Capital - [Invest Like the Best, EP.80]

My guest this week is Albert Wenger, a managing partner at Union Square Ventures and the author of the book World After Capital. Albert studied economics at Harvard and earned a PhD in information from technology, but if you’d asked me to guess before looking those up, I’d have guessed that he studied philosophy because of how widely he has thought about the world and the impact of technology. Our conversation is about how technology is changing the world from an Industrial Age to a knowledge age. We explore how cryptocurrencies, low cost computing, and regulation will impact our future and why the transition may require delicate care. I loved this conversation because of my obsession with the concept of scarcity. We explore what has been scarce through time and what may be scarce in the future. Albert is one of the most interesting thinkers I’ve come across and was a pleasure to speak with. I hope you enjoy our conversation. Hash Power is presented by Fidelity Investments For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag Links Referenced World After Capital Show Notes 2:16 – (First Question) – Defining what it means to be human 2:58 – World After Capital 3:56 – Trans-humans vs neo-humans 4:37 – The concept of Qualia 5:25 – Albert’s investment philosophy= 8:27 – How Albert began his exploration into cryptocurrencies 12:59 – Most exciting things blockchains could enable 14:27 – How does Albert view blockchain technology from the view of an venture capital investor 17:00 - Why Albert thinks that the dominate cryptocurrency of our time may not exist just yet and what he is looking for in protocols that will become the leader in the space 20:16 – What are the central functions that will be important in cryptocurrencies 21:22 - The state of regulation in the cryptocurrency space 27:37 – What has Albert most excited for the future of blockchain 29:10 – The idea of universal basic income 32:26 – How do you solve the problem of giving money value in a world of universal basic income 35:00 – How scarcity has changed over time 39:01 – Role of financial capital in the last 200 years of civilization 42:39 – Are we as a society only capable of solving problems once they become an immediate threat 44:15 – Explaining the idea of attention as a scarce resource 47:56 – The two key drivers of change; zero marginal cost distribution and universality of computational power 53:13 - What should we as investors and inventors be focusing on as the new objective function 57:24 – Scariest aspect of this transition into the knowledge age 59:45 – Three basic freedoms we all seek; informational, economic, psychological 1:02:13 – Fermi’s paradox and the scarcity of attention 1:02:56 – How Albert thinks about his own day and wellbeing given all of this information 1:05:01 – Kindest thing anyone has done for Albert Learn More For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:36Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

• 0:57Speaker 02

  Patrick O'Neal is the CEO of O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 1:32Patrick O'Shaughnessy?

  My guest this week is Albert Wenger, a managing partner at Union Square Ventures and the author of the book World After Capital. Albert studied economics at Harvard and earned a PhD in information technology from MIT, but if you'd asked me to guess before looking those up, I'd have guessed that he studied philosophy because of how widely he has thought about the world and the impact of technology.

• 1:51Patrick O'Shaughnessy?

  Our conversation is about how technology is changing the world from an industrial age to a knowledge age. We explore how cryptocurrencies, low-cost computing, and regulation will impact our future and why the transition may require delicate care. I love this conversation because of my obsession with the concept of scarcity. We explore what has been scarce through time and what may be scarce in the future. Like the Hash Power Documentary, this episode and other Hash Power singles are brought to you by Fidelity Investments, a company that is constantly researching and experimenting with emerging technologies like crypto assets and blockchain to improve the lives of their customers. Fidelity provides a comprehensive set of products and services to individual investors, employers, and financial advisory firms. For more information, please visit fidelity.com.

• 2:34Patrick O'Shaughnessy?

  Albert is one of the most interesting thinkers I've come across and was a pleasure to speak with. I hope you enjoy our conversation.

• 2:49Patrick O'Shaughnessy?

  Given the rise of augmentation, both physical and mental, in humans, how would you define what you think it is today to be human? And how might that change in the coming decades?

• 3:00Speaker 03

  Today, to be human, I believe, is to be able to contribute in the knowledge loop. So, people have had long conversations about what makes us humans distinctly human, and people argue about things like emotions, and they argue about consciousness, and I think all of those things are very debatable. We have a dog at home. I think that dog has consciousness. She certainly seems to have emotions. I think there's one objective reality that only humans as a species have in this world, and that's what in my book I call knowledge, as a artifact that can be shared over time and space, that encodes something that other humans can then make sense of. So, I can read a book today that somebody wrote 1,000 years ago in a

• 3:43Speaker 03

  different part of the world. I can listen to a song tomorrow that somebody recorded yesterday or minutes earlier in the same place or somewhere completely different. So, only we have that fundamental technology of recording knowledge and sharing it. And so, that is the thing that makes us human, and to be able to... To participate that in whatever form, you know, whether it is that you make music, or you listen to music, or you critique music, or you write, or you listen to a podcast, or you make a podcast. All of those are various forms of contributing to the knowledge loop. And I think that's the most human thing that humans do.

• 4:18Patrick O'Shaughnessy?

  You think that will persist, sort of that's future proof? That will persist regardless of changes in technology?

• 4:23Speaker 03

  I do believe that we will have both trans humans and neo humans. So, trans humans are augmented humans, and we're actively working on that. And then we, I think likely, will have neo humans. These are machines in silicon that will be able to participate meaningfully in that knowledge loop, in the, both the creation and the dissemination and sharing of knowledge. Now, I think we can then talk about what does it mean to be human in a future where we have machines that are also at some level human, in that definition that I just provided, which is the knowledge definition. I think at that point, the thing that we still have that makes humans, humans, and it's a thing that we don't understand very well.

• 5:07Speaker 03

  And it's what philosophers call qualia, which is, when I look at this orange chair over there, I have a feeling of what it feels like to be looking at an orange chair. And we don't know where that feeling comes from. We don't really know how to explain it. We don't know what the physicality is, that physical phenomena that underlie this. I think we have a very good understanding of the brain at its constituent level. We have a very poor understanding of the brain at its emergent phenomena level. And the most intriguing emergent phenomena is this qualia thing. So, I think in a future where machines, neo humans exist, that can participate in the knowledge loop, we're still going to want to deal with humans in many situations,

• 5:48Speaker 03

  not because they're better at the task at hand than a machine, but qua their being a human. And I can give many examples of that.

• 5:57Patrick O'Shaughnessy?

  I was stunned when I was reading the introduction to your book, which is a fascinating way of putting a book out, which is sort of as a living thing, almost like a Kanye West album or something like this. When I read this knowledge loop, because I've been living by a fairly similar idea for kind of my entire career, which is, I think yours was learn, create and share. Mine was learn, build, share, you know, very similar. And repeat that just ad nauseam. I'm curious how that folds into how you think about investing. So what is the investing way of effectively facilitating your own personal version of this knowledge loop? And maybe give a little bit of background as to how you began to form what is currently your investment philosophy? And then we'll get into the details there.

• 6:35Speaker 03

  So at Uniscore Ventures, we've been very thesis driven for a long time. And to me, the idea of having a thesis is a little bit like the idea behind science. So in science, you develop a hypothesis and then you gather some information through either experiments or data that you gather, and then you use that to kind of test your hypothesis and to refine it, to either reject it or change it. I think thesis based investing is somewhat similar. So you have some ideas of what you think might work. You know, one of the ideas that we latched on to fairly early was this idea, hey, with this internet technology, you can connect people. And so forming networks seems like an important thing. And then we made some investments.

• 7:19Speaker 03

  Then we saw that network effects really were very important and maybe the defining feature of internet companies. So then we were like, okay, we were going to hone this down to a thesis around network effects. And then we kept making more investments that were based on network effects. Then lots of people caught up to us and we're like, everybody was like talking about network effects. And we're like, okay, everybody's talking about network effects, so we have to.

