E174: Inflation stays hot, AI disclosure bill, Drone warfare, defense startups & more

1. 0:00 – 0:57

   Bestie Intros: J-Cal is out this week!

   1. DFDavid Friedberg0:00

      All right, everybody. Welcome back to the All-In Pod, episode 174. Almost up to 175, I believe. There are a lot of folks getting together next week at the All-In meetups around the world to watch the show. Unfortunately, J Cal had an oral incident this week. He will not be joining us. I guess he cracked a tooth and couldn't make it, so he is sitting this one out. Very last minute-

   2. CPChamath Palihapitiya0:26

      Specifically-

   3. DFDavid Friedberg0:26

      ... decision.

   4. CPChamath Palihapitiya0:27

      ... cracked a tooth eating a bison rib at the Salt Lick in Austin, (laughs) which is a true story.

   5. DSDavid Sacks0:33

      Freebird, I think we found an image of-

   6. DFDavid Friedberg0:35

      Okay, let's-

   7. DSDavid Sacks0:35

      ... J Cal at the Salt Lick-

   8. CPChamath Palihapitiya0:36

      Right.

   9. DSDavid Sacks0:36

      ... cracking his tooth on a rib. (instrumental music plays)

   10. DFDavid Friedberg0:42

       (laughs)

   11. JCJason Calacanis0:42

       He's, he's coming back. I'm going all in.

   12. DSDavid Sacks0:42

       Let your winners ride.

   13. CPChamath Palihapitiya0:45

       Rain Man, David Sacks.

   14. JCJason Calacanis0:46

       I'm going all in.

   15. DSDavid Sacks0:49

       And it said-

   16. JCJason Calacanis0:50

       We open sourced it to the fans and they've just gone crazy with it.

   17. DFDavid Friedberg0:53

       WSI.

   18. CPChamath Palihapitiya0:54

       Quinoa.

   19. JCJason Calacanis0:55

       I'm going all in.

2. 0:57 – 3:10

   All-In Summit 2024 Announcement

   1. DFDavid Friedberg0:57

      All right, so we are going to announce the All-In Summit 2024 back to LA. We had such a great time in LA. It was a great location for everyone. We really appreciated the facilities at UCLA. This year we're upgrading the experience once again for everyone. So the event's gonna be September 8th through 10th in LA. If you haven't seen it, please watch the recap video from last year. We put it up on YouTube. And then there's all the interviews from last year are also on YouTube. We're gonna have another amazing lineup of speakers this year, and have a much more kind of upgraded, elevated experience for everyone. Applications are open today, so go to summit.allinpodcast.co to put an application in to join us this year. As you know, we had way more applications last year than spots. And this year we're gonna have all sorts of upgrades. We're gonna have transportation to and from all the events for everyone, a concierge booking service to help you book your rooms and get you set up in LA for the trip. We're doing a full day event on the Sunday, September 8th, followed by two days of content, dine about town on the first night, two blowout parties. It's gonna be awesome. So we're really excited about it. We've got a much bigger budget this year, and we're gonna try and really make the, uh, the experience awesome while also delivering the great content. So really excited to do this again in LA. I appreciate everyone's support of that. We had a lot of debate internally about where to take it, and we settled on going with what we know and trying to make it a little bit better this year. So anything else you guys wanna say about All-In Summit?

   2. CPChamath Palihapitiya2:30

      And there's only one kind of ticket this year, right?

   3. DFDavid Friedberg2:33

      That's right. So we're not doing like regular ticket and ch- VIP. We're just doing one ticket for everyone and everyone's gonna get this kind of elevated experience, which will be cool. Saks, just show up. Would be awesome. We hope to see you there.

   4. DSDavid Sacks2:46

      I want to invite a couple of speakers.

   5. DFDavid Friedberg2:48

      Yeah, you've got some good speakers I saw.

   6. DSDavid Sacks2:49

      Yeah.

   7. DFDavid Friedberg2:50

      It's gonna be great.

   8. CPChamath Palihapitiya2:50

      When are we gonna start announcing the speakers, Freebird?

   9. DFDavid Friedberg2:53

      We will do that in a couple weeks. We already have a bunch booked and it's gonna be awesome.

   10. CPChamath Palihapitiya2:59

       Oh, that's really exciting. That's awesome.

   11. DFDavid Friedberg3:02

       Yeah, I know, CP, you wanted to take it somewhere else. I mean, we were in debate on Vegas, maybe going to some other country,

3. 3:10 – 17:30

   Nvidia's market position, Collapse of Western cities, State of the cloud market

   1. DFDavid Friedberg3:10

      but, uh, you went to another country. Where'd you go this week?

   2. CPChamath Palihapitiya3:12

      I was in Paris, France.

   3. DFDavid Friedberg3:14

      What were you doing there?

   4. CPChamath Palihapitiya3:16

      There was like a important AI conference, and Jonathan Ross, the founder of Grok, and I kicked it off with like a fireside chat for like 45 minutes at the beginning, just to get everybody amped up and excited.

   5. DFDavid Friedberg3:30

      Cool. Yeah, it was really good.

