E92: Adam Neumann's second act, a16z's $350M bet, housing policy, Inflation Reduction Act & more

1. 0:00 – 7:19

   Bestie intro plus a new moderator!

   1. DFDavid Friedberg0:00

      J Cal, what's it feel like to be a guest on your own podcast today?

   2. JCJason Calacanis0:03

      I'm excited. Oh, God.

   3. DFDavid Friedberg0:04

      Good.

   4. JCJason Calacanis0:04

      So delightful. You did a great job, by the way. I really like, um, the punch-up to the formatting, where you actually put the questions in.

   5. DFDavid Friedberg0:10

      Yeah, I think it's, uh... 'Cause I want us to all agree on the stuff we want to grok on, you know?

   6. JCJason Calacanis0:13

      In a professional TV show, they would have pre-interviews with everybody, get all their positions. Then they put the positions into the document and they, you know, they basically do what, what, uh, what's called a pre-interview.

   7. CPChamath Palihapitiya0:24

      Or here's another idea, you could do your job.

   8. JCJason Calacanis0:26

      Well, I mean... (laughs)

   9. DFDavid Friedberg0:27

      (laughs)

   10. CPChamath Palihapitiya0:27

       You could do your job. How about that? How about you try that?

   11. JCJason Calacanis0:29

       Yeah.

   12. CPChamath Palihapitiya0:29

       How about that?

   13. JCJason Calacanis0:29

       Yeah.

   14. DFDavid Friedberg0:29

       (laughs)

   15. JCJason Calacanis0:30

       Or how about I turn you three miserable (beep) into actual likable people in 91 episodes, which nobody thought was possible? (laughs)

   16. DFDavid Friedberg0:38

       I actually think I'm becoming less likable the longer I'm on this (beep) show. (laughs)

   17. JCJason Calacanis0:41

       (laughs)

   18. DFDavid Friedberg0:41

       (laughs)

   19. JCJason Calacanis0:42

       That's... I think that correlates with all of us. (laughs)

   20. DFDavid Friedberg0:45

       (laughs)

   21. JCJason Calacanis0:45

       All of our likeabilities just... Ooh.

   22. NANarrator0:48

       We're going all in. Let your winners ride. Rain Man, David Sachs. Ah, ah, ah. Going all in. And I said, we open source it to the fans and they've just gone crazy with it. WSI. Queen of Quinoa. And I'm going all in.

   23. DFDavid Friedberg1:05

       Hello, and welcome to the All-In Pod. I am your moderator for today, out of the hot seat, doing the easy beat, Dave Friedberg. I'm joined today by our esteemed panel. Back from his European shopping spree, our national treasure, America's favorite dictator, Chamath Palihapitiya. (laughs) Chamath, how are you feeling? (laughs) I'm feeling great. Jet-lagged? You're okay? No. You're recovered? I'm good. Yeah, good.

   24. CPChamath Palihapitiya1:29

       I'm a little... I've got, I got a little head cold though. (sniffs)

   25. DFDavid Friedberg1:31

       Oh. Well, sorry to hear that.

   26. JCJason Calacanis1:33

       Hope it's not COVID 2.0.

   27. CPChamath Palihapitiya1:34

       No, I tested. I'm COVID negative.

   28. JCJason Calacanis1:36

       Thank, God.

   29. DFDavid Friedberg1:37

       Okay. Also with us, as usual, from his emergency bunker ahead of the US civil war, the Rain Man, David Sachs.

   30. JCJason Calacanis1:44

       (laughs)
2. 7:19 – 25:32

   Adam Neumann raises $350M from a16z for his new residential real estate startup Flow

   1. DFDavid Friedberg7:19

      first, uh, thing to talk about today, and I kind of wanted to take it in a little bit of a different direction that I think all the other tech media have kind of addressed this. You know, Adam Neumann is back. He raised $350 million from Andreessen Horowitz, there was an announcement this week, for his new company called Flow, which as we understand it, is trying to develop residential apartments, you know, in, in the same sort of vibe, quality, and attention to experience as maybe was intended with WeWork. Uh, and Flow, you know, seems to have, um, started, originated with Adam doing a bunch of acquisitions of real estate with his own capital, and now he seems to have turned this into a real business and raised money from Andreessen. So there's all the commentary and joking about Andreessen putting this money in, are they crazy, as well as all the, you know, commentary about Adam Neumann, how could anyone back him, the guy was so awful the first time around. Let me just do a quick round the horn with you guys, you know, initial reactions to the, to the Adam Neumann deal, and then I'd love to talk about founders having a second act, because, you know, Adam happens to be high profile, so his failure was high profile. But a lot of founders have a failed low profile first experience and come back and kick ass the second time around, and investors have taken notice of that. And so I'd love to, to go there, but maybe we just do a quick reaction. J Cal, I know you've talked about this on your other show. Maybe you can kind of give us your, your quick commentary on, on the opportunity of the transaction, and what are people talking about with respect to this, this deal happening?

