All-In PodcastE172: SBF gets 25 years, Trump's meme stock, RFK Jr picks VP, Biden's 2025 budget & more
EVERY SPOKEN WORD
150 min read · 30,076 words- 0:00 – 2:33
Bestie Intros: Late night poker snacks!
- JCJason Calacanis
Nat and I have goals when I play poker. She always leaves me with the following. Play well, check. Have fun, check. Do not eat late at night, never a check.
- DSDavid Sacks
(laughs)
- JCJason Calacanis
No. Never a check.
- DSDavid Sacks
Not a chance. Not a chance.
- CPChamath Palihapitiya
As soon as we finish dinner, within 20 minutes, back at the poker table, Chamath's like, "May I have my Häagen-Dazs now?"
- JCJason Calacanis
(laughs)
- DSDavid Sacks
(laughs)
- CPChamath Palihapitiya
"May I have my second Häagen-Dazs now? Uh, Hellmuth, you are buying the belt tonight."
- JCJason Calacanis
Hellmuth is literally on the belt.
- DSDavid Sacks
Hellmuth-
- CPChamath Palihapitiya
"Hellmuth, fire up- fire up the cheeseburger belt, Hellmuth."
- JCJason Calacanis
(laughs) Did you see... Freeberg, you should've seen last week. Hellmuth, at the dinner table, Sean made some, like, incredible, I thought, like, fresh sorbet of some fruit or whatever. He, at the dinner table, ordered from DoorDash, double stuff Oreos-
- DSDavid Sacks
(laughs)
- JCJason Calacanis
... some Nutter Butters (laughs) , and some jelly beans.
- DSDavid Sacks
Nutter Butters?
- JCJason Calacanis
They arrived when we left dinner and got back to the poker room.
- DSDavid Sacks
(laughs)
- JCJason Calacanis
It was so disgusting. And then the next day, my whole household, everybody, Nat, the kids are like, "What are these things?" They were, like, holding up these Nutter Butters.
- DSDavid Sacks
(laughs)
- JCJason Calacanis
They were looking at them like they've never seen a Nutter Butter.
- DSDavid Sacks
The best part about-
- JCJason Calacanis
(laughs)
- DSDavid Sacks
... Phil Hellmuth's DoorDash addiction is that, like, at least once a month, Chamath would be like, "Somebody ordered, like, four entrees, like pastas and two desserts to my house, and I didn't order it." And then Phil's like, "Oh, that's me," on the group chat. "That's me."
- JCJason Calacanis
(laughs) Yeah.
- DSDavid Sacks
'Cause he doesn't take the time to change his address-
- CPChamath Palihapitiya
Change the address.
- DSDavid Sacks
... back to his house.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
And then you see the naked truth of what he's ordering.
- JCJason Calacanis
(laughs)
- 2:33 – 16:41
SBF sentenced to 25 years
- DSDavid Sacks
(laughs) SBF, Sam Bankman-Fried of FTX, was found guilty, as you know, a couple of months ago, in November. And he just got sentenced to 25 years. In total, FTX customers lost eight billion, investors lost 1.7 billion, and lenders lost 1.3 billion.
- JCJason Calacanis
Jason, is that without par- parole?
- DSDavid Sacks
Um-
- JCJason Calacanis
When is he eligible for parole?
- DSDavid Sacks
So...
- JCJason Calacanis
Was that... Does it say?
- DSDavid Sacks
That is a good question. It doesn't say what the parole could be. The prosecutors had sought-
- CPChamath Palihapitiya
There's no possibility of parole in federal cri- uh, criminal cases.
- DSDavid Sacks
Yeah. So, federal prosecutors sought 40 to 50 years. So the judge went a little bit light, I guess, and gave half. In his sentencing, Judge Lewis Kaplan said SBF had lied throughout the trial and showed no remorse. Quote, "He knew it was wrong, he knew it was criminal. He regrets that he made a very bad bet about the likelihood of getting caught, but he is not going to admit a thing, as is his right." In related news, FTX is also selling the majority of its stake in Anthropic for 884 million to Mubadala, the sovereign... one of the sovereign wealth funds from the UAE, and other investors, including Jane Street, where SBF worked for a hot minute, the Ford Foundation, Fidelity, and some other investors. From CNBC, lawyers representing the bankruptcy estate told the judge in Delaware last month that they expect to fully repay customers and creditors with legi- legitimate claims in the FTX case. That doesn't take into account equity holders. So, looks like that one investment could save a lot of people their deposits.
- CPChamath Palihapitiya
I saw an analysis recently that showed that they were gonna be in, in a surplus, so investors were gonna get money back, and all the depositors were gonna get their full 100% back.
- DSDavid Sacks
Yeah, I don't know how much Bitcoin or other coins they owned, but if they didn't see that Bitcoin-
- CPChamath Palihapitiya
A bunch of these coins are now-
- DSDavid Sacks
... at 30 or 40, and it's at 60 or 70 now, yeah, that would be material, right?
