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How AI agents are creating a shadow payroll problem

Kalshi and Polymarket hit Super Bowl scale; CBO debt projections stoke fear. The bigger story: AI token spend is approaching salary-equivalent costs per seat.

Jason CalacanishostDavid FriedberghostChamath Palihapitiyahost
Feb 13, 20261h 13mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 0:23

    Bestie intros

    1. JC

      All right, everybody. Welcome back to the number one podcast in the world, the All-In Podcast, with me again, the core four, the original quartet: David Sacks, David Friedberg, Chamath Palihapitiya. I'm Jason Calacanis, and we have a very full docket today. All right, topic one, gentlemen, AI acceleration. It was a big week for AI.

  2. 0:23 – 19:19

    AI updates: On-prem comeback, token budgets surpass salaries

    1. JC

      New study published on Monday, February 9th, in the HBR, Harvard Business Review, suggesting that AI tools intensify work but do not reduce it. Two UC Berkeley researchers spent eight months embedded at a two hundred-person tech company, so this is one company's experience. What they found: employees who use AI worked at a faster pace, took a broader scope of tasks, and extended work into more hours of the day. Workers reported feeling more productive, but they also felt a little more stress and burnout. Sacks, your, your hot take here, your quick take on this study. Obviously, it's just, uh, one company, but it does track, I think, some of my experiences. What do you think?

    2. DS

      All right, well, a few points here. Number one, as you may recall on the predictions show for this year, my most contrarian belief is that AI would increase demand for knowledge workers, not put them out of business. And I think you see in this UC Berkeley study the reason why that might be the case is because the employees who use these tools, like you said, they worked faster, they took on a broader scope of tasks. They actually ended up working more hours in the day, so they did more work, not less, and even more effort rather than less. Not because they were required to, but just because they were more motivated. And I think they were more motivated because their work was getting up-leveled, right? They're kind of able to offload, uh, more menial tasks to AI, and it made their work more purposeful and meaningful. So I think we're kind of moving from what some people, I think maybe Jensen, has called, um, task-based jobs to purpose-based jobs. And I think a key skill of employees is gonna be the ability to structure work for themselves and their AI agents, and the employees who can do that are gonna be far more productive than those who can't. That kind of brings me to point number two, which is that I think there's a tremendous opportunity this year for employees who are early adopters of these tools or, you know, so-called AI natives, to demonstrate their value to their employers. They're gonna be able to get a lot more done. They're gonna appear to have superpowers. They're gonna be the people in meetings who can take an assignment that would have taken days before and get it done in two hours, whether it's a presentation or a spreadsheet. People are gonna be shocked at how quickly they can get these things done because they're gonna be facile at working with AI. So I think there's a big opportunity there, and there was an article that went viral this week by Matt Shumer called Something Big is Happening, where he talked about this career opportunity that's gonna be available to kind of AI early adopters. And I think that brings me to my third point, which is I think that you're gonna see massive enterprise adoption of AI, not just chatbots, but agents this year. But I think it's gonna be driven by the bottom up. It's gonna be driven by these early adopter employees coming in to their workplaces, bringing in these kind of consumerized AI tools, start using them at work, as opposed to top-down initiatives. I think there's a lot of top-down company transformation initiatives that are happening in large enterprises, where the CEO has tasked a team with figuring out how to use AI, how to transform their business with AI. Those initiatives are gonna take months. They're gonna be studying what tools they should use. They're gonna be doing RFPs, and I think it's ultimately gonna be very slow. And while those things are trudging along, I think there's gonna be these early adopter employees who just make the transformation a fait accompli by, again, bringing these tools into the workplace from the bottom up. So I think in the same way that you saw consumerized SaaS tools spread from the bottom up in enterprises, I think you're gonna see consumerized AI tools spread from the bottom up in enterprises, and I think it'll ultimately be one of the big themes this year.

    3. JC

      Couldn't concur or agree more. Nick, throw up that tweet I did. I, I did a tweet, and it got two million [chuckles] views. Basically, I said, "Listen, if you got laid off by Amazon or Microsoft over the last two years, just learn OpenClaw and automate your previous job. Show you know how to use these tools. Go back to your boss and say, 'Hey, I wanna come back and automate everything,' or go to startups." Every startup I know is hiring for this position, which is somebody who knows how to build and manage agents. There is no job rec for this yet or a title. We should come up with what this person does, but it, it used to be called prompt engineer. It's no longer just prompt engineering. It's managing and educating and offloading work to an agent and then making sure they're actually doing it. And right now, it feels like the people in my organization, I have four of them who are focused on this out of twenty, I would say that their leverage is between ten and twenty X the other sixteen. So now I'm going down the slope of employees from, you know, most technical, you know, to least, and trying to get each one of them to adopt and create an agent for them. We'll pro... This will probably take six months, but when we do, I think our leverage versus a competing firm is gonna be ten X. As an example, in the podcasting space, Sacks, we now have it going through podcasts, looking for the best moments, or you can just give it a moment, and it will clip the clip for you and put it in the Google Drive. So imagine we are all in, I don't know, our little group chat, and you said, "Oh, from the last episode, can you get me a clip of minute three to minute six?" And then it's just on your iPhone. It's just in the group chat. Boom! Nobody has to go find it. It just clips it. That's the kind of work it's doing. And then we have it looking at our YouTube stats, we have it looking at our Instagram, our TikTok stats, and then trying to tell us which clips are going the most viral, which ones have the most comments, and then giving us strategies to how to make them go more viral.... It's really weird because it's coming up with really great suggestions and taking-- eliminating all the reporting work that knowledge workers do. Chamath, do you have a take on this? I know you've deployed the software factory, which is, I think, um, you know, aligned with obviously this revolution happening in real time. Last couple of weeks have been pretty big, with Claude Opus 4.6 coming out, uh, ChatGPT Codex coming out. A lot of advances in, obviously, the OpenClau revolution that I've now [chuckles] done seven podcasts on in a row. What are your thoughts, Chamath?

