One of the greatest tennis players who ever lived, retired, came back just two years later, and got absolutely destroyed by players with half his talent. So, what happened? My guest today, Bill Gurley, has the answer, and it applies to everyone facing down AI. Bill is one of the greatest venture capital investors of all time. An early backer of Uber, Zillow, and OpenTable, he spent his career studying the exact pattern of who wins and who gets wiped out when a technology wave hits. He believed that Bjorn Borg, the tennis player whose career died fast, got left behind for the exact reason AI is going to destroy so many careers. Bill and I discuss the most dangerous response to AI, how to navigate the AI transformation well, and why some people want AI while others fear it. Without further ado, I bring you Bill Gurley.
Between AI and massive political upheaval, this is a moment of profound transition for basically everybody. As an investor, how do you think about identifying what the future is most likely to hold given there's no certainties? And how should people position themselves for that?
Well, economically, when I'm talking about investment advice, you know, I'm always very careful to separate kind of an individual from an institution, right? I just think they're two very different things. For an individual, I think you have to, I always say if you haven't read A Random Walk Down Wall Street by Burton Malkiel, then I really don't want to give you advice because you need some kind of framework or bedrock before you dive in. And that book I think is the best way to get there. At this point, you know, so much of AI is already reflected in the stock prices. So, I don't think there's an insight you're going to have about AI that you're going to be able to, that hasn't already been accounted for. Unless you think it's going to be less disruptive, then you might be able to go in and value buy some of the stuff that's been hit more recently on concerns of disruption. The piece of advice I would have for everyone about AI in general is the best way to protect yourself against AI is to be the most AI-enabled version of yourself you can possibly be. So, everyone, no matter what industry you're in, no matter what you're focused on, like you really need to understand what it's capable of in your field kind of on the edge. And curious people do that. Like the curious people have already done that. They don't need to be told to do that. I think the most dangerous thing you could possibly have about AI is to be skeptical about it and therefore to not be learning about it. And there are a lot of people in that place. Especially a lot of older people. I found a lot of academics are in that place. It's a really dangerous place to be. Because this thing is different. It's like really important and different.
Now, I have an algorithm that runs in my head that says people just as a species fear change, won't embrace it, that every technological change takes over a generation or two. Do you have like a framework that people can use to...
But not everybody. My 89-year-old father, you know, has Bluetooth hearing aids and watches TikTok videos on woodworking. Like, I mean, you like them already. Like, it's possible to not be afraid. But I agree with you, a lot of people do. Especially when it threatens careers. That's where people get particularly protective and take on a bit of a victimization kind of mindset. And it's dangerous. Like it puts you further behind. There's a great anecdote. I think it was Bjorn Borg. He retired real early from an age perspective, like I think it was around 30 and he tried to make a comeback when he was like 36 or something. I'll probably get the specific ages wrong, but he in that window where he was retired, the entire industry switched to these big-headed graphite rackets and he came back and he tried to do his comeback with the wooden racket. He had to get them made from a manufacturer because no one sold them anymore. He got obliterated. And we evolved with our tools. Humans evolve with their tools and if the industry moved to a bigger, better racket, like you just don't have a choice not to. But I love that anecdote because it's easy to laugh at Bjorn Borg with his wooden racket but you got to see that in yourself if you're a denier of these AI tools.
So when I look at the history of this it's pretty brutal. So you've got the industrial revolution, call it one to two generations, the great electrification, same thing, the internetification. I think the data indicates, and I'm certainly open to a debate, but the data indicates that some of the deaths of despair that we see are from people that were north of say 35ish that just were never able to matter again from a career perspective and especially for men that's just it damages them psychologically so profoundly that they just spiral out and pull out of the job market essentially entirely. So, when I think about your dad, I worry and I'm hoping that you have some countervailing insights here, I worry that he's just wired that way. Is there an insight you can give to somebody that's afraid right now that will reverse their viewpoint?
I think it's hard to suggest that any idea is a solution for the world's problems. Like, oh, do this and you'll solve world hunger. Do this and you'll solve... there are technological shifts that happen. We as a country went from 98% agriculture to less than 2% of the population over a very long time frame but it happened and everyone was okay. So I mean to a certain extent, and you said this, it's always been happening. So, the one thing I know, I'll tell you something that I think is super effective, but one thing I know that's not helpful is rumination. Like sitting around just talking about it and complaining about it doesn't solve anything. And another thing I will tell you I'm highly skeptical of would be some kind of government retraining program. Like I just, I don't have any confidence in a government program that's going to solve AI job displacement. I mean I'm open-minded and if maybe you could point to a policy that worked in another country that we're going to adopt like the best practice, I'm open to it. We should do it. But I'm somewhat skeptical. I do see kind of this resurgence in open-mindedness around trade schools. I think that's kind of cool. There's a lot of anecdotes people will hear about friends that are electricians or plumbers or welders making over 200 grand a year and they're like, 'Holy shit.' So, that's kind of cool just to have awareness of that so that people can know that those things are out there. But the thing I wanted to lambast in my book, which I'm promoting over my shoulder here, Running Down a Dream, people that have high curiosity and high fascination and probably high agency immediately see AI as a jet fuel, as a rocket booster. It's like, 'Holy shit, look at all the stuff I can now do by myself that I couldn't do before.' And they're the ones that come to you and you go, 'Man, you won't believe what I did this weekend when I set up this claw bot. I went off and solved all these problems.' I met a guy who does storage buildings and he lives down by Brownsville and I met him fishing. He's like, 'You won't believe I needed like three more sites in the city and it just immediately made recommendations. Explain why, like I save so much time and money.' And he's like ecstatically happy right about what AI could do for him. If you're high agency and you're curious about your field, it immediately starts solving problems for you. But you got to be in that place. And so the very first chapter of my book is called Chase Your Curiosity. It's all about, and we studied over a hundred people that have kind of started on rung zero of a ladder and gone on to wild success with no economic advantage, no networking advantage. And almost to a tee, they were all continuous learners in their life. And I don't think that you're able to be a continuous learner unless you're fascinated with something. And so, you know, one of my big themes is I want to encourage more people to believe they can have a career in a lot of fields that your parents probably would tell you not to chase because if it happens to overlap with your fascination, it becomes this perpetual motion machine. Things start falling into place.