- DFDavid Friedberg
The crazy thing is that SBF was not, it turns out, a terrible investor. He made a seed investment in Anthropic that's worth billions now. He made a seed investment in Solana that I think is worth billions now, especially now that Solana's recovered. I think that Solana was tarred with the brush of being a SAM coin because SBF invested in it, but as it turns out, as far as we know, it's a completely legitimate developer project. Sam was an investor, but not a participant. And you look at the price of it, it's now rallied to something like an $80 billion market cap.
- CPChamath Palihapitiya
Yeah.
- DFDavid Friedberg
The point being that a lot of the investments he made ended up being pretty good investments. And FTX itself, the trading platform, as far as we know, was a functional, workable business. I mean, it was a offshore crypto marketplace, so I don't wanna u- necessarily use the word "legitimate," but I think that it was, I think, as good as any of these trading platforms. So the, the crazy part of this is, I'd say, unlike the Madoff case, where from the beginning with Madoff, it was entirely a Ponzi scheme. There was nothing of value there. In this case, you had a, call it legitimate or semi-legitimate crypto platform combined with some legitimate angel investments. And so, what I think went wrong here was Alameda, that Sam decided to siphon off customer deposits to gamble with his hedge fund, which was completely optional. He didn't need to do that. I mean, he already had a winning business and winning bets in his portfolio. So, this whole Alameda thing, he didn't need to get into. And then, of course, siphoning off customer deposits to spray around for political donations to feel like you're a big shot-... was also really stupid. So, th- this is the crazy thing I think about SBF, is, it, it was sort of like this, this manic... Uh, there was like a, a manic element to it. There was a messianic element to it. He wanted to take shortcuts. He wanted to believe he was gonna save the world, and then did all these criminal things in pursuit of that, that he didn't really need to in order to be successful. And that's why I think it's such a curious case, is it's not... It wasn't full Madoff in a way, because there were some legitimate elements to, to his portfolio.
- DSDavid Sacks
You're right about the messianic thing. These guys were all drunk on this effective altruism concept that, I think, whatever crimes they committed by stealing the deposits and then going and investing them, they saw themselves as Robin Hood. "We're gonna take these deposits, we're gonna make a ton of money, and then we're gonna give it all away." Of course, they didn't have a (laughs) CFO. Nobody did diligence on these investments. There were no controls in place. And he was literally stealing his customers' money to gamble, as you're saying.
- DFDavid Friedberg
Right. A- and I think, I think, actually, one, one quote that I saw reported, uh, from the judge was that if you steal customers' money, go to Vegas, gamble it-
- DSDavid Sacks
Yes.
- DFDavid Friedberg
... you're still guilty even if you can pay them back with the winnings.
- DSDavid Sacks
Yeah.
- DFDavid Friedberg
But that suggests to me that actually the, the FTX trustee is on a path to repaying the 11 billion of customer deposits that were absconded with.
- CPChamath Palihapitiya
I just found it. And-
- DFDavid Friedberg
And I don't know if that's true or not, but-
- CPChamath Palihapitiya
It is true. In early February, the trustee said they now expect 100% payment back to the depositors in all the accounts, and all the excess will go to the shareholders in FTX, all the preferred holders that invested in the stock. I don't know, um, what the total pref stack was in FTX, but it sounds like there's gonna be recovery there as well after all of the customer deposits are made whole.
- JCJason Calacanis
Wow.
- DFDavid Friedberg
So, this is my point, is he didn't need to do this. I mean, it was so insane. I mean, FTX, like I said, was a workable business. He made workable seed bets, but then he went crazy with Alameda and the-
- CPChamath Palihapitiya
Yeah.
- DFDavid Friedberg
... the Robin Hood stuff.
- JCJason Calacanis
Yeah.
- 16:41 – 34:59
Trump's meme stock: modern trading card, protest vote, or something else?
- DSDavid Sacks
All right, Trump just made $5 billion on paper with his meme SPAC. Trump Social Network has finally de-SPACed. It's now publicly traded. You can go buy Donald Trump's SPAC at DJT, is the ticker symbol. They are on pace for a whopping $4.5 million in revenue on a $60 million loss. They're growing, like, 3X year over year. And the company is not disclosing any user metrics. This quote from one of their recent filings is next. "At this juncture in its development, TMTG," the Trump Media and Technology Group, "believes that adhering to traditional KPIs such as sign-ups, average revenue per user, ad impressions, and pricing or active user accounts, including monthly and daily active users, could potentially divert its focus from strategic evaluation with respect to the progress and growth of its business." So they are not tracking people...
Isn't that the business?
(laughs) I (laughs) , it's so laughable, like, I can barely get through it.
That's crazy. They said that?
Literally they said it. It's a quote-
That's crazy.
... from their SEC filing.
Wow.
