The Regulatory Frontier

0:00We started building these kind of like software frameworks. It allows two engineers to decide an entire jet engine. There is no like startup that builds hardware collaboration tools that can sell you anything anymore. Even spreadsheets are kind of cooked. The closer that our products get to being like a single block of covalently bonded matter, the better they'll be. Intelligence is an unalloyed good. You always want more intelligence. If you fall behind on your ability to generate software, you fall behind on the ability to generate everything. The software still needs hands. Like it's going to be smarter than us.

0:27But if it can't make things, then those are real boundaries. I mean, humans are becoming verifiers, right? One of the things we see related to the regulatory is it massively reduces change aversion and improves iterations. To give you an example, let's say you're going to go certify an airplane. One of the zillions of things you have to do is prove that it can withstand a lightning strike. and the regulatory documentation for the test plan for such a thing stretches on for, say, 200 pages. And what you would classically do is hire a, let's be honest, not super bright engineer who's willing to be there, monkey at keyboard, writing 200 pages of regulatory compliance documentation.

1:09And it takes a couple months. And by the way, if you change the airplane, now you want to cry because there's another, like, two months of rework of this, like, rote kind of regulatory compliance documentation. And what we found is, you know, we can build a rag that will enable us to basically prompt our way through all of that work, you know, in, let's call it minutes. The first order effect is, oh, you save a lot of time. The second order effect is if you change the specification of the airplane, it now takes, you know, minutes, not months. So you could actually be willing to change. And the third order effect is you can now, you know, basically get rid of the not very great engineers and have a small number of really creative ones that can iterate rapidly because the cost of change goes down.

1:54And in a certain sense, like the entire regulatory burden, which really hurts the ability to iterate, drops away. I think that this is a really undersold story in AI right now. I think the consensus in Silicon Valley is that like regulation sucks. Like we want to go faster. We want to realize this amazing future. We want abundance. We want just like prosperity and stuff that slows down that future. It's just kind of to be avoided. And certainly I think we've over-regulated. We've made it impossible to build stuff. It's just like, it's totally crazy what goes into getting, building any type of thing in a lot of places, either physical or otherwise.

2:25But, you know, like a lot of the regulations themselves are not the problem. Like if you've actually read a lot of these things, like having non-smog choked cities is great. Being able to swim in like many rivers is great. Like having, like a lot of these things were progress. The problem is that it is really difficult for humans to deal with understanding and complying with this and that every time you have to exchange a letter with the government you wait months and if you could take a lot of the things that we've learned and kind of make them like totally frictionless that would actually be pretty cool and i think that um that i think is an under an undersold story in ai right now yeah until the regulators start spewing tokens back at us and then you start getting huge amounts of documents from the regulators that you have to comply and it's agent on agent wars but but that's basically what we have now yeah but but But there is a fair fight, yeah.

3:14I'd argue that's an improvement from where we are now. One of the terrible things right now is if you're going to build anything physical, you have to get a building permit. It's like you're guilty until proven innocent. And the worst thing that we've run into is the fire department because they have the moral imprimatur of people pulling people out of burning buildings. And yet what they actually do is just like, screw with your design for buildings for months. And if we could replace the fire marshal with an agent that would critique your building plan quickly. Even if its feedback was overdone, it would be massively better than the delays that exist today.

3:51When Max was talking about this potentially being a good thing to have all this regulation, my head went to, the things that make agents successful is humans or other agents setting up the right testing guardrails. A lot of people are really excited about Slash Goal. I don't know if you guys have played with that or like Ralph loops where you tell the model, go do this. And this is your exit criteria. Well, I'm telling Blake, go make us all supersonic. Your exit criteria is that you've complied with all of these regulations. So there's totally a world where we say like the regulations are great.