   2. JCJason Calacanis8:52

      You know, people are wondering why he's able to raise money. And what I always tell founders is, "When you see these, like, weird fundings and you can't get your heads around them, it typically has to do with track record and credible audacity trumps prior blunders." So, uh, say what you will about, uh, Adam Neumann, he is audacious and he has credibility. People forget his origin story. They only remember the Masayoshi-san, $4 billion, and what happened and what he did with that. And that was a complete clusterfuck, it went off the rails, he did all kinds of inside dealing and, and it was, it was madness. But before that, he did GreenDesk. He was a bootstrapped entrepreneur. And then he created the category defining coworking space which, to this day, when you say, "I need to get an office," the first thing people say is, "Get a WeWork," just like they say, "Take an Uber," just like they say, "Google it," uh, just like, you know, any other verb that we talk about. And so it's very easy to dismiss him and say, "The tech industry has no morals. They just back... They'll back anybody." He has a publicly traded company that's in the market right now, he defined the category, and he also put $300 million, apparently of his own money, at stake to buy these apartments. Uh, so I think it's, uh, I, I would say the bet makes sense to me, and I think it will make sense if we go into the bet, uh, which I'd love to hear everybody else's thoughts on, it's an audacious bet because housing is one of the hardest industries to tackle, and he already did it for commercial, so why wouldn't he be able to do it for residential?

   3. DFDavid Friedberg10:20

      Sax, did you see this opportunity in the market? Didn't, didn't you guys take a look at it or have any points of view on it?

   4. DSDavid Sachs10:25

      No, I mean, we, w- we don't write $350 million sized checks, so it's just not something that we're gonna take a look at. For that matter, we don't really do non-software investments. We don't do, you know, in the ph- you know, physical world type investments. And I've kind of learnt that doing anything in the physical world with atoms is ten times harder than doing anything with bits. So, you know, one of my takeaways over the last few years is, you know, we tend to like pure software models, not even hybrid or tech-enabled models, because it really does take a 10X entrepreneur to do anything in the physical world.

   5. DFDavid Friedberg11:02

      Yeah.

   6. DSDavid Sachs11:03

      So we, you know, we, s- software is kind of our knitting and we, we like to stick to that. Uh, in terms of, you know, Andreessen Horowitz making this investment, here, here's what I'd s- or, or your larger topic of, of repeat founders, look, most startups fail, and most founders or good founders have an entrepreneurial streak in them. And so you combine those two things and there's gonna be a lot of repeat second time founders, people who are fundamentally entrepreneurial and their first thing doesn't work out. I think that that can be a positive thing to invest in because they've gotten some of their mistakes out of the way and they've learnt from that experience. So I think the question we would just ask is, what were the learnings and did they conduct their failed startup honorably, you know?

   7. DFDavid Friedberg11:43

      Right. Right.

   8. DSDavid Sachs11:43

      Like if they lied to investors or misled investors, then obviously we don't want any part of that, but I don't think most failures are like that. And, um, and so as long as the founder, I think, conducted themselves honorably, had some good learnings, it's certainly not a disqualifier for their next startup.

   9. DFDavid Friedberg12:00

      I mean, Chamath, you've been open in the past about startups that waste money and do the KIND bars and red brick, you know, offices and, y- you know, easy living at the office. There's no better example of over-the-top exuberance as there was at WeWork, right? I mean, does that indicate to you that this guy doesn't have a clue in terms of how to be prudent with investors' capital and it's not backable? Or how do you think about it?

   10. CPChamath Palihapitiya12:25

       I have a couple thoughts. The first is that WeWork, um, is a really interesting business, but that business had been built many times before and it's called a REIT. And I think what Adam was able to arbitrage was a period of time where he pitched a non-real estate investor, a technology company that was really just a real estate investment trust, and that's why he was able to get these incredibly heady valuations. I think the peak valuation of WeWork was like $45 or $50 billion.

   11. DFDavid Friedberg12:56

       Mm-hmm.

   12. CPChamath Palihapitiya12:56

       But what happened, which is that when WeWork ultimately went public, the collective intelligence of the public markets imposed a REIT-based valuation model on WeWork, and it is now a $3.6 billion public company. And I don't think you can dunk on Adam for that. It's hard to build any kind of company, let alone a $3.6 billion company, and he was instrumental in that, so he should get some amount of credit. But the reality was that he was pitching people that didn't want to hear about a business that was a real estate investment trust, they wanted to hear about some technology and all of these other things, but ultimately when you stripped it away, it was a REIT. Now, you start it again and from the outside in, not knowing anything, 'cause we don't know anything, what it looks like is the beginnings of another REIT, except focused on residential.

   13. DFDavid Friedberg13:49

       Hm.

   14. CPChamath Palihapitiya13:49

       Right? So when you buy hundreds or thousands of apartments. But again-

   15. DFDavid Friedberg13:54

       Same pig, different lipstick.

