Byrne Hobart - Optionality, Stagnation, and Secret Societies

1. 0:00 – 5:50

   Byrne's one big idea: stagnation

   1. DPDwarkesh Patel0:00

      (instrumental music) All right. Today, I had the pleasure of speaking with By- Byrne Hobart, who is a writer, consultant, and investor, who writes at diff.substack.com. That's D-I-F-F.substack.com. Here's my first question, Byrne. Uh, you wrote an article called Foxes and Hedgehogs, and here's the final line in the ar- article: "If it looks like somebody doesn't have a single big idea, they probably do, and it's a good one." Now you're somebody who writes every single day and you're, every single weekday, and you're writing about all kinds of things, from i- in finance, technology, and so on. And it might seem like you don't have one big idea, but that's ex- ex- exactly why I should expect you to have one big idea. So, uh, uh, here's my guess for what your big idea is, and you tell me if I'm wrong or right. Uh, basically, most human decisions, whether made by individuals or by institutions, can be boiled down e- to some, uh, simple financial, um, concepts like expected value, optionality, volatility, and because other people are missing this, they're not reporting on the important trends or they're reporting about them in a way that misses the long-term impact these trends will have. How far off am I?

   2. BHByrne Hobart1:07

      Um, I think that is, uh, that's a good mental model and it's one that I've used a whole lot. Um, I do think that, like, it's, it's definitely true that financial concepts can be usefully applied in a lot of different contexts, but it's like any other model that you want to use the model, but you also want to be aware of the deficiencies in the model. Like, that's, like, half the, half the point of the model is to make predictions. Half the point of the model is to say, "Here's a list of assumptions you have to make in order to make a reasonable prediction." And if you can't make all those assumptions, then the model does not actually apply or, like, you should at least not be surprised to be surprised. Um, so, so that is, it is definitely a, a big part of how I think. I, I would say maybe the big idea is more of the big question, which is just how, how do people coordinate when they're solving complicated problems? Because a lot of the interesting problems in the world, you can't have one lone genius solve them and, uh, there are various institutions that try to solve them, but a lot of times, the institutional mandate is not to solve that problem. It's something else. And maybe, maybe there's a real mandate and there's a fictional one. Like, um, a lot of the mission-driven public companies out there, they, they will have their... They'll have both the mandate of, like, uh, SpaceX, "We're gonna go to Mars," um, but also, "We're trying to maximize shareholder value." And it's never clear which one is actually the external story that they're just telling you so that they can really accomplish their, their internal goals. It's actually not clear which of those is which. So, and, and maybe even within SpaceX, there are people who think, "Okay, the Mars stuff is like, that's how we recruit good engineers. That's how we raise a bunch of money. When we go public, that's why the stock price will be really high." But that really, SpaceX is trying to maximize earnings per share on a 10 or 20-year timeframe. And then there may be other people at SpaceX who are like, "Yeah, everyone thinks that SpaceX is just this company that's trying to make money, and of course, we will make money, but the real point is to make humans an interplanetary species." So, um, coordination is, it's just a really hard problem to, to solve. It's a hard problem to think about. Um, there... Like, even when you think about how these different institutions have different goals, different stated goals, they may have internal goals that are unstated but exist, and a lot of, a lot of the time, those goals are just, you know, whoever's there wants to stay there and wants to get raises and wants to feel important. And, um, if they fail to accomplish their goals, but the problem they're working on keeps getting bigger, they could stay important for a really long time. Um, so, like, given, given that there's naturally just a lot of double talk about this, and given that if you're coordinating between different groups of people who have different goals themselves, you sort of need to do some double talk. It's just a really hard problem to study and, um, it ends up being a problem that shows up in a lot of different domains. So, I've talked about it in finance. Um, it, it shows up in tech companies all the time. It shows up in politics and, like, both the, the politics, politics in the sense of who gets elected, which bills get passed, and then in the, the much broader sense of just how do humans with, um, intractable desires resolve them to one party's favor or another, or just figure out some way that they can all come to an accommodation?

   3. DPDwarkesh Patel4:14

      Hm. Okay, so then, uh, ju- just to boil that down, uh, in, in terms of the question, is the big idea that you are trying to figure out what the secret goals of institutions, uh, are that are, you know, coordinating on a mass scale?

   4. BHByrne Hobart4:29

      Yeah, I guess if you're, if you're thinking about what problem should be solved, um, the problem of productivity stagnation is really important, and it affects everybody, and it's dire, and it tends to compound over time because different technologies cause other technologies to accelerate. Different social technologies are kind of invisible until they go away. Like, you, you don't really know... You know, you don't really know that you were working at an effective company, for example, until either it becomes ineffective or you go somewhere else and realize, "Wait, I can't actually trust that if I email someone and ask them a question, they'll actually get back to me with a good answer." Um, w- it's, those kinds of things are only visible when you don't have them. So, um, between technological stagnation, which is pretty visible in the productivity stats, and then social technology stagnation, which is a lot harder to measure, but you do get a sense of it, um, just from looking at, say, how the US government functioned in the '30s, '40s, '50s, and '60s versus how it functions today, um, it's, it's clear that there is some decline happening there. And both of those involve a lot of coordination problems, so, um, studying, studying how people collaborate to accomplish goals is a way to figure out how we can all collaborate to accomplish the goal of getting productivity growth back up to where it used to be.

   5. DPDwarkesh Patel5:45

      Okay, so let's talk about that. I was planning on asking you about that anyways, uh, so it's very good that you brought that up.

2. 5:50 – 14:00

   Has regulation caused stagnation?

   1. DPDwarkesh Patel5:50

      Um, uh, so you wrote an article, uh, where you are bullish on the claims that the great stagnation is over based on anecdotal, uh, data. I think the, uh, title i- title of the article was, uh, uh, Stagnation or something, and I'll link it in the show notes.Um, and, uh, I, from what I remember, uh, one of your claims is that even though you have these sort of individual developments like MRNA vaccines, if the regulatory apparatus is not available for them to get approved and scaled quickly, then, you know, it doesn't matter as much. Um, uh, uh, I'm, I'm wondering if we can quantify that. So if we look from 1971, how much higher would, uh, total factor productivity be right now if, uh, uh, all the regulations were, uh, perfectly in place to enable, uh, productivity to be as high as possible?

   2. BHByrne Hobart6:32

      Well, (sighs) I think it's a mistake to, to take a time period and say if we just, if we kept things the same, it's more like if we'd, if we'd adapted in better ways, that we'd have more productivity growth. I mean, if you just take the, the gap in measured total factor productivity growth, which is, uh, around 1% a year, you compound that over a 50-year time period, so you, you probably get to something like 60 or 70% higher GDP per capita in, in the US, which, um, you know, it's, it's kind of hard to, hard to imagine exactly what that would look like, because it's not like we would all just live in 70% bigger houses and have 70% more cars per household and whatever. It's, it's more that there would be other additional products or that people would have longer life spans or hopefully that we'd have longer health spans, um, which I think is a, a more, probably more solvable, definitely more pressing in terms of total human disutility, um, more pressing problem than, than the life span issue for now. Um, so it, you know, they, so you can, you could sort of ballpark just what things would look like if that mid-20th century productivity boom had gone on forever. But it is still, you're looking at the data which the data can tell you the, the gap between this hypothetical possibility and reality in this aggregate sense, but it can't really tell you what kind of amazing world we would have. And, um, to figure out that, you have to look at specific examples, 'cause that, that whole sweep of productivity growth, it wasn't just that there was a productivity dial and someone was turning it up slightly and then turning it back down. It was this set of specific inventions that got developed and deployed and continued to get more efficient over, over many decades. Um, so you'd have to think about the various specific innovations that could have spread around. So, um, a really good book to start with there is Where's My Flying Car? which is, um, it's basically this extended, um, very detailed, very thoughtful, very well footnoted rant from someone who really wants to have a flying car and he's interested in them and he's, he's flown things that are basically flying cars and he's done all the math on how they would work. He's looked at the safety concerns, um, he has looked at how they would affect things like the layout of cities, how they'd affect the nature of travel, and, um, he makes a really strong case that we should have them and that, uh, they have been not, not specifically illegalized, but just that the, the regulatory noose has tightened and it's just gotten a lot harder to, to fly anything and much harder than that to build something totally new and fly it without getting in a whole lot of trouble. And, of course, the trade-off there is, um, we don't have very many flying car accidents because we don't have any flying cars so, uh, there would be downsides and, uh, the early, early innovators will tend to have more accidents, um, if you look at, um, reading a bit about the early history of, uh, of the steam engine, lots of explosions, lots of times where we, we basically learned things about the physical limits of different kinds of materials by building higher capacity boilers and then having them explode. So there's, there's definitely some, some downside that we are avoiding, but there's also a lot of upside we're missing and that downside is easier to see because it, it is weighted to the very beginning when the new technology doesn't work especially well but it can kill people and, um, we, we don't see what things would look like in 20 years when it's working really well, it's extremely safe, and, um, you have to try pretty hard to actually kill yourself using it properly.