4:23They're like our testing suite, our test suite. As long as this passing this test, one does not incur in contradictions and the regulations are actually reasonable, et cetera. like they're actually an awesome guardrail to have. Otherwise we would be shipping slop directly into the air. Yeah, but this is going to turn into a red queen's race, right? They're going to have agents. We're going to have agents. I think we might have better agents, which is good, as opposed to have to do human versus human. But if anything, their cycle time, their response time may get lower. Like the app store is drowning in spam.

4:56I'm sure the patent office right now is drowning in spam. And so these agencies, they're going to be slow adopters of AI. They're going to get DDoSed. right, by clever entrepreneurs just overloading them with documents, it's possible that the approval time for this stuff might extend out as this suddenly gets flooded. It creates an opportunity to, I think, really shift the model, the regulatory model. Imagine if we drove around a city the way we build things today. Before you could go anywhere, you'd have to write a plan up, ship it to some regulator, you know, and your plan would have to specify, we're going to take such and such a route, we're going to drive this speed limit, we're going to use our blinker, we're going to stop at every stop sign and we're never going to run a red light, blah, blah, blah, blah, blah.

5:37And then three months later, you get back critique. It's like, well, we think you should drive on this other street. And eventually you get approval and you can go drive somewhere. It's insane. You can never go anywhere. And yet that is absolutely the way we build physical infrastructure in this country. It's guilty until proven innocent. And what we should actually do is make more of these things enforcement-based rather than pre-approval-based. I mean, I don't know. I mean, I don't want to be under too much pressure. Like if I ship a medical device to a lot of people. There needs to be, it's like, there's unknowns there.

6:07It's like, we were responsible. We did clinical trials. We reported all the data. But Max, this is why there's so little innovation in medical right now, because the FDA approval process is a nightmare. In fact, the two biggest advancements in tech in Silicon Valley in the last decade, AI and before that crypto, they're both in the math domain because that's the last unregulated domain. And when they started regulating frontier models and started regulating GPUs, that stops as well you know peter thiel laments about how there's no innovation in the physical domain what's been held back by just the huge regulatory barriers and you can always find a scare version like your vaccine or medical like famous ones right but the regulation spread everywhere the tentacles are everywhere and there's all these different contradictory regulatory bodies you saw how uh was it spacex they got sued first for for not having enough i forget what it was migrants or refugees or whatever but they're not allowed to hire them by government regulation on the other side because they're not citizens.

7:03This is not like logical code that has to compile in one place. These are made up random regulations all over the place. You might comply with one state, you violate another state, you violate federal over here, you annoy this guy over here, that guy chooses to prosecute one out of 50 people who are his friend. It's very arbitrary. It's very capricious. And moreover, the idea that this makes things safer, I think it's just a complete mythology. Just watch Boeing as an example. They certified the 737 MAX, which had a single sensor that had complete authority over the nose up, nose down attitude of that airplane.

7:37No intern is dumb enough to think that's a good idea. And yet it got all the way through the certification system. This stuff doesn't actually make us safer. It just makes us slower. Well, I mean, there's definitely dysfunction here. I mean, I think that some of this makes us safer in the sense that the NRC makes us safer, which is that their job was to make sure that nuclear energy was safe. They did this by permitting zero plants until I think like a year ago, since the 70s. It will be perfectly safe if we never build any of it. And I want to be really clear that I'm on the side of deregulation on a lot of this.

8:07I agree with Blake that a lot of this can be done a lot more efficiently. But I also think it's a little too dismissive just to say it's like, oh, this is like the FDA or like even it's in the agencies in general. And the problem is deeper to the degree that if the FDA approves 10 really important drugs, they don't get any credit for that. One patient dies and they get hauled before Congress and yelled at. And so they have very negatively biased incentives here. And I think the reality is, is that this is reflective of the beliefs of the American people. There's this tradeoff here between the perception of risk taken in human subjects research and the rate at which we get new medicines.

