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Why California billionaire tax would backfire like France

The SEIU-backed wealth tax targets 200 Californians, the hosts argue: when France tried it, capital fled almost overnight in a broader exodus.

Jason CalacanishostDavid FriedberghostChamath PalihapitiyahostGuestguest
Oct 24, 20251h 23mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 1:02

    Bestie intros!

    1. JC

      What's the story with the California wealth tax? Can somebody explain this to me?

    2. DS

      Okay, so the SEIU, the Service Employees Union, filed a ballot initiative, which means a direct to voter vote, to amend the California Constitution to introduce a one-time billionaire's wealth tax where billionaires, anyone who has assets over a billion dollars net of their debt, has to pay a one-time tax of 5% of their net worth-

    3. JC

      (laughs)

    4. DS

      ... including their private stock, including their real estate.

    5. JC

      You said 5% (laughs) ?

    6. DS

      Five percent of their net worth.

    7. JC

      This is why-

    8. DS

      Not of their income-

    9. JC

      Of their entire thing?

    10. DS

      ... of their net worth, the entire net worth.

    11. JC

      (sighs)

    12. DS

      One-time payment to the State of California, and then there's an allocation on how that money will be spent, but it's a one-time billionaire tax. Now, it is very likely that this sort of an amendment to the California Constitution is not constitutional and actually cannot be made and will not actually go into enforcement, even if the voters do vote to approve it, in both the federal and the state level, based on this concept of uniformity, which

  2. 1:02 – 17:00

    CA Billionaire Tax

    1. DS

      is that you have to tax everyone equally, except for the case of an excise tax, which is like income or a transaction. You're allowed to tax disproportionately based on the size of the income or the size of the transaction. But if you're gonna tax on property, if you're going to tax on an asset, you have to tax everyone uniformly. So it is likely not going to go into effect if it does pass. However, it is very likely the case that the SEIU is simply using this as a baiting mechanism to get people to stand up and denounce it, and then they will be in a position to attack those people and destroy them and use this effectively as a political fodder for this next election cycle. That's what it seems like the true kind of motivation around here is.

    2. CP

      Then let me, let me go on the record: I think this law is great.

    3. DS

      (laughs)

    4. JC

      (laughs)

    5. DS

      He's getting the virtue signaling points.

    6. JC

      I would just like to say, may I be the first-

    7. DS

      If I hope it passes-

    8. JC

      ... to pay 5%? I'll be in the front of the line. Let me know when to show up. I'll bring my check.

    9. DS

      Who do I sign the check towards?

    10. JC

      Shall I... Should I bring cash, Gavin? Would you bring a cash to your... Which one of your mansions should I bring the cash to, Gavin? (laughs) This is strategically why, Chamath. I'm glad I got out of California right before I was about to billionize. That was a smart move on my part.

    11. DF

      Freeberg, what are the odds that this goes into effect? Can you just handicap this?

    12. DS

      Yeah, well, we don't know who's gonna come out against it, but there's an effort to try and get top Democrat officials in the State of California to say, "This is silly. If you do this, people will leave the state. Yada yada." So that's kind of a quiet underway effort. But I don't know why the citizens of California, the majority of citizens of California, would not vote for this. Why, w- who wouldn't want to tax the billionaires 5%? Come on, like let's do it. (laughs)

    13. CP

      Well, the way, the way that it's written, it says, "Hey, guys, we're 30 billion in the hole, and there are 200 Californians that control two trillion dollars. We're just gonna ask them to pay a one-time fee of 5%."

    14. DS

      Yup.

    15. CP

      And I don't see how anybody would say, "Hmm, that doesn't sound unreasonable-"

    16. DS

      Right.

    17. CP

      "... at the ballot box."

    18. DS

      Right. And I think-

    19. DF

      The problem is-

    20. DS

      And then the people, the people that step up against it and are vocal against it and point out like, "Hey, in France, when they did this, they lost like 40% of their revenue because all the wealth left the country."

    21. CP

      The reality is that this sets it up to go through the legislature, because if it goes through the will of the people, and it gets overturned, as you say, Freeberg, then if you're legislatively smart, then you'll actually push it through the state senate-

    22. DS

      Oh, but don't you remember they did this in 2024?

