Flying X-Wings into the Death Star: Andreessen on Investing and Tech
Transcript of interview on how tech changes the world
On the CSPI podcast this week, I talk to Marc Andreessen, a venture capitalist and the founder of Netscape. He joins the podcast to talk about what's the matter with science, the prerequisites for progress, and how tech has changed our lives and has the potential to disrupt stagnant institutions. Topics also include how the internet has changed dating, what venture capitalists actually do, and whether there is too much–or too little–money in politics.
I enjoyed speaking with Marc, not only because he is brilliant, but because those of us who write for a living can get isolated from the rest of the world, wrapped up in politics and ideas, while the earth shakes under us due to technological and economic progress. Some examples of this happening from the more distant past include how firearms destroyed the world of medieval knights, and the birth control pill and household appliances facilitated women entering the workplace. More recently, any economist in the world could for generations point to the problems of taxi medallions, but it was a business that came along and helped make the industry behave more rationally. In the early days of the COVID-19 pandemic, as most of the debate centered around lockdowns and other restrictive measures, pharmaceutical companies were inventing the vaccines that would bring the risk of hospitalization and death down to near zero for those willing to take one, even if our choices in the political and social realms show us unable to accept victory.
As alluded to in our conversation, I see Marc and other venture capitalists as on the frontline of the revolution, or several concurrent revolutions, funding those who have the potential to remake our world. How new technologies interact with our politics, culture and intellectual life is a theme throughout our discussion.
Below is a lightly edited transcript of our conversation. You can listen to the audio on the CSPI Podcast, by clicking here or finding it wherever you get your podcasts from.
(beginning of conversation)
Richard: Hi everyone, welcome to the CSPI podcast. I’m here with Marc Andreessen. Marc, how are you?
Marc: Hey good morning Richard, how are you?
Richard: I’m doing excellent. Thanks for joining us. I was looking at the schedule you posted online a while back and it’s very busy so I’m happy that you’re making time for us. For most people you’re not going to need any introduction, but how do you describe what you do, what are you most proud of in your past, and can you tell people more about yourself?
Marc: I’ve had three phases in my career. Phase one I was an engineer and software developer where I was lucky enough to be involved in the formation of what we now call the internet. Originally with the web and then the web browser and then a company called Netscape in the 1990s that used to be famous; some people still remember. [laughs] We helped start what we now view as the consumer internet, business internet, e-commerce and all these things in the mid-90s.
Phase two of my career was as an entrepreneur. Netscape was my first company and then I had two other companies, I was a cofounder after that. That ultimately led into my third career as an investor and venture capitalist. My fourth startup is my current firm Andreessen Horowitz which is a venture capital firm which invests very broadly across technology; many different kinds including a lot of internet technologies, also biotech and cryptocurrency blockchain; many other areas of technology, we’ve become a very active investor in this space.
So I’ve seen this industry and this world from the perspective of a builder: a technology builder, a company builder, and now an investor.
Richard: Venture capitalist is a term many people hear and then they think it’s such a common term that they don’t ask what it actually means or entails. A lot of our listeners are journalists or academics so it’s probably not a word they’re familiar with. Can you explain what you do as a venture capitalist?
Marc: Yeah. In some ways it’s the most cutting-edge side of finance. We’re funding the new things, the new technologies; we basically make bets on very fringe ideas, many of which don’t work. We work typically with very idiosyncratic, strongly willed iconoclastic entrepreneurs who are not necessarily the kinds of people who you’d want running a big bank, but are the right people to build a new technology company.
On the other hand, it is also kind of the original form of investing. When Christopher Columbus wanted to mount an expedition to what he thought was India, turned out to be America, he went to Queen Isabella and she was basically his venture capitalist. She fronted him the money. When the Puritans settled North America, wanted to set up their place here, they actually spent 20 years in the Netherlands raising venture capital so that they could finance their journey.
There’s actually this term in venture capital called ‘carry’, your so-called ‘carried’ interest, which basically is the profit-sharing that the VC like us gets when an investment works. That term carried interest actually derives from the whaling industry. 400-500 years ago, the relationship between a boat captain who was going to go hunt and kill a whale and the investors who would fund his expedition was literally funded like the deals we do. The profit-sharing was called carrier interest because it was literally the percentage of the whale that the captain and crew got to keep; the percentage of the whale that the captain and crew got to take back to the port. Even industries that old and long forgotten were structured on a very similar model.
It’s sort of the true financing of risk in the economy, and I would argue it plays a vital role, not just in the delivery of new technologies. A recent example, not one of our companies… Moderna, which innovated the concept of mRNA vaccines, it was a classic venture capital company. That company would not have existed without venture capital, these vaccines would not exist without venture capital.
We kind of keep the train running in terms of these technologies, but I would also argue we keep the economy dynamic. Without venture capital, you would have all of that activity consolidated over time to a very small number of big monopolies or oligopolistic companies. There was a big fear in the American economy in the 50s and 60s that that was exactly what was happening. Then venture capital in its modern form burst onto the scene in the 70s. It’s really kept the American economy much more vital and fresh than it would have been otherwise.
Richard: That’s interesting you mention the mRNA vaccine. I’ve been thinking about academia and peer review, becoming disillusioned with it; reading people like Nassim Nicholas Taleb who similarly is very down on it. I think the story behind the mRNA vaccine is that they couldn’t even publish it in a journal, right? It was just something too new and too weird and the journal editors were like “this is strange.” What they looked for is incremental progress on something everybody knows. Then you go to the market, and it tends to be the thing that works and can transform medicine.
So, I’m starting to think a lot about incentive structures. How do you think about the relationship between what venture capitalists do and then people in the world of, how do I put this… the intellectual world where they don’t have as much skin in the game in Taleb’s terms. Do you understand what I’m saying? I see incentives as becoming much more fundamental to my worldview, especially as I become disillusioned with academia. Do you think that’s a good way to look at the world?
Marc: Yeah. This is a really important topic, a rich and deep topic I think about a lot. I’ll start with a disclaimer saying a lot of what we fund, a lot of the new technology companies we fund, we do have to give credit to decades of university-level research and government-funded research. They kind of lead up to the point where we get to do what we do. The technologies behind computer networking that ultimately resulted in the internet were funded by DARPA starting in the 1950s. It wasn’t really for another thirty years into the 80s and 90s that they became fully commercially viable and then entrepreneurs like me were able to take up the ball and help turn those technologies into something normal people could use. And mRNA builds on decades of federal funding of genomics research and university-level work in genomics. We wouldn’t have a lot of these technologies if there hadn’t been this basic science.
That takes me to the second part of the observation. Basic science is very hard to fund with a purely capitalistic mindset, and I say that as a huge advocate of a purely capitalistic mindset. It’s just hard to fund basic research with it. Some of it is because you don’t know what you’re going to get with basic research, sometimes it takes 20 years to figure out what the actual real-world products are going to be, and the time scale involved.
The way to think about what we do is we sort of advance research into development productization. The timeframe our companies can operate on between inception and when they ship the viable product is sort of five to seven years. What you tend to find is if there’s something where it’s like, “ok there’s a new technology which I know is going to result in a viable product but it’s going to be 10 or 15 years out,” it’s very hard to do that from a venture capital mindset, and the reason is because it’s hard to do that from a company building standpoint because if you staff a company with employees, you need a team, and if there’s nothing to show for it after five to seven to eight to nine years, at some point you lose that team because these are talented people who can work at other companies. So it’s very hard to make time scales match for 20-year intellectual journeys.
That said, something has gone very wrong in the basic research complex that we do have in the universities and in the federal funding system. We know something has gone very wrong because of the replication crisis. John Ioannidis at Stanford wrote this classic paper where he said “50% of published research is non-reproducible” which means you basically can’t reproduce the same results meaning you can’t do anything with the research, it’s basically fake. Interestingly he was studying biomedical research, which is an area of research you think would be very focused on getting things right. It subsequently turned out he might have been underestimating the problem. Fields like biomedicine might be as fake as 70%.
There’s this other amazing study that maybe we can link to for your listeners. It was a study of medical trials funded by a branch of the federal apparatus, heart and lung research. It’s this great chart that shows that new medicines stopped working at the point when the funders of the research require the researchers to register their experiments ahead of time. It’s basically this chart that shows for 30 years or something you had all of these new medicines coming out and the research results were like “wow this really works we should give it to patients,” and then there’s this point where the people running medical trials were forced to pre-register their hypothesis with the funding agency. They were forced to basically say upfront “this is exactly what we’re testing for; here’s exactly how we’re going to measure the results.” Subsequent to that point, new medicines have stopped working.
There’s two possible implications to this, right? The low-hanging fruit argument is that it used to be easier to make medicines that work and now we’ve harvested the low hanging fruit in science and technology, now it’s harder to do it and it’s just a coincidence. The other explanation is that these old medicines didn’t work either. They were basically fake research results based on data mining or p-hacking in such a way that the results were fraudulent. The implication is that there are a lot of drugs on the market today that don’t actually work.