• 7:39Patrick O'Shaughnessy?

  Time to move on.

• 7:39Speaker 03

  We have to, yeah, you know. So then we started talking about, we have to find network effects in less obvious places. So we stopped chasing consumer network effects for the most part. And we went into B two B businesses and looked for B two B businesses with network effects. Like a good example of that is a company in San Francisco called Sift Science. So Sift helps companies reduce fraud. You know, I always like to joke, it's very easy to sell on the internet and have no fraud. Just don't actually sell on the internet, right? So. The trick is how do you sell a lot and have very little fraud? So how do you make it easy for somebody who's not fraudulent to transact? The ideal is one click shopping for somebody who's not fraudulent. And then the ideal is anybody who's actually trying to rip you off can't purchase at all. I mean, that's the ideal.

• 8:22Speaker 03

  And so it's called SIFT science because they sift between those two buckets essentially. And what they do is they pool their data across all of their customers. So if they get a signal at one customer, it makes SIFT better for all the other customers. And so as they add more customers, SIFT gets better for everybody. And that's an example of a network effect, but just on the B two B side. So then we morphed our thesis into this, like, let's look for network effects just in less obvious places. And so that's how the thesis sort of keeps evolving. It's it's you form a thesis, you make some investments, you see what's working, what's not working. You see what others are doing and then you keep adjusting it.

• 9:00Patrick O'Shaughnessy?

  Maybe we can go then deep on cryptocurrencies, which I know you have spent a considerable amount of time thinking about from all different angles. It's something I've spent a ton of time talking to people about, trying to understand myself. Obviously, it's something that requires an enormous amount of of a personal investment just to get to the table stakes level. I'm curious how you began to approach it. What was it that so intrigued you and you began exploring it? And then we'll get into what you think are maybe the most exciting opportunities and some of the bigger challenges like we were talking about regulation.

• 9:29Speaker 03

  Yeah, so one of the things that got us interested was this realization that networks that are centrally owned in some way are too powerful. So what are some centrally owned networks? Well, Facebook, Twitter, Amazon, these are all network effects businesses, but they're centrally owned. And the central owner and operator of the network has a huge amount of power. To just take this conversation back a little bit, I remember when I first discovered the web. It was in 1993, the winter to 94. I was in a lab at MIT. I was nominally doing my statistics homework and somebody at a workstation next to me was sort of clicking and clicking and clicking. What are you doing? And they said, "Well, I'm surfing the web." "What's that?"

• 10:14Speaker 03

  "Well, there's this thing on your workstation called Mosaic and you fire it up and you can..." So I fired up Mosaic and then, of course, I didn't do my stats homework, spent the next three hours surfing the web. And I remember, it's one of those moments that you, you know, sometimes have where you remember a moment with great clarity. And I remember walking home and it was a really cold sort of Cambridge winter night. And I was thinking, "Oh, my God, newspapers are dead tomorrow." And then, of course, it took 20-some years for that to actually happen. And that insight that I had was, "Wow, this makes publishing permissionless." Like, I don't, if I have an opinion, I don't need to ask somebody for permission. I can just put it out there on the web and anybody, anywhere in the world can find it. It's such an extraordinary thing.

• 10:55Speaker 03

  And I think many of us who got really excited right there and then, and many of us believed that this was going to result in this world that was going to be highly decentralized, you know, millions of blogs, millions of musicians just putting their music out there, you know. And, well, that didn't happen. So what went wrong? Why did we not get to this world? Well, the flaw is right there in the protocol itself. So the HTTP protocol was easy to implement, exactly because it's a stateless protocol. Every HTTP request is like every request before it and every request after it. Each request can, you know, only transform one resource, and that's a server-based resource. And then that resource is changed, in theory, for everybody.

• 11:40Speaker 03

  That makes it very hard to build a shopping cart. You want to make one request and put one item, and you want to put that item only for yourself and not for everybody else. And, yes, it's actually possible to do this with plain vanilla HTTP, but incredibly hard and basically, nobody built systems that way. What happened instead is that Marc Andreessen, when he built Netscape, invented the cookie. The cookie is a way for HTTP to remember state in the form of a little file on your computer that gets sent along with every request. And then, pretty quickly, people were like, "Well, that's silly. What we're going to use the cookie for is just as an ID into a database." And so, we're going to maintain all the state on the server and we're going to use the cookie to make an ID for your session, for your user, et cetera.

• 12:24Speaker 03

  And so, all that meant is suddenly, there were companies that were in the business of maintaining state. And what is Facebook? It's a gigantic database of our identities, our friend lists, and our status updates. And they operate that database because you can't keep that in cookies. Because I would have to keep all my friends in the cookies and all of their status updates, and that doesn't scale. So, that simple little technical aspect, or sounding like a simple technical aspect, that the protocol was stateless, is what gave us the degree of centralization that we have on the internet today. And so, why are people like myself so excited about blockchain and cryptocurrency?

• 13:04Speaker 03

  Because, for the first time in the history, it is a way of maintaining state without somebody needing to own the database. All of a sudden, the database can be owned by everybody who participates in the protocol. And as a result, there is a hope that we can now build the sort of actually decentralized future that I think most of us who are old enough to remember when they discovered the web, that future that we envisioned at the time.

• 13:31Patrick O'Shaughnessy?

  So, when you're envisioning that future, what are the most exciting things, and I guess the same question today, looking forward with blockchain now in existence, what does that enable that is most exciting relative to what we have now?

• 13:43Speaker 03

  Well, let me start with one thing that I personally care a lot about, and that's self-sovereign identity online. So, what is your identity online today? Well, it's your Twitter handle, your Facebook profile, your Gmail address. It's all stuff that is operated by very large corporations who have no obligation to you to help you maintain your identity. If Facebook decides to remove your account, they can remove your account, and their Terms of Service basically say that they're free to remove your account. Same for Twitter, same for Google. So, now, one alternative to that would be nation-state-based digital identities. But I think the thing that's really promising about the blockchain is to give people identities that are self-sovereign, so it's an identity that I control.

• 14:26Speaker 03

  Now, I may decide to delegate that control to a service provider for some time period. But fundamentally, as long as I can retract it and retract it easily from that service provider, I am completely in control of that identity. That, to me, is one thing we can build that we weren't able to build before, and that, to me, feels like an integral building block of a future world of online interactions that is not controlled and mediated by large corporations, and that isn't easily necessarily revoked even by nation states.

• 14:59Patrick O'Shaughnessy?

  Back to thinking about this with your investor hat on, as a venture capitalist, with a history of investing in early-stage projects or early-ish stage projects, how do you square today, looking forward? So, obviously, I know Uniscore Ventures has been involved in cryptocurrencies for a very long time, but from today, looking forward, with prospective investments in cryptocurrencies, this kind of weird tension between enormous, we'll call it, network value versus market cap value or something, in all global cryptocurrencies with fairly limited decentralized app uses, holding aside store value, which we've talked about a lot, which is interesting and compelling. But when you think about what the foundational layer protocols might be, do you think we've already solved that problem and it's Bitcoin and Ethereum? Do you think there might be others?

• 15:44Patrick O'Shaughnessy?

  And how do you square this being exciting, but it also seeming really frothy and expensive?

