All right. Well, David, welcome to the Mercy podcast. I think now we're at two of four, maybe three of four because I do actually... I was actually on All-In a while back.
And Sax and I have been friends for a while, and Sax sometimes quotes me and I sometimes quote Sachs. But I think this is your first visit out to Singapore?
No, it was my first visit to Singapore.
What are your reactions? What do you think?
Um, I mean, someone told me a statistic that 4,000 family offices have been opened in like the last 10 years or so in Singapore.
Underestimate probably. Yes.
Right. Incredible. And so I've met with a number of folks from that community, and then obviously there's a lot of business in the region that operates from here, capital in the region that moves through here. Uh, beautiful city, wonderful people, amazing place. So...
And it's very well-run. It's a neat thing. And you know, I don't know if you saw my tweet on this, maybe you have some thoughts on this. So, you know, London has already given up the crown to Dubai, and I think Tokyo and Hong Kong, the capital of capital in APAC is now Singapore. And now maybe NYC is succeeded by Miami. There's like a little Miami boomlet like a few years ago, and now it's like that was like the GPT-1.
As aspirational Miami is Palm Beach. I think everyone would aspire for Palm Beach, but they might settle for Miami.
Sure. Sure. Sure. Yeah. You know the specific geography of it.
Yeah. I think Palm Beach is a lot like Connecticut. It's like where the hedge funds actually set up versus...
There's another reason for me, which is that Latin America, with now Milei is showing more energy than we thought, right? Or rather, Milei showed staying power. So he won in Argentina, right? So with Milei, you have essentially potentially a Latin American capitalist renaissance. And a non-obvious thing that I didn't know, you know, Antonio Garcia Martinez, right? So he made, you know, a post years ago that...
That Miami is actually the Latin America, or the Singapore of Latin America. Because if you're doing a deal between like a Mexican guy and someone from Paraguay or something like that, they will tend to do that deal in Miami because there's people there who speak Spanish. It was like a neutral third-party location. And because Miami is full of Cuban immigrants, it can't go too far communist, right?
But because it's full of Cuban immigrants, it also can't go too overboard on the other side as well, right? So there's an interesting sort of centrist, muscular centrist, good aesthetics kind of thing about Miami where if one was in the US, I think that's one of the two or three best places to be. The other place might be Starbase, Texas. I don't know your thoughts.
I think Miami maybe has a little less of the aspirational element that you might find in other coastal communities. It's got a lifestyle element that probably dominates the aspirational element, has been my experience. So people are just so happy to be there.
And they're just so happy to live life. That's the vibe. It's a little bit of a European vibe, but a positive European vibe. But yes, I understand. And Starbase obviously is the pioneering West, right? Which I think is what's deeply lacking in the United States right now is more of those moments where you and I talked about this earlier, but you know, the vision of Westworld. You get to go live in the West. You get to go live that pioneering life where it is an open landscape. Everything is a potential and your actions control your outcomes. You have absolute agency but also absolute accountability and responsibility that fundamentally has probably been driven out of the United States to a large part at this point. There's a strong push to try and bring it back and to regrow it, and there's some great pockets of it thanks to Elon and others that have forced it to happen. There's some decent governors that are trying to re-enable it. But for the large part, I think, you know, that moment of the renaissance is over. So I do think there's a big question of where is it next? That's one of the big takeaways I take from visiting your network school here today is kind of reimagining that West that we've all, I think, had these dreams and fantasies about. Wouldn't it be amazing to go to those empty towns?
Absolutely. And I think the way I think about it is if you go far west enough, you actually end up either in the far east, which is China, or in the cloud, which is the internet. And that's where I think the two frontiers are now, right? So, and moreover the internet frontier, where is that? I call that the fractal frontier. So if you take Starbase and you take Network School and you take the pop-ups that are coming up all around the world and all the special economic zones, right, the fractal frontier, if you sum up all the territory of all this place, it's actually quite large, right? It may be many square miles. I don't... I mean, there's actually something called the Open Zone Map that we can put on screen. The Open Zone Map shows hundreds and hundreds of special economic zones globally, right? And the thing about that is you get a sense of how many countries want something like that, right? Here, let me pull it up.
Why are there so many in the United States? Where is that? That's where I'd like to enter.
That's right. So these are like... this is the Office of Joint Economic Development. These are like various offices. They take an expansive view of what a zone is in this map, right? But certainly in Central Asia, like China's lousy with them, right? Where they have, you know, drone zones, manufacturing zones, this zone, that zone.
Sorry, who defines these?
Uh, there's a group called the Open Zone Map group, right? But I think that you can, like when you have this perspective, if you take a list of all special economic zones, you take a list of all of the sort of ghost cities or startup cities, you take a list of all of the abandoned houses in Japan, you take a list of all the actually the towns for sale in America. Have you seen that? Yeah. So you take all of that, that's the fractal frontier.
And the tricky part is moving one person out at a time has been hard. If you move a hundred...
And we can coordinate with the internet, then we can actually go and do that. So I think we can just like Bitcoin, the key was going decentralized.
Yeah. Yeah. Because I think everything else is the opposite.
Like the absence of that environment is unfortunately gravity well, which is very difficult to escape from. You know, it's funny you say... when I say escape, I mean productivity, escape velocity, right? Escape velocity drives productivity.
It's funny you say this because actually a lot of statesmen in America understood that the frontier was actually the main thing that was keeping America going. Like Frederick Jackson Turner's frontier thesis, that the closing of the frontier in 1890 was like this very important before-and-after moment. And in fact, before it closed, there were guys who wrote something like, you know, it is because a frontier exists that even if someone's dissatisfied with their lot, they can always be told, go west, and you know, you've got empty land. It's like having a domain name, right? And actually, because the frontier closed, that started trade unions and communism because it was like a steel cage match for the world. Everybody was boxed in. They couldn't go and just do their own thing.
In 1991, with the internet, the frontier reopened.
No, I think that's possible. Unfortunately, I think there's governing rules that exist that then, you know, we thought the open internet was that moment. We always talked about the open internet in, you know, the early days, it was going to reinvent how governing bodies have reach, how they operate. And I think it wasn't. And you're obviously the crypto person, but I don't know if that promise in the natural evolution of the open internet and then what I would say is probably much more of a controlled internet nowadays has really allowed that... it's... well, go ahead, producers.