   6. CPChamath Palihapitiya3:32

      Like-

   7. DFDavid Friedberg3:32

      Anything interesting come out of it?

   8. CPChamath Palihapitiya3:35

      I think the sound bite that made an impact on me was, was, was from Jonathan. So I think he did a very good job of explaining where NVIDIA is really strong, which is really in learning, and where NVIDIA is trying to build the business, which is in inference. But the problem is the features almost compete with each other between learning and inference, and I think that that was a good clarification. And then the second thing is, he said that if he deploys his roadmap, he'll have 50% of the available inference compute by the end of next year.

   9. DFDavid Friedberg4:10

      Wow.

   10. CPChamath Palihapitiya4:11

       Based on all the needs of like OpenAI and Meta and everybody else, which is a-

   11. DFDavid Friedberg4:15

       Wait, but that's a smaller physical footprint. Is that right? And it's just because they can do higher token per second?

   12. CPChamath Palihapitiya4:19

       Less power, higher tokens per second across all the major models. So it would, it would be meaningfully less power and meaningfully cheaper. So that was a pretty amazing sound bite. The, his, his whole explanation was actually really good. So I mean, if you listen to the spaces we did, I thought it was good. I thought this was even better. So I'm trying to get a copy of the, of the talk, 'cause it was taped, so that we can kind of post it. At a minimum, anybody who's interested in studying NVIDIA should listen to what he has to say, because I think the, the nuances between us and them are really profound, and they were pretty stark the way that he described them. So it was cool. It was great to be in Paris, frankly.

   13. DFDavid Friedberg5:00

       How does NVIDIA respond to this movement or this notion that there is an entirely different chip category focused purely on inference? Do they have inference focused chips in development or a different roadmap that they're gonna have to kick up now?

   14. CPChamath Palihapitiya5:13

       I mean, I think it's very hard for them. It's, it is a structural innovator's dilemma. And why is that? Because they've made some architectural decisions around things like HBM, which is high bandwidth memory, or specific kinds of extremely high throughput optical cables, and why these things matter is that they've gone and bought up the world supply and they've basically bear hugged these markets as a structural part of their design. Now, that makes sense and it's very legal. The problem is that if you architect around it and go through a totally orthogonal design process, we're not subject to any of those supply chain considerations. And I think he explained that really well. I didn't understand it in nearly as much detail as I did leaving. So I think that's an important takeaway. It's also really important for all the hundreds of chip startups and for these venture investors who are ripping money into these companies to know these differences, because...... if you are investing in a company that is subject to, you know, HBM in their design decisions or these specific optical cables or a whole bunch of other things, you're going to be in a really difficult spot because NVIDIA's bought them all. So I thought that that was a, that was really interesting. The other thing that NVIDIA does brilliantly is what Intel did in the '80s and '90s when they wanted to kind of choke the market for CPU competition, which is that they were able to define a metric that everybody started to pay attention to, which for them was clock speed. And if you remember-

   15. DFDavid Friedberg6:39

       Yeah.

   16. CPChamath Palihapitiya6:39

       ... Intel would push Moore's Law and they would push transistor density and clock speed as the measurement of value. Now, for a lot of consumers, none of us knew any better and so every time we saw a new chip, we would go through the Pentium upgrade cycle because we thought that's what we were supposed to do. It turns out that clock speed doesn't really factor into speed the way that you think about it and experience it as an end user using software, and it's the same in AI, and so we talked about that as well. So it's an incredibly important company, NVIDIA is. I think they're performing brilliantly. They're running many of the same plays that Intel did to try to create total dominance, but there are some very important nuances around power and around supply chain decisions and technology decisions that, frankly, some people would think are unsustainable, and the more I understand them, I would be in that camp as well. So, it, it, I thought it was a very important conversation and hopefully we can post it. Yeah. It was cool. It was gr- and by the way, it's great to be in Paris too.

   17. DFDavid Friedberg7:46

       What'd you think of Paris?

   18. CPChamath Palihapitiya7:48

       I, you know, I have a new appreciation for what's going on in these major cities. I think that all major cities are crumbling. I don't, and I don't mean to be alarmist or very dramatic about that, it's just that I spent a lot of time with entrepreneurs that are in Paris and they struggle with the same things that the people in San Francisco do, and then I had couple of conversations with some folks that are entrepreneurs in London who were there and they suffer from the same things. Lots of petty crime, lots of garbage, lots of vandalism, lots of drugs. And so no place is perfect, it turns out. Everybody's struggling from a lot of experimentation gone wrong in how these cities run. That was, that was actually my, the biggest takeaway outside of th- the actual AI conference itself.

   19. DFDavid Friedberg8:33

       But that's a Western city problem, you're not, I mean, have you visited many cities in China or other parts of Asia and is that, like, a Western problem?

   20. CPChamath Palihapitiya8:42

       I have not been to China in six years. I've been to Hong Kong but I've not been into China for six years. So I don't know. I would say that India has its own vagaries, so those issues are not the same. I've been to Singapore a couple of times. My kids were just in Japan for spring break so I saw a bunch of the pictures. Those cities look relatively the same. Very orderly, well-run, clean. But yeah, you're right, these Western cities are a bit chaotic.

