Byrne Hobart - FTX, Drugs, Twitter, Taiwan, & Monasticism

1. 0:00 – 0:50

   Intro

   1. BHByrne Hobart0:00

      What drives the response to what happened with FDX and Alameda is that if you think the story is pure fraud, it's very easy to say you would never do that. (air whooshing) I do think that the impact of new drugs on financial markets is underrated. (air whooshing) It's maybe merciful that the atoms to bits interface has not been fully completed while we still have time to deal with malevolent unfriendly EA. So, um-

   2. DPDwarkesh Patel0:23

      (laughs)

   3. BHByrne Hobart0:24

      ... that's, that's good. (air whooshing) Your big concern is not your portfolio in a world where an invasion is the reason AI does not happen. (air whooshing) One possibility is that every other society got it wrong and that the monastic tradition is stupid and it has been independently discovered by numerous stupid civilizations that have all been around for much longer than effective altruism. (air whooshing)

   4. DPDwarkesh Patel0:43

      Okay. Today, I have the pleasure of interviewing Byrne Hobart again, for the second time now, who writes

2. 0:50 – 7:03

   What the hell happened at FTX?

   1. DPDwarkesh Patel0:50

      at thediff.co. The way I would describe Byrne is, uh, every time I have a question about a concept or an event in finance, I google the name of that event or concept into Google and then I'd put in Byrne Hobart at the end of that search query. And nine times out of ten, it's the best thing I've read about that topic. Um, and it's just, like, just so interesting, right? It's just, like, the most schizophrenic and galaxy brain takes about, like, how, you know, the discourses of l-, uh, you know, Machiavelli's Discourses relate to big tech or, like, how, uh, Soros' Theory of Reflexivity, uh, explains hiring in finance and tech. So just very interesting stuff. I'm glad to have him back on again.

   2. BHByrne Hobart1:30

      Yeah. Great to be back.

   3. DPDwarkesh Patel1:32

      Awesome. Okay. So at, at first, I, I really wanna jump into the FTX saga. What the hell happened? Le- let me just, like, leave an open-ended question for you.

   4. BHByrne Hobart1:42

      Yeah. So I think, um, I think the first thing to say is that, uh, there's a lot we don't know, um, there's a lot we may never know because so many of the decisions at FTX were made through, um, self, like, auto-deleting encrypted chat. So, like, there, there are some holes we will never be able to fill in. The lack of accounting is also gonna make it tough. Like, basically, I think you can tell a bunch of different stories here. The really obvious one is, um, fraud and you can debate over exactly when it started. Like, one version of the story, which is getting some currency, is that, um, SBF had this entity Alameda and it was supposed to be this really hot crypto trading fund, but maybe it was a Ponzi scheme all along. And then, um, maybe at some point that Ponzi scheme started to run short on cash, so he decided to start an exchange, and the exchange got more cash, and then he used the cash to pay off previous investors, whatever. Um, I think that's, that's one version. And then kind of the, the maximally exculpatory version, which actually is still really bad, is, um, Alameda was a real company, they really made money trading, um, they took tons of risks, and, um, SBF has talked about why he thinks that's a good thing, that, um, FTX cut some corners when they were raising money and that they had really bad internal accounting and, um, that basically the, the extended entity of Alameda and FTX sort of lost track of whose money was where and ended up, uh, it ended up with Alameda spending FTX customer money. Which, um, I think is like, like one way to look at that is, like, if you think, "Okay, fraud is, like, twice as bad as just incompetently losing money," well, it's not as if, um, if we had a four billion dollar fraud instead of an eight billion dollar fraud, everyone would be like, "Well that's, that's fine. That's normal." Like, "Why are you giving this guy a hard time?" Like it's, it's bad no matter what. Um, you know, running a big company that is systemically important in crypto and then having that company completely vaporize over the course of a couple of days, um, really, really bad and worth understanding what happened. But it's partly worth understanding what happened because there are just different solutions that present themselves depending on what you think the story is. Like if the story is fraud, it's actually a lot harder to solve because there are just a lot of, um, a lot of people who are willing and able to commit fraud and to, to lie. Um, if the story is bad accounting, then that's actually a lot more solvable because then you could say things like, "The solution is, um, make sure you never invest in a crypto exchange that doesn't have a real auditor and, um, you know, make sure that they have, like, their, uh, proof of reserves calculation and it's happening consistently and that you can audit that." Um, you know, there are, there are different solution sets. And then I think the actual story is probably going to be somewhere in the middle of, um, extreme risk tolerance, plus extremely poor accounting, plus, um, fraud at some point. But I suspect the fraud actually happened pretty late, um, you know, if it, if it happened. Which I think there's like, you know, 80, 90% chance that there was some level of fraud, um, versus pure incompetence. But if so, I think it may have happened, um, fairly late in the story and as kind of a last desperate move. Like, and I think, I think part of, part of what drives the response to what happened with FDX and Alameda is that if you, if you think the story is pure fraud, um, it's very easy to say you would never do that. Like I, I can say very easily I would, I would definitely never start a Ponzi scheme and then start another bigger Ponzi scheme to pay off the first Ponzi scheme. That, that's not me, um, that's not most people. But, um, I think if you, if you draw the scenario where they discover at some point, like a couple of months ago or even a month ago, they realize, "Hey, we actually, um, there's a billion dollars plus that was supposed to be customer money but, uh, we thought it was Alameda money and we actually spent it and now it's gone. We've lost it." What would you do in that circumstance? And you know, I think the ideal answer is, "Well, I'd immediately come clean and, you know, step down and commit myself to getting everyone paid back and made whole." And I think there's also the possibility that, you know, I would, like the answer, the realistic answer is more like, "Well, I would scramble and try to make sure that that, uh, didn't cause the company to collapse and I'd try to pay people back later." And so at that point, you've sort of backed your way into fraud through earlier episodes of incompetence. But I think, like, one of the problems with the fraud story is, um, frauds, frauds have to be good at accounting because, um, they have to like-... you know, there's very rough schematic sense they have to be twice as good as- at accounting as everybody else because not only do they have to have the, the real books that tell them how much money the business has and whether or not the next check they write will bounce, but they have to have this, the fake set of books, and they have to w- have a way to make those tie out with one another. So they actually, like, frauds, accounting frauds tend to be fairly sophisticated. They tend to really dive into edge cases. I was reading up on, um, MF Global, which was a big futures brokerage that collapsed in part because they were dipping into customer funds and making some investments they shouldn't have. And, um, they, they did a lot of, um, clever and shady stuff. Like, one of the things they would do is, um, there was one point where they were transferring money at the last minute out of their consumer, out of their customer funds in order to make margin calls. And, um, what they would do is they would send the wire from the customer account to a different company account, and they'd send it a couple minutes before the wires closed for the night, and then they would send this email right after the wires closed saying, "Hey, we just realized we sent this transfer to the

3. 7:03 – 12:23

   How SBF Faked Being a Genius:

   1. BHByrne Hobart7:03

      wrong account. We've got to reverse it tomorrow." But that gave them at least one night of enough liquidity to survive. Now, you can only do that kind of fraud if you are actually keeping really close track of where your money is, where it's supposed to be, what the rules are, so that you know exactly how to break those rules. Um, I don't think SBF, I don't think FTX was in any position to commit that kind of fraud. I think that they could have, if they tried to do something like that, like they'd wire the money from an account that didn't have any money in it or something, or send it to the wrong account, um, there were these stories about them accidentally burning a bunch of USDC by sending it to an address that didn't exist or something like that. Like, they, the operational slip- slip-ups actually make it harder for them to have committed fraud, and it's unquestionable at this point that their, their record keeping was very bad.

   2. DPDwarkesh Patel7:46

      Yeah, yeah. To, to your point about the fraud being harder, I mean, it's like a classic story about if you just tell the truth, uh, you know, you just, it's just gonna be much easier for you. You just don't have to keep track with that many things. Um, um, but the one thing I'm, I've been thinking about, I interviewed him for like an hour, and before that, I tried to do quite a bit of research into how FTX worked and, um, what was going on. Uh, and I had this impression that this guy was like the most competent, uh, genius that had ever graced finance, and this was like a common impression. This wasn't just... And then, but it turns out that, you know, that they were like co- it just like out of sheer incompetency loses track of billions of dollars, the internal operations, it's just like him putting together spreadsheets and throwing them around and putting emojis on Slack messages asking for payments. And I, I just like, I, I want to understand how it is that he, this guy put the impression out there that he is just hypercompetent, uh, and it turns out that it's like the opposite. I- i- it's not even that he's mediocre. It's the opposite.