Anyway, science right now is in an existential crisis. This is a real, real issue, and there’s now a generation of scientists who specialize in pointing this out and analyzing it. Andrew Gelman and others. I’ll give you an example: I had a conversation with the long-time head of one of the big federal funding agencies for healthcare research who is also a very accomplished entrepreneur, and I said, “do you really think it’s true that 50-70% of biomedical research is fake?” This is a guy who has spent his life in this world. And he said “oh no, that’s not true at all. It’s 90%.” [Richard laughs]. I was like “holy shit,” I was flabbergasted that it could be 90%.
He’s like “well look, 90% of everything is shit”, which is literally this thing called Sturgeon’s law which says that 90% of everything is bad. 90% of every novel written is bad, 90% of music, 90% of art… 90% of everything is bad. So his analysis was, anything you get in the field of medical experimentation, biomedical development, and this is going to be true of any field, there’s like five labs total in the world that are really good at what they’re doing and doing really cutting edge work. And this is true of quantum computing; pick any field for advanced technology you want.
So those five labs have a pretty good shot at doing interesting work, even some of that is going to reproduce and some of it isn’t. But once you get out of those top five labs, it’s pretty much make-work, incremental, marginal improvements at best, and a complete waste of time otherwise. And I said “good God, why does the other 90% continue to get funded if you know this?” And he said, “well, there are all these universities and professors who have tenure, there are all these journals, there are all these systems and people have been promised lifetime employment.” Anyway, a longwinded way of saying that we have pretty serious structural and incentive problems in the research complex.
And by the way, everything I’m describing I’m talking about the US. I think the US is the best-case scenario and everything else is worse, so we have a lot of work to do.
Richard: When you say that the five best labs are doing things that are potentially important and interesting, do you think the limiting factor here is just human talent? My field is social science, I read political scientists and anthropologists. The typical one writing 100 to 50 years ago was so much more insightful than the typical person in these fields today, and part of it is that there’s a lot more people in these fields today and on average they’re not going to be quite as good. The people who went into these fields 50 to 100 years ago had something to say, or were doing more interesting things. How much of it is just human talent and how much of it is just the way we set things up?
Marc: I think there’s a real argument, and this is the most uncomfortable form of argument, there is a real argument that there are just a certain number of super-elite people. There are a certain number of people who are going to be really good scientists and it’s just not going to be that many. It’s some magical combination of intelligence, honesty, industriousness, integrity, the ability to recruit and build a team. In some ways being a top researcher is like being an entrepreneur, you have to actually pull all these different kinds of dilemmas together. And there’s only a certain number of people who can do that.
And then of course, the implication of that from a societal standpoint is that we’ve really got to know who those people are and we’ve really got to give them room to run. We’ve really got to make sure they have room to run and are not driven out. If someone’s truly a member of the elite, are able to generate elite-level results, if you wanted to demotivate them and draw them out of the field, what would you do? You would surround them with mediocrity and drown them in bullshit. So there’s an element of that.
I think there’s something else though, you put your finger on it upfront with incentives. I think one way of thinking about this is basically, there was this wave between the late 1800s to the first two or three decades of the 1900s. It was progressivism at that time, then Wilsonianism, whatever they call it, then it was the time and motion studies in factories, then the rise of bureaucracy and administration, then the rise of all the different ways people learned to organize military efforts being applied to other fields like business and academia, then it was mass media and mass communications… You have this rise of systems. This is when the university system as we know and understand it got organized and put in place. When we learned how to structure giant bureaucracies.
We built these institutions. We built and codified these games, in a game theory sense. We built these games or systems that people insert into, and if I insert into a low-level position at a giant company I am able to play this game and rise up and become the CEO. And if I enter as a low-level diplomat in the UN I’m able to rise up over time and become the Secretary General. If I insert as a grad student in a university research lab I’m able to rise up over time and, to your point, become a principle investigator running my own lab. And then you’ve got universities, you’ve got the journal game, publications, this weird thing where you get a score based on the journal articles you publish based on these journals that nobody can afford to buy and that very few people read. But that’s somehow how you get scored. And tenure, with the tenure track, you navigate through that game…
So we’ve put these games in place because we thought we were systematizing ways of achieving excellence. If you go back and you read the people in the 1920s, people like Vannevar Bush, FDR’s science advisor, who basically codified modern university research in the 40s. He thought he was creating an optimized system for maximum output of high-quality research. And it’s an incentives problem. To your point, and everyone in business knows this, every time you define a metric immediately people will start gaming the metric. So if you tell me as a researcher in a university I need to start publishing journal articles, immediately I’m going to start publishing journal articles. Now, will anybody read them? Will anybody cite them? Will anybody care? Do they actually move the field ahead? Maybe, maybe not. So I think it’s possible we as a society spent 50 years assembling these systems and these games in the first half the 20th century, and then we spent the last half of the 20th century gaming the games.
You see this in the sense of these institutions going moribund, right? These institutions broadly that were created in the first half of the 20th century are generating worse and worse results. The response to worse and worse results is to fund them even more lavishly. So you’re in this loop where they’re heading in the wrong direction.
And I would say finally, there is this adverse selection component I alluded to, and in my day job I really benefited from this. A lot of our founders are people who 50 or 75 or 100 years ago I think would have stayed in academia. I think they would have worked in big businesses their whole lives. I think they might have stayed at Stanford their whole lives or IBM their whole lives or something like that. But now if you’re really sharp and young and hungry and aggressive and ambitious, you look around you and… I hear this all the time, from our founders I hear “I looked around, what I saw was incredibly depressing, and I realized I had to get out of there. I had to get into a position where I could do my own thing because I want to be part of a high-performance environment that doesn’t tolerate all this bullshit.”
I guess I’d say everything I’m describing is depressing from a societal standpoint, but it’s full employment for what I do day to day. And look, maybe that’s fair. Maybe that’s just where we’re at is… we could have a long conversation about this, but is it even worth trying to do institutional reform at this point, or is the correct answer to build institutions and venture capital startup formation is a way to build institutions? It’s far from perfect but seems to work quite well, and maybe we need a more revolutionary mindset when it comes to building institutions.
Richard: You’re right, it does seem like we’re just throwing money at the problem. We just had a few infrastructure bills that are massive by historical standards. There seems to be a lot more interest in throwing money at infrastructure than figuring out why we have more difficulty building infrastructure and why it's more pricey than any other country in the world. Before you cut big checks for that you’d think you’d want to figure that out.
When you talk about gaming the metrics it’s funny because some fields are particularly bad at this. Sometimes I’ll look at someone who is a medical doctor at a top research university. I’ll look at their Google Scholar, which makes it so convenient for me, and they’ll have a publication every two weeks, 30 publications in a year, they’re one of 20 authors on each publication. And it’s like, how carefully are you looking at each publication? [laughing] I don’t know if this is real work, if you’re just shuffling paper around, adding another line to your CV.
How optimistic are you? There are ways things can be reformed. If you think about taxi drivers, there are people who just bought these medallions, they had special rights, they could overcharge everybody. Nobody passed a law that said “ok, anybody can become a taxi driver.” What happened is Uber came around and actually violated the law in a lot of places. They weren’t supposed to do what they did… But then they disrupted the industry and now the industry’s not doing so well. Something similar is happening with Airbnb.
When I think about the things that have been disrupted recently, it seems to always be the case of technology just coming along. It’s hard to think of places in recent history where there was just a vested interest, it was powerful, and we just passed a law or regulation and opened things up. Is technology the only way to do this now, or can we get something good through policy or regulations?
Marc: My experience is the closer you get to the government the closer you get to seeing how the government operates in conjunction with any given industry. You gave two great examples there, real estate and transportation, but we could have the exact same discussion about national services; we could have the same discussion about healthcare, housing, many other topics. Education for sure.
The closer you get what you see, and this is not a new observation, James Burnham made this observation originally and Joseph Schumpeter also talked about it in the 1950s, and there’s a whole field of public choice economics that talks about this. But basically what you see on the ground is regulatory capture over and over and over again. It’s actually interesting, what you see is a regulatory capture in both directions which is that the companies who gain power, the economic entities who gain power in these industries early, they capture their regulator and end up implementing regulations in their industry that have the effect of cementing their market positions in place and preventing new competition. The taxi industry is a classic example of that.
So that’s a classic example of regulatory capture, the companies capturing the government. But you also see the other side of it at the same time, you see the government capturing companies. This gets into the Burnham part a little more. I’ll give you an example. Take the three big banks: JP Morgan Chase, Bank of America and Citibank. In 2007-2008 these were the “too big to fail” banks. What everyone knew was the whole problem with the national crisis was the too big to fail banks are too big, so the obvious framing for regulation is that we can never tolerate banks this big again because big banks mean systemic risk, which therefore requires the bailouts, so we have to make sure this never happens again.
The regulatory reforms that followed were codified in this bill called Dodd-Frank. The big banks complained endlessly about how horrible Dodd-Frank was, but if you looked at the results of Dodd-Frank, the issuance of new bank charters in the US dropped to zero, and the three too big to fail banks got larger. This is after all the work Senator Warren and all these incredibly smart, animated, and fired up people did. The results were that the too big to fail banks were much larger and more systemically important than they were before. The problem has greatly increased, the exact problem the regulations were supposed to shut off.
You can say it’s regulatory capture. Part of it is these companies have giant regulatory machines, tens of thousands of lawyers and compliance people, government relations people, huge fundraising operations. Part of it is that these banks are now de facto subsidiaries of the Treasury Department. They’re very tightly integrated into the government. The Treasury Department basically gets to tell them what to do on any given day. One way to think about those three banks is they’re no longer independent companies per se, you can think about them like the US department of banking. If they were simply government agencies or departments of the executive branch, would we experience anything differently in terms of market structure or customer service?