   21. DFDavid Friedberg9:11

       Yeah. Sax, is this like a Western, social, liberal manifestation how cities are being challenged, generally?

   22. DSDavid Sacks9:19

       Yes. Yes.

   23. DFDavid Friedberg9:19

       Like Malay's, like Malay has, I think Malay said this, right? He said, like, all these Western, social, liberal beliefs are having lifestyle impacts in urban centers.

   24. DSDavid Sacks9:29

       Well, it's hard for me to speak to what's happening in Europe but we know what's happening in the United States. All the biggest cities are blue and they're run by a certain ideology, and in those cities we've had now a decade plus of decriminalization, de-prosecution, decarceration and the impacts of this are obvious. We also, at least in San Francisco, we have subsidies for people who wanna live on the streets and do drugs all day. I mean, it's not prohibited to do that so all of our public space has been taken over by people who are happy to take the, whatever it is, $700 or $800 subsidy and do drugs all day. We also had this referendum in California that essentially lowered a whole bunch of felonies to misdemeanors. Basically if you steal less than $950 that's considered a misdemeanor now instead of a felony and so there, there's been a huge increase in crime because of that. You know, shoplifting just doesn't get prosecuted anymore and misdemeanors don't get prosecuted anymore. We've had all these Soars DAs who don't wanna prosecute misdemeanors. So I think if voters had understood that lowering a lot of these crimes from felonies to misdemeanors meant that they wouldn't get prosecuted at all, I don't think they would've done it but that's kind of where we are.

   25. DFDavid Friedberg10:47

       But are we seeing a rebound from that now, Sax? Is democracy working? Because I know that in San Francisco we had an election recently and in the ballots it seemed to indicate that voters were sick and fed up with the, the living situation in the city and they're putting different people in office and have an intention of changing the city charter and changing the, the laws in the city so that we can reverse this trend. Is that not where things are... I mean, like...

   26. DSDavid Sacks11:16

       Yeah, I, uh...

   27. DFDavid Friedberg11:16

       ... sitting, s- you, you know, sitting where you sit, like, don't you see San Francisco kind of trying to ri- right itself and as a result, doesn't democracy work over time here?

   28. DSDavid Sacks11:24

       Yeah. It's just that we live in a one-party state and that one party has been captured by ideologues and so it's very hard to, to change. It is true that in San Francisco there was an election recently and the more radical supervisors were defeated. We have, I think finally, a good DA in San Francisco but these, um, radicals have had a long time to entrench their power and the party machinery helps keep them entrenched. So...

   29. DFDavid Friedberg11:51

       Yeah.

   30. DSDavid Sacks11:51

       I think you could argue that we've bottomed out 'cause the public has recognized the problem but it's still very hard to fix and it's gonna take a while.
4. 17:30 – 45:41

   Inflation stays hotter than expected for the third straight month: chance of a HIKE instead of a cut?

   1. DFDavid Friedberg17:30

      The March CPI numbers came in from the Bureau of Labor Statistics yesterday, higher than forecast at 3.5% year over year. This is up from 3.2% year over year inflation reported by the Bureau of Labor Statistics in February, higher than expected for three straight months now. Let's pull up this chart. Now, as we all know, the Fed did 11 rate hikes in 2022 and '23, and the intention was that we would see inflation come down to their target of 2% and they would start to lower rates, and obviously, we're not seeing that. Inflation is remaining hot. Things are getting more and more expensive. I pulled together some of the numbers on year over year price increase. Housing is up 5.7% year over year, transportation costs are up 10.7% year over year, and the highest, car insurance is up 22.2% year over year.So, the expectation has been that the market will do rate cuts. Larry Summers came out and said, "You have to take seriously the possibility that the next rate move will be upwards rather than downwards." I guess, Sax, let me, let me ask you first for your commentary on how this plays into the election cycle. I know Biden was expecting a rate cut or several rate cuts going into the election, which usually helps the case of the incumbent. Maybe you can comment on where the, the election cycle might be influenced by this inflation report.

   2. DSDavid Sacks18:56

      Well, I think it's definitely bad news for Biden, and I was expecting a Fed put this year and the really, the whole market was. The market was expecting three rate cuts this year, which would have been really good news for, for Biden. And I think this latest inflation print was kind of a dagger to the heart of, of that expectation, and I think the Wall Street Journal put it best, it said here, "Wednesday's report had been hotly anticipated because Fed leaders had been willing to play down stronger than anticipated in inflation readings in January and February as reflecting potential seasonal quirks. But a third straight month of above expectations inflation data erodes that story and could lead Fed officials to postpone anticipated rate cuts until July or later." So it's not just the fact that this inflation print was higher than expected, it was also higher than expected in January and February, but people were willing to kind of overlook that saying, "Well, maybe it was just kind of a, you know, quirky reading." But now we've had three straight months, it's pretty clear that the narrative that we had going into this year, which was that inflation was on its way down, that it peaked at 9%, uh, as the official rate, I think, in 2022, and then it was going down every month through all of 2023. And I think the expectation going into '24 was it would keep going down, and we'd get these rate cuts. Well, after three straight months of inflation being more persistent and stickier than people expected, I think that narrative is basically dead. So, I think the new narrative now is it's gonna be rates are gonna be higher longer, and I think Larry Summers is reflecting that view. Larry's going further. He's not just saying that rates are gonna be, you know, at the current rates for longer, he's saying they might actually increase, and that's a risk.

