Patrick McKenzie - How a Discord Server Saved Thousands of Lives

27:21And again, like the successful project plan was made by a bunch of like rank amateurs at this topic on discord in the course of a couple of hours. And similarly, like they're, you know, this is like one part of the huge overall vaccination But you could imagine going to Amazon and saying, like, hey, Amazon, we hear you're pretty good about getting packages between A and B. This package has a really hard thing about it. It has to be cool as it's delivered. That's like a totally unsolved problem in material science, right? And Amazon would say, we literally do that every day. Back in December, people were getting on the night in the news and saying, this is going to be an unprecedented logistics challenge because the vaccine has to be kept at ultra low temperatures, which are the same temperatures at which milk is transported.

28:11We understand how to do cold chain logistics. So Amazon would correct that misperception. They say, oh, you guys seem to know what you're doing. We have an absence of that here. Congratulations, here's your kernel uniform in the United States military. And now your job is we are going to give you a CSV file every day, interface with this other kernel, please, from Google, on like where this thing needs to go. And you get it there on time every time. And if you can't get it there on time every time, like call the White House. And we will like find you political cover. Is what a functioning system would have done?

28:42I'm granted the American system is dysfunctional in its own way. I think another thing that's been underdone in the course of the last couple of years is like looking internationally. I don't know if any country anywhere with vastly different political systems is happy with the outcomes that it got. Some were obviously vastly better than others, but there are journals of like comparative international national politics and why are those journals writing amazing? But like who succeeded at what margins and who did not and what do we learn about like the proper functioning of political system civil society and like the United States consider it as one like hugely complex machine.

29:16No, that's a really interesting point. I actually asked Tony Blair to Tony Blair Institute. They were recommending to the British government different ways of distributing the vaccine and they made the obvious recommendation that that you should give everybody one dose now and then do the second dose later. You know, obviously things like this which would save lives. Any British government didn't do a good job there. No government, I think it's actually a very interesting question. There's governments all across the world which have very different political systems. They have, hopefully, I don't know, different infrastructure radio and mix of this.

29:48Why didn't nobody get this right? So on the, like, give people the catcher race for this was first dose is first. Yeah. That was not the procedure in many nations which have many smart people in them. Yeah. And it was not the procedure in the United States until I think, you know, first doses first, you can like sometimes trace policy back to individual blog posts. And so to the extent that one can be traced, I think it was Alex Tabarok on Martial Revolution, who is right. This is very obvious and over determined. If we want to win at this, like first dose is first is objectively the correct policy.

30:21And after this ping ponged around the political system for a while and they talked to medical experts and etc. they were like, yeah, yeah, it turns out that this is the equivalent of saying you should probably consume calories at some point in the typical week. That is better than not consuming calories. Well, we checked with the medical experts and it took six weeks of meeting, but they definitely agree, beating. Beats not eating for living. So we're gonna do that now. And on the one hand, like it is a genuine strength of the United States that like, you know, he's not just actually some rando, but relative to like the topic in question, some rando on the internet, like wrote up a 2 ,000 word blog post and we stopped doing stupid things.

31:10We could have stopped doing the stupid things sooner. Yeah. Oh, but I that is an answer to the question of why did like nobody got a right? If you think there's something particular to the late stage bureaucracy that we have or something, maybe another country's fresher, but even the countries that have more authoritarian models who can just you know crack down or something, they did abysmally as well. They made errors often in many cases that were worse in America's. There's like so many countries in Patrick. Why didn't none of them get a right? I'm under informed on much of the the international comparison partly because in 2021 I was sort of busy.

31:46But I remember Israel for a variety of institutional reasons having a broadly functional response on this, in particular around end of the day shots, which end of the day shots are in the grand scheme of things a minor issue, but they're a good like quick heuristic for, do you have good epistemic examis at all. Okay, you know, physical reality of the COVID shots is there is a five or eight or ten shots in a single file. That single file is, uh, goes bad after 12 hours. That is a bit of an over simplification. It doesn't actually go bad, but for, for, essentially regulatory reasons, we have to pretend it goes bad after 12 hours.

32:28It can't be received. Okay, so if you vaccinate two people, then the other shots are on a timer, and those shots will decrease in value to zero after how many hours are remaining on the timer and then get thrown in the trash can. So, quick question to test if you are a rational human being. At the margin, would you prefer giving a shot to the most preferred patient in your queue of patients who needs the firm medical needs? Or like the trash can, you prefer the most preferred patient. Now, follow up question. Would you prefer giving it to the least preferred patient or the trash can? you still give it to the human rather than the trash can.

33:08And Israel adopted the policy of like, if the shots are expiring, forget the tearing system, forget anything else, literally walk out into the street and say, I've got the COVID shot, I need to administer it in the next 15 minutes, who wants it. And in the United States, we had a policy ban on doing that. We said, no, to protect the integrity of the tearing system, to like, you know, embrace our glorious cause of health equity, you should throw that shot out. And that policy was stupid. And it was announced by governors proudly in December in front of news cameras. And then a couple of weeks later, reality set in, and they were like, people told them, sps, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, ss, turns out that throwing out the vaccine is stupid.

33:56And the governor did not go on the nightly news again and say, I gave a very confident policy speech a month ago in front of this news camera, where I said that I would prosecute anyone who gives out end of day shots. But he literally said that. He said that. He literally said that. This is almost a direct quote, and you can see the actual direct quote in my previous writing on this, but I will not just prosecute people. I will go aggressively to try to maximize the reputational impact to your firms and your licenses. Yeah. Like, we were pointing metaphorical and when it came down to it, literal guns at physicians in the middle of a pandemic for doing unauthorized medical care.

34:38Crazy. But when the system corrected, it did not correct all the way. The governor did not go out and say, hey, that thing I said a month ago was effing insane. I take that back and apologize. It was like, okay, we're going to like quietly pass out the words. that's no longer the policy, but we don't want to own up to the mistake. And people in say, like, the regulatory departments of pharmacies make rational decisions based on the signals that you're giving them. And the rational decision of pharmacy makes is not, okay, we've been quietly past the word that the old policy is persona and grata.

35:13But can we really trust the quiet word here? One, because like, do we trust that this actor is not going to change their mind in two weeks and consequence us for something we authorize today, just throw out the shots. And pharmacies did not cover themselves in glory. A lot of pharmacists did. Some pharmacists did. But pharmacies, like institutionally, we deliver almost all the medications for almost all the diseases routinely in America. We cannot blow up either that, like, position of societal trust or our business results over one drug for one disease. And so throw throw out the shots and make sure we can still delivering medical care in California tomorrow.

35:55That I understand how that decision was made. We should not endorse that decision. There were individual acts of heroism by particular pharmacists who said essentially, and as many words to us, when we called them and said, hey, what's the procedure for getting the shot? Okay, an individual like the one you just described cannot formally get the shot right now. So I would tell that individual to go to the county website, tell whatever lies are necessary to get an appointment with me. They come in for an appointment and I will inject them rather than verifying the lies that were on the appointment card because basically F -thruals, I swore a note.

36:34I honestly, I don't know where to begin with some of these things. Okay, I want to understand And a bunch of the first of all, can we just go back to 25 % of the vaccines that were allocated to California were actually delivered in people's arms? Literally the entire world economy. What's bottlenecked on this, right? It's like, so if you want another funny anecdote, then ask some people in positions that might know. So how real do you think that 25 % number is? And they said, well, the good news is, in addition to being incompetent at delivering the vaccine, we're also incompetent and counting.

37:09So it was probably a bit of an undercount. I'm like, oh, so the good news is like the true count was like 100 % or 95 % or something. Well, no, not nearly close to that. But we got better at counting after the governor yelled at us because it was embarrassed. We were the 48th state nation. Counting the item, which is the bottle, like where is the thing that is going to rescue us from the thing that is destroying the world? We had, so like pharmacies, generally speaking, could today, if you ask someone deep in the the balls of pharmacies accounting department. Could you buy the end of the business today, give us a count of how many bottles of aspirin the pharmacy has physically in the world?

37:43By the end of the day, they would have a shockingly accurate number for that. It wouldn't be exact, but it would be shockingly accurate relative to that number is like truly millions. If you say like, break down by address please, like where are they physically present in the world? Yeah, easy problem. You know, like managing inventories of drugs, that's what we do. The United States could not do that. Like, and did not perceive that to be an urgent problem to be soft. I mean, I do want to ask you the actual finance and software stuff at some point, but I think this is like such an important, I mean, the world is watch or stand still, we still haven't learned the lessons, so I'm just going to keep going on this topic, because I still don't understand the...

38:18Okay, so here's another question that's sort of related to this. You have many rich tech industry friends, and I read your article and you're saying, we're trying, I'm filling out these grants for 50k her, and that's like taking up all my time, and I'm trying to raise a couple hundred grand here, a couple tens here. And I'm thinking to myself, how is this not as trivial a problem as, hey, XYZ, if you give me a money that you can find between your couch cushions, we will save thousands of lives and get the world economy back on track. How was raising money for this hard? Or why was it hard? So again, like trillions of dollars are on the line.