   16. CPChamath Palihapitiya13:56

       The, the, the, the issue at hand though is that, again, he has found a technology investor to buy a technology story, and again, time will tell whether there is a technology business here, but if it ultimately is an amalgamation of a bunch of apartments with some sort of, you know, interconnected technology that helps enable a better community or what have you, those kinds of REITs have also been built before and REITs are valued in a very structured way on, on this thing called FFO, funds from operations. And you know what the upper bound of valuation is, which is if you go and, you know, look in the stock market, the most valuable REIT in the world is a company called Prologis, they have about a billion square feet under management, they're about $100 billion company. WeWork has about 45 million square feet under management, they're a $3.6 billion company. So if you just interpolate from those two data points, on the residential side, Adam's gonna have to buy, you know, if you think an average apartment is 1,500 square feet, he has to buy, you know, 665,000 more apartments in order for there to be Prologis scale. You know, I don't know, to invest at a billion dollar valuation or 1.5 or 2 or whatever the number turns out to be makes sense if you think the upper bound is unlimited, but if you think the upper bound is 3 or 4 billion, the only reason to do it... By the way, it still makes sense for Andreessen to do it, and this is why I think people get tilted, because now this comes to my second point, which is that what Adam Neumann is able to take advantage of is a very obvious powerful understanding of the venture capital business model that other founders don't, especially the ones that dunk on him. And let me just explain this. We talked about this last week. The only mistake I think that SoftBank really made was a velocity of money mistake, which is not setting the investment cycle of their vision fund to be 10 years instead of five. While every other fund has a five-year investment cycle too, including AHs. And so when you have tens of billions of dollars under management, guys, guess what? They have the same problem SoftBank did, except with just a different quantum of capital. They want velocity of money. And so, if a founder comes and asks for $350 million, it actually in a perverse way makes their life easier, because now that's saying yes once versus saying five or six times to people asking for $50 million, or heaven forbid 350 times for people asking for a million dollars.

   17. DFDavid Friedberg16:29

       And so if you're, if you're in that seat, Chamath, if you're in the in the investor's seat, are you putting all that capital once with the one guy who's managed that money before or do you wanna find the guy who hasn't or the gal who hasn't?

   18. CPChamath Palihapitiya16:42

       You have to understand the Andreessen business model, Andreessen Horowitz business model is to become Blackstone but for technology.

   19. DFDavid Friedberg16:50

       They have like 30 billion AUM now, right?

   20. CPChamath Palihapitiya16:52

       Right, which is still, you know, a drop in the bucket-

   21. DFDavid Friedberg16:54

       35 billion, something like that, yeah.

   22. CPChamath Palihapitiya16:55

       So if, if you look at Blackstone, right?

   23. DFDavid Friedberg16:57

       A trillion.

   24. CPChamath Palihapitiya16:57

       Blackstone is a 100-plus billion dollar market cap company, right? Built on three pillars, credit, private equity, and real estate. You can make the argument that technology is near... is as important as those three categories. And so, you know, if... I think it's pretty obvious that Andreessen is trying to build a publicly ownable security that represents all things in technology. So again, I don't think that they're necessarily out to generate massive returns for LPs, they want to become a credible, reliable institution for... to absorb hundreds of billions of dollars.

   25. DFDavid Friedberg17:37

       And so ultimately, the objective you think is to index technology-

   26. CPChamath Palihapitiya17:39

       Is to monetize their... No. Their, their ultimate goal is to mo... is for Andreessen and Horowitz to monetize the equity of Andreessen Horowitz.

   27. DFDavid Friedberg17:47

       Of the management company?

   28. CPChamath Palihapitiya17:48

       Yeah, that's the goal. And that's a, that's a... By the way, that's a laudable goal. It's really hard to build a business. They've built an incredible business and then they should get credit for that.

   29. DFDavid Friedberg17:57

       Sax, do you agree?

   30. GUGuest17:58

       Well, I mean, they are, the- they... I think Chamath's right that their stated goal is to build, uh, like a larger institutional VC-type investor. I mean, doesn't...
3. 25:32 – 45:41

   Housing policy: Bay Area, Houston, Miami differences

   1. DFDavid Friedberg25:32

      Okay, speaking of Andreessen, I'm gonna move us along, you guys wanted to cover this topic, not my favorite topic, uh, just because I, I want to be careful, uh, a- about, uh, you guys decide what you want to say. But, um, I, I'm gonna bring up the, uh, the Andreessen NIMBYism thing in Atherton. You guys wanted to cover this, right? Yeah? Thumbs up?

   2. CPChamath Palihapitiya25:51

      Sure.

   3. DFDavid Friedberg25:52

      I mean, I mean (laughs) it's like, okay. Well, I mean, um-

   4. CPChamath Palihapitiya25:55

      Well, I mean, everybody's talking about why wouldn't we?

   5. DFDavid Friedberg25:57

      Everyone's talking about it. Okay, so-

   6. CPChamath Palihapitiya25:59

      It's relevant.