   3. DFDavid Friedberg20:45

      Yeah, last summer, he said, and this was last summer, so almost a year ago, he was saying, "The market's got it totally wrong. We're actually gonna need much higher rates than the market's anticipating for much longer as well than the market is anticipating," and so did Mario Draghi. They both said the same thing. No one paid attention to 'em. Everyone ignored it and assumed that this was gonna be a quick rebound to normalization. It's clear that, you know, once again, Larry has proven himself to be fairly prescient-

   4. DSDavid Sacks21:10

      Yeah, I think the-

   5. DFDavid Friedberg21:10

      ... in understanding where things are headed.

   6. DSDavid Sacks21:11

      ... I think that Larry Summers has, for the most part, been spot on from this, on this whole inflation question going all the way back to 2021. Remember-

   7. DFDavid Friedberg21:18

      100%. 100%.

   8. DSDavid Sacks21:19

      ... in Q1 of 2021, Biden's first quarter in office, the big legislative push was for the $2 trillion COVID relief bill, is, the so-called American Rescue Plan, and Larry Summers said that it was, it risked inflation, it was an inflationary bill, it was unnecessary.

   9. DFDavid Friedberg21:35

      It was too, too stimulatory. Yeah, too stimulatory.

   10. DSDavid Sacks21:36

       Yeah, we didn't need it.

   11. DFDavid Friedberg21:37

       Yeah.

   12. DSDavid Sacks21:37

       The economy was already coming back, and we didn't need it, and Biden was risking inflation, but of course, inflation was only at 2% at that point. So, the administration kind of pooh-poohed Larry and said, uh, you know, "This is Larry Summers being Larry," or whatever, and sure enough, we were at 5% inflation by that summer. And you have to wonder if Biden had listened to that advice, would he be in a different position right now going into the election? I think probably he woulda been. And you gotta wonder for what? I mean, what did that $2 trillion accomplish? I mean, COVID was winding down. I mean, these were the last bit of STEMI checks and payments to these pharma companies, and I mean, it was basically a grab bag, and it was passed on straight party lines, and it was just totally unnecessary.

   13. DFDavid Friedberg22:23

       Right.

   14. DSDavid Sacks22:23

       I mean, the economy certainly didn't need it, and so here we are. And I think that a lot of people, including the markets, thought that Biden was kinda out of the woods, that this year we'd see the final leg of inflation going back to normal, but that's not gonna happen. And I think, you know, going beyond the political ramifications, I think there could be several other knock-on effects that we should talk about. I mean-

   15. DFDavid Friedberg22:48

       Mm-hmm.

   16. DSDavid Sacks22:48

       ... one is, for the consumer, this means that the cost of borrowing is gonna be higher for longer. That makes it harder to buy a house. Mortgage payments are higher. That also means if there's fewer home sale transactions, that means the price of housing could come down. So there could be a correction in that market. Second, if you wanna buy a car, your car payment's higher, and if you have loans, uh, your, your personal interest is gonna be higher. And this is why I think consumers feel like they're worse off than the economic data would otherwise reflect. And, and Larry Summers actually had a tweet storm about this about a month ago, where he calculated that if you included the cost of borrowing in inflation, that inflation was much higher than people thought and that it actually peaked not at 9% but at 18%. So Larry had an excellent tweet storm on that, and he said that the cost of borrowing, which used to be calculated in inflation but is not anymore, was the reason why consumer sentiment about the economy was depressed. He said that that accounted for about 70% of it. So people should be feeling better off because GDP growth is good and unemployment is low, but they're not because inflation is so high, and if you include cost of borrowing, the inflation's even higher. So I think this is really bad news for Biden, but it, it's a story that's been going on now for three years. It's not just this one inflation print.

   17. DFDavid Friedberg24:12

       Right. It's funny, yesterday Biden said during a press conference with Japanese Prime Minister Kishida that he's sticking with his prediction of a rate cut before year's end, but there might be a delay, uh, which I think is obviously-... you know, based on what the data is showing and what folks that seem to know and have been pretty good predictors are saying is unlikely.

   18. DSDavid Sacks24:35

       We were supposed to get one in April.

   19. DFDavid Friedberg24:37

       Yeah.

   20. DSDavid Sacks24:37

       And we were supposed to get one in June.

   21. DFDavid Friedberg24:38

       Oh, yeah, and-

   22. DSDavid Sacks24:39

       And-

   23. DFDavid Friedberg24:39

       ... remember the Fed, the Fed Open Market Committee in December stated that they expected three rate cuts this year. And I think the market, in some cases, were predicting as high as four or five.

   24. DSDavid Sacks24:49

       Right.

   25. DFDavid Friedberg24:49

       And that, now we may not have any and we may actually see a rate hike, if you were to-

   26. DSDavid Sacks24:54

       Right.

   27. DFDavid Friedberg24:54

       ... follow someone.