    23. CP

      ... and say ho- No, no, no, and, and then it will not get vetoed. Like, because then it's like, "Hey, listen, it's clear that the people want this." So I, I think that you'll have some kind of progressive taxation system that conforms to the law.

    24. DS

      That's... I mean, the one... Yeah, they're-

    25. CP

      And, and says-

    26. DS

      ... they're already trying to extend Prop 55, which is the progressive tax for people making over a million dollars. They're gonna get that passed. That's going to be this incremental tax on income. But the one-time wealth tax-

    27. CP

      I think the, I think the million dollars thing, I think that's harder to hunt because there's too many people that that touches. A million dollars today in 2025, not to be glib, is just not what it used to be. But a billion dollars does cut off most people, except for a couple of hundred. That is true. And I think that, for example, it's very reasonable to then charge a 10% excise tax on selling appreciated stock.

    28. DS

      Right.

    29. CP

      Why not?

    30. DS

      Right.

  3. 17:00 – 29:51

    Major NBA gambling scandal

    1. JC

    2. DF

      Anyway, keep going.

    3. JC

      Terry Rozier, uh, who's allegedly a point guard. (laughs) I mean, he, he was... he told his friends, this is crazy, you know, in the over/unders, you know, "Hey, guys, bet the under on me, uh, in rebounds 'cause I'm gonna, uh, take myself out of the game with an injury," allegedly, and, uh, his friends allegedly made 200 grand off this. Okay, just allegedly for the whole goddamn thing. Uh, this is going across 11 states and a bunch of crime families. Allegedly, there's something called the mob. I don't think that really exists anymore. I think that's an urban legend. And these are two separate threads, but announced on the same day. They both involve NBA players, but apparently, this is two different cases. So Chamath, what do you allegedly think of this? (laughs)

    4. CP

      I, I, I think it's crazy. I think you're seeing a lot of these trends converge all at the same time, meaning you have the emergence of all of these prediction markets, you have a lot of data science and AI being used that shows that there's a lot of odd behaviors. So it really was the squares versus the sharps, and if you had the inside edge, you were just printing money. Now that all of that is becoming more transparent, there's a lot less margin. Then what happens is you have these laws passed in the 11th hour. There was a, an important gambling law that was inserted into the big, beautiful bill that has implications to all of this.... and now you're seeing the feds. I, the, the crazy thing to me is a press conference where Kash Patel is talking about this. I mean, that's like serious business when the FBI director is front and center talking about all this. So I don't really know what it means, to be honest. I was shocked at the scale of it, and I was shocked that it's on the radar of the feds. This took... I thought this is, like, pretty typical ticky-tacky stuff, but clearly there's something bigger. I don't know exactly what that bigger is, but s- something is happening where all these markets are smashing together, there's just a big cleanup effort going on, so I don't know. I really don't know.

    5. JC

      Friedberg, I guess there's two different ways to go about this. You have the fantasy sports becoming legal, everybody around these players just in that w- one case, where are these people too dumb to understand that their $10 million contract to play in the NBA every year, or $20 million contract, is more important than your friends betting the under or over? And how dumb are they, I mean, to not know that the people running a sports book would look for weird action? Like, why is one player getting $200,000 on their over-under for rebounds and the other players are getting $20,000? I mean, what are, what are your thoughts here, uh, Friedberg? And you can also-

    6. DS

      That happened.

    7. JC

      ... take on the poker one.

    8. DS

      I think gambling generally, as we call it, should be decriminalized, and I don't like this state-by-state setup with gambling. I think we should have a federal regulatory body to oversee, monitor. And the problem is, you have state gambling commissions and we have a state-by-state kind of patchwork of regulatory authority that makes it very hard to standardize, track, and provide also guidance and feedback. I would much rather see this all kind of get handled at the federal level and, and better organized. To Chamath's point, this is not going away. People love to bet on stuff. They love to gamble. This is part of sports, this is part of the culture.

    9. CP

      Look at Polymarket.

    10. DS

      You're not gonna just turn it off. Look at Polymarket. Yeah.

    11. CP

      They did a re-... Polymarket raised, whatever it was, a billion or two billion, it's nine billion. Then the next weekend, they announced sports betting.

    12. DS

      Yep.

    13. CP

      And now they're raising money 30 days later, it... allegedly.

    14. JC

      Allegedly.

    15. CP

      At 12 to 15 billion. I mean-

    16. DS

      Going anywhere.