   3. DPDwarkesh Patel10:00

      Right. Yeah. One of the things... he especially blames the green movement and all of the sort of, um, eh, the government activity it sponsored, uh, as being a, a big culprit there in that book. One of the questions that comes up when we talk about how regulations are slowing progress though is, um, obviously there's, you know, like more than 200 countries in the world. You could, you could develop flying cars in any one of them, but what are the odds that you have a sort of correlation that's so exact between countries that, you know, you manage to kill off, uh, the avenues for flying cars? Is it just that there's very few countries where something like this is possible and, you know, their regulations are correlated? What's going on?

   4. BHByrne Hobart10:35

      Yeah. So I, there are a couple things going on. One is, like you said, it's, um, the US is a very rich country and, uh, that allows us to indulge in a lot of weird hobbies like building flying cars and before that, you know, building heavier than air flying machines in general or messing around with the, um, the earliest of c- of regular wheeled cars. Um, it, it's easier to do that stuff when you're able to eat three meals a day and you can, you have shelter, stuff like that. So, so yeah. It, it doesn't really matter if it's legal to build something like this in a country where they don't have the, the spare wealth to build it and, um, for, for aviation in particular, it seems like the barrier to entry for countries is pretty high, um, they have, planes have really complicated supply chains, uh, they are, they're very sensitive to, um, to the quality of a lot of different components, um, you basically, like for the larger planes, so, um, you know, for, for wide-bodied commercial planes, you basically have two entities in the world that make them competitively, Boeing and Airbus. Uh, China has been trying for a really long time to catch up in that business and has not been able to do so just yet, so that is an indicator that it's, it's pretty hard and/or that China's GDP per capita is not quite at the level that can support an industry like that. So-So, it does matter if regulations are strict in, um, in the handful of countries that are pretty rich and, um, and that also have developed capital markets. That's, that's another thing that you, you really need for something like this is that once someone has the product, once they've done the proof of concept, once they've shown that it can work, it has to scale up and it has network effects, um. That is actually one of the exciting things on flying cars that has started to happen since I read Where's My Flying Car a couple months ago, is that, um, United Airlines has actually been putting in orders for, for basically flying cars and, uh, they've, they seem to be pretty serious about messing around with that and messing around with supersonic travel and, um, really rethinking the, the range of speeds at which human beings should fly and the range of distances at which they should fly. So things, things could be looking better there, but that's also maybe a sign of, uh, of how difficult it is to expand into this industry, that you need one of the big four airlines to back you up if you're even going to have a hope of selling these products and actually selling tickets to passengers who will then fly in their flying cars.

   5. DPDwarkesh Patel12:57

      Mm. Yeah. Uh, one of the mysteries though is why don't Western companies with, uh, you know, th- their capital and their technologies, if they're getting stuck in the regulatory process in the West, you know, wh- why don't they just do their experiments in, you know, Honduras or Senegal or something? And y- you can imagine this, for example, with like human challenge trials with COVID. You can have a like some poor country is completely inoculated to COVID by, you know, uh, March or something and, you know, w- we're still like dealing with the aftermath. Wh- it's mysterious why that didn't happen.

   6. BHByrne Hobart13:29

      I suspect it'll happen next time. Um, I think like if there's another big pandemic, I do think that you'll have some people who just say, "We're gonna do human challenge trials and, you know, I'm going to whatever this country is, I'm going to bring some, I'm going to bring all the researchers I can and we're gonna develop a vaccine. We're gonna test it and, um, you know, hopefully, hopefully we do a good enough job that we, um, that it's, it's politically untenable to get us in legal trouble afterwards." But there is, so there's this weird coordination between media on the one hand and regulators

3. 14:00 – 15:15

   FDA retribution

   1. BHByrne Hobart14:00

      on the other hand where whatever, whenever someone is breaking these rules, so like if you, if you try to go around FDA rules, it's pretty clear that that's what you're trying to do. It's pretty clear that you are saying, "I don't actually think these rules should apply and so I'm not going to follow them." And that gets a lot of attention at the FDA and, um, they have a lot of power to make sure that you do not actually, uh, that you're never able to sell whatever the result of that experiment is in the US. Now, it's, it's not like the FDA is going to say if someone in a different country invents a miracle drug and it works really well and then they try to sell it in the US, it's not like the FDA will just flat out refuse to approve it, although they will take a long time. It's more that if they know that you are specifically trying to ride around the regulations, they, they take that pretty seriously. And that's, that seems to be just a, a feature of big institutions in general that if they set up some kind of rule and you thwart it and that gets their attention, then they're very serious about making sure that you don't thwart it again. So it's, you know, it's not just a public sector thing. Like, um, with Disney, if you try to make knockoff Disney characters, you will hear from Disney's lawyers. If you try to host, um, pirated video games, you'll hear from the game publishers. Uh, a lot of, a lot of big institutions are very serious about keeping their rules

4. 15:15 – 17:32

   Embryo selection

   1. BHByrne Hobart15:15

      enforced as much as they can, both because that's, uh, you know, they have those rules because it benefits them and because it's a source of legitimacy that they can write the rules and everybody follows them.

   2. DPDwarkesh Patel15:26

      Yeah, and it gets pretty sinister. I read a book by, I forgot her name, but she was a, uh, she worked at a pharma company and she wrote a book called, uh, Death by Regulation and one of the points she made was, um, you know, if anybody like actually talked about like how many deaths the, uh, uh, FDA causes by, you know, just not approving drugs, uh, if the company says like, "Listen, here's the approval process. Here's how much it sucked," you know, that really has an effect on whether future drugs that they make get approved so there's really a silence on that. Um, oh, but speaking of the FDA, here's this, uh, one technology I've been interested in. What are the odds that, uh, polygenic scores for embryo selection get approved by the FDA?

   3. BHByrne Hobart16:01

      Um, I, I suspect that it is, I mean, I'm, I'm definitely not an FDA expert, um, so I'm probably the wrong person to have a strong opinion on this. My, my general sense would be if you are testing for, um, genetic diseases and maybe you can broaden the definition of what constitutes a genetic disease over time, but that stuff, that, that seems to be pretty safe. And then, you know, if you're, if you're doing things like, um, I want my kid to be tall, not just normal tall but like can play in the NBA tall and I'm gonna pay a million dollars to select the embryos that give me an NBA qualified kid, I, I suspect that that is going to be very hard to approve. Um-

   4. DPDwarkesh Patel16:44

      Okay.

   5. BHByrne Hobart16:44

      ... maybe, but China's government seems a lot more open to genetic stuff, um, both in the, within the genetic research stuff, like they were, they were very early buyers of a lot of genome sequencing equipment and, um, they, they also, um, believe Yao Ming is literally the result of them telling two very tall people to get married and have a kid and, um, he turned out to be tall so, you know, we know this, we know this genetic stuff can work some of the time. Um, so that, that government seems much more open to it, so I suspect that if that kind of thing does happen and it's legal, it's probably gonna happen in China.

   6. DPDwarkesh Patel17:22

      Right. Yeah, I didn't think about it that way, that you could just kind of sneak it in through other tests but like you can imagine like, "Oh, we're just testing, uh, for some ner- uh, some nervous system diseases." And then, you know, "Oh, wow. Would you look at that? They

5. 17:32 – 21:02

   Patient longtermism

   1. DPDwarkesh Patel17:32

      correlate with intel-" Uh, the next question I have is, uh, Robin Hanson has written recently and we talked about this, the idea of, uh, just patient long-termism which is the idea that like, you know, you park, uh, some money in a compounding fund and then within a few centuries you will be the wealthiest person in the world, right? If you just assume some sort of like, uh, return, uh, compounding return. And in fact one of the things you, I think you said at some point about your blog is like, "I'm trying to make your gra- great-grandchildren rich by just identifying these long-term trends." Um-... as far as we know, this hasn't happened. I mean, it happened for like, uh, odd cases like Ben Franklin or something, uh, but like, w- on a large scale, um, this really hasn't been tried. Uh, w- or it might be, it might be an attempt right now, but what gives? Like, why is this not a strategy people are more, more clearly using?

   2. BHByrne Hobart18:17

      Yeah, so I think, um, it wasn't Piketty's main point, but Piketty does have a point here-

   3. DPDwarkesh Patel18:22

      Right.