   28. DSDavid Sacks24:54

       Well, if we, if we see a rate hike before the election, I think Biden is toast.

   29. DFDavid Friedberg24:59

       Yeah.

   30. DSDavid Sacks24:59

       But, I mean, I think Summers gave that maybe a 15 to 20% chance, which is, it's still not the most likely scenario. But, uh...
5. 45:41 – 1:06:27

   AI disclosure bill: important step for creators or unnecessary?

   1. DFDavid Friedberg45:41

      look, let's talk a little bit more about AI because I do think that regardless of the near-term and longer-term implications, there is a peaking of fear, peaking of interest, both different spelling of the word peak. Adam Schiff yesterday proposed a bill, sorry, earlier this week, called the Generative AI Copyright Disclosure Act, in response to, I think, over 100 musicians signing a letter saying they're concerned that their copyrighted works are being used to train AI models. And Nick, if you'll pull up the text from the bill that I pulled out here real quick, we can take just a quick look. It's a very short bill, it's only five pages long, and it defines a generative AI model, uh, that's a combination of computer code and numerical values designed to use artificial intelligence to generate outputs in the form of text, images, audio, or video, and that it substantially, uh, incorporates one or more models as a system and it's designed for use by consumers. And what the bill then asks is that anyone developing these models has to submit to a register run by the federal government a list of all of the data that they used that might be copyrighted to train the model, and that this becomes a precursor to being able to legally develop and use AI models, that you actually have to register the training data. So I have a rant on this, which I'm gonna preserve for the end given my rights as moderator here today, but I'd love the reaction from Sax first on Schiff's proposed bill, Chamath, and we'll run this one around the horn pretty quick.

   2. DSDavid Sacks47:21

      Well, I, I... first of all, I think it's just, uh, it's too soon for this legislation. I mean, the, the first thing that needs to happen is we need to get the question of fair use arbitrated by the courts. We've talked about this before. People publish lots of information on the internet and I guess technically it's copyrighted, but it's been published in a completely public way, and humans are obviously allowed to read it and, and use it to generate their own work. I think there's a question about whether AIs are allowed to learn from it as well, and I would argue that they should be to some degree under fair use. Maybe if you're talking about copyrighted songs, I don't know if that's different. Anyway, these questions need to be arbitrated and once we know that, then we'll know whether there's a need for a rights clearinghouse of some kind, which may not be a bad idea. I actually got pitched by a founder recently to create a rights marketplace with copyright holders on the, on the one side, or rights holders, could be musicians, could be movie studios, could be anyone who owns content, and then AI companies on the other that wanna license that content for training purposes, and I actually thought it was a pretty good idea. So, my point is just that there are entrepreneurs working on solving this problem as well, and I guess what I'm saying is I'd like to see fair use figured out and I'd like to see what the private solutions are gonna be before we try to legislate...... this problem away from, really, a point of ignorance because we're so early in the development of this market. Now, I think one of the questions you have to ask here is w- why did Adam Schiff introduce this bill, and who is Adam Schiff? Adam Schiff is a powerful California congressman who is the candidate for US Senate right now, and he's expected to win. He's, he's ahead of Steve Garvey, who's the Republican candidate by, like, 30 points. Schiff is, in addition to being a vicious partisan who's known for, for Russiagate, he also is a prodigious fundraiser. And when he's not in front of the cameras, he's very effective in closed doors appealing to the key special interests in California that matter. And my guess is that he's not carrying water here for the hundred musicians who signed that letter. He's carrying water for the big studios, the big Hollywood studios, including music labels but also the movie studios and-

   3. DFDavid Friedberg49:46

      He's an LA-based congressman.

   4. DSDavid Sacks49:47

      Yeah. I mean, that's who he's representing. Now, at the same time, my guess is that he's run this by the big tech companies, and he's probably got their blessing to some degree because, like Bill Gurley always points out, they like rules like this because of regulatory capture. They can comply with them, but the little guy, the entrepreneur who's trying to create something new has a much harder time complying with these regulations. So, this is basically a big special interest group sort of deal that I think he's, he's putting forward.

   5. DFDavid Friedberg50:18

      Do you think this becomes law?

   6. DSDavid Sacks50:19

      Not yet, but it's paving the way for something.

   7. DFDavid Friedberg50:22

      And it's more like his promotional effort during his campaign, effectively?

   8. DSDavid Sacks50:27

      Well, I mean, his- the, th-

   9. DFDavid Friedberg50:30

      He'll still try to move it legislatively but ...

   10. DSDavid Sacks50:32

       Yeah. I mean the-

   11. DFDavid Friedberg50:33

       Okay.

   12. DSDavid Sacks50:33

       ... the big LA powers that be like this, and-

   13. DFDavid Friedberg50:37

       They love this. Yeah.

   14. DSDavid Sacks50:38

       Yeah.

   15. DFDavid Friedberg50:38

       Chamath? Any reaction to this bill?