• 15:49Speaker 03

  I believe that Carlotta Perez is thinking on these technological changes and how they result in financial bubbles, I think, is really very good. So whether it's railroads, or the dot-com, or 3D printing, or at one point, carbon nanotubes, whenever you have some big technological breakthrough, you wind up having a bubble around this. And that bubble actually serves an important social function, which is it attracts a lot of capital to the sector. That capital is needed to build the infrastructure on which everything else later sits. I mean, we're still lighting up fiber today that was put in the ground during the dot-com bubble. So that fiber is now an incredible infrastructure resource.

• 16:33Speaker 03

  A huge amount of open-source software, a huge amount of progress in web browser technology that today we take for granted, all came because billions of dollars were poured into startups during the dot-com period. I believe we're very much in a similar situation for blockchain. That is, we're very much in this early rational bubble where important infrastructure investments are taking place. I try to look at the world as much as possible in terms of probabilities. So I think that there, in my mind, is like a 20% chance that one of Ethereum or Bitcoin will be, you know, the sort of dominant blockchain on which we built things.

• 17:15Speaker 03

  More likely that's Ethereum than Bitcoin because of the way the teams are approaching those projects. But I think there's an 80-plus percent chance that the dominant long-run blockchain is either a project that's currently being undertaken or one that we haven't even heard about yet, that hasn't maybe even been started yet.

• 17:33Patrick O'Shaughnessy?

  Can you expand on why you think that's the case? Because one of the things I've found most interesting and compelling is the sort of anti-fragility of the Bitcoin blockchain, and specifically it's the one I've spent the most time on. Where just the history and the hash power and the ability to see, to overcome like really incredible problems, breakdowns, variables, has made it stronger and stronger, and that that lead will be very hard to make up. So I'm curious if you're thinking about trying to potentially invest in the thing that ends up being in that 80% probability range. What are the things, what are the features that you're looking for that are different from what those kind of two foundational ones have?

• 18:07Speaker 03

  For starters, I think that there's a question that I want to answer first and then back into the question you just asked. So my view is that when the dust settles, when we're all said and done, when we have global-scale blockchain systems with massive usage, I believe that there will be at most a dozen or so protocols that actually matter. So to get to the dozen that matter, we're going to have to try thousands, if not tens of thousands. Now, what are the likely characteristics of the ones that will persist? Well, they will actually scale. I mean, it's, you know, critical. They will actually be decentralized, meaningfully decentralized, so that there isn't sort of a small group of people that by virtue of their access to the code

• 18:51Speaker 03

  or their reputation in the community or their holdings can change the whole system easily. So I think those are some of the places we need to get to. And you're absolutely right. The zero knowledge position is that your best prediction for how long something will be around is how long it has been around. So Bitcoin has been around the longest. So if we know nothing else, we should predict that it'll be around longer than most of the more recently started projects. It turns out that predictor is very, very powerful. And so I think there are lots of reasons to think Bitcoin will be around for a long time. It has been attacked very frequently. It's a very large outstanding bounty to be cracked and hasn't been cracked. So that should give us some confidence that it's actually genuinely hard to do.

• 19:36Speaker 03

  It does fulfill an immediate use case, which is, you know, it is censorship proof wealth, wealth that can be moved much more easily than any other form of wealth. So, you know, gold bars are heavy and hard to transport. Here, all you need to be able to do is memorize a pass phrase. I mean, you can literally carry this information in your brain. You don't even need it on a key. So that, I think, is likely good reason to believe that Bitcoin might be one of those systems that when the dust settles is around. I'm not sure, however, that Bitcoin will be the system that will be used for decentralized other systems to be built on top of it. It could just be there as doing, serving, continuing to serve the function that it serves today.

• 20:21Speaker 03

  So gold is around today and we have other payment systems. So gold didn't disappear when we had other payment systems. Why? Because it serves a specific purpose. So I think I'm very skeptical about any kind of maximalist claims in this sector. I just think we don't know nearly enough to make a maximalist claim. So, you know, like a Ethereum will win everything claim. I just don't see any foundation for that, making such a claim.

• 20:48Patrick O'Shaughnessy?

  You mentioned maybe there's a dozen that survive and are useful. Is that based, again, thinking back to thesis driven on? Your belief that there are sort of a list of things that we need to be able to do in a decentralized fashion, meaning like compute, storage, is that kind of how you think about it?

• 21:02Speaker 03

  That's exactly right. I think we need to be able to store things. We need to have decentralized identity. We need to be able to compute things. There is not a super, super long list. And, and yes, there'll be higher level stuff, you know, like how do you do collectibles or anything that is non-fungible. And so I can think of a number of things. And how do you do staking, you know, for whether that's for token curated registries or whether that's for any other thing where you want to have a skin in the game type mechanism. So I just, when I sit down and try to think, oh, well, do we need hundreds or thousands of different protocols? Well, the existing world doesn't have hundreds or thousands of different protocols in it either. So even the world of commerce, you know, if you just think about there's certain things you need to be able to send money, you need

• 21:47Speaker 03

  to be able to be able to send product, you need to be able to agree on prices, that just it's hard to come up with a thousand protocols, I find.

• 21:55Patrick O'Shaughnessy?

  This is a fast moving new technology that I think because of the network values and that just the raw prices involved have really started to get the attention of regulators throughout the world. And last time I was here, we were talking a ton about regulation. And so I'd be curious to get your take on where we are in that cycle. What concerns you? What do you think would be the best approach to regulating these things? And we'll talk about sort of the implications for the ecosystem as a result.

• 22:23Speaker 03

  I tend to believe that some amount of regulation is good for things to work well, but you need the right regulation. The example I always give is cars. When cars first emerged, there was early regulation that sort of said, oh, can't go faster than a horse darn carriage. That's obviously bad regulation for cars. But ultimately cars were successful because we wound up having regulation around, you know, okay, you need to drive on this side of the road, you know, if you want to be in this country. Like, that's a good piece to agree on and to agree on through a regulator rather than try and have, you know, individual compromise, like, you know, different from town to town that would make driving like impossible, basically. So I believe some amount of regulation will be good here. Now, the challenge here is that ideally, we'd like to find global regulation because it's a global infrastructure, these are global systems. And that's really hard to do because

• 23:08Speaker 03

  there are no global regulators. So that's one problem. The other problem is that The existing national regulators have an instinct that is to try and regulate under whatever that thing is that they have purview over. At this Monday event that you were at, somebody had this wonderful analogy, which is comparing cryptocurrencies to a platypus. So a platypus has mammal-like features, but it's not a mammal. It has duck-like features, but it's not a duck. Well, cryptocurrencies have securities-like features, but they're not a security. They have currency-like features, but they're not a currency. And so, one of the failure mode here is that we say, hey, we're going to take this legislation, some of which, like securities legislations, is from the 1940s. And we go like, okay, we're going to take 1940s legislation and we're going to go regulate something that was created in the year 2000 something.

• 23:53Speaker 03

  That is the cars can't go faster than buggy whips approach. It's like, we have buggy whip regulations, so we're going to apply that to cars. Like, we don't want that. So, what can be done? Well, I think in the near term, the best thing always to do is to create safe harbors. Let things grow, and then figure out what goes wrong. And then use existing laws on other things to go after really bad actors. I mean, there are fraudulent ICOs out there. I think most of these could be prosecuted simply under fraud laws and, you know, defrauding the public, where you don't need to apply securities law and then apply that across the board to everybody.

• 24:25Patrick O'Shaughnessy?