Richard: I understand what the banks are getting from the government. What is the government getting from the banks?
Marc: They can arbitrarily control and manipulate the economy through the banks. The way the federal reserve implements their activity is through the discount window of the banks. They can implement various kinds of political, social, and administrative policies. Deplatforming, they can kick people off the financial system; the US sections regime, which I’m in favor of from a national security standpoint, they do that through the banks; global development and foreign aid, the ability for the government to will national soft power all over the world, a lot of that is run through these banks. So basically they’re arms of state power. You can take a critical view of this, but I don’t mean to be critical.
We saw this during the financial crisis itself. How was policy made during the crisis? It was literally a handful of senior officials and bank CEOs sitting in a room deciding what they’re going to do. There’s that famous scene from the book or movie where all the bank CEOs are called to Washington and all told they’re going to take federal bailouts. And some of the bank CEOs tell them “screw you! I’m not taking any bailouts,” and the Treasury Secretary at the time says “nope, you’re all taking them.” Sure enough they all took them [laughing]. So it’s a more direct level of control than people imagine.
Again, I’m just picking banking as an example. If Harvard were the US department of expertise, would anything really change? If the Brookings Institution was the US department of public policy analysis would anything really change? If The New York Times was the US department of information would anything really change? If Google was the US department of search would anything really change?
This is the Burnham argument, which is the regime is not just the formal government. The regime is the broader elite holding power, and that’s expressed across a combination of governmental and non-governmental entities and they end up getting very intertwined.
[Laughing] For any VC or tech entrepreneur this is a bit of a sore spot because the way we experience this is constantly running up against this complex. So we have some self-interest in figuring this out and hoping that over time it gets less intense. But it’s pretty intense.
Richard: With reform you’re always pushing against the grain. People have a status quo bias and there is concentrated interest. I’m trying to think historically, when that bias towards the status quo has been overcome and it’s usually some kind of revolutionary ideology, like the communists or ISIS or Taliban takes over. They knock down the institutions pretty quickly. A better case would be decolonization. There has to be something that happens, an external force that shakes things up.
This is what Curtis Yarvin gets at in his writing. He says revolution is easier than reform. The problem I see right now is that I listen to the arguments of public choice theory, people who believe in cost-benefit analysis. They make perfect sense to me. I don’t see anyone ready to charge the barricades for those ideas. Is the problem that there is no revolutionary ideology that’s going to just go and overcome whatever inertia there is in the system?
Marc: Well, let me tell you what we do. What we do is maybe a minor league version of what you’re getting at. This goes to your example of Uber and Airbnb. We run a continuous flow of X-wing fighters up against the death star. It’s all of our startups. We’re just constantly funding these very fired-up entrepreneurs with these very disruptive ideas, and I’ll discuss disruption in a second because it’s very critical here and the theory of disruption is often mischaracterized.
We fund all these disruptive startups. I’ll give you an example. At our firm we have over 250 companies currently in our portfolio that we own 10% or more of. Think about it as 250 X-wing fighters. They are running sorties against the death star. By the way, we know statistically what’s going to happen from the data. Half of them are going to get blown up on impact. In top venture capital half the companies don’t work, so we’re going to lose half of them for a variety of reasons. Some of them screw things up, but some of them hit reflector shields and get blown up. And then another quarter of them are going to generate okay but not great returns, which is to say they’re going to do something interesting or useful but not revolutionary. So it’s really only the top quartile of the companies we fund that is going to be revolutionary and meaningful. So out of the 250 call that, whatever the number is… 70, 60? The dangers of doing math on the fly.
Within that quartile, there’s an upward 10% who are really going to punch through that have the potential to change things. It’s a high attrition rate, what do biologists say, “it’s r selected not K selected?” And look, our entrepreneurs all understand the nature of the challenge. This is their plan, they are choosing to do this and do the best runs they can. They may blow one up and they come right around to do another one and we fund the next one, so it’s a game with multiple opportunities to play, which is great.
Those companies do exactly what you described in a lot of cases. They have to have some form of technological wedge and I often equate technological wedge and economic wedge, kind of go hand in hand, but they need to have some technological wedge; they need to have some claim that there is a technological change. You gave examples of this, Uber and Airbnb, now that we have the web, now that we have mobile phones and GPS, online payments and reputation systems, all of a sudden we can do driver or rider matching in cars or we can do housing guest matching in homes in a completely different way than was ever possible before.
So our startups need to have this wedge to have a chance to punch through. But then the other thing they need to do is be “disruptive.” This word disruptive has gotten a bad knock because it sounds bad, it sounds like something was working and now it’s going to be disrupted and get worse. But the reason we use the term disruption is because Clayton Christensen who wrote the book the Innovator’s Dilemma, he chose that word. The key thing in there that is very important to keep in mind is that disruption in the form our companies do it only works if consumers like it. Uber only works if drivers want to drive for it and if riders want to ride in it. Airbnb only works if people who own homes want to list their homes on Airbnb and only if guests want to stay in those homes. Everything we do by definition is purely optional. People could just keep doing what they do, they don’t have to change anything, or they could try this new thing.
So the argument I would make is that what we do is the minor form of the revolutionary change you’re talking about. We couple the technological wedge of the market with real consumer choice. Finally, you couple it with Victor Hugo’s… you know, one of those guys who said there’s nothing as powerful as an idea whose time has come? At some point it just gets obvious that there’s a better way to do things.
Uber’s not one of our companies but we’re involved with Lyft which is one of the other successful companies in this space. Uber had this clever strategy we found out about later, which is they would go insert into a city and would be nominally in violation of whatever taxi or limo regulations there were in the city. What they would do is focus on having a high amount of supply, which is to say a lot of cars and drivers on standby, within a couple minutes of city hall. They had this thing where if you were a staffer or councillor in city hall, you could be sitting in the chamber during the afternoon, fulminating against these evil Silicon Valley people, and then you could go right outside and punch into your Uber app and get a ride in thirty seconds with a driver who would happily take you home. If it wasn’t you doing that it was your young staff doing that or your kids doing that. This actually surfaced during AOC’s campaign where she was fulminating against the gig economy and then it turned out of course she and her campaign were big users of Uber.
This is what caused Uber and Lyft to work. Because at some point this is just obviously better for everybody. Obviously. Same with Airbnb. Hotels still exist, you can still stay in a hotel; an overwhelmingly large percentage of people prefer to stay in an Airbnb, it’s a better experience. Overwhelmingly people who list on Airbnb are doing it because they either want to have a business on the side or because they’re using it to help cover their house payments or because it’s a fun thing for them to do.
So this is the light version of revolution, but at least it’s not pinning your hopes on these other kinds of reform that in my view never seem to materialize.
Richard: I think about Peter Thiel’s distinction between the world of bits and the world of atoms. We’ve been making progress in the world of bits but not the world of atoms. Is this revolutionary strategy limited to stuff that can be solved through bits and software? The recent stuff has been limited to Airbnb, things that can be solved because computers are always getting cheaper, better, faster; mobile devices, all of that. But then you go in traffic; you want to drive somewhere or commute to work; or you go to the airport, that’s staying the same or getting worse, right? It seems like you can revolutionize with software when there is a software solution to something. The question is what we do for the large portion of things in the world that are problems that can’t be solved in a similar way?
Marc: There’s a part of what Peter says that I really agree with, what you’re saying there I agree with and I’ll come back to that. Let me start with the part I agree with a little bit less. What you find is there really isn’t this clear demarcation between bits and atoms anymore. Uber and Airbnb are great examples of this. Uber built and runs a software app. Things happen in a software app that affect the distribution of atoms in the real world. If you think about it, there’s a magic to this. There’s a programmer at Uber who is typing in code right now. When he punches enter, all of a sudden hundreds of thousands of cars today are going to drive to places they wouldn’t have otherwise driven. Hundreds of thousands of drivers are going to drive and pick up passengers they wouldn’t have picked up before. The drivers, the cars, and the passengers are all made of atoms. You have software control the world in a lot of ways. You have code that then directly expresses itself in the real world and causes the real world of atoms to reorganize. Obviously, Airbnb is another example of that.
You mentioned traffic. One of the solutions to traffic is having much more intelligent navigation, a more comprehensive system of determining who goes where and how to optimize for that. A self-driving car is a lot of software but it’s still 1000 pounds of steel and glass and rubber. It is going to go different places based on what the software says and the distribution of traffic is going to change based on what the software says.
The more optimistic view is that software is not just a tool to build software. Software is this magic ability to do things in thin air, in the world of bits, that then affect the world of atoms. This is playing out in warfare, military strategy, all over the place. It’s playing out in lots of industries.
There are lots of examples of companies we have that I could go on at length about where they’re doing something in software but the ability to translate into real-world activity is fundamentally greater than people think. I would make one more claim which is that increasingly what we see is software that replaces the bits for atoms. A great example is the massive shove towards video conferencing which has taken place in the last year and a half. Software hasn’t eaten the airplane in a literal sense, but if I can do a super high-quality internet-based video experience or be part of a virtual conference, and therefore substitute for an actual real-world trip on a real-world plane that I don’t need to pay for, it’s a direct substitution. So I think that’s another way you get this effect.