    17. CP

      ... it's un- it's unbelievable. And you can see, by the way, the way that DraftKings and FanDuel's stock have reacted to this, those companies are toast. Toast.

    18. DS

      Correct. That's right.

    19. JC

      This is really interesting-

    20. DS

      I mean, the, the, the Polymarket model is the best model because it creates a market. And so as information flows in, that market will dynamically adjust and everyone will get a more fair price.

    21. CP

      Did you see the regression that they did on the Polymarket trades and how well they're in the money?

    22. DS

      Yep. Yeah.

    23. JC

      Yeah.

    24. CP

      So, Nick, can you find that? But basically what it showed is, like, the front money is the sharps, the back money are the squares, but you have to fade the trade in the first week. So there's a very scientific method where if you wanna make money on Polymarket, it became pretty clear.

    25. JC

      There's two things that are very interesting about it is, number one, how s- how they've simplified things to a way people can understand. It's not like you have to understand, you know, it's 120, it's this, the point spread, it's just what are the, what's the chance that this thing happens, 80%, 20%, people can just place their money on it, and then this ability to reconcile it at any time, I didn't realize how engaging that is. I was watching the Oscars and I was watching boxing, and I bet the underdog in this Netflix boxing thing that happened 'cause I just thought, "This guy looks pretty pissed off," uh, and I thought that was a good enough way to go with the underdog. (laughs) And then you watch it round after round and you see the odds changing in real time, and any time you can just cover the bet and take your winnings and take out the risk.

    26. DS

      Right.

    27. JC

      Really, like, interesting-

    28. DS

      Right.

    29. JC

      ... and fun for people, it's so simple.

    30. DS

      It's a market.

  4. 29:51 – 49:55

    Amazon's eventful week: AWS outage and leaked robotic automation plans

    1. DS

      cloud vendors that compete with one another. AWS, Microsoft and GCP or Google Cloud and I'll just give you the numbers-

    2. JC

      Oracle also, by the way, coming on strong. Yeah.

    3. DS

      That's right, but let's, let's exclude the number four for now, Oracle.

    4. JC

      Okay.

    5. DS

      But AWS has $124 billion revenue run rate. Microsoft, 120 billion, and Google Cloud, 54 billion. But AWS, which is slightly larger than Microsoft, is only growing 17% year over year. Microsoft, 26% year over year, and Google Cloud is accelerating at 32% year over year, and some say getting closer to 40% growth rate. The big thing I hear from partners and enterprise customers of these cloud services is that many of them, if not all of them as they scale up-... moved to a multi-cloud model, so none of 'em wanna be dependent on a single cloud. Many folks started on AWS because AWS was the OG. Back in the day, when I was running Climate Corp, I was the largest EC2 user in AWS for about a year and a half, which was their elastic compute (laughs) cloud service. We were running all these models back then, so I knew that service very early on and it was very unique, it was very powerful. And so a lot of companies that are old school established themselves in AWS very early on. But the outage that happened this week, I think, starts to highlight for folks that they can't and shouldn't have a dependency on a single cloud service provider and will only accelerate the diversification of companies into the other clouds. And so I do think this is actually a very beneficial situation for Microsoft and GCP, and to your point, JCal, perhaps even Oracle, in terms of giving those sales teams, which are very aggressive, a hard story to go and sell for and say, "Guys, you don't wanna just sit on AWS in case this happens again. We've got better infrastructure, we're more reliable, et cetera, than these other guys, so come and move over to us." That might be a little bit of a naive, simplistic, kind of reductive way to think about what happened this week, but I- we are seeing the smaller competitors accelerate and I think that this might be another kind of moment of acceleration for those folks.

    6. JC

      And multi-cloud, it's been around for a while, Chamath. When you were doing stuff with 8090, are the big companies already doing that or do they assume, "Hey, there's gonna be some downtime, yeah, it's okay to risk," or are they really thinking, "Multi-cloud, neo-cloud, let's have some smart, intelligent routing and redundancy here"?