The only way I can think to get people on fire for that is the phrase that I use all the time and it's not nearly as effective as I would like is skills have utility. And so I agree with you almost violently. And what I'm trying to get people to understand is if you get good at something, you can do something other people can't do. If you can outcompete them, then you can have things they can't have. And you just trigger that competitiveness, that drive. You've raised three kids. Have you found a better way to get people on that path to fascination?
By the way, there's one other thing that I want to throw on top of what you said. People notice fascination. If you're fascinated with something, you come to the table with a lot of positive energy. When you learn new things, your face lights up. You love to talk about the field and people notice that. So, if you're in an interview, if you're trying to close a mentor, if you're looking for peers, like it all gets easier and people root for it. They're like, 'Oh, you're into that? You should talk to this guy over here because that's all he talks about.' So, you get free connection, like opportunity comes at you when people notice that you're that person. Does that make sense?
Totally. So, you get a lot of stuff for free. I think that our society has unfortunately, we've entered this kind of industrialization phase of the college journey and it's gotten way too competitive. The schools have not increased admission numbers and so you end up with a situation where more and more it's the schools, I think both you and I went to a state school, those used to be, you know, 30 years ago like they were the default, like they were the safety place, 'Oh, I'll just go to state school.' Today, you know, those schools have 1400 SATs and are hard to get into and because of that there's this kind of mania that comes over parents and kids become a part of it starting in sixth grade. Jonathan Haidt calls it the resume arms race. We just start, you know, preparing for that college application around sixth grade and you're taking Mandarin lessons and lacrosse lessons and taekwondo and you're volunteering and like the kids are so overscheduled and it's just a bunch. It's a pressure cooker.
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Is that bad because they just end up burning out and getting tired, or is there some sort of creative play that kids need to do that they're not doing?
Well, so and you know, part of my journey in writing the book was just to go read all the greats that have written about this stuff and both those things you talk about, the top academicians are talking about. So Angela Duckworth who wrote Grit has said recently if she could write it again, she'd put passion way above perseverance because she says perseverance without passion is suffering. She says it's just a grind. And we've taught kids how to grind. I think they come out of college exhausted, by the way. Because learning about something you're not fascinated with sucks energy. Learning about something you're fascinated gives you energy, right? And so they're completely different. And so yeah, that's true. And then other people from Rick Rubin to Ken Robinson have talked about this lack of, and there's a chapter in The Coddling of the American Mind by Haidt called the decline of play. So there's this notion that by not having more free time to just be curious, that you might not discover what you're actually fascinated with because you're on this conveyor belt to get to this college. You know, when I was young when you went to college they would not allow you to pick a major until the end of your sophomore year. And I don't think it takes a genius to know why that was. They wanted you to take all these core classes to look around, take a few electives, and see what you were interested in before you commit. Today, at many schools, you have to apply to the major. So, you're talking to a 17-year-old saying, 'What do you want to do the rest of your life?' and they don't know. They just don't know. And it's okay that they don't know. But there's a lot of pressure. There's a lot of pressure. There's pressure on parents, too. And so I do think one of the key ideas I had in writing the book, we probably read through a hundred biographies, I only wanted to include success stories, and there's about 10 deep success stories in the book from fields that were fields your parents wouldn't recommend. I just didn't want there to be a chapter on a consultant or a banker or a doctor like these are the fields they push people towards, you know? I wanted to give more permission to do these things that are fields you might not think are possible. And yeah, that's where a lot of fascination lies. You know, many of the people in the book switch from whatever career path they're on to their hobby. That's a common theme. But the hobby is the thing you're fascinated with.
Yeah. No, there's, I've certainly in my own life gotten a ton of energy out of the things that I'm just naturally pursuing anyway. But let me run a counterfactual. You spent a lot of time in China, which I think is especially now, I'm a big believer in Thucydides' trap. I think the US and China are locked in this competition that could get very problematic. Regardless of that, I think it's incredibly wise to look at what China does well, to learn from their leaders, to pay attention to all the things that they're doing extraordinarily well. And they've got a cultural value around this concept of 996. So grinding, busting ass, working from 9:00 a.m. to 9:00 p.m. 6 days a week. They're building extraordinary companies. So what is it that they're doing? Because they're hyper competitive at like the provincial level and in a way that we're not. So how are they able to leverage that pressure cooker to these like really awesome results and then we're sort of like crumbling in some way under that pressure?