According to SimilarWeb estimates, Truth Social had about five mu- five million visits last month. As of Thursday morning, it's worth about 8.5 billion (laughs) , same as Reddit, or close to 2,000 times top line revenue. Company had about $300 million in cash after the merger. By comparison, Reddit, uh, has 800 million in revenue. Their market cap's 8.4 billion, or about 10 times revenue. So, uh, it should be about five, six, seven times revenue would be more realistic according to basic media comps.Reddit had two billion visits last month with 73 million daily active users. That's pretty significant. Uh, the SPAC took a long time to close. There was an SEC investigation into three men allegedly making 23 million buying then dumping shares of DWAC after the merger was announced. They all face at least five fraud and conspiracy charges. Of course, this is what happened before it was de-SPACed. And so, what do you think, Chamath? Thoughts on this-
- DFDavid Friedberg
So just to be clear-
- DSDavid Sacks
... meme SPAC or stock?
- DFDavid Friedberg
... I, I, I just think we should be really clear because you're just floating this insider trading thing out there as part of the introduction, which is a huge allegation, and we have to be really clear, that is related to a few investors and not to the company itself. And their s-... the company's SPAC was approved by the SEC. So I just think we have to be clear, clear about that.
- DSDavid Sacks
Here's the SEC char... Yeah, just to be super clear, "SEC charges former DWAC board member and others for insider trading." DWAC.
- DFDavid Friedberg
I just don't think this is the story. This is just not-
- DSDavid Sacks
Well, no, this is the reason-
- DFDavid Friedberg
... the story.
- DSDavid Sacks
... it was delayed, so just to be clear. It was de-... the whole, this whole thing's been delayed for a couple years because of this.
- DFDavid Friedberg
Okay.
- DSDavid Sacks
Yeah.
- DFDavid Friedberg
Okay, fine. So it was delayed. The SEC approved it. The company is now trading.
- DSDavid Sacks
Public. Yeah.
- DFDavid Friedberg
Public.
- DSDavid Sacks
What do you think of the valuation?
- DFDavid Friedberg
And that's the real topic, isn't it?
- JCJason Calacanis
Here's what I'll say. I think that this is a really important watershed moment, and it reminds me of 1997. Nick, throw this little image up. In 1997, David Bowie issued what was then famously called the Bowie Bond. It was $55 million that yielded 7.5%, which is about 80 bps above the 10-year at the time. These were 10-year bonds.
- CPChamath Palihapitiya
That's awesome. I didn't know that.
- JCJason Calacanis
The bond payments were linked to 20 albums that Bowie had released before 1990. And so these are, like, 280 songs, and what he basically said was like, "Listen, folks, you're essentially buying a piece of me, and in this case, my past work, and I'm gonna take this $55 million upfront, and you're gonna get paid this interest based on the royalties that I generate off that historic library for a 10-year period. We think you're gonna get paid the 55 million plus the 7.5% a year, and then I'm gonna take back the rights. And if I default, if these bonds default, you will own the songs." And it turned out that it was an incredible bet. The people that bought it, I think it was Prudential, which was an insurant... I thi- I think it's an insurance company, they got paid. The bonds did not default. In 2007, Bowie took back the ownership of that catalog, of that back catalog, but instead what he had was 55 million upfront, which allowed him to go and buy all kinds of other parts of his catalog that he didn't otherwise own. So why is this interesting? This was the first example, I think, of people monetizing themselves, their name, and their likeness. In this case, it was done via debt. I actually think when you look today, what's happening is a, a more sophisticated version of that movement but at much larger scale. I mean, we were all joking that there was a bunch of meme coins that launched, not with any of our support, by the way, but, you know, with our names, with all these other quasi-famous people's names. Those things went up and were worth millions of dollars of value. And I think what this Donald J. Trump, the DJT Company, what it represents is effectively a trading coin, a baseball card, if you will, a trading card via a stock on the value of Donald Trump's enterprise value, his name, his recognition, and his likeness. So this, I think, is the modern instantiation of the Bowie Bond. And what's incredible is you can see Bowie, 30 or 40 years ago, he could have generated $55 million in inflation-adjusted dollars. That's about 100 million in today's dollars. Trump, three and a half, four billion. I think it sits on top of this idea that these very famous people, the Kim Kardashians of the world, the Donald Trumps of the world, the MrBeasts of the world can eventually take companies public, and when you take a company public, you have to remember, Jason, there's the revenue and the profits, right? But if you look at the balance sheet of a company, there is always a line item called goodwill. And goodwill is what people use to separate the assets and the liabilities and whatever's left over to generate the shareholder equity. So in this case, Donald Trump, the DJT Company's balance sheet will show a ginormous entry in goodwill, and that is the value of his name. Coca-Cola has such a goodwill line item. PepsiCo does, Gatorade does, Nike does, and this company does. And I think there's gonna be a lot of other companies that will go public that effectively generate a huge goodwill line item that represents the name brand value of the person associated with it.