  So, as I think about government action, I saw a fascinating chart the other day that showed effectively the amount of antitrust activity that was going on from a regulatory perspective, and it's just at an all-time low. I mean, it's totally flattened or gone away, even though there are companies with this incredible sources of power. You've mentioned all the names already, maybe Amazon's a great example. And the reason for this is that it just seems that these companies are great for consumers, Amazon again, where typically their goal with antitrust regulation was consumer protection, but consumers love these services. And that maybe one path to getting the best sort of regulation or laissez-faire approach from the government would be that the consumers just love using these things. And cryptocurrencies don't seem to be widespread enough or used enough yet to get there.

• 25:10Patrick O'Shaughnessy?

  Do you think that that is potentially one longer-term solution, that if it becomes really useful and something that people love, that that will affect how governments approach them?

• 25:20Speaker 03

  Well, I think we have an interim problem that is more significant, which is...

• 25:29Speaker 03

  When the web came around, I think some governments, such as the US government, saw this as an important innovation that could deliver consumer benefit. And so we got some important safe harbors in place very quickly. We had a moratorium on sales tax on the internet. We had the DMCA safe harbor. DMC itself has some other problematic bits, like the anti-circumvention provision, but the safe harbor in the DMCA was very important. We had a safe harbor in the Telecommunications Decency Act. Those safe harbors were critical for those companies to grow to the scale they have today. I believe today governments are looking at what's happening with cryptocurrency, and they're not taking the same benign view that this is going to be good for the world.

• 26:14Speaker 03

  I think many governments are going, wait a second, how are we going to tax people? How are we going to control the money supply? This is dangerous stuff. We don't want to create safe harbors that lets the stuff grow. So I think there's a fundamentally different mindset among regulators vis-à-vis this. And I think that is a much more imminent danger here. I also personally believe that antitrust would be the wrong way to go after the current new incumbents. Very much the same idea. Antitrust comes from the industrial age, and it's an industrial age thinking. The type of regulation that I personally would love to see is, if you have a million

• 26:56Speaker 03

  or more consumer users, you need to provide your consumers with API keys. That would be very powerful legislation. And it would completely shift how I can interact with Amazon. Now I could have powerful bots operating on my behalf, scanning Amazon, comparing Amazon to three other sites automatically. It would give startup sites a real go, a real run at it, because instead of my just going to Amazon and my, the human, having to make the effort of checking a second site, which nobody does, I could have a machine do it on my behalf. Same goes for Facebook. You know, if I had an API key, I could interact with Facebook on a mediated basis. I could reassemble my feed on the way that I like it, based on my friend's status updates.

• 27:38Speaker 03

  Like, all of that power we could give back to the end user with the stroke of a pen, with a single law that is a very simple-to-explain law. I just explain it literally one line. That's the kind of legislation we need against these big digital companies.

• 27:54Speaker 03

  And then ideally, we need safe harbors to develop the new decentralized infrastructure. And there, I worry about people in government already seeing that this is potentially, in fact, a meaningful curb on the power of government, which I personally think would be a good thing. But I think many people are going to disagree with.

• 28:09Patrick O'Shaughnessy?

  What has you most excited? I know regulation has you concerned, or maybe hopeful for thoughtful legislation. But what has you just most raw excited about the future of blockchains?

• 28:20Speaker 03

  Well, first of all, I think all the incredible talent and brainpower this is attracting, you know, some incredibly smart people are working on this. And that's really wonderful to see. A lot better to have people work on that than how to optimize an ad to get me to buy things that I don't need. So that's wonderful to see. I think that the early progress that's been made is wonderful to see. I mean, the fact that we have systems such as Bitcoin and Ethereum is really quite incredible. I think there are a great many promising new projects that people are working on. And that's also exciting. So just the raw activity in the space, I think, is incredibly exciting. And then I do believe, you know, I'm very much interested in kind of how can society, how can humanity get to what in

• 29:05Speaker 03

  my book I call the knowledge age. An important component of that is I'm a believer in basic income. I do think that there is a real possibility that we can build a global basic income system on the blockchain and a cryptocurrency system. And there are, and one of the exciting things is that people all around the world, there are multiple projects trying to work on this. Now, it could very well turn out that none of these projects work, but I don't think it's impossible to do this in principle. And I think that is an incredibly exciting prospect to think that we have a technology that might get us to a global basic income without the need for the nation state to act. That is a tantalizing, tantalizing possibility.

• 29:42Patrick O'Shaughnessy?

  We'll use that topic as a way to get into the overall arc of the book of World After Capital. Could you describe in some detail, this idea of universal basic income has come up a lot. It's something I've not personally spent a ton of time beyond just the surface level, you know, understanding what it is. Could you describe kind of what you mean by that, what you take it to mean, and maybe how we might think about actually implementing something like that, and why we need it?

• 30:04Speaker 03

  The way I think of universal basic income is as providing economic freedom. So the history in the United States of this idea goes back to the founding fathers. Thomas Paine and Thomas Jefferson, they talked about how when people came to the United States, they became free because we were able to give them land. Important footnote, land that we had taken away from Native Americans. But they were really forward-looking people. So they were like, and this is really incredible how forward-looking they were because there was a lot of land. And yet, all the way back then, they were like, we're gonna run out of land someday. And then they were like, well, what can we do? Well, we could just give people enough money so that they're still free. Free in the idea that you don't have to go work for the man.

• 30:47Speaker 03

  The man either being, you know, at the time, some aristocrat, or the crown, or today, the man being whoever can offer you a job. So that is a powerful, powerful idea related to freedom. And I believe that we are at the beginning of an extraordinary transition out of the industrial age into something new. I don't know, I don't pretend to know what that new world will really look like. I hope it centers on knowledge. I call the knowledge in the book. But my primary concern is how can we make it so that this adjustment can happen? People can try out different things. Well, in order for people to try out different things, we need to make people free so they can actually try out new things. And one central freedom is the freedom to allocate your time and to live in wherever

• 31:31Speaker 03

  place you want to live. Why is everybody living in cities these days? It's not because everybody loves cities. It's because the only place you can earn a living for most people. I mean, some people have skills where they can work remotely, designers, coders, editors, et cetera. But for most people, the only place they can earn a living is the city. And that's why everybody moves to cities. So if we want to free people up to try new things, to try new forms of living, we have to really make them free. Now, we can't give them land anymore, but we can give them money. And the founding fathers had that idea a long time ago, and we now have the ability to actually execute on it. So that's, for me, it's part and parcel of how do we You know, we've had two prior big transitions.

• 32:13Speaker 03

  We went from the forager age to the agrarian age about 10,000 years ago. After living for foragers as millions of years and as Homo sapiens as 250,000 years of being foragers. Then we transitioned to the agrarian age. Then about 100 years ago or so, we went into the industrial age, really only fully into the industrial age after World War II. So 1945. We're now at this threshold to this knowledge age. Now, if you look at the transition from the agrarian age to the industrial age, it was absolutely horrific. Many revolutions, ultimately two world wars to get us there. The reason I believe we need to increase individual freedom and economic freedom is one of those freedoms we need to increase

• 32:51Speaker 03

  is so that we don't yet again have a cataclysmic adjustment, but rather let people try out new things and see what works.

• 32:59Patrick O'Shaughnessy?

  So money, it's a fascinating comparison to land. Where I struggle is land doesn't require trust. So if you give me a pot of land, like I can go do something with it. It's very tangible. It's real. I can see it. I can grow stuff on it, et cetera. Whereas money requires that a whole bunch of other people are buying the same story because it's such an intangible thing. You know, I'm sure we've all talked about sapiens too many on all these podcasts, but the idea of money as a story where that's what I love about Bitcoins. It's sort of a story that as more and more people believe the story, more and more value accrues to the coin itself. So in the context of universal basic income, how do you, how do you solve that problem? So giving land to people makes sense to me, but who is the issuer? Like where, where does the trust come from?