Yeah, the, I by the way I've spent a ton of time in China and I'm pretty fascinated by it. So maybe I could go do a career just thinking about these things. I'll tell you two things about China. The one thing that I don't think people realize of all the places I've visited around the world, the one place where I find the most cultural affinity between entrepreneurs, between American entrepreneurs and some foreign entrepreneur is China. Like the most like-mindedness. And I judge that not by some type of analytical study. I judge it actually by going out to dinner, having a few drinks and laughing and sharing stories and how natural it comes and it's amazing. CO2 used to run a conference called East Meets West where they'd bring all the entrepreneurs in one place from both cultures and there'd be late night poker games. I mean it was just a blast and I don't know why that's true. I don't know why there's this very cultural similarity between the two but as a result they love entrepreneurism. They're really great at it. The other thing I would say and I don't know if this will be true going forward but I think it was true in the past. You know part of what Deng Xiaoping was able to unlock by bringing free enterprise to China was a massive impact in standard of living for the people. So marginal work effort meant, you know, moving from eight people living in a one room building working in a rice field to a two-bedroom apartment in the city with a completely different life. And I've often thought about marginal work effort relative to marginal increase in standard of living as something that causes a harder work environment. And if you, a marginal effort in the US might allow you to get Showtime and Netflix, not just Netflix. Like it takes a lot more work in the US to systemically impact your quality of living. That could slow down in China, you know, like there's a point at which you're moving from a farm to the city where you get this huge leap. And they may have already gone through that. They're very curious. I mean, they're very smart. They're very entrepreneurial. I think there's a misperception that it's all just work ethic. But to your point, Mike Moritz, I think famously about 10 years ago, wrote a piece, I may have been in the FT or something, that said they just work harder than we do. Like flat out.
And there's an interesting notion in that in many fields, even Americans admit that work ethic is valuable, especially when you look at the arts. For some reason like it's perfectly okay for the figure skater to toil, right? To work hard. Kobe Bryant like works really hard and we're so fascinated. The cellist in the symphony. If they told you, oh, they studied 100 hours a week, you'd be, wow, that's amazing. But when it comes to work, we adopt this workaholic and oh, you can't make people do that. So, I find that fascinating. Now, do you have a guess as to why that is?
If you went back to, you know, the 30s, 40s, 50s when we were emerging as a country and really dominating the world in terms of industrial and exporting. I think a lot of people would have viewed almost any occupation just like the figure skater, but I think we've kind of moved past that in a way. And there's just more, you know, talk of victimization and what I mean, remember what JFK said? Ask not what your country can do for you, but what you can do for your country. That sounds very foreign right now, doesn't it?
Yes. Yeah. So, my take on this is everybody is stuck in a frame of reference. We can't interface with the world the way that it really is. So, we begin to tell ourselves a story about that. When the culture tells you a story that the harder you work the better your life is going to be and that gets reflected back to you in real results like what you were saying in China and most people just are so ignorant to Chinese history they don't realize in the 60s you had people starving to death in China in the tens of millions and so this is for them this is a very recent memory so to watch 4 to 500 million people get pulled out of poverty because you inject this notion of the free market the harder you work, the smarter you are, the better you perform. That idea of skills have utility. Like that's going to be the realest thing in the world. And you remember what it was like when it was hard. We've now raised three or four generations that just think success is the way that it is and that the government just needs to tax more and everything's going to be great. And I remember this all too intimately because it wasn't but five or six years ago that I believed inflation was just a natural law. I didn't realize that it was man-made. And so there's so much confusion that people have when your country's just been successful for so long. Yeah. You end up in a career that you don't love. The marginal benefit to working hard isn't there. You're in a K-shaped economy. So your boss is getting rich because he owns the company, but you're not. And so you're like, 'All right, well, this guy's an asshole. He just wants me to work hard, but why?' And so the thing that scares me to death about this moment is the reason I became successful was I grew up with, I was middle class to lower middle class. So I didn't grow up with money. I certainly wasn't poor, but I believed that I could do anything I set my mind to. But my parents made it very clear I was going to have to work my ass off. And so I just put my head down for effectively 15, 20 years and just worked and worked and worked and worked and worked and then it finally paid off. Yeah. But we now make fun of people who do that because we become culturally so divorced from that path.
Yeah. And the data on the success rate of first generation immigrants that come here specifically because they believe it is the land of opportunity which they have the mindset that most people in the US had 30, 40 years ago. They succeed a lot more in the US than people that have been here multigenerationally.
Yeah. But the, I mean part of being able to affect change in your life and in your career it comes down to a belief that you can. If you're convinced you can't, you won't. That's for sure. That's a certainty.
So true. Bill, one thing that I find really fascinating to stick on that theme about you is I can feel you're somebody who's trying to help people. So you legendary investor help founders. You write a book which we'll talk more about the why in a minute, but you write a book that's effectively self-help, but now you've also started a policy institute. I know some of the punchline of the policy institute, but if you would, why are you starting a policy institute? What's the end goal? What are you trying to address?
