Trump: Send National Guard to SF, China Rare Earths Trade War, AI's PR Crisis

1. 0:00 – 3:35

   Bestie intros! Dreamforce and another interesting conference take the Bay Area

   1. JCJason Calacanis0:00

      All right. You guys were, uh, talking about the fun shenanigans you were having in San Francisco and at Marc Benioff's Dreamforce.

   2. CPChamath Palihapitiya0:09

      Did you see Brian Johnson was at Benioff's CEO dinner?

   3. DSDavid Sacks0:13

      Oh, I didn't see him.

   4. CPChamath Palihapitiya0:14

      Yeah.

   5. DFDavid Friedberg0:15

      Matthew McConaughey was at our table at dinner.

   6. JCJason Calacanis0:16

      All right, all right, all right.

   7. DFDavid Friedberg0:18

      Right, all right.

   8. CPChamath Palihapitiya0:18

      David Sacks. McConaughey's fabulous. He is funny.

   9. DFDavid Friedberg0:22

      Did you see where I was sitting at that dinner?

   10. CPChamath Palihapitiya0:25

       Yeah.

   11. JCJason Calacanis0:25

       Yeah, table one.

   12. DFDavid Friedberg0:26

       Right next to the king himself.

   13. CPChamath Palihapitiya0:29

       The king himself, exactly.

   14. JCJason Calacanis0:29

       The king who? The king in I? Benioff is a king?

   15. DFDavid Friedberg0:33

       (laughs) Well, he's the king of San Francisco.

   16. CPChamath Palihapitiya0:34

       At his party. Yeah.

   17. DFDavid Friedberg0:35

       He's not-

   18. JCJason Calacanis0:35

       He's the king of San Francisco. (laughs)

   19. DFDavid Friedberg0:36

       He's... Yeah. I mean, obviously, he has to bend the knee to the king of kings, which is Trump, but...

   20. CPChamath Palihapitiya0:41

       (laughs)

   21. JCJason Calacanis0:43

       (laughs)

   22. DSDavid Sacks0:43

       (laughs)

   23. DFDavid Friedberg0:43

       I was sitting next to-

   24. JCJason Calacanis0:44

       Ew.

   25. DFDavid Friedberg0:44

       ... Benioff there.

   26. JCJason Calacanis0:45

       It got weird.

   27. DFDavid Friedberg0:46

       It got a little weird. No, well, what happened was... Did you see that SF Standard? Yeah. I don't even know how they can write a headline like this, so...

   28. JCJason Calacanis0:54

       Well, it's The San Francisco Standard.

   29. CPChamath Palihapitiya0:55

       Yeah.

   30. DFDavid Friedberg0:56

       Yeah, so Benioff interviewed me at Dreamforce, and somehow this was, like, headline-worthy for SF Standard. And they said that Marc Benioff dodges political questions then fawns over David Sacks on Dreamforce day one. That was just referring to the interview we did. So we trolled them by taking that photo.
2. 3:35 – 20:48

   State of crime in SF, do they need the National Guard?

   1. JCJason Calacanis3:35

   2. CPChamath Palihapitiya3:35

      Chamath, what did you think about walking around San Francisco? So we went on a walk around downtown-

   3. JCJason Calacanis3:39

      Oh, you had a walk and talk?

   4. CPChamath Palihapitiya3:40

      ... San Francisco. We're trying to... Well, we were trying to find a place to get a drink in between the Benioff dinner and Sacks' talk. We ended up at the W Hotel, but, uh, I was worried for Chamath because it was his first time on the streets of San Francisco, walking around with his own two legs. How was it, Chamath?

   5. DFDavid Friedberg3:56

      Did you throw out those shoes, the, the lower piano shoes?

   6. CPChamath Palihapitiya4:00

      (laughs)

   7. JCJason Calacanis4:00

      I burned them.

   8. DFDavid Friedberg4:00

      The soles, I'm sure, were sullied beyond repair.

   9. JCJason Calacanis4:02

      I burned them. Those are one use for Chamath.

   10. DFDavid Friedberg4:04

       (laughs)

   11. JCJason Calacanis4:04

       Those are single use lower pianos.

   12. DFDavid Friedberg4:06

       Disposable.

   13. CPChamath Palihapitiya4:06

       Once I got in the car-

   14. DFDavid Friedberg4:08

       (laughs)

   15. CPChamath Palihapitiya4:08

       ... I ga- I gave Eugene my shoes and I said, "Burn these."

   16. DFDavid Friedberg4:10

       (laughs)

   17. CPChamath Palihapitiya4:10

       "Eugene, I never want to see these ever again." They've touched the pavement of San Francisco and all I said was, "Yuck."

   18. JCJason Calacanis4:17

       Why don't you just have your domestic staff carry you on their shoulders? I don't understand it, Chamath.

   19. CPChamath Palihapitiya4:21

       (laughs)

   20. DFDavid Friedberg4:21

       (laughs)

   21. JCJason Calacanis4:21

       Why did you bring feet to the crowd? It makes no sense.