    7. CP

      I think there are two markets. There's the AI market, then there's the non-AI market. In the non-AI market, everybody has everything. It all looks effectively the same. There's certain products and services that are unique to Azure versus GCP versus AWS, but by and large, the market is big enough and important enough that you'd have to be pretty insane to take a single vendor approach. And so, what typically happens in these markets is that they start off really small, one person has all the share, and then as the market becomes very valuable and very big, everybody diversifies because it's a risk management thing and these things flow into the disclosures you have to make as a public company. And if you didn't have that diversification and something bad happened and it impacted your business, you could get sued. So, there's all these reasons why eventually all these three big companies will converge effectively roughly a third, a third, a third. We're gonna debate the path to get there, but that's where they'll end up.

    8. DS

      You know, there's this principle called the rule of three, where they say, like, all markets eventually mature to kind of a 60/30/10 split, that you end up having your market leader at 60% market share, second place is usually half the size at 30, and then you always... there's some balance in the market where there's some competitor that resolves to about a 10%. It's really interesting. If you guys were to place a bet, who would you think is the 60/30/10, um-

    9. CP

      I don't think that applies here. I think that's bullshit.

    10. DS

      Do you think there are gonna be a third, a third, a third?

    11. CP

      I think it's all some idiot making something up.

    12. DS

      But what do you think-

    13. CP

      In AI-

    14. DS

      But what do you think ha- what do you think happens in cloud? Like, do you think that these all converge to equal market share?

    15. CP

      In non-AI, it's a third, a third, a third. It will. It'll take circuitous paths, but that's where we'll end up.

    16. DS

      By the way, a good point to make is that this revenue number that I highlighted for Google Cloud, Microsoft, and Amazon actually include their applications. So as you know, like, Microsoft, GCP have pretty sizable enterprise application stacks that are built into that number, which gives them, obviously, the ability to drive cloud usage because they've got demand and sales relationships into those enterprises.

    17. CP

      I think the way it works in AI is that you initially n- right now we're in this early phase where there's two paths. Path one is you need a specific model and it's relatively well integrated using a specific subsidized form of hardware on one of the hyperscalers, but eventually, you'll get more of that abstracted away as it gets pushed into the infrastructure so that you have less dependence on one model. There's a lot of work that has to get done and a lot of in-memory infrastructure that is not yet built that has to exist, but once that exists, it'll be easier for all of us at the application level to view these models a little bit more fungibly. And then at the bleeding edge, you'll have the folks that basically give you some form of a hypervisor or virtual machine or the bare metal. And that's where the neo-scalers are doing really well. But I think my point is that in any important market, in compute, in technology, where there really isn't much of a differentiation, I think you'll end up with these hyperscalers at a third, a third, a third. Now, if one model is way, way better and it's only on one of the clouds because Google writes a big check or Amazon writes a big check, I could see that swaying the AI share. But in the absence of that, I think cheaper, faster, better is sort of the, the, the end destination for everybody.

    18. JC

      What an extraordinary outcome for Amazon where AWS is like 15% of their revenue right now, Freeberg, but it's 60% of their profits, profits today. (laughs) And that was just a side hustle, like a little project they took out of nowhere and it's, it's having the same impact on Google and other places. So side bets-

    19. DS

      Great point. Yeah.

    20. JC

      ... and side quests are just... You look at the Waymo side quest for Google or even a lot of Sergey's other bets like, um, and Larry, flying cars, Loom, slow Earth satellites, Goog- Google Fiber, all those ex-projects were so- they had so much potential and they just-

    21. CP

      TPU, DeepMind, TensorFlow, GFS 50 bo-

    22. JC

      Uh, robotics.

    23. CP

      It's pretty crazy.

    24. JC

      Uh, Boston Robotics, they bought all those robotics companies. Man, it's like somebody got to them and were like, "Yeah, you know, you're seven, eight years into this-"

    25. CP

      You know, the problem-

    26. JC

      "... it didn't happen."

    27. CP

      The problem that Google has, unfortunately, is, like, they have so much stuff, it's not really valued. And so they're gonna go through the same problem that everybody else who's a conglomerate has, which is this decision. Now, Buffet, when he got to that decision, said, "I don't care. This is my life's work and so..."... I'm just gonna keep everything aggregated. But now you're gonna get to this thing where the intrinsic value of everything they have will far exceed the actual value that it trades at, and so there'll always be these fissures of pressure. And then if one of these things requires a lot of money, there'll be s- pressure, and that pressure will be segregate these things so that I can own one versus the other. And that's always the thing that happens in public markets, is you go, you go, you kinda swing back and forth. So I suspect that-