   7. DFDavid Friedberg25:59

      ... during COVID, during COVID Marc Andreessen wrote a, um, an essay, uh, uh, called Build, and I, I'm gonna read an excerpt. He says, "You don't just see the smug complacency, the satisfaction with the status quo, and the unwillingness to build in the pandemic or in healthcare generally, you see it throughout Western life and specifically throughout American life. You see it in housing and the physical footprint of our cities. We can't build nearly enough housing in our cities with surging economic potential, which results in crazily skyrocketing housing prices in places like San Francisco and making it nearly impossible for regular people to move in and take the jobs of the future." And then last week, uh, Marc and his wife Laura submitted a letter to the Town of Atherton, um, to, uh, fight against, uh, multifamily housing saying, "I'm writing this letter to communicate our immense objection to the creation of multifamily overlay zones in Atherton. Please immediately remove all multifamily overlay zoning projects from the housing element which will be submitted to the State in July. They will massively decrease our home values, the quality of life ourselves and our neighbors, and immensely increase the noise, pollution, and traffic." Sax, I'm just gonna hand the mic over.

   8. DSDavid Sachs27:10

      Well, I mean, uh, I, I'm happy to defend the residents of Atherton on this. I'm gonna take the contrarian standpoint, but does anyone-

   9. DFDavid Friedberg27:17

      Yeah, I, I, I was gonna do the same.

   10. DSDavid Sachs27:19

       (laughs)

   11. DFDavid Friedberg27:19

       I thought you guys weren't gonna match him, so go ahead. (laughs)

   12. DSDavid Sachs27:21

       Well, look, I mean, do we have a, a problem where housing is too hard to construct in the State of California? Yes, and there's a bunch of reasons for that. The permitting process is Byzantine, it takes years, all those delays cost money. The tenant rights movement has gone so far that landlords basically can't, um, you know, it's almost impossible to evict anybody, and that makes it so no one wants to be a landlord, so no one wants to build these, um, multifamily, uh, buildings, uh, or, or buy them. And then, you know, you've got, like, all these, uh, taxes. So you know, just in Calif- in, in San Francisco, for example, they just passed a 6% transfer tax where, if, we talked about this on the show once, they basically just took 6% of my home and there's, like, nothing you can do about it. So there's a lot of reasons why people don't want to invest in more housing in California, and I think that this Atherton example is sort of cherry-picked because what this is, is really zoning. You know, um-

   13. CPChamath Palihapitiya28:17

       Right.

   14. DSDavid Sachs28:17

       ... there are these suburbs, and it's not just Atherton, I mean, you got the East Bay as well, where people live in these areas that are zoned for single family residences as opposed to multifamily, and that determines the character of the neighborhood. Now, if you go buy a house in one of those neighborhoods with that zoning, then that's what you expect to be the case. I mean, you have to spend more money buying a house in that neighborhood because you are investing in the character of that neighborhood. So, it is unfair to the residents of that neighborhood for a developer to come along and say, "Hey, I'm gonna change the character of this place so I can make money. I'm gonna take a bunch of single family lots, turn them into multifamily apartment complexes or something like that." So I can understand why the residents would be against that. So I would differentiate between legitimate reasons for zoning and then th- um, things that the state or cities have done to, uh, undermine the market for housing, basically creating frictions or impediments to the market for housing. Now, it is the case that as cities get bigger and need to free up land, that you might need to rezone. But the areas that you should look out for that should make sense, right? I mean, I don't think you go off to Atherton and change the character of that neighborhood so that you can buy five more units.

   15. DFDavid Friedberg29:31

       Yeah, I mean, you can't-

   16. DSDavid Sachs29:31

       You should, you should look at, like, why not look at the areas around, say, public transit, like the BARTs and so forth, where you could basically go up around there and it would make sense for the neighborhood.

   17. DFDavid Friedberg29:43

       I mean, the example I would give to kind of paint an extreme picture is let's say you own a farm in the countryside. Someone buys the farm next to you and then decides they want to build a 50-story tall skyscraper next to your farm. You, you would have a serious objection because I think that the... I mean, look, look at the town of Venice in Italy, I mean, Chamath, you've, you've, you've been there recently. But, um, you know, communities, local communities can define the character of their community by, by, by making zoning laws that, uh-... you know, a- allow a small city to remain, like, a small city. I've also always been against this notion that we should allow any developer to build any size building anywhere they want in San Francisco, which has been an ardent cry from Silicon Valley progressives for years, that we need to let them build, let them build. But at the end of the day, I moved to San Francisco 22 years ago and it was a small, quaint city. It felt like a small city. And building skyscrapers made it more congested, made it less inviting, made it feel more industrial, and it wasn't appealing to me as a resident. And I think that residents need to have the right to define what they want their community to be. The question it brings up then is, where do you build? Because all residents everywhere would want to block family housing, multifamily housing, skyscrapers. So I mean, Chamath, I don't know if you have a point of view to counter what we're saying, but, you know, how d- how do we think about solving this problem at scale if everyone wants th- their local communities to remain quaint and interesting and, and not be built out?

   18. CPChamath Palihapitiya31:09

       Well, I, I, I think, I think that's true for people who can afford really nice homes in the suburbs.

   19. DFDavid Friedberg31:14

       Right.

