Brian Potter - The Origins of Efficiency

29:13And at sort of coal mines, they had all this, what was called slat coal, which is like pieces of coal that were too small to sell. And so you could feed this coal into these new coming engines. And like, if you're getting your coal for like free, you're like very nearly free, then it makes sense to use this like really, you know, inefficient engine. And then, yeah, this got replaced with like the Watt engine, which was like much more efficient. But the Watt engine was like, it required a lot more like precision engineering. And it actually was, I think, difficult to, I don't remember the exact specifics here, but I think it was like somewhat difficult to, to use in the U.S.

29:48because we didn't have like the engineering knowledge and capabilities of doing this like precision manufacturing. And this was all, so it was like hard for this engine to diffuse in this place without the, with, you know, with sort of this like different, like sociocultural fabric where you don't happen to necessarily have this, you know, machining expertise and capabilities that you did in sort of the UK. And so, yeah, this kind of goes back a little to what we were talking about, like just with the case of electricity is sort of the geographical factors in a given place will shape and influence that kind of technology and sort of production processes that can like take root and kind of be exploited in a different place in a given place.

30:30Sure. You pose a really interesting way of thinking about the evolution of technologies. You said, or I'll frame it like this, why can technologies that are promising, are they more likely to fail than a technology that doesn't have much room to improve? um interesting so a technology that is more promising right versus something that's getting closer to that maxim i think you pointed out that the promising technology might fail versus the one that doesn't have much room ends up improving far more than people would have thought uh i'm not sure i phrased it quite like that i think what i the point that i get at in the book is that it's often quite difficult to predict the outcome, you know, what sort of a technological trajectory will be and how much a technology can improve over time.

31:25So we're talking before about like, you know, things like light bulbs, things like certain like these industrial chemical processes we like can know with like, by like, application of the laws of physics, like here's like the maximum level of performance you can expect from this thing in terms of like output per energy input or whatever. But not, you know, not all technologies are like that. And most technologies are like, it's actually too difficult to sort of predict the ceiling of its performance. And so oftentimes you get, you get in this situation where like people think like some given technology is like tapped out and we're going to need to replace it like with some other method that like works by some different principle that will like not have this performance ceiling.

32:11But then the original technology ends up surprising people and ends up the people end up finding ways to sort of extract much more from it than they, than they sort of originally thought were possible. I'm writing an essay right now about semiconductor lithography and the technology for like etching these like really, really tiny patterns on, you know, microchips, which is what made Moore's law possible, basically. And for many, many years, you know, the early lithography was done basically with like, was called optical lithography or photolithography. We basically just shine light on a chip and sort of you, you know, it exposes a chemical called photoresist.

32:54It, you know, hardens or softens it. You wash off the softened photoresist and then you can etch the chip in the pattern where the photoresist has been removed. And so the original lithography process used this visible light to kind of do this. But very, very early on in the 1960s, as early as that, people realized that as the semiconductor features got smaller and smaller and smaller, eventually it was going to be too small to really etch this with visible light because the wavelength was just too long. And so very early on, as early as the 60s and 70s, people started looking at alternatives to photolithography.

33:34And they sort of were predicting the demise of photolithography. And so they kind of were investing in all these other technologies that would have these different constraints. But as they were investing in these other technologies, people kept finding ways around these constraints with traditional lithography methods and kept finding ways to etch smaller and smaller and smaller and smaller and smaller features. And the sort of lifespan of this technology got stretched out much, much, much farther than people expected. There's this saying in, I guess, in lithography industry circles, where it's like the end of optical lithography is six or seven years away.

34:17It always has been and always will be. No matter what time, the end of it is always going to be just around the corner. But people have kept figuring out ways to sort of push that end out a little bit farther for years and years and years. Yeah, you used a role that I'd never heard of. Talk about what a value analyst does when looking at a process. And this is pretty matter of fact. It's a cost savings. But explain, I think you give an example of how very small changes can drive powerful cost reductions. Yeah. So for value analysis, value engineering, kind of similar things, this was like a technique invented actually at General Electric after World War II.

35:02And like so many things, it was sort of formalizing things that people had been doing informally before that. But basically, it was these guys had noticed during the war that a lot of times these sort of various things that they were producing had to be redesigned because of shortages or, you know, stuff wasn't available or whatever. And oftentimes, these redesigns not only made these things cheaper to produce, but they also made them work better or at least not work any worse. Sure. And so they kind of got the idea of like, oh, what if we apply this like way of thinking more generally? And so value analysis, value engineering is essentially just this concept that just look at the, you know, whatever it is that you're making, the product or whatever.