Yeah, no, no. I mean, I think it's a function of like the internet became more of a pipe than a place, and the place remained the traditional governing structures.
So this is what I call like network versus state, right? And my view at least is the state has won in the east, but the network is winning in the west.
Like that's to say, the Chinese state is definitely dominant over the Chinese network. But I actually do think the American network is stronger than the American state. And the reason I say that is, for example, politicians who are popular on social media can now go to the left and to the right of their respective parties. Crypto defeated the forces that were trying to stop it. Uber and Airbnb...
Albeit taking casualties, like we know...
Defeated, got velocity.
That's right. Even, and to be clear, it's like, you know, Saving Private Ryan, the opening scene, right? You watch that movie and you know that the allies are going to win, but they do take casualties, right? So I know that tech is going to win and we took a casualty like Travis Kalanick, you know, got attacked by the Jouos in 2017. Travis did nothing wrong. Travis is a good man, and actually he was just on All-In, I think, recently, a little while ago, right?
Yeah, he's come on a few times.
That's great. Yeah. Basically, I think that whole thing was just something which was the media attacking, you know, essentially like a tribal enemy, basically. And so, but nevertheless, Uber still won.
Right. Like Uber might have been a trillion-dollar company had Travis remained there. It's true, but ride-sharing won. They couldn't stop that, right?
Let me ask you this, because I think that part of what made Uber win is it was a better product. It was cheaper. It was faster. But there's the gravity wells. The gravity well in this case would be a union, taxi medallions, the governing structure of New York. Do you think Uber could be successful if it launched today, given the governance we see in cities in the US today? And how much perhaps more difficult they might make it today.
Well, look at Waymo, look at Tesla Robotaxi, right? Like those are kind of comparable. Uber paved the way. I mean, don't you think that like things have gotten tougher to do business in these cities? It's gotten much more controlled. It's become less open.
It's both at the same time, right? Like basically they are fighting harder. But net-net, if you net it out and you ask when the dust is settled, like two years later, three years later, four years later...
I expect the network to triumph over the state in the west, and expect the state, by contrast, in China, Alibaba was genuinely like seized, right, by the government, right? Wings clipped, tech defeated over there, right? In the west though, Bitcoin beat, like BTC was greater than NT, right? Bitcoin was stronger. NT launched all these attacks and so on. And so I think the final sort of grudge match, you know, like the NCAA Final Four and what have you, right? So as we go up the brackets, right? Like it's CCP versus BTC, is like China versus the internet is where it's going to be eventually, right? I think what you're seeing, which is true, is that these state governments are getting meaner and nastier. They're also getting dumber, right? Like for example, when they're saying like millionaires and billionaires, it's like saying meters and kilometers, there's like a thousand-x difference, right? It's like a small thing, but there's so few of them who have any numerical acumen. And because of that, they can do it on... I mean, how...
It's like saying meters and kilometers when you're supposed to be talking about gallons and ounces. Yeah.
But that's besides the point.
That's right. Like a billionaire is completely different from a millionaire, right?
Talking about cronyism versus...
Yeah. Exactly. That's right. That's the right enemy, wrong enemy cut of things.
That's right. And in fact, actually another reframe on it is many of them are political billionaires. Did we talk about this? It's like, take the budget of San Francisco for example. Last I looked, it's about 13 billion plus a year. So you take the supervisors plus the mayor and you divide the budget into this, they're basically each allocating a billion in cash per year per person. Yes, they're political billionaires. Now, the thing about this, by the way, they're actually much, much, much wealthier than a typical market billionaire because a market billionaire is 1 billion net worth over their entire life, of which maybe they can liquidate 10 million, 50 billion, right? But a political billionaire is allocating a billion in cash per year. So over 20, 30 years, they are like 10 to 100x the allocation of capital.
Yeah, that's right. So the political...
Which ultimately could be the way you could measure the value of the capital is how much can you affect the things around you to realize the things you want.
Which, by the way, is why I always talk about the state being an organism on its own, competing with the other organisms, the other organizations which are aggregates of people that self-assembled and said, let's form an organization to do this thing. The state, local, state level, federal, whatever, national, are their own organization that fundamentally have their own growth state in a system just like biology, where they are trying to consume and they are trying to get bigger, and they, because the individuals have the same objective that the individuals do in any other organization, which is to maximize influence.
That's right. And actually on this point, I think this is really like, this was a deep insight for me at least. The state is their startup.
Like for all these, you know, nonprofits, and I was, you know, this is a one-liner, I'll probably tweet this: nonprofit equals anti-profit equals communist. There, you can get there in two steps, right? So for all these, the nonprofits are really more like anarcho-communists, but they still, like the communists, get their funding from the state. The difference is they're not all directly reporting to the state, they're all just given money by the state, and then they do all these crazy things like the managed alcohol program that you want to talk about, that like this crazy kind of thing.
Yeah, I mean, I talked about it on my show, but you and I were talking about it earlier, that the city of San Francisco has a managed alcohol program where they will give out beer and vodka to homeless alcoholics that they can come and get any time of the day, 24 hours, in hotel lobbies where they walk in, they are given either, they can choose a vodka or a beer, they get a shot, they get a beer. Once they've consumed it, they can get another one, and they can just keep doing that under the premise that they're more or less likely to go to a hospital if they're under the observation of someone observing them get drunk rather than running off and having uncontrolled alcohol, which at the end of the day, there are reports that they've given out 17 shots of vodka in a single night to a homeless person. And this is like a 5 to 10 million a year program for the city of San Francisco. I pulled all the 990 forms for those nonprofits and tracked down where all the funding went. And it's basically a network of NGOs or nonprofits in the city where people that work there are making, you know, pretty decent wages doing this as a business, which goes back to the point. This is another... and it doesn't mean to be negative about all nonprofits, just to be clear, because I support some nonprofits that have good work. So I don't like the label of the nonprofit being bad, but there are structures, organizations that have assembled that have identified a way to get capital and to then use that capital for their own benefit.