8:43And it is absolutely true that if we move faster on this, we would learn. It's totally asymmetric. And I think you're totally right, Max. If you approve a bad thing, your career is over. If you block a good thing, nobody notices, right? So it creates this asymmetric slowdown. And I think this is, I think that is the most important problem to solve in the regulatory state. But this is a very deep problem because it is, this is where the voters are. Like, and we go and poll some of the stuff that we're working on in the future to understand kind of like where the American people are on it. And if you push too hard on this, like there are all kinds of ways you could work around it.

9:17You go to Prospera, there's all kinds of ways to try to go faster. But if you're seen as being a bad actor, then you're rejected from the society that we live in. That is the thing that you need an answer for, which is deeper than just saying like, oh, well, we need regulatory reform. You have a deep point there, Max, which is it's the voters, right? Yeah. That's where the citizens are. Like we like to blame politicians. You'll see this on X all the time, right? When people are like, oh, this politician, that politician, you are politicians. They're elected. They're voted. Majority vote, right?

9:45This is where the people literally are. That's the package. That's the bundle they've chosen. And you may not like this constantiation, but if you were to remove this one, something very similar would take its place because the voters would just vote them right back in. And I think culturally, it's very hard for most people to understand what we lost, what we missed, right? So for example, like France, you know, there's a French entrepreneur on X lamenting that 57 % of GDP gets sucked up by the government. And so you can't create companies, but to the average French citizen, that's not visible.

10:12They don't notice what they're missing. They just know they're slightly poorer than the US. The Economist just did a little piece on, Economist is finally coming back around to being capitalists after 30 years. And they just did a little piece on how the US is outstripping everybody and growing faster and getting bigger. But then they immediately turn and say, well, it's because of the oceans, because of natural resources, everything but capitalism, right? They don't want to say the dirty C word because for some reason, all of these magazines became Marxists at some point. But they can't envision or imagine what could have been if we had just been a little more laissez-faire, a little more open.

10:49I would love to see a true experiment among the 50 states, different regulations, different tax structures, because right now the federal tax structure and federal regulations dominate everything. But imagine you could go to some small state if you had cancer and you could try every drug that everyone was cooking up and caveat at mTOR and you got to do your research and blah blah blah but this is known as the experimental zone um same way for drones same way for well aircraft a little harder because you got to cross a lot of areas but i do think there's something magical in there the notion of like innovation zones because we have we have a huge like nimby problem right uh but if you if you create like you know opt-in yimby zones they create that experimentation framework and by definition it happens where people are consenting and you can try different rules or no rules or different ways of enforcing or, you know, innocent until proven guilty, and then see what actually happens.

11:39And what are the innovation consequences? What are the safety consequences? And then the successes can spread. But I mean, to Naval's point, an innovation zone would not solve the problem in drug discovery. So there's the Right to Try Act passed a little while ago. We've had this pathway called single patient IND for a lot longer than that. The FDA, like if your doctor calls the FDA and says, hey, I want to give this my patient an approved drug. They give over 99 % of those over, like they approve over 99 % of those. They can even grant them over the phone. The problem is that in order to dose a patient, you still need clinical grade drug.

12:13And the only entity with that is typically the IP owner who's in the middle of running a clinical trial. Like they're investing hundreds of millions of dollars into like making this thing. And the problem is that the FDA, they'll draw an adverse inference. If something bad happens to your patient, who's probably really sick to begin with. And that's going to be seen as a property of the drug, which is global, not related to your innovation zone. And so there's kind of two problems. One is you need to get the IP owner to give you some of your drug, which they're not going to do. And then you need to prevent the global regulator from casting doubt on what might happen with their clinical trial if they give you some.

12:47How would you address, I mean, I don't know your field. How would you address that in medicine? Oh, well, I mean, that in particular, I mean, this is just like a very inside baseball. I think the FDA has to be prohibited from drawing adverse inferences across different users of a capsid, for example. There's these like a bunch of specific ways that you could really accelerate innovation with a relatively light regulatory touch by just preventing this kind of paranoia from driving our decisions. Is there anything better than the FDA out there? Like what are we benchmarking these regulators against?