35:47Look at what each part does, what its purpose is, and see if you can see if that, you know, that purpose is really needed or see if it can be fulfilled by some other like less expensive way. way. So, you know, I give an example in the, in the book is someone is looking at like, you know, a plastic cover in sort of some sort of electronic, you know, widget or something like that. And they, and someone looks at it and says, okay, well this cover, it's really only needs to, you know, protect the, this inside of this device from like dirt or whatever. But really in the final condition, this plastic cover is protected by a larger, more robust cover.

36:26So really it's only protecting the inside for like a very brief amount of time. And so instead of this like big plastic cover that has like, you know, attached with several parts, two screws or whatever, we could really replace it with like a single like thin sheet of plastic that would just go right on. It would be much less robust, but doesn't need to be robust to fulfill this like specific purpose. And so yeah, the cost, you know, the cost savings like that is like, you know, you're talking about going from like nine cents to like three cents or something like that, right? It's not very large in, you know, absolute numbers just by itself.

37:03But if you're making a million of these things, right, that small saving adds up and it can justify the investment of a person going through and looking at this thing and finding these like six cent savings or seven cent savings or whatever. The other story you tell on that idea of like investing to save, you talk about some of the vertical integration that Henry Ford created, obviously to you know to build cars um the inputs were a big way that he tried to drive ultimately a more uh kind of a leaner vertical process the question i had on that is you know if you look at the arc of time i would say in young technologies that tends to work because they can set it up for their process in such a way where it saves them so much time or saves and so much cost.

37:53But over time, the arc of time doesn't argue that vertically integrating has historically been the most attractive for, let's just say, the investors, as an example. It's tended to be when those things get to a certain scale that you can pay someone else a margin to do that for you. Is that how you look at things like that? I mean, like no car companies create their own lumber or inputs like they did then. Was that because it's just a different season of the process and therefore there were different returns for that process yeah i think different season is a really good way of of like framing it sure and yeah i talk about this with the car industry specifically quite a bit in the book and very very early on in the car industry it was like entirely you know not vertically ingrid at all like right everything was like purchased off the shelf right because the industry was just brand new and there was you know these into these operations were like extremely tiny they couldn't afford like you know their whole big you know factory operation sure so everything engines frames wheels all of it was all purchased from like existing manufacturers and then sort of over time they gradually started to get more vertically integrated and ford specifically yeah he found like this you know developed these like new production methods and found that he could like produce very efficiently at very large scales and quickly became a huge, huge company, huge, huge operation.

39:19And then he was so huge that he could, yeah, the savings for being vertically integrated were quite substantial. And also just there was an important thing where just being vertically integrated enabled him to sort of guarantee a supply when otherwise like the stuff there might be like shortages or he might not be able to sort of get access to something. And also being vertically integrated allowed him to sort of like squeeze his suppliers. Like it was very clear that he could like, you know, for the points that he did have, it was like, all right, if you don't give us this good price, we're just going to, you know, rely on ourself more.

39:57So there's always that threat that sort of kept their supplier prices down. And so, yeah, he became quite vertically integrated and it was very successful in like, you know, removing, you know, slack and inefficiencies in this process. But then over the time, you know, as over the course of that happening, it also, their system became like very tailored to producing like a single product. So they had set up this very vertically integrated system that was very, very good at producing the Model T, this like one model of car that they were making. But then when sort of the market changed and evolved, it was proved very difficult to kind of pivot that system.

40:40Sure. It didn't adapt well. Yeah, another model of car. So when they finally stopped producing the Model T and switched over to the next model, the Model A, they had to shut the factory down for like six months until they sort of retool it. And so, yeah, building this big vertical system dedicated to producing this one thing, it can sort of introduce these inflexibilities in the system. And so as the market evolved and people began to expect, you know, cars, models being updated with more frequently and introducing kind of new features all the time, that vertical integration kind of made less sense.

41:13And so you kind of see like a peak of vertical integration. Yeah. And like the 1910s, 1920s. And then after that, these these, you know, car manufacturers tended to be sort of less vertically integrated over time. And then, yeah, it's kind of sort of gone up and down between different car manufacturers as sort of the market has evolved. But yeah, I think the kind of two points that you make is that one is sort of a industry gets more mature and stuff becomes something more of a commodity. There's like less to be gained and more to be, you know, or to be risked. Sure. Sort of internalizing all these operations when really this thing is a commodity.