   22. CPChamath Palihapitiya4:24

       So Benioff pulls off this awesome convention, this conference, and then Trump does this press conference yesterday, saying he's gonna send troops into San Francisco. Did you guys see this?

   23. JCJason Calacanis4:34

       Yeah.

   24. DFDavid Friedberg4:35

       Well, yeah, but no-

   25. CPChamath Palihapitiya4:35

       And that got a little fiery.

   26. DFDavid Friedberg4:35

       ... but the Benioff thing happened first, right? So Benioff made news-

   27. CPChamath Palihapitiya4:39

       Yeah.

   28. DFDavid Friedberg4:39

       ... because he said sending the National Guard to clean up San Francisco. But I actually, I talked to him about it and got a little bit of context, which of course-

   29. CPChamath Palihapitiya4:46

       What did he say?

   30. JCJason Calacanis4:47

       Was misquoted or...
3. 20:48 – 36:15

   US to impose price floors after China puts export controls on rare earths, can America on-shore a full-stack rare earth industry?

   1. JCJason Calacanis20:48

      Lots of topics. The US China trade battle is continuing. Uh, and this time, we have a new wrinkle. Trump and Xi are set to meet in South Korea. Later this month, they're gonna work out a grand trade deal, and this will be their first in-person meeting since 2019, six years ago. But last Thursday, China announced new export controls on 12 of 17 critical rare earth minerals effective December 1st. Obviously, we need these for EVs, batteries, your AirPods, everything. And on Friday, Trump threatened 100% tariff on all Chinese imports on top of the existing tariffs as of November 1st and accused the CCP of trying to, quote, "Hold the world captive." Stock market tanked, recovered on Monday when Trump told everybody, "Don't worry about it. It's gonna be all good." So far this week, things have mostly deescalated. Friend of the pod, Treasury Secretary Scott Bessent, said the Trump-Xi meeting is still on track and, quote, "We have substantially deescalated." Also, he said the 100% tariff does not have to happen. However, on Wednesday, Bessent called the export controls unacceptable and that it's China versus the free world. Let's take a pause here. Friedberg, thoughts on price controls generally, and if you want to expand into the overall relationship with China as it relates to rare earth metals. Go for it.

   2. CPChamath Palihapitiya22:16

      Bessent's comments on the price controls speak to what he calls a non-market economy, meaning that the Chinese government is intervening and creating artificial surplus in the market, which drives prices down and effectively eliminates competition. And so the Chinese push in the '90s, supported by the CCP, ultimately eradicated competition and made it non-competitive for US companies. So, they exited the market, and now the United States finds itself completely dependent on Chinese suppliers, particularly as it relates to rare earths. There was this company called Molycorp that ended up going out of business. The asset, the Mountain Pass mine that Molycorp operated became MP Materials, which Chamath knows well and did this, uh, big deal recently with the US government as they've tried to revitalize production at this mine and increase output.

   3. JCJason Calacanis23:10

      Friedberg, can you explain price floors for people, just in case?

   4. CPChamath Palihapitiya23:13

      So, price floors are that the government is gonna mandate that things have to cost at least X, so they increase the price of inputs and basically make it more difficult for China to undercut pricing, which increases the rationale for capital to invest in starting competitors because now they can have a guarantee of revenue or a guarantee of price. But the problem is that, I would argue, the government's role maybe shouldn't be in setting price floors, 'cause that creates, you know, a, a very bad effect long term on the market. The government should deregulate and create a more free market in the US. A large reason why mining and processing of the ores moved offshore was because of the regulatory environment in the United States, which made it difficult to compete with China. We could argue about the environmental laws and how extensive and how relevant they may be today, relative to the '90s, but this created a real challenge for companies to compete because it was so much more expensive to operate in the US. So, I would argue we should be focusing not so much on setting price floors to create an incentive for folks in the US to get involved in the industry, but rather to deregulate and to provide perhaps tax incentives and other economic incentives so you don't inflate the cost of things-... but you create a much more kind of liquid market and drive much more volume and interest in, in building, uh, on this side.

   5. JCJason Calacanis24:35

      All right. Price floors. When we were talking about Kamala Harris running for president, she was asking for price floors and price fixing and making sure the government got involved in this. How is this different, Sax?