    4. CP

      I think there are two open questions that I find really interesting right now. The first question is, I tweeted it this morning, but is on-prem the new cloud? Which is weird to think that that could even be possible, but we've spent since two thousand and eight migrating everything to cloud because there were these economies of scale, and it created better margin and lower OpEx and lower CapEx because you could essentially share infrastructure with other companies, and that's how AWS and GCP have built such gargantuan businesses. The counterpoint to that, though, is that in the AI revolution, companies, I suspect, will be fighting for their lives. And I think it's very much unclear whether it makes sense for a company to allow the natural leakage of their edge and their confidential and proprietary information out into the wild versus the control that they would get if they ran on-prem. That's a really important question. What do I mean by all that? Once you use these tools, it is very difficult for a company to be able to control how their data is used subsequently thereafter. Meaning, if I gave you, Jason, a PDF of some really important strategy document or a PowerPoint deck or a really critical model, and you're interrogating it with one of these models, if you're just using ChatGPT, the mainline instance of it, you're leaking all of that prompt and response metadata back to ChatGPT, back to Gemini, back to Claude, and there's nothing a company can do about that. If you're using a set of agents to act on all that information, all those agent traces are going back to these model builders. That may or may not be a problem for some, but I suspect it is a deep problem for others, and they just haven't uncovered it yet. When they realize that that is a problem, the enterprise will have to decide: Do I just give up and keep running all of this stuff in the cloud in a shared experience, or do I bear the incremental cost of running this stuff in a more coordinated manner that I control on-prem? And that would be a crazy shift, just to completely go back to where we were twenty and thirty years ago. That's a non-so-obvious thing that may happen. So that's number one. And then number two, I also tweeted this: There was this really interesting ruling around what happens inside these cloud environments, which was a judge saying there is no attorney-client privilege and confirming that once you start to use those tools, all of that stuff is complete public domain material. If you put these two things together, it creates a very interesting set of questions for enterprises. You will need AI to survive, but if you use the tools as they exist today at a public endpoint, you will give up all control, all security, all confidentiality that you today have, and the ability to follow through and control what your employees do with it. The only solution [chuckles] is to have the pendulum swing all the way back and have private provision networks, which increases cost, but then if you save a bunch of money because of AI, maybe it all balances out. That is the big question that I'm wrestling with right now.

    5. JC

      Good insights there, and I have some thoughts on the, um, on-prem because I'm actually doing it right now. Friedberg, your thoughts on this moment in time when we have people, uh, saying it's happening faster, and it's become recursive. Recursive, obviously, a fancy word for those in the audience who haven't heard it before. Just these models a- and these agents can go out and improve their own work. So after they do some work or a job for you, you can have another agent say, "Hey, here's how to do it better," or, "Go learn these new skills. Go use this skill last thirty days to go find the last seven days or thirty days of best practices with this tool, and make yourself better, and do that every night at one AM." What are your thoughts, Friedberg, on the moment in time we are in right now?

    6. DF

      Well, I think the thinking historically was that it was gonna be about recursive model development, where we were gonna continuously improve the actual model, and we were waiting for a context window where you could feed the model back to itself. So you're effectively retraining the model continuously, and it may be the case that the output is what's recursive. And that, turns out, is having the effect that everyone was waiting for, so it's kind of a surprise. I saw a lot of computer scientists that have worked in AI for some time, I think, be a little bit surprised about this moment that we're in, that we're seeing such incredible strides in model performance just by making the output recursive. So let's see how far it goes. Are you still obsessed with OpenClau, JCal?

    7. JC

      I am. We have now seen that every week, five to ten percent of the work we're doing inside of our venture firm is being moved over to OpenClau. We call them replicants. You can think of them as personas. So we now have three or four of these. Uh, we give them a Notion account, a Slack account, and we give them a Google Docs account. They have their own email, and I think all of this technology was here all along. It was really... or, or maybe for the last six months, let's say, really good models out there, but no company would give the keys to the kingdom to allow these agents to actually act on your behalf. Why? Because they don't wanna be responsible if it ships your Bitcoin keys or your passwords to somebody else. So in order to use these, you have to trust them.... And if you trust them, and then you are monitoring them, the results are unbelievable. We, uh, have also, to your point, Chamath, fired up Mac Studios. We have Kimi on them. We are moving all of the work onto these, and then they'll use Kimi for most of their easy jobs, which is free. Then they will use Claude 4.6 Opus to orchestrate things. We also, now that we have four of them, Friedberg, we've created OpenClaw Ultron, which is one meta-replicant that is managing the other four, and it checks their work, it talks to them a- all day long about what they're doing, and then summarizes it, and we're building skills into each one of these. So one of the skills is, like, doing deep research. One of the skills is being able to go into our sales database, which is in Pipedrive. The gains we're getting, I was able to go through everything my Athena assistant was doing, and I was able to take about... And I, I know, Chamath, you have an Athena assistant, too. I was able to take maybe thirty percent of the Athena assistant's work and give it to the replicant. That let the Athena assistant work on higher-level stuff. I would say, on the average investment team individual, we now have probably twenty percent of their work being done by agents in real time, and the best part about it is they don't forget to do work. They don't make mistakes. So once you put this in, you don't need to have checklists. They just do it perfectly every single time.

    8. CP

      Crazy. [chuckles]

    9. JC

      And they work-

    10. CP

      It's crazy. [chuckles]

    11. JC

      It's nuts, Chamath. So now I'm building, and I've been talking to Benny off a lot 'cause he's got Slackbot, Claude's got CoWork, but none of them have the keys to the kingdom. So what I'm doing is I'm upgrading to the enterprise version of Slack, Chamath. Your, I think, probably your number two investment in your career. What an amazing investment that was. Um-

    12. CP

      It's number four.

    13. JC

      Number four. Okay, listen, [chuckles] keep grinding. Top five investment for you. I'm upgrading to the highest level, and I'm ingesting every single Slack message, and then I'm upgrading and giving the API key for every single email in our organization to Ultron. They will know everything going on in the organization. It is mind-blowing how fast this is going. And then finally, just a plug, I'm investing in ten startups in OpenClaw space. One hundred twenty-five K each to come to the accelerator. If you're doing work on this, OpenClaw at launch.co. Email me what you're doing, 'cause we want to invest in, in at least 10 or 20 of these companies right now. Uh, this is the 100% focus of our firm. It is insane.