   16. CPChamath Palihapitiya50:43

       I think there was an article in The Verge that I posted. It turns out that OpenAI transcribed over a million hours of YouTube videos to train GPT-4. My takeaway when I read this was, well, if Google's not gonna sue OpenAI, then this is a moot point, because you're talking about one of the most valuable companies in the world with one of the most valuable sources of training data in the world. And so if, if that, if it's true that there was a copyright violation and Google just lets this go, what's anybody else supposed to do? What chance does these group of singer-songwriters have? And you know, no offense to Adam Schiff, but he's not gonna be able to do anything. So if this multi-trillion dollar company doesn't draw a line in the sand, then none of this matters, and everybody's gonna train on everything.

   17. DFDavid Friedberg51:37

       Mm-hmm. I think, like, my big takeaway on all this is that there is a real deep misunderstanding on what these models really are and what they're doing. The assumption, I think, naively, is that they take in a bunch of data and then they spit that data back out and, in some cases, maybe slightly transformed. But the truth is that the models don't actually hold the data that they're trained on. They develop a bunch of synthesized predictors that they learn what the prediction could or should be from the data, and this is similar to how humans operate. Can you pull up the article, Nick, that I posted? This article is from last May, and you guys may remember this case. I can't remember if we talked about it on the show, but Ed Sheeran was sued by the estate of the writer of, uh, the Marvin Gaye song Let's Get It On for, uh, infringement in his song Thinking Out Loud. And he actually prevailed in court where he went through with the jury how he comes up, how he runs his creative process, how he came up with the song, and how he does his work. And as you know, Ed Sheeran and nearly every musician or every artist listens to other people's music, looks at other people's art, and they synthesize that data. They synthesize that knowledge and that experience into their own creative process to output what, in their mind, is a novel creation. And I think that AI works in a similar vein in that it's not actually storing the images. It's not actually storing the music of third parties. It's learning from that process. We all... Like, musicians learn on classical music. They listen t- and play other pop artists' music, and then they learn things that they like, things that they don't like, things that fit together well, certain intonations, syncopations, and that's how they develop their own tracks. And so I think that the, um, assumption in AI is that it's almost guilty until proven innocent is what's gonna really challenge this technology getting mainstay appeal and being useful, uh, in the way that it could and should be, that the de facto is that its learning and training is copyright-

   18. CPChamath Palihapitiya54:10

       I don't-

   19. DFDavid Friedberg54:10

       ... infringement.

   20. CPChamath Palihapitiya54:11

       I don't, I don't buy that.

   21. DFDavid Friedberg54:12

       You don't buy that?

   22. CPChamath Palihapitiya54:13

       Let's, no, let's use this-

   23. DFDavid Friedberg54:13

       That it stores the data?

   24. CPChamath Palihapitiya54:15

       No, that, that just because you're learning like a human, it's not copyright infringement, and-

   25. DFDavid Friedberg54:20

       I'm sorry. Let me, let, let, let me make my last statement, which is that I do think that similarity is measurable, and that is copyright infringement. So I would, rather than focus on how you train the model, I would encourage legislators to find, as Sax points out, a better process to define what makes one thing distinct from another, run that analysis, and then use that analysis to determine uniqueness.

   26. CPChamath Palihapitiya54:44

       I think it's-

   27. DFDavid Friedberg54:44

       And that analysis is ultimately what should determine whether there is copyright infringement versus the how was the model trained exercise, which is wrought with challenges as you guys know. How do you determine weightings? How do you determine whether this was even relevant in the model?We don't even know if the models ignore the data or use the data in their synthesis or in their weightings. It's all very opaque, and so it's almost like, "Hey, here's a list of stuff that I read," but I may not have even paid attention to 95% of it when I was reading it. We don't know. And so I'd rather focus on, is there copyright infringement in the output? Does the output mimic an original copyrighted source? And if it does, then that's where the infringement should lie, not on the how did you do it.

   28. CPChamath Palihapitiya55:25

       I think that you're creating an impossible standard. Is it 5% the same? Is it 8% the same? Is that 14%? Where's your threshold? Is it 78%?

   29. DFDavid Friedberg55:32

       Well, how is that different than training? How is that different than training? If I'm J.K. Rowling, am I not allowed to read other authors' copyrighted books for fear that by reading it, I will now use their copyrighted material in my novel book?

   30. CPChamath Palihapitiya55:44

       (laughs) No, so...
6. 1:06:27 – 1:21:09

   Drone warfare: The future of war, defense startups, Silicon Valley's decision

   1. CPChamath Palihapitiya1:06:27

   2. DFDavid Friedberg1:06:27

      Guys, I wanna talk about, as you know, this, like, emerging trend that we've been talking about offline about drones in warfare. Recently, we saw small drones controlled by the Houthis attack cargo vessels in the Suez Canal. It led to rather large-scale supply disruptions, economic value destruction. We've seen videos... Zacks, I think you have one, we can pull it up and take a look, of Ukrainian-controlled drones flying in to destroy tanks and large warehouses in Russian-held territories, causing tens of millions of dollars of damage. I think we're seeing the acceleration of the changing face of warfare technology, lots of these small form factor, low-cost, autonomous physical agents, and I think there's a bunch of implications both with respect to war but also...... how we spend money on defense, and how Silicon Valley is involved and responds. Um, Sax, I'd love to hear your, your points of view. Maybe you can highlight for us some of the things you've been seeing in the utilization of these new technologies in, in the war given our, you're our in-house war correspondent-

   3. GUGuest1:07:28

      Yeah. (laughs)

   4. DFDavid Friedberg1:07:28

      ... and you obviously do some work in Silicon Valley. Go ahead.