   6. DFDavid Friedberg24:48

      Well, look, as a general matter, I agree that the federal government shouldn't be setting the prices of goods and it shouldn't be picking winners and losers in the economy. But I think this is a different situation because over the past 30 years, we haven't really had a free market in rare earths. What's basically happened, like Freberg was saying, China has been allowed to dominate this industry. And specifically, what they did is, starting 30 years ago, they identified rare earths and rare earth magnets, the rare earth processing, as a very strategic element in the supply chain, and they set out to dominate it. And they did that by massively subsidizing their businesses and driving all of the US competitors and the global competitors out of business. And they were partially allowed to do that by stupid WTO rules that allowed, quote-unquote, "developing nations" to subsidize their own industries. Even though China is not developing, I mean, their economy is comparable to ours, and yet these WTO rules allowed them to effectively cheat by subsidizing their industries at the expense of our industries. And the result of this is that they do now have coercive leverage over the supply chain, and over the last few weeks, they just used that in posing this vast new export control regime on rare earths, and their idea is to tighten the screws when they feel like it and to use rare earths as a form of leverage in their relationship with the United States. So we're well past economics here and we're into international relations, we're into the balance of power, we're into national security, and I don't think that the price floors here are designed to make the government the mediator of what prices should be in the free market. They're designed to create enough certainty for US investors that they can reinvest in rare earths and re-shore the processing and the casting of rare earth magnets. And I just don't see another way to be able to create the incentives for investors, because they know that if they invest a lot of money in rare earth processing, that all China has to do is slash the prices and drive them out of business. And China continually uses that tactic. So, I think you have to address that if you want to alleviate the American dependency on this critical resource, which China currently has control over.

   7. CPChamath Palihapitiya27:04

      This started in 2007 or '8 with Hu Jintao, and what he basically said is, "We're gonna create six or seven national champions." And he wanted to create them in the critical areas that they needed to dominate over the next 20 years, and one of those was rare earths. Another one was batteries and EVs, and yet another one was around the active principal ingredients, or APIs, that are the core inputs for pharmaceuticals. So what do they do? And when Xi came into power, Xi Jinping continued that Hu Jintao strategy. What did they do? It's exactly what Sax said, which is they have this very aggressive form of mercantilism. How do they affect that? They are willing, through provincial balance sheets, through federal balance sheets, through loan guarantees, through organizations that are quasi public-private partnerships, they step into markets and they can effectively change the spot price on demand. Now, why is that problematic? In America, I'll tell you the example of one of our businesses. You do these deals that are called take-or-pay agreements. So, EMP has a deal with General Motors, one of my businesses that makes LFP cathode, same deal with GM. You do what's called a take-or-pay, which means that General Motors steps up and says, "Great, I will buy X amount of volume from you at Y price." And so you go and you take that deal to Wall Street, and you say, "I need financing to build a factory or a capability." Contrast that to the Chinese company who just goes to the government and the government says, "Here's a bunch of incentives and money and price breaks. Just go build it." So already, we're a little bit behind, but it's much more free market and it's more transparent. So, you take a deal, you go to Wall Street, they give you money, you start building it, you start to produce it, and then you expect General Motors or Ford or Tesla to start buying this stuff. But as Sax said, if all of a sudden China sees it, what they do is they enter the market, and they will dump an enormous volume of that product into the spot market. What happens? The price craters. Now all of these end buyers are in a really tough position because their competitors can buy at a much bigger discount that they can. They have to flow that price through their products, their prices are more expensive, they have less demand, and that's the huge negative cycle that China has complete control of. So, why is the federal government stepping in to create what is essentially a last resort buyer of record? It is so critical in these markets because the U- US balance sheet is the only one that can create a strategic reserve around these inputs. Not dissimilar to how we do with petroleum. We can nominate now things that are critical, dysprosium, copper, NDPR, all of these things that can now absorb the price shocks that China may otherwise be able to affect. So, I think this structure where we now have these public-private partnerships, frankly, is the only practical antidote to dealing with this issue. Otherwise, we're always going to be prone to this very clever and accurate and smart mercantilism from the Chinese. So I'm, I'm a big fan of this general market structure. It's the only way that you cannot be theoretical and actually respond to the conditions on the ground.

   8. JCJason Calacanis30:33

      Yeah, we've been doing a little research on this and here is neodymium.

   9. CPChamath Palihapitiya30:38

      This is one of the, one of the two inputs for, for magnets, for permanent magnets.

   10. JCJason Calacanis30:42

       Yeah. And, uh, you can see here, $50,000 for a ton. Back in 2020 during COVID, it spiked almost up to a quarter million dollars and then it came back down.

   11. CPChamath Palihapitiya30:52

       So look, you can, you can imagine like, it's incredibly difficult when there's that much volatility to try to buy CapEx, to try to-

   12. JCJason Calacanis31:00

       Yes.

   13. CPChamath Palihapitiya31:00

       ... plant OpEx, to try to extract from the ground, go through all of the regulatory rigmarole that Western countries have to go through, and then all of a sudden have a sale price that you can't control.

   14. JCJason Calacanis31:11

       And if you look at the cost, we were just doing some research on it, you know, if you get your AirPods, it's 1 or 2% of the cost of that. Medical devices it's a lot more, but even in a Tesla Model Y it's, it's le- it's 10 bips.

