DOGE Chaos, Financial Engineering at Twitter, and Chinese AI Development w/ Byrne Hobart

I'm doing great, how about you? Yeah, let's do it.

Yeah, I'm not sure I would tell him to do that much differently at this point. I guess, you know, there are ways to get a little bit more of the upside, and certainly there is stuff that could be done but may already be being done, in terms of trading crypto in particular ahead of different announcements. But, you know, there is this long and kind of sordid political history of major politicians' less-known relatives getting into various business dealings. It is one of the sort of kind of comic-relief side stories in any presidency that there is some nephew, cousin, half-brother, whatever, who is constantly saying that they're very close to the president and that, of course, he can't ever be directly involved in this but, you know, he's really on our side. I'd heard this theory about Hunter Biden too, which I thought actually had some explanatory power—that yeah, all the emails are real and Hunter really did tell people it's 10% for the big guy and so on, but he just made sure to not actually tell the actual president any of the things he was doing trading on the name. And meanwhile, you can't really collect on that. If you are a corrupt oligarch and you hire someone for this completely fake, very well-paid job, and he says, yeah, you know, the org chart is there's me and then under me is the Secretary of State or whatever, it's not like you can sue him for misrepresenting himself if that turns out not to be true.

So it is kind of a good grift to run. And I think in the Don Jr. case, he is at least among Republicans a celebrity in his own right and does operate in that capacity—he gives speeches and things, he has his own media presence. So he is also part of that orbit. But yeah, he seems to be doing a lot of the kind of smaller-scale business dealings. But it's also a feature of the market right now that retail investors are pretty big—they tend to get pretty excited about things like that, about brand-name board members. And especially for companies where either you can't really evaluate the business at all, it's too early for that, or you can and you can compare to other companies and say this is just not as good of a business as the other ones, but it is my kind of not-as-good-of-a-business. So what we've sort of done is democratize the idea of subsidizing a nepotistic family member who really wants to run a coffee shop or used bookstore or something—high status but not very lucrative. It used to be that you had to be wealthy enough to actually fully subsidize that business, but now you can actually do the nepotistic business subsidy thing through your Robinhood account. It's a smaller amount, but you still get the same fuzzy feeling. So yeah, maybe this is all about taking parts of capitalism that used to be available only to the 1% and making them something anybody could do.

Yeah, I think that is basically the story. So part of what I was writing about is just anytime you have a founder-led company and investors like the founder and the founder clearly has high conviction in the business, it is very troubling if that founder steps down. It often, for good reasons, drives the stock down a little bit—you wonder if all the stock is going to get liquidated. But you also, in many cases, just want this person who understands the business very deeply and who's respected by the employees, and it's better for them to be in charge than someone else, even if that other person is also pretty good. But I do think in this case, if there is a strong explanation for why that person would want to leave, it's a weaker signal. Because sometimes people do just leave because they can see the business is actually not going to go all that well in the future, and so that's what keeps them unexcited. But in other cases, yeah, there are other higher-value uses of time, and usually those uses of time are just either giving away lots of money generally or just spending more time with your possessions. You have to be pretty motivated to run a business if you could also just enjoy being a billionaire indefinitely and never think about money again, except thinking about how nice it is to have so much. But in his case, he's been alarmed about AI for a long time and has been donating to a lot of EA, effective altruist, causes, including causes that are about AI and existential risk and things like that.

So I think it's actually pretty aligned in that case to say that as AI accelerates and as it gets better at doing human-level performance, if you're worried about it achieving superhuman performance in a very negative way for society, that should probably be your full-time thing. So I guess it is kind of analogous to if someone steps down because they really want to provide full-time medical care to a relative with a terminal illness. It's just in his case, the person with the terminal illness is all of us, and the illness is that there's this AI thing that's ramping really fast and could kill us all.

I mean, I don't know. It's always hard to come up with expectations for someone who is clearly smart and effective and has a lot of financial resources and has been paying attention to this rapidly changing field for long enough time to have some sense of what's coming next. So I think it will be very high signal whatever he does next. I think that even the fairly straightforward things—like, okay, someone will start another lab that is even more safety-focused than the other labs—I think that probably just doesn't work, because if you view safety as actually complementary to building a more powerful AI system, then maybe you'd say you don't need as much money as OpenAI or as Google, because you can actually get more out of the dollar spend. But I think that's not necessarily true. It is probably true in some sense over long periods that if you have this smarter reasoning model, it may reason its way into fairly pro-social behavior, but it's hard to say for sure. Anyway, I really don't know, but I think it'd be very interesting to see if someone does have this fortune and they now have time to devote to these kinds of causes, what is it that they see as the highest-leverage thing to do. But yeah, no idea what that would be. And I could be wrong, but the fact that that is a good explanation does not mean it's the only explanation. So it is possible that either it's quitting to do nonprofit stuff but it's a totally different nonprofit thing—it's shrimp welfare or something—or that it is just quitting because it is really relaxing to not be running a large company and the money will still be there.