Yeah. No, and I think that's what we see. Like the way I think about systems are what are the organizations, the components of the system. The system that arises from capital, which is a measure ultimately of influence and access to assets, realizes all these different organizations. You can create a school, you can create a state government, you can create an NGO. We can create a club. We can also create a business, a nightclub, a restaurant, or an international business. And so these organizations are these assemblies that are basically competing in an environment to try and consume capital. So at the end of the day, the state organizes itself such that it will always end up wanting to accumulate more capital because it's distributing itself where every individual in the system has a benefit if they can get access to that distribution. That's right. So that's why the state ultimately always becomes so big. My measure is that in the United States today, it's probably the case that half the population, more than half the population, are earning the majority of their income, whether it's retirement income or earned income from a federal, state, or local government, or a government contractor, or a retirement check, or some other sort of benefit, pension, or insurance program that's supporting their business. So when you add that all up, it's the majority of Americans now. And that's when I think you cross the point of no return, where at that point the state has now consumed everything, because everyone has every incentive to not have it stop growing. Whereas before, you have natural market forces with these other organizations that are competing, and they're saying, 'Wait, that's not fair that the state has this outsized influence.' But once it crosses that threshold...
You're absolutely right, by the way, that there are some good nonprofits. It's a little bit like people can understand, for example, that there are good priests, but there's also like evil priests that will use the good reputation of priests to do evil, right? And you know, one of the things that has certainly happened in the US, I don't know even what fraction of nonprofits are good versus evil, but I do think that in San Francisco, the homeless industrial complex budgets are up and to the right. You know, in 2020, passed like 1.1 billion a year cash as the homeless population goes crazy.
No. The whole thing is just, it's so obvious, the more money you distribute through this network, the more the homeless population will swell.
And the less you're going to solve. There's no natural market force to solve the problem in that sense.
So these guys are the feed the pigeon society in a sense, I call them, because look at all these pigeons, we need to feed more pigeons, right? But really, it's even worse than that because they're Democrat drug dealers. Let me explain. They are securing the real estate, the quote safe injection sites. They're handling the supply chain, which is handing out the syringes. They're doing all the legal work with the various legal clinics. They're basically doing, they're putting up the billboards, which are like the no overdose billboards that say snort or smoke crack. Literally billboards that say to snort, smoke crack. We can put that on screen. Rather than to... they literally tell people to do drugs, right? And they do all this with the attitude that you mentioned with the managed alcohol program, which is like a faux wise, 'Oh, boys will be boys. You don't understand. We can't just tell them to have no alcohol. We need to... they're going to do it regardless of us. So let's enable it and do it in a safe amount.' This is like the handing out of Narcan or whatever, right? And so what's really happening is they are McKinsey for MS-13.
Right. They are doing everything other than putting the needle in the addict's arm, though. They're putting the needle right there and they're shooting away the police and they're letting the drug dealers in and they're removing the legal consequences for it. They're just setting up all the propitious conditions for massive drug abuse. And their business model innovation is to not take a cut of the fentanyl transaction, which is like 10 bucks or something like that, but to take a cut of the billions for fentanyl prevention. Because what happens is some homeless addict, and really there are more addicts and mentally ill than homeless per se. To not have a home is not the same as to be mentally ill or a drug addict, and being fed with drugs by these Democrat drug dealers. And then what happens is, and because these addicts are the victims of the nonprofits, that's the key thing. They're abusing them. It's like Munchausen syndrome by proxy, right? So the addicts go and they're driven out of their minds by these drugs and they go and smash and attack something. And then what happens? The victim of the victim basically says, 'Okay, I need to vote to solve the homeless problem.' And in this moment they vote to allocate more budget to the Democrat drug dealers that are causing the homeless problem.
Well, this is my point. So the mechanism is that the state, the individuals in the state, which are the politicians or the state administrators, who by the way I don't think necessarily are all or necessarily, you know, mal-intentioned. I think in their mind they think the only tool I have, because I've only ever had it, is a hammer and that is the state. So in every... and by the way, from my perspective, I would trace this back to the New Deal in the United States.
Sure. Sure. Absolutely. Which I think was the turning point for the United States, which I think we should talk about.
But so there they raise their hand and they say more, not less, more. This is also why I think you reach a moment where socialism becomes runaway in the United States, which is we're at that moment now, because if socialism doesn't work in New York as Mamdani has promised, the answer won't be socialism doesn't work. The answer is we didn't do enough, more.
And so in the same sense, the state representative, whether it's the politician or the administrator, raises their hand and says, 'More, give me more money to solve the homeless problem,' and that feeds the beast. So now that organization is bigger. It's consuming more capital and it continues to go in that vein. And then the problem gets bigger. And I think the same thing has happened with the cost of housing, the cost of education, and the cost of healthcare in the United States because we made a promise. The state administrator or the state politician has said since the New Deal, we've developed a repeated kind of statement in this country, in the United States, that we can do more to give you more, Mr. or Ms. citizen, and the citizenry, because of a democracy, and this is the natural state of the system and how it evolves, says, 'Great, that is the answer for my problem. You do more, so I will give you more.' So we set up a federal home loan program, we set up a federal student loan program, and we set up Medicare and Medicaid to support healthcare. As each one of those were set up, the federal government takes money and funnels it into those programs, and as a result, there's no market check. So in the case of education, the colleges can charge more every year, and the student is free to just get more loans, and every year the loans go up. So the college administrator rationalizes, 'I can make more money by becoming a manager instead of remaining an individual contributor. My salary will go from 130 to 200 if I become a manager and hire four people.' Fast forward 30 years, 10% of staff as administrators to 60% of staff as administrators. Tuition goes from 30 to 60k. And that's because the federal government has unrestricted underwriting, right? And if there was a free market, then a bank would underwrite the loan and the student would have to prove that they're getting a good degree at a good college that will make money and that the tuition is reasonable for the value of what they're going to be able to do afterwards. And if they don't, the bank will say no. Then the same happened in the federal home loan program, which caused housing bubbles, and then the same happened in healthcare because of Medicare and Medicaid. And the cost of drugs is largely driven because of the government's involvement. And then everyone says, the state administrator and the politician, 'I can solve that problem, give me more money.' And then it literally fuels the fire and you're pouring gasoline on the fire and we get to this moment that we're in today.