• 33:41Patrick O'Shaughnessy?

  Why doesn't this just become like, you know, Russians getting vouchers and selling them for a bottle of vodka?

• 33:45Speaker 03

  Let's start with how it could happen in the existing nation state system. So in the existing nation state system, the idea that I'm most fond of for how to implement a basic income, let's say in the United States, would be to move from fractional reserve banking to whole reserve banking and to shift the money creation from the bank system to the basic income system. So money still enters the economy, it just enters the economy in a different spot. So, you know, I have a fair bit of net worth. I have a high income. I can go to the bank. I can get a mortgage for a second home, a third home, whatever, like whatever crazy idea I have. Most people can't even borrow from the bank for their first home. And that has everything to do with having put money creation with banks.

• 34:27Speaker 03

  There's nothing in economics or anything else that says money creation has to be with banks. Now, the other interesting thing about these ideas is that these are not like left or right ideas. Milton Friedman was a big advocate of moving to whole reserve banking. So it's just where does money enter the economy? Does it enter through banks or does it enter because we give it to people? And it's just a distributional issue. The amount of money remains the same. So when people always look at the government household and they always scratch their head like, how can we rebalance the government household? You're already starting with the wrong problem. The problem of money in the economy has to do with where money comes from and how it's created. And the government household is just one tiny fraction of the money in the economy.

• 35:05Patrick O'Shaughnessy?

  So if we go back to blockchains then, is there a version of this where you hear the term like airdrop all the time, where you could have a global system? I guess it would require again, an issuer that people trusted or some system or network that people trusted and it's sort of just given to everyone and we see what happens?

• 35:21Speaker 03

  Yes, I think that's entirely possible. That's one of the things I'm, if you ask me what I'm most excited about with blockchain, I think this possibility, the mere existence of this possibility is quite extraordinary and has me super excited.

• 35:33Patrick O'Shaughnessy?

  So let's go, let's go to your book now and talk about the overarching thesis. You've mentioned some key elements already, but maybe again, start with a map of the, mentioned already, the ages that we've moved through from agrarian to industrial to a knowledge age. Talk about the couple key features, scarcity being for me, the most interesting one, how scarcity has changed across those ages and how it might change in the future.

• 35:53Speaker 03

  We talked earlier about, at the beginning of the conversation, we talked about knowledge. And I said, knowledge is what makes humans human. Knowledge is also this extraordinary powerful force in the universe. It's through knowledge, for instance, that we know how to make fire. We're the only species that can reliably make fire. That ought to tell you something about the power of knowledge, right? So now what we've done over time is we've used this knowledge to create technology. The first really big technological breakthrough in human history is the set of technologies that collectively we think of as agriculture today. And that's things like figuring out that there are seeds and that you can plant them, that you can irrigate them, that you can domesticate animals, lots of different things that all come together to form agriculture. And what happens when you create new technology is that

• 36:37Speaker 03

  You grow what I call the space of the possible. So lots of new things become possible. And you remove a constraint, you shift a constraint. So in the forage age, the binding constraint was food. Your tribe either found enough food or it starved or it had to migrate. Incidentally, that's why one of the key features of the forage age was that we were migratory. With agriculture, the binding constraint shifted to land. Your society either had enough arable land, in which case it could thrive and build a hierarchical society. Or it didn't, in which case things fell apart. That shift in the constraint really changed everything about how humans live. So we went from being migratory to being sedentary. We went from being promiscuous to being monogamous sish.

• 37:18Speaker 03

  We went from having very flat tribes to having extremely hierarchical societies in the agrarian age. We even changed religion. We went from animistic religions where every rock, every animal has a spirit in it, to theistic religions where you have some number of deities. Then, for a long time, nothing happened. Like, we went another few thousand of years until the Enlightenment came around and until we really cracked the nut on science. And science gave us chemistry and mechanical machines, electricity, mining, just a whole new way of doing things. And it once again shifted the binding constraint. The binding constraint was no longer land. It became capital. And by capital, I mean physical capital.

• 38:00Speaker 03

  Machines, buildings, infrastructure, transportation. That shift, again, resulted in us changing everything about how we live. We went from living in the country to living in the city. We went from living in large extended families to living in nuclear families or no families. We went from a world that was dominated by commons, communally owned property, to a world that was dominated by private property, including private intellectual property. We went from religions that had a great chain of being theology, where the religion said to you, "Look, you're a farmer. I'm going to tell you how to be the best possible farmer, but you will never be an aristocrat, don't even think about it." We went from that to the Protestant work ethic, which is like, the harder you work, the better off you will be. So we have literally changed everything about how humanity lives twice already.

• 38:44Speaker 03

  And each time, we changed it because we had a breakthrough in technology that shifted the constraint. And the central argument in the book is that we have this again today in the form of digital technology and the constraint is no longer capital, physical capital, but the constraint is human attention. And so we are going to have to change everything again. And that's why the second half of the book talks about, okay, if we're going to change everything, I don't believe in top down, like I'm not going to, nobody's going to dream up what the perfect knowledge age society is. In fact, every time we tried that to get into the industrial age, we wound up with

• 39:16Patrick O'Shaughnessy?

  Fails miserably.

• 39:17Speaker 03

  Yeah, we wound up with, you know, Stalinism and we wound up with the Great Leap Forward. We killed tens of millions of people with top down approaches to transitioning into the industrial age. So let's not repeat that mistake. So this is really about creating conditions in which people can figure out for themselves how to live in this new age.

• 39:33Patrick O'Shaughnessy?

  So I'm always fascinated by financial capital innovation where again cryptocurrencies and ICOs are fascinating, even if there's all sorts of scams and things happening because it's just walls of money that are able to flow much more freely, at least until they're regulated. So maybe talk about, you mentioned physical capital being the binding constraint. Talk about the role of financial capital in that same kind of, let's call it like last two to 300 year period.

• 39:56Speaker 03

  Yeah, so financial capital is this important intermediate step to creating physical capital. And I teach a class at NYU, the class is about product market fit, but I always ask the question, why companies need financing? Because I want to see who can answer that question. And surprisingly, a lot of people struggle with that question. And there's one and only one answer that is the correct answer, which is the timing of cash flows. You need financing if you have to pay people before you get paid. That is the only reason companies need financing. And this is very important to understand because, you know, we don't clothe ourselves in dollar bills. We don't write around in gold bars. This intermediary form is just that. It's an intermediary form that we use to get to physical capital.

• 40:41Speaker 03

  So what we want is, we want efficient allocation of financial capital to projects that are then going to create physical capital. And it's very, very clear that the market based approach to that was far superior to the central planning based approach. And there can be absolutely no doubt about this. I think we have since made a lot of mistakes. One of those mistakes is that we have let the financial sector itself grow way beyond what can be translated into meaningful physical capital. So a lot of financial capital sloshes around chasing returns that are completely unproductive in the physical world. So that's one massive mistake. Another massive mistake that we've made is that we've reduced the performance of companies to a single variable, which is quarterly earnings.

• 41:26Speaker 03

  That's a massive mistake. A company is a very highly multi-dimensional thing, and to reduce it to a single number is a very bad idea. And that combined with managerial capitalism, where we've given people very strong incentives to maximize for their own short-term benefit. I mean, that has led us down many bad paths. So I think our capitalism today isn't nearly as functional as the capitalism we had some time back. I also, that's fixable, I believe. Another central tenet of the book, though, is that the allocation of attention is not, in fact, solvable through capital. Listen, why is that the case? Because for the most important things that we need to pay attention to, either as individuals or collectively, there are no prices. Capitalism works incredibly well when you can have markets that can have prices.