    14. CP

      When do you guys think enterprises have a huge freak-out around all of this and say, "Wow, we're leaking all of our most important information out into the wild?" But Sacks, to your point, the industrious person trying to get ahead all of a sudden is using an open endpoint to, like, make a deck better, and somehow all of that stuff is out in the wild. They find out. People are gonna have a freak-out moment here soon.

    15. DS

      I think there's a big opportunity to take something like OpenClaw and make it enterprise grade and secure and all that kind of stuff. One of my partners at Craft actually created a new tool called Lobster Tank, which is a version of OpenClaw that's got some enterprise security wrapped around it.

    16. CP

      This is what I mean.

    17. DS

      Yeah.

    18. CP

      On-prem is back.

    19. DS

      Yeah.

    20. CP

      It's going to happen. It's gonna happen.

    21. JC

      It's cost savings, plus, do I want to give all of the secrets in our organization, every piece of intellectual property, to Sam Altman, who's got to [chuckles] make a billion dollars a year to keep up with his spend, right? He's going to build every application.

    22. CP

      Let's not make it about Sam. Do I, if I'm Geico-

    23. JC

      Yeah

    24. CP

      ... want to have all of my actuaries using all of our proprietary, private, and confidential data on risk pricing in an open instance of an LLM? The answer is no. That's obvious.

    25. JC

      Yeah.

    26. CP

      So now the question is: how do you adapt to that? How do you actually generate tokens in that kind of a situation? How do you reason in that kind of a situation? That is a very expensive technical problem. It's not necessarily complicated, but it is technical. That will-

    27. JC

      Yeah

    28. CP

      ... bloat the OpEx because you're going back to a place that you had said didn't make sense anymore. It felt very antiquated if you ever heard a company was on-prem, but AI may be the [chuckles] reason why you can't afford to be not on-prem.

    29. JC

      Yeah, and it's, it's gonna be on your desktop, too, because one of the solutions to this is just giving each employee a really powerful desktop that is capable of running a local large language model, which right now takes a Mac Studio with five hundred and twelve gig or, or daisy chaining two of them, and-

    30. CP

      I think that's the opposite

  3. 19:19 – 28:44

    Prediction markets: Super Bowl insider trading, how to police?

    1. JC

      Let's talk about prediction markets, gentlemen. They hit critical mass this past weekend at the Super Bowl. More than a billion bet on Kalshi, seven hundred million on Polymarket, almost two billion dollars in wagering. The media has been obsessing a bit about market m- manipulation, insider trading, and all these issues that are totally valid to discuss around prediction markets, which are something new in the world, at least at this scale. Two specific examples, uh, from the halftime show. A day-old anonymous Polymarket account correctly predicted seventeen out of twenty halftime show bets, including the special appearances by Lady Gaga, Ricky Martin, but it only profited 17K, a tiny amount. And then another account, created less than twenty-four hours before the game, correctly bet on Bad Bunny's setlist. Wall Street Journal this morning with an article titled, "Israeli soldiers accused of using Polymarket to bet on strikes." Israel arrested several people, including army reservists, for allegedly using classified information to place bets on Israeli military operations. Quote, "The account in question raked in more than a hundred and fifty thousand in winnings before going dormant for six months. It resumed trading last month, betting on when Israel would strike Iran, Polymarket data shows." The name of the account, RicoSuave666. Also, uh-

    2. CP

      Suave. Rico Suave.

    3. JC

      Rico Suave, the name of the account, RicoSuave666. I think that's also the alias that you were using [chuckles] in Vegas for a little while there, uh, at your hotel. RicoSuave666. The platforms are regulated, of course, by the CFTC, but, you know, questions here, uh, about society getting used to this new platform. Here's Kalshi's CEO, uh, talking about this on CNBC.

    4. DS

      Let's say there's a, a cameraman, happens to be in the stadium during the rehearsals. You could argue that would be like somebody at a, at a hotel who sees a rehearsal of a CEO giving a presentation prior. Those guys would have normally probably had to sign NDAs by the company because they would be worried about these issues.

    5. SP

      Sure.

    6. DS

      But in the context of this, they probably wouldn't.

    7. SP

      It's either one of two cases: either this information can be public, and that's okay, or it's in- information that cannot be public beforehand, and that's communicated to the staff, right? The cameraman or the dancer, the reason why you don't know what song is gonna be played first is either that's not public and not everybody knows beforehand. It's a little bit of a surprise Super Bowl.

    8. JC

      Yeah-

    9. SP

      Because-

    10. JC

      ... but it, but it's not non-material. It's not im- it's not material information that can't be shared.

    11. SP

      The way-

    12. JC

      You're making it that by putting it on this betting platform, but they have no obligation to say, "We're not gonna tell anybody our opening lineup, because there might be money made on this other place that's now betting on this." That's not the...

    13. SP

      I-

    14. JC

      The responsibility is not on them. Friedberg, your thoughts just broadly on what I consider society getting used to these new platforms and what they represent in the marketplace of ideas.

    15. DF

      I think the question is, is it really insider trading? If you and I were making a side bet, and I knew something about you, and I had some edge or some advantage, and I made a bet with you, is that fair? Should the government have a role in regulating that? This kind of goes back to securities regulation, that everything needs to be registered, and then there's this concept of insider information. It's a real challenge and a real question on keeping the open platform of opportunity for trading on anything, while also trying to mitigate the risk of what people call insider information in these trades. There's a good chart that w- I think we talked about in our group chat, that shows the distribution of accounts. There's a few accounts that have a huge amount of money and make almost all the profits, and then a lot of accounts that have a very little amount of money, and they get burnt through very quickly. They actually don't have an edge. So the, the accounts that have a lot of money, they generally only trade in things where they have an edge, where they make markets-

    16. JC

      Sure

    17. DF

      ... where they actually have an arbitrage or, yeah, sharps, and they eat up all of the, the capital. So if you're a marketplace like this, you probably also want to be thoughtful about the fact that over time, you could burn and churn through all of your customers, all of the users on the platform, if they're constantly gonna be making, uh, trades where they simply don't have an edge, and all the capital, all the liquidity is coming from the accounts that do have an edge and effectively trade off of inside information. So it'd be that these things end up eating themselves up. I don't-

    18. JC

      Chamath, man, we had Intrade. I'm sure you remember that in... I don't know if that was in the early 2000s. This idea's been out there, but it has clicked right now for some reason. Uh, what are your thoughts, broadly speaking, on the value of these platforms to society?