I probably would mention a great book by Arthur Brooks called Strength to Strength. I don't know if you've heard of it. It's actually on the show. He's amazing. The book was written for people who are kind of finished their first career and have a lot on their mind and have a lot of questions about what to do with the rest of their life. That's really which is a spot I found myself in. I had an incredible career in venture capital. I loved every minute of it. But for a variety of reasons, I raised my hand and said, 'It's time to move off the field and let the next generation play the game,' which I did about four years ago. And I went on a listening tour of what to do next. And a lot of people wanted me to do what I think is the more natural thing. Run your family office, do a bunch of angel investing. And as I spent time imagining myself in those roles and talking to people about it, I became convinced that that was 100% not what I wanted to do. I've developed a pretty good rhythm about being able to synthesize and communicate. So I did that in my venture career through blogs and eventually things like podcasts. I tested doing it outside my field with a talk I gave at the All-In conference on regulatory capture which had like four and a half million views. So if I can do a talk about regulatory capture and make it that popular, maybe there's a skill there that I should develop. And I'm also really enamored with the notion of effective policy. So I have a quote at the top of the page on my policy institute from Milton Friedman that says, 'One of the great mistakes is to judge policies and programs by their intentions rather than their results.'
And I think we elect a lot of people because we like what they're saying, but no one follows up to see if they can actually create change. And so one of my sole goals will be to think about policies that are effective. I'm enamored by the provincial competition in China, and I wonder if shining a brighter light on state versus state competition could lead to some pretty amazing and positive things for our own country. This is an example of something I'm excited about. The other thing I kind of hold out as a success, there was a very negative opinion on nuclear energy about six years ago, not that long ago, and a few people, Steve Pinker, the Collison brothers, Elon Musk, there were a few people who stuck their neck out and said, 'You guys are all wrong.' Josh Wolf at Lux Capital, they said, 'This is fascinating technology. We should be embracing it.' And within a very short time frame, the global perspective on this shifted. And to me, that's pretty amazing that you can use the power of communication and conversation to flip a bit like that. And it's a big flip. Huge flip. So I'm going to look see if I can find more things like that where just highlighting things and communicating could potentially change things. The other thing is you get to go meet with and hang out with the top academicians in the world which gives me a ton of emotional energy like just chasing that curiosity and these people are quite fascinating and so that's another element of it. I have already been to the University of Chicago which is the birthplace of the notion of regulatory capture where Professor Stigler won the Nobel Prize and so they have a Stigler center and went and talked to them about different ideas and I'm talking to some people about maybe making a regulatory capture index for countries as a way to identify policy that can push against it.
That's awesome. If you don't mind, for people that don't know exactly what it is, can you define regulatory capture?
Yeah. I mean, if you look up George Stigler, he's the one that won the Nobel Prize in 1958. But the simple concept is most regulation ends up being written by the people that are being regulated at least in the US and the way our government works. And so rather than, I have a phrase I use, regulation is the friend of the incumbent. So they use it to actually raise prices, prevent competition, and further ensconce themselves in the leadership role they're already in. And I believe in some of the more regulated industries in the US, particularly finance and healthcare, this is a huge problem, fully locked in. There's more potential disruption in finance around crypto and stable coins I think than in healthcare. I mean Mark Cuban's doing his thing which I'm fully supportive of but it's hard, it is so ensconced, so locked in.
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One story that you have from your own experience that I think would really help people get this is Tropos. Walk us through that because this one made me want to chew glass.
Yeah. So, a long time ago, like maybe 20 years ago, I invested in a company that used mesh radio technology to allow, and open spectrum to allow basically using Wi-Fi outside and like covering entire downtown areas of a city. And we found many mayors all over the country that were excited about this and wanted to as a public good offer free data connectivity in their downtown areas, if you will. And I often tried to equate it to, you know, if a city early on built a port, that would make sense because industry moved in and out by boat. And then if they built the train station, that makes sense. No one said, 'Oh, a city shouldn't be in the train business,' right? Because who else is going to build it? And then the highways and cities are in the highway business, right? So when industry moved online, it would make sense that a city might want to differentiate itself by having more connectivity and more options for that. But what we ran into is there are many, I mean first of all the telecom space is probably equal to healthcare and finance in terms of regulatory capture. Maybe it leads it. But many of these, whether it's AT&T and Verizon or Comcast, they have lobbyists out the yin-yang. Like they have so many lobbyists and at a state level and they were able to pass laws that said cities can't compete with them even though they're getting their pole rights from the cities themselves.
And how do they justify that? Like do they even try or is this just...
But you'd be surprised. They get a lot of free enterprise Republicans agreeing with them because of the notion that they use the mindset that the government's bad at industry. The government shouldn't be in industry, right? But I think that's ridiculous. Like I think this goes back to maybe city versus city or state versus state competition. And if a city wants to offer free connectivity for all of its citizens, I certainly think they should be able to if the citizens are behind it and they have the money, why not, right? But that's, but I do think that's the thing they were able to leverage to pass these laws is conservative people believing that they were keeping the government out of things they shouldn't be in. That was the mindset they used to pay. Anyway, they passed these laws everywhere all over the country. The thing that really killed us was the mayor of Philadelphia became excited about doing this and it put it on the front page of the paper and the government in the city of Philadelphia and the state of Pennsylvania was just full of ex-Comcast people. Like they were just everywhere and they just crushed us. I think I said in the talk we were like a sixth grader playing against Michael Jordan trying to compete in the back rooms of policy.
Do you have a sense of what goes on in those back rooms? So I know Michael Jordan dribbles the ball well. He reads the court. He understands body language. What does a person formerly at Comcast...