   3. BHByrne Hobart8:51

      Right. Yeah, so I think you could tell a couple stories there. Like, one story, and I know I've been saying a lot like you could tell multiple stories. There, there are multiple stories that fit the facts. We have lots of, lots of different, um, different weird things to explain and therefore many different weird explanations that fit them. So I think, I think one version is, okay, he's never all that smart and, um, decided that he could just play up this weird, um, you know, eccentric genius thing, and that would, that would, he'd be able to get away with it. And, you know, there are these anecdotes about how someone told him to cut his hair and he said, "No, I have to look kind of crazy for this." And, um, so that, that fits in, and it is kind of like, it is kind of an MIT thing to, to do that to like play up your eccentricity because you know that there are these super brilliant, very eccentric people, and you can, you can be like them. It's kind of like, you know, a lot of people, um, they read about Steve Jobs and they're like, "Well, the secret to success is, um, be this brilliant perfectionist who can always see the future and also be just a giant asshole to everyone you meet, and, um, I'm gonna try to do both of those things." And it turns out one of those is really, really easy to do, and then one of them is really, really hard. And you have to do both to be Steve Jobs, but you can, you can sort of give this surface level impression of Jobsian-ness by, by just being really obnoxious to everyone. Um, so I think, some of it is, some of it is that. But the other is that you can, if you get really good at just very narrow domain specific stuff, you might miss what other stuff people have to be good at for that- that skill set to be valuable. And, um, so I think, like thinking about his previous background where he worked at a prop trading firm and, um, seemed to do well there, like they're, it's Jane Street, they're very, very selective at who they hire, very hard to get in, and they're very profitable, so, you know, good to get in. Um, it's entirely possible that part of what happened was just that, um, like Jane Street has, has its operations people, they have their trading people, and, um, it may, there may have been enough silo-ing within that that, you know, if your job is just identify discrepancies in ETF prices and take advantage of them, you don't actually have to know things like how do we figure out which counterparties are creditworthy, how do we make sure we have enough liquidity, how do we have backup plans upon backup plans upon backup plans in case something goes wrong with our liquidity situation? Because that, like part of the Jane Street model seems to be, they're, they're very, very opaque, but it, like very opaque in terms of their, their trading operations. But part of the model seems to be that they want to be the trader who is there and trading and making a market when everything falls apart. And what that means is that, um, like the way you make the most money in trading is when markets are insanely volatile, volume is very, very high, and you're still trading. But the reason that markets get really volatile when prices collapse and there's a lot of chaos going on is that other people who would love to be trading can't trade because maybe the broker they use is suddenly insolvent and they can't get to a new broker, their money is frozen. Um, so, you know, if you, if you're planning to be there when everybody else is out of the market, then you have to have lots and lots of contingency plans, and it's not enough to buy lots of deep, out-of-the-money put options, as Jane Street does. You also have to make sure that you're buying those options from a counterparty who will actually send you the money when, uh...... when you need it. Or, you know, that you, like, you wanna structure those things so the actual cash gets to your account at the time it needs to be there. And, um, that maybe is something that a prop trader should not be spending most of their time thinking about. Like, you know, it's one of those things where it's like, you know, if you,

4. 12:23 – 17:54

   Drugs Explain Financial Bubbles

   1. BHByrne Hobart12:23

      if you own a house and you... Like, if over the last 24 hours you learned a whole lot about electrical wiring or you learned a whole lot about how plumbing works or how septic tanks work, like, that's not good. That means something very, very bad happened in your house, and, um, you know, it could be nice to be an expert on those things. But if you suddenly became an expert, it's because somebody else wasn't doing their job. Um, so I think you could, you could be a trader like that where they, they can be very good at the, the finding little price and discrepancies thing, and have just no awareness of what the operation stuff is. Especially because the better the operations team is, the less anyone else needs to be aware of them. Like, they, they... Like, you only email them when something is going wrong, so if nothing is going wrong, you never email them, and then you forget they exist.

   2. DPDwarkesh Patel13:06

      Yeah. Yeah. No. That, that, that's a good point. Uh, the, uh, uh, in fact, in the interview I did of him, he mentioned that... I asked him what is the difference between Jane Street and FTX, and he mentioned that at Jane Street, there was, like, this button he could press to, like, buy, uh, and all that, all the intermediaries, all the servers, it was just taken care of. And (laughs) wha- what was really funny is then he said, um, "And just getting a bank account." And he goes, "And let's talk about that. Just getting a bank account is so hard when you're an independent."

   3. BHByrne Hobart13:37

      (laughs) And it, it, uh, it apparently turns out it's so hard that (laughs) you, you might have, like, commingled funds 'cause you couldn't manage to- Right.

   4. DPDwarkesh Patel13:42

      ... separate them out. Yeah. No. Tha- that's crazy. Uh, uh, you had this really interesting take, I think, at one point when we were talking, about how every single market crash can be explained by the drug that was common in the industry at the time.

   5. BHByrne Hobart13:54

      (laughs) Well-

   6. DPDwarkesh Patel13:55

      And we finally achieved, like, the hyper grade meth, uh, stage of... I forgot the name of, like, that patch he was taking, but it's, it's, like-

   7. BHByrne Hobart14:03

      Yeah.

   8. DPDwarkesh Patel14:03

      ... stronger than Adderall or whatever, but-

   9. BHByrne Hobart14:05

      So it was, um... I think saying every crash can be explained by the drug they were taking at the time, um, it takes it a little far. But I do think that the impact of drugs, of new drugs on financial markets, is underrated. And, um, you can have, you, you have examples of this going back pretty far. Like, um, there is some connection between caffeine consumption and, like, extroversion and risk-taking. Like, you, you temporarily get a little bit more willing to do deals when you ha- consume caffeine. And, um, you know, Lloyds of London, before it was this insurance consortium, it was a coffee shop. It was Lloyds Coffee Shop. So, um, you do have some history of, you know, coffee shops being associated with, um, with financial centers. And, um, and then, you know, you, then you have to zoom forward, because we, we just haven't had that many novel stimulants. I guess, you know, depressants, deliriants, whatever, like, other, other drug categories probably just don't lead to that much financial activity. Like, I don't know what, um, w- how someone would trade differently or invest differently if they had, you know, a really strong acid trip or, or took ecstasy or something. But, but the stimulants where people can just consistently reuse them, they keep people alert, they make them active and wanting to do things, it seems like stimulants would have that connection with financial markets. So yeah, that, that theory is, like, if you look at the 1980s where a lot of, there were a lot of these hostile takeover deals where someone would find a company that's underperforming. And, you know, from, when you look at the spreadsheets and say, "This company is underperforming," what you're often looking at is a story that is more like, this company believes that they have this social obligation to the community where people work, and that they have an obligation to give their customers a fairly priced product, and maybe, and they give them really good customer service that, um, it doesn't really pay for itself, but it's the right thing to do. Well, um, maybe, e- especially if you are a, a, a cokehead with kind of cokehead morality, you decide, "Well, that's not the right thing to do at all. We should actually just take the money, and, uh, we should fire these people and replace them with cheaper employees." So, um, you know, levering up a company and then, like, levering up in order to buy a bigger company and then firing everyone and, you know, shutting down the pension plan and distributing the surplus to shareholders, like, it is just very standard cokehead behavior. Whereas, if you look at the mortgage bank securities boom, um, and structured products generally in the mid-2000s, the way that people made money in that was just by being very, very detail-oriented and being able to make these incredibly fine-grain distinctions between different products that were basically similar, but one of them pays with 5.7% and one of them pays 5.75%, and if you lever up that difference enough times, you're actually making really good money consistently. Um, super boring, but maybe with enough Adderall, it's actually very tolerable work that you can enjoy. So, so I do, I do think that just, like, within stimulants, the difference between short-acting stimulants and long-acting stimulants does mean the difference between a hostile takeover boom and a structured products boom. And then, um, yeah. There's, I think, the drug is called Emsam or something, which is, like, a, a bit like a Parkinson's treatment, and, um, there's some evidence from pretty small sample size studies that one of the side effects of this drug is compulsive gambling. So, um, yeah. There... And, you know, the drug story, there, there have been very, very fun, um, fun tweets about this claim, and then, um, there have been these official denials from the company doctor. On the other hand, if you're a company that has a company doctor, maybe that says something about the level of medication you're consuming. And maybe the company doctor's job is partly to say, "As a doctor, I can assure you, I would never give someone, you know-

   10. DPDwarkesh Patel17:37

       (laughs)

   11. BHByrne Hobart17:37

       ... three times the normal dose of Adderall just because their boss hired me to do that specifically."