   4. BHByrne Hobart18:23

      ... that one of the things that resets this is, um, war, famine, pestilence, revolution. Those things tend to knock everyone's net worth down pretty substantially, and if your net worth is in financial assets that are relatively easy to seize, then it goes down a lot faster. So, that is, that's probably part of what's going on. I mean, there, there was that study a while ago that was looking at, um, the wills, I think it was like the wills of Florentines who died in the 15th century and how the names, the last names that were more prominent then are actually still more prominent today. Like, the, the last names that were more associated with being a doctor in, um, in 14th or 15th century Florence, th- those people are still more likely to be doctors. So, there is some persistence that actually outlives the, the direct loss of wealth, um, but I think if you're, if you're trying to compound money for a really long time, I don't think that the main thing that you wanna focus on is your annual returns. I think the thing you wanna focus on is, what are the once a decade, once a century, and if you're really thinking about it, once a millennium risks-

   5. DPDwarkesh Patel19:25

      Mm-hmm.

   6. BHByrne Hobart19:25

      ... that will turn up and that can actually push that return to zero? So, um, I don't know of any financial asset that you can actually trust in that sense. Um, the US, w- the US is a really weird case because we actually haven't had any of the, any of these massive catastrophic drawdowns in everybody's wealth that basically every country has experienced. So, if you look at it from a US context, you can actually imagine someone who puts some money in, uh, in a trust and they're just buying mostly treasury bonds and also stocks and, um, and that it compounds over time and ends up being a colossal amount of money. But there's actually, there's a story in Adam Smith, um, the pseudonymous financial commentator, um, not the, not the economist-

   7. DPDwarkesh Patel20:09

      Oh. Mm-hmm.

   8. BHByrne Hobart20:09

      ... Adam Smith's Money Game, where he talks about a guy who did that in the 19th century and he bought a lot of very reliable blue ship stocks and he, I think he set up his will so that his heirs just could not get the money for several generations. And, um, Smith says that there was, there were years and years of legal battles and finally the heirs were able to get access to the trust and everything was worthless. It was all like, American Alarm Clock Manufacturing Co. that had been bankrupt for 20 years by that point. So, if you're, if you're just picking, you know, a set of, of stocks for example, over a long time, they'll all go to zero. Over more intermediate time periods, you can rebalance and so that keeps the, the portfolio value above zero. But if your country goes through a war or there's a revolution, then there's a good chance that all of that value gets wiped out.

   9. DPDwarkesh Patel20:58

      Mm. Yeah. Interesting. Um, uh,

6. 21:02 – 26:53

   Are there secret societies?

   1. DPDwarkesh Patel21:02

      this is really into the question that, uh, I was talking to with my last podcast guest. We were, you've written an article called, uh, Appraising Filter Bubbles, um, that, you know, like, this is somewhat related to, uh, it would be good if there were, uh, more cults and more secret societies. I was just wondering, I mean, we wouldn't know this because they're secret societies, but if, and I'm not saying they're, you know, in any way, uh, any way bad or, you know, uh, but i- they don't have to be evil or anything, but like, what would you guess, h- how many secret societies do you think there are that have assets in excess of one billion dollars?

   2. BHByrne Hobart21:34

      Um...

   3. DPDwarkesh Patel21:35

      If any.

   4. BHByrne Hobart21:35

      (laughs) Well, that's a tough question because if you... So, you would need some kind of legal structure to own the assets, right? And if it's going to persist for a long time, you need some system for figuring out who's going to be in charge and for picking people who are going to keep that secret society going. I mean, I wouldn't be surprised if there were organizations that might have started out trying to be a secret society that accumulates a bunch of money and eventually they end up being run by people who are just in it for the money. I mean, maybe, maybe a fair number of univers- like, people who started universities, they often had peculiar ideas about how human beings should behave and how to educate people. Like if you-

   5. DPDwarkesh Patel22:15

      Mm-hmm.

   6. BHByrne Hobart22:16

      ... if you have a bunch of money and you're thinking about what to do with your life and you say, "You know what I'm going to do? I am going to exert maximal influence on people at impressionable ages and also make these people really important so that they have a big impact on society." Like-

   7. DPDwarkesh Patel22:29

      Yeah.

   8. BHByrne Hobart22:29

      ... you're already doing a secret society conspiracy. You're just calling it Harvard or Yale or something. So you, so you could actually, you could actually look at, at modern universities as having maybe evolved from something closer to a secret society and then they have enforced their own little secret societies inside of them which have also apparently gotten really boring and have just become this kind of careerist thing that you do if you want to get a good job at an investment bank. Um, it's, it's hard to keep secret societies alive for a long time, and I think part of the reason for that is, um, you do have to, you have to keep secrets, but you also have to reveal secrets and, um, if, if people join it because of one narrative and then you tell them, once they're pretty high up, "Okay, that narrative is totally fake. Here's what's really going on," um, some of them are real believers, so you can actually end up with your secret society failing because it, uh, it recruited people, they recruited people who thought they were the right people for it and they turned out to be the wrong people for it. There's, um, there's actually a kind of weird example of this happening in reverse with Al-Qaeda. So the book, The Looming Tower, it talks about B- bin Laden's early life and his early campaigns as a sort of terrorist, and b- the impression I got from that was that a lot of the people who worked with bin Laden in the '90s thought he was a loser, but that he had money, and so they were sort of scamming him and just telling him, "Oh yeah, you know, next year we're definitely doing a terrorist attack." And then somehow he actually organized something and was able to do several successful terrorist attacks, but for a long time it looked like a lot of the people involved just did not think that Al-Qaeda was anything other than a way to mooch off the bin Laden fortune.So, um, so you have, you have a lot of, uh, I guess, a lot of just randomness in what institutions try to accomplish and w- how they try to accomplish it and who they end up recruiting. Now, one way around that is, um, is families because with families you actually, if you, you have some familial goal and it's gonna take multiple generations, so you can, you can be more honest with your kids than with someone you're trying to recruit from the outside, and you can sort of work up to telling them what, what the actual plans are. And, um, I think that with, with multi-generational wealth, especially families that got rich first and then got into politics, that there's probably some of that going on where it's, it's not like a huge... You, you know, it's not like, um, the Kennedy family was some, some huge, weird, um, y- secret society. It was more like there was a conspiracy, and the conspiracy was get one of the Kennedy kids, get one of Joseph Kennedy kids elected president, and then they did it. And so mission accomplished. Um, that, that might be the more viable model. So if you're trying to count up secret societies that have secretly accumulated money, what I would look at is, um, family fortunes where there's a, there's someone who made a bunch of money and then their kids are doing things that are more, more prestigious and more, more power-seeking, but are, are not as financially rewarding. And probably some of those basically count as secret societies in, in some approximate sense. Um, I don't, I don't have a good way to speculate on, on how many secret societies there are, how powerful they are, et cetera. I mean, either there aren't very many or they're really good at being secretive. So (laughs) um, and there's, I guess, I, I guess one way to say that the population of them is probably pretty low is that we don't have, we don't have a lot of, um, of dark matter to explain. Like, there are, there are not a lot of times where we look at what happens in the world and we have to think, "Wow, there are really dark forces at work."

   9. DPDwarkesh Patel25:55

      Yeah.

   10. BHByrne Hobart25:55

       There are a lot more times where you can look at the world and say, "Wow, there are pretty incompetent forces at work-"

   11. DPDwarkesh Patel26:00

       Yeah.

   12. BHByrne Hobart26:00

       "... and nobody knows what they're doing and there's nobody in charge." But you, you rarely, you know, you rarely see all the chess pieces moving in a really clever way.

   13. DPDwarkesh Patel26:07

       Mm-hmm.

   14. BHByrne Hobart26:07

       You just sort of see the chess pieces moving at random.