• 42:11Speaker 03

  But what is the price for you and I to discover our purpose in life? There is no market mechanism that will solve that. That's an attention problem that we need to allocate attention to without a market mechanism. What is the price for humanity being able to deflect an incoming asteroid? Detected, deflected? There is no market mechanism that will allocate collective attention to this problem. And in fact, because we're currently at a kind of momentary point of market maximalism, because markets were so successful, we want to try and solve everything through markets, even the attention allocation problem, which cannot be solved through markets. That's why we're externally heavily underallocating attention to really crucial things, both at the individual level, people working, you know... Incredibly hard in their jobs and then having some massive midlife crisis because

• 42:56Speaker 03

  they never worked on anything that purpose, they never discovered purpose in their lives. And that's why as humanity, we're dramatically under investing our attention on things like climate change and asteroids and all sorts of other like human global scale problems.

• 43:12Patrick O'Shaughnessy?

  So what if the solution to that problem is just that whenever one of our base level needs from like the micro to the macro, so whatever food, shelter, reproduction, asteroids, global warming, whatever, when something threatened, existentially threatens one of those needs, it seems like we as a species have been able to sort of rise up and attack the problem collectively. Do you think that that's what it will take that we're never going to be capable of maybe, let's say, solving global warming far enough in advance, but maybe it's irreversible. I don't know enough about global warming to get too deep into this, but some existential threat that we will rise to it and allocate our attention properly if it's an existential threat?

• 43:51Speaker 03

  So two parts. One is, I don't think there are problems that are in principle not solvable. So I mean, part of the beauty of knowledge is it's very powerful and if you accumulate enough knowledge, you can solve, I think, any problem is a solvable problem. I do, however, think that the history of humankind actually points in the opposite direction, which is we tend to come too late to these things when they have become kind of hard to reverse and when we're really, really, really behind. I mean, human history is full of civilizations that rose very high, only to fall very far. Whether you want to go to the Yucatan, Easter Islands, I mean, Guns, German Steel is full of examples of this, right? So I think if you look at human history as a guide, it's actually not very

• 44:31Speaker 03

  encouraging. It would suggest more that we fall so far behind that we then kind of fall off a cliff. So yeah, I'm kind of writing this book and I'm talking about all this stuff because I'm like, maybe it's not too late, maybe we can still get ahead of it, but I'm not entirely optimistic on that.

• 44:48Patrick O'Shaughnessy?

  So back to the idea of attention as scarce. Maybe you can explain that in a little bit more detail in terms of what you mean by it. So obviously, there's whatever, there's a certain number of hours in the day. Therefore, there is a certain amount of Focused attention that any human can allocate to different things. So what what concerns you about that? Where, how, how do you think it is being allocated? How does all this digital stuff affect that? And then maybe we can get into some of the second half of the book about some recommendations. We talked about basic income for how to tackle this problem.

• 45:18Speaker 03

  So you hit the nail on the head here, which is, you know, whatever you and I paid attention to yesterday, that is irrevocably done with. Like, we can't go back and say, yesterday, I really should have read this book. I really should have written this note. Or it's just, it's done. It's gone. And so it's sort of the ultimate scarcity that each of us have individually in our lives. And also collectively, you know, whatever preparation we didn't do for climate change in the last 100 years, we can't go back and catch up with it over the last 10 years. It's just, you know, whatever it is, it's what it is. Now, I want to go back briefly to the transition from the agrarian age to the industrial age, because it's really important to understand what happened there.

• 45:59Speaker 03

  Towards the end of the agrarian age, the people who were in power politically were people who controlled land. They were aristocrats, they were kings, the churches to some degree. And when they saw what technology could do, they didn't think, oh, here comes the industrial age. They thought, oh, great, we can have tanks and battleships, or we can have more land. They saw everything through the lens of land. I know this firsthand, I'm German. Hitler's crazy program was about lebensraum. It was this idea that there wasn't enough room for the Aryan race to live. I mean, we look at this idea today and go, that's completely whack. But at the time, a lot of the aristocrats were like, yeah, we get that land. We need more land.

• 46:43Speaker 03

  I mean, it made perfect sense in their worldview. So where are we today? We are at the tail end of the industrial age. We see everything through the lens of capital. All the people who are in power politically are either come from capital themselves or indirectly controlled by the interests of capital. When we see a problem, we go, we need more capital. We think we need lower interest rates. We think, you know, we see the world through this lens. And so when we see what computers can do, we don't go, oh, here comes the knowledge age. How do we make as much knowledge available to as many humans as possible? No, we think, how can we have the next Facebook, Snapchat, what have you? Like, how can we have the next big hit in the financial markets? I mean, that's literally how we've been conditioned to see the world. And so

• 47:27Speaker 03

  Now, we're repeating sort of analogous mistake. We're seeing the world through one lens when we should be seeing the world through a new lens. And what makes Facebook worth more money in the in the stock market? The more of your attention they hog. And the more of that attention they resell in the form of advertising. And how do I hog your attention? I don't hog your attention by getting you to go think about your purpose in life. I don't hog your attention by telling you to go research the climate change or, you know, how to deflect an asteroid. I hog your attention by showing you cat pictures or by showing you inflammatory headlines or giving you some cheap emotional hook that, you know, what Kahneman calls system one. You know, like, it's like you just can't even resist it, you know, and you just spend more and more your time there. So the more of our attention they hog, the more valuable they become, and the more of

• 48:11Speaker 03

  it they resell to the existing system, the more valuable they become. So we've made the mistake, just like at the end of the agrarian age, where we harness technologies to the objectives of the old age. We are harnessing computer technology to the objectives of the industrial age instead of using computer technology to invent the new age.

• 48:28Patrick O'Shaughnessy?

  One thing we missed that I really want to cover is the two key drivers that are facilitating this change, those being zero marginal cost distribution and the universality of computation power. So maybe you could touch on kind of what what those two things mean and why they are so critical in this whole story and thesis.

• 48:44Speaker 03

  Yeah, so I think that the one of the big mistakes of thinking is that people go, well, first we had steam powered machines, then we had electrical machines, and now we have digital machines, and they're just another type of machine. And a lot of politicians who are in power, a lot of economists frankly think that way. They look at computers and they go, nothing to see here, no different from the machines that have come before it, when they are completely different. And the first property that makes them so special is zero marginal cost. So in the physical world with physical machines, you know, we're sitting on nice chairs right now. If somebody else wants to sit on a chair, we have two options. I can yank you out of your current chair, or I can make another chair. Well, either of these options is very expensive. In one option, you wind up without a chair, and the other option, we have to go produce

• 49:29Speaker 03

  the chair. So, you know, unless we happen to have more chairs standing around that are empty, we have very meaningful marginal cost in the physical world. But in the digital world, take my book. If you go to worldaftercapital.org, you can download my book. There is no perceptible cost anywhere in the system for somebody downloading a copy of that book. You know, the server on which it is, which is at somewhere at GitHub, that's already running. The connection on the network is already established. Your device is already powered up. Yes, I mean, if you really went super minutely, you could maybe see some small spike somewhere, but for all intents and purposes, it's just free. And that is a completely novel thing because it means you can have a copy, I can have a copy, anybody else can have a copy. Our copies are non-rival.