   12. DPDwarkesh Patel17:41

       (laughs)

   13. BHByrne Hobart17:41

       Like, um, you know, and they, like, I think, you know, dealers don't exactly have, like, patient confidentiality norms. Doctors do. So, so maybe you hire a doctor instead of a dealer specifically to get that plausible deniability.

5. 17:54 – 21:44

   On Founder Physiognomy

   1. BHByrne Hobart17:54

   2. DPDwarkesh Patel17:54

      Other than drugs, I also wanna, like, ask you about the, the phenotype of the founder. You wrote a post, I think it was, like, just co- a couple of weeks before this crash happened, where you were pointing out that this idea of a founder who comes in shorts and a T-shirt and a crazy haircut... By the way, so FTX had a barber who would come in every Tuesday to cut everybody's hair. Or it might've been Thursday,... and that, so he could have just, like, sat in line and gotten his haircut. Like, (laughs) it-

   3. BHByrne Hobart18:20

      (laughs)

   4. DPDwarkesh Patel18:21

      ... that was, uh, that was completely s- unnecessary, (laughs) the way he dressed. I know it's, like, very purposeful but, um, yeah, so if that archetype of a founder who's in a T-shirt and shorts, if that's been priced in, and that's beta instead of alpha now, what is the new phenotype and physiognomy of the founder? What, where, where are you looking for alpha?

   5. BHByrne Hobart18:40

      Well, um, I guess I would draw the distinction between, like, the, the physical type of someone versus their, their presentation and their dress. My, um, but yeah, I don't, I don't know. I'm sure someone could, could run some interesting numbers on that, but I, I don't have a good, um, good sense of what exactly to get from that. But in terms of, you know, how people pub- people publicly present, ah, present themselves, my guess is that, yeah, th- there will be the swing towards investing in people who look a little bit more formal, a little bit more boring, and these things are, are somewhat cyclical. Like, I think part of, you know, part of the norm on, um, investing in or, you know, treating, basically treating the suit as a negative signal is that a lot of investors have this view that when, when the MBAs come into an industry, a lot of the alpha is gone, and it is true that MBAs, at least, you know, there's, um... It's, like, a decent market timing signal apparently that if a lot of people from Harvard Business School go straight into some field, that field is probably peaking, um, so yeah, there's a little bit to that where the suit is some example of conformity. On the other hand, wearing a suit in Silicon Valley is, uh, an example of non-conformity. And, um, I guess outside of, outside of New York within the U.S., most of the time, wearing a suit as a tech company founder would be this weird sign that, you know, you're either, like, you don't know what you're doing, you don't know what the right signals are, or, you know, you're about to testify in Congress and that's why you have a suit now. Um, you not, not generally a great sign, but maybe it is a sign that you are willing to do some more conformist things and that you could pay attention to details, even if the details are boring, and, and also that you are putting some, you're making some kind of financial investment in, in that particular appearance. So yeah, I would, I would guess that there is, um, there will be a tilt away from the hyper-informal founders, but I also think that if you treat that hyper-informality as either this attempt to game the system, just say, like, "I'm going to be as much... I'm going to try to remind people of Mark Zuckerberg circa 2005 as much as possible so I can raise money and pretend to be the next big thing," um, that is, that's one thing people are signaling. ... and then the other thing is they're just accidentally signaling, um, total indifference to anything except the thing they're working on, and maybe that's a good thing, but maybe, maybe it's a good thing in unregulated domains and then a really, really bad thing in regulated domains. Like, if you're investing in a medical devices company, you, you probably don't want a founder who just cannot focus on anything except the product because-

   6. DPDwarkesh Patel21:16

      (laughs)

   7. BHByrne Hobart21:16

      ... there are rules they have to follow and, you know, norms and things, and yeah.

   8. DPDwarkesh Patel21:21

      Yeah.

   9. BHByrne Hobart21:21

      It gets, it gets bad if all they're focused on is this one element. Um, you know, if the hyper-focus is, like, just right, perfectly calibrated, that's good, but then maybe, maybe adjusting your appearance is this way to say that you have correctly calibrated your hyper-focus and you're going to get one thing right and it's gonna be really, really right. Like, you're gonna get things right, they're gonna be really, really right, and you've identified what things matter and what things don't.

6. 21:44 – 31:17

   Indexing Parental Involvement in Raising Talented Kids

   1. DPDwarkesh Patel21:44

      Yeah, yeah, you'll lose track of your bank accounts. Um, but th- that's the dress itself, but I also wanna ask about the other characteristics. You had this really interesting point in that blog post about how, uh, you know, when you try to scout for talent when the talent is young, you're over-indexing for parental involvement, um, and I'm curious, if you had to identify somebody who had to be under the age of 18 or under the age of 20, what is the metric you're looking at that least indexes for parental involvement where they're being forced or encouraged by their parents to do it?

   2. BHByrne Hobart22:16

      Um, I think the closest you could get is something that is either, um, totally illegible to the par- parent's status, like understanding of status, or something that is actively low-status, and, um, it's hard to, hard to enumerate those and not just get swamped in, "Well, should this thing be low-status? Is it high-status?" It's actually terrible to say that you'd ever wanna hire someone who is really good at X for some value of X, but I do think that you... So, so basically the, the origin of that point was that, was arguing that when you... if you look at people who are at some percentile and they're in their 20s or 30s, like, a lot of, like, at a high percentile, like, a lot of it has to be that they have some combination of talent and have tried really hard. There's probably been some element of luck, but, um, over time the luck starts to, starts to wash out hopefully, but the younger you go, and this is probably just my experience with having kids, like, if you talk to your kids every day about multiplication, they will start doing multiplication at a pretty early age, and, uh, it's not that they are, you know, really, really smart and they got to multiplication a couple years early, it's that you push them in that direction and they were able to do it early. So, like, the earlier you go, the more you are over-indexing on what the parents did, what they emphasized, and also what they told the kids was just part of the script. And, um, there are anecdotes about this from, um... None of the specifics come to mind but I, I remember anecdotes about people who grew up in lower middle class or below circumstances but would have one distant relative who owned a business, and that made them aware that they could own a business, and this is, like, a thing they could do. It's part of the script now, and that wasn't the only reason that they would have started a business, but it could be a reason that they decided to do that when they did, and you have to imagine that for, for everyone who had one uncle who owned a scrap dealer or something, that maybe there are five or 10 or 50 people who grew up in similar circumstances, had a similar level of innate ability, and just didn't have anyone in their social circle who demonstrated to them that this was something you could actually do. Um, so I think...Like, getting, getting back to the, the talent identification problem, par- part of my thesis there was that it's, it's really hard. Um, and it's getting harder that you had Y Combinator going after the relatively young talent versus what the B2BC was going after when YC started, and then, um, stuff like Pioneer and Emergent Ventures is going even younger. And the younger you get, the more it is this luck-driven thing that is about what they got exposed to, with the exception of, um, of prodigies. So, right? I'd, I'd like to think that if I encountered an eight-year-old Mozart, I would be able to identify this person as just an extraordinary talent where, like, even if their parents were making them practice 10 hours a day, they couldn't be that good without talent. And maybe something similar with the Polar Sisters where, okay, if I, you know, encounter a six-year-old who can routinely beat me at chess, and so I go Google some, you know, read some chess books and then go back and try to beat them again, and they're actually better, um, (laughs) and they're laughing at me and things. Like, at some point you decide that this is actually natural talent, but, um, there's, for a lot of other domains, there's just so much room for parents to push one thing and do some combination of their kids' talent and their own emphasis to get their kids really good at it, and that's very hard to adjust for, especially 'cause if you ask the parents, they're, they're going to underestimate how much they overemphasize things, because to them, this is just a normal thing that everyone should be interested in. And, um, so you won't, you won't get a good signal from asking parents, and then you won't get a good signal from asking other people because they don't know how this family spends time at home, and, you know, if, if, if the median family has more, more YouTube and Netflix time and less, um, you know, less math practice time, um, that family's just going to assume it's pretty, pretty much their behavior is normal.

   3. DPDwarkesh Patel26:07

      It's a bit confusing because you also want to potentially include parental involvement in your estimate of how good this person will end up being. Um, if you think, for example, that giving somebody a shot to get started programming early is actually a big factor in putting them on that sort of, like, loop where they get better by practicing and they enjoy it more or so on, um, you might expect momentum more than mean reversion, uh, i- i- in that kind of, like, early start.