    28. DS

      Well, they, they, I mean, this is gonna happen at Google. This was what they set up to do with Alphabet, was to be the holding company, and then, to your point, they made that evolution, particularly in a company like Waymo where they said, "We can't be the sole funder." They brought in Silver Lake, they brought in all these other investors. They did this actually with Verily, they did this with a bunch of the, what they call other bets, is they made the conscious decision. Because, Chamath, on the flip side, by bringing in outside capital and having an independent board for these subsidiaries, they were actually able to drive better outcomes because now there was governance and there was aligned interests that could then take management and say, "Guys, if you can deliver these results-"

    29. CP

      Well, so and, and-

    30. DS

      ... "and you have this kind of external pressure as opposed to the softness-"

  5. 49:55 – 1:03:54

    Tesla earnings, Optimus, Elon's pay package, "corporate terrorists"

    1. JC

      Glass Lewis and ISS "corporate terrorists." These are the people who vote on behalf of passive index funds for things like who's on the board of Tesla. Vote for Elon's pay package will be November 6th. Polymarket thinks it's gonna pass, as we talked about before. They, they tend to get it right 85% of the time in this timeframe, uh, actually. So, 79% chance as of Thursday afternoon. I guess, Chamath, there's a couple of ways to go at this. There's the performance of the legacy business, there's the potential of the future business, and then there's governance, the company moving to Texas, and this pay package, and this transition period for Tesla, which is going from an, you know, somebody who sells cars, uh, really nice ones at a, at a very nice margin, but a lot of competition now. And then these, this business that obviously Elon himself is obsessed with, which is the Optimus, as we saw when he was at the All In Summit. Take it wherever you want, Chamath.

    2. CP

      I'll say three things. Stan Druckenmiller has this very useful comment about stocks, which is when you buy it today, you're trying to buy what that company's gonna look like in 18 months from now, and what it it's doing today doesn't matter. The thing about earnings and P&Ls and quarterly reporting is that it's looking backwards, and it's trying to give you a sense of what happened, not what will happen. So, I think there are three critical, critical things about what will happen that I think are important with respect to Tesla. The first is at the foundational technology layer. And Nick, I sent you this tweet, but it's what he said about AI5. I- I- I've made these comments before, but he had these multiple efforts with Dojo and other stuff that he merged into one unit, and the, the quote is pretty incredible. "We're going to focus TSMC and Samsung on AI5. The chip design is an amazing design. I have spent almost every weekend the last few months with the chip design on AI5. By some metrics, it will be 40X better than AI4. We have a detailed understanding of the entire stack. With AI5, we deleted the legacy GPU. It basically is a GPU. We also deleted the image signal processor. This is a beautiful chip. I've poured so much life energy into this personally. It will be a real winner." Why is AI5 so important? What AI5 is, is the building block of a system that I think you'll start to see not just in the Cybercabs, but also in Optimus. So, from a functional technology perspective, there's been a leap, and that leap is gonna come into the market. That was the first thing he said, which I thought was really important. The second thing was what he said about his energy business, which I think is the critical adjunct to believe robotics and autonomous cars. If robotics and autonomous cars work, what you really need is an energy business beside it that is humming and on all cylinders. Why? It's how you make LFP battery cam that will be the limiter. Energy will be the limiter. But what he's showing, and Nick, I sent you this tweet, is that business is just on a tear. It's printing three and a half billion dollars a quarter, and its operating margin's an energy business, 30%. And so what you're gonna see are battery packs of all shapes and sizes, the huge battery systems that's gonna go into data centers, but then all the way down, I think, to the small LFP cam that he's gonna need to power all these things. And then the third thing is his comments on Cybercab, which is that this thing is just gonna be a shockwave. So, I read all of those things and I was very bullish. I think that he is humming on all cylinders on the critical layers of the stack that he needs to build this next version of Tesla. My concern, I think there's a real concern that I have that this vote is gonna go down to the wire. I think that ISS and Glass Lewis, I think that these organizations are pretty broken. I think the way that they make decisions are hard to justify. An example of this, they asked to vote down Ira Erranprise as a director of Tesla because he didn't meet the gender components, but then they wouldn't vote in favor of Kathleen Wilson-Thomson even though she does technically meet the gender requirements. So, it's very confusing where ISS and Glass Lewis are coming from. And so I think there's a risk that this, that this package gets voted down.