- DSDavid Sacks
So you're a buyer?
- JCJason Calacanis
I'm not saying that. I'm just saying that there is a lot of people that will be buyers, that essentially will buy this as a Donald Trump, a directional bet on the value of his brand.
- DSDavid Sacks
Hmm.
- 34:59 – 47:46
RFK Jr. selects Nicole Shanahan as VP
- DSDavid Sacks
Speaking of intelligent people, RFK Jr. just picked up his running mate. This is a little bit crazy and I'm really interested in hearing your thoughts on it. He chose a 38-year-old Bay Area lawyer, Nicole Shanahan, as his VP. RFK explained why he chose her, "She knows big tech very well, how they use AI to exploit the public, how they censor and surveil Americans to push certain agendas. She understands the health consequences of toxins in our air, soil, and food." And he wanted a younger person to represent Millennials and Gen Z. He says younger generations feel like nobody represents them in Washington. He also wanted an athlete in good shape to inspire Americans to live healthier lives, and Shanahan donated four million in support of RFK Jr.'s Super Bowl ad that ran earlier this year. Sax, what do you think of this pick?
- DFDavid Friedberg
Well, um, the, this pick does not excite me, I'll, I'll be frank. Uh, but, uh, since I'm gonna say something critical, I want to, let me start by saying something positive 'cause I, I really, you know, I love Bobby Kennedy. I mean, I think that he represents a number of really great issues that I agree with. I mean, first of all, he's been the most articulate critic of the Ukraine war, understands it deeply, and has explained it extremely well. He stood up for sealing the border. He went down there, showed that it's outta control, completely agree. He was a vocal critic of Fauci and lockdowns, was completely right about COVID. He sup- he supports civil liberties and free speech. So-... you know, I wanna say like Bobby Kennedy is great. The issue I have with this pick is that she doesn't represent any of those issues. She has a completely different issue matrix, and, uh, I, I watched her speech. And just to say something positive about her, I mean, I like her enthusiasm, I think she's 38 and it's nice to have someone running for political office who's not in their (laughs) 70s or 80s, and I think she's genuine. I actually think she's saying what she really believes, and that's really nice and refreshing. But again, if you go back to the issues themselves, she brought up three issues. Number one is she says she wants to make Americans healthy again, it's the focus on chronic disease. I'm not saying she's wrong about that, that's just not my issue. Number two, she brought up criminal justice reform. This one concerns me. Apparently, she donated to Gascón, who's a Soros DA who helped destroy San Francisco and then failed upward to LA. So apparently, she's a Gascón supporter. That does not fill me with confidence. That is a, quite frankly, luxury liberal belief in this, uh, decarceration idea, so I'm not excited about that. Her third issue was climate and environment-related but, but in a very specific way. She went after big agriculture. She said, "We can no longer support extractive corporate agriculture." I'm gonna let Friedberg speak to that one. Uh, I can't really say whether she's right or wrong, but that's just not one of my issues. So listen, at the end of the day, I feel like this pick accentuates and underlines the issues in Bobby's platform that appeal to the, to, to the left, frankly, to, to liberals. And I... Look, I think Bobby's candidacy is a complex candidacy that brings together people from both left and right, but again, this pick does not speak to me. It speaks to the more liberal parts of his coalition.
- DSDavid Sacks
Does it increase his chances? And who would've been the person who would've increased his chances most? Tulsi Gabbard.
- DFDavid Friedberg
Well, the person who would've been amazing would've been Tulsi Gabbard, okay?
- DSDavid Sacks
Mm-hmm.
- DFDavid Friedberg
If he had chosen Tulsi-
- DSDavid Sacks
Slam dunk.
- DFDavid Friedberg
... that would've blown the doors off.
- JCJason Calacanis
Slam dunk.
- DSDavid Sacks
Yeah, I mean, and Tulsi's been saying, Chamath, publicly that she would be proud to serve with Trump, and it's seeming likely that she's got a, a shot at that, yeah? Being the VP for Trump?
- JCJason Calacanis
I'm not gonna comment on that.
- DSDavid Sacks
Okay.
- JCJason Calacanis
Let me just say something else. I think Tulsi Gabbard is really impressive, I think she's independent, and I think she really stands firmly on her own two feet in a way that I find inspiring. I, like Sacks, have many, many positive thoughts about Bobby Kennedy. I think he is... He was really a breath of fresh air, Jason, this, in this election cycle because he was able to say the unsayable things and made those things more easy to be said by others, and I think that there's a really important role in that, and I think he deserves a lot of credit for that. And then the fact that he said things that were so unconventional and not mainstream that are now mainstream views, I think says a lot to the fact that he was pretty grounded in first principles thinking on those topics, and I think that having those kinds of people in office are really good for America. All of that said, I do agree with David that I think the pick was meant to be more about covering his left flank, and I found that an odd calculation, and I wonder whether it wouldn't have been easier to cover the right flank. And there are different folks that are, that could've been in the mix to do that. And so, I think that it was a calculation though, and I think it's about he has a core set of issues, it's about whether he appeals more to this side or to this side in order to get the totality of the votes that he thinks is possible. Second, he was under a little bit of a time constraint because some of these states need the VP candidate named, and he's under a shot clock that the other two are not. So I mean, I, I wish Bobby the best because I think some combination of Bobby doing well and some uh, upheaval between the Democrats and the Republicans is really the only chance we have of having a credible third party. Let's see now what happens... By the way, w- we should just say, like, you know, Joe Lieberman passed away, which is really unfortunate. You know, he was a really independent thinker as well. W- let's see what No Labels really does here. There's a little bit of chaos over at No Labels, I think, but... So there's a lot of moving parts. So, it was clearly calculus. I don't totally understand what that formula was though.