That's right. With that said, I want to... so there's like three or four things that are all good things I want to kind of... there's Mamdani and the Mamdani machine, there is the housing, education, healthcare piece, which is kind of... and then there's the New Deal. So go in those layers, right? So on the Mamdani machine point, like what I think a very important distinction that we see in communism, but that's also helpful in America and, you know, socialism, is the communist party and the people, right? Lots of things that the communist party did were actually relatively good for a party member, even if they actually made the whole country and themselves poor in absolute terms, but worse for the people. And so for a lot of the Mamdani machine, the nonprofits will make money on this, right? Like that's to say they will get their salaries because they will just, let's say that's 17% of the city or something like that, they will raise taxes, pull in top-line revenue, and the political billionaires will allocate it to the nonprofits who are actual clientele. These nonprofits are basically essentially the... they're government-employed activists indirectly. They get a budget from the state even if they are not .gov addresses. To call them an NGO, you have to actually, you know, you don't have to call a company a non-governmental company, right? A non-governmental organization, it's like they're so close to the government they might as well be the government, so you have to call them an NGO because of that, right? Okay, so these... once we realize actually that that's their viral loop, right, as you said, but basically it is cause a problem, reallocate the monies for the problem to cause more of the problem. And the thing about the intentions by the...
Okay, I will push back a little bit on that. Actually, a lot in some ways because their good results, forget intention for a second. If we just look at the numbers, the number that they're making go up is the budget of their nonprofit. That's what they're really focused on.
Like everything else, they're like, 'Oh, you know, bad things happen. I guess, you know, somehow the needle's... the KPI is because of my uncontrollable circumstances.' But if their NGO budget went down, now they're on it like a hawk, right? So if they... and the way I'd put it is, if they're so woke, why are they so rich, right? If this was truly something that was for the good of the people, blah, blah, blah, set their budgets to completely zero, right? Defund the NGOs. In fact, even defund the police was fund the NGOs, right? What they wanted to do, if you decode what they were saying, take the money away from the police, reds, and give it to social services, blues. It was another kind of scheme, the Dem scam to take money away from the functional part of society and reallocate it towards basically blue jobs. Another example is the hundred-billion-dollar California train. And all of this I actually trace back to... go.
Oh, I love that train. Yeah, go ahead.
Yeah, the California train feed. It makes clear that they always talk about jobs, jobs, jobs on that feed, not rails, you know, miles of rail, right? It's like the Milton Friedman thing about, you know, the people in China is apocryphal, but you know, they were using shovels and he's like, 'Why aren't they using, you know, cranes to dig?' And they said, 'Well, it's creating more jobs.' 'Why don't they use spoons then?' Right? So California took that literally and they built like less than a mile of track or something ludicrous to put a photo of it, right? They made the mistake of putting a photo because then it was actually clear amidst all the obfuscation that it was just a giant bribe of blues. But again, their innovation is not to give a billion dollars to one person, but to split that billion dollars over 10,000 people times $100,000 a person so that each one of them basically has a make-work job and they and their political constituencies, right? So that kind of thing, whether it's another example is the Podesta 376 billion for green stuff, right? Once we realize like the blue business model is capture the state and then capture the money...
And their version of going...
And you flow the money back out to the people that voted.
Yes, that's the model, and I've seen it. If you watch any Senate confirmation hearing, you can observe it because the questions the senators will ask the government administrator that they're appointing or approving is, 'I have this program in my state. It creates this many jobs for my state. Are you going to take away that program?' That's the number one thing they always focus on. And as long as the answer is, 'I will not take away that program,' they say, 'Great, you are now confirmed.'
That's right. And that confirms that the capital will be sucked up and reallocated back to their interest, and they are competing for their particular constituents to get their flow out of the state, and that is why the state gets bigger and bigger.
That's right. And I think actually one of the consequences of that is, by the way, it's socialism. It's government employment for everyone, and we don't realize it. We don't realize how much of the capital is flowing to individual... what percentage of people have capital flowing to them.
What's happening is there's now two ledgers that have arisen outside the American state, which are China and crypto, which they can't do this in the same way, like because the Chinese have their own sort of sovereign system and Bitcoin and crypto have their own sovereign system. And so because of that, and they've tried with the trade war and with the war on crypto, they tried to shut down these alternative systems and they've now failed, basically declared defeat. Both parties essentially have declared defeat, I'd argue, on China and the trade war. Democrats were defeated on crypto, though. And so what that means, I'm not saying good or bad, I'm just observing, what that means now is this system has true competition. So all of the failures that you're talking about, like the viral loops and so on and so forth, now there's a consequence because it can capture the money within its sphere, but it's losing control because more things are exiting its sphere. Once something goes on-chain or in China, then blue America can no longer tax and control it.
And actually, one thing is, if you notice, quite a lot of blues are just for taxes broadly. Right. Part of it is to attack their hated enemy of the libertarian capitalist, you know, tech guy. But part of it is also, you know, Zuck's thing with internet.org a while back, right? Well, okay, you know how like Google and Facebook have various initiatives to get everybody online, right?
One laptop per child, one billion others, three billion others, all that stuff.
That's right. That's right. And you know, I think one laptop per child was actually very successful in the form of the Android smartphone, and that's, you know...
Yeah, it motivated it this way.
One of the things we take for granted, sort of in our... so as people of the network, as opposed to people of the state. So roughly, I'd say people of God are the conservatives, people of the state are the progressives, the blues, and the people of the network is tech, the internet. That's like us basically, right? And there's some overlap there. Nothing's ever totally clean. But for us, the equivalent is grow the network, right? That's to say, more internet connectivity, generally good. Facebook's thing was making everybody connected. Google, make the world's information organized, open source, and so on. So we want to increase the scale of the network as distinct from the state. That is, in my view, the main counterbalance to the state today. And actually, you know, that existed in the past, but it's the strongest it's ever been in history because it's like formal. That is to say, markets existed, peer-to-peer trade existed, the network is sort of the peer-to-peer aspect of humanity, but now it's like digital and stronger than the state after hundreds of years where it got stronger. In fact, so the New Deal point, because you want to talk about that, right? So why don't you elaborate on that point and I'll give...