   15. CPChamath Palihapitiya31:22

       So it's, it's less the... I think this is an inaccurate way of looking at it. You have to look at the actual mass, and so the real problem is in, in cars, in engines, you're talking about tens of kilos ultimately and that's where the real costs build up. And then separately, the permanent magnets that go into cars, you can work your way around. The real, in future markets, that really matter is in robotics because these permanent magnets are the key input to the actuation mechanism of the robots, meaning how do the robots move, how do the joints move? Through actuation. That happens because of rare earths and permanent magnets.

   16. JCJason Calacanis31:59

       And as Elon said at the summit, he's building all those himself. Right now only 7% of the known deposits of it have been found. There's plenty of it out there. But to your point, I came to the same conclusion as you, Chamath, which is we should be building a strategic reserve of these, and if you look, we could be, you know, buying them when these things are down and deploying them when people need them.

   17. CPChamath Palihapitiya32:22

       I think we have to do something different. I think instead of trying to, like, time the market, I think what the United States can be much better at is having a broad forecast of demand, knowing how many million tons of this stuff we will need, and just thoughtfully and methodically being a purchaser of record to create these strategic reserves.

   18. JCJason Calacanis32:40

       Yes.

   19. CPChamath Palihapitiya32:40

       And then the worst case that can happen is you can do a swap with these customers, so Tesla all of a sudden can't go into the spot market, they should be able to come to the strategic reserve and be able to buy lithium. You know, General Motors need something, whomever, right?

   20. JCJason Calacanis32:56

       Mm.

   21. CPChamath Palihapitiya32:56

       Figure robots need something. I think that mechanism is the only way we can compete effectively on a day-to-day basis with the Chinese.

   22. I mean, I would argue, I think we actually, if we let the market work and we create the necessary kind of structure to allow the market to operate, meaning the regulatory barriers are diminished to develop mines and to conduct the processing of the ores. So there's two sides of the equation when it comes to this kind of industry of rare earths. The one is mining the ore. You know, this Mountain Pass site, which is kind of on the border of California/Nevada, which is now MP Materials, they've got this rare earth ore called bastnäsite. That's the ore that you get out of the ground and then you have to process that ore to get the elements out of the ore that you want to use in manufacturing. The processing steps, I kind of went a little bit deep on this over the last week 'cause I got really interested in why we don't do this anymore in the United States, and there is so much nasty output from this process. You're using very strong acids to do leaching, you do processing, you do extraction, refinement, all of the material kind of gets separated out from the rock, and it's dirty. And as a result, there's byproducts and waste and environmental exposure but also human personnel exposure, but the technology hasn't been deeply developed in 40 years. It's still kind of 40-year-old chemical engineering technology, and we stopped developing it about 40 years ago in the United States.

   23. It's not even, it's not even technology, it's ...

   24. Yeah, it's not. It's just ke- it's just metallurgy and chemistry.

   25. It's nowhere.

   26. But th- but there are techniques now that can be applied that can do this in a kind of scalable, safer way without any of the environmental hazards, but this is largely why they shifted over to China is they didn't have the sort of regulatory, um, burdens that we have in the United States which made it much cheaper and the labor cost was much lower. But with automation and certain systems, we can actually process this ore. It's not super complicated. It's a series of well-understood steps of chemistry and mechanical separation. So we could process ores. The other kind of important point is there could be well over a thousand times the proven reserves of rare earths in the existing proven reserve catalog using new discovery techniques. So USGS, the geological survey in the United States, has this kind of EarthMRI system where they're trying to do new mapping, but there's also several private companies that can use radar and microwave imaging and then you can use the system of interferometry where you actually s- put multiple beams down underground and you can get a better read or a better understanding of where these ores might lie. And there are unproven reserves in Texas, in Wyoming, in Colorado, in Missouri, all over the continental United States. So if we did decide, hey, this is strategic to us, I do think one of the important points is that we can unlock both new kind of discoveries and new refinement systems in the United States and actually be truly competitive with China if we put the will behind it. So I think, like, this is a good moment for the United States to observe what's going on and not just kind of be, you know, focused on China's production. I think we could outpace them and, and, um, and accelerate through this if we chose

4. 36:15 – 52:59

   State of US-China ahead of the Trump-Xi meeting, how we got here, China's elite mercantilism and strong economic history

   1. CPChamath Palihapitiya36:15

      to.

   2. So Sax, where does all of this fit into the broader agreement? And do you think that they're gonna go to South Korea and come out with a deal and do you, do you have a sense of, like, what the contours have to be t- to make this a success?