   5. GUGuest1:07:31

      I've heard a, a lot about the impact of, of drones just by watching the coverage of the Ukraine war. I was listening to an interview with an American mercenary who's fighting on the side of Ukraine, and he described how ubiquitous these drones were on the battlefield now. He said that you literally can't get out of a trench to go to the bathroom because a drone will basically, uh, get you. And he said they're buzzing around, they sound like mosquitoes because they're kind of just everywhere on the battlefield. Both Ukraine and Russia have them, and several months ago going into this year, Zelenskyy said that this would be the big game changer for Ukraine, they're going to make a million drones. I don't think it's worked out that way. It turns out that as many drones as the Ukrainians have been able to put on the battlefield, the Russians have even more because they're able to mass produce them in factories. They've got bigger drones, better drones. And I think the most important variable in, in the war so far with respect to drones is that the Russians have pretty advanced electronic warfare, and so they've been able to jam a lot of the Ukrainian drones whereas the reverse has not been true for the Ukrainians. So, I would say that drones have been a huge factor in the war but so far, the balance there is tipping towards the Russians as it is in so many other areas as well. But to your larger point, there's no question this is the, the future of warfare and you're seeing that it's creating a lot of opportunities for asymmetric warfare. So f- for example with the Houthis, they've been firing cheap missiles and drones at our, at our ships in the Red Sea, and we've been having to send two million dollar air defense missiles shooting down $2,000 drones. So if, if that continues and we don't have a good response to this problem, it's gonna really change the balance of power.

   6. DFDavid Friedberg1:09:19

      I don't know if this was at our summit or if I heard it this later from some senior person in the military who said that aircraft carriers are outdated technology, like they don't make sense anymore, and we're gonna see a shift towards lots of small autonomous drone-like systems on the battlefield taking out targets. And as a result, if you game theory this out, the necessity for defense systems against large amounts of swarming drone-like systems and then, you know, what do you actually have to do with your existing military architecture to play into this kind of new tactical system? And then that's gonna require a massive evolution in technology, and is the United States prepared?

   7. GUGuest1:10:06

      They should be.

   8. DFDavid Friedberg1:10:07

      And should Silicon Valley play a role?

   9. GUGuest1:10:07

      They should be. We should. I... Maybe, Nick, you can throw up this, the first link that I sent you, but eight years ago I came to this conclusion and I invested in this company called Saildrone which is autonomous drones in the seas. Our customers include the US Navy. The chairman of our company actually is Admiral Mike Mullen who is a former Chairman of the Joint Chiefs of Staff. But these drones are capable of going into some of the most dangerous places in the world and collecting enormous amounts of surveillance data and information that otherwise takes the United States government lots of time and lots of money and is pretty scattershot, and instead with these things you can be constantly in hotspots. And if you go to the next one, so much so that, you know, we've deployed some of these drones in the Middle East and there was a point at which the Iranian Navy intercepted two of our drones and picked them up, and this was kind of like a, a global thing a few years ago. But I really believe in this trend, and I think that we have an enormous responsibility to be funding these things. These are really complicated systems to build obviously and they take lots of time so these are not overnight successes, Friedberg, and they take lots of money which is hard to come by as well. But these are absolutely the right kinds of businesses because eventually at a minimum you are building systems that can measure and collect enormous amounts of really critical data so that people can make better decisions which hopefully is measured in saving life, right? And then over time, you actually get to a military that should be much cheaper, much safer, and has fewer people in general on our side and on our enemy sides on the front lines which means fewer casualties, and I think that that's the whole value of this entire movement. It's cheaper, it's way better, it's much more useful, and it gives the respective armies that use these things, or militaries rather, a fuller picture so that you can make decisions that have enormous consequences.

   10. DFDavid Friedberg1:12:10

       Yeah, and in February the Department of Defense on a panel in Arlington, Virginia briefed reporters and industry folks on their interest in growing their partnerships in Silicon Valley to access the necessary technologies that are going to rewrite the face of warfare. I don't know about you guys but I've seen kind of two sides of this in Silicon Valley. A good number of venture capitalists and entrepreneurs and technologists think that it's morally incorrect to support warfare technology, and then there are a few that are going blazing ahead with supporting this new evolution in these technologies. Do you guys see the same and is there gonna be kind of this, this, you know-

   11. GUGuest1:12:55

       Well it's a, it's a, it's a big step to weaponize these things, right? So Saildrone, we have a very good, big, thriving, successful business. These machines aren't weaponized by any stretch of the imagination and so I think that that comment is more genuflecting...

   12. CPChamath Palihapitiya1:13:13

       ... and virtue signaling than it is real because in order to even be legitimately considered for some kind of, like, armed unmanned product, you have to be deep inside of the bowels of the DOD and Pentagon, and have been working with them for years to even be taken seriously. So the startups that are, like, eschewing those deals are not even close to those deals. And the startups that are close to them are probably being much more quiet and thoughtful and hush-hush because the path to do that isn't legitimate unless you've been in business with these folks for 10 plus years.