I think it's good to think about existential risks, but I think that you really want to avoid prematurely defining risk of a particular nature and saying this is what counts as an existential risk. Because there is this ongoing existential risk of we end up creating a really complicated society—it has high fixed costs, not in terms of it takes a lot of dollars to keep things running, but in terms of it takes some very functional institutions and the ability to put competent people in charge of solving the right problems. And if you lose that, it's very hard to replace it. So you can have these radical decreases in the complexity of your society, and in the case of modern human civilization, that just has to mean not just a large decrease in standard of living but actual starvation.

So that's the kind of thing that I worry about more—cultural decay and risk aversion and just people not having kids and thus not thinking about the distant future. I think that is, over long periods, an existential risk that will always be with us and is worth addressing. And then there are other more near-term existential risks, whether it is the confluence of nuclear war or synthetic bioweapons or rogue superintelligence. These are all things that could actually wipe out humanity or functionally wipe us out, but they're always in that mix. And it does feel like the risk—you could sort of think of a hot apocalypse and cold apocalypse, where hot apocalypse is nukes start flying and by the time they stop civilization is over, and then cold apocalypse is things are just a little bit less functional over time and people are a little bit less willing—a little bit lower trust and a little bit less willing to invest in long-term projects and take big risks. Smart people do things—they opt out of making challenging, high-stakes decisions in favor of other stuff that they can use their intelligence to do, and the whole thing just gradually falls apart.

But I suspect it would fall apart in a pretty invisible way. If you read about people who are in late-stage empires, they don't usually feel like they're at the end of the empire. In fact, it seems more common for people to have this really paranoid feeling that this could collapse at any moment for them to feel like that on the way up. Like Bill Gates, apparently throughout the '80s—where it definitely made sense in the '70s and then continuing to the '80s, but then into the '90s where it was really hard to justify—Gates would always talk about how Microsoft is just a couple bad releases from being a completely irrelevant company that no longer exists. And I'm sure a lot of people who had those conversations with him in the '90s were thinking to themselves, Bill, no one has ever made as much money as you have at your age, and you're a monopoly in this incredibly valuable product category, and all the smart people—you are very close to the top of the list of every smart person's ideal place to work. Like, how could you possibly think that there's some risk of all this going wrong? And I think his answer would be, yeah, you could have said that about a lot of other people who, if I name them, you won't actually recognize the names. Because it is true that a couple mistakes are enough to kill a company.

And then it felt like in the mid-2000s when Microsoft was kind of in this lull—where yes, they were actually growing, like revenue was actually pretty good, margins were going up, but people were just less scared of them. This was something Paul Graham wrote about—that he no longer really had to warn startups to think about what Microsoft could do to kill them; they had to warn them about Google. Microsoft was just not a threat to startups in that period. It does feel like people weren't especially worried that Microsoft would die. They sort of felt like it was impregnable but was just not really going anywhere. And that is, again, a more meaningful risk. Part of what got Microsoft out of that was a series of pretty bold bets—some of which were done under the Ballmer era—and then Satya was able to spearhead one of those, which did well enough that he's now in charge of the company. And he does seem to have the right kind of paranoia. Maybe it is helpful that it's interesting actually that Microsoft has a lot of categories where they are just number one, they're synonymous with the category—they've had other categories in the past where they were synonymous with that—and then they're run by someone who previously worked their cloud business, which was not number one. It was the business that was trying to catch up to AWS. It actually did a really impressive job, but at a company where they are number one at a bunch of different fields, you actually do have to kind of go out of your way to pick someone who is not from a business that was the best in its category. Maybe that's what you actually need—for them to always think of themselves as underdogs who are not necessarily everyone's first choice and who need to be pretty scrappy to survive.