    19. CP

      Let's define some terms first. So in betting-

    20. JC

      Mm

    21. CP

      ... there are two kinds of people. There are the sharps, who know what's actually going to happen with a better edge, and then there are the squares, which is everybody else, and they are grist for the mill. And in a traditional market, like a sports betting market-... There have been edge cases where you try to throw a game or throw a fight or shave points, and the sharps are involved in that. But it's increasingly harder and harder to do because the sports leagues analytically are studying these things so closely to make sure that that never happens. But what you get are people with a smarter sense of what's gonna happen and people with less of a smart sense of what's gonna happen. The thing with prediction markets is it's not just that. There will be those things, but then there are going to be these fundamental markets that are purely about inside information. And the question is: What can a regulatory body or a society do about that? And I think the answer is not much. And the reason is, is that if you try to regulate this, it looks like a securities market. And I think the problem there is that these things are too fluid and too dynamic and too ephemeral for them to be legislated like a security. And so why are these things happening? It's because there's too many of these prediction markets that can be manipulated this way. Somebody knows something that somebody else doesn't know, and there's no way to arbitrate that. This used to exist in the securities market, too, and this is where now I'm gonna get a lot of people really upset with me. In 2000, we introduced a law called Reg FD. And what was the point of Reg FD? It was basically that if you're a CFO, you cannot talk to an individual stock manager and tell him something that you then don't tell everybody else, essentially inside information. That used to be not illegal. I won't say that it was legal, I would just say that used to be not illegal. You call your buddy, he says, "Hey, how you doing?" He goes, "Man, quarter was a blockbuster." You would go and buy the stock. And starting in the 2000s, it became illegal, and there used to be these networks of information arbitrage that, that took advantage of this. Now, this is an example of Warren Buffett's returns pre- and post-Reg FD. Now, what do you see? His returns were double the market returns when this kind of information sharing was legal. And the minute that it became illegal and you had to basically act on the same edge as everybody else, his returns went to the market return. He generated zero alpha. In fact, he probably, on the margins, lost a little bit. So this is the single best investor in the world. This is what happens when you have information symmetry. So it's just meant to explain that markets thrive when there's asymmetry. Billions and billions of dollars will be made in asymmetry. The prediction markets today, unless they are regulated out of existence or shut down, will look like the stock market pre-Reg FD, and there's nothing we can do except choose not to bet it, because otherwise what you're gonna have are a ton of sharps taking advantage of a ton of squares, and I think that's the end state.

    22. JC

      Chamath, why is it good or bad for society that these exist? Do you have a take on that?

    23. CP

      There are a certain percentage of these prediction markets that are about the well-functioning of society, and the use of inside information gets to the truth faster. And I think that has value, especially if it uncovers corruption or misdeeds. And so if people make money along the way, and that's the incentive that it takes for folks to work around what would otherwise be whistleblower laws or something else, to get to the truth and get it out there faster, that probably benefits society. Now, there's a bunch of other things where some people will just set up a market that they know about and that they can control that other people aren't unaware. That's not good. But unfortunately, there's no way to discern when a prediction market gets created, whether it's A or B. And so you have to decide whether it's more important that you can understand these current events faster with more accuracy or not. And I think that's where this decision has to come to, and that's what politicians need to decide and society needs to decide.

    24. JC

      All right, we're really excited that we're doing another

  4. 28:44 – 32:48

    All-In Liquidity: The ultimate investor conference

    1. JC

      event. Yes, a new event from your friends at All-In. The besties are hosting a new conference, uh, a retreat, a summit in, uh, wine country, May 31st through June 3rd. It's called Liquidity. This is for capital allocators and LPs and GPs. Chamath, maybe you could talk a little bit about the vision we have here for the event.

    2. CP

      There are a handful of conferences that happen every year where money is made. I'll give you a couple of examples. All the top market traders have been invited to this thing called Ira Sohn every year, where you go in front of a large audience, present your best long or short idea. And you can be a debt trader, a credit trader. You can be an equities trader. I've done it several times. Ackman has done it. David Einhorn has done it. Cliff Robbins has done it. These are incredible places, and you pay, like, $10,000 a ticket, and if you take those portfolios, they tend to do really well. Separately, there are conferences that investment banks organize that are off the record, not publicly accessible, where they ask their biggest traders to come to a room, and they'll give them each a few minutes to present their best long and short ideas of public stocks. Then there are these equivalent conferences that investment banks do for private companies, where the best fast-growing private companies show up, and the CEOs get on stage, and they give presentations. All of these things have been closed. I would like to blow that wide open. So what will we do? We will convene the best investors in public markets, the best hedge fund managers, the best private market investors, the best growth investors, the best credit investors, and-... the largest cohort of LPs representing trillions of dollars of capital, and the CEOs of the fastest-growing and most important companies in technology. And what we will do over the course of a few days is we'll have some presentations, we'll have best ideas, we'll build relationships. There may be some investments that may happen as a result of that. We're going to shut down all of Yountville. We're going to shut down the French Laundry, we're going to shut down all of it, and it'll be ours-

    3. JC

      Hmm.

    4. CP

      -for a two-day playground where we will build relationships, allocate capital, and maybe make some money as a result. So you need to apply. We will make some allocations to some folks that may not otherwise get in. We'll make some allocations to emerging managers who may need to raise capital and scale up but can show us good returns. And over time, we'll find a way to increase a lot of this and make it more and more publicly accessible. We have-- But we are going to essentially take all of these things that I've been a part of that have been in closed rooms, and we're going to put them together and open it up.