38:56The United States is spending tens of billions of dollars or more on its COVID response strategy. The true biggest issue is why is it coming down to Patrick McKenzie's ability to fund raise in the tech industry for us to campus system here? Okay, bracketing that. The tech industry underperformed my expectations for what the tech industry should have accomplished here. There were some bright spots and less bright spots regarding the fundraising project. For those of you who don't know, the total budget of this project was $1 .2 million, which which is not quite couch cushion money, but is not large relative to the total amount of resources that the tech industry can deploy on problems.

39:31And in some cases, I looked at my email this morning to refresh my memory. I sent a CEO at a particular company, and I'm not going to name people, but they're welcome with claim credit if they want to claim credit. A email they see you at a particular company, hey, I saw you like to tweet about the Sun Twitter. I'm essentially raising a seed round, except for a 501c3 charity. and we urgently need money for this. Here's a two page memo. And I sent that email at 4 .30pm, and 4 .30pm, California time. And he got back to me. There was some internally emails of like routers to this person, routed to this person.

40:08He run that by blah, blah, blah. 9 .30 the next morning, he said, I'm personally in for $100 ,000 out of my own pocket. My banker is going to contact you as a wire clerk the same day. So yay for that. But on the like yes, less EA side like tech is not exactly a stranger to having bureaucracies. And in some cases, it was a matter of like, oh, indictatively, we want to support that, but we have a process and that process went on for six weeks. And by the time six weeks was over, it was May and not to the credit of funders by May. Most people in the professional managerial class who had prioritized getting a vaccine for themselves and their loved ones had succeeded at that.

40:47And they said, okay, so the vaccination supply problem pretty much solved, right? I'm like, no, it is not solved right now. It is solved for the people who are smartest about working in the system in a way it was not solved for even them back in January. But there are many people who are not yet vaccinated and they say that's a vaccine hesitancy issue. No, it is not merely a vaccine hesitancy issue. It is still the case that there are logistical problems. It is still the case that people don't know that you can just Google the vaccine now. It is still the case that around the edges of the American medical system in places that are like underserved, etc People don't have it or they can't get transportation etc You should continue funding this team for the next couple months so that we can do what we can around the edges here and I was told again, you know People can do what they want with their own money and I understand that charitable founders funders rather have of many things.

41:39It's just like, okay, relative to the other places we can put money to work in the world. Further investment in the American vaccine supply situation as of May and looking forward, it doesn't make sense for us. Could you do it in another nation? And we said, okay, we're the American effort. We have some advantages here. We would not have them in the other nation. We did talk to people there. We tried to see if we could help a team there or go over there, et cetera. but we don't see that there's a path to positively impacting the problem there. In a way, there's manifestly a path to positive impact here.

42:14And we lost that argument. We didn't get the money. The last $100 ,000 in was my daughter's college education fund. Oh, my God. Okay. Look, I agree that it shouldn't be up to tech to solve this huge society -wide problem. But given that nobody also solving it, I still don't understand. And have you gone back to any of them or have any of them reflected on? Yeah, maybe I should have just, you know, wrote you a million dollar check and saved you all this hassle so you could have got back to business. So, you know, ultimately I'm the CEO, like responsibility for fundraising lies with me. And so, like, I thought any number of things about how could I have done that better?

42:53How could I have strategized that, you know, I did not stop fundraising efforts, but I stopped lighting up new conversations for a number of weeks because I thought, okay, we've We've got the $2 million that we need to run this till the end of August. And that's my internal target for the point at which it doesn't quite stop being useful, but it starts actually being a question down the margins where it's not the question until the end of August. So could I have done better, probably, some of the folks in the broader effective altruist community? I'm not a member, but I've read a lot of stuff that they have written over the years, and I probably consider them positive.

43:29They are the four cause of Faxon HCA, but I ask about that in a moment. But some EA funders talked to me after my piece about it to come out and said, this is physically painful to read. We wrote bigger checks with less consideration to projects that had far less incentive success. Why didn't you just ask us for money? And like the answer there was twofold. One, I thought I had high quality introductions and a high quality personal network to people who were likely already going to fund it. And so I didn't light up additional funding sources. And two, this is a true answer. I'm a flawed human who has a limited number of cycles in their day and was running a very, very complex operation.

44:08And it literally didn't occur to me. Hey, maybe those people that have been making a lot of noise about writing a lot of money for pandemic checks would be willing to write a pandemic check, which that was not entirely an international belief for me because I had reached out to people who were making a lot of noise about writing money for pandemic checks. And they said, not in the United States, not in May. And I thought, oh well, if I light up a conversation totally cold with someone now, it's likely to just get a know again I should try to like scream and say and break the piggy bank for my daughter's college education fund Which by the way, she'll go to college folks know worries, but it's a like how far down the list of like Planet a plan B plan C we were down to like plan C at that point I'm just to be clear.

44:50I'm definitely not blaming you It goes back to the Copenhagen, but I should entertain me a little bit because I should be rigorous about my performance. I think you go back to the commission versus omission. It's like the exact same reason that we shouldn't have blamed Google if they got involved. I did that themselves and maybe made a mistake. I said, come on. To remove the bottleneck that was basically stopping all global economic activity and causing millions of debts, you had to, for the action you were taking about it, take money on your work, Daughter's College Fund. It's so insane. And so can I say this in like, there's a positive takeaway here.

45:32So there actually is a positive takeaway in that there is one tiny actor who understands that he is unitary control over some decisions, who is capable of like betting boldly on those without a huge amount of process when it is important to bet boldly on things. Not to shoot my own horn here, this is literally what happens. So like on the first day, We're getting in discord together and there's a bunch of infrastructure where we have to sign up. We have to get hosting the adiada adiada. And there's a annoying mechanical step at this point where it's like you have to put down a credit card for potentially unbounded expense.

46:05And people were like, okay, there's a list of things that we want to do. But since there is no money here, I'll take this one and you take this one and after I heard this conversation go on for two minutes, I said, this is not a conversation we should be having. Here is a debit card for my business which I've just spun up on the back end because this is literally my job which has $10 ,000 on it. Spend the $10 ,000 on anything that accelerates this project. There is no approval process. Don't get a receipt. Don't worry about the paperwork right now. Why did I do that? We were doing things like, well, there's a scrape, the information about where hospitals exist and what their phone numbers are.

46:45It's probably scrapeable from the internet for free or we could buy a commercial database. But but amount of money, it's like $2 ,000. I'm like relative to the importance of this project, $2 ,000 is a trivial amount of money. Just spend the $2 ,000 immediately rather than spending like four hours writing a scraper. And we don't think about that in government procurement and in charities. We have some sacred virtues about like, you must minimize waste, you must minimize opportunities for corruption, you must maximize for like the funders of the charities for their, and like, you know, line item, uh, uh, support individual things, the charity spies.

47:23And those sacred virtues conflict with winning. And at the margins with the, where they conflict, we should choose winning. We should choose human lives over reducing corruption. Like, uh, and one of the few things we were reflecting on is the, uh, the tremendous amount of waste and fraud that happened in the, uh, like PPP loans and other Corona stimulus things. Okay, I'm not just saying this to be contrary in folks. We should be glad there was waste in COVID stimulus. If there was no waste, we were clearly not choosing the right margin to focus our efforts on. So, by the way, for the people who don't have contacts on how much money typically goes around in Silicon Valley, they think, oh, 1 .4 million, how hard should that be to raise, if you right now given your reputation, like literally treated out, I'm not gonna tell you my idea, but I'm raising $50 million seed round or something, I would be like, that's gonna get filled.

48:23And I think people don't understand, like I have like friends who are 16 years old, who have some GBT wrapper, and they like, they don't have to worry twice about raising $1 .4 million. Not trying to brag folks just telling you like three -quality of Silicon Valley, and also the reality that it put in the document. I misapplied the, like, I have some knowledge of how seed funding would work if I attempted to raise seed funding for a for -profit company. And I thought originally, like, we're probably going to be charitable, but I'm going to pitch this to people as essentially, like, a seed investment, which they expect to, like, spend all the money as quickly as possible and go to zero while driving the total addressable market of the company to zero.

49:03But I'm bomb, this is what passes for humor with me. And so I told folks pretty confidently in the first couple of days, I'm pretty sure I can get us $8 million. And then like was actually able to deliver on 1 .2 after far more tooth pulling. But like, yeah, descriptively, if I was asking for a seed, seed stage investment, if I wanted to get $8 million, why would I buy tomorrow? I think I could probably do that. And that is a civilization and advocacy because like can literally get $8 million for a blank check for something that has a profit motive behind it. But if I write on the check, hey, we want to fix the manifest and ability of the United States to figure out where the COVID files are, that blank paper becomes less valuable by the fact of writing that.

