How AI Could Freeze Progress with Hilary Allen

28:37Well, I mean, again, the whole story of tech, the internet and smartphone boom is very much based on technologies developed by the government. DARPA and the whole internet. Exactly. And, you know, and I think if you look at the iPhone, a lot of the individual technologies that went into that again came from... Everything with microwaves comes out of NASA, right? So, you know, first of all, this entirely self-made story falls apart right there because, as I mentioned earlier, if you've only got six years to turn around a technology, you're not really investing in prototypes and thinking really hard about physical hardware and how that works.

29:18You're really looking for a software thing that you can gin up pretty quickly. And so the really long-term investment comes from the state and has always done. And then it's commercialized. And I think that that sort of has worked well, except that you get to the point where the venture capitalists who are commercializing are saying, well, we shouldn't have to pay any taxes to fund the state that develops these technologies. They also benefit, as I said, enormously from laws that they lobbied for in the late 70s, I believe. Changes to ERISA, which allowed pension funds to invest in venture capital, basically didn't exist before.

30:00And at that same period, they were lobbying for changes to capital gains taxation. Well, you have the carried interest loophole. Exactly. Which continues to persist. I'm drawing a blank on the author's name. There's a book, Americana, 400 Years of Technological Innovation, that makes the argument you're making go back to the Telegraph, funded by Congress, go back to railroad. Like every major technological innovation or most major innovations got seeded with the government and then eventually the private sector takes over. And what has changed in recent years is that public-private partnership seems to have broken.

30:43Yeah, actually, so the book I really like on this is Margaret O'Mara's book, The Code, who does, she does a great history of Silicon Valley. And yeah, I think the understanding that there was a quid pro quo has sort of fallen away. So always the private sector has commercialized this technology. But if we have an unwillingness to sort of pay any taxes, if we have an unwillingness to invest in government capacity, to invest in universities where so much of this stuff is developed, you know, you take Marc Andreessen. He got his start because he was happy or sorry, lucky enough to be a student at the University of Illinois at the time where they had a special grant to look at the beginnings of the Internet.

31:35He worked on a team there that developed a prototype internet browser. And then he went into the private sector and they let him build one for the private sector. And that was Netscape. And that's how he made his fortune. So he was sort of in the right place at the right time to take advantage of public investment in this kind of thing. And yet this is the kind of thing that we're seeing that these leading venture capitalists want to shut down. Really interesting. Since we've been talking about books, you've criticized Abundance, which is by Derek Thompson and Ezra Klein, as the whole concept of abundance is sort of a sexy way to make excuses for techno solutions.

32:16Tell us a little bit about that. Yeah, so this is something I get into a lot of conversations with people these days, because I think there are some elements of the original sort of abundance agenda that are very appealing to people in terms of, for example, increasing housing capacity. And I do think that that is something that needs to happen and has to be done in the right way. But if you look at who is funding the abundance movement, they have conferences, et cetera. It is Andreessen Horowitz and other people from Silicon Valley. And it seems to be this attempt to essentially put a happier face on the deregulatory project that Silicon Valley is looking for to sort of make it seem kinder, gentler and more progressive.

33:03Because the abundance movement sort of in a nutshell is supposed to be, well, we shouldn't have artificial scarcity. We should build more of what we want to do that. We should take away some of the roadblocks that are getting in our own way. And when you say it like that, it's sort of hard to disagree with. Well, that works for housing. You have nimbyism with housing. But when you take that away, it also means you're going to end up with perhaps high rises or multifamily units in a suburban area that some people don't want in their neighborhood. there's always a series of trade-offs with people who are already there versus people who want to get there.

33:40What is the specific problem with abundance as a philosophy towards building more of what we want as a society? Because it's who gets to decide what more of what we want is. And if you look at who's funding the abundance agenda, it is the billionaires and the tech elite. And these are people who have really shown that they are quite willing to run roughshod over regulations that are there to protect the public from harm if that enables them to profit. And so I am just skeptical that a movement that is funded by these people is really going to be prioritizing the kinds of projects that would benefit the economically precarious.