    5. JC

      Yeah. Well said. Well said. It's going to be a wonderful event. Friedberg, uh, anything you're excited about, i-in terms of the event?

    6. DF

      No, I love Yountville. We're going to Yountville, so I'm looking forward to [chuckles] that. It's going to be great.

    7. JC

      I mean, a beautiful location, and I think there's going to be ample time for meetings, networking.

    8. DF

      J Cal, if you're an investor, you can go to the website to-

    9. JC

      allin.com/events, and you can submit your application. We can't have everybody there, and this is not like a general admission type event. It is specifically for this group of people, capital allocators. So apply at the website, allin.com/events. It's going to be wonderful, and Chamath is putting his focus on it. I can tell you because I brought him my first five ideas, and he was like, "No, no, no. Yes, but better. Yes, yes." So he is engaged, and he's going to make it super tight, and tight is right.

    10. DF

      Judgy. I'm, I'm being judgy.

    11. JC

      Good. I like it. I like it. You know, all great events, all great art is-- has some perspective behind it, and we're excited to have your sharp perspective behind this one. Liquidity, May thirty-first to June third, allin.com/events. Okay, let's move on to our next topic. The new CBO report is out. Friedberg, you said we are in a

  5. 32:48 – 48:06

    CBO report: Death spiral, growth opportunity, or golden age?

    1. JC

      debt death spiral. The Congressional Budget Offer released its long-term budget forecast on Wednesday, February eleventh. Here are the numbers. Twenty twenty-six deficit is one point nine trillion. That's nearly six percent of GDP, much higher than the three percent GDP target we heard from, uh, Scott Bessent on this podcast. Social Security, we talked about that before, Friedberg. Trust runs out in twenty thirty-two, uh, one year earlier than previously expected. That's obviously going to trigger all kinds of discussions around austerity measures that folks will not like. The debt will now grow from thirty-one trillion today to fifty-six trillion in twenty thirty-six. So it is not stopping, folks. We are looking at an average of two point five trillion per year from twenty twenty-six to twenty thirty-six. Also, currently, we're at a hundred and twenty percent debt to GDP. House Committee on Budget expects it to be a hundred thirty-five percent, so slightly up in twenty thirty-six. For comparison, Japan is two hundred thirty-seven, Singapore, a hundred seventy-six, Venezuela, a hundred sixty-four, the Greeks, one fifty-four, UK, ninety-four. Twenty years ago, our debt to GDP was but sixty percent. Here's a direct quote from the report: "The fiscal trajectory is not sustainable." Okay, Dr. Doom, ba, ba, ba, what do you think, Friedberg? This is your story, your chance to shine.

    2. DF

      Well, there's no outlook to three percent deficit to GDP.

    3. JC

      There he is, huh? [laughing]

    4. DF

      There he is. And if you look at the assumptions, one of the key assumptions is that the short-term interest rate, which is largely how a lot of the debt is getting refinanced, is modeled to be around three point one percent. But if rates climb closer to five percent, as I mentioned in the past, just using the current debt levels, it adds another six hundred fifty billion dollars a year of interest expense, which takes interest expense almost up to two trillion a year, just paying the interest on the past debt. And because we're running a deficit, that new interest expense increases the debt every year. So the debt goes up and up and up just by adding interest on past debt. And so this becomes the death spiral that we've kind of highlighted many times. So there's nothing in this report that I think changes the outlook. It's pretty scary. Um, I'll say that the trigger point that I'm getting more and more concerned about, if the Democrats win the midterms, and you end up with a Democrat in the White House in twenty twenty-eight, I think that there's a bigger problem at foot, which is all of the state and local obligations. We've talked about Social Security looks like it's going to run out of money in a few years here, and so they're going to need to print a lot more money to fund Social Security obligations. Uh, it's very unlikely they're going to make a massive cut to Social Security because no one will get elected if they did that, and no one will get elected if they promise to do that. Um, and there's a similar problem at the state and local level, which is that there's pension obligations. We've talked about this extensively. California has nearly a trillion dollars of unfunded pension obligations to its public retirees or public employees that are going to retire. If you end up with a Democrat-controlled House and a Democrat president in twenty twenty-eight, you'll very likely see a federalization of that obligation, meaning that the federal government will step in to bail out or support those state and local governments, because otherwise there's going to be a real kind of economic crisis afoot. So when you add that liability coming to hit this CBO report, which doesn't include any of that, in the next five to ten years, I think that could be not just the straw that breaks the camel's back, but the concrete that breaks the camel's back. And that's the thing I'm most worried about. There is a deep connection between what's going on with the socialist movements at a city level and now increasingly at a state level-... and what we should expect to happen with the US dollar, and how it relates to federal spending and federal deficits and federal debt, and these are going to be dragging each other into a bad place in the next couple of years, one way or the other. So, uh, you know, that's kind of what I'm more worried about at this point. It seems if it's very hard to cut spending or get Congress to approve budget cuts that we need to save ourselves from this debt-death spiral, imagine how much worse it's gonna be in the next couple of years if we have to bail out or federalize state and local, uh, debt, and state and local pension obligations. It's gonna be really nasty. So that's the thing I worry about the most-

    5. JC

      Yeah.

    6. DF

      -in my Dr. Doom hat. Yeah.

    7. JC

      Yeah.

    8. DF

      And I think that that's one of the things that no one talks about at the federal level, and everyone ignores it because they assume it's a state and local problem. As we've talked about, and I'll bring it up again, and I'll ask my colleague who works in the administration, to think about this idea that, you know, if we can find a way to declare bankruptcy, to restructure the, the fiscal obligations or the, the pension obligations that sit at the state and local level, we may have a way out. But short of that, uh, that's gonna pile on to this, uh, this federal problem.

    9. JC

      Sacks, your thoughts on the CBO report and this, uh, death spiral, debt-death spiral.