Having said all that, I still agree with the larger point. We’ve kind of had an unfair advantage disrupting through software because software is inherently so valuable. Software is fundamentally someone sitting at a keyboard and typing things and magical things happen. The world of atoms is obviously not like that. So we have this kind of magic tool in the world of bits that we don’t have in the world of atoms.
We can get into this long discussion as to what would be required to apply the same principles in the world of atoms. We do fund companies that go straight out for the world atoms, it’s just significantly harder. And I think most of those questions rapidly become societal questions, which are the hard ones like “what do we want? How much change do we want? What is the rate of incumbent lock-in versus disruption that we want? What is the level of government regulatory capture intertwining with oligopolies that we actually want?” Observationally as a society we seem to want a fair amount of that right now, and honestly I don’t know if I’m in a position to change that. People like me are primality reacting to that versus changing it very much.
Richard: You talk about software having this unfair advantage, and I think it’s not just inherent to the product but it’s also inherent to our regulatory environment. You talk about Zoom replacing the airplane. A huge consideration for me about whether I take a flight is how inconvenient air travel has gotten. Most of the time, time spent in the air is a minority of the time spent to travel somewhere. You have to go through security, have to get there early, deal with delay… it’s just gotten worse since 9/11. Airports are now the only place you have to wear masks, I don’t know if that’s going away. There’s a lot of things now that make air travel uncomfortable. Of course Zoom will eat its lunch. Maybe it’s harder to make air travel better, but I feel a lot of it is regulations.
Marc: Let me hit one thing on air travel. Here’s another thing to think about. Immigration. This is not a statement on immigration pro or con, just observing this is a big societal, political, policy issue in the current world. Traditionally if I wanted to work at a company in another country I would have to go to that country. I’d have to be an immigrant from my country, at least for a while. In a world of remote work and Zoom and Slack, I can now work for people anywhere in the world. I can work for companies doing any kind of knowledge work. Immigration policies apply to the atoms of human beings, they don’t apply to the bits. I can go to work for some company anywhere in the world if it’s a remote-friendly company. I may never travel there, I may never have to travel there.
One way of interpreting that is this world of bits increasingly makes immigration policy less powerful in terms of actually restricting the flow of “people.” Even though I may not be able to physically enter, virtually I can and have and will. I can basically live my life in another country virtually from an economic standpoint. On the one hand you could say immigration policy is increasingly moot as compared to the ability of people to increasingly travel over bits. Another way you could look at it is “well, maybe this really takes the edge off of immigration and takes the salience away from immigration. Maybe people will be happier staying in their home countries and won’t immigrate because they don’t have to. Maybe the demand for immigration falls, it becomes a less salient issue because people can get what they want from the internet and not have to make the harsh tradeoffs a lot of migrants have had to make.” I feel like we’re on the front end of conceptualizing that these are viable scenarios, but I think they actually now are for a lot of people.
Richard: To shift the topic a little bit, I was interested in this interview you did with this guy named Niccolo Soldo. What struck me about the interview and made your take different than most takes of people I read is that you’re a big techno-optimist. When you talk about tech in the political realm now there’s a left-wing critique and right-wing critique, though sometimes they blend together. The left-wing critique is about income inequality, AOC’s critique of the gig economy. I find that critique less convincing, it sort of sounds like the same mistake Luddites have been making against technology since the beginning of time.
But I think there’s a right-wing critique which is a little more interesting. The idea is that we’re becoming weird and antisocial. There’s sort of an addiction element. I don’t like the medicalized terminology but basically our screens bring us a lot of joy in the immediate short-term and we’re not doing things that previous generations did. We’re not going to play outside, we’re talking younger generations more: they’re not developing social skills, they’re not becoming resilient. People will point to things like increasing rates of depression and mental illness, people like Jonathan Haidt and Lukianoff blame the kids getting smartphones. So there’s this cultural critique of technology, what it’s doing to us.
I’m a little bit sympathetic to it, but my impression from reading what you write is that you’re much more optimistic. Can you give the optimistic take for what technology is doing to our brains?
Marc: Yeah, let me frame the overall dynamic you described which is the left-wing, right-wing critiques. Economist Bryan Caplan famously has this long-term exercise to try and distill down partisan differences between left and right to the most parsimonious explanation. He finally came down to something I think about a lot. The core principle of the left is that the left hates markets. They hate markets of course because the left hates inequality and markets generate inequality; markets surface what is actually valued, markets surface who produces a lot, and so market naturally generate inequality. So the left hates markets.
And the main principle of the right is that it hates the left. This is the old Buckley thing: the role of conservatism is to stand athwart history yelling stop. Which from the right you view as all social change happening around us is from the left, driving things further to the left. They’re all leading societies in directions the left thinks they should go, and that those things are bad because they’re against tradition, history, the way things have always worked and things that have been proven. [Laughs]
So I think technology kind of gets trapped up in this dynamic. To your point, the left hates technology because they hate capitalism because they hate markets because they’re anti-egalitarian, we kind of slot naturally into that critique. And the right hates technology because it seems like technology is a tool of the left. It seems like whatever societal changes are happening are happening through technology. Because look, technology changes behavior, it might be the main thing that it does. So to the extent that’s true, whatever societal changes are happening are happening as a consequence of or through technology. These are changes the left is generally in favor of and the right is opposed to.
We are hyper-involved with the things that are actually hated by both sides, which is an interesting position to be in. We could talk about that. But the specific critiques… Is the question a very specific question of how technology is changing how we are as human beings? Or is it a broader question of social change?
Richard: I mean it’s both. Is there something to the critique that what technology is doing to our brains has a bad psychological effect, and anything that has a bad psychological effect on a mass scale will obviously have a negative social effect. Do you find that critique convincing at all?
Marc: I guess there’s a couple of things. Let me defend technology for a minute. For one, there’s an ahistorical component to these discussions generally. I’ll give you an example. Technology is causing political radicalization, causing people to believe in cultish political movements and radicalize politically. And it’s like, well, the problem is that both communism and Nazism predated the internet. Say what you will about Hitler, he didn’t use the internet. Nazism did pretty well as a crazy insane psychotic political philosophy that was adopted by a lot of people and had major catastrophic consequences without the internet. In fact, radio was the thing. Communism swept the globe, and was entirely pre-internet.
Richard: I think you’re right, people talk about “oh my god, the rise of misinformation and white supremacy”… I don’t find that interesting. But the psychological things, that people are becoming more brittle and anxious and just aren’t being human. They're not just going out there… I feel lucky because I grew up before social media. I first discovered message boards when I was in ninth or tenth grade. I had a flip-phone by 11th grade. So I grew up in this time where I remember the pre-internet world. My life revolved around hanging out with other people, calling them on the phone, trying to find girls to go out with me, getting into fights with guys. All these things are healthy, some of them are not healthy and I got into trouble sometimes. But I felt the entire time like I was improving socially and finding my way in the world. I had a bit of social anxiety and awkwardness, socializing didn’t come naturally to me. It took a lot of getting rejected, made fun of, beaten up, to become somebody better. I don’t know if I was born today or ten years ago if I could have done all that digitally.
I think about my own life and think about the pre-internet world, and I think about the political ideologies. Not communism or Nazism, but the things that take over seem to be very self-centred. They seem to be consistent with the idea that people are becoming more brittle and are less able to deal with those challenges. I do wonder if these are making us worse psychologically, if that’s the effect of social media, the internet and smartphones.
Marc: Of course we all have our own experiences, I don’t mean to question yours, but I remember the pre-internet world very differently. I grew up in the Midwest in the 70s and 80s. I remember non-stop moral panics in the opposite direction. This I find very amusing over the last several years, because it’s like everything they told me to freak out about in the 70s and 80s we’re supposed to wish we had more of. As an example, the idea of kids dating and having sex where I grew up in the 70s and 80s was a major constant source of moral panic. It was literally up to “all the kids are going to die because they’re going to get AIDS; if you’re a straight person and you have sex you’re going to get AIDS and die.” So that was a serious moral panic. There was also a serious panic about child kidnapping. I grew up in the full flush of the satanic panic, so it was like on any given day playing on the street you were going to be snatched up by a guy in a van and never be heard from again; all these kids vanished through these things.
It was just non-stop panic every step of the way. Whatever kids were doing was bad and horrible and dangerous… and then of course it was also of the panic flowing out of the revolutionary change of the 60s. Where I grew up, heavy metal music is a tool of Satan. Heavy metal music is going to seriously, permanently make this entire generation of kids immoral and wicked. If you listen to heavy music today, it’s like, that’s quaint, that’s cute. [laughs] And of course, that moral panic thing transplanted onto hip-hop.
If you go back into history, I think what you’ll find over and over again is those kind of moral panics. There’s this great Twitter account called Pessimist’s Arc where these guys go back and document this stuff. There was this big panic in the mid-1800s around the bicycle, the idea that people could range from village to village without adult supervision… they were all going to have sex and have babies out of wedlock… there were moral panics around radio, paperback novels, comics in the 50s… In any given generation basically, whatever the kids are doing is the worst thing that’s ever happened and will lead to certain doom, destruction, and the collapse of Western civilization. So when I grew up, it was not really as idyllic.