   13. DFDavid Friedberg1:13:49

       Yeah, I think it's- it's more a commentary on the fact that if this is where an organization, the Department of Defense, that has a trillion dollar annual budget is gonna be allocating resources, that technology is gonna need to come from somewhere. And the investors in Silicon Valley that are making these investments are likely gonna outperform those who are not. Does that sound reasonable to you, Sax? That there is this shift underway and that, again-

   14. DSDavid Sacks1:14:20

       Well, I think-

   15. DFDavid Friedberg1:14:20

       ... folks who have shied- shied away from defense technology are nes- you know, necessarily gonna be left out of a- a- you know, kind of a new industry that's emerging in Silicon Valley.

   16. DSDavid Sacks1:14:29

       Well, I guess the way I put it is that the US government spends over $800 billion every year on defense and it's not clear what we're getting for that money because in Ukraine, for example, we've run out of artillery shells. We've actually- we've run out of Patriots, we've run out of Javelins, we've run out of Stingers. So we're spending all this money, we're not getting a lot for it and part of the reason is because the defense industry has consolidated down to these five prime defense contractors who are basically an oligopoly and we have this cost plus procurement system where they just raise their prices every year and the government pays it. So I think all of us want the United States to have an effective defense. I mean, I want us to use our military power more wisely, I don't like all these stupid wars we keep getting in, but I do want the United States, as an American, to be the most powerful country. I do want us to get the best value for our defense dollars and the only way that's gonna change is if the defense industry gets disrupted by a bunch of startups doing innovative things. And there's no question that I think drones are the future of warfare. To your point about autonomy, I think that is where this is going next is that right now, the drones are typically controlled by, you know, somebody with, like, a VR headset.

   17. DFDavid Friedberg1:15:45

       They're called tele- tele-operated. Yeah.

   18. DSDavid Sacks1:15:47

       Tele-operated and they're FPV, this first person vision drone, and you basically strap some sort of explosive onto it and then you drive it into whatever your target is.

   19. DFDavid Friedberg1:15:58

       A target. Yeah.

   20. DSDavid Sacks1:16:00

       Those types of drones are easier to disrupt by electronic warfare because if you can disrupt the signal from the tele-operator, then the drone basically doesn't know what to do. And so you're right, the next step here is autonomous systems that can be programmed with a target and can find it on its own, make decisions on its own, and then they also build in some shielding against some of this, like, jamming technology or this EW, electronic warfare, technology. So that's where all these things... that's where the battlefield is... of the future is headed and in a- in a weird way, if you think about humans becoming a smaller and smaller piece of the battlefield and autonomous drones becoming a larger and larger piece of it, these wars become resource wars and-

   21. DFDavid Friedberg1:16:49

       That's right.

   22. DSDavid Sacks1:16:49

       ... basically technology wars.

   23. DFDavid Friedberg1:16:51

       That's right.

   24. DSDavid Sacks1:16:51

       Which- which may or may not be good. I don't know.

   25. DFDavid Friedberg1:16:53

       But by the way, so- so this is the point I wanted to make. If you pull up this chart-

   26. DSDavid Sacks1:16:56

       Yeah.

   27. DFDavid Friedberg1:16:56

       If- if that is where warfare is headed is a large number of small autonomous systems that go and find a target and try and execute a mission and, you know, i- in the case of Ukraine saying they want to have a million, China might say, "I want to have 100 million." All of these systems are dependent on lithium-ion battery systems. Today, 79% of lithium-ion battery production comes out of China. The US is only 6.2% of global lithium-ion battery production. And China has talked about scaling up drone manufacturing to a level that the US simply cannot even contemplate in its industrial architecture today. So i- it seems to me that if that is where warfare tactically is headed, that China has a huge leg up and is gonna become a critical point of dependency for the United States to develop a- an arsenal necessary to be competitive in this- this kind of next evolution of warfare. I will say that-

   28. DSDavid Sacks1:17:55

       Well, yeah. Yeah.

   29. DFDavid Friedberg1:17:55

       ... like, if- if you then game theory this out, like, how do you defend against these autonomous electronic systems? There's a technology called EMP or electromagnetic pulsing where, as you guys know, if you run a very high current electric field, you can actually send out and emit a pulse that then when it hits electronic circuits far away induces a high electric current in those circuits and short circuits them. So EMPs are a- a defense system that allow you to take out electronic systems. And this has been, you know, kind of a- a part of warfare since probably the 1960s, '50s. But targeted EMPs and targeted systems for eliminating all of these autonomous systems becomes a new defense technology that I know several startups in Silicon Valley that have been funded with a lot of capital by folks that we all know very well that are kind of pursuing this.

   30. CPChamath Palihapitiya1:18:48

       We don't have a choice because I think the point is that if you... j- just... Nicky just posted this photo. We have an enormous human capital problem with the military which is, there's just not enough folks enlisting anymore, so we don't have any choice except to automate and become drone dependent.

Episode duration: 1:26:57