AI Psychosis, America's Broken Social Fabric, Trump Takes Over DC Police, Is VC Broken?

1. 0:00 – 4:45

   Bestie intros!

   1. DSDavid Sacks0:00

      Where you at, Chamath?

   2. JCJason Calacanis0:01

      Look at those cabinets. I know exactly where he is.

   3. CPChamath Palihapitiya0:04

      (beep) I'm here.

   4. JCJason Calacanis0:04

      Hm. I can tell by the cabinets.

   5. DSDavid Sacks0:05

      We'll bleep that out.

   6. CPChamath Palihapitiya0:06

      Tomorrow I leave for (beep) , and then I come home the week from Friday.

   7. JCJason Calacanis0:10

      So that means you're gonna be leaving this week, so it's open next week.

   8. DSDavid Sacks0:14

      (laughs)

   9. JCJason Calacanis0:15

      So-

   10. DSDavid Sacks0:16

       I think you're about to get a house guest.

   11. JCJason Calacanis0:17

       Wait a second. The house is open? I like late season.

   12. DSDavid Sacks0:22

       Kato Kaelin's about to make an appearance.

   13. CPChamath Palihapitiya0:23

       That means Kato Kaelin's about to bless the home with-

   14. DSDavid Sacks0:25

       (laughs)

   15. JCJason Calacanis0:26

       Oh, I'm gonna bless that house. You can be sure. I'm going for a little Indian summer off the Italian Riviera.

   16. NANarrator0:32

       I'm going all in. Don't let your winner slide. Rain man David Sacks. I'm going all in. And I said- We open sourced it to the fans and they have just gone crazy with it.

   17. JCJason Calacanis0:45

       Love you, SI.

   18. NANarrator0:46

       Queen of quinoa. I'm going all in.

   19. JCJason Calacanis0:49

       All right, everybody. Welcome back to the number one podcast in the world, the All In Podcast. We're back and you got your original crew. Some people were wondering, are people losing their commitment to excellence? Are people out gallivanting? Would we ever see the core four back? August 14th, we're taping. You'll be listening on August 15th. But gentlemen, we're back. How are you doing, uh, Chamath? You look well-rested.

   20. DSDavid Sacks1:16

       The core four.

   21. JCJason Calacanis1:17

       The core four.

   22. DSDavid Sacks1:18

       That's new.

   23. JCJason Calacanis1:19

       Who could ask for anything more?

   24. DSDavid Sacks1:20

       Would you say that the core four could be fantastic? (laughs)

   25. JCJason Calacanis1:25

       I think on their best days I would say they are exceptional.

   26. DSDavid Sacks1:28

       (laughs)

   27. JCJason Calacanis1:28

       Perhaps even tipping into fantastic. Did you see it yet, Sax?

   28. DSDavid Sacks1:33

       Yeah. This is-

   29. JCJason Calacanis1:33

       It's pretty great. I think they did a great job.

   30. DSDavid Sacks1:35

       Yeah, that was pretty good.
2. 4:45 – 20:13

   AI Psychosis: what it looks like and why it's happening

   1. JCJason Calacanis4:45

      I think the story of the week is this AI psychosis. This is a crazy story. People call it ChatGPT psychosis as well. We'll get into that. But if you're an X user, you've seen this discussion over and over again. It's called being one-shotted, okay? That's like, uh, you get sniped in a video game or something. People are starting to have delusions that are being triggered by or enhanced by AI chatbots. This, the core of the issue seems to be that these chatbots, as you know, are sycophantic. They confirm your beliefs. They agree with you. They're effusive in their praise. And it's so believable that now people are starting to believe they're in a relationship with AI. Okay? And, uh, OpenAI saw this becoming an issue, and, uh, they made some healthy use updates to ChatGPT. It's no longer gonna tell you whether or not to break up with your boyfriend, to leave your spouse. It prompts you to take a break after long sessions. And they also admitted that their 4.0 model had been creating some of these psychosis scenarios. Quote, "There have been instances where our 4.0 model fell short in recognizing signs of (laughs) delusion or emotional dependency." Psychology Today had a story, uh, just recently, the emerging problem of AI psychosis. Man, people are falling into romantic relationships. They have godlike delusions. And a prominent investor, you may have seen this...... seems to be undergoing some AI psychosis according to people who may be near it. I'm not gonna say his name, but it's pretty clear who it is. But he released a video where he started talking about recursion and all this crazy stuff. You may have, um, even witnessed a little bit of this when, uh, Travis was on the program a couple weeks ago and he said he was, like, spending his time on the fringes or the edges of-

   2. DFDavid Friedberg6:30

      Quantum physics. ... quantum mechanics.