- DFDavid Friedberg
Just to build on something Chamath said, there's a report by Colin Rugg that the DNC realizes what Chamath said about this covering Bobby's left flank rather than his right flank, and apparently they're in somewhat of a panic about this. And y- I think what you're gonna see is that lawyers from the DNC and the Biden campaign are gonna fight tooth and nail to keep this ticket off the ballot, at least in the major contestant states, like the five or six states where the presidency will be decided in 2024. And of course, they'll be saying they're doing this to save democracy, but you're gonna see, I think, a full-court press by DNC lawyers to keep the Kennedy-Shanahan ticket off the ballot.
- DSDavid Sacks
Yeah, this seems really like it's gonna damage Biden, which was my original prediction, and that a l- reason why a lot of the right wing were supporting RFK was because they wanted... They saw this as a clear path to take away a couple points from Biden, and it seems like that's what's happening.
- JCJason Calacanis
I think the first part of what you're saying-
- DSDavid Sacks
Yeah.
- JCJason Calacanis
First part of what you said is 100% right. I'm not sure that a bunch of Republicans are gonna get organized, JCal, to vote for RFK in that way.
- DSDavid Sacks
Oh, no. I don't think they're gonna do that. I think they supported him publicly in order to build him up as a centrist candidate, knowing that it would take away from Biden. So I just think on a strategic political basis, all these Republicans ruled-
- DFDavid Friedberg
They, they didn't do that for, for Marianne Williamson. Why not?
- DSDavid Sacks
Yeah, no. She's not electable.
- DFDavid Friedberg
'Cause she didn't speak to them.
- DSDavid Sacks
Yeah, no. No, it's 'cause she's not electable. I mean, she's like-
- JCJason Calacanis
By the way, Marianne Williamson-
- DSDavid Sacks
... a bunch of crystals-
- DFDavid Friedberg
Well, right. So you're s-
- DSDavid Sacks
... and not like a viable candidate. It's, it's pretty clear she's not viable.
- DFDavid Friedberg
But why, why, why can't you just accept that people on the right like the issues that Bobby spoke to? Isn't that the simple explanation for-
- DSDavid Sacks
Yeah. No, I don't... 'Cause I think that they're partisans, and they just wanna win. So I don't think it has anything to do with what you're saying. We should be like authentically liking and connecting with what he's saying. I don't think it was that. I think it's a strategic plant to try to pull Biden votes, and I think Republicans are smart for doing that.
- DFDavid Friedberg
You think Bobby's a plant? You think he's a plant?
- 47:46 – 1:11:59
Biden's budget plan for 2025: how to confront America's existential crisis?
- CPChamath Palihapitiya
- DSDavid Sacks
All right. So let's break down Biden's proposed budget of 2025. Proposed budget was 7.3 trillion for fiscal 2025. That starts in October of 2024. It's up 18% from 2023. Projected deficit, 1.78 trillion, which is similar to the deficits we ran in '23 and '24. The budget projects an average deficit of 1.6 trillion per year over the next decade. National debt, as, uh, Freeburg was alluding to, is insane. It's at 34.5 trillion. But we made some charts here to go through all of this. Let's pull up the first chart, and this is comparing Biden's proposed budget in 2025 with budgets from 2005 and 2015. Defense spending has actually grown pretty modestly during that time, but entitlements, interest payments, and nondefense spending have jumped significantly. US will owe 965 billion in interest on its debt next year. Now, that's 65 billion more than the pro's defense budget. And in 2026, the US will surpass 1 trillion on interest.... owed on its debt, and we'll talk about that more in a minute. But let's start here with this first chart. Anything jump out to you, Chamath, here, that's notable and worth discussing?
- JCJason Calacanis
All the areas that we need to cut, we can't even have a conversation about, so they'll never get cut and they'll keep growing. So I think that we probably need to figure out what the alternatives are. So if you can't have a conversation about (laughs) expenses, the only logical place is to have a conversation about revenues.
- DSDavid Sacks
Mm-hmm.