    3. DF

      Can I just shine a spotlight on one of those points that you made with these proxy advisory services? So, I think for years people have wondering, why did corporate America go so woke, especially in the early 2020s where they created all these DEI departments, and, you know, they didn't have to do that. And a big part of the reason is that those initiatives came from Glass Lewis and ISS. I think Elon's jokingly called ISS ISIS. But basically what happens is they make recommendations for how shareholders should vote on different resolutions.

    4. CP

      ... and the index funds basically just defer to them for whatever they should do, so they effectively control or almost control the voting for all these board-level resolutions that every public company has to make. And so they've been the ones who've been imposing all these DEI requirements, all these ESG requirements, if you're wondering where those things came from, because just these two companies, which no one's ever heard of, they were captured a long time ago, meaning they were captured by the woke crowd years ago. And so this has really been the root of why corporate America has gone woke for a long time. And look, there's also pressure from the outside, from boycotts or, you know, there's some pressure sometimes from employees and that kind of thing, but a lot of it came from these two companies that no one's ever heard of. And I think it would be a good idea for someone to take a look at this and figure out what happened. Maybe someone like Chris Rufo (laughs) should investigate what was the impact of Glass Lewis and, and ISIS on corporate America-

    5. JC

      (laughs) ISIS.

    6. CP

      ... going full woke for so many years, because it, it certainly didn't help corporate profits.

    7. DS

      Mm-hmm. Yeah.

    8. CP

      It didn't help profits, and they don't have logical explanations for a lot of their decisions.

    9. JC

      Yeah, a- and why aren't there active investors or active managers in these passive groups who would make a decision on these things?

    10. CP

      They're too small. The banks call me every week, and one of the things that I get is sort of like they tell me like, "Hey, here are the big trades. Here's, here's the flow. Here's, if you wanna be in market, here's what, what I recommend." That's what they're telling me. One of the things they told me this week, which I thought was really shocking, is there's so few active managers left, it's so overwhelmingly passive money, the next largest group is now retail. And so what a lot of these professional money managers do now is they basically wait to see where retail is going and they follow them. So there isn't the people with a diversified asset base to be able to stand up and say, "I don't think what ISS and Glass Lewis are doing is right." And so what happens is they kind of, as Sac says, they can just kind of run amok, and they build a very healthy business being this interloper to provide opinions. It's not clear where their opinions come from. It's not clear what they're rooted in. It's not clear that there's a way to adjudicate and go back to them and say, "Well, you got this wrong." It's just not clear, but, you know, they probably make a very healthy margin doing it, and everybody, as Sac says, just kind of turns over responsibility to them.

    11. DS

      It is an interesting fact that we kind of just say, "Hey, the guys who were the actual custodians of the shares don't have to do the job of holding the shares." Like, the job of being the holder of the shares is to vote the shares. That's all there is to do as a, as a shareholder. You make your, you cast your vote, and these guys are getting-

    12. JC

      Or abstain. They could also abstain, right?

    13. DS

      And these guys... Yeah, and these guys are getting paid a fee to actually do that work, which is, call it half a percent-

    14. JC

      Well-

    15. DS

      ... or a quarter percent or tenth of a percent of the assets that they hold. So, like, what are the people there doing if it's all automated trading? Why aren't they just-

    16. CP

      Well, I don't know if you guys own a lot of equities, but just to give you a sense, there's people that manage the stocks, right? There's people that transfer the stocks. There's people that then give you a recommendation on how to vote the stock. Then there's people that hold a virtual representation of that stock. Then there are people that transfer that virtual representation.

    17. JC

      And they will not stop calling.

    18. CP

      So the point is, like, we have so financialized everything that there are billion-dollar businesses that sit at every single step of the way, and to your point, Friedberg, I think this is where-

    19. DS

      No one's actually a shareholder. (laughs)

    20. CP

      ... the tokenization of stocks may be a really good thing, because it'll put the responsibility back into the owner of the stock, because the wallet will centralize all that activity, because you won't need to have all this other stuff.

    21. JC

      I have been getting phone calls from Invesco QQQ 'cause I own-

    22. CP

      Yeah.

    23. JC

      ... a bunch of QQQ in, like-

    24. CP

      Yeah.