   15. DPDwarkesh Patel26:10

       Right. Uh, uh, I mean, uh, the one thing that shapes my view on that is, like, U- UFOs, right? It's just like either they're aliens or, you know, it's like a military thing, or just like an error. But one of the alternatives, like, it slightly nudges your prior on secret societies up because, like, maybe that's what's confusing the military. Uh, one example, by the way, of like a familiar secret society, it's not even a secret society, um, uh, y- y- I was reading, um, uh, Andrew Roberts biography of Churchill, and his dad was, you know, a minister and he was, uh, planning on becoming, sorry, uh, uh, what, what, uh, parliament, what, whatever somebody in the parliament is called, and he was planning on becoming PM, uh, he just died early, and basically Churchill, uh, Winston Churchill just adopted his dad's entire platform even after his dad died. Uh, okay. Uh, you, you wrote

7. 26:53 – 34:40

   College, optionality, and conformity

   1. DPDwarkesh Patel26:53

      an essay called Optionalities for Innumerate Cowards, and it really reminded me of this little, uh, passage from, uh, William Deresiewicz's book, Excellent Sheep, which he wrote about, you know, the caliber of students that are going to college nowadays. Uh, and, but anyways, I, I just want to get your reaction to this passage. So he writes, "Yale students," he said, "are like stem cells. They can be anything in the world, so they delay, they try to delay for as long as possible the moment when they have to become just one thing in particular. Possibility paradoxically becomes limitation." Um, I, I, I guess, uh, I'll get your reaction to that generically, but I'm curious to the extent that quote reflects something true, is it, is it, um, is it post-selection in the sense of, you know, the people who get out of Yale are just like become risk-averse? Or is it just that people who go to Yale in the first place and getting generic degrees, are they, uh, risk-averse in the first place? They're looking for an option basically i- in the form of the insurance that, uh, Yale University offers? What's going on?

   2. BHByrne Hobart27:43

      Well, I would say it's, it's probably a lot of selection effect, because I do encounter a lot of really bright people who did not go to elite schools and did really interesting things instead. And so I don't actually, um, I don't know that the schools really make people conformists, but definitely like if you can get into a really good school and, um, and then you can go straight from there into consulting or banking or I think at this point big tech, um, it is a pretty conformist thing to do. Like, no one is going to think you made a bad decision. Whereas if you have that opportunity and you go do something else, then a lot of people are going to wonder what's really going on. So I do think that it selects for, for some risk aversion, and, um, some of that is just that it's, it's incredibly competitive to, to get into these schools. There's a lot of randomness at the top now, and, um, that is, that's partly just a, a feature of competition that the fiercer competition gets and the more stratified things are, the more likely it is that any one person is where they are because they, um, you know, were, were a little bit under slept on test day or got a couple answers right, or something like that. It's, it's a lot more skewed to randomness at the high end, which actually would make people more risk-averse because they, if they got into a worse school than they really deserved to, then they're stuck with this feeling of, um, you know, it's hard to, it's hard to attain things and, um, so it's, it is worth going on the safer path. Whereas if they get into a really good school that is, is better than they expected, then they, they have this sense of, um, as long as I stay on this exact path, I am actually continuing to be 99.9th percentile instead of being stuck at 99.5th, and so I can, th- that is the best life I could expect to have. It is, it is really hard to force people to, to have agency. It's really hard to force people to take risks except in these kind of, um, kind of simulated fake sort of ways. But it is an important thing for people to do. And, um, and that, that essay, I, I'm very happy with it, um, in part because it was, it was fun to write something bombastic and, um-... in part because I think it's true, that... And it's, like, it... That's actually a, a fun one from a financial modeling perspective, because one of the things that I realized when I was thinking about optionality and, um, like, optionality in, in your life, being able to choose a lot of different life paths and not having to be stuck with one thing, is that in, in financial markets, you can buy optionality very directly. You buy stock options. And it turns out that the converse of that, selling people optionality, is a generally profitable strategy. It does have drawdowns during a market crash, but in general, um, you make more money over time by systematically selling optionality rather than by systematically buying it. And I suspect that something like that is probably true in the real world, especially because there are, there are very few people who are explicitly saying, "I'm trying to minimize my optionality. I'm trying to cut off options and not have choices." So, um, given that there are some decisions you can make that, um, that do require you to forego other decisions, I, I suspect that those decisions are going to be good, just... Or they're gonna be better for you just because so many people are looking for maximum optionality so they're not taking them.

   3. DPDwarkesh Patel30:48

      Yeah. Yeah. Um, y- uh, one way of reading Tyler Cowen's Complacency Class is basically just a way of, like, our preference, uh... We, we've just... Uh, our preferences for optionality have grown a lot. You can think of it in terms of, um, you know, not starting a business, not having a family, early at least. Uh, that, that's just a way of preserving your optionality. What is the explanation for... Uh, uh, maybe, uh, basically because we're wealthier, m- maybe it's, you know, because of the demographics of the society. Uh, what reason explains, like, i- if it's true that we've, uh, you know, we're a society where we value optionality more than we did before, what explains that?

   4. BHByrne Hobart31:19

      Yeah. I think a lot of it is this, this wealth effect that, in general, um, like, money is, is a way to get freedom in, in individual ways and then in aggregate ways. And, um, certainly you have a lot less optionality if you're living in a subsistence society where your choices are either do something that gets you fed or starve. So, um, not a lot of optionality there. So, we definitely have more choices as, as we get richer and, um, I think, I think one of the issues is that we are, we are partly wired to be more satisfied with, uh, with actually making choices and pursuing specific goals than with making the choice to not pursue any specific goals. Um, I don't, I don't really know what the, what the deeper, darker meaning of this, uh, of this pursuit of optionality is. I just... I know a lot of people talk about it explicitly, I know a lot of people talk about it implicitly, and it seems like there's this search for optionality that takes place on a kind of fractal level where not only do people want to choose a job with lots of different kinds of exit opportunities depending on what they all want in the future, but, um, you know, they'll, they'll try to make their plans to have lots of different plans so that if they decide they don't feel like going out this night, they have an option to go out the next night, and maybe they'll skip that and go out the next night and so on. And, um, you just... You get less done if you have lots of opportunities and you could easily forego any one of them. M- but, um, there, there just aren't that many people who succeeded in a memorable way because they kept all of their options open. I think the closest to that you can get is that there have been a number of people who made their money in smart deals where they did manage to control the downside, but to take the optionality example, that is more like being a structured products trader or being an options trader who is trying to construct this pretty elaborate payoff structure where you get to control your losses on one side and then you're maximizing your payoff on some other side. And that is, uh, a lot more complicated than just optionality. That is, um, it... You're, you're not buying it wholesale, you're actually picking and choosing which options you care about and which options you don't. And that's... I think that is, um... That is something worth keeping in mind, and maybe I didn't emphasize enough in the essay, that I am... I'm not saying you should always choose the minimum optionality choice. Like, um, you know, you, you could sign-... You could read that essay and immediately sign up for the military or join a religious order or something and have no more choices in your life for a long period. Um, I'm not saying you should immediately seize the opportunity to give up options. I'm saying that you should be very judicious about them, and that, um, going back to the markets example, if markets are not perfectly efficient, you... but they are pretty efficient, you should expect that you can get a superior payoff, but only if you are actually doing pretty good work and only if you're doing something you're actually pretty good at.

   5. DPDwarkesh Patel34:04

      Yeah. And I mean, it's, uh, like, some of the risk aversion in society can be explained by optionality alone. Uh, it, it, it just, it just, uh, som- somewhat conformity. Uh, you can think in terms of, like, uh, uh, one of the examples I like is y- y- th- like, think abou-... Think about somebody who becomes a dentist, right? It takes like, what, 12 years or something, like, $500,000 or more in student loans, and it's a very specific thing to do. You're getting rid of options. What if you just spend those 12 years and that, that much money just trying to start, like, 12 businesses, each one every year, see if it fails or, uh, you just move on? In some sense, that option ha-... Or, you know, that choice, you have more optionality, but people are still less willing to do that for some reason. Um, uh, oh, so you mentioned

8. 34:40 – 39:15

   Differentiated credentiations underrated?

   1. DPDwarkesh Patel34:40

      that, you know, people trying to get accredited, uh, in ways... That, you know, there, there's a group of people who ins-... uh, who are very... uh, doing cool things, but they, you know, they're not trying to get accredited by elite universities. Is that, um... Are people acting irrationally by trying to get accredited from elite universities? You can look at your example. Uh, I mean, y- you know, you got, uh, uh, well accredited just by being a very excellent SEO writer and, um, in, in some sense, maybe more people should be trying to do that, right? Like, you're getting a better, uh, credential by doing that.

   2. BHByrne Hobart35:10

      Yeah. I, I would still... I still view elite higher education as probably a pretty good deal for the individuals who are doing it. I just think it's a, it's a bad deal for society that so many people are pursuing it. So, like, yeah, if you have the opportunity to go to a great school and, um, you're considering just not doing that and figuring out what to do instead, that's, that is probably... You should probably just go to the school. But, um, the... If you are going to a really good school and you see a particular opportunity that you want to seize right now and you know that that entails dropping out and... Like, if, if there's one specific reason not to go, then that is, that is when you should not go, or at least drop out. And you still have optionality there. Like, um, I think...I think last time I looked at this, um, both Mark Zuckerberg and Bill Gates are technically on, um, they're on some kind of, like, hiatus, sabbatical thing from Harvard. Like, they could just enroll-

   3. DPDwarkesh Patel36:05

      (laughs)

   4. BHByrne Hobart36:05

      ... I think next semester-

   5. DPDwarkesh Patel36:06

      Right.