   20. CPChamath Palihapitiya31:14

       But there are a lot of people that live in highly dense housing in urban environments, and I think that's where we need to focus first. If you look at the data, California needs to build three and a half million extra homes by 2025.

   21. DFDavid Friedberg31:29

       That's a rule, right? That's like a-

   22. CPChamath Palihapitiya31:31

       So David's right. Like, focusing on a town with a population of 7,000 people is not gonna solve the three and a half million homes we need to build, and it brings up a bigger question which is then who is gonna pay for all the physical infrastructure that's gonna be required? Let's just say you were able to actually double the population of Atherton to 14,000. Well, you know, y- I, I live near that area, so what I'll tell you is Atherton has, uh, bad flooding. Dav- you know, Sacks actually used to live near there too, so Sacks can, can confirm this. You know, depending on when it rains, huge pockets of water just collect everywhere. That infrastructure's bad. There are no sidewalks, right? So you kind of walk just on the road. (laughs) There's some cars whipping by, uh, you know, could pick you off at any moment. Now, those were decisions that, as David said, the residents of that town made decades ago because of the lifestyle that it created, and they traded away a highly dense urban environment. Whereas if you just moved a mile, you know, south, there are parts of Menlo Park and parts of Palo Alto that are already in a situation to absorb very dense housing, where you could put that extra 7,000 or 8,000 people pretty easily in a much-

   23. DFDavid Friedberg32:46

       But Chamath, what do you, what do you do when those people in that neighborhood in Menlo Park say, "I don't want another apartment building here. I want it to be down the road in Atherton." Right? How, how do you resolve this conflict? And I just wanna remind everyone, in September, Cal-

   24. CPChamath Palihapitiya32:58

       I think I-

   25. DFDavid Friedberg32:58

       ... Governor Newsom signed these bills, right? He signed 31 affordable housing bills which mandate by zip code and by city and by town the building of affordable housing to create equity in this problem, uh, or, uh, which basically means all these cities and all these towns are now scrambling to figure out how do we meet our state-mandated objectives of new affordable housing in our zip code or in our town-

   26. CPChamath Palihapitiya33:20

       No. And by the way, look-

   27. DFDavid Friedberg33:21

       ... and it's becoming real threat-, yeah.

   28. CPChamath Palihapitiya33:22

       I, I, I mean, look, the, the... and I think exactly as you said, what will happen now is it goes to some state commission, and I think that state commission can issue some sort of penalty or something.

   29. DFDavid Friedberg33:31

       Yeah. That's right.

   30. CPChamath Palihapitiya33:31

       So, you know, it's, it's... I think the, the, the residents will pay for that freedom, if you will, to, to not have that building happen. But again, I just go back to it doesn't solve the crux of the problem. The crux of the problem is we need to solve this housing crisis in the order of magnitude of millions of homes. Okay? And so millions of homes can only be absorbed mostly in cities. So the real conversation and, you know, is I have more sympathy for the residents of Atherton than I do for residents of the city of San Francisco. Okay? Because there is dense housing in San Francisco. There already is an infrastructure social services that were designed and built. There are sidewalks. Again, simple example. (laughs) There are stoplights, you know, in San Francisco that a lot of these towns don't actually have. Now, again, that was a decision they made 50 years ago, and they would have to change that decision. But my point is, like, there are, there are places that are already shovel-ready, and the real question is why can't we build hundreds of thousands of units? And so this is a good article to write because it's a tony neighborhood and, you know, there's a few thousand folks, but I think the real issue won't get solved until we figure out how to green light hundreds of thousands and millions, because we are three and a half million homes short.
4. 45:41 – 1:01:09

   China, Saudi Arabia, Russia increase relations: should the US be worried?

   1. DFDavid Friedberg45:41

      We're gonna go from super local to global. Uh, um, you know, this is a topic I wanted to talk about today 'cause I, I wanna bring together a couple of, of threads and get your guys' take on, you know, all of these things kind of coming together and what it means for foreign policy and, um, how things might play out on the global stage in the next, um, you know, call it years to decades. Xi Jinping, it's been reported this week, is taking a trip to Saudi Arabia. You know, this is just a few weeks after, uh, Joe Biden made his trip, uh, to Saudi Arabia. I'll read, uh, just an excerpt. Um, he's gonna end his more than two years of self-imposed, in-person diplomatic isolation and his first trip is gonna be to Saudi Arabia. Uh, you know, this is, uh, from unnamed Saudi sources so it's unclear. This isn't an official statement, uh, this is just reporting. You know, it... The Wall Street Journal reported in March that after six years of negotiations China and Saudi Arabia are getting close, uh, for China to start pay, uh, um, uh, paying yuan, uh, for oil that they would be buying from the Saudis. Um, so there's an important kind of economic tie-up that may be emerging that, that could affect the US dollar and the, uh, the importance of the US dollar on the, on the global economic stage. And meanwhile, this week as well, it's been reported that China is doing military exercises with Russia inside Russia. So there is, um, an extension of China and their influence and their economic tie-ups and their military activity with both China, uh, sorry, with both Russia and Saudi. Uh, I also wanna highlight another important point that came out this week. Uh, Saudi Aramco reported their earnings. The largest earnings ever for a company, $48 billion of net profit in a quarter. That is more profit than Microsoft, Apple, Facebook, and Tesla combined in a single quarter. It is the most profitable business and Saudis have been very public about their intention of divesting their interest in Saudi Aramco, which is their state-owned and state-run oil company, and moving into other businesses. Over the past couple of months, um, it's been reported that they've accumulated a nearly $100 billion equity portfolio owning stocks like Alphabet, Zoom, Microsoft, and others. It's also been reported that they own over $160 billion of US treasuries. So the US is very dependent in the private equity community, in the VC community, and in the public markets on Saudi dollars. Saudis have been large holders of US dollars, and now through China, it looks like the Saudis may be having a tie-up that brings them closer to China, uh, through this trade relationship with the yuan and the visit from Xi Jinping while China is actively exercising, um, you know, their military inside of Russia. Is the future a China-Russia-Saudi axis? And should we be concerned and should we be changing any of our tactics on foreign policy, David Sacks-