So the Twitter thing is partly financial engineering. Twitter has this relationship with xAI, and it is just one of the perks of being Elon—or just being someone who is in control of a bunch of different entities in which his ownership stake, economic ownership, varies—is that he does often have the option to move cash flow, talent, infrastructure, etc. to whichever company gets the highest return from it. And that kind of works really, really well unless you just run out of cash flow to reallocate, or all of your Tesla engineers are so busy working on something for SpaceX that they don't also have time to fix some problem at Twitter or whatever. But he was able to technically get Twitter's equity value, or Twitter's enterprise value, back up to where it was when he bought it. But it's just a very different entity right now.

And it does feel like some of the capitalized value of Twitter circa 2022, when he did raise external capital including on the equity side—some of that was people who wanted to do him a favor, who figured it was much better to buy something that Elon is buying that makes him feel really good about himself at 150 cents on the dollar than to keep that money and not invest it somewhere else. So basically a fee to get on Elon's good side. And then now it feels like there's a different math behind being on his good side, which is that Twitter remains a really important place for ideas to rapidly disseminate. It is where the discussion happens when there's a breaking news story. That doesn't seem likely to change, even though they have had some attrition and lost some of their contributors. They have the same kind of boiling-off effect, where if people who leave are more likely to be progressive, then the site gets more right-wing as they leave, and so it ends up being too right-wing for the next set of more progressive people. But then some of the people who stick around either just really are open to a broad spectrum of views and they know that they have plenty of progressive friends and can get the progressive side of something, or could just generate it on the fly, and so they want to hear what the right-wingers are saying. And then the other piece is just people who like scrapping and who absolutely want to go to a site that is now more conservative because they get to have arguments with people and dunk on them all day—that's quite fun some of the time.

So I think Twitter—it is not quite the town square, but you also can't really run the town square if your town spans multiple countries with different legal jurisdictions and the owner of this town square has business interests, including interests in different countries that have very different views from the US. So you just can't have the town square if the town square is owned by someone who does a lot of business in China—there are just going to be limits to the things that he's able to say. And then if he's also part of the Trump administration, there are further limits to what kinds of discourse he wants to happen. But yeah, I think it is partly just a story about how if you have a bunch of different entities and you just have a bunch of different trade-offs you can make, you have a lot of opportunities that other people don't have. And that is a lot of what negotiation is in general—is figuring out, okay, we're both negotiating on this one dimension and it's clear that we both care about the outcome and we can't quite get to the middle. Is there some other trade-off that I care about a lot and my counterparty doesn't care about that much, or vice versa, where we can actually get closer to an agreement? And so Elon just has more degrees of freedom than just about anyone, and then more hard constraints on how much he can use at each of those things than just about anyone.

So I think if I were part of it, what I would hopefully be thinking is the shock-and-awe phase is over. We have convinced everyone who gets a government contract that these contracts will be scrutinized—in fact, they'll be scrutinized in a pretty hostile way. And sometimes you'll be doing something good that sounds not so good, and so you still lose your funding. What that forces is some level of transparency and really a focus on KPIs. So if you have some grant that is actually serving US interests and it's doing so in a kind of opaque way, just making that more legible to someone who's new to the system is probably a good thing.

And I think you can look at a lot of the mistakes Doge has made and say this is why we need people who have much more expertise in how US foreign aid works and how the US government allocates its operating expense budget and things like that. But the other side of that is if you're deferring to people who do have that expertise, you're often deferring to people who also have a vested interest in how things currently work, and you don't really know what the balance of that is unless you actually start cutting and see what goes wrong and what doesn't. But once that shock-and-awe phase is over, I would love to see them just go after—I think there are areas like Medicare where there are just a lot of opportunities for people in general, service providers, to take advantage of the system in a way that was not intended. That probably shows up pretty straightforwardly if you are doing statistical analysis on things like—I don't know, you could look at some category of surgery and look at what demographic factors predict, things like age predict how common that surgery is, and then just look at per capita—is this happening a whole lot in very specific places? Maybe there is someone who is really interested in getting subsidized to do this surgery and is willing to do it for people who could probably do without it.