   6. BHByrne Hobart36:07

      ... and start taking classes again if they wanted to finish. So, um, it, and I guess maybe that is a, maybe that is a, an example of just how far the preference for optionality goes, that even, like, once you get into a good school, like, they actually won't let you drop out by default. You have to ask them if, you have to ask them if, when you leave, they will not let you back in, or they just will. But, um, yeah, j- in general, going to a good school, like, it's, it's a good credential and it's just, it's hard for someone who is, say, 22 years old, it is hard for them to do something d- that they expect to succeed in that is more impressive than getting a bachelor's degree from Harvard. It is just, um, like, you can do things that are more impressive than that, but your expected outcome is probably lower, your median outcome is lower. On the other hand, if you do succeed in something else and you also turn down the, the easy prestige, the easy credential, then that's even more impressive. And, um, it's not just externally. I think there's, there's something really important internally about having this experience of, um, having an easy way and choosing to do something else, even though it's much more risky, that you know that you have, you have slain the optionality dragon. And, uh, you know, its, its other heads are gonna grow back at some point, but you have actually fought it and won, and that's, that's gonna stick with you.

   7. DPDwarkesh Patel37:24

      Yeah. Yeah. Um, uh, uh, one of my previous guests, uh, Scott Young, he's famous for basically, uh... I don't know if you heard about this, but it was, he did something called the MIT challenge, where instead of going to MIT, he just... they have an open course, MIT has, like, all their classes online. He just did a thing, "I'm gonna get a four-year bachelor's education in computer science from MIT, uh, by just doing the online coursework. And, um, you know, like, if I get above an F on the final exam, w- which I self-administer, then I consider myself passing the class." And he does this. I, I mean, in some sense, given the fact that it's truncated, he, he did less work than getting a MIT education would be, but he got tons of, like, job offers from that. Maybe people just aren't creative enough. There are, like, it, it, and getting, uh, getting a good s- uh, finding a way to get a good signal to employers is not an efficient market. It's just that, you know, people, 19-year-olds, you wouldn't expect them to pick up $100 bills on the floor.

   8. BHByrne Hobart38:14

      Yeah, I, I think one thing to, to note on that is that, um, a lot of people who try that will actually find that they've really overestimated their willpower.

   9. DPDwarkesh Patel38:24

      Yeah.

   10. BHByrne Hobart38:24

       And, um, I think this is actually one of the functions that a school like MIT serves, is just to consistently motivate you, both by surrounding you with peers and by giving you professors who are very smart and whose judgment you respect. And so, if your professor tells you, "This is C-minus work," you actually feel bad and you try to do better. Whereas, with yourself, it's, uh, it's a lot harder to motivate yourself. You can do it, but you w- you'll often have to pick your own, um... you have to pick your own topics to study to do that, and then there's no credential. There's not even like, "I could have gotten this credential, but I didn't go to this particular school, so I'm equipped to do the coursework, but I did it somewhere else." It's more like, um, "This is, this is not really a thing, but it's a thing I'm actually really good at." And, um, so you, you have to, you have to both, um, do the work and then sell people on treating that work as credible.

   11. DPDwarkesh Patel39:13

       Mm-hmm. Yeah, so, uh, I mean, speaking of that,

9. 39:15 – 44:26

   WIll contientiousness increase in value?

   1. DPDwarkesh Patel39:15

      you wrote an essay called... I forget the title exactly, but it's basically, the idea is that introverts will be more influential in the future. Um, and if you think about the big five, uh, personality traits, like, introversion is one that, um, you know, would be more valuable. Uh, I mean, g- given the fact, uh, I mean, Aver- uh, it's, Tyler Cowen makes this point in Averages Over that he expects conscientiousness to become a highly valuable trait in the future. In that essay, I think you basically said that actually conscientiousness might become, uh, less important, or at least you didn't emphasize it. Uh, uh, I mean, comparing, uh, conscientiousness to introversion, uh, given, you, you, I mean, obviously you have things like, uh, self-education, but there's just so many other things where given that, uh, uh, you know, you're, you can get more returns by doing clever and more things, uh, you know, scaling them up to a higher level. Um, maybe conscientiousness is a more important trait in the new economy?

   2. BHByrne Hobart40:02

      Um, conscientiousness is really important if you have goals that are set by somebody else, and it's really what lets you achieve those goals. And so, I, I would rate myself as not very conscientious at all because I'm, I'm pretty bad at fulfilling totally external goals, like, almost deliberately bad at it. But, um, I do work a lot on things that I'm interested in. So what... a- and this, this may be, it may be almost a terminological difference, uh, on what conscientiousness is because I, I would view it as if someone asks you to do something and it's some arbitrary selected thing, a arbitrary thing that they select, w- are you likely to get it done? Um, and maybe that's likely to get it done conditional on promising to or conditional on being expected to or whatever. But just, it's, uh, you know, it's a measure of that expectation. And, um, that people have low expectations (laughs) for me on, on many of those things. But, um, if the, if conscientiousness is just are you going to put in effort to accomplish something, then that's, that's something that I am willing to do. So, um, my view, and this is kind of an Averages Over view, is that as, as the cost of, uh, as the cost of communication gets lower, as transaction costs decline, and as more of the economy gets mediated through software, there are just gonna be more specialized jobs. And if you are really interested in one of them and you're, like, you're just naturally interested, you would do it for free, then you don't need to be especially conscientious to succeed in it. Um, there's... I guess there's another side to the conscientiousness thing. And I, I, uh, wish I knew what Tyler Cowen's exact argument is because, um, another reason that you might actually want to, you might think conscientiousness would pay better is that entertainment is getting so much better and is getting much more addictive and it's getting better at marketing itself to you. So, um, just being able to resist the siren song of Netflix and video games is becoming a more valuable skill. But then again, it's, there are, there are times when I will just be messing around and wasting my time and, uh, I'll realize that there's something more interesting I could be working on and it would actually produce something tangible that, uh, subscribers would pay for and that I would be proud of. And so, I hit, uh, Apple queue and, uh, get back to work.

   3. DPDwarkesh Patel42:17

      Yeah. That- that- that's surprising, that you wouldn't consider yourself especially conscientious. I- I mean, the distinction makes sense, but like given the fact that you produce a- a, you know, a lengthy ............................ every day. One of the arg- I- I- I- I ... The argument that Tyler Cowen makes is, I mean, obviously self-education. Another point he makes is that businesses are bigger now, you have global supply chains, so if you have a person who's kind of a rebel without a cause, or even a rebel with a cause, uh, just being unreliable and you- you- you know, being volatile in some sense, makes you much more dangerous than you would have been in the past, because you're just- you can mess up more things. I don't- I don't exactly know what that means, 'cause I've never interacted with these, like, global supply chains myself, but that- that's just what I remember.

   4. BHByrne Hobart42:56

      (inhales deeply) Yeah. Um, well, I wonder about that, because I- I suspect that, you know, some of the people at Apple who are managing things like, um, you know, managing their response to COVID or whatever, um, I suspect that they're doing this in part because it's a really fun challenge. Like I'm sure they're paid well and everything, and I'm sure that's- that's a big motivator too, but it actually sounds kind of like a- a fun puzzle to say if, um, if this- if Shenzhen shuts down and most of your manufacturing is close to Shenzhen, what do you do right now? What do you do in a week? What do you do in a month? And, uh, by the way, what is your plan for making sure that we never have this problem again? So there- there could be just some- some general appeal. Like Factorio is a very popular video game and, uh, the whole point of it is managing a complicated supply chain and managing it around both, um, both passively just increasing production and also actively managing to deal with various crises that interfere with it. So I- I think there are people... I mean, maybe the people who are really into that are all playing Factorio and not actually getting jobs at Apple, but there's- there's some fun to that, and um, I think- I suspect they're actually pretty- pretty proud of what they do, and um, it's probably pretty ... I mean, maybe it's not fun in the moment, but I- I suspect that when a lot of the Apple supply chain people look back on the first calendar quarter of 2020, they think of that as just a (laughs) really- really cool experience.

   5. DPDwarkesh Patel44:22

      Mm.

   6. BHByrne Hobart44:23

      Not a fun one, but a gratifying one in retrospect.

10. 44:26 – 48:04

    Why aren't rationalists more into finance?