34:22I think it's more likely that they'll be benefiting themselves and will lose protections for people with less voice that are currently in place. So what sort of overhyped products do you think best explain the problems with this approach? Like what are these companies putting out that either is a result of regulatory capture or just don't do what they promise? because you would think that in the world of venture, either your product finds an audience, it finds a customer base, or it doesn't and fails and that goes out of business. Yeah, so that's sort of the perverted part of this is that that market logic, like survival of the fittest, because of all the subsidies that benefit venture capital, that doesn't really apply, that logic anymore.

35:13So, you know - Give us an example. Crypto. crypto should have died many times already, particularly it should have died in 2022 when we had the big crypto winter. At that time, particularly Andreessen Horowitz, crypto had this huge war chest of funds that they had raised, and they stopped investing in crypto startups at that point because everything was moribund. But what they started using that money for was lobbying, political spending, and they really worked very hard on members of Congress to essentially create laws that would allow the crypto industry to keep doing what they're doing, which was not allowed under the securities laws as they were.

35:58So the whole business model was regulatory arbitrage. They wanted laws that would sort of give a patina of legitimacy and hopefully encourage institutional investment, attract more money to the space, but not actually make them have to, for example, like Coinbase combines the functions of a broker-dealer and an exchange. That's not allowed in securities. You can see why there's all kinds of conflicts of interest that come. Right. Either you're an exchange or a brokerage firm, not both. But in crypto, you're both, right? And so if you applied the securities laws to crypto, So they would have to disaggregate and basically would probably destroy their business model.

36:38So what they wanted was a law that said, no, it's fine. Crypto special, you do both. And so that really, an industry that should have failed is, you know, again, rising, being propped up all through this sort of aggressive political spending. And I mean, I've talked to people in Congress off the record who have said that they've only voted for these laws because they're afraid that if they don't, that crypto industries will target them. What other products do you think are overhyped and fail to satisfy their markets? Well, right now, the obvious answer is a lot of the AI products. the anything sort of it's hard when you talk about AI because it's such an umbrella term for so many different things right I have perplexity on my phone it does a better job with search than Google does I get better more comprehensive answers what's wrong with AI well let me disaggregate it first because there's plenty of AI that there's nothing wrong with right so AI is not intelligent in any way, shape, or form.

37:48That's a marketing term. What it is, is it's an applied statistical engine. You have an algorithm that looks for patterns in data and then acts accordingly. And that kind of technology has been around for a long time. It does, like, for example, it's great for fraud detection in a bank, for credit card transactions, for example. So that, you know, that's an A plus use of AI. But the last few years, everybody has been pouring everything they've got into these LLM-based tools, these large language model-based tools. So these are tools that can, you know, old AI tools would just sort of classify something, put something in a group or predict something.

38:31But now we have these tools that generate content, particularly text, but also, you know, video, music, et cetera. And there are so many problems with this technology because it's being sold as technology that can replace humans, right? That can basically – it's worth throwing trillions of dollars into this because of the productivity gains that we'll get by firing all the humans essentially is the story they're telling. First of all, that would be great. Right. That's a problem in and of itself. The way I have heard it described that's a little less catastrophic is this is going to make everybody more efficient, more productive.

39:18It'll make companies more profitable and we'll all be able to do more with our existing staff than having to go out and hire hundreds of more people. But that is not true, sadly. That's the pitch line, right? Right. So these tools make a lot of mistakes. Even the very best ones make mistakes. We've seen a lot of attorneys. You and I are both attorneys. A lot of judges have been calling out attorneys who theoretically are supposed to be doing this on their own and instead are outsourcing it to AI and all of its hallucinations and citing cases that don't exist. The assumption is that's going to get better eventually.

40:00But it won't. So this is the problem. But it won't. But it won't. So these things are statistical engines, right? They can't check for accuracy because they don't understand accuracy as a concept, right? There's no reasoning. It's literally the most statistically most likely word after the last word I gave you is this word. There is no way to make that care about accuracy because it's not a thinking machine. And I think there's increasing acceptance that these models have hit a wall and they are as accurate as they are going to get. Really? Yeah. That's kind of fascinating. My concern was, at least on the legal side, hey, you have this existing body of work and all this research and brief writing and arguments that exist as of now.