I have to look up his name. I used it in the talk. There was a gentleman...
who was the head of lobbying at Comcast where I think the New York Times or the Post did an article where they said this is the most important executive at Comcast. And he had been working for the mayor before he went into that role. The mayor went on to be the governor of the state, and when he left that role, Biden made him ambassador to Canada. So, he was in and out of those. And that article said he did like three or four dinners at his house for the Obama campaign. And so he was just right in the center of all of it in a way that this startup in Silicon Valley had no chance, like we didn't have any of those relationships, right? And so just woven into the fabric of it all. There's a huge irony when I gave that talk, and I spent 25 years in Silicon Valley. It was titled 2851. And I used that title because I had a punchline at the end where I said the reason Silicon Valley works so well is because it's so far away from Washington DC. And that was the distance in miles. But since I gave that talk, I'd say Silicon Valley has gotten more rooted in Washington DC than it ever has before. So there's a certain irony to that.
Do you read regulatory capture as corruption?
I think it can be both sides of the coin. I mean, you can look at what the crypto world did in getting Trump elected and you can look at stable coins and you could say, you know, I can move money via stable coin right now in seconds for pennies anywhere around the globe. And you can't do that through a bank. You can't do that through a traditional financial institution. They don't do it for that price. They delay it and they charge you way more money. And you could say, well, they're trying to change things. Like now, if they were to change things and win, I suspect over time they would start doing the exact same things, you know, once they had those relationships. And the other big thing that's causing this right now is venture capitalists have got into military equipment which is nothing I know anything about. But rest assured without relationships they wouldn't have been able to do that because the McDonnell Douglases of the world would have used regulatory capture to cut them off. So it was probably imperative that they have those relationships to bring disruption to those fields and to fight back against it. But if they have it long enough, they'll certainly use it against the next guy. And by the way, this is playing out in real time in AI. I mean there are many people including David Sacks that think Dario and the team at Anthropic, Anthropic's lobbying, the only company that has lobbied as much as Anthropic early in its life was FTX and SBF, like he also lobbied heavily but they have people on the ground in every state, they're the ones pushing for state-by-state regulation. And at the end of that talk I gave I said I was worried that the AI people were begging for regulation to pull up the ladder. We'll see what happens. Like I'm more fearful that that's their motive than anything else.
Yeah. All right. You stop shy of saying yes or no for that matter to its corruption. So I have a growing thesis.
Oh. I'm sure they don't view it as corruption. Although to the extent that you're... I don't think any of them think it's corruption. I think they're just playing the game on the field. But the problem is, I was really enamored, I'm kind of excited about stable coins because I've just been so pissed off at the US financial system for not embracing what I would call instant digital transfer. So, every one of the seven other largest countries in the globe had the government fix instant digital transfer a long time ago. In the UK, it's called faster payments. You can go straight to Wikipedia and read about UK faster payments. They put it in 20 years ago and you can move money instantly for almost nothing. And in the US, you know, ACH is three-day settlement. What the hell are we doing? It's 2026 and in China and Australia and recently there's something in Argentina called I think BRICS they just pushed this through like six years ago. So here's a country that everyone would admit is behind us from an innovation standpoint who just did this thing that the UK did 20 years ago and you can go look at it and we still can't do it because the banks fight it. You know, there's a program called FedNow that's supposed to do this that's on the slowest roll you can possibly imagine. And when they would talk about FedNow in front of the financial committee, I would turn on what is it C-SPAN or whatever. And I would watch and I would see the congressmen and senators that would be anti-FedNow. And I would immediately go on to that website that lists who their donors are, and you'd see large banks. Boom, boom, boom, boom, boom. You know, and so the problem is I'm a big believer that Citizens United was a bad thing. Like these super PACs, like anything that allows more influence. And there's another crazy thing that I learned in the Tropo situation is your senator and your congressman, the minute they get on committees, they start raising money outside of your geographic area. That should just be, I think it should be illegal, but it should certainly just send off an immediate alarm. Like we live in a day and age of blockchain. Like if you raise money from a campaign contribution from someone in California and you're a Tennessee congressman, like that should just be instantly like what the hell are you doing? Like that's not your constituency, right? So I and there may be things to do there like to create more awareness of those things, you know.
Okay. So you're somebody that thinks through how we start untangling some of these things. One of the things that I found really interesting that you mentioned earlier is what they do in China to create competition. The analogous situation here would be interstate competition. Do you think that's a potential solve where it's like, yeah, if you want to do stupid decisions, you go do your stupid no free Wi-Fi for you decision, but we're going to do free Wi-Fi. Is that a way that we could start?
I think it can be. I think it can be. And I've recently become aware of a professor at Harvard, Thomas Kane, who I'm just learning about who's trying to analyze different policies in K through 12 and amplify the ones that are working better. That's something I'm excited about with the policy institute. People have asked me, a lot of people have asked me about the proposal in California for a wealth tax. And my opinion on it is okay, they can try it. Like let's see what happens. Like let's run a bunch of experiments. I've been told and I'm still learning on this that James Madison thought about this in the Federalist Papers that he said people can move. We have a federalist system where there's federal laws and state laws. Let's run a bunch of experiments and see what works. And I think people migrating is a great pointer to people are migrating towards probably towards good policy, right? Like I'm sitting in Austin. This is super hard for a lot of people to understand and we should talk about it as loud as we possibly can. One of the fastest growing cities in the nation. Rents have fallen for four years. That's good policy. Like half of the country is up in arms because they say they have a housing crisis and housing's too expensive. Just come look at what's happening right here. Just study it. Like it's solvable. And it's all a bunch of NIMBY build policy that they push through. Like they actually changed the policy and that led to more building and that led to rents falling, like zoning policy, building policy. Like it is happening. It's really happening. You can see it. There's a solution to this problem. And the states that have the problem and cry about it don't do what Austin's doing. They do a lot of other things. That's bad policy. And this is, yes, I think state versus state competition is a super interesting construct. And I think I can do a good job of hopefully working with others and academicians of finding good policy and finding bad policy and shining a light on both. We can just make it positive. I'm fine with that. Austin has a solution to housing prices. Positive. Everyone should study it. Now, by the way, Houston's done something really similar in homelessness. And there are articles you can go find on that. Houston's had a number of policies and they've reduced their homeless population by two-thirds. Go study that. Go talk about that.