    1. BHByrne Hobart44:26

    2. DPDwarkesh Patel44:26

       Yeah. Interesting. Uh, you wrote an article saying that investing is Rationality Dojo. I'm curious why then, uh, you know, the subculture of rationality, isn't more centered around finance than it is around programming? Uh, maybe debugging is also Rationality Dojo, um, but you know, it- it would seem that like if- if this community were going to be centered in some industry, it would be finance.

    3. BHByrne Hobart44:49

       That's a good question. Um, I have noticed... I mean, I was... I would hang out with some of the rationalists in New York and a lot of them are in finance, but then again, I'm hanging out with people in New York, so of course a lot of them are going to be in finance. Um, I- I think the rationalist subculture does skew a little more to finance than- um, than just, you know, is representative. But you're right, it's- it's definitely more of a programming thing. Um, one possibility is that, um, the rationalists are... You know, they do talk about like the- the center of their subculture was LessWrong, and so they're clearly not saying, "We're going to be perfectly right." They're saying, "We're going to identify these flaws one by one and improve them over time." Um, they're not trying to reach some kind of perfect understanding, at least I think most of them are... Most of them would say that that's not the- the end state that they expect to achieve. Um, maybe it just, uh, maybe this- this approach, though, of um, of believing that you can solve a lot of these problems, and/or believing you can- you can improve on a lot of these problems, maybe that is just more of a- a programmer kind of attitude. And, um, like I've- I've definitely... I used to program, um, I don't really do it anymore, and um, it is- it is also very much a- a exercise in rationality, and it's also a more introverted one. So in finance, part of what you're doing is you're trying to model other people's behavior, you're trying to figure out not just, "Why am I right?" But "Why is the person on the other side of the trade wrong?" And that can be sometimes more valuable than knowing... being confident that you're right, um, especially if they're wrong in the sense that they have some kind of balance sheet constraint or regulatory constraint or some kind of institutional constraint that keeps them from doing the obvious reasonable thing. Um, so if you- you might think of that, um... Like one example of that would be that, uh, small cap stocks tend to have less efficient pricing than large stocks, and one of the reasons for that is that a lot of financial institutions have a size cutoff, or they just tell analysts, "Please don't look at anything that's worth under five billion dollars because we won't be able to take a meaningful position at it, so it's not worth your time." Whereas you can take a very large position in Google or Amazon, and if it moves 1%, then that is- that is more money than you'd make in the- the tiny, tiny position with a tiny, tiny stock. So- so there is a market inefficiency there where a lot of the talent is focused on getting more precise valuations for big companies rather than finding pretty obvious opportunities in small ones. Um, but the... like debugging as a- as a rationality exercise is interesting, because you... when you debug, you're trying to outsmart yourself. You are trying to... You're looking at a situation where you- you are... I forget what the quote is, like if you are... I think the line... There's some line about cleverness in code where it's like if you... Debugging is twice as hard as- um, as writing the code in the first place, so if you write the cleverest code you can, then by definition-

    4. DPDwarkesh Patel47:35

       (laughs)

    5. BHByrne Hobart47:35

       ... you are not smart enough to figure out what's wrong with it. And that's... that seems largely true, so it is an exercise in humility and also in self-knowledge. I mean, maybe- maybe finance is like, uh, is the extrovert Rationality Dojo and then debugging is the introvert Rationality Dojo.

    6. DPDwarkesh Patel47:53

       Mm.

    7. BHByrne Hobart47:53

       Although all the finance people I knew in- um, in LessWrong-ish circles, they were- they were much more likely to be quants. I don't- I don't think there was a single investment banker in the entire crowd.

11. 48:04 – 52:20

    Rationalists are bad at changing the world.

    1. BHByrne Hobart48:04

    2. DPDwarkesh Patel48:04

       Yeah. You wrote an article about how rationalities saw COVID coming much more so than other subcultures. Um, one of the things you wrote in that article, and I really didn't know what this meant- meant, so I really wanted to get a clarification. You said, "It's that... it's this attachment to the factual consequences of predictions and detachment from their social consequences that makes rationalities relatively good at predicting the future, but comparatively worse at influencing it. They can spend political capital in cost-effective ways, but earning it often requires perversely counter-rational decisions." What did you mean by that?

    3. BHByrne Hobart48:32

       Yeah, um, so part of, and this is, I mean, this is not something that the rationalist subculture strictly advocates, but it is, it is kind of a cultural norm, is just being honest and direct and blunt. And it's, it's really refreshing that people will just tell you what they're thinking instead of trying to, trying to coddle you or, um, trying to, um, trying to be more, more polite about it. But it does mean that, um, they are, they're doing something that is orthogonal to politics, so if it has a political implication, it's usually that they are, they're, they're making something that, in political terms, is a mistake. Um, so rationalists, they... you know, it's, I guess it's hard to articulate how, exactly how this played out with COVID, but I did get the sense, like, part of the problem is they, they take ideas seriously, right? They, they think about, um, they, they extrapolate things to their natural end point and, um, they are, they're willing to bite a lot of bullets. They're willing to say that, that, um, if something is weird but factually true, then they believe it and, um, they're also willing to loudly affirm it which is, again, nice, refreshing. Uh, a lot of people just keep their weird beliefs to themselves. Not so with the rationalists. Um, but it also means that the population that was warning about COVID early, it's also the set of people who are talking about, I don't know, Bitcoin is going to save the world and, uh, cryogenics is really important and we live in a simulation. Like they have a lot of weird beliefs. Um, some of these beliefs are probably true. Some of them are probably false. Um, they are generally beliefs that make sense if you accept a certain set of premises and they don't if you don't. And believing that COVID was going to be big problem made perfect sense if you accepted that it has an R0 of two or higher and, um, at the time, we thought the fatality rate was about, case fatality rate was about 2%. Um, all you had to do was start compounding some numbers in your head and you quickly realized, okay, this is gonna be everywhere and it's going to get a lot of people sick and if it broke out in a city and it was, um, right after the Chinese New Year that it got shut down, that the city got shut down, that means a bunch of people got exposed and then went all over China and since flights are still going between China and the US and China and Europe, then, uh, it's gonna be everywhere. So they, they were not making any big inferential leaps, but because they've also, they're willing to say things like, if you think it's theoretically possible that a computer can simulate what feels like the real world and if you think that there's some chance of that happening and, um, if you know how computers work, then you think that given some non-zero chance of it happening, the odds of you living in the real world versus a simulated world are vanishingly small. I mean, that, I guess, that assumes that there's only one real world, but, um, uh, I guess it assumes there's one real world where it is possible to do this and not an infinite series of real worlds where-

    4. DPDwarkesh Patel51:21

       Mm-hmm.

    5. BHByrne Hobart51:21

       ... it is, for whatever reason, not possible to. Anyway, it's, it, it's also something that you derive from taking ideas seriously. Or with cryogenics. If you think that there is value to living and continuing to live and you think that there's some chance that you can be brought back to life if your head is frozen, um, you will do it. It's, uh, like given, given the upside, it's actually kind of cheap, um, especially if you do the, the life insurance thing to pay for it. So they're, they're being very straightforwardly reasonable, but it means that anyone who was in the rationalist community and is warning about COVID, you could immediately link it to other crazy things that they had told people that, um, that everyone just thought were absurd.

    6. DPDwarkesh Patel52:00

       Right.

    7. BHByrne Hobart52:00

       And the rationalists will argue against, you know... It's n- like saying, saying something is absurd is not the same as saying it's false. It's just saying... It's more like saying, "If this is true, it's really important." But the normal heuristic is, this is absurd, therefore false, and therefore you are low status for believing in it.

    8. DPDwarkesh Patel52:18

       Yeah. Yeah. Um,

12. 52:20 – 57:10

    Why read more?

    1. DPDwarkesh Patel52:20

       you wrote an essay called Read More where you say that you're more likely to get valuable content that's, you know, fitted to your niche or whatever you would find valuable because, uh, writing has, uh, lower production costs, so people, you know, there, there's, people have a higher... Uh, it, it's easier for people to produce good content. Uh, if you extend this logic, Twitter has an even lower production cost than a book, so then should I be reading tweets? Is there like a golden spot of, uh, you know, fixed costs that, uh, a newsletter or a book has that, you know, is not a movie on one end but is not a tweet on the other?