   3. JCJason Calacanis6:32

      Yeah, and, like hitting... Like, it really can take you down the rabbit hole. There's a really interesting subreddit called-

   4. CPChamath Palihapitiya6:38

      Sorry, are you saying Travis is suffering from AI psychosis?

   5. JCJason Calacanis6:41

      I'm saying we may need to do a health check. We may need to do a health check because smart people can get involved with these AIs, so we may have to do a, um, a little welfare check on our boy TK.

   6. DFDavid Friedberg6:52

      Can you, can you just tee this up and hand it off so that the rest of us can talk, please? (laughs)

   7. JCJason Calacanis6:56

      I'm about to do that. I'm about to do that. Okay, Chamath, you seem to be raring to go-

   8. DFDavid Friedberg7:01

      (laughs)

   9. JCJason Calacanis7:02

      ... with this AI psychosis issue. Go ahead. Enlighten us with your hot take.

   10. DFDavid Friedberg7:07

       (laughs) But go ahead.

   11. JCJason Calacanis7:10

       I miss you too. I miss you too.

   12. DFDavid Friedberg7:12

       You're the best. You're the best. Hold on, wait, my phone's ringing.

   13. JCJason Calacanis7:14

       Oh, (censored ) great.

   14. DFDavid Friedberg7:15

       Oh, shit. Hey, listen, Andrew-

   15. JCJason Calacanis7:17

       (laughs)

   16. DFDavid Friedberg7:17

       ... I'm gonna s- I'm gonna send you a link to a Zoom chat. I'm just hoping you can just hop on for a few-

   17. JCJason Calacanis7:20

       Hello, BG2?

   18. DFDavid Friedberg7:21

       (laughs)

   19. JCJason Calacanis7:21

       Yeah, make me an offer. Sure, I'm in. Yeah, they just... These idiots just paid me $50 million to come join your podcast and make it higher rated than yours.

   20. DFDavid Friedberg7:28

       (laughs)

   21. JCJason Calacanis7:28

       Okay, great. Yeah, okay. I'll see you on your boat.

   22. This is like in the major leagues when, like, a double trade happens.

   23. Exactly. (laughs)

   24. So we get Andrew Ross Sorkin and then-

   25. BG2. (laughs)

   26. ... Gursser and Gurley get Calacanis.

   27. Yeah. (laughs)

   28. That'd be really interesting.

   29. It's a three-team deal. It's a three-team deal. You're also getting, uh-

   30. Let us know in the comments if you would like to see that trade. (laughs)
3. 20:13 – 35:55

   Why the social fabric in America is breaking down

   1. JCJason Calacanis20:13

      But it is related. You know, you were talking about the social fabric, Chamath, maybe in our group chat earlier, and you had some thoughts on that. And maybe we'll just pivot into the, the social fabric story. So here, this went viral, estimated percentage of 30-year-olds who are both married and homeowners. So two of the American dreams, dare I say, getting married and starting a family, having kids. And, um, in the '50s, that was, you know, half of 30-year-olds already were married and already had homes. And now we're down to 12%. There's a lot of factors here, obviously, Chamath. But your thoughts generally on this? You were sort of-

   2. DFDavid Friedberg20:54

      I, I started to do some research on this, and it's really sad actually, what's happening right now.

   3. JCJason Calacanis21:02

      Hm.

   4. DFDavid Friedberg21:03

      So I think if I had to kind of frame this, that chart that you showed is more of the outcome. And so you have to go all the way back and try to explore what are the potential root causes that causes this kind of an outcome, and there, there are a bunch of them. I think one of the first ones that we have to look at is what has happened to young men. And I think what's happened to young men is a little concerning. So it's, I don't think it's our generation, but I do think if you talk to people 30 and under, you start to hear a consistent theme from guys, which is, one, it's they don't really have the social skills to really talk to girls. It starts with that. And so what happens is they go to these different outlets. They go to video games. They kind of communicate more online. As a result, they tend to have brittle or fragile emotional relationships and social relationships. They don't date the same way that they used to. Then a lot of guys just feel like they also don't wanna get caught into being perceived, you know, post the Me Too movement, in any way, shape, or form as being a dork. You take all of these factors, and you put it together, and there's a lot of guys that have just opted out, and they just kind of move in a direction of parasocial relationships instead. Then I started to look at, like, the, the data on porn usage. It's out of control. I had no idea. But do you guys know what the average age now of a porn-watching male is?

   5. JCJason Calacanis22:43

      That's scary to think.

   6. CPChamath Palihapitiya22:44

      The average age?

   7. DFDavid Friedberg22:45

      Yeah.