41:57You can buy it from anybody for, you know, a very small amount. And then also just, yeah, as you said, as sort of the nature of the market is changing over time, different seasons of this industry, different levels of vertical integration make sense. Sure. We hope you're enjoying the podcast. You know, we work hard putting together this show, but we work even harder for our investors at Smead Capital Management. At Smead, we believe in disciplined investing, which is why the Smead funds have a proven track record of long-term outperformance. If you're an investor who plays the long game and want to invest in wonderful companies to build wealth, we invite you to visit SmeadCap.com.

42:37Past performance is not indicative of future results. Investing involves risks, including loss of principle. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges, and expenses. Read and consider it carefully before investing. Smead Funds Distributed by Smead Funds Distributors, LLC, not affiliated. it. As you think about all the examples you wrote in this book, I mean, the one question, and we've been thinking about this a lot. So for example, like as we look at, you know, companies merging together and things like that, you're playing this game of like, you're adding more quantities to the overall engine, more should drop to the bottom because there's less, you know, costs ultimately.

43:19Do you think quantity always is the biggest factor in efficiency just as an idea? I mean, I was trying to think through the book and trying to ask myself, isn't quantity like the biggest, but I want to ask you that. Secondly, isn't that because ultimately quantity drives the best fixed cost spreading? And that might be the most, the easiest way to efficiency without much technological change. I think, yeah, I think quantity and yeah, scale, just, you know, the volume of production that you're operating at has historically been very, very important. Sure. I think about railroads, for example. I mean, the railroads, when we had, you know a hundred of them it was a terrible business now that we have four it's been a pretty good business and it's got all the problems of capital intensivity and the economy but to your point it's got scale which is what it historically hadn't had yeah and you know one example uh classic or example of that is like tsmc right taiwan semiconductor manufacturing where their whole business model is predicated on like you know we're going to be like you know we're going to just fabricate other people chip designs.

44:23That is going to let us get a very, very large amount of volume because that huge volume, we're going to be able to justify these extremely expensive fabrication operations. And it's been proven enormously successful, right? And as these fabs have gotten more and more expensive, fewer and fewer people have had this sort of volume to be able to justify building them. And so the number of companies that are building these leading edge fabs is narrowed down. It used to be like every chip designer built their own fabs. And now it's basically we're down to three companies, maybe four, maybe there's a Chinese one, that are building the leading edge semiconductor fabs.

45:04And yeah, I talk about this quite a bit in the book, that his scale has historically been very important. Part of it is that you say, spreading your fixed costs more thinly. there's a lot of other mechanisms that make you know kind of make scale go another really big important one is this kind of idea of of the learning curve which is that the more that you make of something the more you know the better that you figure out ways to sort of make that more efficiently and the more opportunities that you have for for learning how to improve that process um and so this idea of the learning curve is this idea that's like for every doubling every cumulative doubling of production.

45:44So 10 to 20, 20 to 40, 40 to 80, you see like a constant reduction in cost. So, you know, 10 % decline or 20 % decline, every doubling. And these learning curves have shown up like very reliably across like a wide variety of different industries. And at a bunch of different scales from like individual factories to sort of entire industries, it's more surprising when these things don't show up. These curves don't show up when they do. When you talked about TSMC having trouble of replicating Taiwan and Oregon, I was like, wow, that's like no one ever talks about that because they're so scaled and there should all these benefits they have by being one of the biggest players in the industry.

46:28And it was funny that one of the old problems we talked about earlier, like geography does change processes because it's not the same people and it's not the same building and it's not the same everything. and therefore I hear I said in Phoenix, Arizona, just so you know, and it's like, I mean, we're building these massive TSMC plants and they're, they're big. And I was thinking, well, might they be Oregon? Yeah. It's actually been really interesting because I wrote a lot of this, you know, this, this book got written before we were all these big new fabs that TSMC was building in the U S had come online.

47:02And yeah, I knew that like they had had these operations and yeah, like I talked about this process knowledge is often like quite reluctant to sort of be transferred from one place to another place. It kind of exists in the heads of these people and sort of in the processes that, you know, there's sort of ways of doing things and it's not super easy to sort of just pick that up from one place and plop it down in another place. And so, yeah, it was, it's been, it's actually been a nice, nice sort of surprise that apparently these, these new TSMC fabs in, in the US and in Phoenix or whatever, are actually supposedly doing quite well and producing things quite efficiently.