Having said that, let me argue a little bit more of the case for the prosecution. Technology, to some extent, as you’ve been discussing, drives psychological change. I think there’s a whole future frontier of neuro-chemistry that’s going to get very important as we try and fully understand this which we still don’t very well. Technologies for sure are capable of driving psychological change. They’re certainly capable of driving sociological change. But then you’ve also got this old question of “is it an engine or is it a camera?” Or let me put it this way, “is it a cause or is it a mechanism?”
I’ll give you an example. Is social media a cause of behavioral changes among teenagers that would not be happening were it not for the technology, or is the technology simply the method for those psychological changes to manifest themselves? I’ll give you an example. The 1960s kicked off this incredible sexual revolution; this revolution in gender dynamics between men and women; this entire revolution of acceptance of homosexuality. So-called sex change operations started around that time, and that kicked off what’s now known as trans.
Those started 30-40 years before the internet. The internet shows up 30-40 years into those things and then those things… at the very least, those principles and behaviors and movements for sure travel through the internet and are enabled by the internet and are spread via the internet. Good or bad or indifferent, surely that’s true. Were they caused by the internet? In the counterfactual had the internet not emerged would these social behavioral changes be happening anyway? Would they simply be happening through the older technologies like television, radio, comic books, novels, movies, all the other media they were happening through from the 60s to the 90s? I think quite possibly.
So what I would propose is a more complex interrelationship. Technology is somewhat of an engine, a drive of change. It’s somewhat of a camera, a way for us to see the change. It’s somewhat like an enabling mechanism or a conduit. It’s one of those three and I think it’s hard to disentangle those.
Richard: Yeah I think that’s fair enough. There are some trends you can see that just start online and you can’t imagine them coming from anywhere else. There’s a term now, “demisexual.” The kids say you need to have a personal connection with someone to have sexual attraction to them, and the joke on social media is that that’s just being a girl, right? People trace this to a Tumblr account. Would that have made its way into a novel and taken off the same way? Maybe, I don’t know.
Marc: But let me give you an example, something I think about in a related way that may apply back to this. I think people forget how boring things were before the internet. People really like to be into things. People like to have thing, something that isn’t just like go to work, come home, go to work the next day, change the baby’s diaper today, change the baby’s diaper tomorrow… people like to have a thing.
If you go back thousands of years the thing was the gods, the tribe, the family, whatever cult you were in. If you progress through to the last 2000 years people got super into the big religions, Protestantism, Catholicism, Judaism, Islam and so forth. The rise of mass media, they got super into movies, media, and then some fringe political movements and actual cults. People got super into Scientology. But they were kind of these big movements, and a lot of other people were in them. It was never that distinctive or original to be Catholic or something like that. It was a marker of identity but it wasn’t a marker of uniqueness in the way that modern man looks for.
There used to be a term for activities that people would do to pass the time before the internet. The term has almost completely died and the term is “hobby.” People used to have hobbies. When I was a kid it was like “what do you do when you get home from work or school, you have a hobby.” And if you remember what hobbies were when I was a kid, it was like stamp and coin collecting. [laughs] It was like ham radio, wood-working. Maybe there were a few people who were into wood-working or stamp collecting and after the first couple months, it’s like “ok it’s just a bunch of stamps in a book, this is boring, onto the next thing.”
The internet has just killed hobbies. They’re dead, all gone, the concept doesn’t even exist. It’s funny, the concept of having a hobby died at the same time as the concept of “going online” was introduced, which is a phrase you heard constantly from 1994-2005. You would get home at night and you would go online. The big internet company in the 1990s was actually America Online; this was a big deal, Americans could go online. And starting in the mid-2000s Americans stopped going online because we’re now online all the time. The idea of not being online now is a weird thing.
So hobbies died when everybody went online. So what replaced hobbies? And to your point, what replaced hobbies was basically internet movements. The benign way to put it would be internet communities, the somewhat more intense way to put it would be internet cults, right? Now what are people into? They’re not into stamp or coin collecting. They’re into socialism online or MAGA or QAnon, or the Trump Russia conspiracy or bitcoin or Elon…
Richard: That sounds awful! [laughing] Compared to socialism or MAGA or QAnon or wokeness and Russiagate, stamp collecting sounds like an improvement!?
Marc: Yeah yeah yeah! But I’d say literally that’s what’s happening. You could paint a picture of that and say these are destructive things and everybody is crazy and all that stuff. You could also say it’s not boring! Things were pretty boring, things were pretty dull. And actually, this would be a right-wing argument. One of the right-wing arguments is that man is simply not meant to be an atomized economic function. Man is not optimized to literally be like a drone, just drifting along the waves of history and to not have a principled position on where he should stand, and not have a sense of identity on something greater than himself, a connection to community and society and all these things.
A right-wing critique of neoliberalism is that it atomizes society and makes everything dull, bland, and grey. The Nietzschean concept of the last man, or the what the new right calls the bugman. What’s the opposite of the bugman? It’s somebody who is fully engaged and energized. And of course, what is the ultimate thing to be energized about? Capital H history, the actual future unfolding of human events. None of us like all of these different movements but at least people are into things that are a lot more stimulating and arguably more important than stamp collecting.
Here’s the other question I think about a lot. If you sort of buy everything I just said, you could kind of say “it is new,” right? It feels to me like the global nervous system has woken up in the last 10-15 years in a way it hadn’t before. People feel a lot more energized. Good or bad, energized, educated, there’s electricity in the air that is new. Maybe this all just intensifies for the rest of our lives, or maybe this is us just getting used to a new way of living, and we’ll look back and say “OK, things went a little bit crazy there for a while but now we know how to harness this new technology and how to live our lives without it driving us all nuts.” I don’t know the answer to that question but I think it’s a big question.
Richard: I think the right-wing answer to that is not that the alternative to these internet cults is stamp collecting. I think the alternative a lot of people think we’ve gotten away from is finding partners, getting married, having children. That’s something you do when you’re bored maybe… [laughs] Now people say “I don’t want to have kids, I want to travel”… it’s a different kind of fulfillment. If you’re looking for pure excitement maybe travel makes more sense than children. I think a lot of people on the political right would say it’s better for society and overall, even for you, to make the choice of being bored, settling down, having a family. If you’re getting excited by Capital H history all day and not passing on your genes and dying a virgin… [laughs] a lot of people are horrified by that possibility, it’s not just about replacing stamp collecting with trolling people on Twitter, I think we might be losing something more important and fundamental.
Marc: Let me give you a case for optimism from another direction, to your argument, which is how the post-COVID world might be different. A big reason for the kind of neoliberal atomization of society has historically been this economic driver where if you’re a young and ambitious person and you want to have a career, you want to experience exciting things and pursue interesting fields but you grew up in a small or medium sized town or a country not where all the action is, for thousands of years the answer has been you move to a city. Generally speaking the bigger the city, the better. Over time this led to superstar cities; the Bay Area, Los Angeles, New York, Hong Kong. And generally as a young person if you want to engage in these exciting things that’s what you did.
Using your right-wing argument, that therefore was like the disassembly of the extended family and the creation of the nuclear family, which was a very ahistorical concept. Then you have these fractured communities and you have the consequences of adverse section. Why are some small towns in so much trouble? One argument is that it’s because all the really highly ambitious, highly capable people left. They left for better opportunities. You could even argue this at a national level. Why are certain countries doing better than others? Some of it is just the flow of the young talented people. If you grew up in one of those small peripheral countries you probably went to one of those bigger countries to realize your professional aspirations or be around people more like you.
That was all pre-COVID, that was all pre-Zoom, that was all pre-internet and remote work. I think there’s a real possibility, Katherine Boyle wrote a fantastic piece on this a couple of months ago, I really recommend it. There’s a real possibility people can now decouple these decisions. They can decouple where they work from where they live. And at a more fundamental level, people don’t have to make the same tradeoff at all in the extreme case, where I can continue to live in the same place with my extended family. Maybe it’s a place where I can afford to buy a house; I can be part of a more traditional community; I can be with other people similar to me from a religious, philosophical, or political standpoint. I can have a thriving personal life that has more of the traditional values you’re arguing in favor of, but because I now have the internet, I now have access to all of the excitement and employment opportunities and chances to interact with interesting people and I can do all those things through the screen. It could be that this technology is going to unlock a new way of living, it’s kind of going to be the best of both worlds.
Richard: I don’t know how much you’ve been paying attention to what China’s doing to improve the birth rate but they just removed the two-child limit and put it up to a three-child limit. It’s not that simple because they’re doing a more holistic policy approach, going after tech, the education tutoring industry on the grounds that it’s expensive and plays on the fears of parents. They just wiped out the market value of all their biggest companies. They’re focusing more on housing, even the propaganda has a line about “families, children for the nation.”
So you have this centralized approach. I’m not saying it’s good or bad but it’s an approach I think is interesting to look at and see if that works or if you’re just pushing against the grain of technology and maybe it doesn’t work. With remote work maybe we get the same thing through decentralized means, we’re doing a different kind of experiment and that could potentially be the benefit of work from home. I think you’re right on that, that’s an interesting possibility.