I mean, I just think that there was this moment in American history when, prior to this moment, America was built on originally a notion of, I would say, rugged individualism, but like shedding the state, shedding the monarchy, moving here, enabling individualism, enabling... and again, I think that collectivism ends up deriving tyranny in its absolute sense. To have everyone in a socialist system or communist system, really, a true communist system requires some extraordinary controls and limitation of individual liberties. So the more collectivist you become, the less liberties, the fewer liberties there are, the fewer individual liberties there are, which means the more tyranny there is. And that's why I just don't think you can have socialism without tyranny. So America was founded on the principle of this true individualism, on this lack of tyranny, this lack of taxation, this shedding of the monarchy and enabling individual agency where everyone has an opportunity to realize their full potential, whatever they want it to be, because the tyranny is now gone. But everyone also now has accountability. If you don't perform in society, if you don't exceed, if you don't succeed, if you don't meet a minimum limitation, a minimum limit, you're going to be left alone, you're going to suffer, you're going to struggle. So the question then became, at some point that had to break, which was as more people suffer, as more people struggle, there's a moment when that group of people has empathy and they say, 'We have to solve this problem.' And that's where the state flips from being initially a state that is really driven by its limitations. 1% income tax. We're not going to do anything. The state's going to stay out of your way. Individual rights, total freedom and liberty to... we have to do something. The state is responsible for solving the Great Depression. And so the New Deal meant to address the problems of the Great Depression from an empathetic note, which was, hey, people are suffering and there's no other solution in a free market. The market failed and there's other external factors that are preventing individuals from just having a basic standard of living. And in that moment, you started the pattern and the progress of the state saying, 'I can do more and I can provide you a higher order of living and then a higher order of living.' And so you went from the New Deal to building highways, to building suburbs, to funding home loans, to funding education, to funding healthcare, to doing literally anything and everything that a politician could dream up to provide a better standard of living for every individual, which fundamentally breaks free market forces and ultimately leaves everyone begging for the next deal to be able to just do anything, which is where we kind of start to find ourselves today.
I completely agree with the diagnosis of where we've gotten to, and certainly in the US. I'll offer a few, given that I'm generally sympathetic to this view. Let me offer not exactly counterarguments, just alternate perspectives I found helpful. Okay. So the first is I think of the last 500 years, from 1492 to let's say up to 1950. 1492 to 1950 was a period of increasing technological centralization that was offset by the discovery of the frontier. So that is to say, basically, let's say 1492 to 1890, you had the Americas, so you had dozens of startup countries basically, because you also had South America, you know, Latin American things, right? And you had, you know, North America, there's Canada, there's a French empire, there's all these guys duking it out. And just like, you know, amidst all these search engines, Google won, amidst all these American startup countries, like the United States of America won, right? And so the presence of that frontier meant that there was more productive things happening there, whereas in Europe there was more in the way of just warfare back and forth. In fact, like the Puritans actually left the conflicts of England, and in fact at different points in the English Civil War, the left side went to Massachusetts and the right side went to Virginia, right? And so the various, you know, the Roundheads went to Massachusetts, the Cavaliers went to Virginia, right? And then 200 years later, they had another civil war in America. And now 200 years later, we're having another, the cold civil war basically between the same sides. It's like deep cultural history, right? So in some sense, you know, people have said the American Civil War is actually about the English Civil War, right? These two types of things fight. Okay. So, but on the point about FDR, there is, I'll give a partial, granting everything you're saying, I'll give a partial qualified defense of FDR from someone who's as critical of him as you are.
And by the way, I'm not being critical in a sense that it was the wrong decision.
I'm just highlighting at some point...
There's a moment where a civil society recognizes the needs of a certain percentage of the society and then they try and organize, and the typical organizational model is the state to solve the problems of that particular part. But the problem is once you crack that egg, there's no putting it back in the shell.
That's right. So here's a few things which at least were helpful lenses for me. You know, for the first is FDR was the least bad communist dictator during a period where technology favored communist dictators, right? Or if you include, let's call it collectivist dictator, you include Hitler and so forth. So Hitler, Stalin, Mao, etc., etc. FDR was like the least bad of them, right? So he only implemented like 90% marginal tax rates, not 100%. He only implemented the Japanese internment camps, not the Gulags or the concentration camps, right? That's, that's faint praise, but it's, it's true in a sense that he was like the, the least bad communist dictator. And in fact, there's this great book called, um, gosh, it was like Three New Deals. You might have, you seen this one? Okay, you'll like this one. It actually shows how FDR was actually enamored with Mussolini and Hitler and, and so forth before World War II, right? There's a lot of influence from both the Nazi and Soviet side prior and, and vice versa. Like American ideas went to Germany, went to, you know, uh, the, the Soviet Union and so forth. Okay, so, but I would argue that the FDR thing is actually part of a broader centralization arc. For example, 1865 was the moment when people said the United States is, as opposed to the United States are, right? So Lincoln was another force of centralization. 1776, actually really 1789, you know, um, after the American Revolution, less well known is something called like Shays' Rebellion, right? Yeah, where people essentially tried to invoke the same American Revolution concept of the right to break free, and then George Washington put it down, right? He said, actually, you can't exit anymore, right? So there was a centralization arc, not without its reversals and so on, but broadly centralization up until 1950, both in America and actually outside. Why? You had like the unification of Italy by Garibaldi, you had the unification of Germany, you had the, you, the French Revolution. And the thing about the French Revolution is normally you and I, many people like us, think of leftism as something which disorders the society, makes it chaotic. Think about the guillotine. Think about the chaos of the French Revolution or the chaos of, you know, the, the Russian Revolution. But there's one thing that we have to contend with, which is somehow out of that chaos they fashioned this crazy organized military machine, which eventually, you know, Napoleon's army or in Russia after Russian Revolution, the Red Army.
So normally a company, for example, that's truly in total chaos, right, just can't do anything. It just collapses and everybody quits, right? But there's some underlying logic to leftism, and it's neither something that the left nor the right talks about. I think the left will say it's all sharing and caring, and the right will say the left is naive. But really, I'd say the left is just like a Voltron death beast. Okay, it's meant to take large numbers of people, unify them into like a Voltron, and then laser eyes just become a killing machine, right? And then basically force that's what communism would do. Communism would do, right? It would flip country after country into communism, pull them into the envelope, right? And then turn them like into conquerors and so on and so forth, right? So if you think of it as like a, and, and it's, there's a linear relationship to basically Abrahamic religions like Christianity and so on and so forth. It's evangelistic. It's egalitarian. Everybody must be converted. If they don't convert, they will die. You know, they die by the sword. They live under our rules. We know what's good, right? There's something there to that, right? And that's got a power to it because it's evangelist. By contrast, when you compare it to the alternative, if you're just stay-at-home, like think about in our tech companies, right? Um, you know, there's various people who have at various points championed lifestyle businesses, but lifestyle businesses are basically almost as hard to run as like a big business because you're still a CEO. You're still responsible for everything. You have no one. You can't sleep because you can't delegate to anybody, right? Lifestyle businesses mean the business is your life, right? There's no possibility of an exit, and you can get crushed by somebody who's just playing for getting big, and they build this giant unicorn. They can take your market.