   3. DFDavid Friedberg36:28

      Well, the Treasury Secretary Scott Besson, who we know just said that the Trump-Xi meeting is still on track and he also said that we have substantially de-escalated and that the 100% tariff does not need to happen. So he says it's still on track. By the way, I think he's doing a phenomenal job here. He really understands the intricacies of this.... trade relationship and I think he's capable of both applying pressure, but then also finesse, so I think he's doing a great job on this. But in any event, I think the reason why you want to have the leaders meet, President Trump and President Xi, is that I think that this relationship, this bilateral relationship between the US and China, will work best when there's an agreement at the top. And what I mean by that is that when you just let the various bureaucracies deal with each other, you're more likely to have misunderstandings or, or food fights. So, let me give you an example. Over the past few weeks, obviously you've had this Chinese Ministry of Commerce pass these export controls on the rare earths, which created the possibility of greatly limiting the access of not just American companies, but companies all over the world, to Chinese rare earths. They've sort of backed away from that. Separately in the US, you had movements by our government to greatly expand the export control list and basically there was a interim final rule that was issued by the Commerce Department on September 29th that said that if a Chinese company is on the export control list, that restriction should also apply to any of its affiliates or subsidiaries that are more than 50% owned by that company. Which is kinda obvious, right? You don't want a Chinese company like Huawei to circumvent the entity list by simply setting up a shell organization, so I think it was a perfectly reasonable rule to issue, but then China reacted to that very strongly. And so there's just such a high chance of the two sides miscommunicating with each other and overescalating when you just allow the bureaucracies to talk to each other, and I think what's most needed right now is to have a grand bargain between President Trump and President Xi, and that will then calm down the relationship and obviously this is gonna be a very competitive relationship for as far as the eye can see because there's both security and economic competition going on. But I do think that when you have an understanding at the top, it creates conditions for more stability.

   4. All right. Traders on Polymarket think, or know, depending on (laughs) the situation, that we are gonna see cooler heads prevail. 15% chance of the 100% tariff on China going into effect by November 1st. In other words, 85% chance it's not gonna happen. 73% chance of US China trade agreement by November 10.

   5. CPChamath Palihapitiya39:04

      Who do you think has the greatest incentive to de-couple: the US or China?

   6. DFDavid Friedberg39:10

      I think both sides understand that they can no longer be dependent on the other for things that they consider to be critical. So, I mean, the US has realized, "Wait a second, we can't allow China to have a monopoly on rare earths." And by the way, it's not just the, the rare earths, the processing, it's also the casting of the rare earths into magnets. So there's this long tail of, I don't know, 20,000 different kinds of magnets that are made from rare earths that are used in, in the industrial supply chain, and if China were to cut those off then it would greatly impede manufacturing of pretty much every different kind of electric motors, from cars-

   7. CPChamath Palihapitiya39:48

      Right.

   8. DFDavid Friedberg39:48

      ... to other goods. So in any event, my point is just the US clearly cannot be dependent. I'm sure that China is reaching a similar conclusion. That doesn't mean that trade can't happen between the two countries, I'm sure it will continue, but I don't think either side wants to be in a position where the other side can use its leverage beyond just economic terms into geopolitics.

   9. CPChamath Palihapitiya40:11

      But with respect to the Belt and Roads Initiative, like, don't you think China's been planning for the decoupling in kind of a very long viewed way relative to the United States, and they're more, I would say, prepared and active to execute the decoupling whereas the US still is waking up to the fact that there are certain kind of critical supply chain dependencies that we have with China and maybe we shouldn't be decoupling as quickly as we stated our intention to? Like, it feels like they're in a pretty advantaged position, Sax, in both the buy side and the sell side.

   10. DFDavid Friedberg40:43

       They have 20% youth unemployment. They have a demographic time bomb that's gone off. They have a pretty moribund real estate market. They have very little to none foreign direct investment, so I don't agree with you.

   11. CPChamath Palihapitiya40:56

       Okay.

   12. DFDavid Friedberg40:56

       Well, I, I would just say that I, I think what China has been doing-

   13. Meaning they're, they're just as challenged as we are. They have different challenges.

   14. CPChamath Palihapitiya41:01

       Yeah. No. It's good. It's a good point, yeah.

   15. DFDavid Friedberg41:03

       I would just say that I think that China is a rising great power. I think that over the last decade their economy grew to the point where it's roughly the size of the US's economy, certainly on a, on a PPP basis. It might even-

   16. CPChamath Palihapitiya41:16

       Yeah.

   17. DFDavid Friedberg41:16

       ... be bigger.

   18. CPChamath Palihapitiya41:18

       Right.

   19. DFDavid Friedberg41:18

       But on a international currency basis it's still smaller. But anyway, the point being that as China has risen as a great power, it's sought to create its own international institutions. And so if you think about, you know, what the US has, the US has NATO obviously, and the G7 and the World Bank and the IMF and all that kind of stuff, and what China's sought to do is create, you know, they created the Shanghai Cooperation Organization, which is a security focused organization.

   20. CPChamath Palihapitiya41:44

       Yep.

   21. DFDavid Friedberg41:44

       I wouldn't call it quite the equivalent to NATO, but it's trending in that direction. They've been probably the main sponsor behind BRICS. And Belt and Road, I think is part of that. They're creating their own network of relationships. They're creating their own international order, and it is a challenge to the US order. I mean, during the unipolar moment from say, 1991 to, I don't know, 2017, the US was the only great power in the system and we basically defined all the key international institutions. And China, as it's risen, has done what all great powers seek to do, which is to create their own order. And so yeah, I think they do want to be somewhat independent of the US. They don't wanna be dependent on us, and I think we're realizing that we have to act the same way. And the shame of it is that when we were running all the key institutions during the unipolar moment, like the WTO, we engaged in so many foolish policies that allowed China to dominate rare earths. I mean, we should never have let that happen.