47:41I think they're performing better than many people expected them to. Yeah. The other story you tell that I found interesting, and you can think about the, I thought a lot about the marketability of this. So you were talking about float glass, and you were talking about the process of making high quality and low quality float glass. But in the end, we only ever buy high quality float glass. Did you think that had to do with more like, you know, you're the salesperson, you call up and say, Hey, you know, what kind of float glass do you need? And they're like, well, you know, here's what the specs I need.

48:11And you're like, okay, is that high quality? Or is that low quality? And you just having to waste the time of talking about the quality of it? Might that have been enough of a cost to say, you know what, who cares? We're gonna hit the high quality cheap enough. Therefore, that's all we sell now. Is that a fair way of assessing a process is the cost of just the sales process or the cost of differentiating the two products yeah so i think with glass specifically it was more about like a a case of like technological change where historically you had made this glass uh when making like big sheets of glass it required this sort of involved expensive polishing step to to kind of make it And you kind of, yeah, had these multiple grades of glass, one that was like very high quality and used for like commercial windows and stuff like that.

48:59And then like a lower quality of glass. And I forget the two names of the different types, sheet and plate. Yeah, I was going to say, but it came down to like the smoothness of the plate it sat on when they needed it. Yeah. But then they sort of, you know, in the middle of the 20th century, they invented this new process for making what originally was like the higher quality glass. I believe this process called the float process, which was, it's actually extremely, extremely cool. And not, you would never, I don't know, and I'm not sure how these guys came up with this process because it seems like you would never think of how to do this.

49:35But what they did is they poured molten glass onto sort of a bath of molten tin. So like this hot, you know, superheated metal, basically. And that by doing that, it basically made this glass perfectly clear and smooth without having to polish it first. And so what you could do is make this like really clear, really high quality glass much more cheaply and easily than had previously been possible. This is sort of an example of like, you know, technological process change. but it was so cheap and easy that not only did it replace like the high quality plate glass yeah it also basically eliminated you know replaced this like lower quality sheet glass because yeah it was just so much cheaper and easier than what had come before that it just essentially eliminated this like second cat lower quality the second category of lower quality glass so that category essentially went away after the invention of the float glass process sure basically so it lowered the cost so much.

50:39You talk a lot about troubles, okay, and production troubles, variability, and you have a quote in your book that I'm going to use, and this came from like, I think, a factory worker that you had pulled from the 20th century. Quote, all our production troubles can be divided into two classes, the obvious and mysterious, end quote. Explain this idea. Yeah, so kind of this goes back to a little bit what I was talking about earlier is that, you know, you have this process of making some given thing, right? It's like sequence of steps and you do it, you know, step A and step B and step B, C, and you do all these things and string the process together.

51:21And it makes whatever widget that you're making. But, you know, whatever widget you're making, whatever product that you're making, whatever it is that you're producing. But this may not, you know, you may not have like an amazingly deep, like scientific theoretical understanding of like every single thing that is going on in that process and every single thing that can like have some sort of impact on it. And so oftentimes something is working or something will go wrong and it may not be obvious what is causing this thing to go wrong. And so oftentimes what these people have to do is like they essentially have to do like a scientific study of like their manufacturing process basically.

52:09Where they come up with some hypothesis that is like oh maybe this thing is caused by this. And they try to come up with some experiment that will like show whether that is not the case. And they sort of have to develop this better model of how it's working and gradually kind of improve it to sort of eliminate these problems and eliminate this variability. So this whole field of like industrial improvement called statistical process control, which ultimately a lot of these ideas made their way into the GE idea or GE slash Motorola idea of six sigma, you know, which is controlling the variability in these various processes.

52:45But this idea of statistical process control is like doing scientific studies on your sort of production process and trying to sort of realize when there's a problem and trying to figure out and suss out what is causing it and figure out ways to remove it. Sure. You mentioned Moore's Law earlier. The other law you talk about a lot in the book is Wright's Law. Can you explain Wright's Law to our audience? Yeah, Wright's Law is sort of another name of the idea of the learning curve, which is what I talked about earlier. This idea that sort of every doubling of production volume, you get some sort of constant reduction in cost.