40:52If you're going to replace people from doing that, are you going to freeze the state of legal knowledge at 2026 and five or 10 years from now if you don't have people writing these briefs? You don't have people writing these decisions. How can AI respond to what's taken place over the past 10 years if we don't have the humans actually doing the grunt work? Yeah, I mean, there's a there's I mean, I think those kinds of concerns have been expressed very much in the cultural context. You know, if we disincentivize creators from making new music and new art, is this it? Are we stuck with what we've got?

41:30With something like the law, one of the challenges is that, you know, these large language models, they don't get updated on a day-to-day basis. You know, there's sort of a stop point and then they don't know, well, they don't know anything, but they don't have the data from after a certain date. So that's a limitation. But the thing I worry most about with the law is that you have to be able to spot the hallucinations or you're going to get yourself in very big trouble. And I think this is true for a lot of different fields. And this is, again, just to digress a little, why the profitability narrative is not true.

42:09Right. Because the only place where you can just put this content out and just leave it there is in very low stakes places, right, where it doesn't matter if you get something wrong. But even things that you wouldn't think are such a big deal have proved to be quite high stakes. So Air Canada had a chat bot that told a customer that if they wanted to apply for a bereavement discount for a flight, they could do that after their flight was done. Now, that's not Air Canada's policy. You had to do it in advance. And so this customer tried to get their refund after the fact. And Air Canada said, well, the chatbot got it wrong.

42:48Too bad, so sad for you. It's your chatbot. You're responsible for it. Exactly. Not my mistake, your mistake. Exactly. And so even in these sort of reasonably low stakes customer service interactions, there's reason to be really worried about inaccuracy. Now you start dialing up to things to medical advice, legal advice. You know, it's just you can't rely on them. And I worry that we're putting people in a very difficult position because it's a it's a lot easier to get something right when you write it yourself than it is to find mistakes in something someone else has put together. So let me push back a little bit because I've been watching the AI reading medical scans.

43:33And at some point last year, or maybe it was two years ago, the technology theoretically passed the accuracy rate of humans. fewer false positives, more identifying missed negatives that should have been positive than people. Is that not accurate or where are we with the medical application of that? So this is why I think it's so important to disaggregate the different kinds of AI, because that is not sort of LLM based AI. And as I said, some of those tools are great. I can't weigh in on medical imaging and things like that. So it may very well be the case. What I'm talking about is, you know, what if you've got, you know, a doctor coming up with instructions for a care plan for their patients, and they let the AI do it, right?

44:28If there's a mistake in there, they're much less likely to catch it if the AI, because, you know, you know how things go, you'll be expected to look at more of these because you're not generating them yourself. And it's always is easier to get things right when you do it yourself than when you're reviewing someone else. I mean, when we were lawyers, we used to, that's why you want to have the pen on contracts. You want to hide things from the other side. And now it's the AI hiding stuff from you. And I worry that especially with younger lawyers coming up through the ranks who are encouraged to rely on these tools from the beginning, who won't actually develop the skills because Because you don't learn well when you sort of don't process it yourself.

45:10So if you spent your whole career using AI, you're not going to be able to spot the problems in the AI. You're not going to have the skill set. No. And so then I'm worried about those young lawyers getting sued for malpractice because they missed something that the AI generated, but they were never even given the opportunity to learn how to spot it themselves. It's a problem with the rungs on the ladder being removed, especially we see that now manifesting itself. The unemployment rate of the under 30 is about double what it is for the national unemployment rate. And I can't help but wonder how much of that is somehow related to the proliferation of AI tools for white collar jobs.