   2. CPChamath Palihapitiya48:42

      ... as this, um, you know, set of threads plays out, uh, over the next couple of months and, and, you know, going ahead.

   3. DSDavid Sachs48:48

      Yes, I think we do need to make some changes. Biden's backing away from this now, but in his first year, he declared the Saudis to be pariahs, and he did push them into China's arms. What was the point of that? Biden recently had to go to the Middle East to basically beg Saudi Arabia to increase their production of oil. So, he's already acknowledged the policy didn't work, and one of the reasons it didn't work is because simultaneously with declaring these allies to be enemies, he basically restricted US, uh, energy production, which has, you know, str- strategically undermined

   4. DFDavid Friedberg49:20

      A- and, and the US has military bases in Saudi Arabia, very strategic assets for the US military.

   5. DSDavid Sachs49:26

      Yeah. Li- listen, the- the-

   6. DFDavid Friedberg49:27

      And we sell them weapons.

   7. DSDavid Sachs49:28

      The, the US relationship with Saudi Arabia is always gonna be complex. They're a complicated friend to have. But it's much better to have them as a friend than basically drive them into China's arms. And the reality is, whatever you think about the regime there and how repressive it is, first of all, we don't get to choose the people running these countries. That's the lesson we should've learned over and over again from all these failed regime change operations. Second, do we have any reason to believe that if that regime got toppled, it would get replaced with something better? I think we all know that if the regime there fell, it would probably be replaced with something fundamentalist that we would like even less. And certainly, if another nation were to basically dominate the region, like Iran, that would be worse for us as well. So, our relationship with them is complicated, but ultimately, they should be, I think, allies of the United States, and we should not be working overtime to push them into China's arms. And I think similarly with Russia, we've basically declared ourselves to be engaged in this proxy war with Russia, which strategically, there's just nothing in it for us. You can sympathize with the people of Ukraine-

   8. DFDavid Friedberg50:33

      Yeah.

   9. DSDavid Sachs50:33

      ... all you want.

   10. DFDavid Friedberg50:34

       Yeah. I mean, you-

   11. DSDavid Sachs50:34

       But it's dangerous.

   12. DFDavid Friedberg50:35

       You've said that in the past. I mean, I think the question is does this China military exercise in Russia indicate an escalation of our conflict with China to you, um, you know, or is this something that, you know, is just kind of par for the course in terms of, you know, uh, neighbors, you know, conducting-

   13. DSDavid Sachs50:53

       Mearsheimer just had an article in Foreign Affairs talking about, uh, the Ukraine war, reminding us that it's still going on. I think people somehow think that this war is just stable and it'll settle into forever war status, kind of like, like Afghanistan, these conflicts in the Middle East that just went on forever. It's actually very dangerous. It can always escalate out of control. And as long as it's going on, I think we just have to remember that it's going on. It poses a huge global risk. And I would say that one of the things that, again, we should be a- aware of is this idea that even though we have problems and conflicts with multiple nations, we still don't necessarily wanna push them into each other's arms. Again, the Soviet Union and China during the Cold War being the key example. I mean, this principle of geopolitics goes back thousands of years to the Romans, right? Uh, divide et impera, divide and rule. You do not wanna unite your enemies. And what we've done here is we keep pushing them together. You know, China and Russia historically have not been friends. They share long borders together. Neighbors generally have problems with each other. These are nations with serious conflicts or differences of interest, and we've made it really easy for China-

   14. DFDavid Friedberg52:03

       Yeah.

   15. DSDavid Sachs52:03

       ... to, to turn Russia into the junior partner in that relationship.

   16. DFDavid Friedberg52:08

       Chamath, do you think US foreign policy needs to change and that we're setting up this, you know, um, axis of conflict, um, this, this axis of allies, uh, that we don't wanna have be allies? And, you know, would you kind of advise... And, and also, you know, do you get concerned about this oil yuan trade, where there may be some, you know, economic tie-ups that, that really could affect, uh, uh, you know, the, the dollar as a reserve currency?