I want to go back to something you said before. You’re saying we’re at this place where we’re in an ideal place to be hated by the right and left. I’ve thought a little bit about that. Is it just human nature? When you wrote your article about software eating the world… look at it this way. You bring up the example of Netflix which is a really cool product. You have an unlimited number of shows and movies, it’s very convenient, the software works great. You can watch whatever you want from your laptop or phone; as long as its affordable it’s great. That’s a great accomplishment but people don’t really feel it in the same way.
If you have an alternative world where instead of Netflix you had this transporting tube that would just take you straight to the movie theatre or something like that. That wouldn’t be as good as Netflix, the selection would be lower, you’d have to get there on time, you couldn’t be in the comfort of your home. But I think people would be grateful for that and see that as a great innovation. The fact that Netflix comes to your house so easily, it doesn’t feel like progress. It feels like “oh, just more convenience,” and we sort of have enough of that.
I think a lot of these things can be made to feel like progress. If you told somebody 20 years ago you had an iPhone and could sit there and have all the information in the world literally a second away, I think people would have been impressed by that. But people don’t feel it in their bones the same way they feel a kind of change in atoms. Is this a problem, that tech is hard to sell because it’s not romantic, it doesn’t speak to something within us that wants to see planes flying and cars going really fast… things out there in the real world?
Marc: The numbers say the opposite. Just look at the Netflix usage numbers, clearly people love it. And by the way, the same is true for all these other things. If anything the correlation is the more criticism something is getting the more people actually like it and are using it. These technologies are interesting in that we actually know the numbers. We know how many people use these things, down to the click we know exactly what they do on these services.
By the way, one of the things you get to do as an inside member of one of these companies is you get to see these scandals playing out in terms of actual user behavior. You’ll have one of these companies who has a privacy scandal… One of the companies, Robinhood, recently went through a scandal, this whole thing around GameStop, for various reasons there were interruptions in trading. There would be these huge freakout moments where everybody gets absolutely furious. Then you look at the numbers and they’re all just up and to the right. [laughing]
Richard: Aren’t a lot of things like that? I’m not saying tech is like pornography but pornography is certainly like that, right? [Marc laughs] Everyone likes it and the numbers are high, but if you talk about it politically and whether it’s good for society…
Richard: So the question is, do we brush aside that political… like ok, should we just look at what people do and not what people say, that’s just cheap talk and we should discount that. Or does it indicate a real problem?
Marc: It could be a real problem for society, but it’s also a real problem to figure out what to do about that, right? Then what you’re basically saying is people are exercising choice. You could blame it on governments or your dopamine or whatever, but people are making a choice. There is no gun to someone’s head to force them to do anything. These businesses would be a lot easier if you could force people to use them, I can tell you: you can’t.
Then what you’ve got is a very large number of people, for the big services you've got hundreds of millions or billions of people who are exercising a little bit of free choice to do these things. You can see in the data they are completely heavily engaged, you can see in the data the scandals cause people to use them more. And your challenge is you’re going to have this top-down view that this is bad and therefor “X.” And when the X translates into something that is a kneecapping or a denial or a restriction, you’re fundamentally in prohibition territory. “I know you like beer, but we’re all going to stop drinking because it’s better for society.”
Richard: But everyone has something… very few people will say legalize hard drugs. Maybe you do, but most libertarians won’t bite that bullet and say this is good. Everyone sort of draws a line somewhere, so it’s not that crazy to say that about tech versus anything else.
Marc: Yeah. There’s all the free speech debates that apply to social networks for example. But it doesn’t matter how free speech someone is, people aren’t going to be in favor of actual terrorist recruitment. They’re not going to be in favor of actual white nationalist violent movements. They’re not going to be in favor of child porn, there’s always restrictions. There’s always disputes to be had about where to draw those lines.
Let me go back to your Netflix thing though. Which goes to the consumer choice thing, which is you postulate this existence of this magical movie theatre existence that would be more special and in person and have these other attributes…
Richard: Well it might not make people happier in the moment, but politically people would feel like it’s a greater accomplishment. Maybe it would be a better experience, I don’t know because I sort of feel like these political intuitions are tied to something in human nature which says you can’t just have a virtual reality… you have to go out there and look in people’s eyes and see how they laugh at your jokes, see how they react to you and your facial expressions. So I guess I’m postulating a connection between these political instincts we have and something deep in human nature.
Marc: So here’s the thing. That movie theatre existed, that happened. It didn’t have teleporting or tubes, you still had to drive to it. But there was a theatre in Los Angeles called the ArcLight…
Richard: Oh yeah! Isn’t that a chain?
Marc: It’s a very small chain, yeah.
Richard: We have a few of them around here.
Marc: For people who haven’t experienced the ArcLight, let me describe it. It’s quite something. I have to say, I loved it and went there as often as I could. It was fantastic. Let me describe the ArcLight experience for anybody who’s been in a normal movie theatre.
First of all, valet parking. You don’t have to find a place to park, they take your car. Reserved seating in the theatre. You roll up to this thing five minutes before showtime, you hand your tickets to the guy, you run in, you have a reserved seat. You sit in your reserved seat, you know exactly what it’s going to be. By the way, the seats are spectacularly comfortable, it feels like the softest most pillowy thing you’ve ever sat in.
And get this: great food, which they will bring to you in your seat. So it’s like “I’m going to have a really good dinner while I watch this movie.” And guess what else? Beer and wine! So I’m able to sit in my reserved seat with my glass of wine and great food and watch this fantastic movie on, by the way, the most spectacular screen you’ve ever seen. These gigantic wraparound screens, these amazing sounds. The whole thing is this magical experience. The ticket price is like 50 bucks instead of what it is normally like 7 bucks, but it’s not totally out of reach.
And people went to this a bunch of times and they were like “wow,” and then they kind of went “eh,” then they all bought flatscreen TVs and started watching Netflix at home. So it’s a theory, it makes sense, it has existed, as with most prototypes it didn’t really take.
So then you get to the “and then what” question. Hungary has been in the news this week, should Hungary be subsidizing ArcLight theatres? Maybe! I don’t know.
Richard: I do take people’s choices very seriously. But I think of sociability or socializing as a collective action problem. Let’s say you’re in high school and you’re interested in a girl. You see this person every day, you sit next to them in class. You get used to them and build a relationship over time. Now if school ends and you’re going to go off to summer, you’re not in a position where each one can reach out to the other because the relationship hasn’t developed at that point and maybe you’re too shy to take a risk. But, if you’re forced to sit in a seat every day and be with that person, eventually something can develop. A friendship, a relationship, a marriage or something.
I feel like a lot of human relationships are like this. School, the military… you can’t just on your own decide “I want to have a bunch of war-buddies.” It has to be organic. There has to be a war, the government has to put you in those units, and maybe that’s how you get your best friends for the rest of your life. If everyone is doing their own thing maybe you never get those kinds of relationships. If you have institutions and ways to force people… sometimes they’re wasteful, you don’t want to start a world war so people can become buddies with their platoon. But it demonstrates the point that it’s not the sum of our individual choices, sometimes we need situations and institutions that facilitate human relationships and communications.
Any 1980s movie where the guy is pining after the girl is sort of like this. He just happens to see her in his life. If he’s making aggressive attempts to see her over and over again, he’s a stalker, right? But the fact that they go to the same school or hang out on the same beach, it makes it appropriate and makes it ok to pursue the relationship. Does that make sense to you?
Marc: So you’re going to hate my counterargument on this, this is going to be where you blow your top. Everything you describe does not match my experience growing up. I remember something quite different, and I grew up in a small town in an urban environment. Basically, there was almost nobody there. I always wonder how many people who have the experiences you’re talking about got very, very lucky about where they grew up and what kind of school they were in…
Richard: I was at a lower middle-class school, not an elite institution, not a big city…
Marc: Well let me ask, was there a college near your town?
Richard: No, not even close. The people who went to my school, it was the south suburbs of Chicago and most people I went to school with had never even heard of the University of Chicago.
Marc: Ok, but it was in Chicago?
Richard: The south suburbs.
Marc: Ok, suburbs of Chicago. Now I’ll pull the Middle America card. You grew up in the city, I did not. In a rural environment it’s not what you’re describing. In a rural environment there’s almost nobody to match with. The real-world matching that you’re describing depends on there being a critical mass of possible matches so statistics can play out and there’s some level of choice. Most people do not grow up in that kind of environment, and I think that would still be true for people in the US, and it’s certainly true all over the world.
Richard: I think more people are growing up in suburbs of major metropolitan areas than in rural America. My experience is probably not atypical at all.
Marc: I don’t know, it certainly didn’t match mine. There’s a concept I talked to Niccolo Soldo about, this concept I use called Reality Privilege. Growing up in a place where there are a lot of interesting people to talk to and potentially mate with, and there are a lot of people who have shared interests and a lot of people who come together around shared topics and have the kind of bonding that you’re describing… I think that is far from universal in the human experience. Certainly on the global scale that’s not the universal experience.
So I would argue the internet provides what you’re describing to a much greater degree and to a much larger number of people than you think. You may well argue that it does so in a way that is fake or sad, not as good, whatever, we could have that discussion. It does do that. The ability to be a kid today and be on the internet and have an interest or passion and be able to instantly match with a critical number of people who have the exact same interests is a fundamental societal breakthrough that is severely underestimated. That was not the case when I grew up! [laughs]
And same thing on mating. There’s a real argument in favor of the historical patterns for how people find mates. The right-wing argument on this is that a lot of this couples to the decline of religion. One of the fundamental purposes of church was for the development of mating opportunities for people to meet each other with shared values, get married and form families; sort of a trusted, safe environment in which to do that. That started to decline pretty seriously way before the internet back in the 50s when organized religion started to decline.