49:45So maybe on reflection, I just shouldn't have told people and said, oh, the blank check company was this thing and a Warmigade 510C3, which some ethics issues in that, but the ethics issues are less bad than allowing people to die. Okay, so the last episode I released, at least while we're recording this, was about within AI, a former AI researcher who thinks that the field is progressing in such a way that you will need to nationalize the research in order to protect American national security. And when I hear this about the inability of the government to keep track of vials of COVID vaccines or to get them in people's arms, should for any other emergency that we might be worried about, whether AI, I don't know, the fallout of a nuclear war or something, should we just discount any government response to zero and then just if your plan requires some sort of competent administration by the government discounted to zero, it has to be something on the side.

50:55So discounted to zero is like the opposite of wisdom here because we did to accomplish zero. We accomplished a Extremely impressive thing in aggregate which vastly underperformed like the the true thing that we were capable of and so have to keep both the both of those parts of the equation in our minds at the same time I Think that people in tech need to become radically more skilled than interfacing with government To the extent that it is you know, we have some manifest competency issues in government right now We can't simply sit out here and gripe about the sun podcast and et cetera, et cetera.

51:31We've got to go out and do something about it. And there was a, I think it's been reported that there was a meeting among tech leaders early in the vaccination effort where a bunch of people got in the room, like this is going terribly out, someone fixes it. And I hope someone fixes it is no longer realistic alternative. I think we have to be part of that solution there. And partly it's like having, you know, higher fidelity models for how Washington works than simply, oh, they're bad at everything. And like, it is important to understand that the government has some manifest competence issues.

52:05It's also important when working with the government to understand, like telling the government to its face, you have manifest competence issues is not the maximally effective way to keep getting invited to the meetings. I was very religious about not criticizing anything about this California response effort in 2021 because we needed to be in the room where it happens. And you know, that was a choice made. And I'm 100 % happy with that choice. No, but we we kept some relationships that we really needed. The and I'm not saying don't criticize the government obviously, but be strategic about the sort of things like play like you were attempting to win the game.

52:42And you know, on the government side, one like dispelling the massive hug field that surrounds software. This is going to be a part of the future, whether you're in Lycan or not, we need to go to edit. We can no longer accept incompetence at this, as the routine standard of practice in Washington to, you know, it is enormously to the United States credit that we have an extremely functional, extremely capable tech industry.

53:09Maybe we shouldn't treat it like the enemy. Putting that out there. Again, this is the thing the United States has done before. Or there are laws in place, there are decades of practice. We could put a kernel uniform on somebody. Think seriously about doing that next time. Do I think we have institutionally absorbed all the correct lessons from this?

53:35No, when I see after action reports, the after action reports praise a lot of the things that people think are very important for maintaining their political coalition, which were either not productive or anti -productive. And they failed to identify things that were the true issues. And to the extent that they identify things that were the true issues, the sort of recommended action is, well, I hope someone fixes this next time. And there's no longer sufficient. Like the default case is that the ball will be dropped. And goodness, those of us who are involved in an accidentate CA, kind of dread what we call the pet signal, where God willing there will not be another worldwide pandemic killing millions of people as long as we live.

54:20If there is one, we know what numbers detects to get the band back together. Society should not rely on us as Plane. How did this happen? I mean, the point about gripping a podcast, that's, that's definitely what I'm doing. But I just, maybe you're, um, to humble to say this yourself, but I do want to commend you for there are very few people, I think, who kind of, you, you tweeted it out. There are probably other projects that other people could have taken up that are not taken up. In this case, you tweeted it out. You saw that there was a thing that could be done and you did it. You quit your job and you did this full time.

55:06The reason you had to divin to your kid's college fund was because somebody who had promised a donation didn't follow up on it. Effectively every time that we had a verbal green light with regards to money, I would advance the companies that charity, charities are companies by the way, folks. I don't know if that is obvious. It was called the shots incorporated. So I would advance, call the shots, the money that was sort of soft committed before the money would actually arrive in the bank. And the theory that like this accelerates our impact, we should always choose acceleration over other things, like say minimize and credit risk.

55:44And then some of the people who had like soft committed did not actually end up wiring money at the end of the day. And I was like, oh shoot, well, you know, choices now are either don't run the last payroll or do run the last payroll. And do not recover the money I've advanced company. Well, okay, do run the last payroll. Would you end up recovering it in the end? No, and being a donation from me personally to the effort. What the fuck? That is the least important part of the story folks. Sure, but overall, I'm just like, like Kudos isn't obviously enough to commend, to convey what I mean to say here, but like, I mean, yeah, I'm glad you did that.

56:28And I'm grateful, like, for a figure of analyze, it's just like, it's hard to sort of plot that on a graph and make sense of what that means. But if I can be pretty explicit about it, you know, to the extent Kudos are deserved to anyone, you know, Carl Yang for taking up the torch and finding like 10 people in tech industry who would jump into something at nine o 'clock, those 10 people at the other board members, the hundreds of volunteers, the team of about 12 people worked out a full time for very full definitions of full time, virtually ceaseless for five, six months. And there were other projects in civil society, there were many people doing this as their day jobs.

57:05Like the American response effort is not one like small group of people anywhere. It's the collection of all these things bouncing off of each other. And I think like, you know, I'm happy about our individual impact. I'm happy that if you like descriptively speaking, if you googled for the vaccine at any point, like vaccine near me, after a certain day, you know, before a certain day, there was no answer. After that day, there was an answer, that answer came from us. A little satisfied that that didn't come from like people with, you know, the vast little immorability to have caused that to happen much earlier.

57:36But like, the ultimate takeaway is not about this, you know, little tiny piece of the puzzle, it's how can we make the total puzzle better next time? Yeah. So as you can tell by now, patio 11 is somebody who loves digging into the weeds of how the financial system actually works. And so it goes to figure that he used to work for this episode sponsor Stripe. Stripe is how millions of businesses around the world move money and accept payments. And one of the advantages of Stripe scale is they can invest in fractional optimizations, which are not viable for individual businesses, but add up to massive revenue and conversion increases.

58:17For example, last year, Stripe Shave 300 milliseconds off the render time for its payment links. You can think of Stripe as an entire company full of patio elevenths dedicated to making sure they can figure out how to make the payment reels work smoothly for you. And that's why technology companies like Amazon and OpenAI and even traditional companies like Ford and Hertz choose to partner with Stripe. Now back to my conversation with former Stripe Patrick McKenzie. Okay, let's talk about some finance. So you've right in addition to saving thousands of lives through Exxon ATA, what you've been doing over the last year or two is writing this finance newsletter, which is very excellent called, that's about money.

59:00And you explore the plumbing in the financial system. My first question about this crypto at its peak was worth $3 trillion or something like that. If you buy the crypto skeptic perspective that you have, how do we think about this number? What is it represent? Was it just the redistribution of wealth from savvy people or from doops to savvy people or to the extent that the use of applications didn't come out as $3 trillion? What is the represent? So, I think I have two broad perspectives on this. One, people often treat the market cap of something and it's like implicitly that some sort of cost on society.

59:35And I think the true cost of society of crypto has been that anytime one engages in attempting to do a productive enterprise. Some actor in society has said, OK, I will stake you with some of society's resources, which these resources are rival risk. They cannot be applied to any other thing society needs in the hope that you will produce something that is worthy of being staked with this. How much if we spent on crypto now on trading tokens around, but on building infrastructure and spending rival versus resources that we can't get back, whether that's GPUs or ASICs or electricity that could have gone to other things in China but went into mining or the time of talented and intelligent people that could have been building other software products, but was instead building crypto.

1:00:17That number is in the tens of billions or hundreds of billions of dollars. What do we have to show for that tens of billions or hundreds of billions of dollars? I am very cryptoskeptical and I could give you an answer to that question. I think crypto like fans would not like to hear it from me. So I prefer Videlic Booterance articulation of this question from 2017. He asked at the time it was 0 .5 trillion. Trilvill number, $500 billion market cap. He said, have we, and I'm paraphrasing a tweet thread, have we truly earned this number? How many of the unbank have we actually banked? How many distributed applications have a meaningful amount of value doing something which is meaningful?

1:00:56And he has about six other meditations on this. And I think, you know, like, crypto folks certainly aren't accountable to me. In some way, you're not even accountable to Buddha, and even though he's, you know, clearly like a leading intellectual in the community, you're accountable to like producing positive value in the world. But like, what is the answer to you Booter in 2024. How many of the unbanked have we truly banked? What is the best use case for crypto right now? Once crypto has a responsive answer for that that decides anything like proportionate to the hundreds of billions of dollars, tens of billions or hundreds of billions of dollars of resources that we've staked crypto with, I think crypto people should feel enormously proud of that accomplishment in some future where it hypothetically arrives.

1:01:43And in some future where that hypothetically arrives, you have my sword. I will love your initiative. However, for the last many years, we have been saying, you can still get in early, you can still get in early, you can still get in early because the value has not arrived yet. And so that is my capsule summary and crypto for 14 years in. We've staked a group of talented people who are very good at giving a sales pitch with tens of billions or hundreds of billions of dollars. and look at what we have built.