   8. JCJason Calacanis22:48

      Would it be the average age of an American man, or does it skew younger? I would assume skew younger.

   9. DFDavid Friedberg22:52

      It's gone, it's gone from 20 down to 16. There are more than 50% of 12-year-old boys now that watch porn.

   10. JCJason Calacanis23:01

       Oof.

   11. DFDavid Friedberg23:02

       I was shocked. I was like, "What are you even talking about?" I was a teenager, late teenager, I think, when I... Like, I mean, we had, like, you found a magazine here or there, whatever, right?

   12. JCJason Calacanis23:12

       Yeah, you got a girly magazine. Yeah.

   13. DFDavid Friedberg23:13

       But can you imagine what it does to a 12-year-old boy when they start to get instant gratification, and you compound that all through high school, and they don't have, quote-unquote, what we would call game, right? The ability to just talk and just kind of, like, carry on a conversation. What do you think happens? And then you go into the dating pool, and what are these dating sites optimized for? These dating sites are optimized to keep people there, not for you to find a relationship and for you to churn, right? And so the gamification and the, and the dynamics of those systems are where many young men and women now look to to find a relationship. And so you have lonely young men that creates lonely young women, a small cohort of very eligible men and women that everybody is chasing and fighting over, everybody else kind of left on the sideline. And so what do you think happens over 15 or 20 years of this activity? It's what you see in this data. People aren't coupling up. They're not having long-term committed relationships. So obviously, as a byproduct, they're not getting married more.Obviously, as a byproduct of that, then you're not combining two incomes. You're still with one income. At the same time, Nick, I just pulled this data, you can show it, what has happened to the underlying things that people would look to as satisfying markers of progress in life? A home, a good education. Those are way out of reach, right? So if you look at this chart, the price-to-income ratio of a home from 1980 to now has effectively made it so that you have to make an enormous amount of money as a single individual to afford a home today.

   14. JCJason Calacanis24:54

       Mm.

   15. DFDavid Friedberg24:55

       And then if you only have a small percentage of people actually getting married and bringing two incomes together, you see what you're seeing today in that chart. So, I don't know. I think that we have a, an issue in the American fabric we need to figure out. I don't exactly know what the solution is, but it's taken me this long, and m- maybe this is what all these young people have been screaming about, and I-

   16. JCJason Calacanis25:16

       Mm.

   17. DFDavid Friedberg25:16

       ... have ignored. So I apologize for not really understanding the gravity of it. But I think that this is a big problem, and I think we need to start talking about it a lot more.

   18. JCJason Calacanis25:25

       And here's a manifestation of it. If you look past year prevalence of major depressive episodes, US adults 2021, pretty recent data, and that 18 to 25 spike. Look at that, Chamath. And then 26 to 49, and then the older generations maybe not having these massive depression episodes. Friedberg, any thoughts on the American dream changing and young men?

   19. CPChamath Palihapitiya25:49

       Yeah, I think there's a lot of conflated factors here that can certainly be related, but there's just a lot to unpack in all that.

   20. JCJason Calacanis25:57

       Yeah, let's get in-

   21. CPChamath Palihapitiya25:57

       Uh, I mean, I can, I, I can comment on the one piece. I, I think we talked a little bit about, you know, getting lost online. I mentioned when I was in college that year, 1996, when that, that woman got lost in AOL IM, we had dial-up internet. It was, you know, a very different world where we're all connected 24/7 on our phones. I'm sure we all have average phone usage of seven hours a day today. So, there's a lot more rabbit holes to fall into that reinforce this isolation. It doesn't actually solve your isolation or loneliness problem when you get stuck on a phone or stuck on the internet. It actually magnifies it and makes it worse 'cause you start to see all the things you don't have, and you start to feel worse about yourself. And that leads to all of these kind of, I would say, difficult social, uh, context that Chamath talking about. With respect to affordability, as you know, I think that that's a distinct point, which is related to our expectation that the government can and should always solve our problems for us. And as a result, we created the Federal Home Loan Program, much like we created the Federal Student Loan Program, both of which I believe created bubbles in those markets. We created this concept that every American family should be able to afford a home, and our solution was to pump a bunch of money into homes through the Federal Home Loan Program. And that ultimately led to bubbles of inaffordability for, for homes. If we really wanna solve this today, besides solving the government spending problem and inflation problem and dollar devaluation problem, which obviously require cutting spending, I think it's gonna need to be some sort of set of rules around making sure that homes are not being bought up by institutions. Like, that, that's one that I think is gonna be a pretty popular point that's gonna come up in the next year or two, particularly in the next election cycle. So, you know, there's two sides to that, to that one.