53:25And yeah, this sort of, this Moore's law, you know, these rights law, this like learning curve, they show up kind of pretty reliably. Speaking of Moore's law, there's sort of an, you know, and we've talked about TSMC. There's sort of an interesting story there where in the 1960s, I believe, Morris Chang, who went on to found TSMC, he was at a U.S. semiconductor manufacturer, Texas Instruments. and uh this uh consultants from the this these guys the boston consulting group uh at the time they were very big into uh into sort of learning curve based uh interventions and businesses basically telling them hey if you have you know if you achieve really really high scale you'll be able to get like a really really low cost because of these learning curves and then you'll be able to have like this moat of low cost that you've achieved through high volumes that other people will not be able to sort of cross because it will be so expensive to sort of catch up to you.

54:22And Morris Chang thought these ideas were very interesting. And so that idea is partially what gave him the idea for this foundry model of semiconductor manufacturing that you could, if you could produce this stuff at like very, very large scales by manufacturing chips for other people, you would be able to sort of make your processes quite a bit better and develop this sort of competitive advantage by way of your sort of accumulated process knowledge. So yeah, Lernikers, Wright's Law, historically quite important for process improvement. You had some really interesting data in the cost of a Ford.

54:59You kind of walk through Henry Ford's selling price. So he goes, the Model N was$900, you mentioned in 1908. For our listeners, that's$32 ,000 in 2025 dollars. by 1913 the model t the next model had gone to six hundred dollars which is twenty thousand in twenty twenty five dollars and then three years later it was three hundred sixty dollars which is ten thousand seven hundred dollars in twenty twenty five dollars you know i i think the the typical person would just say well hey brian here's the deal why can't i buy a car for $10 ,700. Now, is that a fair question? Or would you rebut and say, well, I think the car you get for$30 ,000 is way better than the car for$10 ,000?

55:48Is that would be your normal response to think about how we got from point A to point B in the processes and the quality of what's made? Or would you have a different answer for that? Yeah, so I think there's a few different ways that I would think about that. One is that, yeah, if you look at like, you know, quality adjusted, you know, cost of a car, right? Like inflation adjusted, but adjusting for quality or whatever. And quality adjustments are like really, really fraught, right? So you have to be like - They're tough to test too. Careful here. Very subjective. But if you like, look at like these like quality adjustment, you know, inflation and like automobile costs, they haven't, costs have not like risen that much.

56:28It's much, it's originally like much, much level lower than the level of like overall inflation. So like in some quality adjusted sense, according to the Bureau of Labor Statistics or whatever, you know, cars have continued to kind of get cheaper. And yeah, if you took like a Model T that cost 10 ,000 and, you know, another, you know, a Tesla or whatever that cost 40 ,000, it's like night and day difference, right? Yeah, that's what I was thinking too. Substantially, substantially cheaper. um but i think we're also able to make you know as a civilization pretty good cars for like you know ten thousand dollars basically so i think those sort of process improvements and product improvements have you know for while continuing to improve efficiency have have kind of maybe continued to accrue sure i think a lot of the chinese electric cars i was gonna say byd is what came to mind yeah or maybe not that much you know more than ten thousand dollars and as i understand it a lot of these are like fairly high quality so yeah it's not obvious that you're not actually seeing continued improvements here yeah i was i was abroad for work and i can't i i just kept getting into byd cars and we we sat there thinking like these are not that bad i mean at all um and maybe not dissimilar way to where you know americans might have looked at kias when they first showed up in the United States where it's like, Hey, this is getting me point A to point B.

57:53All right. So I know you've talked with others about this, but I got to ask this. I'm just in full disclosure, we own three of the US home builders. So we think about this a lot. But you late in your book, in the final kind of parting chapter, you talk about housing. And you talk about, you know, what I'll call some of the problems of housing from a progress and process and kind of the evolution of the technology around that. And you mentioned something that I totally agree with, and I love that you mentioned it. What is the biggest cost in housing? Like as a single factor, what would you say that to our audience?

58:30Yeah, so the biggest cost is like the, you know, what's called the hard cost of construction is like the physical cost of like, just putting up this house. And this is for new housing. Sure, so just the labor of it. Yeah, well, so I would, you know, So there's basically two, you can kind of split that into two buckets. So like the hard costs are like half of it is kind of like, yeah, labor, just like, you know, paying guys to put it up. And then the other half is like building materials. So for a new single family home and like a given suburb in the U.S. or whatever, you can, you know, roughly 20 % of the cost is land.