   4. BHByrne Hobart26:38

      Sure. So I think part of, part of what this gets to is the question of what are you optimizing for when you're doing a talent search? And, um, I think this is, this is maybe one reason there could be some alpha left in talent search among people who are super young is that a lot of the academic institutions that are doing some form of talent search, what they're pretty much optimizing for is, how does this person do over the next year? So, you know, if someone is a, a math prodigy and they get to join the math team at that school, the school is not trying to optimize for, will this person be proving novel theorems when they're 25? It's really, will this seven-year-old be doing, you know, algebra by the time they're eight? And that's, that is still very tied to parental involvement, especially once... You know, parents like kids. They like structure, and if you tell them, "This is the appropriate next thing to do with your kid," then they're more likely to do it. So you can coast on that momentum for a while, but what I think you... The trap you can run into is that you identify people who are, like, 95th percentile talent with 99th percentile just super aggressive parents, and that combination gets them to 99th percentile performance until they leave home, and then they never do whatever that thing is ever again because they didn't really like it. It was just something their parents pr- pressured them into. Now, maybe the ideal would be you get 99th percentile on both, so the parents are putting them on this trajectory, but the parents are actually aiming, you know, a very powerful rocket ship, and it's going to go right in the right direction, um, which is ideal, and I, I think there's a, you know, there's a reasonable possibility of that. Like, I think there are... There's, like, some level of just imprinting that young kids have where a lot of kids learn about programming when they're very young and that's something that they do from a very, very early age and then it becomes the thing that they work on for their entire career. Um, obviously, that has to be fairly new because it's not like they're, you know, from, um... Like, anyone who was born before 1970 just had this constant yearning to program computers and could never satisfy it. Like, those kids found something else to do. Maybe a generation before, it was repairing transistor radios, like Feynman did when he was a kid, and maybe a century before that, it was experimenting by building little internal combustion engines and seeing whether or not they explode, like Henry Ford did with his friends at school, um, and maybe before that. Like, the earlier you get, the harder it gets to really map these activities to anything concrete that we understand, um, and can relate to. But there's, there's probably some extent to which, um, you can, you can sort of direct kids into whatever the modern instantiation of this long-term enduring, um, tendency is. And I guess one, so one interesting example of that, um, I've been reading the Robert Caro LBJ biography, and, um, there's this bit towards the end of the first volume where LBJ is put in charge of this fundraising organization for Democrats in Congress. And when you read about it, he sounds like a traitor. He sounds like someone who was just born to be slinging currency derivatives or something because he is constantly on the phone, constantly picking up rumors, constantly sending money here and there and everywhere else, and he's, like, always sending money overnight and then sending someone a telegram the, the day before saying, "You're going to get a package from Lyndon Baines Johnson, and you're welcome." Um, so he's, like, he's doing this thing where he's constantly, relentlessly optimizing every little tiny detail of some very complicated process, clearly requires enormous working memory, requires a very strong, um, basically a very strong poker face. Like, he has to be able to differentiate between someone who is begging for money because they are at for- they're polling at 49%, and with a little bit more money for newspaper ads, they'd get to 50.1%, versus someone who just wants the money or just is constantly freaking out by their nature. So, it requires a lot of the same character traits, but, um...1930s were just not a great time to go to Wall Street. Maybe if LBJ had been born at a slightly different time, that's- that's just what he would've done and he would've been a very successful private equity executive or something. But, y- sometimes those- these general skills, they can translate into a lot of different areas and they get honed into very specific skills through- through deliberate practice in those areas. So if you have that combination of natural tendency and some level of motivation, which in LBJ's case, his dad was also a politician, so he had this example of this is part of the life script, you can't do it. But he also had the example of his dad was broke after a while. And so he- he had this example of what not to do and, um, ended up making good money for himself in addition to a successful political career.

7. 31:17 – 39:45

   Where are all the Caro-level Biographers?

   1. BHByrne Hobart31:17

   2. DPDwarkesh Patel31:17

      Yeah. Yeah. Yeah. I'm- I'm glad you brought up the biography. I'm reading it right now, uh, as well. And the other biography by Robert Caro, uh, The Powerbroker, uh, just for the audience, uh, the last episode or the second to last episode in the feed is, um, we go deep into, uh, deep into that biography and, uh, talk about why it might be inaccurate in certain respects. But what is- but it is accurate in, and I think what Caro has a genius in, is talking about the personalities of these great, uh, great men, uh, about the people who have really shaped, uh, their cities or their countries for decades and centuries. Um, th- there's many places where, I mean, I'm sure this is true for you, if you understand like the economics of an issue he's talking about, uh, there- there's a lot to be left to Caro's explanation. Uh, but the actual, like the- the sort of breakdown of the personalities is just so fascinating and worth, uh, reading Caro for. Um, but, you know, come to think of it, so maybe the difference between the cases where you want to price in the parents' involvement and the ones where you don't is where, uh, in situations like maybe being a politician where it- it really is about building a network, building know-how, building this sort of inarticulable knowledge from an early age, uh, it might be the case that in those situations just having connections and having parental involvement gets you far, but if it's like becoming a programmer, sure, you'll like have done data structures by the time you're 16, but eventually you'll get to the point where, you know, everybody knows the basics and now you actually had to do interesting and cool things in computer science, and now you're like a 95th percentile of spatial reasoning IQ is not gonna get you that far. But let- let me ask you about the Caro biography 'cause you had a really interesting comment, uh, that I've been wondering about as well in your, um, in your review of the book or in your comment about the book. You said, "It's worth speculating on how many LBJ level figures exist today, perhaps in domains outside of politics, and how many Caro level biographers there are who could do them justice." So do you have some idea of who these figures are, or if not that, at least what areas you'd expect them to be in?

   3. BHByrne Hobart33:18

      I think a lot of people who are close to that tier, um, and have some of the same personality types are in sales and corporate development and stuff like that, where they, you know, they're- they're building a big network. They are constantly building out this giant levered balance sheet of favors, you know, favors owed to them, favors they owe to other people, and, um, like all forms of leverage, it does allow you to grow a lot faster, but you occasionally run into these big, um, big blowups. So, um, that's- that's one place I would look. I think, um, if you try to look at the more, you know, pure executive founder types, then it gets harder to find someone who would have exactly that kind of personality. Um, because like part of what made LBJ's methods work was that he was adjacent to a bunch of these really big institutions and he could sort of siphon off some of the power that these institutions had, and in some cases could make them more powerful. So I'm about a third of the way through Master of the Senate right now. So it's- it's just getting to the point where he's really getting cooking and really making the Senate, um, more- more effective than it used to be and also making it, uh, an organization where someone, where it's less seniority based. Um, so you kind of, you need to be attached to something much bigger than yourself for that particular skillset to work really well. That said, you could have a really big impact because it is, it's another form of leverage. So if you are one of a hundred senators, or I guess at the point, at that point it was 96 senators and you're, um, you're able to exert a lot more influence and be, you know, be the equivalent to 40 senators, for example, then, um, you can get a whole lot done because it's- it's the US Senate. But if you have that same kind of skillset and you are the CEO of your company, well, you're- you're already in charge of the company. Like, there's only so much extra force you can exert. So you- you kind of see a figure with exactly that kind of personality trait in a case where there are big institutions that have slowed down somewhat. And this is another, um, interesting point that is raised early in Master of the Senate is that the Senate was getting old and, um, if you look at these long-term charts of average age of politicians, you know, we're- we're definitely in a bull market for extremely, extremely old politicians in the US right now, but we've gone through cycles before, and one of the things that, um, that tends to cause a reset is a war, where wars, um, among other things cause this huge reset in social capital. So, um, the people who made mistakes in the early stages all get discredited, and then the- the social bonds that people forge from actually fighting alongside one another and, uh, the- the prestige you get from actually being, um, part of the winning side, that is very hard to replicate and so you end up with much younger people in much, you know, in positions of a lot more power. Whereas the, um, the- the way that that worked a decade and a half earlier was, um, in the 1930s there just weren't a lot of organizations that were hiring heavily and looking for really ambitious young people who were going to shake things up, but the US government was. So that's- that's how LBJ got in and started on his path was that, um, the New Deal created these big programs like the National Youth Administration and, um, they needed people like Johnson to- to run them. So when you look at, um, when you look at an industry that is aging, it's usually an industry where, um...... ambitious people stay away from it. Like, they recognize it's becoming more seniority focused and there's just less going on. But there becomes this huge opportunity when the aging stops because a bunch of people either retire or they get discredited and have to leave, and suddenly the average age of the industry ratchets down and you can basically look at the set of opportunities that were missed over the previous decade, for example, because, um, because the industry was, like the, whatever this institution was, was too risk-averse. You, you get to take all of those opportunities at once, so you have tons and tons of low-hanging fruit when that shift happens. So I think that's, that's the other thing to look for is look for cases where there's some, some institution, some part of the economy or society that has just been slowing down for a long time, clearly getting to the limit of whatever its current operating model is, hasn't found a new model, and there's someone young and disruptive who's just entering it. So, I mean, maybe, maybe the place to look for the next LBJ is, um, someone doing independent films and someone who looks at the top box office results and sees that everything is a spinoff of a spinoff of a spinoff and it's, you know, 50% Marvel and says, "This is disgusting, we have to destroy it and I'm going to build something completely different." Like, maybe that person is actually the kind of, um, LBJ archetype. Now, the other half of this question is the, the Caro archetype and part of what I found fun about this was that, um, I felt like Caro had this kind of, um, like he was kind of disgusted with himself when he realized how similar his, some of his methods were to LBJ's because he's writing this story about this guy who's, will do anything to make a sort of friendship, but it's really a fake friendship just to accomplish his goals. And he's constantly doing, doing the reading that other people aren't doing and doing the work and making the calls and reiterating and reiterating, iterating, just endless patience. And then you read about how Caro works and he does things like moves to DC for a while, talks to everyone in DC, befriends people, moves to, um, Texas, talks... you know, moves to the Hill Country and gets to know people there. He has these anecdotes in the book 'cause the book is like, um, it sort of has these hints of Gonzo journalism where sometimes Caro will just narrate. It's... He'll, he will go from, "Here's what happened in 1946." To, "Here's what happened to me in the '70s-"