   22. JCJason Calacanis27:42

       I think you, you're kind of dancing around the, the issue there, and I think it's very real, which is the financial piece of this, Friedburg. Boomers have just absolutely ƒ in these, these couple of generations. If you look at the cost of homes, like you mentioned, the cost of education, and then you just look at real wage growth. I don't know if I sent your chart, Nick, if you can take a look at this. You know, the big problem in the United States is wages have not grown except for people who have a lot of money already. And so if you wanted to start a family and you're in $100,000 in debt for your student loans and homes have double, triple, quadrupled in price when compared to your income, and we don't have real wage growth, that's an issue. And I think this will become the issue of the next election. We see Mondavi and the socialist movement, we talked about it last week. If you really wanna make a compelling argument for the next election cycle, I think it's real wage growth. And if you look at something like minimum wage and this disparity between what top earners make and, and minimum wage, here's a chart of where minimum wage is in the United States versus other developed countries, there is a real argument here, even though we might all be free market-

   23. DFDavid Friedberg28:48

       Well, there's a very different-

   24. JCJason Calacanis28:49

       ... individuals-

   25. DFDavid Friedberg28:49

       ... approach.

   26. JCJason Calacanis28:50

       Yeah.

   27. DFDavid Friedberg28:50

       There's a very different approach to higher education in literally all of those countries except for ours. I mean-

   28. JCJason Calacanis28:56

       It's affordable, yeah.

   29. DFDavid Friedberg28:57

       Well, yeah. And, and I think that we have to call a spade a spade. There was an entire generation, if not two generations, of young men and women younger than us, right? So not in their late 40s, early 50s, who were told that they must, not should, not it's nice to, they must go to university. And these folks took out an enormous amount of financial support to do so. And part of the underlying reason was that they were told, and it sounds very credible, "Technology is coming, and there's gonna be so much automation of all of the other kinds of jobs that you may do in trade school, you should go to university and protect yourself." Well, lo and behold, it's turned out to be the exact opposite. So, could you imagine where, you know, you could have gone to trade school, been an electrician, been a plumber, built, done something, welder, made a couple 100 grand, married somebody, you know, she does a good job. Now all of a sudden, she also makes $150,000, $200,000 a year and you're making $400,000 and you have no debt. That is the key. You have no debt.

   30. JCJason Calacanis30:04

       Hm.
4. 35:55 – 48:52

   Fixing the incentives that created the student debt crisis

   1. CPChamath Palihapitiya35:55

   2. DFDavid Friedberg35:55

      Yeah. And then you have to stop underwriting student debt so that you don't underwrite through $200,000 degrees.

   3. CPChamath Palihapitiya36:00

      I believe 100% in ending the federal student loan program, and I think that it will force a restructuring of the- of the entire higher education system in the United States, which no one wants to hear, no one wants to do, and everyone's against, but I think it is the only path forward. We have the chancellor of UC Berkeley and the president of Dartmouth coming to the All In Summit to talk about the future of higher education. I think this is probably, in my book, one of the top three most important issues we should be discussing right now. We have to get rid of the federal student loan program, and we have to force a rightsizing of, uh, higher education and a restructuring of higher education such that the access to education becomes more ubiquitous. It's not this $300,000 debt load that everyone is forced to take on.... and it enables a more fair market and a more free market, where people get what they pay for and ultimately people are going to have to make decisions about what majors they're getting and whether or not to pay for these colleges-

   4. DFDavid Friedberg36:54

      Or whether they get a major at all.

   5. CPChamath Palihapitiya36:54

      ... or whether it's something where you can... Or whether they get a major at all.

   6. DFDavid Friedberg36:57

      They, they have the s-

   7. CPChamath Palihapitiya36:57

      Yes.

   8. DFDavid Friedberg36:57

      ... the social, have the social acceptability to, to not do that.

   9. JCJason Calacanis37:01

      And, uh, and another tactical thing, Friedberg, is to just, this accreditation scam, where only certain people can give college degrees, if you allowed, you know, entrepreneurs to create schools, like Joe Lonsdale's doing here. He had to buy an accredited university to kind of back into it. But if you asked a bunch of entrepreneurs, "Hey, lower the cost of this degree from 250K to 50K," they would figure out a way to do it. And it's already happening. People are now using ChatGPT, using online tools to get their education, and doing that around the existing system. So, you know, life finds a way. These young people are finding a way. They're-

   10. DFDavid Friedberg37:37

       This is why-

   11. JCJason Calacanis37:37

       ... finding ways-

   12. DFDavid Friedberg37:38

       I'll be honest, I really like-

   13. JCJason Calacanis37:40

       Yeah.