45:53I think, you know, Corey Doctorow, who does a lot of work in the tech space, has a great quote on this that I'm going to butcher a little, not say it quite as well as he does it. But he said, the AI can't do your job, but the AI salesman can convince your boss to replace you with AI that can't do your job. Right. So it's I think you're right that there is at this moment. And, you know, I mean, it's also hard to say how much of this is AI washing as opposed to real AI displacement. Right. The economy is not in a great place right now. People don't want to hire anyway. It looks a lot better if you say, well, we're not hiring because we're replacing them with AI than just we're having a rough time.

46:36We're not hiring. AI washing is a phrase I haven't heard used in modern parlance yet, but it certainly makes a whole lot of sense. The line I heard, and I don't know where I'm stealing this from, is you're not going to be replaced by AI. You're going to be replaced by somebody with a greater facility working with AI than you have. And it sort of creates a self-fulfilling arms race to make sure you learn how to use that tool. Otherwise, you're at risk for being replaced by somebody who knows how to use that tool. I've heard that too, but I don't think these tools are that hard to use, right? I mean, that's a failure on the part of the AI companies if they're so hard to use, right?

47:15It wasn't hard to use Google search. Perplexity and even chat GPT is absolutely easy as pie to use. I don't find them difficult. Sometimes you have to keep changing the prompts to get an improved answer. Like if you just ask a question and walk away, well, then you're getting what everybody gets. But if you I don't I don't really buy into the prompt engineer job title, but a little exposure is the more you ask it and the more you vary it, you get a variety of answers and eventually you come up with something. Oh, that's interesting and different. Let me let me take a look at that. So, I mean, I have strong feelings about this as an educator, because if these tools are worth their salt, it shouldn't take our students long to figure out how to use them.

48:04Right. Right. So why are we bringing them into education where what they really need to learn is how to spot hallucinations, how to think critically so that if they are going to use these tools later, they can use them to the best of their abilities. This whole arms race sense of, well, they need to use them in school so they don't get left behind. I'm like, it didn't take long to learn how to Google. They'll be fine. You've been pretty critical of things like crypto and stable coin. We're going to get to those in a moment. I want to talk about some other things you've discussed. You've brought up the whole idea of technology as a branding exercise, phrases like democratizing finance, disruptive technology, banking the unbanks.

48:51You've described these as just marketing and not really accomplishing anything. Tell us a little bit about those and give us some examples. Sure. I mean, I think at the heart of all this is innovation speak and innovation worship, right? We alluded to that earlier. This sense that anything that is innovative is inherently good and must therefore be permitted at all costs. And that is sort of the font of a lot of the rhetoric and narrative that we get out of Silicon Valley that ultimately is there to attract funding, yes, but also to procure legal treatment that facilitates what they want to do.

49:33It actually creates often an unlevel legal playing field where you have the incumbents who have to comply with all the laws and then the disruptors, as you say, who don't have to comply with all the laws and can succeed on that basis, even if their product isn't superior in the way we would typically expect a disruptor's product to be. So, yeah, I mean, disruptive innovation goes back to Clayton Christensen and the innovator's dilemma. This sense that if you stay still and just make good products, you'll be outcompeted by someone who is trying to do things a little differently. But, you know, there's no real formula that you can take away from that as to what disruptive is in the eye of the beholder.

50:23So let me push back on that a little bit. And all my VC friends, I could just hear their voices in my head. And the pushback is, look, most new companies fail. Most new technologies crash and burn. Most new ideas never make it. And even the best of the best VCs, they'll make 100 investments for that one moonshot that works out. And most of the other 99 are at best break even, but mostly losers. How could you say this is true? Oh, and real innovation often finds itself in between the regulatory regime because the technology that's being created was never anticipated by the regulators or anybody else.

51:11Fair pushback? A lot of points that I would quibble with there. Some of it is fair. Quibble away. Quibble away. All right. So there's this idea that the law is a barrier to innovation because law is old and innovation is new and the law couldn't possibly have contemplated the innovation. The story about the innovation is what makes it new. Right. Most of the things that we're seeing in the fintech space, they're not that new. Right. As I said, you know, we've got fintech lending has a lot of the things that we didn't like about payday lending. Right. Why shouldn't the laws from payday lending apply?