   4. DPDwarkesh Patel38:52

      Yeah. (laughs)

   5. BHByrne Hobart38:52

      "... while I was talking to this guy about-"

   6. DPDwarkesh Patel38:54

      (laughs)

   7. BHByrne Hobart38:54

      "... what he did in 1946." And sometimes he, he will basically come out and say, "I waited until the person who paid this bribe had Alzheimer's and then I asked him if he remembered paying the bribe."

   8. DPDwarkesh Patel39:05

      (laughs)

   9. BHByrne Hobart39:05

      "And he remembered that he did it and didn't remember he wasn't supposed to say it, so that's how I know." And, um, there's this line that Caro keeps quoting from LBJ, which I think was from LBJ's speech coach days or speech, like debate team coach days where-

   10. DPDwarkesh Patel39:19

       Yeah, yeah, yeah.

   11. BHByrne Hobart39:20

       ... his line was, "If you do everything, you will win." And Caro does everything. Um, so I think probably the population of Caros is smaller than the population of LBJs because the people who have that skillset probably have ambitions other than writing a canonical book about one particular person or, you know, writing two canonical books, two canonical works on, um, on two important people. But maybe a lot of those people are just doing

8. 39:45 – 49:07

   Where are today's Great Founders?

   1. BHByrne Hobart39:45

      things other than typing.

   2. DPDwarkesh Patel39:47

      Uh, uh, I, I... Man, there's so many threads there that I, I, I'm, like, tempted to just spend the rest of the episode just digesting, um, and talking about it. But o- one thing that, uh... Like, there's so many interesting things about Caro's story, uh, and I guess the impact it's had. One of them is there's been this focus in terms of thinking about impact, especially in, like, circles like effective altruism of trying to crunch the numbers, and there's no reasonable crunching of the numbers you could have come up with before The Powerbroker was written where you say, "I'm going to spend..." By the way, this is... Uh, he tries to downplay his accomplishments as a journalist before he wrote The Powerbroker, but he was nominated for the Pulitzer Prize for his journalism before The Powerbroker. So he's a, like a top-level, uh, investigative journalist and then you say, "Here's where I'm gonna spend my talents. I'm gonna spend eight years looking into and researching every conceivable person who has even potentially been in the same room as or been impacted by Robert Moses and I'm going to document all this. I'm gonna write a book where that's like million words or something." And... But in fact that's ab- He, he probably didn't think about it this way, right? But what, what was the result? He prob-... That book probably changed how many of the most influential people who came up through politics, uh, think about politics, think... Uh, it probably changed how urban governance is done, how we think about accountability and transparency. For good or ill, right? Depending on your perspective. Um, and th- just that example alone really makes me suspect the sort of number-crunching way of thinking about what to do and rather just, like... I, I, I don't know. I gotta understand how the... You know, from a precarious perspective, I gotta understand how this guy accumulated this power.

   3. BHByrne Hobart41:21

      Yeah.

   4. DPDwarkesh Patel41:21

      He does it and it like completely transforms, uh, you know, how urban governance is done.

   5. BHByrne Hobart41:25

      Yeah. You know, it actually, uh... Kind of looping back to the, the parental influence thing, I think part of what happened was that the more Caro dug into it, the more he realized this is actually a big and compelling project. And there's, there's this kind of fun phenomenon that you can get when you're researching something where you, you, you've read enough that when you read something new and you see that there's a footnote, you actually know what is going to be cited in that footnote and maybe you've also read the thing about how the thing in that footnote is wrong and here's why. And, um, you know, you're, you're picking up information a lot faster. You, you get that, that nice convexity where you can skim through the stuff you know and everything you read is new information and challenges something about what you, what you previously knew. And that's just a really intoxicating feeling and, um, I can imagine that it's even more fun if you're actually digging up the primary sources. So, you know, if you're Caro, you've, you've gone through the New York Times archives, you've read through all of the, um, all the external coverage of what people said about Moses at the time and then you start talking to people and you realize here are things that were... that we got completely wrong. Like, we thought Moses didn't want X to happen and it turns out that he kept scheming and plotting to make X happen and just wanted to pretend that it wasn't his doing. Um, you... So I think that...... but what happens is, you, you build this ongoing motivation and then you can, you can make something that you just wouldn't be able to make before. And I think if, um, if you start out saying, "I'm going to write a million words about how cities are run," um, you will probably fail. But if you-

   6. DPDwarkesh Patel42:57

      Mm.

   7. BHByrne Hobart42:57

      ... keep writing another 500 words a day about how Robert Moses operated and-

   8. DPDwarkesh Patel43:02

      Yes.

   9. BHByrne Hobart43:02

      ... what he did and then you have some reflections throughout that on what that means for cities, then, then maybe, maybe you actually get there in the end. So, um, and, and maybe some of this is like, you, you want to have an adversary. Like a lot of these... Like, the Caro books do seem partly to be this cross-examination of, um, of who he's writing about and often he, he seems to have very mixed feelings. Like he... You know, with, um, with... I think one of the, one of the really interesting things in, um, in The Years of Lyndon Johnson is the- Caro's description of, um, Coke Stevenson and how he contrasts him with LBJ because it's really clear that, um, Caro's politics are completely opposed to Coke Stevenson's and that when Caro's writing about LBJ there's like, the good stuff he did, which is the Great Society and his, his participation in New Zealand, and there's the bad stuff which is anything that wasn't that.

   10. DPDwarkesh Patel43:52

       (laughs)

   11. BHByrne Hobart43:52

       And, um, so he clearly like, he likes what LBJ accomplished and despises the person and then really likes the person of Coke Stevenson and, and kind of wishes him well but also doesn't actually want people like that to be in charge of anything. And so it's like a... You know, it's partly, partly Caro debating with his subject and interrogating his subject, and partly Caro debating with himself and asking these very longstanding questions about whether or not just about the ends and, you know, would it be worth it to not have a Great Society in exchange for not letting LBJ steal an election in 1948? And I don't think that... Like, if he's good at his writing, he shouldn't be coming to firm conclusions on that and he should be presenting this very, very mixed picture where you really only get the things you really want if you also accept that there are some very bad things that come along with that as long as y- ... As long as the things you want come from powerful, ambitious people who will do anything to win.

   12. DPDwarkesh Patel44:54

       Yep. Yep. No, and it's worth remembering that it takes him a decade to write each of those volumes, and each of... I guess, in the case of The Power Broker where that entire book, but in the course of a decade just imagine how many times you would change your mind on a given subject. And you really notice this when you read different paragraphs of, like for example The Power Broker, where you notice, um, early on if you just read the first third or the first half of The Power Broker you're like, clearly Ca- Caro is like writing about, uh, uh, Robert Moses the way he writes about Robert, uh, Lyndon Johnson where it's like, "Yeah, this guy had some flaws but like look at the cool shit he did and the awesome stuff he did for New York." Um, and then the tone completely changes but you've got to remember, it's, he's just writing this so many years and, uh, in, in between. I, I do wanna, uh, ver- talk about the thing about, you know, young people being able to... Y- yeah, you know, young people... Uh, I guess a war being a catalyst for young people entering an arena. I did an interview of, um, Aleksandr Mikheevich Rybicki. Ah, I forgot his last name but anyways he wrote a really interesting book about the Napoleonic Wars and this is actually one of the things we talked about. Um, there's a line from War and Peace where one of the Russian aristocrats is mad that his son is joining, uh, i- is joining the war and he goes, "You know, it's, it's... Is that man Napoleon? You've all seen him and now you all wanna like go off to war." And I'm curious, um, w- like, filmmaking doesn't seem like where super quantitative and super smart and super competent, like, somebody who has thymos and the desire to dominate and the desire to achieve recognition, uh, I mean, do you really think he's making films? Like where, where is he really? I mean, uh, is he like still trying to st- start a startup or is that like now a decade too old and now he's trying to dominate some other arena?