    2. BHByrne Hobart52:56

       Yeah. Um, it's, it is true that if you, if you extrapolate that part of the argument, you do conclude that tweets are, tweets are good and that watching live streams is even better. Um, it's... So there, there are different kinds of content and there are different production costs, and what I was focused on was the kind of content where someone is trying to deeply understand a topic and explain it, and in that kind of content, it's hard to do that in a tweet. You can, you can definitely tweet something that is coanic and insightful but the hit rate on those is pretty low. Um, with... So it's, it's partly a comparison of learning, learning, say, history or math or, um, learning about a new technology from watching YouTube videos on it versus, or watching documentaries on Netflix or on Disney+ or whatever, versus learning about it by reading. And my argument was that there's, there's a long tail of things where it is actually worth the time and effort to make a book and it's not worth the time and effort to make a documentary. Um, it... And you can also think of it in terms of hours of research required or hours of production required versus hours of content consumption, where making a documentary, it requires a lot of people to spend a lot of time and they're gonna cut it down to an hour. And with a book, you, A, books, you will usually spend more time reading a book than you would spend watching a movie. Um, I guess there are exceptions on both ends, but in, that's a generalization. And the production time el- is just typing, and that can happen pretty quickly. There's a lot of reading that goes into it, and that can take an arbitrarily long amount of time depending on how thorough you want to be, but you're also... That reading process is really a process of winnowing ideas down. Like it's... Um, so I'm, I'm working on a book with a friend and, um, I've, I've increasingly come to this view that the...... the writing process happens while I'm reading, and then-

    3. DPDwarkesh Patel54:47

       Huh.

    4. BHByrne Hobart54:47

       ... what I'm actually doing when I sit down and start typing is more like, um, it's, uh, I'm more, you know, just, uh, taking dictations. I, I have the general thoughts in my head, the general connections between different topics, I've highlighted the things I really want to talk about in the books, and I'm just applying a pretty coherent narrative to it. And that part's not super hard. So, um, the book is going to be mostly, most of the effort is reading and learning, and then a relatively small fraction of that is actually producing the end artifact. Whereas with a movie, you c- you could imagine a documentary where there are more person hours spent on the production process, including, you know, filming it and then editing it and, um, managing all the equipment and just getting, you know, all the travel and whatever else, um, that that, that could actually end up taking more time than the preparatory research to, to come up with the idea and figure out what the narrative of the documentary will be.

    5. DPDwarkesh Patel55:41

       Isn't the logic there... I mean, uh, most of the time that goes into the podcast for me is just me preparing and researching for my guest. Is the logic there then say that, like, podcasts are as valid a medium of consuming content?

    6. BHByrne Hobart55:53

       Well, so podcasts have a totally different dynamic because there is more back and forth. So, uh, a book is more analogous to a lecture.

    7. DPDwarkesh Patel56:00

       Yeah.

    8. BHByrne Hobart56:00

       Um, and a lot of these documentaries and YouTube tutorials are also basically a lecture. Um, the podcast is a dialogue, so there could be tangents and both sides are contributing things and one person will say something that leads to an interesting question that leads to another tangent that leads to something else. So it's, it's creating more connections. It's basically, um, you know, we, we both have different clusters of ideas in our heads of different things that we want to talk about, and, um, because they're different clusters, there's, there's some overlap and then there are some totally separate things. Um, because of that, the, the connections that can happen, um, between ideas in a dialogue are going to be a lot broader than the connections that could happen with one person writing a book. But, um, a book will probably get more depth, and that's just, it's a trade-off that, that different media have. So, um, it would be hard to do a podcast where you're talking to one person and you're actually trying to develop, you know, a theory of history, or you're trying to develop, you know, uh, you're trying to decide, okay, is inflation transitory or not? You could have a really interesting discussion and lead to a lot of ideas, but I think if you wanted to really answer the question of, uh, are we gonna have hyperinflation, for example, you probably would wanna be of the mind that you are writing a book making the case yes or no.

    9. DPDwarkesh Patel57:07

       Yep, yep, yeah, that makes sense. Um, a related

13. 57:10 – 1:01:30

    Does knowledge have increasing returns?

    1. DPDwarkesh Patel57:10

       concept that you, uh, talked about is the convexity of knowledge. Basically, there's increasing returns to learning more. Um, doesn't that imply that, for example, the next book you're gonna read, you're gonna derive more value from it than the next book I'm gonna read? Um, where, in fact, it would seem to be pretty clear that, like, I'm probably gonna get a lot more value just because I know a lot less. Um, or maybe is, is this the wrong way of thinking about it, that you gain more knowledge, but since you already have so much val- knowledge, knowledge is worth less to you, so utility is lower?

    2. BHByrne Hobart57:37

       I mean, we're... So we're sort of trying to apply utility functions to things that we, that are hard to quantify in the first place. What I would say is that, um, it's not just about reading the book, it's also about retaining it, and that that's really where the convexity kicks in-

    3. DPDwarkesh Patel57:51

       Mm-hmm.

    4. BHByrne Hobart57:51

       ... is that there are things that make more sense in context when you have more context, and they also-

    5. DPDwarkesh Patel57:56

       Yeah.

    6. BHByrne Hobart57:56

       ... make the context more memorable, they make it have more sense. Like, um, I think Paul Graham actually wrote about this a long time ago, where he's talking about learning history and he's like, when you read one history book, you just have this series of dates and, uh, names, and you don't have any... Like, you have whatever connections the historian is drawing between these things, but there's no, there's no broader context that you're putting it in. But then when you start to read multiple books about the same time period and maybe one of them is, uh, political history and then maybe one of them is a biography of one particular person and then one of them is a history of technology changes at that time, you start to see different things connect together. And one of the things that makes it really memorable is when you see things that you know were important that someone missed, because now you are actually having a little dialogue with the author where you are, um, I don't know, you're reading about... Um, I read a biography of Deng Xiaoping and one of the striking things in that book was that it mentions container ships once, and it's a totally offhand mention. It's just Chinese delegation went to a German port city, they saw container ships being loaded on, or containers being loaded on ships. But there was, uh, there have been other things I've read that argued that China's industrialization was massively driven by containerization because it meant that you could have, um, you could import intermediate goods, process them, export intermediate goods. You could have these really complicated supply chains because the cost of shipping things on one more hop was a lot lower, so it meant that countries with cheap labor had more ways that they could start slotting themselves into the supply chain. Um, the book was still really good, it, but it... And a lot of it was more focused on the political history and internal communist party deliberations rather than the, the broad economic sweep. But it was, um, it was memorable to me because it was something where I felt like I actually, the author knew a lot more than me about China, and there was something I knew about China that the author did not know. And, um, that's a really fun feeling, and it just, it made the rest of the book more memorable.

    7. DPDwarkesh Patel59:50

       All right. Uh, I'm glad you brought that up because that's re- relevant to a question I wanted to ask. Um, e- like, say, like just consider I have, like, zero knowledge in comparison to you, right? Which is, like, almost close to true. Um, then, uh, if you're recommending what kinds of books to read, uh, take that example. Uh, maybe I can read, like, The Box about like, you know, shipping. Maybe I... So that's, like, very contemporary and very specific. Maybe I can read, like, a biography of a con- contemporary figure like Deng Xiaoping, or like, not contemporary, but you know what I mean. Uh, maybe I can read an ancient Chinese cl- uh, classic. Maybe I can read, like, The Three-Body Problem, like, what, what are Chinese, what is Chinese fiction like? If I'm trying to understand a topic like China, which of those categories, or, or any topic, which of those categories is like, this is the highest utility and then these are the supplementary texts?

    8. BHByrne Hobart1:00:32

       Um...I don't have a good answer because what I usually do is buy a bunch of somewhat random books and, um, it's... I... It's partly a convexity thing that there are things that I'd heard of and that I knew I would read at some point, and when I decide to read about a topic, that's the time to read them. So it's... It is hard to give a really good answer to that o- other than just I would try to buy a smattering of different... of books that take different angles on the same topic. And, uh, fiction that is written in the time period that you are interested in or that is roughly about the topic you're interested in can also be really effective. Authors just... They have an eye for some details that other people will miss, and sometimes just the specific tangible things that show up in fiction that don't show up elsewhere, um, they just add a lot more texture. So you, you should probably, um, you should probably do all of the above actually. You should just-

    9. DPDwarkesh Patel1:01:24

       Gotcha.

    10. BHByrne Hobart1:01:24

        ... have a giant stack of books on whatever topic you're getting into right now.

    11. DPDwarkesh Patel1:01:28

        Mm-hmm. Gotcha. Um,

14. 1:01:30 – 1:04:48

    How to escape the middle career trap?