1:02:19This would be a failure in any other tech company. So capital F failure. So either like radically pivot and unfail it, or maybe we should stop continuing to stake you with money. So two potential responses from the crypto -optimistic perspective. One, I have people who helped me with a podcast who are around the world, not that many, but like the couple I have around the world, I have a clip editor in Argentina, I have a short -sadrider in Sri Lanka. And all of these people have asked me, I haven't prompted them, I ask them, how should I pay you? And they say USDC. And so maybe there, it wouldn't be that much harder for them to set up a wise account, But I think it's notable that all of them preferred the just how should I how should I get paid the first answer is a stable coin Absolutely that is evidence.

1:03:14Yeah, and you know like some tech savvy people have a good payment rail And well they have a payment rail that they did not have access to 15 years ago But like at the cost of tens or hundreds of billions of dollars You know like counterfactually if one had thought like okay, we really want to work on that payment rail specifically Another way one could hypothetically have deployed $10 billion is the best funded lobbying campaign in history in the United States to work on AML and KYC regulation to allow more easy transfers to money worldwide. But why does it have to be compared against the best possible kind of factual use case?

1:03:49It's a sense of commission versus omission again. It's like on margin, it makes things better. Don't judge it by like hypothetical rules, just like keep in mind that hypothetical world might exist. that's judging by the actual realized utility at the moment relative to the amount of resources considered. The second point is, if you look at, for example, the dot com bubble, literally close to a trillion dollars were invested in laying out the fiber in the cable for this artifact that now you consider as the most valuable, it's a thing that humanity has built. And at the time, reasonably people, a lot of the companies that built this went bust.

1:04:22There was a bubble like dynamic where many investors who spent the capital to build out this infrastructure or weren't paid back, didn't see immediate use cases from what they'd built. And they had just, the bubble had sort of served as a shelling point to then in the future, get things rolling. And that was hundreds of billions of dollars, a trillion dollars. Ten of billions of dollars, if in the future something cool comes out of it and it's a useful use case. That's probably worth it, right? Cool. At what point do we get to say that didn't happen? A trillion dollars? Like at what date in the future do we judge?

1:04:54Oh, I see it here. Someone has been right or someone has been not with respect to. We have created like, you know, people in crypto have very confidently stated in various places that this is the next iteration of the internet. This is, you know, we'll revolutionize the world, not just how payments are conducted, but it will be like a fundamentally new computing architecture. Okay. Like at what day do we compare notes on whether that claim was accurate or not? This 2030 seem like a reasonable year or too far. It seems like reasonable to me. Can I make a prediction of what is said in 2030? Uh -huh.

1:05:24you can still be early. Crypto has created huge amounts of things, but it's not achieved anywhere near its true potential. Please invest our new crypto star. And let's shift back in 2030 folks. Please, tweet me if I'm wrong in 2030. I will happily eat crow. I wanna eat crow. Crypto people are like, how couldn't you be interested in programmable money? I'm interested in programmable money. Obviously, money is programmable money. But like my friends who were trying to sell me on this since like 2010 weren't wrong, which should like totally smash my interest based on what I usually find like intellectually edifying.

1:06:03And I don't find crypto intellectually edifying. I actually think there are some interesting things that have come out of the movement. But like I find a computer built in Minecraft out of Redstone to be intellectually edifying. It's a wonderful like educational device for people who don't understand how a CPU works. And I'm not proposing to use the like mind stone, sorry, red stone emulated computer and Minecraft to be like the next computational infrastructure for the world because that like fairly obviously will not work very well. So another answer of what the value here is listen, we want some sort of hedge against, and I think this is actually kind of a reasonable argument.

1:06:47I actually don't buy the capabilities that have been unlocked by crypto, but I do by the argument that we want some kind of hedge against the government going crazy and Kauai C AML leading to state surveillance, all the compliance departments in the banks just like start seeing if you've been to political protest and debanking you. And it may seem unlikely, but it's good to have this alternative rail, which keeps the system honest given that there's an alternative. And if things go off the rails, this is a worthwhile investment. I mean, a couple of times, I mean, well, society as a whole can't even count that low in terms of the other resources it spends.

1:07:25So it's a good hedge against that kind of outcome. So I'm actually much more sympathetic to crypto people in this focus than they expect most people who have a traditional financial background to be. I think it is descriptively accurate that the banking system and all companies which are necessarily tightly tied to the banking system, which might be all companies. Well, let's come with a central example. So that's a concept first. Are a policy arm of the government? And I think whether people articulate that in exactly those words or not, various a little bit, but when you have your mandatory compliance training, you'll be told that no uncertain terms that you are a policy arm of the government.

1:08:06And I feel for crypto folks that say that things like this feels like, you know, warrantless search and seizures of people's information in a very undirected, dragnet fashion. And some of some of complicated thoughts about this. So the modern edifice of, know your customer, KYC and AML, anti -money laundering dates back to the BSA, Bank Secrecy Act in the United States, which was late in 1970s, early 1980s. And at the time, the federal government in the United States was like strictly rate limited and how much attention it could give to KYC and AML. And so maybe because we thought we had very limited state capacity at the time, like the government would make rational decisions, and maybe it will go after like 10 or 100 enormous white collar crooks and drug trafficking cartels a year and not surveil down to literally everyone in society.

1:08:58But the regulations we wrote and have continued, right, and have continued tight on over the years, do effectively ask for like transaction -level surveillance of every transaction that goes through a bank. And so So it is the actual practice. And this is not a conspiracy theory. I'm making nothing up folks. This is like, acknowledge that the actual practice in banks is that they have, descriptively, about as many intelligence analysts as the American intelligence community has who get this scrolling feed of alerts that are generated by automated systems. And for each alert, they either go, don't worry, don't worry, don't worry, don't worry, don't worry, don't worry millions of these alerts every day.

1:09:38And then for some tiny percentage, they say, oh dear, this one might actually have been a problem. I'm going to write a two page, two to four page memo and file it with the financial crimes enforcement network. And in all probability, no one is ever actually going to read that memo. But we have like intelligence community -sized operation running in banks to write memos that no one ever reads. Because some tiny portion of those memos will be useful to law enforcement in the future. And if you had explained that trade in like a presidential debate in the 1980s, I find it extremely unlikely that any part of the American polity would say, yeah, yeah, I want to buy that.

1:10:14Could we perhaps spend tens of billions of dollars on it? But we did that. And so to the extent I'm like extremely copacetic with crypto folks on this point, a, like this thing factually exists in the world, I agree with you that it does be in an ideal world. I don't think this thing would exist. I think I agree with you. There are very real like, you know, privacy first. And then, however, crypto has this habit and people who are good at sales have various sales pitches that they give to various people. And crypto will actors within the crypto ecosystem will talk an excellent game about privacy, as long as number goes up.

1:10:55And when you say, but you can choose between like being tied into the banking system, which is necessary for a number to go up for you, can choose privacy. They will say, excellent, I choose number go up. But there's different protocols. You can use the ones that allow privacy if you care more about privacy. So yeah, scriptively, that is a very tiny portion of crypto. Also to refine what you were saying about the analysts, that number as many as would be an intelligence agency, these apparatchics who were connected to the government's policy, just analyzing each transaction as soon as the government to get the competence to run an LLM across each of these millions of queries.

1:11:38This is like a legitimate worry because as we this is funny in the ecosystem, we have extremely low state capacity for this thing that we didn't think was important, which was successfully administering vaccines. But we do have extremely high state capacity with regards to running the security state. And if they successfully manage to get their technological dexanover in order, which there are plus and minuses there, but they have built something that are extremely impressive technologically. And then just run it on this data set that we've passively been producing. The sort of implicit ongoing invasion of privacy is much worse than we kind of baked into the system in 1980 when it would have been people going down to archives, the look of things in micro -feesh to try to do this.

1:12:24And I mean, I'm not even necessarily making a point I've re -crypto here, but I think it's worth meditating on the fact that the default path with this technology is that a very smart LLM is going to be looking at every single transaction that is electronically, aka every single transaction ever. And it's intelligent enough to sort of understand the implications how it connects to your other transactions and what's the broader activity you're doing here. And maybe this is just a broader point about how. Can we step back from crypto and finance for a moment? Sure. I think this is one of the least understood things about the tech industry, where we have this societal level question that is not being addressed directly, but it's being addressed by misunderstood proxy questions.

1:13:06On taking as written that the finance industry is a branch of government in a meaningful sense, should the tech industry also be a branch of government? And we don't ask that question directly. We have asked instead things like, should the tech industry be responsible for minimizing the spread of misinformation, etc., etc. And there was the injunction issued in court case last year on the 4th of July, which I find oddly aesthetically motivating. The court case is Missouri at all versus Biden at all, but the argument made in the court case, which the judge accepted, which is extremely well supported by the record in front of him is that various actors within the United States government pupited the tech companies and used them as cat's paws to do frankly shocking violations of constitutionally protected freedoms like the freedom of speech and that there were like not on the level of we've built this you know, unaccountable hard to inspect system of LLMs and and we started like turning off a lot of people's feeds and Facebook, but like, no, like there was an individual person in the White House who was sending out emails, like when are you gonna address behind this tweet guys, we can't have things like this anymore, et cetera, et cetera.