51:49Crypto, basically, I mean, the crypto markets for all the world look like the stocks and bonds and the unregulated markets of the 1920s. We saw how that ended. They ended in such a spectacular crash that we ended up with the securities laws. Why shouldn't they apply? What's so different? Right. So this construction of novelty is something that is done intentionally as a narrative. Now, I fully appreciate that we need the optimists in this world who are going to try new things. And I say that very early on in the book, the people who these stories are useful because they attract funding to new things.

52:26So I'm not saying we should do away with it completely. My argument is that the yin and yang, the balance between the optimists and the realists is badly out of whack because we give so much deference to the stories about innovation, about disruption, about how technology can solve problems that have been with us for centuries. We can magically get rid of intermediaries now with blockchain technology, apparently. Well, that was one of the narratives was this intermediation until it no longer was a story. But let's talk about some specific companies that you've mentioned that you've written about.

53:06And I want to get your sense on it. And the oldest one was PayPal. To this day, and I was a PayPal user back in the 1990s with eBay and those sort of things. To this day, I don't understand what they did that was any different than a credit card other than being a bit of middleware that eventually became a rentier. Why not just use a credit card? Why do I need PayPal between me and Amazon or me and eBay? So this is really an interesting story. And I learned a whole lot about this in research for this book by reading Max Chafkin's book, The Contrarian, about Peter Thiel and the beginning of PayPal.

53:51And in fact, the idea for PayPal came from the same place that the idea for crypto has come from, which is this techno libertarian idea of we don't like regulation. We don't like central banks. We would like to have private money and we would like technology to help us have private money. And PayPal wasn't the only one of these kinds of startups back in the early dot com bubble. So PayPal, I think, succeeded because it sort of lucked into this deal with eBay, as you said, right? It sort of had no distinguishing features, as far as I can tell, that made it any superior to the beanses and the floozes of this world.

54:31It lucked into this deal with eBay. And eventually eBay buys them to solve their, I guess, credit card management problem. I don't really understand. I still, you know, 20 years, 25 years later, I still don't understand why they were necessary. I think, yeah, I mean, my knowledge of this comes primarily from reading Max Chafkin's book, which I highly recommend. But that's my understanding, too. And so, you know, they are a payments technology. I, too, struggle to sort of understand what they offer that a credit card doesn't in many ways. One thing they are, though, is they are sort of the or regulatory arbitrage story in fintech, right?

55:21So, you know, I've said so much of fintech is actually about arbitraging the law rather than technological superiority. PayPal, from the beginning, was flaunting quite aggressively the banking laws because only banks are allowed to accept deposits. And people were keeping money in their PayPal wallets. And for all the world, that looks like keeping a deposit. that Peter Thiel from the beginning was very aggressive on the lobbying to make sure that that was not considered deposit taking. Early on, there were multiple states that were investigating it because they thought it was the unflawful taking of deposits.

55:55He lobbied heavily in Congress and lobbied heavily at the FDIC. And ultimately, you know, that worked. And so I think that has sort of been the prototype, that blitz scaling prototype. I think people perhaps underestimate the degree to which blitzscaling is really about playing on an unlevel legal playing field. Let's talk about stable coins. What sort of value do they provide? Again, unless you are trying to do illicit transactions or gamble, not a whole lot, right? Well, a stable coin is worth a dollar and it promises to always be worth a dollar. Don't we have dollars? Why do I need a stable coin?

56:36Well, you need a stablecoin often to do illicit payments. They're very popular, for example, with all kinds of drug cartels and they're good for sanctions evasion. They're also very good if you want to gamble in crypto and you want to use it as sort of a cash management tool in between crypto investments, kind of like a money market mutual fund in your brokerage account for parking funds in between crypto gambling. But they've really never had any utility in any big way as a legal payments mechanism. All right. So what about you mentioned the blockchain? I keep reading that blockchain is going to allow us to use smart contracts and have things happen automatically that now have to be manually.