    1. DPDwarkesh Patel1:01:30

       now, the favorite essay you wrote... The, the favorite essay of mine that you wrote was, uh, The Middle-Income Trap, uh, you know, where you compare the process by which countries get stuck in like a middle-income s-, you know, second-class, uh, tier and how their careers get, uh, stuck in that place. Now obviously it's like, uh, directly relevant to the considerations I have. Um, uh, uh, i- i- in the book How Asia Works, the author talks about how, you know, many of these countries created terrorists basically to create internal knowledge about how to produce like highly valuable things that were really shitty at first. Um, is there an analogous strategy here where you basically like learn to th- do things that like are not your comparative advantage, like you're really shitty at them, but like the goal is eventually th- this is like something that differentiates you? Or maybe is, is there a better strategy to escape the middle-income trap? What do you think?

    2. BHByrne Hobart1:02:14

       Yeah. I, I definitely think that picking up skills that are adjacent to what you do and that you're not good at is really valuable. Like if nothing else, if you're successful, you will end up delegating some of those tasks to other people and it is very helpful to know roughly how hard they are rather than just having to guess. So, you know, if you, if you have a job where you're not doing any programming but you're working with programmers, you should probably learn to program even badly just so you can have some intelligent opinions and at least so that you know which timelines are totally fictional and which ones are not, and it gives you ways to ask better questions. Um, but a lot of that essay, it was... So one of the escapes from the middle-income trap that I think Stovall talks about is that countries either built branded products that were popular around the world they could export and sell at a premium price or they developed indigenous technologies that other places just could not match, and that, that's sometimes a process that flops back and forth. Like there was... There was a time when it was really hard for US automakers to compete with Japanese automakers and, um, their... Everyone seems to be a lot closer to parity right now. So it was a temporary competitive advantage but it was a big one for Japan and it, uh, it certainly helped their economy continue to grow. Um, but then there are... There are all these intermediate industrial goods that Japan produces. There are just a lot of supply chains that, that happen to pass through Japan and, um, you know, the final assembly is in somewhere like China or Vietnam and the end product is sold in the US or Europe but, um, there's some essential component that is still only made by a Chinese company or by a Japanese company and it's, uh, it's hard to match anywhere else. And it, it's a bunch of random stuff. Like there's a, there's a lot of stuff in the semiconductor supply chain where there will be... You know, it's a... You know, this step is like 100 different things that you have to do or 500 things you have to do to go from here is silicon to here is a chip that actually works in your computer, works now. And, um, sometimes one or two or five or ten of those steps will be monopolized by, by some company in Japan. Um, so that, that is the... The escape is to have some set of skills that you are pretty confident nobody can match and that people know that you have and that allows you to compete on something other than price. And, um, competing on price is fine when you're young because your cost of living is low and you'll learn a lot by getting thrown into jobs that you are only qualified for in the sense that you were far cheaper than everyone else could do it. But, um, it's... Uh, you know, you can't... You can't be cheaper than av-... You can't get rich being cheaper than average to hire so at some point you have to do something different.

    3. DPDwarkesh Patel1:04:47

       Mm-hmm.

15. 1:04:48 – 1:08:40

    Advice for young people

    1. DPDwarkesh Patel1:04:48

       Gotcha. And my final question is usually always, um, w- what is one piece of advice you would give to somebody by age... I mean, we already talked about some of the things so this might, uh, this might be a redundant question so, I mean, we talked about avoid att- rationality, read more, you know, differentiate yourself by, uh... and use that to avoid the middle-income trap. Um, is there anything else that y- you would recommend?

    2. BHByrne Hobart1:05:09

       Yeah. Maybe, maybe a synthesis of a lot of those things is that because books are cheap and because the internet is such a wonderful distribution mechanism, it is really not hard if you are determined to be... um, if you pick a narrow enough topic, to be close to one of the world's leading experts on it in a fairly short timeframe. So you have to pick a topic that is basically narrow enough that nobody has written a dissertation about it-

    3. DPDwarkesh Patel1:05:33

       Mm-hmm.

    4. BHByrne Hobart1:05:33

       ... which can be hard, but the next best thing is you can be the, the world's public-facing expert on this by just reading a bunch of academic papers from people who know more than you, diving through what they cite, reading that stuff too and consolidating it into, into something that you can put on, on Substack or somewhere. And I think that's a... it's a valuable exercise both because it, it gives you some body of work you can point to to say, "I am willing to work hard on projects, I'm, I'm able to find interesting and insightful things and, um..."... you know, able to, able to learn a lot and, and synthesize it in a way that helps other people learn too. Um, but it's also just, uh, it's, it's useful because one of the things that I learned from these various deep dives that I've done on different, different industries, different countries, different companies is that the world is just much more complicated than I thought. And (laughs) , um, it's, it's very easy to say that and it's very hard to internalize it. And I think you can really only... Like, really the only way to internalize it is to realize repeatedly that you were wrong about something because you had oversimplified it. And, um, often it's not just that you were wrong, it's that the first source you read had some theory and that theory was, was later overturned. So you, you want to get to the point where you are, um, where you can look back three months and realize you were dumb about something that you thought you knew a whole lot about. And, um, at some point when you're no longer realizing you're dumb but you are, you're starting to just have more open-ended questions that you can't really get answers to, then that's, that's a good time to move on to the next big topic. But that is, that is a worthwhile exercise and, um, there's just, there's so much material out there. Um, there are, there are lots of aspects of economic history that I think are, are worth revisiting right now because we're either, we're either at a, a time that is strange because growth has slowed down, it's gonna keep being slow forever, which, um, hasn't really happened before without some kind of big natural disaster. Like we've had... We, we basically had growth that, um, continuously accelerated, albeit at a slow pace, from pretty much the dawn of time through-

    5. DPDwarkesh Patel1:07:41

       1960.

    6. BHByrne Hobart1:07:41

       ... the 1950, 1970s, yeah, and then, and then it slowed down. Um, different countries have had different, different ebbs and flows of growth, but overall that's been the story, is just gradual growth, gradual acceleration. So we're either at a unique time period because that stopping and, you know, economies, um, total factor productivity grew and accelerated for a while and then it stopped growing so much and that's just where we are. That's interesting. It'd be interesting to figure out why that is. Or we're at an interesting, interesting time in history because there will be specific technologies that actually do accelerate productivity growth and it's really worth it to know what those are. 'Cause if you go back and you look at the specific technologies that, um, say led the first industrial revolution or led the second industrial revolution or led the, um, the inf- information technology revolution, they are all associated with people making lots and lots of money and, uh, even the people who didn't get extremely rich, they had really interesting lives. So it is, it is very worth figuring out if we're in, in year 10 of another one of those 50 year deployment cycles.

16. 1:08:40 – 1:11:03

    How to learn about a subject?

    1. BHByrne Hobart1:08:40

    2. DPDwarkesh Patel1:08:40

       Yeah. Uh, final question. I mean, I kind of asked this earlier when I asked what kinds of books you read, but when you're trying to figure out the answer to that question, which I'm very much interested in, other than reading your newsletter, should you be looking at y- you know, like doing a deep dive in how something in the world works today? Are you trying to under- should you be trying to understand history? Like, what is the most relevant lens to be, um, w- looking at here?

    3. BHByrne Hobart1:09:02

       History is a lot easier because we've, we've seen how things played out. If you're looking at things that are contemporary trends, you have a couple problems. One is that a lot of people writing about them have an agenda, um, because they either want something to happen or they don't want it to happen. Um, there's also the meta agenda thing where the people who are really busy making it happen don't have time to write books and the people who got left behind one way or another, they do have time. So there are a lot of selection effects that make the data noisier. On the other hand, there's a lot more data and if you go back for... If you go back and look at earlier historical events, you may not be able to find much at all, um, or, you know, you, you'll find a handful of sources and you've exhausted your material. So you do have that trade-off. Um, I, I go back and forth. So I... And it's, it's not a deliberate thing, but I, I've noticed over time that I will generally spend some time writing about contemporary things, sometimes writing about, uh, historical analogy to those things. Um, sometimes I will... Uh, like right now I'm doing a bunch of reading on central banks, how those came about, et cetera, and the original reason for that was just trying to figure out some, some questions I had about quantitative easing for which I don't have good answers, but I'm going back to the beginning and reading about how the Fed was put together, all the debates around that, um, what the financial system looked like without central banks and, uh, what, how the central banks evolved over time and their powers and their mandate and their institutional cultures. So, uh, that is, that is very much a present driven but history focused project. So I don't... Maybe there's not a good answer. Like history, you know, history is still happening and so, um, you, you're technically reading history if you read something that was written yesterday. Um, if you read it with a... You try to read it with a pseudo historian's perspective where you're trying to figure out what people will think about this in 50 or 100 years when the debate is largely settled, or at least in, in 50 or 100 years when they're still debating this in history departments, what will be the main schools of thought and what will be the strengths and weaknesses of those schools of thought. That is probably the right attitude to have towards current events.

Episode duration: 1:11:32