    25. JC

      ... you know, some accounts or whatever, and they were calling three times a day for the le- I don't pick up my phone. Who's calling me on the phone? Unless it's one of you four who's calling me to say good night, I don't... That's the only time I pick up is when, you know. And so I finally pick up and they're like, "Hey, we need you to vote." (laughs) I'm like, "I'm not voting. I don't know who you are." They're like, "Well, let us explain to you how to vote."

    26. CP

      Yeah.

    27. JC

      And I'm like, "I don't wanna vote (laughs) my shares. I just wanna own QQQ. I'm good." (laughs) "You guys handle-"

    28. CP

      By the way, some, some of this infrastructure is so decrepit and old, like, trying to get shares, for example, that you, that you've bought in the private markets when a company goes public, just getting them registered and transferred in a position to be sold-

    29. JC

      Mm-hmm.

    30. CP

      ... can sometimes take three or four weeks.

  6. 1:03:54 – 1:14:51

    Study shows AI bias

    1. JC

      early studies to track it.

    2. DF

      Yeah. I think what the paper purports to show is that almost all of these models, except for maybe Grok, view whites as less valuable than non-whites, and males as less valuable than females, and Americans as less valuable than people of other cultures, especially global south. And if the results are true, it does look like these models are pushing a woke bias that makes that sort of distinction between oppressed and non-oppressed peoples and gives more worth or weight to the categories that they consider to be oppressed. This does appear to show significant bias, but I don't wanna jump to conclusions yet here, because I haven't been briefed on the methodology behind the paper, and I just found out who wrote it and I actually know the people or group that wrote it, and I've talked to them before and they've been intelligent. So I want them to kinda tell me exactly how they did this, but, you know, in the past, I probably would have just been content just to roll with my opinion on this. (laughs) But, uh...

    3. GU

      Confirmation bias, give it, give it a good retweet, but no, in your position-

    4. DF

      No, just give my... give my, give my, give my roll.

    5. GU

      Yeah.

    6. DF

      What I'm saying is, if the paper is true, this is very concerning, but I wanna hear a little bit more about their methodology and just confirm that it's all correct. But if it is, I think it is concerning. And the, the question is, how does this bias get into the models? And there's a few different possibilities. One is that the training data is just biased. Like if they're-

    7. GU

      Yep.

    8. DF

      ... training on Wikipedia, we know that Wikipedia is massively biased because they literally have censored the leading conservative publications from being citations and sources-

    9. GU

      Yeah.

    10. DF

      ... in Wikipedia. The co-founder recently just revealed that, that they don't allow-

    11. JC

      Larry Sanger.

    12. DF

      Larry Sanger just said that they don't allow the New York Post, for example, to be a source in Wikipedia or a trusted source.

    13. JC

      Mm.

    14. DF

      So, if AI models are training on Wikipedia, that's a huge problem because that bias will now cascade through. And same thing if they're training on, say, mainstream media or left-wing media, but not right-wing media, and they don't have a way of correcting that. So that's one source of potential bias. Another source of potential bias is just the engineers of these companies, the employees and the staff, do tend to be... I mean, if they follow the trend of other tech companies, they're 90-something percent Democrat versus Republican, and that does, over time, trickle into these models. And then finally, I think another source of potential bias is DEI. And we saw that when, you remember, this is like a couple years ago when Google launched Gemini and they had that problem with, you know, Black George Washington. That was because you had DEI advocates in these meetings, and that somehow trickled into the, the model. Anyway, that was a problem that they since fixed, but you could see how DI programs can get into these models. Now, one thing that's very concerning is that the push for DEI to be inserted into AI models, which was explicitly part of the Biden executive order on AI, has now moved to the state level, and they're just doing it in a more clever way. They've rebranded the concept. They call it algorithmic discrimination. We talked about last week how Colorado-... has now effectively prohibited models from saying something bad about a protected group. And that list of protected groups is very long. It's not just the usual groups. It even includes groups who have less proficiency in English language. I don't really know what that means. Does that mean the model's not allowed to give you an output that could be disparaging towards illegal immigrants? I don't know. But this is what Colorado has done, and they- they basically have said that you cannot allow the model to have a disparate impact on a protected group. That basically requires DEI. I mean, uh, you have to have a DEI layer to prevent that. So, I think that we've gone from models being required to promote DEI, which is what the Biden executive order on AI did explicitly, to states now prohibiting algorithmic discrimination, which is effectively a backdoor way of requiring DEI in models. So, that's a whole other area of potential model bias that I'm very concerned about, and honestly, that's just getting started because I don't think the AI companies have even had time yet to implement the Colorado requirements. I'm not sure they've figured out how they're going to. But just one other piece of news since the last time we talked about this is now in California, the civil rights agency that deals with housing has now embraced algorithmic discrimination, and Illinois has also embraced it. So, this concept of algorithmic discrimination is spreading. Other states are now adopting it. It's not just Colorado. And I do think that where it's gonna lead if it's not stopped is right back to DEI, you know, AI.