57:24What's the problem with blockchain? Well, first of all, smart contracts can work without a blockchain. Smart contracts predate blockchains. They can run on all kinds of databases. So if you want that kind of functionality, and it has pros and cons, and I've written about this a ton, you can have that without a blockchain. The reason why you don't want to have it on a blockchain, and this is something that does not get anywhere near the attention it needs, is that there's all kinds of operational risks associated with the blockchains themselves. So blockchains are software. They are maintained by, in the case of the Bitcoin blockchain, just a few individuals.

58:03In the case of the Ethereum blockchain, it's the Ethereum Foundation. They're not regulated at all. They have no obligation to invest in cybersecurity, to invest in getting their blockchains up and running again should something go wrong. You're just – you're really sort of, as I sometimes say, YOLOing operational risk with regards to these blockchains. And so if you want smart contract functionality, don't use a blockchain. Coming up, we continue our conversation with Professor Hilary Allen discussing her new book, FinTech Dystopia, a summer beach read about Silicon Valley and how it's ruining things.

58:47I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

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59:55Subscribe today wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Hillary Allen. She teaches at the American University Washington College of Law in Washington, D.C., where she specializes in regulation of financial and technology laws. So we mentioned stablecoin. We've mentioned blockchain. Is there any value in any of the crypto coins, be it Bitcoin or Ethereum? I know we can't actually describe the last hundred coins that are out there on the radio.

1:00:44We'll violate George Carlin's seven words you can't say on TV or radio. But there's a outside of the, you know, Eboo, Dogecoins and everything below that. What's the value of the first five or so cryptocurrencies? Is there anything worthwhile to these or is this just a solution in search of a problem? It's a solution in search of a problem. I mean, essentially, even so Bitcoin often is seen as the most credible of these because it's been around the longest and has the largest. It's Bitcoin and ETH. Those are the two I hear about the most. But both of them are essentially Ponzi's in the sense that there's nothing backing them.

1:01:25The only reason they have value is because someone else might buy them from you. If they choose not to, it could go to zero. And actually, someone put it to me this way. It's not that they could go to zero. They could go to less than zero because they don't even have any assets that could be used to administer a winding up. Right. And that's expensive. You know, you're going to get the lawyers and the courts and everybody involved. Well, you're not suggesting that if you own Bitcoin, you may have a liability down the road. Is that is that the implication? No, I'm just saying that if someone was trying to work out the end of one of these things, there wouldn't even be office furniture you could sell to pay the lawyers.

1:02:06Okay. You've written about startups like Theranos. I remember Juicero. Juicero is the best. Tell us a little bit about those two. And was that just one of these products that just didn't work out? What's the problem with that technology solution to our juicing problems? So Juicero is just my favorite metaphor for all of this. So for those of you who are unfamiliar with the gift that is Juicero, so basically this was a machine. It cost hundreds of dollars. It was Wi-Fi enabled. Well, roll back. The guy – and you describe this in the book. The guy who invented this previously had set up a fairly successful – was it a juicing chain of companies that got bought?

1:02:55And so he had some credibility in the space and now I'm not going to run restaurants. I'm going to create a technology that people can juice at home. It was venture funded. They put a lot of money into this. Hundred plus million dollars. And these – what it did was it squeezed these juice pouches. And the problem was that people could just squeeze the juice pouches with their bare hands and get all the juice. There was there was a notorious Bloomberg article about this. But it raises the question, did the company already squeeze the juice and put in these pouches? Why didn't they like why wasn't this set up so that you can actually put fresh fruit?

1:03:38Like, doesn't it defeat the purpose if you're buying pouches? Or was the whole idea the razor blade model? So, I mean, the reason why I love this as a metaphor is it really gets at this technosolutionism, which is one of the concepts that I'm really coming for in this book. And technosolutionism is this idea that everything in our world can be reduced into a technology problem. and that the only reason we haven't solved certain things is because we haven't spent enough time and money on developing the technology. And what that does is it sort of flattens problems into – it gets rid of the human messiness.