    10. DS

      Well, we all agree about the problem of federal spending, and the deficit, and the debt, and we're all concerned about that. With respect to the CBO study, however, I'll just note that one of the key assumptions here is that CBO projects that real GDP will only grow by 2.2% this year, in 2026. That's a very low assumption, given that we grew by over 4% in Q3 last year, and the preliminary number for Q4 was over 5%. And I think all of our predictions for GDP growth this year, when we did our predictions episode, was 5% plus. So 2.2% is a pretty low number, and then they predict that it's gonna slow to 1.8% after 2026. So again, these are very meager, anemic growth assumptions, and if you believe that all of this CapEx that's being invested in AI infrastructure is gonna have a payoff, then the growth rates could be a lot higher, and that ultimately, I think, is the way to get out of the debt spiral, is we need strong growth. Without that, we're not gonna get out of this problem. So look, I think that if you believe in growth, then the situation is not quite as dire. You know, what would I do? Well, I mean, if I could wave a magic wand, the two key charts you wanna look at are federal net outlays as a percent of GDP. This is from FRED, right? And then you wanna look at federal receipts, which is tax receipts, as a percent of GDP, and you just don't want those lines to be more than, call it, 3% apart. I think that's what Secretary Bessent said is, try to reduce federal deficits to 3% of GDP. Historically, tax receipts have bounced around 17%, and the federal net outlays have bounced around 20%. So if you get back to that, we'd be in pretty good shape, and we were. Before COVID, our federal net outlays, which means spending as a percent of GDP, was around 20%, but then with COVID, it bounced all the way up to 30% in 2020 because of both a function of all the stimulus, but then also the fact that the economy shrank because of COVID, and we've never quite gotten back to that magic 20% number. Right now, it's trending around 23%, so we're doing a lot better than we did under COVID, but it's still just a few percent higher. I mean, if it was up to me, I would just freeze federal spending until the economy grew to the point where federal spending as a percent of GDP is 20%, and then you could let federal spending continue to grow as the economy grows. And we're not even s- talking about cuts here. We're not even talking about shrinking the size of the government. We're just talking about limiting the rate of growth until the overall size of the economy can catch up with it. But look, as we know, it's very hard to get Washington to go along with that because there is just a lot of spending pressure in Washington. One thing I will say, though, I mean, just to give some credit to the administration here, is that the level of federal employment is at the lowest level since 1966. So during, uh, President Trump's second term here, we've gone from roughly three million federal employees to a little bit under 2.7 million. So, you know, over 300,000 federal employees have been cut. I think that is a good start. I mean, you've seen-

    11. JC

      10% is a good start for you.

    12. DF

      By the way, I think that's-

    13. JC

      Of course, yeah.

    14. DF

      I think that's really important to just pause on-

    15. DS

      Mm-hmm

    16. DF

      ... just so people understand, this isn't, like, some hurtful thing about firing people, they lose their jobs. But when people move from the government workforce into the private workforce, they become productive. They're making things that grow the economy, and theoretically, they should also make more money. So this is positive from an economic point of view, to move the workforce from public to private. It also, to my point, historically, I think it's very important to avoid the socialist spiral, that if you have too many people employed by the government, it becomes impossible to not employ people by the government, and that becomes ultimately de facto socialism.

    17. JC

      Chamath, your thoughts here? Obviously, great thing that we're shrinking the size of the government. Those people are becoming more productive going into the private sector. That's a big win. We all agree. 10%, great job in the first year. Hey, maybe 5% the next two or three years would be even better. But the debt continues to be a problem. Uh, are you worried? Do you think there's a solution here? What would you do if you were running the show?

    18. CP

      I think you have to take a broader historical context to this. Does debt to GDP matter? It depends on many things, but mostly, I would say it doesn't matter, and it's very easy for people to get agitated about that. Now, there are things that matter when you print too much money, which is the value of the dollar, the value of exports, the cost of imports.... and how to actually protect your earnings and your wealth? That's a different question. This is a historical look back from about three hundred years of debt to GDP of the largest functioning economies in the world. Now, what do you see? What you see is the trend where you, you know, if you smooth it out for wars, which by the way, has this weird effect of first escalating the debt to GDP, but then severely impacting it in a positive way. The Napoleonic War, the Franco-Prussian War, World War II, these things all had positive effects on bringing debt to GDP once the war was over. But the general trend since 1700 to now is up and to the right, and the key observation is that it moves in unison, that these things are relative problems. So if the entire world moves in unison like this, there is an argument to be made, which is that you could end up at three hundred, two fifty, two hundred percent of debt to GDP, but if everybody is there, nothing really changes that much. The real question is if one country is able to decouple itself and its economic output is so meaningfully different than everybody else's. So my first take on this whole debt to GDP thing is, I think you have to look at it together as a group. Separately, is it important to contain the debt? Absolutely, but for these other reasons: for earnings, for inflation, for all of those very practical reasons that impact your daily lived life. And what do we know there? We know that President Trump was elected on a massive mandate to secure the border on one hand, but to look at waste, fraud, and abuse on the other. And on that side, what did he do? He drafted the most important and prolific private businessman in the history of the world to be his tip of the spear. And what happened? They identified hundreds of billions of dollars, but when it came down to it and Congress had to act to solidify these cuts, they haven't done much of anything. Which is a way of saying that if the most conservative Congress in the history of the United States has not done much to solidify these cuts that were identified by the White House and DOGE, then, as Friedberg said, it'll only get worse if there's ever a Democratic House and Democratic control. So what do we have to do? I think we have to just acknowledge that if debt to GDP continually moves in unison, the music isn't up for a very long time. That's just an observation. I'm not saying it's right or wrong, it's just the observation. But you got to find ways of hedging and owning real, durable assets, because the underlying currency that is used in these economies, even on a relative basis, will fluctuate wildly and just fall off of a cliff, which will mean that it will erode the value that you have created for yourself and your family. That, I think, is the most important takeaway from all of this, which is we probably see things like gold do much, much better over time because people will be afraid about the durability of their dollar-denominated resources. But it will also be true for all these other denominated resources. But I think debt to GDP, quite honestly, if I had to be a betting man, will trend into the two, three, four, five, six hundred on a relative basis for all countries, because I just think the governments of these countries are addicted to spending, and there is no reason to stop, safe of some other planetary species invading planet Earth.