• 50:12Speaker 03

  You know, it's not like the chair you sit on, like only you can sit on this chair right now. So, and what's really interesting about marginal cost is that all of our edifice of economic analysis is built on marginal cost not being zero. When you get to close to marginal cost zero or at marginal cost zero, pretty much everything we know about the structure of markets, how things should work, just all blows up. It's like the divide by zero error for economics. And we now have it. It's not a hypothetical construct. We are at this sort of mathematical singularity. So that's one property that's really unique and novel. And then the second property is what I call universality, which is that we know that a computer can compute anything that can be computed at all.

• 50:54Speaker 03

  We've known this since the amazing extraordinary work of Alan Turing, who defined a very simplistic computer, which we now call a Turing machine. And then he had an ingenious mathematical proof that basically shows that even this very simplistic machine can compute anything that can be computed at all. Now, what is computation? Well, much of what we do as humans is computation. When you drive a car, that's computation. It's computing, I'm at location A, let's say I'm near Union Square Ventures and I want to drive to Grand Central. Okay, I need to go up Broadway and then I need to make, you know, a ride on Forty Second Street. Like, that's an act of computation. It takes some inputs, the street map, your present location, your destination, and it creates an output which is the route across that street map.

• 51:37Speaker 03

  Once you're in the car driving, you take some inputs, the cars around you, and you turn that into outputs, which is, you know, how much to press the gas pedal versus the brake and how much to, you know, turn the steering wheel. All of these are acts of computation. And that means we already have known, and we've known for a long time, that someday a computer will be able to do those. The only rate-limiting factor on us was that we weren't able to build machines that were fast enough or had enough storage. It turns out that there's many computational problems that require a lot of processing power and a lot of storage. And so what's happened in the last few years is suddenly we have crossed a certain threshold where we have enough compute power to solve these computational problems in Silico. But the fundamental thing about universality is that there isn't anything that we can

• 52:21Speaker 03

  compute as humans, that we can somehow magically compute as humans, that a machine can compute. Completely different example is a doctor, when a doctor diagnoses your disease. The doctor gets some symptoms, maybe some lab results, and then uses those to back into what the diseases are that are likely to be causing that set of symptoms and those set of lab results. Well, that's an act of computation. The inputs are your symptoms and your lab results. The outputs is a probability distribution over diseases. It's a classic act of computation. Machines will be absolutely phenomenally fantastic at that. So to think that digital machines are somehow in line with analog machines is ignoring the property of marginal cost, zero marginal cost, and is ignoring the property of universality.

• 53:04Speaker 03

  And the coolest thing is, once you have implemented something, whether it's diagnosis, driving, or whatever it is, you can replicate that at zero marginal cost. So we have universality at zero marginal cost. So once we have a diagnostic system that can diagnose better than a human, and I have no doubt we will have this in the very near future, we can make the marginal diagnosis from the system at no marginal, at zero marginal cost. That is mind-blowingly amazing. And, you know, I was on Squawk Box the other day, and I sort of said, we have literally hit the jackpot as humanity with this. It's the only question we now have is like, what, now that we've hit this jackpot, are we going to tie it to the old system? Or are we going to go build the new system with it? That's the only question.

• 53:45Patrick O'Shaughnessy?

  So this, you perfectly anticipated my next question, which is, okay, so you run, you run a venture capital firm. You have limited partner investors, whose goal, I think, putting money with you is to have you find the next Facebook, right? Have you find the next grand slam in capitalism and earn an enormously high financial capital return. But that, per our discussion today, is very much optimizing for, for the old paradigm. If we're going to this new paradigm, what is the, what should the new objective function be as investors, as thinkers, as entrepreneurs? Like, what should be the thing, let's get, let's scrap quarterly earnings. It's, I don't really know anybody that feels like that's the perfect thing to optimize for, but that's what, that's what we have. What could we replace it with? Is it stakeholder capitalism?

• 54:30Patrick O'Shaughnessy?

  Is it something completely different?

• 54:32Speaker 03

  First of all, I think the good news here is that we are a long way from being in the knowledge age. I think there are plenty of investment opportunities where we can earn a return for our investors and simultaneously bring us closer to the knowledge age. So a characteristic of a lot of the investments we've been making recently is that there are companies that in some way, shape or form broaden the access to knowledge, to capital, because the access to capital is very unevenly distributed to well-being. So if you think of a company like Clue or Nurx, you know, that's making, in the case of Nurx, certain birth control accessible much more readily to many more women at a much lower cost.

• 55:15Speaker 03

  Or in the case of Clue, you know, information about how your reproductive system is working, where you're in your fertility cycle, what health issues you might be facing, available to many, many more women at basically no cost. When you look at systems like that, those are systems that are very much in sync with the ideas we've just talked about. Another really important thing to recognize is that when marginal cost is zero, you would like the marginal user to not be paying. That doesn't say anything about infomarginal users. So first of all, all these systems have cost to operate, they have fixed cost. So I'm not talking about making everything free for everybody, but we no longer need to charge the same price to everybody. We have it well within our ability to charge some people more and some people less for the same thing,

• 56:01Speaker 03

  partially on the basis of their benefit. And there are many different forms that this can take. One example is Patreon, I think is a fantastic system. So I've been supporting a guy named Dustin Sandlin, who does YouTube videos called Smarter Every Day for quite some long time on, via Patreon. Why? Because I really believe in Dustin. I think what he's doing is fantastic. I get a lot of value out of watching his videos. But they're free on YouTube, anybody can watch them. So, you know, the marginal user can see them for free. I wish YouTube would allow him to run without ads, I think that would be fantastic. But the marginal user can see them for free. I mean, he eventually, I would give some amount of My money to Dustin and some of it to YouTube if that was the way of covering the infrastructure cost.

• 56:41Speaker 03

  But the infomarginal user, the person who really gets a lot of value from it voluntarily gets it not for free. So voluntary payment is one form. Another form where the marginal use is basically free are subscriptions. So yes, you pay a monthly subscription, but within that subscription, the marginal use of the resource is free. That's why a model like Netflix is so incredibly successful. If you take our portfolio company Skillshare, they have a monthly subscription and you can consume any class however many time you want inside of Skillshare. So yes, we should drive the cost of those systems down to where even somebody in India can subscribe to them, you know, for $2 a month. You know, one of the wonderful things that's happened because of the successes of capitalism is we've lifted so many people out of poverty.

• 57:24Speaker 03

  The last few years, we've lifted more people out of poverty than ever before. So now if you take a subscription system, marginal cost and marginal cost to the end user are again aligned, there's zero. So there are many different ways of still building traditional business value of covering fixed costs. All of it while working towards the knowledge age. So the day that I conclude that that is no longer possible and that we've arrived in the knowledge age. Personally, I don't think I'm going to live to see that day, but if I were to see that day and I were still an investor, I would give all the money we have back to people and say, now go knock yourselves out.

• 57:57Patrick O'Shaughnessy?

  What's the scariest aspect of this transition? So previous transitions have tended to be bloody and violent. When you rip out all an old way of living and replace it with a new one. World War II is, you know, you used that example earlier as the final transition into the industrial age. As you look at the knowledge age or our next transition, what are the things that we most need to watch out for maybe that that scare you the most?

• 58:18Speaker 03

  Yeah, so I think the thing that scares me the most right now is that there really isn't much of a coherent narrative of how we're going to get there. In the book, and we can come back to those, I talk about these three freedoms. I call them economic freedom, informational freedom and psychological freedom, which are things I think we should be doing now in order to make a transition possible that isn't going to be as bloody as that prior transition. I fear that we're going to repeat that old mistake where we wait too long, where we don't have Narrative where we don't create release valves, where we don't let the system adjust. So what we're doing instead is we're like, we're standing in front of this dam and we're plugging our fingers in the holes. And so more and more water builds up behind the dam. So when the dam eventually breaks, it's that much more violent.