1:04:17It flattens problems. It ignores domain expertise, people who've been working in particular fields for a long time and know a lot of non-tech stuff. It sort of dismisses their expertise. and sadly you know there's just this magic associated with technology at this point and as i said i'm not anti-technology a lot of it's great but it doesn't deserve the level of sort of magical deference that we give it it can't solve all our problems and when we get into this mindset where we think that if we throw enough money at technology it can solve anything and it will always be the best solutions we end up squeezing pouches with a machine that we could squeeze with our bare hands.

1:04:55And a joke that I try and make in the book is like, with AI, we may be better off squeezing things with our bare minds. So one more company I have to ask about, Theranos. I love the book, Bad Blood, really went into details about how corrosive and co-opting the company itself was for everybody around it, including the attorneys and all sorts of other bad actors. Why wasn't Theranos just an idea that didn't work? That you can't, if you want to draw blood from a vein, you have to draw blood from a vein. You can't just prick your fingertip and think that's going to be the same as venal draws. Well, so that's the thing with this techno solutionism.

1:05:42It presumes that everything is a tech problem waiting to be solved, it doesn't even countenance the possibility that there may not be a technological solution for what you want to do, that the technology you want may not be able to do the thing you want it to do. And when you have that sort of collective sense that I think we have now that if we throw enough money at any technology, it can solve any problem we give it, you can see how people get so susceptible to being sort of drawn into the stories that outright con people like Elizabeth Holmes might be telling, but also the stories that we're being told about, you know, about AI right now and about crypto.

1:06:24You know, the more you know about these technologies, the less impressive they seem, and the more clearly it becomes illuminated that that they just can't do a lot of the things that they're going to do. But that's so counter to how we typically talk about technologies that it sort of, it feels a bit weird to talk like that. And you sort of, you're going against societal norms in a way. And so one of the things that I really wanted to do with this is to start making it easier to talk about these things critically, to be not such an outlier to express your frustrations. And I think we're actually having a moment like that about AI because so many people really hate it.

1:07:08Really? So you use the phrase techno-solutionism, and Theranos is really the poster child for that because as you're describing a lot of these things, I am recalling the story, especially what you're referring to with domain expertise. She had no medical or medical device training. None of the VCs who put money into Theranos were healthcare, biotech, medical devices, like they all passed. Eventually, she hired a number of people to try and with some background, but they seem to turn over pretty quickly because no, you can't do that. What you just pricking the skin, you're getting all the interstitial tissue and fluids, and you're corrupting the sample that you want to test for something, you have the reason we draw from the vein is very medically specific.

1:08:07And yet it attracted Henry Kissinger and the all sorts of big law firms and everybody plowed in. She's the next Steve Jobs, the youngest self-made female billionaire. What is it about us that we're just so susceptible to buying into these narrative tales that turn out to be nonsense. So, I mean, part of it is that we're humans and humans have often sort of been snowed by things that are flashy and shiny and exciting. I mean, that's just very much the human condition. Some of the stuff I talk about in the book that I really enjoyed working on was the cognitive psychology aspects of it. You know, sort of when we hear certain stories it's very difficult to budge ourselves and be contrarian.

1:09:04And as I was saying earlier, so you sort of need a collective tipping point where people start to question it. So you don't feel like an outlier or the norm when you start to question these things. And so I think there's a role for media here. I think there's a role for education. Unfortunately, the people who benefit from techno-solutionism also know this and have a very big media presence and invest a lot in education. So it's an uphill battle to start talking about these things differently. But, you know, ultimately, we are all human. And it's nicer to believe that something will succeed than that it will fail.

1:09:43I mean, you might not think I'd be much fun at cocktail parties, although I am. And the book is available for free at fintechdystopia.com. Dot com. Let's jump to our final questions, our favorite questions we ask all of our guests, starting with tell us about your mentors who helped steer your career. So my first mentor is probably my first law firm partner, Boss, in Australia, Stephen Kavanaugh. And I had thought I was going to be an IP lawyer, but we had a rotation system and I ended up in his financial services practice. and he was just a wonderful person to work for. It was a time when the law had just changed in Australia and he really was willing to hear what I had to say about this new law.