Yeah. Exactly. And so that's actually what happened with all the places that tried to not play the big guy game. All the city states got rolled up into nation states. That's right. And so, like, have you ever been to San Marino? Okay, so that's this amazing, like, duck-billed platypus. You know why? It's like, it's like a, it's like a missing link, you know, kind of thing. Like a duck-billed platypus. It's like a, it's like a mammal that lays eggs. A rare kind of... So San Marino is a rare city-state that survives to the present day because Garibaldi took refuge in San Marino when he was unifying Italy. So he sort of spared it from forcible unification, right? So it still has its own UN membership, its own sovereignty that's jealously guarded through the years, right? And it's like this 30,000-person thing, right? So it's a piece of the past that is still here. So the reason I say this, once we understand, in my view, the logic of it, there's this technological centralizing force, but the frontier was the alternate geographical force that was like a pressure exit valve, right? And so that's why lots of Europeans left America, left Europe for the, for America. They want to leave the wars of Europe. They want to leave the revolutions of 1848. They left the Irish potato famine. They left, you know, like all kinds of things in Poland, Italy, all kinds of chaos, and they came to America. Okay, fine. So then at 1950, I would consider that historical peak centralization. You had the minimum number of political units ever, like about 50 UN members, right? And because you had all these giga states like, you know, the USSR and China that had just formed, and obviously the USA, hundreds of millions of people under one banner, and it was a time where there was like one telephone company and two superpowers and three TV stations, and then the transistor was invented, and that began a rapid decentralization arc that's occurring almost 10 times as fast as the centralization arc. So you go rapidly transistor, and you have like cable TV, and you have the personal computer, and you have the internet, and you have the smartphone, you have cryptocurrency, and you have open-source AI models, and zip like this. We're unwinding several hundred years of centralization in several decades of decentralization. And so that's why I think the Western state is going to lose to the network. It's just like if, if I track various metrics of state capacity, if I track all that stuff, it seems to go away. Let me pause there, and I'll give one more argument. The Western states are going to lose to the network. Yes. Meaning that what I mean by that is, for example, the S&P 493 versus the Magnificent 7. All of the legacy American economy is basically being shut down, and the, and it's all going towards internet companies, or the money is going towards digital asset treasuries, which are like internet currencies, right? And, um, you can see this like when everybody's, whenever anybody was giving me the bull case on America. Yeah. The part that was working was the internet, but the internet, in my view, is as American as America was British. Like it's version 3.0.
Do you think that the current government, the current federal government, the Trump administration, and the effort to re-industrialize manufacturing in the United States with government support creates a different environment that actually gives them a shot?
I like a lot of these people. I think they mean well. Um, and I really think they mean well in the sense of I don't think they're doing the profit-maximizing thing and so on and so forth. Uh, but I don't think it's going to work. For, in fact, I already think it's kind of it, or at least let me put it like this: there may be some long-term success that comes out of it, but it's not going to work on the time scales that people think it's going to work, and it's not going to work to save the political entity. Like in the sense of, you know, the USSR was a political entity that did not survive. Of course, the land survived, the people survived. Russia exists, right? Ukraine exists, Estonia exists. There was essentially a national bankruptcy.
But if you're right about the digital, the network state, there's still a demand curve that is unmet for energy production. Sure. Energy capacity, which has an inherent kind of, you know, economic, uh, driver, has an inherent kind of economic stratum. There's infrastructure, there's layers that need to be built, and that's inevitable if what you're saying is true. And also, if what you're saying is not true, it's also inevitable. Or, or do we just stall? Is, does energy become the competitive force that...
So, so there's several kind of layers to... I think the first thing is I just start always with calibrating with numbers, right? And very few people who I talk to about re-industrialization and so on want to really engage with like the reality of what China is. Right. Right. Two. Yeah. It's two terawatts going to eight by 2040 while the United States is one going to two if we're, if, if everything goes. And by the way, the China two to eight, they're outpacing forecast, and they have several new energy technologies that didn't exist in the original forecast, and they don't have anti-nuclear activists, and they're not, they're doing both nuclear and solar, and America's doing neither nuclear nor solar. The nuclear rollout is insane. It's insane, right? So, but so energy is one piece of it, but really what it is is, um, like the high-tech part is absolutely one lens on it, but let me look at some other lenses on Chinese society, right? So, first of all, they've got intact families, right? They've got the kids going to school. They have, um, you know, basically like no crime, right? Uh, they have, um, like gleaming cities and like the public infrastructure is there. They don't have like graffiti and, you know, on the subways and stuff like this.