   13. BHByrne Hobart46:35

       I mean, maybe the lame answer is we don't actually know because, um, w- the way... Like, you know, Paul Graham has that essay about the trope of startups starting in garages and I think it's called The Power of the Marginal. And it's all about how the, the really interesting projects are the ones that can barely get off the ground because they're so weird and so out there that there is no infrastructure to support them and what that ends up doing is selecting for people who are extremely passionate about that project and also people who are extremely willful and will get impossible things done. So you... It's hard to just rattle off a bunch of examples of that because you- your hit rate would be like 99 things out of 100 are just like things you read, one fun blog post speculating about and they're actually never going to happen, and then, you know, one of them maybe, maybe you're right but it's very hard to tell which one it is. And, you know, if it were, if it were easy, venture capital, um, would not have-

   14. DPDwarkesh Patel47:28

       (laughs)

   15. BHByrne Hobart47:28

       ... such a, such skewed returns.

   16. DPDwarkesh Patel47:30

       Yeah.

   17. BHByrne Hobart47:30

       So, um, so maybe, maybe it is like harder to, harder to optimize for what area do you look for. Um, maybe it's actually easier to do the meta optimization of identifying the things you would quit, you know, quit podcasting and go work on given the opportunity.

   18. DPDwarkesh Patel47:49

       (laughs)

   19. BHByrne Hobart47:49

       And, um, you know, it's like good to have that sort of dread list like I, um, I had that mental list of like, you know, if someone at Spotify ping me and they're like, "We really need a product manager who can help us, um, display classical music such that we don't-

   20. DPDwarkesh Patel48:04

       (laughs)

   21. BHByrne Hobart48:05

       ... list like tons of redundant information in the first 50 characters of the track name and then the actual incremental useful information in the ten characters that you'd have to wait for it to scroll through unless it doesn't actually scroll through." Like if, if someone pinged me and was like, "We really need someone to fix that. Can you come and do this?" Um, I'd be sorely tempted. Feel the same way about Google Finance like if, if, if someone emails me and says, "You have a mandate to make Google Finance good," um, (laughs) I'd be tempted but, um, think- thinking of like what industries would have that kind of pull for you and then what can you do to really dig into those industries, you probably find the, the, the proto successful people in spaces like that versus trying to optimize in advance for, "Well, if I were, you know, if I were someone who thinks like nobody else thinks and were a true natural contrarian then-... and also had spent several years learning about different opportunities. Which one would I have ended up picking? Because then you're sort of magicking away all of the things that actually make the person you're looking for worth looking for.

9. 49:07 – 52:13

   Micro Writing = Macro Understanding

   1. BHByrne Hobart49:07

      So yeah, can't, can't quite be done that way.

   2. DPDwarkesh Patel49:10

      Yeah, yeah, yeah. I, I, I wanna go back to that thing you said a moment ago about how you couldn't have written a million words that were as impactful about just, you know, how cities work, but if you just wrote 500 words at a time about how Robert Moses accumulated power, did the things he did, you can actually have a really i- interesting and influential piece of work. Is that how you see the diff? That you can't write one million words at a time about where, uh, where technology is going, what's happening with the productivity slowdown, what's happening with all these emerging industries, but if you just write 2,000 words a day about what's happening with any s- particular s- you know, company or industry, then you can ra- compile this really interesting, uh, o- overall world view about finance and tech?

   3. BHByrne Hobart49:52

      That's the hope. And I, I might be projecting things about my own attention span onto, uh, onto Keiro when I say that you can't just set out to do a million words on topic X and then do it. Um, but I, I do think, you know, I h- I hope that I am, by increments, producing something that is, um, a lot more than the sum of a bunch of business profiles and a bunch of, you know, strategy breakdowns and things like that. Like, um, and that's, that's one of the reasons that I spend time on things like reading Machiavelli and thinking about how Machiavelli's thoughts not just, not just the, the totally cynical amoral stuff, but, um, the other stuff he wrote at the same time which he may have meant more seriously about how to build a sustainable and good republic rather than how to be a, uh, completely amoral monarch. Um, I tr- I try to read that kind of thing because I do think that it's valuable to have that more rounded view of the human condition and, um, and I think that it contributes a lot to, to writing about these individual companies. Like, um, you know, technology changes a lot. Um, humans change very slowly. So, um, if you, if you wanna understand technology, you do have to study the, the specific object level case of what is this thing, what does it do differently, what is it a substitute for, what are the compliments to it, et cetera. Um, but if you're trying to understand things like why did this company do X, like why, why did they fire, fire this person and not that person, and why did they choose to acquire this other business, um, why is the CEO dumping tons of money into this thing that seems like it's, it doesn't make much sense, well, you can find lots of historical examples of, um, people in power making these decisions that just get continuously worse and continuously more costly and they refuse to back down. Um, sometimes they turn out to be right, sometimes they turn out to be very, very wrong. But, um, you'll find more examples of that if you go back further in history. And they're often just a lot more fun to read about, whereas, like, you know, if you, you can read about things like Ford spending too much money on the Edsel and it not working out or IBM investing a ton in the 360 and that working out very nicely, but, um, you know, you could also go back to The Iliad and read another case where, um, sunk cost fallacy dominated rational, strictly rational decision-making and, you know, only divine intervention could ultimately lead to a good outcome for, for the, uh, attacker, and even then, maybe not such a great outcome, all things considered.

10. 52:13 – 1:01:33

    Elon's Twitter Takeover

    1. BHByrne Hobart52:13

    2. DPDwarkesh Patel52:13

       The, that particular question about where, uh, trying to predict if somebody's overstepping or if they're making the best bet of their life is something that I've been trying to think about and I really have no reasonable method, uh, for ... I mean, uh, d- if you think about like what Elon Musk is doing with Twitter, is this like Napoleon trying to conquer Russia and it's this super ego-filled and pride-filled, you know, completely illogical, uh, bet, uh, from somebody who has just had like 20 consecutive wins in a row and he thinks he's invincible? Or is it like Elon Musk like 20 years ago where he's like, "Yeah, I did PayPal and now let's, you know, let's build some rockets and le- let's build some electric vehicles"?

    3. BHByrne Hobart52:54

       Right, to Mars.

    4. DPDwarkesh Patel52:55

       Um, yeah, exactly. And th- in each of these cases there's, uh, there's like m- so many a- a- analogies to like complete bust and there are so many analogies to oh, this is just like part one of this grand plan. And how do you figure out wha- which one is happening? Like, w- w- w- w- w- w- how do you distinguish the visionary from the collapsing, you know, uh, star?

    5. BHByrne Hobart53:20

       Um, well the cynical answer is you wait about 200 years and then-

    6. DPDwarkesh Patel53:24

       (laughs)

    7. BHByrne Hobart53:24

       ... you write about how it was obvious all along. Like, yeah you, you really don't ... And I mean, even ... There are a lot of cases that are actually still ambiguous. So like, Alexander, you know, conquered most of the known world, at least most of the world that, uh, that people knew of around where he grew up, and, um, and then just goes to Babylon and drinks himself to death and that's the end.

    8. DPDwarkesh Patel53:45

       Right.