   14. DFDavid Friedberg37:40

       ... Trump's attack on Columbia, UCLA, and Harvard, because I think that th- those were these sacred cows that were always left alone. They were meant to be these signaling mechanisms of elitism and quality and future prospects, and those institutions ran totally amok.

   15. JCJason Calacanis38:01

       Totally amok.

   16. DFDavid Friedberg38:01

       They started to do things that just made absolutely no sense.

   17. CPChamath Palihapitiya38:04

       There was... To your point, there was a, a, a really good article, I think it was in The Atlantic this weekend, about how the humanities captured science. So basically, these universities get a large amount of their federal funding by getting research grants allocated to the university, and then they get an administrative topper on top of the research grant. Historically at Harvard, that administrative topper is 60%. So, if a, if a researcher gets a $3 million grant at Harvard to work on cancer research, $1.8 million of administrative fees are paid to Harvard University.

   18. JCJason Calacanis38:34

       Ridiculous.

   19. CPChamath Palihapitiya38:35

       So, a lot of the universities use those fees to expand and grow out their administrative staffing, and also to expand and grow out their humanities. These aren't bad programs per se, but it basically meant that the science funding was being used to kind of create what some people are now calling social engineering, that these universities then engaged in over a several year period. One of the other key questions about the future of higher education is should science and engineering be coupled with the humanities from a funding perspective, or should those institutions be split up?

   20. DFDavid Friedberg39:06

       Well, Peter Thiel has a very funny saying about this, which is, "Any time you have a, a concept that you want to fund that has the word 'science' after it, it's not a science."

   21. CPChamath Palihapitiya39:15

       Right.

   22. DFDavid Friedberg39:16

       So just kick it to the curb.

   23. JCJason Calacanis39:17

       Yeah, physics-

   24. DFDavid Friedberg39:18

       So it's-

   25. JCJason Calacanis39:18

       ... is physics. Social science, you're, you're saying for a reason.

   26. DFDavid Friedberg39:20

       ... when you have political science or social science-

   27. JCJason Calacanis39:22

       Yeah.

   28. DFDavid Friedberg39:22

       ... what is that?

   29. JCJason Calacanis39:23

       Yeah.

   30. CPChamath Palihapitiya39:24

       In China, in Germany, in, uh, Russia, there are science and engineering institutions that are separated from universities where you can go and learn the humanities. And I'm not discrediting the, the, the value of learning the humanities. If you can afford it, if you think that there's value in doing that for yourself and your career, yada yada, go for it, good luck, et cetera. If you're wealthy and you want to engage in that 'cause that's something you wanna pursue, society needs that, we value it, great, go for it. But the problem is the research being separated from the humanities is critical.
5. 48:52 – 1:05:39

   Trump takes federal control of DC police

   1. JCJason Calacanis48:52

      show up. Trump sent the National Guard into DC, folks seem to be generally in support of it. Uh, two weeks ago, uh, Doge staffer, Big Balls, was badly beaten by a group of eight to 10 teenagers in an attempted carjacking.And he truly has big balls because he tried to protect his woman, uh, and just fought hard. Trump posted a bloody picture of him on Truth Social saying, in DC, that crime is totally out of control and, uh, he decided if DC, this is what he said, "If DC doesn't get its act together and quickly, we will have no choice but to take federal control of the city and run this city how it should be run and put criminals on notice that they're not gonna get away with it anymore." Well, he did just that on Monday. Trump invoked Section 740 of the DC Home Rule Act of 1973, allows the president to take control of the District of Columbia and, uh, for up to 30 days. So daddy's home and, uh, 800 National Guard troops are in the city. I mean, if you told me you could send 800 National Guard to the Tenderloin and get rid of the fentanyl dealers, I'd be like all for it. Sachs, your thoughts on, uh, this move? Uh, obviously some media elites or people are hand-wringing, "Oh, this is Trump trying to be emperor or king," but he's legally in the right, right? He has the right to do this-

   2. Yeah.

   3. ... in DC specifically. What are your thoughts generally? Is he gonna go roll into New York, San Francisco, and LA next? That seems to be the hand-wringing, or is this an isolated kind of DC-specific thing?