1:14:27Again, you know, a feature of the United States, we are very good about like keeping records and transparency and having a functioning legal system. And the record before the court is like, I was following along, this is what was happening and what was happening was much worse than I understood to be happening. An example of something like, as we were growing up as children, would you ever think that the United States federal government would tell, I believe it was the state of Missouri, hey, you have town halls where like citizens can come in and speak their mind and advocate for their policy preferences.

1:15:01And you probably have a civics class and talk about like the first amendment of things. Yeah, someone said something we don't like in a particular town hall. Take down the recording from YouTube. that happened. That is a violation of the Constitution of the United States. That is against everything in the traditions and laws and culture of the United States. That is outrageous. And yet it happened. And we have not repudiated the notion of using techist cats paws or using in some cases, this is like literally written in the decision by the way, which I would urge everyone to read. There was an individual and a non -governmental organization which was collaborating with the governmental organizations that doing this, which said, to get around, I'm not quoting exactly, to get around legal uncertainty, even very real first amendment concerns, in our ability to do this, rather than doing it in the government directly, we are outsourcing it to a bunch of college students who we have hired under the auspices of this program.

1:16:05like what? Like one, just as a dangerous professional here, you've violated the character from the wire, stringer bell. Stringerbell is dictum on the wisdom of taking notes on a criminal conspiracy. But you literally wrote that down in an email. The outrageous part is not that you wrote that down in an email. The outrageous part is you like with full knowledge of it engaged in something that is out rages like unconstitutional, immoral, illegal, and evil. To the applause of people in your social circle. And everyone involved in the story thinks that they are the good guy in it. If you write that email, you are not the good guy in the story.

1:16:52I, okay. So on that, by the way, so what is your sense of what the judicial and result of deliberations on this will be? I think there will be a limited it hang out and walk back of some particular things? And do I predict that? And probably, you know, there does exist an injunction. I predict that that continues to happen in the future.

1:17:15What do I know? I'm just a software guy, but do like people want to achieve power the tech industry, descriptively has power because it is good at achieving results in the physical world. This is certainly not going to be the last time that someone is desiring power, things like, okay, can I force you to give me the power that you have accumulated? And that is ultimately, this is fundamentally a political decision about how we construct our democracy and we should make good decisions about that. Well, I mean, maybe that's the crux here, which is that through the story you illustrated the Vaccinate CA and the lack of accountability that showed in institutions, the idea that you're going to go back to Congress and get them to pass some law that says, oh, we're KYC AML, we realize that without alums, it's going to be a bad deal with regards privacy.

1:18:05We're going to rule that back. We don't like that the collusion between tech and whoever's in power and it being able to dictate what can get taken off the platform. And that we think about that as a free speech. We're going to pass loss and take that back. There's no sense in which there's society comes to a consensus and here's the privacy concerns we have. Here's the free speech concerns we have. So at least when argument goes, the solution has to be that you just go off a rail. You start a new rail for these kinds of things that cannot be constrained in this way. And it's not a matter of just changing the KYC law or that's implausible given the manifest declining state capacity we've talked about.

1:18:45Yeah, I don't accept that that is the only thing possible for us. I don't accept that the United States and people love doing nice things. We can't accept that. We have to be optimistic about the future. Otherwise, what are we doing here? And in the tech industry, we know it is not a physical law of reality or of large institutions that one cannot make system of that work. Making systems that work as the job, we have a few existence proofs. We should increase our engagement with government on, hey, state capacity, we can help you build some of that stuff. Also, Constitution of the United States is a document we feel like kind of attached to that document.

1:19:27We understand like again, in Sanchez rule everything around us, tech industry was in early 2021 very concerned about being told in no uncertain way by people in power if you embarrass us will end you. And the one thing in the in the record, judicial record of this case is that the White House routinely White House and other government actors routinely overreached and ask the tech companies we would like you to censor this and this and this and this and the tech companies said no in a bunch of cases. So like continuing to negotiate for the right outcome rather than the one that people in power merely want is important.

1:20:11There are some things that will feel unfortunate and maybe a little bit outside of the, like our true sweet spot of what we would want to be doing on Tuesday in the tech industry where like maybe we have to ratchet up the amount of public policy on FICC that we do. Lob being as dirty word in the tech industry, it probably shouldn't be. Maybe we, you know, not just lobbying, but like when the do not embarrass us, order came down. and we're getting very quiet about the fact of feeling constrained by this. Maybe we should have spoken out more and spoken more boldly about it. Maybe when it was like the routine case that the White House was telling Facebook, Twitter, etc., etc., everyone knows the names.

1:20:58Companies like on a tweet -by -tweet communication -by -communication basis, and also with regards to broad rules that affected the entire of the citizenry of the United States and residents of the United States, and also everyone else in the world because these are the operating systems of the world. Like giving direct orders on there's a certain kind of free speech, rather there's a certain kind of speech act which we find vexatious and we would like you to stop that everywhere. Like very plausibly, should get on the nightly news and say, I received the following email from the White House that says we should stop this everywhere.

1:21:35If you point a gun at me, I will comply with this at the point of gun. That is what it will take. But it almost requires civil disobedience in the sense of if you're right about the earlier statement that in 2021, there are going to be serious political repercussions on the tech companies. So okay, so say that's right. And then they publish this email, like here's what the White House just sent me. that take it on this tweet. And now Twitter's market cap is just collapse because people realize up political implications of why Jack Dorsey just got up and said at the time. So then the solution is that you need to take up needs to basically sacrifice their capacity to business in order to, I mean, maybe that is a solution, but like that's not a story about like optimism about the ability of the US government to solve problems this way.

1:22:22You need to have a risk tolerance, right? Like we, every business everywhere, including the financial industry, including the tech industry, is like balancing various risks. And the risk tolerance was like poorly calibrated. The one can achieve results in the world by doing things like embarrassing government officials. And embarrassing a person in a position of authority is not a zero risk behavior. It is relatively low risk in the United States relative to other places. That was like extremely important for vaccinated. People thought at the beginning, are we going to get in trouble for publishing true information about vaccine availability that will embarrass the state of California?

1:23:02And I said, I have a very high confidence that no matter what we do vis the state of California, that you cannot get in serious trouble in the United States for saying true things. You know, the first amendment exists. We have like backstopping infrastructure here. And if push comes to shove, we will shove back and we will win. And this is just me as a guy who took the same civics course that everyone took and does not have a huge amount of resources relative to say the entire tech industry. Like maybe we need to have a certain amount of infinitesimal fortitude, like a okay. You've asked us to do something.

1:23:41You've threatened us with taking away all the wonderful toys and the great business models that make this an extremely lucrative area to work in and to sacrifice a value that is very important for us to continue to do that. No, we're going to fight you on this one. And the comms trained part of me is like, don't use the word fight. We were going to collaborate with stakeholders across civil society to achieve an optimal outcome balancing the multiple disparate and legitimate interests of various arms of the government and civil society and blah blah blah blah Sometimes that requires fighting we should fight when it does yeah On Tyler's podcast you said something like America doesn't have the will to have nice things and Japan does But if you think about in some ways yes If you think about Euro and I say about working as a salaryman, you're working 70 hour weeks and you're killing yourself to get that marginal adornment on the products you're making, isn't it more efficient?

1:24:41Isn't it better that we have a system where we put in 20 % of the work to get 80 % of the results? We spend the rest of the effort on, I don't know, expanding the production possibilities frontier. And it's good that we don't have the will to have nice things. We just get it done. and I don't think these trade off against each other at the relevant margins. I, you know, nothing about culture is monoclesational. Also, I don't think culture is a, like, sufficient explanation for some of the differences that are achieved in the United States versus the Japan, for example. There's a great book making common sense of Japan by a person whose name I'm looking at at the moment.

1:25:19An argument he makes in it persuasive lean out lengths, which I don't think is 100 % true, but is more true than most people in well -informed, on either side of the Pacific belief, is that when people say they do this because it is Japanese culture, what they are often saying is, you know, I usually have a model for why people do things driven by incentives. And I understand this incentive, this incentive, this incentive, this incentive, and then there's some error term in this equation that I don't understand. I'm going to call that error term culture. I think culture is a real thing in the world to be clear.

1:25:51But I often think that we that we reach for that error term, far faster than we should. So as my minor observation about culture, with respect to, you know, there are places and pockets of the United States that have the will to have nice things. And often they discover sometimes, surprisingly, the only thing you need to do nice things at the relevant margin without spending more money, without having people like kill themselves over 90 hour weeks for the entirety of the career, you can just choose to have nice things. Let's choose to have nice things. Let's not be embarrassed about choosing to have nice things.