    9. BHByrne Hobart53:45

       Um, you know, there, there could've been an alternative story where he gets his life together a little bit and runs a giant sprawling empire. On the other hand, w- like reading the story battle to battle, a lot of it, it actually is basically this Ponzi scheme where every time he conquers a city, he gets enough, um, enough loot to pay off-

    10. DPDwarkesh Patel54:06

        (laughs)

    11. BHByrne Hobart54:06

        ... the people he hired to help him conquer the city and then has to move to the next city because they wanna get paid again. And so he's sort of, um, you know, was sort of being chased by his, his, um, obligations the entire way through until he finally got, got just ahead of them enough to get a lot of loot and, um, and a lot of land that he could give to people instead of just giving them money. Um, so giving them like bars of silver and things. So, um, so yeah, even, even that story it's very hard to say, you know, he, he rolled the dice a bunch of times and he won every time, so clearly he was just one of those people who was born to win. Um, maybe it was sort of like he actually backed himself into a bunch of corners over and over and over again and then desperately fought his way out every single time and then was just completely sick of it and burnt out by the time he was in his early 30s. Um, in terms of how you would figure it out in advance, like, I think some of it does come down to getting a sense of whether they're responding to circumstances or whether they actually have, have a long-term plan. But then, um, lots of like, you know, there's-Probably nothing more dangerous than a long-term plan that someone actually has the means to execute. You know, um, five-year plan does not have a good connotation. Stalin had some of those and, um, didn't turn out well for, for a lot of people. So, um, even within that, there's, there's some difficulty in evaluating. Like, uh, I think, um, the, there's kind of that, that meta-cynical layer where if they don't know what they're doing, then probably it's dumb luck that they keep succeeding. On the other hand, if they do know what they're doing, then maybe you hope that, uh, the world is lucky enough that they get unlucky and can't actually pull off whatever it is that they're, they're planning to do. Um, maybe... I guess another thing would be, is there, is there like an end state that they can get to? 'Cause I think, 'cause you know, someone like Alexander, he basically just kept going until he couldn't go any farther, un- until his troops were basically on the point of mutiny, and then just turned around and went, um, not all the way home, but went to, like, the nicest place halfway home- (laughs) ... and, uh, hung out there and partied. But, um, you know, if, if the story, if you look at someone, um... i- if the, if the story is less about conquest and more about reconquest and restoration of something, then there are these natural limits. You can say, like, you go this far and you don't go any farther because you've actually finished your task. So, um, something like, you know, I think, like, um... I don't actually know who was, who wa- who, which generals were on the other side of Napoleon, but the ones who chased him out of Russia, like, for them, the master plan was not, "We're going to conquer all of Europe." The master plan was like, "We're getting our country back and then we're going to chase him far enough that he doesn't feel like he can just wait a year and do this again when it's not winter." Um, so, so maybe that's, that's another way to constrain it. But then, then you end up naturally selecting for less ambitious people. It's like one way to- Yeah. ... one way to have these guard rails on your behavior is just don't have very big ambitions. So you might, um... And, and in that case, th- those people are also stuck responding to circumstances. So, so maybe, maybe you just end up with many different iterations of the same thing on different scales, where everyone is stuck in certain historical circumstances. They have, they have their skills, they have their opportunities. They can, they can go after some things. Um, maybe they achieve great things, maybe they completely fail. But either way, eventually their luck runs out or they run out of ideas and then there's nothing to do except go home or just keep trying until... Like, keep, keep being bolder until you eventually fail. On Musk particularly, I, I don't really, um... I don't really understand it. Um, I think there's li- there's like a remote possibility that he actually has a bunch of specific concrete ideas for how to increase Twitter's free cash flow and how to pay down the debt and make it a more profitable company. Um, maybe he just had that sense that it was overstaffed and that it should survive with a smaller headcount, and if you cut headcount enough then you, you end up with, um, with a profitable business. Um, it could also just have been fun and seems fun so far. (laughs) And I think (laughs) like, the, you know, the, the pursuit of fun is, is not to be discounted. Like you, um... If you're super rich, you can afford to do all sorts of things, uh, varying levels of entertainment, but it may be that the only thing that is actually like truly novel, thrill-seeking fun opportunity is something like buy Twitter- Yeah. ... and then turn it into- (laughs) Right. ... you know, what it is. And it is... Like, there's, um... I think Ross Douthat had this, um, this point about how the nature of Twitter's legitimacy has changed and that now it is a... it is under the rule of a single monarch instead of, um, ruled by these sort of faceless bureaucracies. So now, you know, if something... if Twitter does something you don't like, there's actually a specific person you can blame. And because you have Twitter, you can actually yell at that person and potentially get an answer. Whereas if Twitter bans you because you made a joke and the joke looked like it was serious, um, there's really... there's no recourse and, you know, there's, there's nothing lower status than, um, someone... like, arguing with someone in authority about how seriously they should take your jokes. (laughs) Um, it's like... You know, it's like a weird component of, um... And it works both ways. So like, there's... I, I think I, I started know- noticing this years ago because there were, there are these, uh, _TXT Twitter accounts where they're just posting out-of-context comments from some niche community and the com- comments always sound deranged. In a lot of cases, to me, the comments read as someone who is doing a bit, they're playing a role, they know it's funny, they're exaggerating for their friends, and then you take it out of context and read it as totally seriously, and then you get to say these people are all like this and they're all crazy. Um, but it is like a... it is a marker of high status to be able to not get jokes and to, you know, be able to be like righteously angry at someone because they made a joke and if they'd been serious, that would have been an appalling thing to say but they obviously weren't. Um, if you, if you can get away with saying, "No, I actually don't think it was a joke at all, these people are humorless and they must have been totally serious," then that's, that's actually, you know... that's cool, that's high status, um, makes you impressive. Yeah. But, um, yeah, Musk... Like, Musk, Musk's rule is this more, you know, personal monarch. Um, I think it's a... It, it speaks to this question of legitimacy, like, why do people trust moderation and why do they trust sites to operate in the way that they do? And you could either say these are, like, really high quality institutions so, you know, you could take the discourse as an oblivio approach and say, "We built these systems such that anyone can be dropped in and can do a reasonably good job. It's very hard for bad people to do a very bad job because there are so many checks and balances." Or you could say, "No, we actually trust this one person to do a really exceptional job that nobody else could do and we don't want institutional constraints on them." Um, those, those philosophies go in and out of fashion and, um... Like, even within, even within systems that nominally don't change. You know, there... The US was, um, a lot closer to that kind of centralized system with personal legitimacy invested in one person, um, in... under FDR than it was under Calvin Coolidge. And under Coolidge, it was a lot more of like there's this institution, there are a bunch of rules, people follow the rules. You have this nice New England guy who, um, you know, he, he gives a, a, an annual update, a State of the Union, but it's just written down and then he has a clerk read it to Congress. You know, it's... You're not betting on charisma, you're not betting on judgment, you're just betting that-... thing the rules are pretty good and as long as things keep working according to the rules, they'll keep on working.

11. 1:01:33 – 1:12:17

    Does Big Tech & West Have Great People?

    1. BHByrne Hobart1:01:33

    2. DPDwarkesh Patel1:01:33

       Yeah. Yeah, yeah, yeah. No, the, the Musk example is like (laughs) the, the sort of consumption by, like, playing this game. It's similar to how some people will load up of, like, a horribly broken game of Civ where their civilization is losing 'cause they've gotten so good at the game that they just need, like, some noob to send them their save file of just, like, (laughs) complete, complete carnage and they're losing their cities and stuff. And then, then, then the fun is you, like, load this up and you try to win anyways. Um, but you know, uh, o- one thing you've written about and I find really interesting, we're both fans of Fukuyama's book The End of History, and if you read the last quarter of that book, you'll come away with the impression that he actually, the... I mean, it just, like, completely contradicts, I don't know, (laughs) the, the first three quarters of the book where he's just saying, "You know what? Actually, these p- men at the end of The End of History are these pathetic last men who have no desire for recognition. They just wanna be comfortable." Um, and you made the comparison with that and big tech, um, at least, uh, um, before the crash, and one of the things Fukuyama talks about in the book is once there is a great war, once there is a struggle that requires the first men of history who can withstand adversity and can accomplish great things, you won't have them around by the time that, you know, like, things have gotten comfortable for a while. Are there enough first men left in companies like Twitter and Facebook that now they do face adversity, they can, you know, just, like, uh, reboot and go into wartime again?