   4. Well, no, the- the federal government has the right to run DC, and I think they, it did until the 1960s and then you had this experiment in Home Rule, and I think you'd have to say that the experiment has not worked out that well. So last year Washington, DC had the fourth highest homicide rate in the US. Its homicide rate was nearly six times higher than New York City, which wasn't great. The homicide rate exceeded Atlanta, Chicago, and Compton. It also has one of the highest robbery and murder rates among US cities, and there's been numerous assaults and robberies on congressional staffers and members of Congress. In May, you had two embassy staffers were murdered. In June, a congressional intern was fatally shot just a short distance from the White House, and then, of course, just, um, a week or two ago you had that, uh, attack on the- the DoJ staffer, I think his real name is, uh, Edward Constantine AKA Big Balls, who was mercilessly beaten by a group of- of, I think, teens. And that's been a big issue is that juvenile crime is a huge issue in DC because there's just no punishment. I mean, they're- they're caught and then they're released. DC's had a policy of zero bail, which we've seen in many cities, but what that basically does is create a revolving door at the jail. As soon as someone's caught, they're released. And then you've also got vehicle theft in the district's over three times the national average, again because even when they catch someone, they just let them go. You've got repeated armed carjackings and violence, again, by teenage gangs. And the liberal media's favorite talking point on this is that somehow violent crime is down in- in DC, which is the exact same thing we heard about San Francisco.

   5. Yeah.

   6. Remember when Jason Boudin implemented the zero bail policy and crime was going through the roof and CVS and Target were shutting down, all the stores were basically locking up the toothpaste? I mean, people could feel the crime, but no one was reporting it because they just knew that nothing would happen. So I think this is the typical gaslighting we've seen before, and no one really can trust these stats. I think they kn- they all have stories about- about crime. There's a bunch of, um, commentators on CNN and MSNBC who have been trying to make this argument about the crime being fictitious and they've been bringing DC residents on the air as guests, and every time they try to-

   7. Do man on the street-

   8. ... you know, try to get them to-

   9. ... and it blows up in their lap, right?

   10. Yeah. They- they try to get these, um, DC residents to support this- this crime is down narrative, and then every time the- the DC residents start telling stories about them or their- their friends being victimized, it's like, "Oh yeah, I know this person got... This friend of mine got shot or this person got carjacked."

   11. (laughs) Oh my God.

   12. And it's become comical now and a lot of these- these videos are going- are going viral.

   13. Well, this is what's good about the murder statistic is that you can't make that one up. Murder is murder.

   14. That one's harder too, right. Exactly.

   15. Yeah. I mean, you- you can't cover up somebody getting shot. You know, we had the same exact thing that happened in New York. My brother was a cop in the '90s. We had stop, question, frisk. People call it stop frisk. People were overwhelmingly, uh, in favor of this. Now listen, people shouldn't be randomly stopped and- and we all have concerns about that, but crime was so bad in the '80s in New York when I grew up there that in the '90s people were like, "Yes."

   16. Yeah.

   17. "Stop, question, and frisk anybody hopping a turnstile," and that's how we got all the guns off the street and then New York became incredibly safe under Giuliani 1.0-

   18. Giuliani, yeah, Giuliani.

   19. ... and Bloomberg-

   20. And Bloomberg, yeah. So if you remember-

   21. ... and it carried on until we got Dinkins 2.0, de Blasio.

   22. So if you remember, the theory back in the '90s of how you reduce crime was the- the broken windows theory-

   23. Yeah.

   24. ... which is that you get rid of the entry level crimes and you get rid of the visible manifestations of lawlessness and chaos, because when you create an environment in which it appears that those things are tolerated, then you will-

   25. That's right.

   26. ... end up getting more of it, especially I think by- by juveniles. So that was the theory in the '90s and it absolutely worked, and what you've got in DC is the opposite of it. And I think what President Trump has said is, "Look, first of all, we're going to get rid of the homeless encampments." So that's being removed. "You're gonna get rid of the graffiti. We're gonna stop the zero bail." So once people get locked up, they're gonna stay in jail. "And we're gonna start treating these, um, teenage criminals as... You know, we're gonna punish them. We're not gonna let them off the hook. If they're committing adult crimes, there's gonna be adult punishments." I mean, th- this is the right direction to go if you want to reverse this lawlessness in DC, and I think it's gonna have an impact very, very quickly. I think it's gonna work very quickly, and I think that Democrats who are denouncing this are falling into this trap that I think we saw on the border as well where they appear to be supporting criminals and gang members-

   27. So dumb.

   28. ... just like they did on, you know, with the deportations where they start resisting the deportations of MS-13 gang members, they fell into a trap there. I think they're gonna fall into a similar trap here in DC.... because I think this is gonna work, and I think it's gonna provide Republicans with a very important counterpoint. Because I think one of the problems with crime is that it is a local problem, and the truth is that it's been very bad in blue cities and Republicans just haven't had power there in order to effectuate a change that they could point to as a solution. And I think that D.C. provides that opportunity. If Trump's plan works, I think it'll show that Republicans have the solution on, on crime, and it'll hopefully help provide an alternative in these deep blue cities.