1:26:25So you understand all this financial plumbing. If you were an investigative reporter, what is the thing you're looking at that the average reporter at some newspaper wouldn't know to look at to investigate a person or company or government institution? I have an enthusiasm for the minutia of banking procedure in a way that few people have enthusiasm for the minutia. Sometimes banking procedure causes like physically observable facts to emanate into the world. And if you know that those facts are going to emanate, then like you can have a claim made about a past state of the world. I did this thing or I did not do this thing.

1:27:00And that claim will, if it is true, cause metadata and other places, and you can look for the metadata. This is actually how a lot of frauds are discovered because the fraud is fun. Fun, like basically the definition of fraud is you're telling someone a story. The story alleges the fact about the world. The story is not true and you're using the story to extract value from them. Most frauds will allege facts about the physical world. As the physical world gets more and more mediated by computers as it gets increasingly started between different institutions. There will often be institutions who are not under control of the fraudster who have of information available to them, which will very dispositively answer the question of whether the alleged fact happened or not.

1:27:50And as a reporter, understanding how institutions and society interact with each other and the physical reality of, OK, if this thing happens as alleged, then these papers will be filed. Then these API calls will be made, et cetera, et cetera. And then doing the core job of reporting and finding people at the institutions will tell you the truth. As an example of this, Mt. Gawks many years ago was insolvent, and that fact was widely rumored but not reported. Presumably because the global financial news industry didn't find it convenient to have someone call into the Japanese banking system, ask the right questions in the right way.

1:28:35The CEO of Mt. Cox alleged on Bitcoin talk that the reason that they were not able to make outgoing wires was because they had a cause to distribute it to an Isle of Service attack on their bank's ability to send foreign currency wires. That bank was Misoho. Misoho was the second largest bank in Japan. Many people at say, well, regarded financial reporting institutions in New York City find it incredibly exotic and difficult and maybe in some ways kind of unknowable to extract facts from Misaho, which there are addresses, FedEx will deliver letters to them, they have phone lines. We also have facts machines.

1:29:21We love our facts machines. Like, could you sign the facts to anybody but he had me so whole and say, hey, quick question. Are you sending wires today? And me so would receive the facts, get it kind of quizzically and say, in response to your facts earlier, yes, we are still sending wires because we are the second largest bank in Japan. Do you have any other easy answer questions for us?

1:29:45Financial reporting dropped the ball on just asking individuals that me so host simple questions about reality. Maybe you should do that next time. And to the extent that you understand, one, understand that the CEO is giving out gold on Bitcoin talk under his own name, where these are obviously reportable statements, the statements of alleged facts about material and reality, and maybe chase down the truth value of that. That's hard. It's so much easier to just repeat what he says on Twitter and say, as said by this person on Twitter, and then quote the Bitcoin price feed. But reporting is hard.

1:30:20like be good at why aren't short sellers doing this because they should have an economic incentive to dig to the bottom of this right and so But we should have a deluge of financial information from short sellers who called banks and trace through the API calls. Yeah That is a ongoing interesting question and I think short -killed sellers provide an enormous service for the world in like being essentially Societies best solution financial fraud I And yet they fail to detect lots of them like they're or, you know, and not just throwing short sellers or reporters or anybody else on other bus. I failed to, you know, detect SPFs various, uh, uh, craziness despite having like sufficient information available to me as a well -read person on the internet to have detected that, like, wherever the freaking loss.

1:31:06Everybody, like, assumed someone else was looking at it, essentially. So that's one reason, like, uh, short sellers often assume, like, okay, you know, I need to find a, like, first get put on the, the a path of something and have a differentiated point of view. And then another issue for short -slows is you have to find an instrument and you have to find another side of the trade to successfully do that. And there was without being an expert on Bitcoin micro -mechanics, it was difficult in size to make the trade, Mt. Cox is in solvent right now, other than like pull money out of Mt. Cox, which people were definitely trying to do.

1:31:43I got a number of interesting business proposals in the 2012 -ish timeframe from people who said, hey, you're an American and you clearly understand international banking and you live in Japan. Could I like cause you to get some yen and have you wire that to me in America and you can take a percentage? And I said, I really don't like where this is going. And they said, well, there's this company and I've got some money over there and they can send yen but they can't send dollars. and I'm like, is that because they don't actually have the money? And they're like, no, no, no, it's a Japanese banking thing.

1:32:15I'm like, no, it's not. You know, Japanese banks are very good at sending wires. And they said, no, no, no, it's really this thing. This is totally clean. I'm like, you would not be having this conversation with me if it was totally clean. You need a money launcher. I will not be your money launcher. How hard is money laundering? If on one hand, you mentioned earlier, the state capacity that banks have where every transaction is analyzed and flagged if it's notable enough, they write a report about it. How sophisticated does the cartel need to be in order to move around seven -figure amounts of money, let's say?

1:32:51So the definition of money laundry is like extremely stretchy and like taffy. And there's a spectrum of people, much like there's a spectrum of sophistication and financial fraud. There's a spectrum of sophistication and money laundry. So if you want to look at probably the most sophisticated money laundered in history, he's currently a guest of the US government, but wherever SBF is staying. He was sophisticated. Oh, this is a disagreement I have with a lot of people. SBF was extremely sophisticated, like a person, not just SBF. I think people like identify him uniquely, they identify the inner circle uniquely as being a fault here.

1:33:31there was an entire power structure there, which was extremely adept at figuring out how power worked in the United States and exercising it towards their own hands. And then it blew up. But until then, goodness, they decided we need regulatory licenses. They're called money transmission licenses in the United States. And those are done on a state -by -state basis. They got 50 regulators to sign off on it, etc. etc. Like there are many objective indices of them being very good at their jobs until they lost all the money. So it was more about politically getting people to look the other way rather than we figured out how to structure the wire in a way that won't get flagged.

1:34:09It's not merely a matter of getting them to look the other way, but if you go back to the original SBF interviews where he's telling the founding myth of Alameda, he says very loudly, the reason why I got this opportunity to do Bitcoin arbitrage between Japan and the United States is because I was able to do something that the rest of the world wasn't. I was able to, he doesn't say this in this many words, I will say it, subordinate Japanese bank because you need that as like one of the pieces to run this Arab and then I pulled tens of millions of dollars out of this. I don't think people like really listen to what he was saying there and he literally says in the interview on Bloomberg, if I was a compliance person this would look like the sketchiest thing in the world, this looks like it's obviously money laundering because it is money laundering.

1:34:52And then interestingly, Michael Lewis retells the story, and he locates the story in South Korea rather than in Japan. And some people who are in Valse, we tried in South Korea in Japan, which people would like pull on more threats there. Like, they still lots of that story than we don't know. But anyhow, House Fiscade, you have to be to launder 10s of billions of dollars route. SBF did that. So, like, that is a bar for sophistication. He was eventually caught. He was not caught for laundering 10s of billions of dollars route. He wasn't even under suspicion for longer than tens of billions of dollars round.

1:35:23SBF was Tethers Banker, Alameda research, you know, one of the parts of like the corporate shell game that they were playing, moved tens of billions of dollars of cash around the financial system, largely under like full color of law, on behalf of Tethers to move it from wherever Tethers had it, goodness knows, or wherever their buying customers had it too, I think at the moment it's mostly at Catrophilt's Gerald. Some shoe has to eventually drop there. I will eat a lot of popcorn with those, but be that as it may. There's many other ways to launder money. You can do things like, let's say I

1:36:03establish a shell corporation. I buy a piece of real estate in New York City and then I rent that real estate out to people and I collect a stream of rents from that. And that money looks clean because there is an ex -cubusness. It's my shell corporation that is renting this real estate that really exists to a totally legitimate person. This money is clean. The money that I put into the system to buy this on behalf of the shell corporation, I'm just going to wire it to a lawyer and the lawyer is going to answer any question from the bank with, I don't know where it came from, I don't have to tell you, I'm a lawyer, it's a real estate transaction, what do you want from me?

1:36:36In one sense, that's money laundering. If the original money was the proceeds of crime, in another sense, that's how every real estate transaction goes down at those scales. And so often, like, facility at money laundering is one facility at operating the economy, plus willingness to do that to hide the proceeds of some other crime. I think I would be really good at money laundering. I'm glad I haven't done it professionally, but it's fascinating intellectually. previous communications at departments I worked at probably. It's like an anti -indulterated sense. What can one do? We are really confident that you're not monitoring money.

1:37:20I would be much wealthier if I was. Well, it's a separate topic, but when you look, you emphasize that people tend to undercharge for the products they serve. If you have identified somebody who actually does charge for products what they can get away with, what psychologically do they have that the rest of us don't? So I think interesting here is one of those places where culture is not necessarily merely the art term, but is actually descriptive in some ways. Without pointing fingers at particular examples because it gets contentious, there are some cultures in the world that like, institutionally have adopted more of a, how do you put it?

1:38:00Pro -capitalist, pro -mercontitalist, et cetera. about less of an ingrained skepticism regarding earning money and accumulating resources as goal. There's other cultures which have an extreme ingrained skepticism about earning money and accumulating resources as a plausible goal. Those cultures generate people who have very different negotiation strategies. When you impact people with different negotiation strategies against the reality of a well -operated I don't know, Google, for example. They arrive at very different numbers. What's the, it's an Amy Chowah who wrote a market dominant minorities piece about a book about that subject, etc.