   22. Can I clarify one thing? Which is, I think that a lot of people don't know this historical artifact which I think is so fascinating, which is...

   23. CPChamath Palihapitiya42:49

       I don't think China is a rising power. I think China is a re-ascending power. And the reason I say that is if you go back to 1500 to now, over all of those years, China had the world's largest GDP 70% of those years.

   24. Yep.

   25. 7-0%. So if you think about it in that context, especially as a Confucian society, I think the Chinese think about this as, "Hold on, this is re-asserting the dominance that we've always had." And I think if you start to look at it through that lens, that's why they view the blending of public-private partnerships, the organizations that go and help backstop private companies in China. The other interesting thing which I learned studying China is how they allocate capital. The capital allocation system is both rigid but it's incredibly flexible. What do I mean? The way that China allocates money is the following. You have Xi Jinping and his close circle of people. They dictate the priorities, right? I would think there was an article, Nick, you can find it, but Xi is personally right now helping to draft the five-year business plan of China. But what happens is, is it goes from that central group of, like, seven, eight, nine people to the Politburo. And when it gets approved by the Politburo, it gets sent to all the provinces and then it gets sent to the prefectures. So an example was in 2006 and '7 when they decided to prioritize EVs. What you effectively have is a cascading set of venture capitalists who are operating against a national priority, and then they are rewarded for it. And so you essentially have 300 VCs running around organizing human capital in all of these different provinces against all of these different priorities, and at the end of that, you get a BYD or you get a Xiaomi or you get these great companies. And I think that that is what's so daunting if you think about it. So that's another thing that we have to factor as well. They have th-

   26. And, and they have, they have one of those plans, Chamath, for every industry.

   27. Every industry.

   28. It's not just... So they have, like, an agriculture five-year plan, they have an energy five-year plan-

   29. Right.

   30. ... and in each one, it details out their forecast of not just, like, how to catch up, but what's possible. And that's why they're charting new p- new avenues of innovation in nuclear power, yeah.
5. 52:59 – 1:16:13

   AI PR crisis: Recent datacenters get denied

   1. CPChamath Palihapitiya52:59

   2. JCJason Calacanis52:59

      All right, Chamath, uh, I saw you retweeting some of this, and there's been a little bit of a back channel in the last 48 hours, kind of breaking news here. Data centers are spiking the cost of energy, or people are perceiving it to be doing so in different geographies here in the United States. And, I guess, not wanting to be hated or get into wars with consumers, some big tech companies are standing down plans. Explain what's going on here, Chamath, and if this is a trend yet.

   3. CPChamath Palihapitiya53:31

      I put this out there when I wrote that because I, I do think that this is the beginning of a trend. Just to be very specific, Google was planning a $1 billion spend on a data center in Indianapolis County, or Indianapolis. And essentially what happened was, there was enough pushback that it looked like if it went to vote in the city council, they would have voted against the approval of the data center, against the, the necessary zoning and other regulatory approvals. And so, I think, to avoid what would have been an awkward press cycle, Google just pulled it and said, "Don't worry, we're not going to do this here." And so that, in and of itself, I think is an isolated incident, except that in this same week, it happened two other times.

   4. JCJason Calacanis54:21

      Hmm.

   5. CPChamath Palihapitiya54:22

      In Wisconsin, there was a proposal very similar to Google's, but this time from Microsoft, where, again, those local residents got pretty upset and in the 11th hour, Microsoft pulled it. And then in the third example, there was an attempt by an Amazon data center to get built near Tucson, that I think also was mothballed. So, why is this happening? When I tweeted this out, or when I posted it rather, the comments were pretty instructive. I think that there are three things that I took away from it. Thing number one is that people are seeing their prices of electricity go up in the local areas where the data centers are being built.The second is that people are worried about the water consumption of these data centers, and the cost of water and the access to clean water, and that the plans to be net neutral on water consumption may or may not be real. So, there's a concern there. And then the third that many of the people commented was about the actual noise pollution that it was creating. But I- I took a step back from this and my thought is very simple, which is, it actually speaks to one of three very important inflection points that we're dealing with on the AI side, right? So, one of them we talked about last week, which is you can't have 50 state laws, right? It needs to come from the federal government so that there's one set of regulation and that there's clarity. So effectively, what Sachs has been able to execute on the crypto side, I think his intention is to try to do this on the AI side, and I think the federal government needs to be given a chance to do that. Otherwise, locally in the United States, the only winners are gonna be lawyers, and then we're gonna create an own goal and China's gonna win. Okay, second, we just talked about it, is the government needs to be the economic backstop to the US supply chain that powers AI, right? And we talked about all these things, the metals, the minerals, the rare earths, so that the tax that companies can extract are mostly market-driven and not exploitative, and doesn't create air pockets in the funding cycle. Okay, so we talked about that, but here's the thing that nobody talks about. When you look at these data centers, I think what it's saying bottoms up is that these hyperscalers need to get these communities on their side. I think that there is no understanding of what a token is. What is a token? I don't think if you ask the average person on the street, they know what it is. What they know is that tokens are not jobs, and if AI is going to be embraced by the public, I think what we need to do a better job of is to show the tangible economic benefits, especially in places like Wisconsin and Indiana that may feel like they're missing out. So, we can't have this narrative that AI may take your job away while it's also doubling your electricity price because they're not feeling and seeing the abundance that we think that it can offer.