   29. And here's a chart, just to put some numbers behind it. This is gun assault rates in Washington, D.C. and you can see it spiked under Biden, went up a bit, 2024 came down at the end of his term, and then it's lower this year in 2025. That black bar is the first half. So, it is trending in the right direction, but it's still not acceptable. Sachs, I guess the question is-

   30. I just don't know if we can believe all these statistics. So, just last month there was, a D.C. police commander was suspended for manipulating crime data to make it seem lower than it actually is, and the D.C. police union says this practice is widespread.
6. 1:05:39 – 1:14:09

   Venture Capital: is it broken and what it will look like in the future?

   1. JCJason Calacanis1:05:39

      Chamath, you wanted to talk about VC returns versus public markets. I know, Freeburg, you brought this up on a previous issue, that you could just set it and forget it-

   2. DSDavid Sacks1:05:45

      Yeah.

   3. JCJason Calacanis1:05:45

      ... on the Mag 7 back in the day. So, we're gonna revisit this topic. Public markets, here we go. They've been on a tear. 2023, up 24%, 2024, 23%, 2025, we're at 10% so far. Here's just a chart of it. We had one down year, obviously, 2022. And it's been on a tear. And it's only happened one other time before, that the, uh, we've had three straight years of this kind of 15% performance, very rare. You see we highlighted them there on the chart. Um, the dot-com bubble in the late '90s, and then before and after, like, peak ZIRP and then now. Uh, now you can compare that to the private markets. Venture capital. And, uh, here's a chart from 20-2012. And the reason I'm gonna show these is when you looked at venture as a category versus, say, the S&P or a couple of lines up from that, you see the NASDAQ, venture was extremely, extremely attractive according to Cambridge Associates, which tracks this. They have the best data 'cause they've been doing it the longest. Then we go and we f- look at the same chart in 2018. Hey, look, the NASDAQ's doing pretty well when compared to venture, in large part because we had some of these mega hits. The Googles and Facebooks and Amazon worlds, you know, coming to fruition and just going on a tear. And then here we are in 2018. Public markets really start to rip. Same chart, just different time period. Here's 2020. And maybe venture isn't doing as good when you look at, uh, it compared to-... the markets, of course, you can't do this for the last five years or six years of venture because they're in the J-curve. Y- when you do venture investing, you're expecting it to pay off seven, eight, nine years. But the trend here, I think, Chamath, that you were pointing out is public markets, liquid, no fees, low fees, minuscule fees when compared to venture, and maybe a better bet for investors and that's challenged the venture industry. Was that your sort of point to bringing this up, I take it?

   4. DFDavid Friedberg1:07:47

      I think the venture model is broken, but it's broken for two different reasons. Not, not totally correlated to each other. The, the first is purely mathematical, which is when the public markets provide a consistent rate of return. It doesn't matter what that is, but let's just say, you know, you average it out, it's 15%. The question is what is a private investment have to give you so that it's worth putting it into an illiquid instrument where you don't get your money back for some number of years? Now, problem number one is it used to be that you could get your money back in six or seven years and the fund would liquidate after 10. Now, you don't typically start to see returns until year 10 and oftentimes year 12 or year 13. Which means that they don't really pay out until year 16 or 17. What the math of that would tell you is that you need to generate somewhere between 6% to 10% more in terms of the gross return so that on an apples to apples basis, you're being compensated for all of that illiquidity. Right? God forbid something happens or you wanna buy a house and you need the money, in the stock market, you would just sell it instantaneously. In a venture investment, you're gonna call somebody, they're gonna probably haircut you by 30% to 50% and you're gonna sell it because it's illiquid. So if the public markets are giving you 15%, the reality is that you need to get 25% plus. So then the question is what venture investors generate 25% plus IRRs over a 17-year period or a 15-year cycle? And it turns out that every fund has a very low statistical probability of doing it. Every fund manager, if you're in the top, you know, handful, we all know who they are, they'll always at least have one that doesn't. So the problem is you have one that does it, then the next one that doesn't, then the next one that's even worse, then maybe one that comes close. And so there is no systematic approach to the return stream. So how should you look at venture capital? I guess is one question. And I think the way that one should look at it is, look, in a portfolio where you have a lot of liquid assets, it's a small piece that essentially is a mechanism to learn about the future and to understand how your other assets are going to perform, I think it makes a ton of sense. But if you're trying to crush it, I think the only people that will really make money in venture capital are the GPs building a fee-generating business around it.

   5. JCJason Calacanis1:10:28

      Yeah.