1:38:41One of the things in that is that, you know, like, all people are equal in the eyes of God and hopefully in the eyes of the law, but like, not all cultures like physically make the same decisions with regards to the same facts on the ground and that causes some disparity outcomes. And so that is one tiny part of that thesis, which I don't... I've actually a lot of books that I don't necessarily endorse every word, every book that I read, but I think there is something to that. I think another thing is that there's a certain personality type cluster, I guess you would say, of people that got into tech.

1:39:20And many of us, it is over advanced. That's the tech industry and the pathologies of the tech industry are caused by the nerd versus jack distinction in American high schools, heavily over advanced amount of truth to that, not zero. And like many of us were, you know, we came up, we feel we were largely largely getting beaten down by a system around us. We were not worthy. Yadda Yadda and then we have carry those issues into our professional lives. And some people work their way out of it quickly. Some do not. Some people work in, you know, they for class and etc. reasons go to institutions like Stanford and here from, I don't know who you're here.

1:40:00Things from if you go to Stanford because I certainly didn't go there. But I don't know an elder fraternity brother that says, oh bro, this is the way the world works. You really got a negotiate when you get in the offer with when you get in your discussion with Google, I've talked to so many brothers and they don't negotiate. And so the ones that do make a whole lot more money. And you're like, wow, good for that. Most people don't get that talk from their elder fraternity brother, because they do not go to Stanford or don't have an elder fraternity brother. And so until Vex and ACA, the most important thing I've probably done professionally was writing a piece on the internet about salary negotiation.

1:40:32I think it's subtitled, make more money and be more valued, which is just at exhortation for descriptively mostly young people who had some of the issues I had when I was young and growing up like, hey, you're allowed to negotiate. That's not a moral failing if you. You have no less right to the marginal dollar than a company has to the marginal dollar. Like, go get it. And then you can put it towards all sorts of interesting ends.

1:40:59500 ,000 people a year read that piece and it's now 12 plus years old. I use, I keep a folder in Gmail about who is written and said, I got $25 ,000 to $100 ,000 per year, more as a result of reading this piece. I used to keep spreadsheet, I stopped keeping the spreadsheet after it ticked into the eight figures and like keeping the spreadsheet was just an ongoing source of stress for me. Eight figures? Yeah, per year. Like you would assume that 500 ,000 people read it per year or some take the advice, most who take the advice probably don't write me to say, hey, I took the advice. Thank you. And maybe I miss some emails, yadda yadda.

1:41:33So like the true economic impact is probably larger than that. There are probably people who have like the inverse of that spreadsheet where it's like darn it. We got quoted with patio love against us again. But like because you know, at these numbers and there's only like a few firms in the tech industry that do have a scaling it, you know, scale hiring. Anyhow. Okay. There's less people today who are in their 20s who have prominent software businesses than maybe 10 or 20 years ago, having been in the software industry less than, I don't know how, when you started exactly, is your sense that this is because the nature of software businesses that's changed or is it because the 20 -year -olds today are just less good?

1:42:19I've met many young and talented people over the course of 20 years in the software industry and young and talented people continue being young and talented. I think one thing that is partially explanatory is that when there's a new frontier that opens up, the existing incumbents, both in terms of institutions and in terms of people with, you know, deep professional networks and personal resources and similar, like do not immediately grab all the value in that new thing. It's Terenofa. And so to the extent that tech is no longer Terenofa, I think you would expect less people who are or less resource to our younger, et cetera, to rise to the heights of prominence in tech.

1:42:55To be clear, I'm not as high as a prominence in tech. And when I ran companies, I was not running companies like some other guesses podcast for on companies. It was Bingo Card creator. I was making Bingo Card, it's a relatively true school teacher who's well living next to a rice paddy in central Japan. But that's kind of like my dominant hypothesis. There are, you know, some things that are affecting the youth that I think are negative. And I think some products that the tech industry has created do not maximize for the happiness or productivity of people that consume those products, TikTok, etc.

1:43:28But I continue to be bullish about the youths and I have two children who, not gun wood, will accomplish things in their lives. And so I'm intrinsically skeptical about, oh, the kids these days, they're just bad kids. How much do you worry about video games as a method as a sort of wireheading that somebody like you but 20, 30 years ago or 20 sorry now has access to factorial and we'll just wirehead themselves to that instead of making a really cool software product. How much should we see this in the productivity numbers? Oh goodness. I don't know about the productivity numbers generally. I do know that steam keeps the counter of like how much I am like video games in the at your time.

1:44:11And the knock on wood have accomplished a few things in my career. And also like against that, what was my steam counter up to? So steam didn't include World Warcraft. World Warcraft was at least a thousand hours for me. In fact, we're recently with 750 and then if you like some over 20 years, I've probably played video games for 4 ,000 6 ,000 hours. And so that that's, you know, two to three years of professional effort if one thinks that it trades off directly with professional effort. But do you, because if you then include every single young guy who's a nerd, and often they, you know, how much we worry that there are a bunch of their productive time as we're going to video games instead of making the next offer business?

1:44:56I worry at least about a little bit about it for myself. Yeah. One of my, so I recently started working for an executive assistant, and one of the first suggestions that he gave was, Hey, Patrick, will you friend me on Steam so that I can see how much playing any given week and so if you're like not making your priorities happen we can have an honest discussion about priorities. That's really good advice given that I spent far too much time right holding a factory or relative to my true preferences. You're going to really confident in DA. Go Sammy, go. Hey Vos, can we go? We have a honest conversation to fight.

1:45:31I don't know if I'm inserting those words into his mouth, but the suggestion was genuinely his. And he heard, you know, on the one hand, Factorio, wonderful game, actually think Factorio matters far more to the world than most video games do. That's an entirely different piece than I'm trying to write at the moment. Be that as it may. Have you read Burns piece on this? The Factorio reminds us. Yes. I love many things. Spurn writes to give luckily have a different viewpoint. And if you want to find some, so I will hope to get it out to the internet someday. But, um, you know, on the one hand, I loved it.

1:46:00I think Factorio Space Exploration mod specifically was the best video game I've ever played. And yeah, I spent 750 hours on that, I know, for the course of a year. And I was, you know, unsavailable and recharging from six very hard charging years at Strait, but also running the United States Foundation for Location Information Effort. But, you know, there's a question of like at relevant margins, are you maximizing for your true values? And I was like, oh, we're worried about that. And so now my EA checks on me. Do I worry about it for other people? I will say that when I was young and a world of work after aid guild leader who spent a thousand hours on that, that it was a substitute advancement ladder for me.

1:46:41The actual job I was working at Sailor Man in Central Japan gave me no scope of control over things and I thought if I was a startup CEO I could make decisions right now. I could build something awesome but I don't have that ability and I don't see myself as being the kind of person who could become a startup CEO. So if I can't be satisfied in my 9 to 5 in terms of making things happen in the world, at the very least I can make sure we kill the dragon in two hours, don't stand in the fire, come on. Team leaders, you need to make sure that people are equipped with the resist gear before they get there.

1:47:12Oh, we're having like internal spats about allocation of resources. We need to have a better DKP system. By the way, we're the VWRCA Freight Guilds and all other places where intellectual effort comes together in the video game community are much more sophisticated than people give them credit for. When I started a Vaccinate CAA, I told people my sole prior leadership experience is having 60 direct reports in a raid guild and that's true. And also like, we don't want to retell on the subject, but like there are parts of Vaccinate CAA that are very very definitely downstream of the like intellectual efforts about managing a raid guild specifically.

1:47:53That's really multiple people internally. We're like, yep, we are running the radio playbook right now. But be that as a way. You can do something with your life. Choose something with your life. And then if you want to play a reasonable amount of video games, then play reasonable amount of video games. And then with respect to individual people, I sometimes worry that you kind of get into I think I've struggled with depression at some points in my life. Many people struggle with underdiagnosed, under treated depression. I think sometimes you get into a self -destructed spiral measured against like your true values and similar values and preferences where due to depression and other factors you aren't making as much progress on the true goals you do.

1:48:40You use video game systems as an escape from that and not just video games, books, television, etc. There are many poisons available. life. You pick your poison, use that to escape the amount of effort you put into the poison, causes you to have less effort available to do the thing. So you get less good results than thing. So helping people out of those self -destructed spirals is something that we as a society could stand to get much better at. I have a speaking of a bird, by the way. I noticed that a bunch of my theory writers are finance writers. There's you, burn, mat liveen. Is there some reason why finance is hogged all the writing talent?

1:49:20I think there are many good writers in the world. Derek Thompson, for example, has some, he's a chemical engineer and he's written some things which I barely understand. I have enough of an engineering degree to appreciate half of the chemistry and I can't appreciate like the full totality of why what, what, what, what, what, what, what, what the name hacks the fluoride or whatever is a terrible substance work with and he has some excellent writing on why that is a terrible substance work. But the broader question being why does finance have a greater concentration of writing talent? And not just about current bloggers, but finance histories or some of the best history books out there, the Bethany McLean and so forth.