Now, given that we have big wins like that, whether it's housing or homelessness, and yet they don't matriculate out to the other states, is that politicians suck at creating financial models? Is it that they're just too good at storytelling? Like, is it that they get federal dollars and so they can paper over problems? Like, why doesn't that competition work in America in the way that it does in China?
Some of it comes back to that quote, Milton Friedman quote I had. I think people elect politicians based on what they think their intentions are versus what they're actually capable of doing.
You think we can change that? Can we get people to pay attention?
I don't know. I'm going to try. You know, I think shining a light on these policies that work is worth a go. Like you know, similar to the nuclear thing that I mentioned. I think if we talk about it more and people that are good at communicating can highlight it more like no one should be able to have a discussion in a city that has a problem with housing prices and not be able to respond to a question about well what are they doing in Austin like that just shouldn't happen. It may take people like you, Tom. I mean, it's not clear to me, and I don't want to go deep into this, but it's not clear to me that the mainstream media is as interested in uncovering this stuff as they used to be. Like, and they used to be quite interested in it, you know. Although to be fair on the Austin rent thing, you'll find plenty of articles. Like if you just go do a search, there are plenty of people talking about it. But I think you can get more people talking about it like we are right now. Like I think it's possible.
Yeah, it's interesting. When I cover stories like this, they'll be a base hit. It's rare that it really goes viral. If I want something to go viral, it both has to be, I have to get incredibly emotional about it, which that may speak to just what people want from me and not necessarily something global. And it needs to be something that triggers their emotion as well. And I think that's a big part of the problem. So, while I think yes, it's good to shine a light on it and all of that, but as somebody who spent the last, call it 10 plus years mastering the algorithms, which is basically mastering human emotion, you go down a path that I think people will recognize in the way that social media distorts behavior far more than it does something positive. So, I worry about that. On the policy side, I just keep coming back to, you know this about me, my audience certainly knows this about me, but I spent now almost 25 years as an active entrepreneur being able to pay people salaries by my ability to generate things that are profitable. And it forces you to focus on cause and effect, what actually works, what's profitable, cut what's not, focus on what is. And we don't have that feedback loop. Certainly in the US I think because of central banking the ability to run deficits and money print and if we don't get rid of that I think you run in Ray Dalio's big debt cycle and there's no way around it and the empire will collapse in roughly 250 years and it just is what it is.
Do you see a way out of that loop or are we trapped here?
Yeah, you're channeling David Friedberg's in the same mindset. Look, I don't, I guess if I felt that way entirely, I would probably just go fishing for the rest of my life and wouldn't be talking to you right now. Like what's the point of it? Like I don't want to roll around in it if it's inevitable. And so I'm going to go tilt against it, you know? Maybe.
But is it tilting? Are you just holding on to like a feeling that maybe it's possible or can you anchor on something that's like no no I've seen this thing that tells me that we've got a shot.
Yeah. I mean like on this state stuff, you know, it's not just like so certainly Governor Abbott is very much about moving red tape out of the way here in Texas and as a result, you know, Elon moved all his companies here and there's a lot of positive momentum around data centers and other things coming to the state of Texas, semiconductor factories, like all kind of stuff. And that's been true in Arizona. But I would also say like if you look at Pennsylvania, Shapiro, the highway went down and they got it working again in like 12 days and he did it by moving red tape out of the way and then it's celebrated. And if a politician is going to stand up and tell you, 'Hooray, look what I did. I got government out of the way.' I think that's kind of funny, but why get them out of the way just for an emergency? Let's get them out of the way for everything. And so, you know, look, there's part of why I love studying China, both the provincial competition, but also how fast they're building things, Dan Wang's book, Breakneck. People need to be aware of what's possible, you know, and it costs 400% more to build a fission nuclear plant, 70-year-old technology in the US than it does in South Korea or China. Get in touch with that. Get in touch with that. Like, and every politician, that should scare the living hell out of them that that's true. And they should want to know why it's true. And to me, why wouldn't you put a government task force together to go figure that out? Like, I think the NRC is all structured poorly. The Navy has tons of insight. They've used nuclear technology forever with no incident whatsoever. Like, let's go solve that problem nationally and figure out what the hell's wrong. Like, or let's just pay South Korea to build one here and tell us what's wrong. Like, let's go figure it out.
I love that. I'm optimistic by nature almost to a fault. And I look at say AI which I think is going to be as profoundly transformative as people say it's already wildly impacted my business increased profitability increased topline revenue. I mean it's really been extraordinary even at my size. When you look out at that Americans are terrified the Chinese are not. Do you have a sense of like what's going on there? What either what thing do we understand that the Chinese should be afraid of or what do they understand that should make us more optimistic?