There’s a new way of doing that now! In the not so recent past, internet dating went from something you do that’s creepy and scary to something that’s absolutely mainstream. Huge numbers of relationships and marriages and children are being generated through all these online matches. I’ll give you an example: we just had our first Clubhouse marriage that I'm aware of. Two people met on Clubhouse, met in real life, and then got married. On Clubhouse! You can argue that if technology intermediates it’s going to be hyper-optimized or is going to have the wrong criteria, is going to cause people to think there’s too much choice. It is nevertheless a way to do that matching and it is a way to do that matching that for a lot of people is a superior way and is playing out in large numbers.
It’s not a refutation of your argument, just an argument that there is some silver lining on the other side also.
Richard: There’s a lot to this, and whether we like it or not we’re going to go through this experiment and we’ll see what happens.
Marc: Well there’s also this sociological observation that the people who seem to be the most animated about the effects of the internet on our societies spend a lot of time on the internet talking about the effects of the internet on our society. [laughs]
Richard: Point taken. I don’t want to come across as someone who hates technology, we don’t give enough credit to Google and Amazon; the knowledge at your fingertips and the entertainment options. It drives me crazy when people criticize Amazon. I’m a regular user of Kindle, Prime, WholeFoods, Audible… a huge portion of my life is plugged into Amazon.
My concerns are very narrow. I guess human nature is changing and people aren’t getting married and having kids. I guess that’s not that narrow, [laughs] it’s a little bit broader, but it’s not all aspects of technology certainly.
Marc: Well, the other thing; if we spend a moment on that getting married having kids point… That getting married and having kids thing is a problem that predates the internet. Confirm for me this is right: that basically there’s this broad pattern in the last 50 years where as societies across the world get wealthier the birth rates drop?
Richard: That is true, although we have reached new lows and sometimes you do see an uptick in certain places. Generally, you’re right, it certainly can’t be all blamed on the internet. I think the better data you can blame on the internet is just the number of people who have had sex in the last year. I don’t know if that’s directly correlated to how many kids you have, you could be a virgin then get married and have a lot of kids, but there is some indication that people are moving away from the idea of having sex and being in relationships.
This seems to be particularly bad in a place like Japan, which is a place that is really plugged into technology and video games and all that. The number of virgins and people who don’t want any relationships are off the charts. So you’re right, there is this thing called the demographic transition. At the same time, there does seem to be something a little bit different in the last 10 years.
Marc: Well let me try blaming something that isn’t the internet for this. What are the traditional markers of, you could use the term American Dream, or middle class, or the concept of family formation, the idea of two young people being able to come together, have kids and be in a setting they believe is high quality. What are the big markers of that in the US?
I would argue there are three big components to that. Housing, the ability to have a house or home. Education, the ability for kids to have a great education. And then there’s healthcare. If you had plentiful, quality, healthcare, education, and housing, number one you’d be fully realizing the American Dream for more people. You might also expect that that would lead to an increase in marriage rates and birth rates because people would know it’s financially practical to do that at a younger age.
If the price curves on houses, schools, and hospitals were going down at the same rate as the price curves on movies, TV shows, flat screen television sets… I think we can probably agree that that would be positive on this point?
Richard: Maybe. I think it’s more cultural than that. If you look at what predicts people having kids there’s actually a negative relationship between living standards and how many kids you have. The places that have the most kids tend to be religious communities. If I was going to say the internet had an effect in recent years, I would be more inclined to put it on cultural and political changes than I would be questions of affordability. I think those are second order concerns once values have shifted.
Marc: Ok, but then again, if it’s the value shift more than anything material you’d have to say that that value shift predates the internet. It may have been accelerated by the internet but…
Richard: Yeah, that’s what I would say. Like with Zach Goldberg’s Great Awokening, all the data is unquestionably clear that the way the media talks about social, racial, gender issues, and public opinion has had a radical shift in the last 12 years. This is stuff that’s been happening since the 1960s, but we’ve seen a super-acceleration when we talk about wokeness. Whether you want to put some of that on the internet or all of it or none of it, that’s a question.
You brought up education and healthcare as two places that could possibly be disrupted in your article on software eating the world. How optimistic are you on that? The way I look at education is that people have this naive model. You go to school to learn something, you travel to this place to learn from this professor. “Oh look! You can just do it online, you can watch a video and then be graded online, you have no need for school.”
I think that misunderstands the whole point of schooling. You’re not really learning anything, you’re just signalling. It’s an arbitrary symbol, it doesn’t matter if technology helps you do it better because it's not about doing it well it’s about arbitrarily jumping through hopes. That’s why there’s these ideas and government regulations and systems of funding that make education particularly difficult to disrupt. But I’d be open to ideas and I’d be optimistic if you told me there was another way to look it, another way it can be disrupted.
Marc: I guess I’d say I agree with a lot of that. I think the right way to think about education consistent with all of that is that education as it is right now is a bundle. Take college as an example, it’s a bundle of, in theory, skills and knowledge. It’s a bundle of a credential. It’s a bundle of social status. It’s a bundle of daycare for young adults. [laughs] It’s a place to park people whose frontal lobes are still not fully developed. They bundle housing and food in there, it’s a social environment, it’s a dating scene, right? It’s a place to act out, to experience rebellion. [laughs] It’s a bundle of all those things, and we’re basically dealing with the consequences of having bundled all those things together and then pretending it’s “education.” Pretending the end results are useful for skills or living a better life or such a thing.
It’s very easy to technologically innovate in delivering instruction or chess playing or any of these other components of the “educational process.” It’s much harder to go up against that bundle. You did argue the dominant thing in that bundle is the signal, the social status that results. This is the Bryan Caplan argument with the seven-eighths effect; somebody who completes seven-eighths of Harvard does not earn seven-eighths the money as someone who graduates. They make half the amount of money as someone who graduates. So either half the skills are being loaded into that last semester or it really is the diploma which is signalling value as opposed to the actual skills.
This is one of those my “X-wing fighter up against the death star” kind of things. Education startups coming out of tech run up against this bundle or matrix of value. All of the heavily freighted societal implications, and all the heavily freighted governmental policy aspects… Try and create an education startup that goes up against a system where incumbents have access to unlimited federal student loan funding for free. [laughs] Talk about a hard challenge!
So I think that’s all true. In our world, you want to be somewhat cautious about the degree to which you think this stuff can be revolutionized through a better user experience or something like that. On the other hand, I think it was Herbert Stein who said “if something cannot go on forever, it will stop.” At some point, things just reach a level of absurdity.
This goes back to our Uber discussion. At some point it’s just absurd to stand on the street corner waiting for a taxi cab if you can just punch up an Uber or Lyft. At some point it’s just absurd to have your kid spend $80,000 a year for your kid to get indoctrinated in a fringe political cult that basically leads to your kid being unemployable. [laughing] At some point… A friend of mine who is a well-known Silicon Valley entrepreneur, very successful and very left-wing. I was asking him about his kids and he goes, “yeah, my daughter went to Brown. Now she’s 25, she lives in Brooklyn, she’s stopped bathing and she hates me.” [laughter] I almost asked him “who pays her credit card?” but I didn’t want to get into it. So at some point it’s really like, “really? Seriously? This is what we’re doing?”
And we see the other side of this in fact. In tech it’s kind of boomeranged around. Like in tech, it’s arguably a better credential to have dropped out of Harvard than it is to have graduated from it, right? Mark Zuckerberg, Bill Gates, Harvard dropouts.
Richard: When Peter Thiel was doing his Thiel fellowship for people, it was seen as this huge eccentricity. That was 10, 20 years ago? You pay people to drop out of school. That’s fascinating that it’s now a better credential to have dropped out of Harvard in Silicon Valley than to have actually finished.
Marc: The Thiel fellowship is super interesting. I’m super open on these things, and even I was like “really? 19-year-olds?” Basically he paid a bunch of 19-year-olds to drop out of college, they all moved to a group house in San Francisco, and he told them all “go nuts.” On the surface you would say “oh my god! What are you doing? Let’s hope that 100% of them survive.” And if you look at what that cohort has done, it’s a very small number of kids… that’s a point Peter makes, it wasn’t that many kids! People really freaked out given the fact that it was 20-year-olds or something.
That tells you how important the social signal and status stuff is. He calls the existing universities the Catholic Church; part of the Reformation, sells indulgences. They know full well what they’re doing… they know they’re corrupt, they know their system is broken. So of course they’re going to disproportionately panic at the indication… they see Martin Luther walking down the street of course they’re going to freak out.
But you look at that cohort of kids, they’ve been successful beyond belief! Ethereum! Ethereum is a $300 billion outcome in ten years; a Thiel Fellow. Sigma, another company we’re invested in is extraordinarily successful… they’re revolutionizing computer design; Thiel Fellow. And there’s another dozen of these that are like these really spectacular breakthrough… these people are just doing incredibly fundamental work. Centered in tech, but of course that’s where people can do breakthrough work these days.