- JCJason Calacanis
And what that means for the government is in taxation. And so, I don't know, Jason, what we do here. There could be a couple of saving graces. So there are some things happening, for example, on the Medicare side, that could be profoundly disruptive. They are ... Now, I'm not ... Uh, again, I'm just gonna put this out there as it's happening. I don't know if it's good or bad. But they are looking at reimbursing things like Wegovy and Ozempic and whatnot. If you look at the underlying costs of those kinds of chronic diseases, diabetes, heart disease, et cetera, and you put a large swath of the American population on those drugs, the reimbursement value of those drugs versus the cost of actually the chronic care management would save you many hundreds of billions of dollars a year. So that's something. Second is, on the defense side, there's a large portion of that budget that's migrating away from traditional tactical warfare to things that are unmanned vehicles and cyber and whatnot. That could save 2 or $300 billion there. So there are places where you could save $500 billion to a trillion dollars, but I think it's gonna be a almost impossible conversation and it'll happen by accident. So then the only forced conversation that I think we are going to have as a society is around taxation. And that's really bad for, you know, a lot of people that don't believe that's the path to generating growth.
- CPChamath Palihapitiya
One of the challenges is that there are ... And, and we should reference these in the show notes, Nick, but there are well-researched economic studies that show that when a government tries to increase the taxation level north of 20% of GDP of that economy, that you actually see GDP growth go negative. That even- th- there's a certain natural equilibrium on which you can tax the system. Beyond that level, investment dollars go down and growth begins to shrink. And that's what triggers the spiraling problem, because then the government spending needs to go up to continue to grow and support growth in the economy, and it creates this inevitable-
- DFDavid Friedberg
Totally.
- CPChamath Palihapitiya
... spiraling.
- DSDavid Sacks
Would you call this the Atlas Shrug, the Atlas Shrug effect as investment goes down?
- DFDavid Friedberg
There's a Fred chart-
- DSDavid Sacks
Yeah.
- DFDavid Friedberg
... showing percent of GDP that's federal tax receipts and then percent of GDP that's spending.
- CPChamath Palihapitiya
Exactly.
- DFDavid Friedberg
And th- and, and then the gap is your deficit, okay? And Freeberg's right that I think in the absolute best economy, or best years of the best economy, so it's like, you know, the best year of the Reagan boom and the best year of the Clinton boom when we had the government surplus, I think the government was extracting just shy of 20% of GDP. And in the '70s, when marginal tax rates were at 70%, so before the Reagan tax cuts, we were actually extrac- extracting a lower percentage of GDP. So there's only so much blood you can get from a stone. If you raise tax rates on a marginal basis high enough, the economy performs worse and you actually end up collecting less, or people spend a lot more money on lawyers and accountants to basically figure out more structuring schemes to avoid paying taxes. So, the years in which we've got the highest percentage of revenue out of the economy are in good economic years where we've had reasonable levels of taxation as opposed to the highest levels of taxation. And so the problem is with the spending. I mean, we used to be able to keep spending to somewhere between ... I'd say in the best years of, of th- the years of the Clinton surplus, I think, spending as a percent of GDP was like 18.8%. It's around 20% of GDP goes to federal spending. That's, that was normal.
- DSDavid Sacks
Or-
- DFDavid Friedberg
But then the spending got out of control during COVID and it went up to like 25, 30% of GDP went to federal spending. It's starting to come down, but it's still way too big a number. Anyway, my, my point is that a starting point for dealing with next year's budget is free spending. Just free spending. You know, the 18% increase is not a good idea. If we wanna get this problem under control, freeze the spending. We can talk about taxation, but you're only gonna get so much blood from the stone.
- CPChamath Palihapitiya
And increased spending is stimulatory, and so it works well in an election year. I would say we took two major crises and we had crisis-level spending, and then we normalized that spending and allowed it to carry forward, starting with the Oh-Way financial crisis with our monetary policy, and then being accelerated with COVID and, and our fiscal policy. I'll give you guys ... I, I did some back-of-the-envelope map. I'm sure there are economists who have done a better job of this than I. There are directly three million Americans that are directly employed by the federal government. There's 167 million workers in the US. So three million are directly employed by the federal government. If you take the rest of the federal spending that flows into the economy, it's about three and a half trillion a year, and assume 30% of that capital goes to equity holders in businesses, that own businesses that benefit from that spending and the rest flows through to labor, that's about 13% of GDP flowing through to labor. And assuming average annual income, that's another roughly 45, 50 million people that are directly benefiting, that are directly earning income because of federal spending. There's another 50 million people in the US that rely on Social Security. And here's another important statistic. There's somewhere between 12 and 20 million people in the US that pay more than 50% ...... tax rate today. So, those people are effectively working (laughs) for the federal government because half of their, their income goes back to the government. So, when you add this all up, there's, there's over 100, 120 million people in the US that are directly working for or getting paid by the federal government in the US. That is such a significant percentage of our economy, that is such a significant dependency on individual income on a federal government, it... I, I don't wanna use the term socialism, but the, the ability for US labor to earn is so largely dependent and largely driven by federal spending at this point, it becomes this critical linchpin to enabling progression economically, to enabling the labor force to continue to participate, that the federal government is now the primary customer or employer of most of the labor force in the United States today. That is a deeply and profoundly different circumstance than what I think the Founding Fathers envisioned, when the federal government was supposed to be this lightweight overseeing organization of a federated republic of states. And unfortunately, I think we find ourselves in a condition, as Jamal points out, that's very hard to get out of. This is gonna require a dedicated multi-decade effort to create a slow unwinding from this deep dependency that our labor force has on federal spending. And I, I'm just, like, so shocked that this isn't the, the critical problem of our day that we're not all spending time on. Folks have pointed out that this only goes one way at this point.