   6. JCJason Calacanis57:30

      This is exactly right, Chamath. If you think about the average American citizen, you know, they have somebody in their family who drives for Uber or DoorDash. They have truck drivers, they have Amazon factory workers, and all those jobs are going away. It's just a matter of when. And some people believe we can handle the displacement, others don't. I had, uh, Friedberg-

   7. CPChamath Palihapitiya57:48

      J-Kal, my idea, just sorry, my idea, my idea is you have to use the balance sheet of these big companies, use that free cashflow, and it can act as a cushion for a lot of what needs to happen.

   8. JCJason Calacanis58:00

      Yes.

   9. CPChamath Palihapitiya58:00

      So, they can pay higher tariffs for electricity. They can also just frankly go and pay for some amount of the electricity bill of these local folks. They could pay for solar and storage if they wanted to. There's a plethora of ideas here where they probably are going to need to step into market to get folks on their side, and I think they have to do it.

   10. JCJason Calacanis58:21

       It's interesting you mentioned that 'cause I just had Zak Dell from Base Power on this week in startups last week, and what they do is they put batteries on the side of your house. Outside, they're square ones, so they're not as svelte as the, uh-

   11. CPChamath Palihapitiya58:33

       Industrial, yeah, industrial products.

   12. JCJason Calacanis58:34

       ... power ones, like industrial ones. And then they will fill those batteries when the, uh, electricity is cheap. They'll deploy it when it's expensive, they get the arbitrage. And I said to him on the show, like, it, it's only, they only charge consumers I think 500 or $1,000 to install it, just so they have some skin in the game. You don't have to rip your roof apart and put solar on. It's just batteries. And I said, "Well, why don't you do that and, and like do an entire neighborhood, like when they build these 3,000 home infill neighborhoods, why don't you put them on every single one and then create a network for data centers?" And he said, "Stand by. That's what exactly what we're working on." So, it kinda combines your idea. Sachs, you're the czar, what are your thoughts on what Chamath points out is, which is the average working American and their perception of AI? You have job loss, you have electric bills going up, and then you have, hey, fake news, uh, the reality, is this real or not? These sort of slop videos I'm seeing. It feels like there's a little bit of a trend towards, um, a negative framing of the AI innovation, and maybe it's not gonna help the bottom half of society. Uh, are you seeing that? Do you believe it? And do you have plans to counter it?

   13. DFDavid Friedberg59:47

       Well, what I see is that we just came off a quarter of 3.8% economic growth of which 40% was attributable to AI. So, in other words, if we didn't have this AI boom going on, by my math, our GDP growth rate in Q2 would've been 2.3% instead of 3.8%. So, AI is the difference between having great GDP growth, say around 4%, and modest GDP growth around 2%. So, it seems to me that everyone who wants to have a great economy should be supportive of this AI boom that's happening. The job loss narrative is just that, it's just a narrative. It's a story. The media loves to tell it. It's mostly theoretical. It's mostly anecdotal. You can point to a few jobs here and there, but there's no evidence of widespread job loss. This is just something that people are prognosticating about the future, and in every previous technological revolution that we've had, yes, the jobs have shifted, but they've shifted from more rote jobs to more sophisticated jobs that create a higher standard of living for everybody. The best example being that in the year 1900, 50% of the US economy was involved in agriculture. In other words, one out of every two people were farmers. By the year 2000, that number dropped to 2%. The difference, the 48% did not become unemployed. They went off and did other things. They worked in factories, for example, and they went into the services part of the economy. So-I think what's gonna happen here is that AI is going to enable people to shift their work to more gratifying and less rote parts of the economy that will increase productivity and standards of living for everybody. Balaji has a really good way of explaining this, and I think this goes to the heart of why the job loss narrative is a fallacy, is because humans are end-to-end. What makes them really good and irreplaceable is that they can do an entire job end-to-end, and they can pivot their objective and figure out what their objective should be. AI is not like that. It has to be told what to do. It has to be prompted, and then when it gives you a result, that result has to be validated to make sure it's not hallucinating, and then frequently, you don't really get the result you're looking for. So you have to iterate and you have to re-prompt and you go through this loop where you do it over and over again until you get something that's valuable. So in other words, humans do the things at the end. They do the prompting and validation. AI does the stuff in the middle. So as Balaji says, "Humans are end-to-end, AI is middle-to-middle." This is why fundamentally I think that AI and humans will be very synergistic. AI will not be a replacement for humans. They're gonna do the stuff in the middle that humans don't like to do, and it's gonna allow humans to be much more productive. So right now I'm very optimistic about this boom, and I do think that people who are criticizing it should really think about whether they want the US to have 2% growth rates or 4% growth rates because that's what we're really talking about here.