• 59:02Speaker 03

  So, you know, if you look at whether it's Brexit, whether it's Trump, whether it's Chinkristele, you know, whether it's Erdogan. I mean, everywhere you look in the world, you know, strong men governments are on the rise, the belief in democracies on the decline. The number of millennials who believe that it's important to live in a democracy is at an all time low. So what I worry about is that we are going to rely on the idea that, you know, strong men, and they mostly are men, can get us into the future. When most of the narratives that those people actually bring to the table are retrograde narratives. It's make America great again by going back to some imaginary point in the past. And if you look at ISIS's program, that's they don't want to go back 50 years, they want to go back 500 years to the caliphate.

• 59:43Speaker 03

  But it's not dissimilar in the fact that it's pointing in the past and not pointing in the future. It's not talking about how we can create. And then when you look at the parties that are in the opposition, most of them don't have interesting programs either. You know, I mean, in what happened, Hillary Clinton writes, well, maybe I should have embraced some more forward looking policies like basic income. And then literally a paragraph later, she says, oh, but people are not ready for it. So as long as the both the people who are in power and the people, you know, the people who are in power are getting into power want to go backwards. And the people who are not in power barely allow themselves to dream about going forwards. I think we are very likely to repeat past mistakes.

• 1:00:17Patrick O'Shaughnessy?

  Can we come back to those three freedoms that you mentioned and have you explain each one?

• 1:00:21Speaker 03

  Yeah, so we talked at length about economic freedom. It's some form of basic income. We talked briefly about informational freedom. It's that idea that, you know, I have a supercomputer in my pocket. Every one of us has a supercomputer in your pocket. Your smartphone has more compute power than all the money in the world could have bought in the 1960s or 1970s. Like, no matter how much money you had, you couldn't buy that much compute power. It just didn't exist. Plus, that device is connected to anybody in the world. It's also extraordinary. And yet, when you hold this device, which you've purchased, which you charge, for which you pay for the data plan, and you hit one of the app icons. Let's say the Twitter icon or the Facebook icon or the Amazon icon, they completely take over your device. It only computes on their behalf. It does not compute at all on your behalf. You're reduced to using your thumbs, more or less like an idiot.

• 1:01:03Speaker 03

  We're all there in the elevators with our thumbs, you know, tapping away. And the age old wetware between our ears, right? And on the other end are people who operate millions of servers with, you know, it's just an absurd situation. So we, informational freedom is about how do we get away from this absurd situation? How do I get the supercomputer in my pocket to work for me primarily? And for Google, Apple, Facebook, et cetera, secondarily, not the other way around. And then psychological freedom is about, again, has to do with our brain. I mean, our brain evolved in an environment where when you saw a cat, there was a cat. I can now show you an infinity of cat pictures. And that means that if you don't have some kind of personal practice of how you get yourself away from these systems that are designed by people

• 1:01:47Speaker 03

  who are trying to get as much of your attention as possible. Like, it's not like the adversary here is somebody who like benignly wants to do good things for you. They want as much of your attention as they can possibly get. They, they employ trained psychologists for what is the right amount of nudges? Like enough, but not too many. That, I mean, that's literally what's on the other side. So if you're not investing heavily in your own ability to like, put your phone away, put it on do not disturb, go read a book, you know, not look at your phone at all. If you don't invest in your ability that when you read something online, you don't immediately yell back in all caps or hit the retweet button without thinking like, does that even make any sense? Like, should I maybe click through to that link and try and form an opinion as to whether this?

• 1:02:31Speaker 03

  As long as we're like operating on these brains, again, what Kahneman calls system one, where it's just completely sort of mindless without engaging our rational capabilities. Then I think you can have as much economic freedom as you want, as much informational freedom, you will not be free.

• 1:02:45Patrick O'Shaughnessy?

  The guy in the elevator on the thumbs and us being in service of our devices makes me remember a point, I can't remember if it was in the book or in a post, about a take on Fermi's paradox and, and the scarcity of attention. Maybe you could mention that idea.

• 1:02:57Speaker 03

  Yeah, so Fermi's paradox is this question, if the universe is as large as we think it is, and now we're finding all these planets that are Goldilocks planets, you know, they're not too big, too small, they're not Too close to this, I'm not too far. Why have we not seen any aliens? And in the book I sort of say, well, because aliens, everybody else has gotten roughly to the point that we've currently gotten to. And then they get addicted to their devices, they forget to innovate. And then they, the whole planet gets wiped out by an asteroid, by climate change, by infectious disease, by any of the things that can kill us humans. We're very easily killable.

• 1:03:30Patrick O'Shaughnessy?

  This all makes me really curious about kind of your own personal life, not too personal, but how you structure your day, your activity, how you think about your own well being. And maybe most specifically, given how intensely you've thought about this stuff, the more recent changes. I'm always curious about change, you know, what you do, but also what you've changed in a certain direction. So could you say a little bit about kind of how you live your life?

• 1:03:53Speaker 03

  Sure. So I try and start every day and end every day with a breathing exercise. And I came to this actually through something that's wrong with my eyes. So it was actually kind of a fortuitous thing. I've always had very, very reddish eyes. And I went to a couple of doctors and none of them could explain to me what it was until one doctor said, well, there are two things that lubricate your eyes. One is tears and the other is oil. The oil gets produced under the lower eyelid. And some people have clogged up oil ducts. And so I now put a hot rolled up towel on my face, first thing in the morning and first thing in the evening to, last thing in the evening to, and I combine that with a breathing exercise. And that has been phenomenal for me. I tried to get into the rhythm of doing some kind of exercise in the morning and the evening.

• 1:04:37Speaker 03

  But I needed that extra little thing to give me to go do it. And that's been a wonderful change. I've been doing that probably for about a year and it's been phenomenal. I do try to invest in my health, so I try to go to the gym. One of the KPIs for my EA is to make sure that she puts the gym on my skid hill because that's the only way I go. And doesn't remove it for any other meetings. So I do think, you know, to the extent that it's within your power to maintain a healthy body, you should invest in that. And, you know, I try to, another thing I've done is I keep my phone on D and D all day. My phone never vibrates unless it's somebody of a very small group of people that's trying to contact me. That's my family and my business partners.

• 1:05:16Patrick O'Shaughnessy?

  If you had to describe the things that kind of give you the most joy in your current life, what would those be?

• 1:05:21Speaker 03

  Oh, it's always been the same thing. It's learning something new and then sharing it with other people. I've always loved that and I'm so happy that I get to do that, both as part of my job and as part of moments like this.

• 1:05:32Patrick O'Shaughnessy?

  That's where we started. It's what makes us human.

• 1:05:34Speaker 04

  My closing question for everybody is to ask what the kindest thing that anyone's ever done for you is.

• 1:05:39Speaker 03

  The kindest thing anybody's done is to tell me that something that I thought was my mistake really didn't matter or have the consequences that I imagined it would have. It's like anytime somebody can release you or has released me from something I was blaming myself for, I think that's the kindest thing you can do.

• 1:05:57Speaker 04

  Wonderful. This has been a very deep and interesting conversation. I really enjoyed it. Thanks so much for your time.

• 1:06:02Speaker 03

  My pleasure.

• 1:06:04Speaker 04

  Hey, everyone. Patrick here again. To find more episodes of Invest Like the Best, go to investorfieldguide.com/podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com/bookclub. After you sign up, you'll receive a full investor curriculum right away and then three to four suggestions of new books every month. You can also follow me on Twitter, @Patrick_OShag. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening.