Ep 118: Marc Andreessen on AI, Robotics & America's Industrial Renaissance

0:00We're at this very specific and important and fundamental and I think profound turning point in technology, which is the rise of AI. How do we explain this to people? Because a lot of Luddites are going to attack this. Do we want the U.S. to be an industrial superpower or not? These are choices. These are policy choices. And AI is only happening in two places. It's only U.S. versus China. China's basically been running the American system playbook. There's another turn on AI that's coming, which is the turn to embody physical AI, which is robotics. There's billions, tens of billions, hundreds of billions of robots of all shapes, sizes, descriptions, running around doing all kinds of things.

0:27What we should do is lean hard into the manufacturing jobs of the future, which is designing and building all of these new things. If you don't do this, you're living in a world of Chinese robots everywhere.

0:43A few weeks ago, I got a chance to interview my friend Mark Andreessen at the first annual Ronald Reagan Presidential Library Economic Forum. This forum is a competitor to Davos, the World Economic Forum. It's gathering a lot of top leaders who are interested in capitalism, in markets and American dynamism, and really has kind of a more pro builder mindset than we see in Europe. We had a great chat with Mark. He's been really interested in US economic history, studying Hamilton, studying McKinley, whose policies changed, of course, to be more reciprocal from his original tariffs. And there's some interesting questions today from these people.

1:17Our economy, we talk about started off focused on industrial economy, on manufacturing. It shifted to more of a services-based economy with a lot of policies starting in the 1960s. And now today, 60 years later, it's shifting again from manufacturing to services and now to AI and energy. An AI-driven economy looks very different than a services economy. What are the right policies on trade, on immigration, on regulation? Mark's really bullish on robotics and what that does, especially for rural areas versus city. What are we going to see with productivity growth? How do we make sure we share this wealth?

1:50We're creating the right way with everyone. So it lifts everyone up in the United States. There's some really interesting and important policy questions that are going to determine the future of our country. And Marc Andreessen is the right guy I talk to about it. Excited for you to hear from him. Welcome to our first annual Reagan Economic Forum. It's an honor to have you guys here. You know, we talk a lot here, of course, about Reagan's economic pillars and policies, which include deregulation and lower taxes and lower spending, all of which are very relevant today. But Marc, I want to start off asking you about someone I know you've been reading about and President Trump's been reading about from 100 years before, which is William McKinley.

2:24And William McKinley, of course, was a staunch protectionist at first. Is this historical example of how to revitalize American industry relevant today? Is it relevant to everything we're doing in AI and energy? How do you think about this? Yeah, so I've been doing my best to kind of spin up in the history of this. And so there was something in the 19th century actually originally created by Alexander Hamilton when he was Treasury Secretary called the American system. and really what they this is even, you know, this is like 80 years before McKinley 90 years before McKinley you know, what they were dealing with was the British Empire, right?

2:56The UK was the preeminent industrial power you know, they were the first like giant industrial power on planet Earth and had built this, you know, very commanding economic, technological, military position and of course America, you know at the time of the revolution was mostly farmland and then there was this raging debate between Hamilton and Jefferson as to whether you'd want America to be an industrial, you know, kind of urban financialized power, which is what Hamilton wanted, or kind of a rural, you know, kind of rural farming aristocratic power, which is what Jefferson wanted. And, you know, and Hamilton won that debate.

3:25And so that led to what was called the American system. The American system led to, you know, the creation of the United States as an industrial power that developed over the course of the 19th century. But it really took off at the tail end of the 19th century in what was called the second industrial revolution. And so So between call it 1870, 1880 and like 1930, basically everything we view today as the modern world was basically invented then. And like you could almost look around the room here today and you could say basically every piece of physical infrastructure, everything around us, you know, literally everything.

3:58The airplane, manufacturing techniques to be able to make modern glassware at scale, air conditioning, television, radio, the automobiles we drove to get here. It all was the result of the second industrial revolution. And then the McKinley presidency was right in the middle of that period. It's really when the whole thing catalyzed. And so it was really the point at which America became the world's industrial superpower. And then, of course, that led to America being able to become a huge player in both World War I and World War II, ultimately winning World War II and becoming the arsenal of democracy.

4:40It all kind of floated out of that period. And the American system is something that people really don't like to talk about these days because it was heavily protectionist. And the whole theory of it was you don't industrialize just with like a single technology or a single company. You industrialize by having an entire ecosystem, right? You industrialize by having, you know, not just three car companies, but by having all the thousands of parts suppliers that make all the parts for the cars. And so the Brits had done this. They had run a very heavily protectionist program to be able to boot up the first industrial revolution in the UK.

5:11You know, they then advocated for free trade when exports became more important. McKinley was the inheritor of the American system. And so he was heavily protectionist to build up the second industrial revolution. And then he actually switched to become more of an advocate for free trade because as American exporters were becoming more successful, they needed export. They needed foreign markets. And then, by the way, in the 20th century, basically every industrial revolution in every other country that has worked in the last hundred years basically follows that model as well. So, you know, it's the same thing Germany did.

5:39It's the same thing Japan did. It's the same thing Korea did. It's the same thing China is doing right now. China has basically been running the American system playbook in China. And then this goes to tariff policy. And I'm not here to make an argument like it's in favor of tariffs, but more of like a historical observation that there has been this phenomenon over time that if you want to have the kind of clustering effect that leads to industrial preeminence, it is not unusual to have a combination of tools and methods used to do that. It has been historically characteristic that tariffs would be a part of that.

6:12But it's also historically characteristic that there becomes this point when you also therefore want to go for exports and you want to go for free trade. And McKinley specifically, he ran for office very much on the idea of having a high and permanent tariff. Once he was in office, he switched more to a model of what he called reciprocity. And basically it was, we start out by tariffing, but the goal actually is to get everybody to lower their tariffs. The goal is to get a world of much more free trade, and then therefore these American exporters are able to succeed globally. And of course, he was able to use tariffs, American tariffs, as a lever to get other countries to drop their tariffs.

6:46And so in that sense, what we're going through right now in the U.S. is sort of very characteristic of that. And what makes maybe the whole thing kind of more poignant is there is this kind of fundamental underlying question, which is, do we want the U.S. to be an industrial superpower or not? Right. And in the 19th century, they were completely clear that they wanted that. And in our time, I think we're still ambiguous about it. It's interesting, though, because, I mean, and you've said this yourself in other contexts, We had this manufacturing wave. And then in starting in the 1960s, services really drove a lot of our growth the last 60 years, which obviously was not as tied to that.

7:18So the elite maybe were not thinking about these issues as much. And I guess the question is today, are we shifting into something else? Is it an AI-driven economy? What is it? And, you know, it seems like Trump's camp's a little bit split. You have really two visions. One vision, you'd say, maybe more like the Bannon side is more focused on reviving traditional manufacturing through tariffs, through industrial incentives. Then you have the other side that's more about tech acceleration via AI, via chips, via energy. How do these things play into, I mean, are we going to be able to copy the past or is it a new policy here?

7:47Yeah, so this is, I mean, this is sort of the central question, I think. So my read of the trajectory basically is call it between 1870 and 1920. The U.S. economy was heavily based on industrialization, all the stuff I just talked about. By the way, very high immigration environment at the time, very rapid rate of immigration, and then actually very high tariffs. And by the way, an annual growth rate of something like 3x, the current growth rate of the U.S., with a much smaller population and with much fewer tools to work with. Then there was sort of the 1920 to 1970 period, where the growth rate was maybe something like 2x, the rate that we have now.

8:23And that was the space race and rockets and electronics and the beginning of the computer industry. And it went quite well from an economic growth standpoint. And then around the time I was born, around 1971, basically, the U.S. economy permanently downshifted its growth rate, both in terms of productivity growth, which, of course, measures technological transformation in the economy as well as economic growth. And so we went from super high growth to high growth to low growth. That low growth coincided with this shift, with all the shifts that happened in the 1970s, many of which Reagan was a reaction to.

8:57But many of those shifts happened and many of those shifts have continued. you know as you said less less less industrial uh enthusiasm more what they call you know services um you know by the way the good news of that transition is the transition to knowledge work has worked really well and you know we live and work in places like silicon valley and austin and others that have done phenomenally well because you've got all these tech companies that are global exporters of technology and the ai revolution is happening in the u.s you know and it's absolutely tremendous but you know we've we you know we transform the american economy to basically have knowledge work on the high end and then financialization and banking and currency and being the safe bond asset on the other hand.

9:36And then we basically, we chose to de-industrialize and we chose to de-industrialize through a set of explicit policy choices, not least of which is we made a lot of industrial activity illegal over time. And I would argue, number one, that formula has not, first of all, it just hasn't worked that well in terms of growth. right if it doesn't pay off in terms of productivity growth and economic growth like how is it actually going and of course the the problem the irony of this is if you don't like populism the way that you get populism is slow growth right because you because slow growth puts everybody in the mind of zero-sum right everything becomes a zero-sum you know kind of fight for resources because people don't think that there's a lot of opportunity in the future and so you know we like the formula that kind of all the smart people did you know actually created the preconditions for the sort of researches of populism on both left and the right.

10:24And then the other kind of really, you know, critical thing happening right now that you see just happening kind of everywhere in our politics and society is this just giant divide between the cities and the countryside. And, you know, I'm, I'm sort of a weird example of this myself. I grew up in rural Wisconsin, you know, in what was sort of, you know, originally farming and then sort of light industry, you know, kind of world. And, and then, you know, and then when I, you know, graduated college, I moved to California. I did of jump to, you know, kind of the polar opposite kind of culture and kind of world.

10:53And, you know, of course, when I was in Wisconsin, I was like, wow, that, you know, those smart people in the coast must be so much better and smarter than we are. And then I got to the coast and I was like, wow, these people on the coast really hate everybody where I grew up. This is interesting. I knew they didn't like us. I didn't realize they despised us quite to this degree. And so now we have this like, just like raging cultural, social, economic disconnect between the cities and the country, in the countryside, which I think is quite dangerous. Let's be controversial and dig into this a little bit more on cities.

11:21So I think a lot of us have noticed that our cities are deeply dysfunctional. They're broken in our society, right? I think we have a candidate who's like a socialist Islamist who's in danger of taking over New York very soon right now. And we have all sorts of problems. People can't afford to have kids in cities the way they're set up. I think there's this cost disease for everything. What went wrong? What's going on with these cities? And what's an optimistic take on it, Mark? How can we fix this? Yeah, so the guy in New York is interesting. And he's kind of running slightly behind Cuomo for New York mayor.

11:53But he's literally running a platform, among other things, of having city-owned grocery stores. And so the joke is he's reinventing bread lines for the 21st century. That's impressive. Really tremendous, tremendously, tremendous platform. The Seattle is another case study of this. Seattle, to give you a sense how crazy things are, the district in Seattle, the city council district, where the most Microsoft and Amazon executives live, I elected a city councilwoman who ran a platform of nationalizing Microsoft and Amazon. Right, and then in the Bay Area, I've got, I live in ground zero of dysfunction and collapse, and I've got thousands of stories from the Bay Area.

12:32Yeah, so I think there's a very fundamental political economy thing happening, which falls out of this sort of economic transformation that's happened, this policy transformation that's happened. And so there's a guy, there's actually a French writer, a geographer, who has, I think, the best analysis on this. And he's written a great book on it called Twilight of the Elites. And what he basically observes is if you look at all the Western countries through this process of sort of deindustrialization and financialization and technology, you know, sort of technology, knowledge work, you know, becoming preeminent at the high end of the economy, you sort of have this pattern where basically like in an agricultural economy or in a manufacturing economy, you kind of have to spread everything out throughout the country.

13:08because like natural resources really matter and energy really matters and physical infrastructure matters and access to, you know, trains and all these things, you know, really in rivers and water and so forth really matters. But if you're going to replant your sort of commanding heights of your economy on knowledge work, then what you're going to do is you're going to slam basically all economic growth into the cities, right? Because you're – which is what Silicon Valley has done, right? So you're going to – all the software developers in one place and you want them – you know, they're going to – the good news is they're going to eat at high-end restaurants and they're going to employ a lot of nannies.

13:36but like fundamentally they're going to be sitting in conference rooms, you know, designing software together. And you want that to happen in a single concentrated place. And so what happens is basically the city has become a magnet for basically two kinds of people. One is sort of the upper class, which is to say kind of the, you know, highly educated elite in the knowledgeable professions who make enough money where they can afford to buy, you know,$3 million houses. And then you've basically got the, so you've got basically like super expensive homes. And then you've got public housing, so-called public housing, right?

14:05and council estates in the UK or Section 8H or whatever it is housing here, where you've got, you know, basically public housing. And so, and then the public housing is, you know, it's basically, it's, you know, people who are very low paid, kind of on the low end of the service economy. And then that's the city. And then who's squeezed out of the city is basically, right, the entire middle class is squeezed out. And just to give you an example of this in the Bay Area, if you're a cop or a firefighter in the Bay Area and you work in Palo Alto, you commute three hours, both ways, just to be able to like have a house and afford a family.

14:36Right. And then of course, you look what's happening in the cities and like, it's, you know, there's, there's like lots of dogs. There's very few kids. Right. And it's like, you know, what on earth is that about? Well, you can't buy a house. You can't, you can't, you can't have a family. You may not even own a car. Like how are you going to get kids anywhere? But what happens is from a political standpoint is the cities that are run right there in their local democracies, it's these super high end kind of very progressive elites. And then it's sort of the clientele underclass, right? In the U.S., it's Hispanic immigrants or African Americans.

15:07In Europe, there are other kind of clientele underclasses that they've developed in places like Paris. And so you've got this high plus, you've got this kind of old political kind of structure of sort of top plus bottom kind of configuration. And what you've done is you squeeze the middle and you've ejected the middle out of the cities into the countryside, but you've de-industrialized. And so there's no new economic activity happening in the countryside for all the middle class people to do. This so far is not an optimistic panel, Mark. Sorry. Sorry. Let me try to make it optimistic. Sorry. Let me try to make it optimistic.

15:37Okay. Let me try to make it optimistic. These are choices. These are choices. These are policy choices. Sometimes the way this stuff gets painted is that these are just impersonal economic forces or technology forces. And of course, I get this a lot. It's like, you idiot. Don't you understand that it's just like manufacturing is old fashioned. We have all this new stuff. We shouldn't need... But no, these are choices. Like there were specific choices made. So the classic choice, the classic choice that was made, since I wrote the Reagan library, I'll beat up on Nixon. So Richard Nixon, the year I was born, 1971, he proposed something called Project Independence.

16:10He actually, visionary president, he saw the energy crisis coming. And he said it's a national imperative to build a thousand new nuclear power plants, civilian nuclear power plants in the U.S. by the year 2000. Cut the entire U.S. electric grid over to nuclear. By the way, it would have gotten us to electric cars probably 30, 40 years faster and would have completely separated us from strategic involvement in the Middle East for energy. So that was the good news. The bad news is he created the EPA and the Nuclear Regulatory Commission, which then prevented Project Independence from happening.

16:38And, of course, no new nuclear power plants got built. But that was a policy choice, right? And I'm sure that was not the result that he intended, but that was a policy choice. And so, you know, and by the way, a lot of this is happening right now in Washington. Like there is an opportunity to look at everything from nuclear power, minerals, natural resources. I was on a call this morning on natural resources with very promising progress being made. You know, rare earth metals. There's, you know, construction. We have a project to build a new city in California. We've bought, you know, four times the acreage of Manhattan in Solano County.

17:12You know, we had the opportunity to build like entirely new cities in this country. you know like there's any number of things any number of these policy decisions that we could make that would cause revitalization so we're going to fix better policies there's something else going on though which i think you and i are both very bullish on which is which is these ai wave and ai services right and so i think i think one thing that's very interesting right now is obviously we all know there's major cost disease in our society health care is becoming more and more unaffordable we i think people are talking about our 36 trillion dollar debt it's actually 150 trillion more if you include our health care promises much bigger problem uh we obviously education, housing, all these things are becoming less affordable.

17:46But you and I have both seen that a lot of these new technologies are going to turn some of these services into much more affordable products. And I think we're making big bets on that. Tell us about this. So first of all, just a moment on AI. So you asked a question earlier, which is like, is there like, there's a traditionalist view of like, we need to go get the jobs that used to exist. We need to somehow bring them back. And you know, and here you get into this argument of like, well, you've got, you know, Chinese laborers working for a dollar an hour or whatever, like, you're not going to get those jobs back.

18:09It's just not cost-effective, bring those jobs back. What we have, though, is we're at this very specific and important and fundamental and, I think, profound turning point in technology, which is the rise of AI. And I would say the good news, let's make the panel optimistic, the good news is the U.S. is, like, by far the leader on AI. Now, by the way, we need to decide whether we want to be the leader in AI, because there's, like, a lot of forces in the U.S. and in the U.S. government that are trying to prevent that from happening. But there's over a thousand laws at state level we've been trying to fight and stop that would screw this up, right?

18:34So there's a lot of people who are against this. California state government almost passed a law to outlaw AI in California six months ago, which is an indication how crazy California is. But yes, it's like everything else. We can have it if we want it. These are all choices. But AI is happening, and AI is only happening in two places. It's only US versus China. There's a whole competition thing there. But the US is very powerful on this. And then, by the way, the US is benefiting a lot because Europe has basically made AI illegal. They're regulating themselves to death. And so the smart AI people in Europe are moving to the US.

19:03And so the US really is ground zero for AI. Today, AI is software, right? And so when you use AI, you use ChatGPT. It's an app on your phone, right? There's no manufacturing kind of component. You know, really, people are building giant data centers, but it's not a huge generator of middle-class jobs. But there's another turn on AI that's coming, which is the turn to embodied physical AI, which is robotics, right? And this is a transition that has already happened. It's already actually happened in drones, where drones went from being human piloted to actually being autonomously piloted. They now fly themselves.

19:37It's a transition that's happening in cars right now, right? Where cars went from, you know, basically purely physical products to now basically being rolling computers that drive themselves. And if you haven't tried this yet, if you ever have the misfortune of finding yourself in San Francisco, take a Waymo. It's amazing to live in a cyberpunk future reality where you're in literally a state-of-the-art self-driving car that's literally out of the Jetsons driving past people who are dying of fentanyl overdoses on the sidewalk. I recommend having the experience at least once. but the self-driving car really does work like it's really happening and then what's going to happen you've all probably seen you know elon has this optimist robot that he's building um these human robots like the the the general purpose robotics thing is going to happen and it's going to happen in the next decade and it's going to happen at giant scale and i i think there's a plausible argument which elon also believes that robotics is going to be the biggest industry in the history of the planet it's going to be gigantic there's going to be billions tens of billions hundreds of billions of robots of all shapes sizes descriptions running around doing all kinds of things.

20:33Those robots need to get designed and built, right? And so my view is, you know, we don't try to get the old manufacturing jobs back. What we should do is lean hard into the manufacturing jobs of the future, which is designing and building all of these new things, right? By the way, which includes drones and cars, right? And robots. And, you know, we shouldn't be building manufacturing lines that have people sitting on a rubber mat for 10 hours screwing screws in by hand, but we should be building, you know, what Elon calls, he calls alien dreadnought factories, right? Which is like these super sophisticated factories with like tons of robotics.

21:02But you can imagine thousands and thousands of different categories of industrial production that have to happen all across the U.S. in order to make this happen and would cause just enormous economic growth throughout the country. We get a huge payoff from all the tech investment that the coasts are making, but we generate many tens or hundreds of millions of jobs in the countryside. And then the U.S. would lead, it would be the third industrial or fourth industrial revolution. We would lead in the development of all these new things. And then you get to the national security side of this, which is if you don't do this, you're living in a world of Chinese robots everywhere.