Now, the thing about this, by the way, is like the Chinese people really suffered to get here. Like, their last 200 years were complete Mad Max. So, even if they got to suffer for the next decade, they're okay. I mean, they could, they could take some hits, is my point. Yeah, exactly. There's people who have grown up with like basically going through the Cultural Revolution. Like, their boomers did not have a great 1960s and 1970s. That was not Summer of Love for them, right? So they're just... any environment they're in today is better than where they came from. Exactly. They're kind of, at least among the older generation. Some of the younger ones have only grown up in a China which just is amazing, right? So, but there's a consequence of that as well, which is they don't look up to the West, right? They think there's, there's a Chinese version of almost everything the West has that's often better or even ahead of the West, right? Like China has flying cars, you know, EHang and all this stuff. And, you know, when I post videos of this, people will say that I post this video, which is like, we wanted flying cars, we got them with Chinese characters. It's kind of like, you know, it's a riff on the... Right. So, EHang, it's basically like giant quadcopters, right? It's like, you know, the, the iPad's a scaled-up iPhone, right? So, this is like a scaled-up DJI. Okay. And people would say things like, 'It's not a flying car. It doesn't have wings. It's not a flying car. It doesn't have wheels. It's not a flying car. It only does short hops.' And I'm like, you know, they, they, they're stuck within a box where they refuse to. Or when I show videos of the Chinese cities, I'll give you a statistic. Um, in 2015, 10 years ago, uh, papers published by Chinese research labs in major scientific journals were about half of the United States. Now, 50% more than the United States. Yes. And in every category, almost life sciences, and about to cross the life sciences probably this month or next month. That's right. Every category: material science, physics, math, computational science. They do not have the wokeification of education that happened 12 years ago. I think, you know, people talk about a pipeline problem. I think part of the issue is like something really happened to like American SAT scores starting around 2013 or so. You can see like, you know, them kind of drop off like this among, especially among, um, like white American kids, right? It kind of just drops off. And I think wokeification is part of it, like why now 10 years later there's grads who are less there. Others will blame it on phones. Um, one of the things, by the way, that's going to be a big thing, uh, the, the anti-tech movement in the US is going to be very big because the left is against capitalists. The right isn't as fond of immigrants nowadays, and the center, like Jonathan Haidt, who I like, he's a, he's a smart guy. Jonathan Haidt, to some extent, Derek Thompson, other guys like this are starting to blame it all on the phones, right? And in fact, there's even tech people who are like, oh, tech is bad. I mean, AI is the new climate change. Yeah. Exactly. Right. So, right, but the issue is, and actually here's, I think, a point which is post-libertarian. Okay. If you... I like this frontier of post-libertarianism. So, which is accepting all the premise of libertarianism and then say what's next, right? So, the moderated internet... like one thesis is... By the way, I want to come back to China, but yes. So, so one thesis is the unmoderated internet is a problem, not the internet. So the question is, what does it mean for a moderated internet? So China has a moderated internet, right? Because of that, they're, they won't have millions of people cheering an assassination or something like that. They won't have drones being scripted on their soil, right? Because they can just block and interdict at the firewall level. They have this concept of digital borders that I actually think is ahead of its time, where they think they treat the digital as being on par with the physical, and they're also insulated from a lot of the chaos in the Western world because everybody speaks Chinese. They're only listening to Chinese stuff, and all that stuff is coming through translation, and most people aren't paying attention to it. It's like seeing a war and everybody's yelling in Arabic, and, you know, you're, you're not paying attention to it in the same way. Whereas the Ukrainian war, people were yelling in English, and people were more empathetic to it, right? So, China's insulated from all the chaos of the world in many ways by this border they've built. And I think that is underestimated in terms of how much stability it gives them. But the problem is that for the Western mindset, they'll immediately say, well, I didn't consent to that moderation, given that we've just been through four or five years where we had to fight for free speech in the Western context, right? So, I think that the thesis, antithesis, synthesis is consensual moderation. You opt into a society because in the absence of moderation you get American anarchy, in the presence of non-consensual moderation you get Chinese control, but the third concept, the internet intermediate, is you opt into constraints.
Why doesn't choice work? Why doesn't choice... That is what, that is what choice is. Yeah, but I mean, like... Why is, why is no... Why is it, why is it the American system necessarily anarchy in the sense that, like, because I, I can watch a conservative media, I can watch a liberal media, I can watch an independent media, I have choice. And so what drives my orientation to aggregate, what drives power accumulation in media when there's a multiplicity of options?
I'll give several. So this is basically going to be like, this is the argument that is going to be had for the next whatever number of years, right? But let me give an argument as to why American anarchy won't be desirable. The, the very simple argument is going to be the mass exodus of Americans from America. Like, that's already happening. It's, you're seeing it in Europe. It's happening first in Europe because Europe and America are not like separate entities. The G7 is all having sovereign debt crisis at the same time. Lots of Brits have left Britain. So many French have left France that they're trying to pass this Zucman exit tax where it's like, or no, it's a wealth tax, like more than two million euros, you're taxed some crazy amount. So essentially, the more people leave, the more grabby the state gets, which makes more people leave, and it's a negative feedback loop, and, and eventually everybody's going to get super mad. This is when the original feedback loop pops and, and the reverse happens. Yes. And very few people understand the history of communist societies. Like the reason the Berlin Wall was built is that all of these people left communist East Germany for West Germany. And then eventually the East German government was getting embarrassed by this. They're losing all their doctors and so on. And they said, 'Is Mom and Donnie going to build a New York wall?' A digital version. Digital wall. Why? Because... Tax exit. Exactly. Exit tax. That's absolutely going to come, right? They've already passed something like, or not passed, they've proposed, if I get it right, there's, there's some referendum in California where if it passes in 2026, it was proposed on some date in 2025, and every, like, uh, you know, one of 200 billionaires who is resident in the state, and they have a list, right, of the 200 billionaires who is resident of the state in 2025, they have to pay, uh, a 5% net worth. Yeah, it's called the billionaire tax. I read that. One-time tax, right? One-time tax, 2026. But, but here's the thing. It is designed, first of all, it's a, it's a very bad, like, it's, it's like this crazy Rand villain kind of thing for several reasons. First is it's evidently passed by a referendum in 2026 that's binding on 2025. Correct. And... And it's a constitutional amendment. Right. And so if the price of that exit tax is set on the price of the assets in the year 2025, but the value of the assets drops in 2026, it could be 20, 30% of their assets they have to liquidate. Now, these are billionaires, which means they're running big companies, which means that there's an obligate liquidation event where, as soon as that bill was proposed, these 200 offices of these, you know, guys who are running major companies, include Zuck and so on and so forth, are asking, does Zuck need to... I don't know what his fortune is. Let's say it's 100 billion, right? Does Zuck need to sell $5 billion of Meta stock in order to have the cash on hand in case this bill goes through next year? So almost with certainty, some of those several hundred billionaires will have to do mass liquidations of mass amounts of stock this year, crashing the market just in case that bill passes next year, right? Back to the rich. What do you mean? What's the problem? Yeah. Exactly. We're trying to eat the rich. What are you talking? What are you talking about? Doesn't bother me. I'm just... So I'm all for it. You know, once it hits my number, then I'll pay attention. Okay. Exactly. By the way, the income tax in the US was also set up supposedly only for the rich, right? For the rich, 1%, and it's like, it'll never hit me. That's right. Now it's like 40% if you make 60k a year. That's right. And with inflation, everybody becomes a millionaire and then a billionaire. Right. Exactly. So this is what I was saying. It's not miles and or meters and kilometers, it's gallons and ounces. Like, what are we really talking about? That's right. So, so if we take, if we take America and Europe and actually Japan as one whole, all of them, the US, the UK, Italy, Germany, France, Japan, they're all seeing yields soar like this. Correct. As Chinese yields are going down like this, right? And so that means people are selling treasuries, right? They're buying Chinese bonds, they're buying gold, they're buying digital gold. Yeah. Exactly. That's right. So that is the sunsetting of the, of the American empire basically, right? And, and I think that, um, you know...