    19. JC

      [chuckles] Yeah, uh, a black swan event, yes.

    20. CP

      Yeah.

    21. DF

      There's also a question of what Fed action will do to the capacity for excess deficit spending. So if Kevin Warsh really does want to tighten the Fed's balance sheet, and the Fed is effectively the first in line buyer of treasuries, meaning they are printing money to fund the government spending, and they slow down or actively slow down and stop doing that, then there is a real, um, kind of question on what action will Congress and the administration need to take, because wh- what will happen, as you know, if the Fed stops buying treasuries, treasury yields will go up, and if treasury yields go up, that means the interest on the existing debt will start to go up. And if that lasts for a period of time, and you start going from three and a half to four to four and a half to five percent on the short end of the, the yield curve, then it starts to become way too expensive to fund this level of deficit spending because the interest expense will just start to climb and eat it all up. So I think, like, the Kevin Warsh question is, if he really is going to reduce the balance sheet, what's that going to do to rates? What's that going to ultimately force Congress, force the administration to do with spending?

    22. CP

      Jason, what do you think?

    23. JC

      Uh, you know, we are in a consumer-driven, uh, economy, and the employment rate in this country is absolutely fantastic. So just three quick charts here. You know, this is the number of job openings we still have, even after we burned

  6. 48:06 – 1:03:22

    State of the economy and US jobs

    1. JC

      off, uh, in twenty twenty-two, from twelve million to seven million jobs. We still have a ton of jobs available. Then, if you look at our unemployment rate, it's still at historical lows for our lifetime. If you were born in nineteen seventy, this is as good as it gets. Four point four, five, six is what it's been. It's ticking up modestly, but still lowest of our lifetimes. And then finally, the employment participation rate, number of people in our society who are working and able to work, it peaked at sixty-eight percent or so during the Clinton years, and this is still low, sixty-two percent. We still have people who could be participating. So all of these problems will be solved if more people were to participate and take those jobs. Why don't they take those jobs? Sometimes it's a geographic mismatch, sometimes it is a skills mismatch, uh, but very often it is-... the jobs are not paying enough. So if you want to give, uh, Trump his flowers, by closing the border, you've reduced the number of people taking the jobs, uh, off the books, and then you have, uh, Amer- the businesses are gonna have to raise their minimum wage. They're gonna have to raise their offering wage, which then might get this seven percent or so that are sitting on the sidelines to take their jobs. Crazy prediction: I wouldn't be surprised if we see Trump, who is obviously a populist, and I tweeted about this the other day, got almost a half million views or four hundred thousand views. What if, um, Trump decides he's gonna raise the minimum wage? Not saying I endorse this or not, but it's incredibly low at seven bucks [chuckles] an hour. Obviously, in different cities and states, it's fifteen to twenty. But what if Trump said, "We're gonna add a dollar to it or two dollars to it over each year of the next three?" This would be incredibly popular, and it would get some of those people off the sidelines and maybe take these jobs. So just a crazy prediction there, but I think it's a possibility, and I think they're gonna lose the midterms. As it stands right now, it looks like... I think that's the consensus opinion. And they haven't been able to do something with this affordability. Well, I think most Americans would say if you raise the minimum wage, uh, that that would increase affordability. You could make the counterargument it's gonna just be inflationary, but I think most Americans are gonna believe in that. So I wouldn't be surprised if you saw Trump take action there because he does take populist actions like this from time to time.

    2. DS

      You actually read the economic literature on what raising the minimum wage does?

    3. JC

      Yes, it can increase inflation, and it could lower the-

    4. DS

      Well, no, but it-

    5. JC

      It can raise inflation, and it can lower the profitability of businesses, yeah.

    6. DS

      No.

    7. JC

      And move stuff offshore. Yeah.

    8. DS

      No-

    9. JC

      I get it

    10. DS

      ... what it does is it makes it illegal to hire someone whose labor is worth less than the minimum wage, and so it is shown to create higher unemployment in those segments of the economy. It's, like, one of those core findings of economists. So, yeah, it's true that some people will be a beneficiary of getting a higher minimum wage, but then there'll be other people who just lose their jobs. And it creates an incentive for those employers to shift more labor towards automation. So if you're already worried about those people losing their jobs to automation, that's a downside. So anyway, if the minimum wage were a panacea, and it just increased everyone's living standards without having downsides, why wouldn't you make the minimum wage a hundred dollars an hour?

    11. JC

      Well-

    12. DS

      You know, why would... You know, everyone would just keep raising it infinitely. Obviously, it doesn't work because if you raise the minimum wage too much, which is to say more than the value of someone's labor, then they just get unemployed.

    13. JC

      Looking at what happened in the different cities or in Australia or other countries, they have a much higher minimum wage, and they have much more happiness. Businesses and prices go up about twenty percent, ten to twenty percent, so in Australia, if you go to a restaurant or if you go to a Scandinavian country, things might cost ten percent, twenty percent more, but you have a happier population. Uh, and, yes, it could lead to more a- you know, automation. We got rid of cashiers because it became too expensive in New York to pay fifteen to twenty bucks for a cashier. Sure, but we have really low minimum w- we have very low unemployment now, and the businesses can clearly afford to pay an extra buck an hour or two bucks an hour. So there's the theoretical, academic argument, which you are correct on, and I understand it fully well, and then there's the reality on the field, which is Seattle, San Francisco, New York, Los Angeles, Australia, other places have a much higher minimum wage. They have higher happiness in the population. I don't actually think it will have any impact because I think it's artificially low, but that's just one man's opinion. I think it would change the game here in America. Uh, and I think it would actually do something to your, uh, concern, Friedberg, about socialism. I think that if people felt that there was a, you know, kind of a backstop against this low, low cost of labor, it might actually make people pretty stoked, you know, that they could get a higher-paying hourly job, and it might take some of that edge off, in the same way universal healthcare might do that. But again, just one man's opinion.