1:10:38And so it was just, I just felt very invested in and that was lovely. And then I think as an academic, Patricia McCoy, who I adore, sort of, I have had a very non-traditional path to academia. I had more practice experience than is usually the case. I had fewer of the bells and whistles credentials that people usually have. And again, she just saw in me someone who was really passionate about preventing financial crises, about sort of systemic risk, and sort of was willing to look through the fact that I wasn't as polished as most of the other people trying to enter academia and support me. And I was very grateful for that.

1:11:17We've talked about a run of different books. What are some of your favorites? What are you reading right now? Oh, I was an English lit major, so I have many favorites. I'm very into the dystopian track, so Handmaid's Tale 1984. No surprise, right? I just finished The Parable of the Sower in that vein, which was… Parable of the… The Parable of the Sower, Octavia Butler. I also have always had a soft spot for really good children's literature. So Philip Pullman's Dark Materials trilogy is one of my favorites. And right now I'm reading with my kids Catherine Rundell's books, Impossible Creatures and The Poison King.

1:11:59And they're just so good. And then work-wise, I've just started Jacob Silverman's Gilded Rage, which is very much on point for the conversation we're having. Gilded Rage. You know, we talked about a few crypto-related books. Did you see Zeke Fox's number go up? It really is just an astonishing, astonishing work. What sort of advice would you give to a recent college grad interested in a career on whether it was law, financial technology, regulation? What's your advice to those people? It's a really hard time for them. And I talk to my students a lot about the careers. And, you know, things are the ground is shifting under our feet.

1:12:41And in this time of uncertainty, it's really hard to figure out what to do. So I would recommend investing in the fundamentals. And I think it's hard to do when AI is being pushed, but becoming a good communicator, learning how to write and speak to people clearly will never, I think, go out of fashion. and investing in relationships. Again, we're in this time where everything is sort of becoming technologized and atomized, et cetera. But in my career, having good relationships with people, and I'm pretty sure you'll agree with this, has been one of the most successful things that has helped me along the way.

1:13:17And so just investing in personal relationships, I think, is always good advice. And our final question, what do you know about the world of fintech investing regulation today might have been useful 20, 25 years ago?

1:13:36Honestly, I'm not sure that there's much because the world was very different 20 to 25 years ago. I always just invested in index funds, basically, and that worked out, frankly, great for me. Worked out really well. The challenge is, and I study financial crises, the challenge is that when things go horribly wrong, Everything is correlated. Everything is correlated. All correlations go to one in a crisis, for sure. And I think we're on the brink of a crisis. When you say on the brink, days, weeks, months, years. Well, John Maynard Keynes said that the markets can stay irrational longer than you and I can stay solvent.

1:14:17So I will never put a time frame on it. But all warning indicators are flashing red at the same time as we are pulling back all regulatory apparatus. So I think it's safe to say we're on the brink of a crisis. How could that ever go wrong? How could regulation unleashes the animal spirits? As long as we're talking about canes. It's all good. Perhaps not. Perhaps not. Hillary, thank you so much for being so generous with your time. We have been speaking with Hillary Allen, professor of law at American University, Washington College in D.C., and author of the book available for free online, FinTech Dystopia, a summer beach read about how Silicon Valley is ruining things.

1:15:06If you enjoy this conversation, well, check out any of the 600 previous discussions we've had over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, or wherever you find your favorite podcast. I would be remiss if I didn't thank our crack staff that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

1:15:50I'm Carol Masser. And I'm Tim Stenevec, inviting you to join us for the Bloomberg Business Week Daily Podcast. Now, every day we are bringing you reporting from the magazine that helps global leaders stay ahead. We've got insight on the people, the companies and trends that are shaping today's complex economy. That's right, Tim. We're all over global business, finance, tech news, all as it is happening in real time. And we've got complete coverage of the U.S. market close. Gotta say, basically, if it impacts financial markets, if it impacts companies, if it's impacting trends and narratives that are out there, we are on it.

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