   17. CPChamath Palihapitiya52:35

       Look, a couple things. I, I think it's really dramatic to kind of paint it in these stark kind of like bipolar terms.

   18. DFDavid Friedberg52:42

       Yeah.

   19. CPChamath Palihapitiya52:42

       I think we are post all of that. So, I, I understand how in the Cold War, it was easy to fall into binary definitions of good and evil, one and zero, us versus them, team A versus team B. But in 2022, I don't think that's how things work anymore. We're in a highly interconnected, highly global world. It's very complicated. Uh, dollar flows are real-time. They're massive. Cooperation is real-time. It's all over the world. It's with every country. So, it allows every country actually the first chance that they've ever really had to maximize their own potential for their own citizens, and that's really what every country's goal is, right?

   20. DFDavid Friedberg53:21

       Mm-hmm. Mm-hmm.

   21. CPChamath Palihapitiya53:22

       And so, in that lens, look what just happened today. Gazprom said they're gonna shut off Nord Stream 1, just for a f- you know, a few days, right? But as a result of that, EU nat gas has just gone absolutely nuclear and just closed at all-time highs.

   22. DFDavid Friedberg53:36

       Four- 14X, 14X where it was pandemic-

   23. CPChamath Palihapitiya53:39

       Right.

   24. DFDavid Friedberg53:39

       ... uh, you know, price per unit-

   25. CPChamath Palihapitiya53:41

       So-

   26. DFDavid Friedberg53:41

       ... for a year ahead. 14X.

   27. CPChamath Palihapitiya53:42

       So, if you, so if you take a step back, we are at max energy production. With all of the capacity all around the world, 100-plus-odd million barrels a day, okay? Global productivity absorbs that. There is very little room right now to expand that without pushing the date in which that capacity's available out until, you know, 2028 to 2030. So, effectively, a decade from now. So, if you're s- in this situation and you're a country with vast natural resources, of which I'll just remind us, America is one, I think the most important thing you can do for your own citizens is to monetize these petrochemicals now. Get it out of the ground in a reasonable way. Sell them in the marketplace because there's demand for it. Take that money and reinvest it in your people. And I think if you look at it that way, the best-run countries are responding to this moment in time like any company would. How do you maximize demand and sell the product you have to the most number of customers globally?And so, I think the Middle East is doing an incredible job. The US, by the way, by passing the IRA, finally, I think, is on the right footing because... And we can talk about this in a moment, but the path to permitting and the path to cleanup... And by the way, it puts fossil fuels on a level playing field with, with clean energy alternatives.

   28. DFDavid Friedberg55:07

       Emerging alternatives, yeah.

   29. CPChamath Palihapitiya55:09

       The best thing that could have happened, okay? So I think we're all behaving in a very rational, market-focused way. And so I would focus less on trying to dramatically kind of resolve these things as a few countries versus everybody else. I don't think that's what's happening.

   30. DFDavid Friedberg55:27

       Yeah.
5. 1:01:09 – 1:29:47

   Inflation Reduction Act signed into law: climate change impact, CBO scorecard, IRS beefed up, carbon tax, big pharma pricing, and more

   1. JCJason Calacanis1:01:09

   2. DFDavid Friedberg1:01:09

      Well, speaking of reducing dependency, you know, uh, Joe Biden signed the Inflation Reduction Act. Some people have said this is the most important bill signed in years, if not decades, uh, by, uh, you know, um, passed by a US Congress, signed by a president because it touches on so many points, um, that folks believe will really move the needle with respect to climate change. Chamath, I think you made an interesting point in our group chat, a- and I think maybe we should start there, which is, you know, at the end of the day, the systems of industrial production on planet Earth were made in such a way that we never accounted for the costs of the external output of these systems, meaning we can burn fuel, put CO2 into the atmosphere, or put methane into the atmosphere in the case of animal agriculture, and we get a low-cost product that we consume. And ultimately, no one specifically pays for the cost of the carbon going into the atmosphere, which I and, you know, many scientists would argue is having an anthropogenic effect on, um, the warming of the planet and, and more catastrophic weather and, and, and all these other risks that we're now facing. And so the idea was, you know, first principles, you should tax people for tax industry, tax businesses for the production of atmospheric carbon that causes an effect that we're all gonna have to pay to repair over time. So, you know, is that a point of view that you hold, Chamath? Because, you know, you kind of brought this up in our group text, but that's the f- that, that would be the, the ideal scenario to resolve climate change is if you just tax carbon, we kind of, you know, have a, have a real solution here, and that this whole bill is ultimately, uh, you know, meant to kind of resolve the fact that we simply cannot find a way to a carbon tax.