One thing that happened on a recent trip there, I was having lunch with a venture capitalist, a Chinese venture capitalist, and he said, you know, one thing that fascinates me, he says, every Chinese entrepreneur reads everything they can about American entrepreneurism. So there's podcasts, there's blog posts, there's articles, there's interviews, they listen to 100% of it. Like every Chinese entrepreneur knows what Elon Musk is thinking, knows what Anthropic is thinking, knows all this stuff. He goes, there's zero in the other direction. There's no American entrepreneur that wakes up saying, 'Boy, I wonder what Lei Jun is thinking tomorrow.' even though some of that content's out there. And so that's pretty eye opening just that notion right that they're learning from us and we're not learning from them. It's not a good fact.
For sure. Now, do you have a sense of what their take is on AI that keeps them so optimistic?
Yes. Well, this is an interesting thing. So the polling is I'm going to guess at the numbers. You may have read it in more deeply, but like 70% of Americans are worried about AI and that number in China is like 20. And part of the problem is the doomerism is loudest at the biggest AI companies in America. And I fear it's because they want this regulatory capture. It is one of the most, if it's not regulatory capture, I don't know what it is. Like I've never seen an entrepreneur stand up and say, 'I'm making this incredible technology.' And by the way, my employees are doing secondary transactions and stuffing billions of dollars in our pockets, but it's really scary and it's going to kill us all. I've never seen this. I've never seen it before. My only explanation is they want regulatory capture, but I don't know. But it's having a lot of perverse effects including what you're talking about sentiment for the whole country. Yeah. And by the way, if we put a whole bunch of policy on top of our AI systems, I think what may happen, if you look at what happened with the internet, there was a global market that the American companies served and there was a ring fence around China and the Chinese internet companies ended up serving that because China kept out Google and Facebook and those types of companies. I think what could happen with AI is we could build a fence around ourselves and China could end up serving the rest of the world.
I think that's already almost a fait accompli in EVs and solar panels.
Damn. But it could be true with AI technology as well. Now, is that because they're outperforming us on the solar panels and EVs or because we've done something from a regulatory perspective that just makes the hurdle too big?
Both. I mean, Elon on the Joe Rogan podcast said that he thinks American energy problem could be solved with solar panels and a huge section of Nevada. But he said the math won't work with American sourced solar panels and that we won't do it because we won't put the Chinese panels there.
Do me a favor really fast because people aren't going to understand what that means. Tell the story of the COVID test and the difference. I think it was Germany versus here. Yeah. I didn't hear that. I was aghast. I was clutching my pearls hearing you tell this story. This is wild.
Yeah. So there were two types of COVID tests during COVID. One was the PCR test. That's the one that took 24 hours and was more painful and you couldn't do it at home. You had to go, although that was probably a fallacy, too. I think the marginal cost of a PCR test was below $2 and the average price that was recompensated by the government was over $100. So, I've heard all these stories. This is kind of, I'll do it quick. I've heard all these stories of people that opened up PCR testing facilities, made $15 million, and retired. Like, God. But that was PCR. There was a much cheaper test, which was the one that you can still buy at CVS and take home and do yourself. The saliva test. And that one, that technology was like 40 years old. And in Germany, they approved 85 vendors and the marginal cost was about a dollar. Like you could buy a test for a dollar. Here in the US, the team at the FDA that regulated this, the guy that regulated it, and I had him in the talk, you can go watch it, had worked at these two companies before, and they were the only two that got a license to do it in the US. So, we only had two manufacturers and they charged like $12 a test, so 10x higher. And the US government even when they finally got behind those tests, bought them from them. So, they used taxpayer money. And I went, I had, well the list is online, but I had it in the presentation of the 85 vendors Germany approved. And so it was a trivial commoditized technology that the government helped protect two vendors selling at god-awful high prices when it could have been super helpful to everyone to have for a dollar a piece.
Yeah. This is crazy to watch this play out in the energy markets. To see that in the guise of we're going to help you. To your point, they like what people are saying, but nobody ever stops to check to see what's actually happening. Which spirals me out of control when we look at education. I don't even have kids and I'm mortified that we spend more per student than basically anywhere else in the world and we're middle of the pack in terms of results and everybody's cry is to spend more money. And I'm just like this is wild. And then if you look at KIPP schools to the point about do these experiments, you've got KIPP schools in the same building as some of these government schools and the KIPP schools are turning out kids that are like often times you'll have brother and sister separated. One of them goes to the KIPP school, one of them's in the public school. So they're in the same household. Yeah. And the one that's in the KIPP school crushes it and the one that's in the public school does not. So, it's like everything that you could do to make it a natural test where there's a placebo control. Yes. You've done. And we still cannot get people to do like school vouchers so that parents can vote with their feet. Like this kind of thing literally spirals me out of control.
Well, but it's happening. Like I had mentioned this professor at Harvard, Kane. He's studying this. School vouchers have been passed in Texas and that's the state-by-state experiment. So, it's playing out here. So, like stay tuned. I'm going to go tilt against this also.