   14. JCJason Calacanis1:02:41

       Freeberg, CEO of Uber and Tesla believe the opposite. They think these driver jobs are gone pretty quickly. Uh, and the data showing there's a bit of a serious problem right now with young people getting jobs specifically because of AI, and obviously GDP is not wages. The people we're talking about who are affected by these job losses don't own equities. The top 50, 55% of the country own equities. So what do you think about this narrative? Do you think it's a false narrative, a true narrative, somewhere in between?

   15. CPChamath Palihapitiya1:03:11

       Okay. Here- here's how I would think about what may happen. Rather than think about someone "losing their job," which, you know, is a term you keep using and others keep using, and it honestly-

   16. JCJason Calacanis1:03:23

       Displacement, I think would be more term.

   17. CPChamath Palihapitiya1:03:25

       I- I don't care.

   18. JCJason Calacanis1:03:25

       Yeah.

   19. CPChamath Palihapitiya1:03:25

       Wha- whatever it is. It... You're- you're acting like they're passively ev- in a victim state. We have the lowest unemployment in history, and there's an extraordinary demand for new capacity of work by humans to do stuff in the United States right now because of the extraordinary manufacturing buildout that is underway, driven largely by AI and soon to be robotics and several other industries. We just talked about rare earths, mining, and processing. There are many industries that are taking off in this country that have not existed, and there is a demand for labor. And when there's a demand for labor and there's a shortage of people to do the work, the employer typically says, "Let's go recruit, let's go spend, let's go train." And when you have an innovation cycle like is underway right now, the hiring for the new jobs happens before the loss of the old jobs happens. So you have to have someone that builds all the Model Ts before people stop becoming horse buggy drivers. So who's gonna do all the Model T building? They're gonna get paid, they're gonna get offered money to go do those jobs. So what typically happens in these cycles is that there's a recruitment exercise, a recruiting cycle that happens upfront. And so rather than say, "All these drivers are going to lose their jobs," another way to frame it is that all of these drivers are gonna be offered new higher paying jobs before there's lower demand for driving. And they're gonna say, "I can go make twice as much money per hour by going over to take this new job." And then they're gonna say, "I'd rather do that than drive, I'm getting paid twice as much and I get to work on more interesting stuff, I like that." That's how this is likely gonna go. That is the more positive view on how what you're calling job displacement actually plays out in the US economy in the decade ahead. A recruiting cycle precedes the elimination of old jobs that aren't needed anymore, that recruiting cycle is a net positive for people. They say, "Wow, that is an amazing improvement in my income, an improvement in my lifestyle. I get to work on more interesting things, my life is better because of it." And then years later, the demand for those old jobs starts to die down, but at that point everyone's been recruited away anyway.

   20. DFDavid Friedberg1:05:31

       So Freeberg, you mentioned the- the Model T putting all the horse and buggies out of business, and if we had today's media environment around back in the days of Henry Ford, that's exactly what they would have been bemoaning, is that all the horse and buggy guys are gonna be put out of business. And part of the reason why that would have been a very bad take is because it's easy to see the people who are being displaced in the short term, like maybe the Uber drivers or something like that. But it's hard to see all the new industries and all the new businesses and all the new jobs that don't even exist yet that are gonna be created. So for example, what were the downstream effects of the Model T? Well, first of all, it created this new kind of industrial assembly line which applied not just to cars, but to all sorts of goods. I mean, Henry Ford pioneered that, and that had huge ramifications for the US becoming the industrial power that it ultimately became, which led it to winning World War II. Then just in terms of the car, you had things like the build out of the interstate highway system.

   21. CPChamath Palihapitiya1:06:28

       The tire industry. (laughs)

   22. DFDavid Friedberg1:06:30

       Yeah, but just thinking about-

   23. CPChamath Palihapitiya1:06:31

       Mechanics.

   24. DFDavid Friedberg1:06:32

       ... the highways, that led to-

   25. CPChamath Palihapitiya1:06:34

       Yeah.

   26. DFDavid Friedberg1:06:34

       ... to Holiday Inn-

   27. CPChamath Palihapitiya1:06:35

       Motels, yeah. (laughs)

   28. DFDavid Friedberg1:06:35

       ... and hotels and motels and-

   29. CPChamath Palihapitiya1:06:36

       Yeah.

   30. DFDavid Friedberg1:06:37

       ... drive through windows and McDonald's and car culture and...

Episode duration: 1:16:14