    14. DS

      I gotta say, on all this economic data, I, I think we're kind of missing the lead here, which is we are at the beginning of a economic boom. Again, we saw it in the GDP growth rates in Q3 and Q4 last year, over four percent Q3, over five percent Q4. We just had a January job report where the economy added one hundred and seventy-two thousand new private-sector jobs. This blew away the expectation, which was around seventy thousand. At the same time, the government shed forty-two thousand jobs. The net of this was to bring the unemployment rate down to four point three percent. So I remember a few months ago, JCal, you were wringing your hands about the fact that the unemployment rate had ticked up. Well, now it's back down, and you're seeing a lot of jobs being created in construction, especially non-residential construction. Has to do with the data centers, the AI boom that's going on. Thirty-three thousand new construction jobs in January. We've seen in President Trump's second term, you've had six hundred and fifteen thousand new private-sector jobs have been created, while, again, like we talked about, over three hundred thousand government jobs have been cut, which increases the productivity of the economy, and it does what Secretary Bessent says, which is reprivatize the economy. So I just think that the overall economic news is really good. Again, we have this AI boom going on. There's a new chart showing that the CapEx for this year that's expected, just from the four leading hyperscalers, is six hundred billion dollars, just from four companies. That's r- a roughly two percent tailwind to GDP growth right there. That is just the CapEx. That doesn't include all the ROI that you might get from that infrastructure on the software side, on the application side, the productivity side. So we have a boom going on, and I feel like everyone's kind of blackpilling about this.... uh, you know, they're focusing on this-

    15. CP

      I agree

    16. DS

      - CBO report that-

    17. CP

      I agree

    18. DS

      - has unrea- realistically low growth rates.

    19. CP

      We're gonna print 6%.

    20. DS

      Right.

    21. CP

      We're gonna print 6%.

    22. DS

      Or they're doom scrolling about Epstein or what, what have you. And I just think when we look back on this period, it could end up being a little bit like the late '90s. Remember when we had... You know, we look back on the late '90s, we're like, "Wow, we had, like, phenomenal economic growth-"

    23. JC

      Golden age!

    24. CP

      Yeah.

    25. DS

      Golden age, economic boom.

    26. JC

      Labor participation peak.

    27. DS

      The, the, the internet-

    28. CP

      Got zero debt, too.

    29. DS

      Right.

    30. CP

      Zero debt.

  7. 1:03:22 – 1:13:09

    Ferrari's fully electric car goes viral

    1. JC

      Here's an illustration of the vehicle from Car and Driver. This is not the accurate one, because it's gonna be revealed in May, but this is what they think it's gonna look like. 1,000-plus horsepower, four electric motors, 0 to 60 in under 2.5 seconds, uh, 330-mile range. It's the heaviest Ferrari ever, 5,100 pounds, compared to the iconic F40, which was but 3,000 pounds. It's gonna launch in May of 2026. But we got to see the interior, and this is what everybody's buzzing about. It's gone viral on the Interwebs. Former Apple design chief Jony Ive, uh, on his team with his partner Mark Newson, who also designed the iconic Ford O21C concept car-

    2. DS

      [chuckles]

    3. JC

      ... were involved in this.

    4. DS

      Wait, what is that?

    5. JC

      Uh, it's... This is, like, if you're a car nerd, this was, like, this incredibly innovative moment in design that never happened, that Ford did. It, it looks very similar [chuckles] to an Apple product. Here's the key for the new Ferrari.

    6. DS

      It looks like an animated character in Cars-

    7. JC

      It does

    8. DS

      ... or something like that, you know?

    9. JC

      You, you have this beautiful square glass key, like an iPhone. You put it in, and the yellow, Ferrari yellow drains out and goes into the shifter. That was one nuance that people thought was very beautiful. The screen looks very Mac-inspired, except unlike Tesla, which is, uh, no buttons and removing buttons, they're adding buttons here and making the buttons very tactile. All the sports car enthusiasts love tactile, memory-based buttons that you can just have fun with and flip and feel like you're a fighter pilot. Finally, the, uh, turning the car on [chuckles] is like starting up a jet. You have a launch button. You twist and press, and it makes the whole car turn Ferrari orange or red, and, uh, yeah, that's the inside. Sacks, you buying one?

    10. DS

      Well-

    11. JC

      Chamath, you like it? What do you think?

    12. DS

      I saw, I saw everyone just, you know, [beep] all over this design, and I thought it was a little bit unfair in the sense that I actually l- overall liked the interior. I thought it found a compromise between, you know, let's call it the all-glass cockpit of a Tesla versus a totally analog old Ferrari interior. Like you said, it ha- it had a combination of screens, but then also buttons, and they made a point of showing that the buttons were not only nicely tactile, but they also made pleasing sounds and that kind of stuff. It seemed very heavy duty. So I thought the interior actually was pretty good. Again, nice balance between kind of the interior of a race car, the simplicity of that iPad screen, but also-

    13. JC

      Yeah

    14. DS

      ... having enough sort of buttons that you develop muscle memory around where all the controls are.

    15. JC

      Totally.

    16. DS

      You don't have to go hunting for them through a menu. I thought the miss here wasn't on the inside. I thought it was on the outside. I hate the look of the outside of this car.

    17. JC

      Yeah.

    18. DS

      It looks to me like-

    19. JC

      That, by the way, just to be clear, that look-

    20. DS

      Yeah

    21. JC

      ... is what people are projecting. It's not the final version.

    22. DS

      Okay, I think this is terrible.

    23. JC

      It's a mock-up.

    24. DS

      This to me looks like a Corvette maybe, or even like a Trans Am. I mean, I don't like-

    25. JC

      It looks like a Model 3... Yeah, the illustration.

    26. DS

      I don't, I don't like the-

    27. JC

      Yeah

    28. DS

      ... what's that, like, the black part of the front, uh, or and even the-

    29. JC

      The grill?

    30. DS

      The grill. It looks terrible, and the things-

Episode duration: 1:13:09

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