1:49:58And I'm curious why this is. Is it just an intrinsically more interesting subject or? There's some path dependence if I had ended up working in a water treatment plant. I'd be writing about water treatment plants because I like writing. And I'm positive. I know enough about myself to know that a discussion about how Alam works in water treatment plants, which is something I read when I was like six. That could totally captivate me for multiple years on end. I would write about that if I was captivated by it. I agree with Pointe -Matlovin made one, which is that finance and the tech industry have for a while been a relatively reliable way to turn intelligence into money.

1:50:34Many good writers are very intelligent. Not all people who are very intelligent are good writers. I think it is a skill that more intelligent people could learn. But simply if we create an incentive system which will tend to allocate not yours truly, but descriptively, like a lot of the country's top brains until like particular fields where they will be come experts at those particular fields. I would expect also a lot of the writing talent to be there because good writing is good thinking. That's a program quote, I think, but it's broadly true. Speaking of which, so you went to Japan because if I remember this correctly, you thought that after the dot com boom that the programmer alone demand will diminish and it will require some combination skills.

1:51:20Separate from what and you weren't the only one. There were many other people who thought this way. The Wall Street Journal said in the Wall Street Journal had never been wrong. I experienced that. It's a 19 year old didn't know anything about anything. But separate from the object level predictions that you might have gotten wrong about the software industry at a meta level. What was the mistake you made? Did you just not into how to characterize that? Sure. So I had a whole lot of rigor chasing a decision that had no basis in fact. So believing in the Wall Street Journal that all future engineers would be hired in places like India and China and not the United States.

1:51:53And so there would be no future engineering employment in the United States. I made a spreadsheet of like, okay, here are the languages my university teaches. Here's my best estimate of the number of people in that country who speak it. Americans who speak at the amount of their software that gets sold here, amount of US software that gets sold there. Bobbo -Bobbo -Bobbo multiplies these together, sort back home age descending. And this is like, large being a having rigor here, but it felt like a good decision -making process to be in the time. Now, the meta discussion is like, don't large be having a rigor, actually have a rigor.

1:52:27But what would that look like in this context? What was your done differently? Ultimately, happy with the decision I made, although as presented as the wrong decision, I'm happy about it for other factors about life. Working in Japan as a young engineer, there are some very rough parts about that. But on a level, maybe this is an early opportunity to trust institutions less than trusts like systemically viable reasoning patterns more. Like, okay, the Wall Street Journal has assurged, assuming I'm remembering the Sarticle right, and I'm pretty sure I am, because it was a selection point in life for me.

1:53:02The Wall Street Journal has asserted that no future Americans will get hired as software companies. Assume this is true. What happens in the American software industry?

1:53:12And maybe I did not have enough knowledge to like, confulate, predict at the moment, but I can't confulate, predict something. So now like, software companies are going to start to break as older engineers age out of the engineering population and they have no one coming up replace them, etc. The industry institutionally must hire people every year and hiring freezes are necessarily temporary as a result of that. As close to the law of physics as one can have. If you are telling me something which says the law of physics has been suspended and will be in the future, don't agree to that. How would I learn the law of physics?

1:53:50I did not know anyone in software engineering at the time, which is partly why I was getting my advice from this from the Wall Street Journal. But if I had been slightly more agentic about it, I was at a research university in the United States. I could have found someone who knew someone who was in the software industry to explain this to me. I couldn't use that same logic to say that the journalism jobs won't go down because senior journalists will have to be replaced by a new journalist. And that's true, but that doesn't take that many people to study journalism, and it actually would have been a bad call to major in journalism and pursue that as a career.

1:54:21But the fundamental thesis was that for journalism, it's that the total size of the pie is decreasing in journalism due to structural factors. And the Wall Street Journal thesis was not simply that the size of the pie would decrease in the leak of the dot -com bust, which I don't think they even got as far as articulating in that although it's been 25 years, but was more like, oh, companies will maximize for cost of labor, et cetera. And therefore, ship out all the jobs. I see. I see. You've emphasized that a founder should do more A, B testing. That's one of the main themes of your blog if you go back through it.

1:54:57So they should, they're under optimizing on this. What do they tend to over optimize on? So interestingly, I was the marketing engineer earlier in my career and really thought that that was important. And in terms of high level advice, I would give a founder. I would probably tell them a little bit about marketing engineering, but when it's been done, 95 % of my time talking about that, unless that was explicitly what they brought me You know, founders spend too much time on playing house and chasing status is they are both two sort of like well -known pitfalls where you can get addicted, addicted, not quite the right word.

1:55:30Your incentives will draw you into playing the role of a, the CEO of a successful company. Before your actions have earned the company its level of success. The fundamental nature of early stage businesses is that investment in you is not a vindication of what you have achieved. It's an advance on your future accomplishments, and you need to rigorously pursue actually making those future accomplishments. There's many ways to rigorously pursue it. Talk to more users, write more software, make something excellent, get more people to use it, get better at selling it, et cetera, et cetera. That's an important strain of Silicon Valley culture.

1:56:10I'm glad we have it. I'm glad we are popularized again to as many places in the world, including to me and central edge pan. And yeah, you know, there are there are always other games that that are going on and those other games are less important, but they are very, very attractive games. Not video games here, but why don't you go to a conference? Why don't you meet more interesting people? Why don't you show up at the best parties, etc., etc. Showing up at the best parties does not at most margins increase the number of users you talk to, it doesn't write functioning code, like do those things that actually matter.

1:56:44And some distractions like proudly wave, I'm a distraction from everything that matters. And some don't. Some definitely like say, I'm real work. I definitely feel like real work. And they're just not. And so don't do the things that don't matter, which sounds vacuous. And yet. I want to go back to Vaxenatesia and I want to close the loop on one question that I had that I don't know if we got a good answer to it that I think is important, which was, suppose you're the president of the United States, maybe you're a new one, so this one's going to replace and you're looking back on what happened.

1:57:20If you personally were president, what is it that you're doing to bring accountability to what happened in making sure that in a are ready to snuff. Maybe you like fire the right people, but beyond that, there's a lot of different things that could go wrong. How do you make sure that we're ready for them? One cultural practice of the tech industry that I think it would be more salubrious for the broader civil society to adapt is the concept of blameless post mortems. We talked about earlier about who to blame for various failures, etc. I probably believe that But there is some amount of blame which performs useful societal purposes.

1:58:05And then beyond that, the diminishing return set in pretty quickly. And we are, you know, the magic word in Washington is accountability, accountability for failures, et cetera, et cetera. People are terrified of accountability. And that causes there to be fields of distortion around things that actually happened, mistakes that were actually made, opportunities that were not pursued and similar. And so changing our general practice about how we accomplished accountability towards the direction of, okay, first let's get a dispassionate record of what actually happened. It's less important that it was a, you know, this naming official, it's less important that it was under this legislative authority, et cetera, et cetera.

1:58:49What did we do? Okay. Now, how did what we do lead to the outcome that we got given that what we did led to this outcome? What could we have done better? Okay. What are the, like given that there are these things that we could do better, how do we like inject that back into the currently running system such that the next time this happens, we don't do the mistake again. Sometimes that will involve in someone losing their employment, I'll do it hopefully not that frequently. A non -zero amount, that's important to say. But there's many things that we post more of the experience. I don't know if we have like several thousand hours of time to go over all of them.

1:59:35There should be an inquiry. It's an easy thing to say. Let's set a minimum, like, ask all involved parties, hey, can you write down the history of the COVID experience just passionately like record dates, times, actions taken. We want it to be truthful and comprehensive and highly what you think is the most important part about this. That is step one. Maybe we ask for step one and then try to get to step two. Yeah. Final question, we're going to work on next. I don't exactly know what will be my next big professional splash in. I've been on semi -subalcalos year, I've been writing bits about money, but bouncing between like 20 and optimistically 80 % productive relative to what like 100 productive looks like to me.

2:00:22I might do a software company next I might raise a small VC fund not entirely decided might do something entirely different at the moment kind of focusing on family oriented things and our family immigrated from Japan to the United States and are going through all the fun adjustment issues and I'm partly focused very much on career and other things over the course of the last eight years and I'm rebalancing that to help them on this adjustment and then figure out whatever happens in the next chapter of life. Excellent. Patrick, thanks so much for coming on the podcast. Thanks very much for having me.

2:00:57Hey everybody, I hope you enjoyed that episode with Patrick McKenzie. As always, if you did, the most helpful thing you can do is just share it, send it to your friends, group chats, Twitter, wherever else. It's also helpful if you can leave reviews and ratings on Apple Podcast, Spotify, YouTube, wherever else you listen. And of course, as you can tell, I'm doing ads on the podcast now. So if you're interested in advertising, go to theworkeshpatelle .com slash advertise. Other than that, I'll see you on the next one. Cheers.