- DFDavid Friedberg
Hey, Nick, can you bring up that first Fred chart? This is federal receipts as percent of GDP, and it goes all the way back to World War II. To Friedberg's point, we've never gone above 20%. Look at that. And we've had tax rates as high as 90%. I'm saying top marginal tax rates as high as 90%, I think after World War II, because we were trying to get out of the deficit that was created by the war spending.
- CPChamath Palihapitiya
You can't get above 20.
- DFDavid Friedberg
Yeah, exactly.
- CPChamath Palihapitiya
The economy shrinks.
- DSDavid Sacks
No, but hold on.
- CPChamath Palihapitiya
So... Yeah.
- DSDavid Sacks
The, the... I- I gave you this OECD report. It says that since 2000, we've been in the mid-20s, and the OECD average is 34 in terms of tax to GDP.
- CPChamath Palihapitiya
Tax to GDP, is this... This includes state and local then, right?
- DSDavid Sacks
Probably, yeah.
- DFDavid Friedberg
Yeah. I just showed federal.
- CPChamath Palihapitiya
I think this probably includes state and local.
- DFDavid Friedberg
Yeah. And if, and if you-
- CPChamath Palihapitiya
Which, by the way, is a whole 'nother bailiwick, 'cause I didn't include those numbers in my employment statistics. The US Bureau of Labor Statistics estimates that about 20.2 million Americans are employed by local and state governments, directly employed by local and state governments. So again, when you add this all up, the majority of the US labor force is employed by the government or is a beneficiary of the government as the primary customer, or is supported-
- 1:11:59 – 1:16:41
Science Corner: Why the price of cocoa has skyrocketed!
- DSDavid Sacks
All right, uh, uh, Science Corner, rapid fire. You wanted to get to cocoa. Here we are. We're at cocoa. Friedberg, you have the floor.
- CPChamath Palihapitiya
You guys, you guys asked about cocoa. You wanna pull up the commodity price chart on cocoa? Look at that.
- DSDavid Sacks
Okay. This is not cocaine. This is cocoa. This is chocolate, precursor to chocolate, not cocaine.
- CPChamath Palihapitiya
This is chocolate. As you guys can see from this chart, cocoa's moved in price from about 2,000 bucks a ton, which is where it normally trades at, to $10,000 a ton. 70% of cocoa is grown in West Africa, uh, in Ghana and Ivory Coast. And in that area, they've been severely hit by this El Nino weather year that we're just kinda coming out of. So here's all the cocoa production. 73% of it's in Africa, mostly in Ghana and Ivory Coast. That's where most of the world's cocoa beans are produced. Cocoa is grown from the cacao tree, which is about 10 feet tall. These bean pods, you take them down, you roast the beans, crush it, you make cocoa. When you eat a Hershey's bar, for example, 11% of that bar is ground up cocoa powder. So cocoa is, like, the critical ingredient in all the chocolate products we consume. So we had this massive El Nino event last year. So here you can see sea surface temperatures. So in Q4 of last year, El Nino spiked like crazy.... and that caused a lot of rainfall to hit the west coast of Africa. And as a result, this fungus was spread in cocoa trees. There's a fungus called black pod disease and this fungus spreads when rainfall hits the ground and it splashes up, gets in the tree, and then the tree has really bad yield and the cocoa production goes down. So now if you look at the cocoa production out of Ghana, you can see that we've seen a, like, 50% rough decline in cocoa production on the final bar chart. So that's the effect. So when that happened, basically everyone started to corner the market. So all the buyers of cocoa went in and started buying cocoa like crazy, and then all the short sellers got squeezed because there's typically a pretty good balance on the short and long side in the market. So then the short sellers got squeezed and it caused this big parabolic jump in price, and that's where we're at today. The chocolate companies, again, 11% of chocolate that you're buying at the store is made from this cocoa powder. Uh, they're talking about cutting the size of their chocolate bars, raising prices, and starting to use other ingredients, so you'll start to see that happen in the shelves in the next couple of months. But this is the big news in the commodity markets right now, is this, this parabolic spike in cocoa prices and, you know, consumers will get hit with high prices and smaller chocolate bars.