   6. DFDavid Friedberg1:10:28

      Now that then gets to the second question, which is then, okay, so if you do invest in venture, what's the next big problem? The next big problem is in a world of AI, do you just see the amount of money that's required to build a really big success shrink? And if that happens, then, you know, how much money can you actually really get working? So if you look at companies like Midjourney, that's a great example of a business where these guys are like, you know, 40, 50, 60% team generating hundreds of millions of revenue, very profitable. They're not gonna be raising an enormous amount of money. So I think that these two things I think are very complicated for venture. Doesn't mean that people will stop investing, but...

   7. JCJason Calacanis1:11:08

      Freeberg, you wanna chime in on this, I think? Yeah?

   8. CPChamath Palihapitiya1:11:11

      Yeah. So I, I pulled some data together, Nick, if you could pull up the basics. I know we talk about this a lot, but I thought it would be good to show the difference between kind of a normal distribution and a power law distribution, like venture returns. Or I don't like to call it venture return, but I do think the returns generally in free markets create value creation in a power law distribution, which means that a few of the many account for the vast majority of the capital appreciation, of the, the value creation. And that's because of the power of compounding. If you build a better engine of technology, a better business engine, you will compound and that means that over time, you will accumulate more and more of the market in an outsized way. As you accumulate more of the market, you actually move faster in accumulating more of the market and eventually, it becomes a runaway flywheel, no one can catch up. That's the key return profile in free markets generally speaking and a manifestation of that is that is also the return profile in venture, in technology venture investing because when you find that one or two great hit, the Uber that has a great network effect or the Airbnb or the Google, it has a runaway effect in the market and it accumulates all the capital and becomes really valuable. And you can see this in the returns. So if you just pull up, this is the latest Carta data. So this shows what the IRR by the vintage that the fund was raised and then also by the size of the fund and by how the fund has performed on a percentile basis. Look just at the 2017 row. So the top decile funds are doing, call it 30% versus, you know, the median fund doing, call it-

   9. DFDavid Friedberg1:12:51

      They're not. Hold on, they're not. These are all markups, paper markups.

   10. CPChamath Palihapitiya1:12:53

       These are markups.

   11. DFDavid Friedberg1:12:53

       These are not distri-

   12. CPChamath Palihapitiya1:12:54

       Sure.

   13. DFDavid Friedberg1:12:54

       These are all bullshit numbers.

   14. CPChamath Palihapitiya1:12:56

       Okay, fair enough, but I'll make your case in a second here and, and these are not DPIs. This is not distribution and cash out. This is just marked up value and this is eight years old, so this is the 2017 vintage but just the difference between, you know, call it a 30% IRR and a 10% IRR, that compounds over 10 years. So the multiple difference at the end you should expect is the difference of making 14 times your money or 2.6 times your money.... the difference between 10% and 30%. And that's kind of what this shows roughly, is that the difference between a 50th-

   15. JCJason Calacanis1:13:26

       Yeah.

   16. CPChamath Palihapitiya1:13:27

       ... percentile and a-

   17. JCJason Calacanis1:13:27

       The problem with this data though-

   18. CPChamath Palihapitiya1:13:29

       ... 90th percentile.

   19. JCJason Calacanis1:13:29

       ... is this is Carta's product is used by a small number of people for a small number of years. That's why the other data we showed from Cambridge is much better, because all, th- the 2018 forward are still in the J-curve, so they... and to Chamath's point, they're paper markups.

   20. CPChamath Palihapitiya1:13:43

       I totally agree.

   21. JCJason Calacanis1:13:43

       So you, you, you gotta put a little major cap out there.

   22. CPChamath Palihapitiya1:13:46

       S- so I knew, I knew, I, I knew, I knew-

   23. JCJason Calacanis1:13:46

       Yeah.

   24. CPChamath Palihapitiya1:13:46

       Okay. I knew we would go down this rabbit hole, so I shouldn't have shown that.

   25. JCJason Calacanis1:13:49

       (laughs)

   26. CPChamath Palihapitiya1:13:49

       But, like-

   27. JCJason Calacanis1:13:49

       No, no. It's okay.

   28. CPChamath Palihapitiya1:13:50

       There are two key points I wanted to make, and, and just pull it up again, Nick. The first key point I wanted to make is because of the power law, the job of investing-

   29. JCJason Calacanis1:13:58

       Mm-hmm.

   30. CPChamath Palihapitiya1:13:58

       ... is to find the power law winners. It is not to buy the index. If you buy the index, you are losing to the market, even if these mar- even if these numbers are correct, which they're not, as we've talked about.

Episode duration: 1:32:21