There it is. That worked. It begs this question, “OK, why are we not all doing that? There’s something there.”
Richard: I think Peter Thiel being able to select 20 people is probably the point. [laughs] I went to law school at the University of Chicago. It just showed me you could have so many smart people… and I just felt like law school was for people who didn’t know what to do with their lives. That was me too, I didn’t go to a great college, I didn’t know what to do. That's what they were there for. Selection is everything, so you’re right. Not everybody can found Ethereum, but people can think about starting a hardware store instead of getting some worthless degree, I think that’s realistic for people.
Marc: Selection is a big part of everything, I can see the general point. I will say I’m sure it’s just not 20. I’m sure it’s not 2 million, but I’m sure it’s not 20.
Richard: Well even if it’s 2,000…
Marc: Yeah! Well how about that? It’s not like the Harvard undergraduate class, how many kids per year? Probably a couple thousand freshmen a year. That’s not that big. We load onto those kids the responsibility apparently for determining every aspect of how our society works. We’re making some selection there already. What's the total reporting staff for the New York Times? 800?
Here’s the way we’re thinking about it from a tech standpoint. You can’t just go flat up against the bundle, you can’t do a frontal assault on the death star. Even if you could, and people have tried to full on create new universities, you run up against the accreditation cartel. It’s one of these government regulatory capture things. Universities are a government supported cartel, and quite literally they have access to federal student lending through the accreditation process, the accreditation process is formed by the incumbent. The government has delegated to these institutions the ability to decide who gets to compete against them, and the answer is nobody gets to compete against them. These are nominally non-profits but you would never know it looking at their financial statements.
It is this idealized, stagnant entrenchment of the status quo which is extremely powerful. You’re not going to frontal assault it. What you can do and what we’re doing is you can slowly strip away pieces of it; you can pull pieces out. You can for sure pull out the actual skills training part of it. You can pull out the dating part of it. You can pull out a lot of the logistical components of it. You can pull out housing, you can pull out the food component.
And then you get into the serious stuff. Can you re-credentialize? Can you create new forms of signal and status that are not just based on these legacy institutions? It’s the X-wing death star thing. Any individual effort probably won’t work, but if we run enough experiments over time and strip off enough pieces I think we’ll be able to start having an impact.
Richard: Another possibility… I don’t know if this is more about business or if it would have to be somebody more philanthropically motivated. Investing money in politics and changing the system, a lot of people do that but I’ve always been surprised at how little money there is in politics. I was just looking at the 2020 presidential election, $14 billion was spent on that, that doesn’t seem like all that much money. Some of this stuff is very technical, you just have to capture the bureaucracy, get the right congressman to change things. Maybe revolutionaries are emotionally over-invested in politics, but maybe financially and strategically underinvested in politics? Does that make sense?
Marc: Yes. Just on the facts, and this is not a value judgement, for sure there is not nearly enough money in politics, exactly to your point. It’s just obvious in the arbitrage. Just put your pure finance hat on. Think “ok, there’s going to be some regulation that’s going to cause there to be a $100 billion in value lost. It’s not a crazy thing, it happens a lot. So what should you spend as an economic actor to either cause that 100 billion to appear or vanish? Maybe not 100 billion, but maybe it should be more than a million, right? A lot of these things when they happen, you go to trace back the amount of money involved, pressure groups and so forth, it’s just not that much money relative to the stakes.
So there probably should be a lot more money in politics the way the system is currently conceived. It should probably be, I’m going to guess, a hundred to a thousand times more money than it is currently, given the size of it. And the stakes keep rising because the economy keeps getting better.
Let me say, I think tech is the worst of anybody. The tech industry is the worst of every industry and every field in terms of engaging in politics. I think some of that is flat-out arrogance, but I also think part of that goes back to the selection point of who is in tech. What is tech? Tech is the new fringe ideas. Who are the people that go after the new fringe ideas? They are the new fringe people. We are iconoclastic, we are disagreeable, we are utopian. We believe in first principles thinking, we don’t believe in reinventing the wheel, we believe in superseding the wheel with nuclear powered space flight or something. If somebody says “here is how something has always been done,” we say “we’re obviously not going to do it that way.”
And the other interesting thing about tech is that every other industry always stabilizes. At some point, you just have a certain number of movie production companies, you have a certain number of car companies, you have a certain number of oil companies, you have a certain number of universities, you have a certain number of banks and the industry just stabilizes and those things… Ford, GM, and Chrysler for the last hundred years right? Repeatedly bailed out but the same three companies.
At some point these industries stabilize and people band together and form industry associations, lobbying groups, the MPAA and things like that and then they start exerting serious political power. The problem in tech is by the time you get these companies to the point where they fully accept the nature of the challenge and they are run by the kind of people who understand all this stuff, they’re no longer relevant. It’s some new set of people and some new set of companies where all the issues are. And those people again are the super iconoclastic disagreeable types who don’t want to work together and don’t want to do the traditional thing.
My entire career now for 30 years I’ve been watching this happen. We so under punch our weight relative to any other industry, it’s just ridiculous. I’ve concluded it’s hopeless. I’ve stopped spending time on it and I won’t engage anymore because I will not have these conversations anymore with people where it’s like “yeah I know I should do this but we’re still not going to.”
It’s going to be our lot in life as an industry that we’re always going to be on the receiving end of this stuff rather than the giving end. That just increases the pressure to actually fly the X-wing fighter exactly right through the gap in the shields. So that’s what we’re focused on.
Richard: It’s interesting to hear you say you’ve given up on tech ever being good at politics because I thought your project, the website a16z.com, your articles are a way to marry the tech industry with people who are in journalism or the social sciences or are thought leaders who have a more tech-positive view. Do you see the mission that way or am I reading that wrong?
Marc: We touch on that. It started with our podcast Future, which is now more of a publication. We do touch on that. We have a fair number of politicians, policymakers who do read that stuff. One of my claims to fame is my piece “It’s Time to Build.” I got very complimentary messages back from Kevin McCarthy, who is the House leader for the Republicans. He distributed it to his entire caucus. And then I also got a very nice note from Saikat Chakrabarti who is the young DSA activist who created AOC. So I either did something very right or very wrong. [both laugh] My biggest claim to fame on this stuff is Dominic Cummings gives me credit for… the slogan of the Conservative Party and Boris Johnson about a year and a half ago before COVID was “build, build, build.” Dominic credits me for my essay on that. So there’s some of that and we do what we can. And we have various efforts underway.
We’re getting increasingly politically engaged in crypto, these issues are getting very heated. So we have people in our firm working on these issues very hard and we’re going to support them in their doing it. For the reasons I described this industry is not going to solve its problems in dealing with regulation and government through political activism. It’s not going to be the main solution. The tip of the spear is going to be technological change or it's not going to work.
Richard: That’s all fascinating. I’m mindful of your time Marc, I know you’re busy. Let me ask you just as a close, what are you excited about in America? What are you optimistic about? What’s your optimistic story of where we go in the next 20, 30 years? Give me your pessimistic scenario and give me a medium scenario if you can.
Marc: I’ll start with a pessimistic scenario. I don’t know if I’m an original thinker on this one. The pessimistic scenario is just simply lack of energy and lack of will, right? The pessimistic scenario is simply we could do all these things but just can’t be bothered. You could blame it on anything from the collapse of religion, people not having kids… there’s lots of possible causes of this but whatever those causes are there’s this feeling of “we could do these things but we’re not going to. We could do these things but instead we’re going to have our government jobs or have our UBI or have our long-COVID disability checks, whatever the new way of delivering government programs and benefits is going to be.” [laughs] I chuckle because we don’t even know if long COVID is a real thing and already we’re going to have government benefits for it, right? It’s Tyler Cowen’s complacency thesis. It’s just that we can’t be bothered, we could but we’re not going to.
The optimistic case is that every single day we go to work, used to be in the office, now its over the internet. We go to work every day, we meet with the sharpest, young, aggressive, hungry, ambitious, innovative and creative people I could possibly image. They are so sharp, so confident, so driven. They are so much better than I was and so much better than my cohort was when I was their age. They’re just way more advanced, they know a lot more about what they’re doing than I did when I was their age, and I think that’s a direct payoff from the internet because they go on the internet and learn all this stuff. They come in with these absolutely spectaculor ideas, the ability to recruit, and are able to build these amazing new products and wedge into these markets. They’ve got creative ways to overcome all these problems I’ve been talking about. And they just keep coming, it’s just wave after wave after wave of the most exciting video game in the world.
And like I said, for a lot of them it won’t work out. But for those who do it’s just these fundamental breakthroughs; titanically important technologies and companies that come out of this process. And increasingly cross-cutting into way more sectors of the economy than when I was a kid, so we’re becoming way more systemically relevant. It’s just this unending supply of these spectacular kids basically, so at the end of the day it’s just hard to argue against that for me.
Richard: Ok great. Marc, you make the good case for optimism…
Richard: [Laughs] Yeah, whether people are optimistic or pessimistic, I think the pessimism market is pretty saturated, that’s most of what we get, and so it’s good to just hear the case that people aren’t making enough. It’s been great Marc, it’s been a great conversation. Thank you for this, it’s been great having you on.
Marc: Good, fantastic. Thank you Richard, I appreciate it.