I think something like that is maybe less exciting and certainly less politically polarizing, but is actually a useful thing to do. The problem with that though is if they had tried to do that early on, there would just be a long period where Doge is announced and then nothing happens, and then when they do have an impact, it's these tiny incremental changes that no one really cares about, and so Doge just becomes this minor sideshow. And maybe in the next State of the Union, Trump gets to say here's how many billions of dollars this organization has saved, and everyone would just be asking, what's Doge? Whereas if in the next State of the Union he quotes a number—it's an accurate number, it's a few billion less than if Doge had been really rigorous from the very beginning—at least in this case, everyone knows what Doge is, everyone involved with Doge gets to be proud, people know that they have actually achieved something. And given the size of the team and given the scope of US spending, it's probably a pretty high-ROI decision, even if it's not quite the magnitude that Musk was hoping for.

So I would say—it is very nice of you to ask if it's as much chaos as expected, because yes, it is as chaotic as I expected. Because I remember the Trump 1 days very clearly. There was a lot of chaos, but it was chaos that didn't actually lead to that many outcomes. There was a very high ratio of chaos, discourse, news flow, etc. to actual changes. And it feels like they've had that same level of discourse and uncertainty in things, but have actually implemented a bunch of changes. I think some of those—like some of the cost cuts that Doge did—were just bad, or at least were very ill-considered, if only from a political standpoint. And then others seem actually pretty reasonable.

And the US government, from what I understand, in many cases has pretty generous work-from-home policies, but their real estate footprint has not dropped that much. So that is the kind of realignment where I think a lot of companies in the private sector would have very quickly adjusted their spending to make sure they're spending for offices that actually have people in them, and there's less of an incentive to do that within the federal government. But it's probably helpful to do that kind of downsizing. On the tariff stuff, it is—you almost don't want to say this is a really effective bluffing strategy. In fact, if you don't like tariffs, you should make it somewhat taboo to say this is an effective bluffing strategy. What you should do instead is pretend that you take these completely seriously—this is a complete reshaping of the economic order and no country will be able to sell anything to America or Americans without paying a fee to the US government. If you say that, then tariffs are actually a more credible threat. If everyone understands that a 25% tariff is the start of a negotiation, the actual tariff will be much lower in the end—then the ratio of starting bluff to final outcome gets a lot more extreme in favor of less important final outcomes.

One thing that has been interesting is to see how other countries are reacting in terms of doing their own defense spending. And then there's the story that came out, I think over the weekend, about how the UK has a digital service tax—they are considering preemptively removing that tax, because the tax is basically a tariff. It is not on goods but definitely on services, and the way it's structured is that it's a tax on social networks and search and a couple services like that, but these are all categories that are just overwhelmingly dominated by American companies. So it does in effect mean that there was a tariff on the US and now it's going away.

And as I've pointed out a couple times, the tech companies are in a really interesting part of the crossfire, which I think they probably did not anticipate. I suspect that some people would have been a little bit less Trumpy had they thought that the tariff talk was as serious as it actually is. But these companies—they're kind of swing voters or swing influences, where they used to be very pro-Democrat. And I think if you asked them, they just wouldn't have been able to credibly say that they were centrist. They would have said that many of their employees—they want to give each side a fair hearing, but yeah, it's much more likely that a Democratic candidate than a Republican candidate would be able to do a fundraiser and get a lot of these people to attend and donate. And now big tech still probably tilts left, but there are plenty of people who are vocally right.

And that means that if you are running trade policy in some country and the US is threatening that country with tariffs, one of the things you think about is who are some swing voters who we can really punish this politician through. And if everyone in tech who supported Trump associates Trump with lots of bad things that happened to American tech companies, then it's probably much harder for Vance to raise money from these people in four years. So yeah, it is a form of trade policy that is very heavily informed by US domestic political considerations, but that's just how the world works. From a big-tech perspective, if the UK decides to preemptively be nicer to big American tech companies, then that's actually enough of a tariff victory that they feel good about it. And I presume Trump feels really good about the idea that he didn't even have to directly threaten a tariff to get this.

So maybe that does end up leading to an outcome where there are probably going to be slightly more barriers for trade, but it's still a recognizable economic order. And then another thing is that if the US is protecting global seaborne trade routes by shooting rockets at people who try to attack ships, that is economically equivalent to a lower tariff. It's eliminating deadweight loss instead of eliminating a tax, but it still does reduce the cost of trade. And part of the story of globalization—part of it was changing legal and economic infrastructure such that trade was more viable, but a lot of it was just that containerships are a really, really cheap way to move things arbitrarily long distances, and they tend to create much more complicated supply chains that are much more sprawling and very hard to unwind. So doing things like that is in some economic sense equivalent to making slightly better containerships or just slightly reducing tariffs.