- JCJason Calacanis
Isn't there a scene in Trading Places...
- CPChamath Palihapitiya
Yeah, the, the OJ futures, orange futures.
- JCJason Calacanis
Yeah, oranges futures.
- CPChamath Palihapitiya
Yeah, that's right, they squeeze the orange market, that's right. That's basically what's happened in cocoa. So there was a bad weather event, yields dropped by 15% so we got half the production, and then all the traders came in and they squeezed the short side of the market and the price spiked. So that's kind of what's going on. It's like a meme stock.
- JCJason Calacanis
If I had a dollar for the number of times a fungus has ruined a good time, man.
- CPChamath Palihapitiya
(laughs)
- DSDavid Sacks
Well, you know, it's interesting. I was looking at this and I was worried about chocolate prices.
- JCJason Calacanis
Here it comes, oh here it comes.
- DSDavid Sacks
I was wor... I was really worried about chocolate prices, specifically, um-
- CPChamath Palihapitiya
(laughs)
- JCJason Calacanis
(laughs)
- DSDavid Sacks
... what happens right now in these edible anuses. Uranus prices have gone up somehow, so these chocolate uranus prices are skyrocketing in real time.
- CPChamath Palihapitiya
Where did you find this? How did you find this?
- DSDavid Sacks
I just typed in uranus and typed in Freyberg uranus and chocolate and this came up, it was the number one result.
- CPChamath Palihapitiya
Chocolate shaped like an anus.
- DSDavid Sacks
So we know what... There it is, uranus, uh, chocolate prices are going up.
- CPChamath Palihapitiya
I know what I'm getting you guys for Christmas this year. (laughs)
- DFDavid Friedberg
Well it's pric... You notice it was priced in euros not dollars?
- DSDavid Sacks
Yeah, it's not available in America, it's just-
- DFDavid Friedberg
It was, it was coming from Belgium. I guess they got some serious kink going on over there.
- DSDavid Sacks
That's... If you want a chocolate uranus, it's, it's there for you. (laughs) I mean, I just was like, "Google search chocolate uranus," and yeah. I don't recommend you make that search if you're listening to the pod. Don't, don't-
- DFDavid Friedberg
Well, when I, when I heard there was a spike in coke prices it made me think of this.
- CPChamath Palihapitiya
(laughs)
- DSDavid Sacks
(laughs)
- DFDavid Friedberg
(laughs)
- CPChamath Palihapitiya
Say hello to my little friend.
- 1:16:41 – 1:18:41
Movie talk and wrap!
- DFDavid Friedberg
it was like one of the greatest moments of his life or something.
- CPChamath Palihapitiya
It is one of the greatest movies I've ever seen. I thought-
- DFDavid Friedberg
No, it's completely overrated. Eh, I'm not saying it's bad, it's just not that good.
- DSDavid Sacks
Scale of one to ten, give it a number.
- CPChamath Palihapitiya
I will do anything to have this guy do Dune Three. He's talking about whether or not he should do it, he's like, "I'm only gonna do it if it's gonna be better than Dune Two."
- DFDavid Friedberg
No, negotiation tactic.
- DSDavid Sacks
You know he's Canadian, Denis Villeneuve?
- CPChamath Palihapitiya
Canadian guy, yeah.
- DSDavid Sacks
He did Sicario.
- CPChamath Palihapitiya
Sicario and The Arrival, uh, like, he's honestly one of the top three directors of our era. He's incredible.
- DSDavid Sacks
He, who's that, Villeneuva?
- JCJason Calacanis
Villeneuve?
- DSDavid Sacks
Denis, no, Denis Villeneuve.
- CPChamath Palihapitiya
Villeneuve.
- DSDavid Sacks
Villeneuve.
- CPChamath Palihapitiya
Villeneuve.
- DSDavid Sacks
Villeneuve.
- DFDavid Friedberg
I don't know, the, the hero in that movie is like this soy boy type.
- DSDavid Sacks
Here we go.
- DFDavid Friedberg
I mean, I don't really believe that he's leading an army.
- DSDavid Sacks
Soy boy. (laughs)
- DFDavid Friedberg
I just, I, it's, it's not credible.
- CPChamath Palihapitiya
You know the story... I, I read a lot about, you know, these were all like short stories published in magazines by Frank Herbert, and he was-
- DSDavid Sacks
serialized, they were serialized, yeah.
- CPChamath Palihapitiya
serialized, and he was really into drugs, he was really into mushrooms.
- DSDavid Sacks
Oh.
- CPChamath Palihapitiya
And so the spice came around from the mushrooms.
- DSDavid Sacks
Makes sense.
- CPChamath Palihapitiya
It was written in 1965 when there was this idea that we needed to move towards zero population growth because the population spike on Earth was going to cause resource, uh, constraints and we were all going to die, if you guys remember this.
- DSDavid Sacks
Hm.
Episode duration: 1:27:45
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