Okay. So let's be optimistic. Okay. So, so our friends in this administration, right, of which there are a lot of tech friends. I, I love these guys. Progressive. Yes. Working their asses off. Yes. Optimistic. Optimist. And our friends in the private market. Okay. What, what, what would they do? Okay. And what, so let's say you weren't building Network School, network state activities, and you were put in the seat and you had imperial authority. Save the American empire. Save the American republic. Okay. So let's say so... Without, without a revolution where everyone's like...
Totally, totally. So let me give the preface that what you're asking me to do is be like Gorbachev or Yeltsin. Okay. So that is to say, this administration is willing to take aggressive action. Fine, fine. So take it all the way to the Supreme Court every single time to ensure that they can take the action.
Here we go. So, freedom cities, right? Establish basically, Trump has spoken about this, establish bills where states can designate special economic zones or a version of that, the Americanized version, special Elon zones, right? Not specifically for Elon, but it could be a Palmer Luckey zone for drones, it could be an Elon zone for robots, it could be, you know, a zone for biotech, right? For Alumina, for example, right? All of these different zones, which once they're there, remember the thing about having, like, states bring local funding to them. Right now, once you've got a center of excellence, and let's say it's in Pittsburgh, okay? Or let's say it's some red state where the governor and so on are friendly to you, right?
We just saw one in Akron, Ohio. Yeah.
Great. Okay. So let's say, let's say it's Texas. Okay. So Texas, you have, you know, the University of Texas, and you have Texas state government, and you have quite a few entrepreneurs in Austin and so on, and you have Starbase. And so let's say it's a manufacturing zone. Okay. And you know Burning Man, where there's just absolutely nothing there, right? The less desirable the land is, the more desirable the land is. The reason is because nobody cares about that.
Yeah. There's no incumbency. No, you take drone shots of it. You show how completely barren it was, right? So then you fence it off. Okay. And then you essentially admit people into this fractal frontier, and they're signing away a contract, and basically you have new regulations here. There's no OSHA, there's no EPA, there's none of this stuff, right? And you have to figure out what pollution laws there are, what labor laws there are. You have to have some sensible rules.
Necessarily deregulate is critical.
Exactly. Minimum necessary.
You're defining a mechanism, but ultimately deregulation.
Yeah. So the key thing is to be clear, you're not going from insane bureaucracy to total anarchy. Instead, what you're saying is clearly these laws have been abused, but clearly also there was some good intent at some point behind them. So therefore, how do we preserve the spirit with the minimum necessary edits, right? And often the answer is to have it supervised by, let's say, Texas state as opposed to the federal government. Simply having regulatory competition works wonders. This is actually one of the secrets of the Chinese system. They have competition between states. When the American system was working, it was a laboratory of the states. You had federalism. Once it became decentralized, as you point out, then that went away, right? So really we're saying restore the 10th Amendment, right? Bring back competition. All rights not, you know, reserved to the federal government go back to the states, right? So 10th Amendment activists are even more important than First or Second Amendment activists, okay? Right. So moreover, you're not going to get resistance from the Democrats on this. Why? Because the blues are doing soft secession, right? They've talked about this.
That's right. So finally you've got an open door where if you do think blues are going to get back power, which they probably may at least partially, right? You have an open door where they're actually also agreeing on this, where you can push through 10th Amendment, 10th Amendment and establish facts on the ground. Like the moment you have factories there, you have buildings there, you have a regulatory authority that was granted to UT and to, you know, local Texas entrepreneurs and scientists and so on. And when they have authority that supersedes that of the federal government, it's very hard for the next FDA or EPA to come in and say you don't have that when it's in like 10 different places at once, right? You just smash the Triforce into pieces and you distribute it to the individual states, right?
This is the only thing I'd focus on.
Yeah.
Decentralization, right? And the reason is now you've got a fighting chance. Why? Those freedom cities will attract capital. They'll attract talent. They will be secure because they can be... One issue is states don't have secure borders, right? Why? Because of all the illegal aliens and so on and so forth. But on private property, even in San Francisco, it is still allowed to, you know, for whatever reason, you can't get a homeless drug addict out of your, you know, like garage, like your door sill in a restaurant in San Francisco. They can be like sleeping in your doors, but if they're inside an office building, at least private property is respected in a certain way, even if public property is not, right? It's just an idiosyncrasy of where America is today, right? It may turn out, by the way, that in blue states that last barrier falls, right? And they let the homeless squat because the squatting laws...
There's a lot of squatting laws.
Yeah, exactly, that's right. So they just let the homeless squat in your garage. They, you know, they let the illegal aliens do so, right? So it's possible in blue states it just completely goes away, but in red states at least you start with the sacrosanct nature of private property and you start having these things, and you can do something where some significant fraction of the equity, by the way, even 51%, like non-voting stake or something like that, goes to the people of Texas or something along these lines. So they're all getting a cut. You could put it on the blockchain so they know exactly how much they're getting, because you can micro-allocate like 50 bucks or what have you. So you make it rain for individual Texans, right? Because if it's a billion dollars, like what's the population in Texas? It's like 30 million, I think, something sounds right. Right. So a billion dollars, that's actually, you know, that's pretty good, right? If you're getting a hundred bucks to every person in the state, if you're generating three billion a year from this...
Like it's actually kind of amazing.
Or I mean, do you really need to if suddenly jobs grow? I mean, this is the economic forces will...
Well, I think you do, and the reason I think you do is I think it is surprising to me how much people, even having a hundred bucks of Bitcoin, gave them a rooting interest in Bitcoin.
It's like actually crazy how much it really changed their kind of impression.
So if you have like everybody holding like a hundred...
10th Amendment dereg.
Special economic zones. Well, and the deregulation, it's more than a small thing. It's actually, if you... no reindustrialization without deregulation. Why? Because the problem is not like... the difference between regulation and taxes, very, very important. Why? Or tariffs.
By the way, can you pull up the chart of China's nuclear cost? Yes. Versus the US nuclear cost. Crazy thing. I think we should look at that. So that shows that like basically...
And this speaks to the importance of DREG because I think ultimately the most—and everyone can argue all day about solar, which is fine, but put solar to the side. The scalability of power production with nuclear is extraordinary if you can get speed up, cost down, which China has done. So they have, I think, 400 nuclear reactor sites in construction right now. You kind of think about each one of those being one, maybe one and a half gigawatt. Suddenly that's 60% of the US power production capacity being built right now in just nuclear by China.