59:03Roughly 20 % of the cost is like other development costs. Roughly 60 % of the cost is hard costs. And of that 60, about half is labor and about half as materials. Sure. So yeah, but one of the biggest buckets is the labor of putting it up.

59:44Or better yet, reach out at SmeadCap.com. And don't forget to mention your fan of the podcast. Past performance is not indicative of future results. Investing involves risks, including loss of principle. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges, and expenses. Read and consider it carefully before investing. Smead Funds Distributed by Smead Funds Distributors, LLC, not affiliated. you mentioned so uh use sweden sweden has manufactured housing and like you pointed out it sounds like you know there's a lot of people that will come and say oh manufactured housing if we could do this you know modularly it'd be so much cheaper and i think you mentioned in sweden's case they do have modular housing it's more expensive than the normal process or at least in the united states context i think the other example you gave was toyota toyota has a housing business.

1:00:39It was at Toyota Housing Corporation or something like that. Yeah, Toyota Home. Yeah, Toyota Home. And you mentioned that their per square foot cost is twice as high as the U.S. home builders. Yeah, it's very interesting. And this is, you know, as I said, my background is in construction. I, you know, spent a lot of time in the construction industry and working at places that, you know, trying to sort of make, you know, this prefabricated construction happen. And, you know, I developed some sort of complex thoughts on the matter. But yeah, this is sort of what kind of led me down this path is that it's very hard to use this prefabricated, which is building stuff in a factory and then delivering it to the job site, construction to sort of reliably reduce the cost of building a house or building anything.

1:01:32Yeah, Sweden is kind of an example that I point to. and people come back and say, well, their houses are higher quality in various ways, which for all I know is true. I have no, often sort of Europeans or European, they have maybe different building codes. Oftentimes they're more like stringent energy efficiency wise or whatever. It could certainly be, I have no, it wouldn't surprise me if that were the case. But I think that's kind of, people, that's not what the expectation is for like this prefab construction, right? The expectation is if you build it in a factory, it'll be like higher quality, but also way cheaper, right?

1:02:05The Ford wasn't transformative because it was like more expensive than building stuff by hand, but like a nicer car. It was transformative because it was like a very, very high quality car and incredibly inexpensive, right? And then, yeah, Toyota is kind of the same thing. They actually started their home building company specifically with the goal of, we're going to take all our manufacturing expertise, all that we've learned and like apply it to this other industry where we think we can like be quite successful. And prefab construction is sort of generically quite popular in Japan more than it is in the U.S.

1:02:40But yeah, they have not successfully used that to sort of dramatically drive down the cost of building. And so, yeah, there are ways that you can use prefab to sort of reduce costs in kind of a limited sense. you know manufactured homes trailers in you know mobile homes in the U.S. are kind of one example of that and there are kind of other places that you know it does work and is like a cheaper option successfully but it's not it's it's not just nearly so simple as like oh you just move this thing into the factory and it is is magically cheaper there's a lot of sort of things that I was gonna say even on the even on the manufactured housing there are just odd regulations that I'm sure that you've learned about just like we have where you're like why does it have to go on a truck like that?

1:03:27And the answer is, well, because it's in the regulations of HUD, that it has to have, you know, a certain way to be trailered. And so what does everyone have to build it on? A chassis that goes on a trailer. I mean, there's stuff like that, that doesn't make any sense. And I don't think anyone would argue that that makes any sense. But again, it is the regulations. And you talk some about that in the book. The other thing too, is, as I was thinking about it, so just, again, just empirically jog with me here for a second. So I think of like United States, if someone said, Cole, when was the last time housing went up a lot?

1:03:55I'd say, well, that was 20 to 22. Housing made a really big move, you know, starting the pandemic to about two years later. And someone said, well, okay, what did labor inflation do during that same three-year period? And the answer is it went up a lot. Okay. So I find it interesting that housing is following a similar curve to labor inflation, which to your point, that's a big input on housing. And so as I was reading your book, it suddenly kind of hit me that if that if that holds true, right? If labor continues to be a dominant cost in housing, I think of housing more like a bar of gold, right?