    3. BHByrne Hobart1:03:02

       Yeah. Um, I suspect they are. I think, I think, uh, Tolkien gets it right that, um, you know, just because someone is born a hobbit and they live in Hobbiton and they have this nice comfortable life, like, they still have that capacity for and yearning for adventure, and that in the right circumstances, they will, they will rise to the occasion and go ahead do it. And this seems to happen with, um, with a lot of countries when they face these great stresses. Like, some- sometimes a civilization just can't withstand it and it collapses and, you know, they sea people just take everything and then you have no civilization left and you're all just back to subsistence farming. But in a lot of other cases, they, um, even if they ultimately don't survive, they go through a very long decline because they do fight to, fight to maintain what they have for, for an extended period. So, I think, um, yeah, I... Like, even trying to determine a mechanism by which you can, you can eradicate that, um, that thirst for glory and that ability to rise to the occasion, it's- it's hard to think of... I mean, you know, unless you think there's, like... unless it's, like, microplastics or something. (laughs) Maybe, maybe that does, uh-

    4. DPDwarkesh Patel1:04:09

       (laughs)

    5. BHByrne Hobart1:04:09

       ... constitute the end of history, um, in which case, you know, hopefully we, we export enough microplastics to make sure that we don't have, uh, any-

    6. DPDwarkesh Patel1:04:16

       (laughs)

    7. BHByrne Hobart1:04:16

       ... you know, any last pockets of Thumos. Um-

    8. DPDwarkesh Patel1:04:19

       Yeah. (laughs)

    9. BHByrne Hobart1:04:20

       ... sorta, sort of like the Scott Alexander riff about, um, the, uh, steppe nomad invasion risk-

    10. DPDwarkesh Patel1:04:25

        Right. (laughs)

    11. BHByrne Hobart1:04:25

        ... where it's an existential risk that comes along every couple hundred years. Um-

    12. DPDwarkesh Patel1:04:29

        (laughs)

    13. BHByrne Hobart1:04:29

        Yeah. You, you want to avoid that. Um, but yeah. Yeah. It's... It's, like, part of... I think part of having that kind of Thumos and thirst for glory should be that you can't actually habituate yours- You can't be so habituated to a life of ease and comfort and lack of difficulty that you just- you won't actually respond appropriately when there's an external threat that you need to respond to. Um, then, you know, maybe, maybe you weren't, um, you weren't first man material after all if, uh, if you can't and you just wanna stay on your couch. Um, so, so yeah. I don't... I, I'm sure we can sort of deplete that reserve and, um, there, there were I think definitely, like, post, post-World War II US was definitely a country where there were a lot more people who had taken very serious risks. They'd gone through, you know, a lot of hardship. On the other hand, um, so I recently read that book, um, The Economics of World War II which was comparing a bunch of countries and how their economies performed in World War II, and one of the things that stood out about the US was that, um, in a lot of terms of, um, material consumption, the, the US wasn't really that much a... didn't really look like a country going through a war. Like, um, in most other countries, you saw this decline in, uh, literally how much food people had to eat and, um, especially how much protein and fat they had to eat. And, um, so I think, like, a lot of places, calories, calorie intake had dropped by, like, a third by the end of the year or by the end of the war, and then in the US, calorie consumption actually went up. So, um, US was, like, on the home front, was inconvenienced by the war and things like gas and tires were hard to get, but, uh, people were still eating well, whereas in a lot of other parts of the world, people... like, they were literally going hungry so that their country could continue to fight the war. So, maybe there's like... you know, there's some level of coremetic response where you, you suffer a bit because your country is, is contributing to this and then, um, you're, you're, you're hardier for it and the country has accumulated a lot of social capital and, uh, you know, you had to get really good at organizing and building things. And then, um, maybe there, there is some level of, uh... there is some level of suffering from conflict where you've just... you've totally had enough and you're never doing anything like that ever again and, uh, you're just... you're done. And then I think one of the interesting things to, to consider is, like, the extent to which different countries fit into that model. So one of my, um... I'm, I'm very interested in Japan and, and Japanese industrial policy and how, how the Japanese post-war recovery went, and one of the annoying things about that is, like, I thought that was the question, was how did Japan have this wonderful post-war recovery, but when you look at a lot of the institutions involved, they don't start in 1945 or in 1951 or whatever. They actually start before World War II. And so you can actually sort of see World War II as part of this arc of, um, of the same historical process that continued post-war, which is Japan wanted to be economically self-sufficient and independent and a country that could determine its own fate and, um...... the, you know, in the, during the last gasp of imperialism, one way to do that was invade countries with lots of natural resources, take those resources, and then manufacture things at home. But, um, when that became untenable, then the next best option was be within the sphere of influence of the most mili- the most powerful military in the world and be very closely tied to their import and export markets, and then import everything you need under the protection of the, the U.S. military and then export things to the U.S. in order to pay for those imports and, um, basically run, run the same strategy, just with someone else doing the military part. So, um, you know, in one sense, that was like a total defeat of the imperialist model. In another sense, it was like this strategic realignment but actually basically same end goal and, um, you know, very, very different external facing view of that goal. Um, but yeah. Same, same ultimate idea. There's a, there's this book called Princes of the Yen which is, um, mostly about Japanese central banking policy, but it has some early bits about how the structure of Japan's economy works. And the way the author describes it is that Japan, post-war Japan had a war economy in peacetime with lots of centralized control and suppressed consumption and lots of heavy, heavy industry, heavy manufacturing, um, that also a lot of companies in Japan, their modern structure dates back to the wartime period. Um, sometimes the post-war, but sometimes literally the wartime period. Including, um, the biggest, um, biggest advertising agency in Japan was apparently like this, this wartime or immediately pre-war attempt to agglomerate all the smaller ad companies into one big, more efficient company that, uh, would free up resources that could be used for building battleships and other, other stuff like that. So, um, yeah. It's kind of, kind of the same story, just being, being expressed in a bunch of different ways. And, um, I think you can, you can look at other countries and, and try to see like what, what threads of continuity there are between the post-war and, um, the, between the pre-war and post-war order. Uh, post-war book is a really phenomenal look at, at that question. And, um, in a lot of cases there's like, there's a surprising level of continuity, and there are some things that totally broke and had to be totally reformed, and then there are some things that just kept going exactly the way they'd been going before.

    14. DPDwarkesh Patel1:09:41

        Yeah, yeah, yeah. Um, everybody wants to be a first man, but nobody wants to go on a diet. (laughs)

    15. BHByrne Hobart1:09:46

        Yeah.

    16. DPDwarkesh Patel1:09:46

        Um, but, uh, but you've mentioned this line before, but there's a line from How Asia Works where they're talking about the reparations that Korea got after World War II from Japan, and how they're using that to build up their industrial capacity. And they're, there's like a line from one of the line managers, or in the factory. He goes, "Listen. You guys had to work like 14 hours a day, seven days a week, and the reason is this money is blood money. It's our blood. It's like the mo- i- i- this money was like gotten from like ripping your mother and killing your father, and if you can't use that money to like rebuild our country, like what good are you? You might as well just kill yourself." Um... (laughs)

    17. BHByrne Hobart1:10:21

        Right.

    18. DPDwarkesh Patel1:10:22

        Yeah. (laughs)

    19. BHByrne Hobart1:10:23

        Very hardcore, yes.

    20. DPDwarkesh Patel1:10:25

        Yeah. (laughs) Um, and based. Um, but (laughs) there's a, and then w- you read about, um, lean production, I was reading about lean production when I was, before I interviewed Austin Vernon, and in all these books, they're talking about how America's, uh, M- America was never able to replicate the productivity of Japanese lean production, and it's just because you're talking about Americans who ha- you know, like trying to save up for their pensions, and working eight hours a day, and have, uh, hour-long lunches. And you just have these hardcore Japanese who they just got out of like World War II and they barely survived, and you know, like, it, the, the, it just like, the thymos is completely different. You just can't replicate that, um, i- i- in America.

    21. BHByrne Hobart1:11:05

        Yeah, yeah. There's a, there's this book, um, called The Reckoning about the U.S. car industry and how, how it dealt with the, the rise of Japanese exports in the '70s and '80s, and when it's talking about the, the post-war recovery of Japan, there's this bit where I think, I think the character they're following works for a bank, and he, in the bank's office in some city in Japan, he likes to work in the room where there's a fire, because there's like a fire with this big pot of stew and the stew is the food that the employees will eat at the bank as part of their-

    22. DPDwarkesh Patel1:11:37

        (laughs)

    23. BHByrne Hobart1:11:37

        ... benefits package, and that's the only room in the bank that is, you know, warm enough that you can actually work. Um, and that's just like, that is a level of, um, m- material austerity that is inconceivable to me.

    24. DPDwarkesh Patel1:11:51

        Yeah.

    25. BHByrne Hobart1:11:51

        And like I can't, you know, I don't know anyone who grew up in such poor circumstances. I can't imagine it. And then, um, it did not take very long at all for, for the country to significantly recover from that, and yeah, you had other countries that also had this massive catch-up growth where, where they went from very poor subsistence level or even below that in some cases to, to actually being middle income or even, you know, fairly rich countries.

12. 1:12:17 – 1:18:00

    Philosophical Fanatics and Effective Altruism

    1. BHByrne Hobart1:12:17

    2. DPDwarkesh Patel1:12:17

       Yep, yep. I, I wanna touch on the fact that Sam Bankman-Fried was an effective altruist, and that he was a strong proponent of risk neutrality. We were having, we were talking like many months ago, and you made this really interesting comment that in many belief systems, they have a way of segregating and limiting the impact of the most hardcore believers. You know, they, and so if you, if you're like a Christian, the people who take it the most seriously, you can just make them monks so they don't cause that much damage to the rest of the world. And EAs don't have that, right? So if you're like a hardcore-

Episode duration: 1:30:50