Oh, that one, man. I really hope you tilt hard. As again somebody that doesn't have kids, but nonetheless, I become obsessed. Yeah. With, you know, making sure that we are educating the life out of our kids. Again, this goes back to partly because I don't have kids, I want to pay something forward to the next generation. And then partly because I'm so focused on Thucydides' trap and how to be the ones that don't end up in open conflict, which doesn't happen nearly as often as conflict, but getting us up to snuff, getting us excited to be Americans, getting us excited to compete and, you know, really wanting the best and the brightest and to see that meritocratic push to get people to really like do something great. And that's certainly what it felt like to me in the 80s was like America was the hotbed of like we could do anything. Like Joe Lonsdale's tilting at some cool ideas as well with Alpha School. So we'll see those play out as well. They're going to expand that pretty dramatically and license the technology more broadly.
What do you think is going to be the role of AI in education?
Well, so if you listen to him, this is Alpha School, Joe Lonsdale who's done I think he did Patrick O'Shaughnessy and then recently Shane Parrish. I haven't listened to that second one, but you can go listen to him talk about it. They use AI for the rote learning in sciences and math and talk a lot about pacing. So, he says in any given classroom, the kids are all over the map in terms of how far along they are, but the teacher's forced to teach a curriculum that's fixed. And all those kids should be on different pacing and different because they're all at different spots. And one of the problems that happens in our system is if a kid's not properly taught math in kindergarten or first grade or second grade, they get to third grade and they don't have the things they need to listen to that. So they got no chance. Like they need to go back and catch up. And so one of the things he's optimistic about is more personalized learning where everyone can kind of come along at their own pace. Which we'll see. I don't have any way to know if that will work at large, you know, and I don't have any way of knowing if every single child in every position in the socioeconomic ladder can engage with AI in that way. Let's go test and find out.
You've talked about when you're investing, you're always trying to do pattern recognition. Do you see any patterns in AI that map to other technologies that give us some clue where this is going?
I mean, the one that's obvious that doesn't need much discussion is like venture capitalists see these waves and they know they're disruptive and so they get behind them. And in that way, AI is the same as the internet and the computer and all these other things. I think the venture capitalists have properly identified that this is going to change things and it already has in certain fields. I've talked to lawyers that have substantially reduced the number of paralegals that work for them as an example. So it's already happening. The number of doctors that are now leaning on AI for second opinions is like 70% of the field. So like this is already happening. So it's harder to think about it in terms of business models and winners and losers. Venture capitalists will talk about stacks and different places in the stack. So, Nvidia's at the bottom of the stack and some application companies at the top and all these people are in the middle. There's hosting companies and there's model providers. There does appear to have been a move recently by OpenAI and Anthropic to embrace direct customer connectivity. So one business model they could have which they have had in the past is we'll sell the token machine to a third party and that third party will turn it into an application. So think Anthropic powering Cursor that people then used for programming. More recently Anthropic's launched their own competitor to Cursor. So this move to say I want to be directly connected to the customer is a sign, I think it's a pretty strong sign that there was fear that being a model provider solely was as protectable as they wanted it to be because people were switching out the model sometimes with open source from China and things like that. But if you have the customer lock-in and contract, then you don't have to worry about that as much. So, that's one thing we're seeing.
Do you think AI is a bubble?
Well, that's a very interesting question. There's a, I've said this before, but there's a wonderful book by Carlota Perez where she says that only real waves cause bubbles. So when the question's asked, there's this notion of, well, if it's a bubble, then AI is not real, right? And you get into this argument. No, what happens is when there are real waves, people get rich quick. That's already happening here. These huge secondaries at these AI companies. So people are stuffing billions of dollars in their pocket. When people get rich quick, it attracts interlopers and charlatans. And this, by the way, this was true in the gold rush. Like this isn't a new concept. Like if people are getting rich quick, everyone rushes in and that's what creates bubbles. So yes, I'm seeing actions and activity that look speculative and that probably is over risk-seeking. And when will that correct? I don't know. It's a very big wave. There's real customers buying real products. There's people taking massive bets, the biggest bets ever taken in the venture capital world. And it may be that some form of correction doesn't happen until 5 years from now, but there will be one day because the speculative part is showing up.
And how do you think about investing through something like this for the average retail investor? Like
I think it's tough, man. Like at this point, like the odds that you're going to have some kind of insight around some AI company when they're raising money at the highest prices they ever have, like I think it'd be foolhardy. And by the way, if you just had the index, you're pretty well exposed. Nvidia got so big as a percentage of the index. Like if you just had an S&P index, you have a pretty strong Nvidia position. And you certainly have Microsoft and Google like you're doing well. Like that, back to Burton Malkiel, like that generic advice would have served you fine for the AI wave.
Now do you think that AI is going to have the kind of job disruption that we're expecting? We're on the back right now of a bunch of layoffs, but you've got Marc Andreessen who's saying no no this is not because of AI. this is them just using a PR excuse to rightsize their organizations and other people saying no no this is AI.
Yeah, I think both are true. I mean I think anyone that does a layoff today is going to write it in the oh we're just being smart like why wouldn't you? like it's just such an easy take and I think Square was the one that kind of kicked this off and plenty of people pointed out that on a revenue per employee basis they were like three or 4x many of their peers so highlighting the fact that they needed to get fit regardless of whether AI might help or not. And so I think you're going to see some of both. Yeah. I go back to what I said earlier. Whether you're a company or an individual, if you're worried about AI disruption, become the most AI enabled version of yourself you can possibly be. If there are 30, let's just pick something. Let's say there's 30 paralegals at a law firm and you're of the 30, you're the one that knows most about how to use AI to do what a paralegal does. What are the odds you get fired? I think it's very low.