    15. CP

      The problem that I think we have to confront now is that when you have (censored) in, you have (censored) out. And so if you use left-leaning publications like The New York Times and Reddit as your input source, then you're gonna have things that are perceived as biased to 50% of the population. The same will go in reverse. It's important to note that in all of that work, the- the model that was seen to be the most unbiased was Grok-4 Fast. It didn't seem to view whites or men or Americans as less valuable as anything else. So, what do we need to do? It's probably that we need to start by rewriting these benchmarks. Remember that all these models, you know, when you do a big training run, you go and you try to run it against some set of benchmarks. The problem is that these benchmarks, I think, are overfit to a legacy way of thinking, and as Sax says, we need to revisit what those are and make them more objective and make it harder to actually get a good score unless you can be shown to be valuable. Now, the math benchmarks and the coding benchmarks are maybe easier to do than generalized chat benchmarks or Q&A benchmarks, but we need to come up with them. The second thing is that we may need to ask people in these next generation training runs to do a version that is built entirely on synthetic data, where you have these judges determining whether this data is accurate or not from first principles, and then you can compare them in a much more apples to apples kind of a way. But in the absence of that, the bigger problem you'll have is legislators trying to clean it up on the backend, where there'll be these third parties that will go and take these models and show that these biases exist, they only exist on both sides, and then laws will get passed, the whole market gets mucked up and sullied. Everybody will get slowed down. So, I think we need to change the benchmarks. We need to f- ask these companies to train on synthetic data. We need to have real disclaimers on what the sources and the weights are that you use if you don't do that, and we need federal regulations so that there aren't 50 sets of rules here. Otherwise, we're screwed.

    16. JC

      Friedberg, any thoughts here on the biases and where it comes from inside of these LLMs? Is it just garbage in, garbage out? Intentional? What are your thoughts, having worked in Silicon Valley for a couple decades?

    17. DS

      I'm more of a free market guy, so I would not ask where the data comes from or force people to use synthetic data or tell them how to do it. I think that this paper is useful in that it elucidates an important set of biases that the market can now say, "That is ridiculous," and now the models will train and use that as a marketing exercise to say, "We are not biased."

    18. CP

      Hmm.

    19. DS

      And so my- my free market philosophy would dictate that this kind of elucidation will effectively create a vector upon which consumers will make choice in the market on what LLMs they want to use. Like Elon's gonna harp on this. He's gonna say, "Look, my Grok model, Grok-4 Fast, is the only one that doesn't have this bias," and that will cause more people to use his model, and he will be able to take that benchmarking data and demonstrate. And some people, they might wanna have a biased model, and they might wanna say, "Hey, this one aligns with my philosophy, my values, my view, and I wanna choose this one."

    20. CP

      Do you think that happens in the real world, though? Forget the theory for a second. What's the-

    21. DS

      I do. I- I- Look, I mean, why are people using Grok-4? Why are they using it?

    22. CP

      Th- For the most part, they're not. Not yet.

    23. DS

      Okay, and so maybe this is, like, what will cause them to use it, right? Like, I think this is-

    24. CP

      But what if it doesn't?

    25. DS

      This is what'll differentiate the market.

    26. CP

      Like, for example, like, what, wha-

    27. DS

      I'm not gonna tell the market what to do. I'm not gonna tell consumers what to do.

    28. CP

      No, no, no. I understand. I'm saying you're- what you're saying, that the free market will sort this out, and I'm saying give me an example. So for example, like, did that- did the free market sort out algorithmic bias with, uh, when Facebook-

    29. DS

      Hell yeah, when Gemini put out-

    30. CP

      Really? Has it hurt Facebook?

Episode duration: 1:23:28

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