   3. CPChamath Palihapitiya1:03:02

      I actually think that what this bill did was kill the idea of a carbon tax. I think it makes it completely unimportant, and it'll never see the light of day. Why? I think it's because in the absence of what we did in the IRA, there wasn't a clear way of doing exactly what you said, which is letting people figure out what the equivalent trading price would be for burning a pound of coal versus, you know, generating the energy needed to run something off of nuclear. There was no market clearing function for that. And the reason is because you couldn't get an equivalent amount of capacity effectively available online so that they could compete one for one. What we did through this IRA was essentially use money to create so many subsidies and then to also green light the way that incremental fossil fuel projects would come to market so that now they're actually going to be put on a level playing field in the broad open market so that they can compete. When that happens, I think you will make those trade-offs better yourself. And as a result, I don't think that there will be a, a necessary offset mechanism that'll be required because this plan will still get us to about 40% of the way there where we want it to be by 2030, which is still a pretty decent leap forward. There is no plan that gets us to where we all need to be anyways, and I think that the appetite to go from this plan to where we need to be doesn't really exist. So, I think that we're just gonna have to kind of grit our teeth, get through the implementation of the IRA, and realize that this is the beginning of a probably 100-plus-year project. Nothing's gonna get solved by 2050. Maybe you'll see something done by 2100, probably not. It'll probably be a 2150, 2200 kind of an objective. And in that lens, I think, like, a whole bunch of business models got turned upside down. So, I think carbon markets and carbon trading are not gonna be the thing that we thought it was gonna be. I think stuff like direct air capture, again, are gonna be toy projects off to the side. I don't think that-

   4. DFDavid Friedberg1:05:20

      Totally agree.

   5. CPChamath Palihapitiya1:05:21

      ... those are-

   6. DFDavid Friedberg1:05:21

      Totally agree.

   7. CPChamath Palihapitiya1:05:21

      ... toys are not, those are not-

   8. DFDavid Friedberg1:05:22

      Yeah.

   9. CPChamath Palihapitiya1:05:22

      ... gonna be credible businesses-

   10. DFDavid Friedberg1:05:24

       Totally agree.

   11. CPChamath Palihapitiya1:05:24

       ... like we thought they were gonna be. Instead, the raw tonnage of dollars will do what America was able to do for solar and PV over 2000 to 2022, which has just crushed the cost per watt into the pennies so that it can be equivalent to hydro, coal, and nuclear, and put everything on a level playing field, and then allow the market to figure it out.

   12. DFDavid Friedberg1:05:47

       Yeah, I mean, there's a lot of other stuff in this bill I, I wanna highlight for you guys. I don't know if any of you looked at the CBO. So the CBO, the Congressional Budget Office, anytime a bill is being, um, voted on, they do an accounting analysis on how much spending and how much revenue there will be as a result of this bill for a 10-year period.

   13. JCJason Calacanis1:06:07

       This is actually awesome. Yeah, I checked it out when you sent it. Yeah.

   14. DFDavid Friedberg1:06:09

       Yeah. And so if you, yeah, if you look at every year-

   15. JCJason Calacanis1:06:10

       Me too.

   16. DFDavid Friedberg1:06:10

       ... for the next 10 years, the CBO score for this bill is that we're gonna spend an incremental, we're gonna increase the deficit by $330 billion for the next five years, and then we're gonna decrease the deficit by 320 billion in the five years after that. So, the net effect over 10 years is we're only spending $17 billion (laughs) on the, uh, on the bill. And then on the revenue basis, the expectation is we're gonna generate 67 billion in revenue in the first five years, and then another 20 billion in the, in the back five years. So, this is actually being accounted for and presented as deficit reduction, and that's because there's 87,000 new IRS agents being hired-

   17. CPChamath Palihapitiya1:06:50

       Yeah.

   18. DFDavid Friedberg1:06:50

       ... to go out and audit people and find new revenue. And there's a 15% corporate minimum tax being imposed on all companies. And what this means is that companies, public companies, private companies doing over a billion in revenue historically pay taxes on a book basis, now they're paying taxes on a financial statement basis, meaning the actual accounting that they present to their shareholders as of 2022.

   19. JCJason Calacanis1:07:09

       Can I, can I ask you guys a question?

   20. CPChamath Palihapitiya1:07:12

       How much was given to the IRS? 80 billion?

   21. JCJason Calacanis1:07:15

       87,000. Yeah, yeah, tens of billions, yeah.

   22. CPChamath Palihapitiya1:07:17

       80 billion. How much do you think it would cost, I don't know, pick your... Pick the, pick the most excruciatingly expensive third-party outsourcing firm you could-

   23. JCJason Calacanis1:07:28

       (laughs)

   24. CPChamath Palihapitiya1:07:29

       ... okay? To build an entire system to basically automatically review every single tax return and throw exceptions, and machine learn-

   25. JCJason Calacanis1:07:40

       100 billion max.

   26. CPChamath Palihapitiya1:07:40

       ... and machine learn what fraud look like or what misrepresentation-

   27. JCJason Calacanis1:07:44

       100 billion max.

   28. CPChamath Palihapitiya1:07:45

       Uh, like let's say five billion dollars. It'd be the most expensive-

   29. JCJason Calacanis1:07:49

       100 billion max.

   30. CPChamath Palihapitiya1:07:49

       It'd be the most expensive-

Episode duration: 1:39:02