1:04:31It can't be a SAID, but it tracks wage inflation tied to a second lieutenant or a Roman centurion over a couple thousand years. And so I think if it's going to be tied to labor inflation, it has a sense of purchasing power that won't be eroded versus to your point, if a new technology or a new paradigm for production comes about, that's where you could see costs really you know go down a lot even to your point on manufactured manufactured is actually in decline compared to 30 or 40 years ago there's less of it produced today than it was 40 years ago which is interesting that the normal good or the higher price good is actually not kept up with population in terms of percentage of population but it's kept up at a higher level than the cheaper manufactured house yeah so uh yeah that's Yeah, I am optimistic that we'll eventually, yeah, figure out ways of producing these homes with less labor and improve sort of labor productivity.

1:05:33Yeah, it is quite interesting if you look at the statistics. Like, even in terms of, like, not just, like, you know, cost of a house or whatever, but look, like, the hours of labor it takes to produce someone. Oh, yeah. It has changed, or a given square foot of house or whatever, it has changed surprisingly little for 50, 60, 70 years, something like that. I always have to tell people, you have to pay attention to the square footage because I'm sure you're aware of this. The square footage of a house is way bigger than 1970, and the bathrooms and the bedrooms is way greater. Here's another part that I always have to point out to folks in Europe, for example.

1:06:08If you look at the lowest income group in society, so the bottom 20 % of incomes, 47 % of them own houses. The most snobbish thing I ever hear from people is like, poor people don't own houses. It's just not true. So 47 % do. If you look at the average size of their home and the amenities of the poorest people in America, it's bigger than the average house in the UK. So to your point on geographical dispersion, it's better to have a house as a poor person in America from a quality of the house and size compared to the person that on average owns a home in the UK, which that just should boggle the mind.

1:06:41But to your point, just because you change geographies doesn't mean the same processes and rules apply or regulations for that matter. Yeah, it's, you know, yeah, US is, you know, famously very large houses compared to, yeah, lots of places in Europe. And yeah, you know, there's sort of other amenities. We have, we're much, we have, make much greater use of air conditioning than they do in Europe. And I'm sure there are things about European houses that are much nicer than US houses as well. I'm not an expert on it, but it certainly wouldn't surprise me. Yeah, houses in the US are quite big, but yeah, even after adjusting for that, yeah, labor productivity in producing them hasn't really improved terribly much.

1:07:29I'm optimistic that - I was just sorry, are we gonna 3D print a house? I thought that's what you were going to get to in your book is like, we'll just put a big arm out there and it will just print the house over the course of, I don't know, a week. There are companies that are trying to do that. I've, I've looked into the technology and I'm not amazingly optimistic about that. It seems like, like it doesn't, not that it seems like impossible to do it, but to like really do it well in a way that would like substantially, you know, not just doing like the, you know, the structure of the concrete or whatever, but like installing all the systems and everything in the house, you would like really require like a lot of advances in robotics beyond just like having like 3d printer part of it as well.

1:08:12Sure. So yeah, maybe we'll, we'll see that I'm not amazingly optimistic that that is going to be the transformative paradigm is that it's going to be the thing that drives down, you know, labor costs in home building. Awesome. Let's see. Before I forget, Brian, where can our listeners follow you going forward. I know we connected on X, so you're obviously present. What's your handle on X? Yeah, it's underscore Brian Potter. And I write at the newsletter, the substack, Construction Physics. So just search Construction Physics. It will be the first thing that comes up. And yeah, I have a new book out, The Origins of Efficiency, that's available where books are sold.

1:08:51Well, Brian, your book reminds me and should remind our listeners that, to your point, the devil is in the details and that business is the constant learning from running a process and fine tuning that process in minute and in some cases, large ways at times. It also reminds me that just because a process works in America, it might not play in Tokyo. If you enjoyed this podcast, go to Apple, Spotify, YouTube, or wherever you listen to a book with legs, give us a review, tell others about the books and great authors like Brian Potter that we have the opportunity to understand and study the world with and through.

1:09:26For our tribe, if you have a great book that you'd like to recommend, email podcast at smeedcap.com. That's podcast at smeedcap.com. You can also send your suggestions to us on X. Our handle is at smeedcap. Thank you for joining us for A Book With Legs podcast. We look forward to the next episode. Thank you for listening to A Book With Legs, a podcast brought to you by Smeed Capital Management. The material provided in this podcast is for informational use only and should not be construed as investment advice. You can learn more about Smeet Capital Management and its products at SmeetCap.com or by calling your financial advisor.