13:18Or is it not an interesting question because we don't have everyone follows the FDA? So I'll give two expansions to that. The first is Europe, which is not really better than the FDA, but they have a different system in that they've got these notified bodies, which are basically private businesses that are blessed by their host government to certify things, whether this is trains or planes or medical devices. And the notified body system creates slightly better incentives at the review layer because they can hire people, they can grow, there's competition in the notified bodies. They themselves have to be compliant with the conditions placed by their host governments for certification.

13:51But that means that there can be many thousands more reviewers than you might have in the US. The second thing I'll say is there actually is one approved getting paid implantable BCI today, which is in China. And the CFDA is thinking for itself. And they really do have a system that I think is going to give us a run for our money if we're not careful. And they handle it very differently. How do they handle it? I mean, the costs to bring a drug to market or a device to market are just much lower. I mean, you can try things in humans and you can try things on market. So the problem, one of the things that I've spent a lot of time recently thinking about is, like 20 years ago, we were buying far fewer laptops and phones.

14:34Each one was much more expensive. Now they're cheaper. There's far more of them. We buy more of them. The total spending has gone up. This is great. Stock prices of things like Qualcomm and Samsung and Apple are way up. Everybody's happy. They're using kind of the excess wealth generated by the phones and laptops to buy the phones and laptops. us. This doesn't happen in healthcare. In healthcare, because you've got this reimbursement mechanism in the way where there's this kind of enterprise sale happening, the bucket of money that we use to buy healthcare is basically fixed. It is not increasing as there is more stuff that is producing better healthcare outcomes like we see in technological growth industries.

15:07And so this means that the rate of spending on healthcare grows at roughly the rate of growth of tax receipts. And so if let's say that like AI is booming and there's major advances that are happening and two years from now, we're spending 10 times as much on AI as we are now, this could be great. But if in two years, we're spending 10 times as much on healthcare, this would be a catastrophe. And this is fundamentally at odds with being a technological growth industry. And so as time goes on, and there's more things to spend money on that extend and improve the quality of life for patients, like we can restore vision to people who go blind in their 80s, we might be able to extend life in like far past where it's been before, we can restore capability to patients that are older and in worse condition.

15:47But like, how do you pay for that? There's kind of this like omni problem in healthcare, which is all really related to the same problem, which is it's just too expensive to bring these things to market. And that's what China is getting at. The way out of this is not single payer or some revision to health insurance. It's to bring down the costs so that someone can buy this with a credit card, finance maybe like a car, worst case. And to do that, we have to make it cheaper to bring these things to market. And China's doing that. that will allow them to sell these things for$10 ,000 on$100 ,000.

16:17There's no private market in healthcare. And because there's no private market, what was the analogy people make sometimes? Imagine instead of going to restaurants and paying, you would basically go to all the restaurants and then at the end of the month, you would send all the receipts and all the bills to your insurer or to the government and they would reimburse you. Well, there'd be a line outside every good restaurant. Every bad restaurant would be available. The weights would be terrible. The product wouldn't improve. You're basically running a small communist society inside a larger capitalist society.

16:47That's what we're doing in healthcare. It's also what we're doing on roads, which is why we have traffic. Like it's the exact same situation on roads. It's why there's no variable pricing for getting on the highway. It's why it's always clogged. If you want to step on the third rail of healthcare for a moment, think about this healthcare plan. Tell me what's wrong with it, right? Imagine that the first 20 % of your annual income was your healthcare deductible. It doesn't matter. Like if you're broke and homeless, it's zero. If you're rich, you know, it's a million of the dollars. But whatever your annual income is, the first 20 % is your healthcare deductible.

17:22And then the rest is paid by the government and the insurance system up to the usual caps that they have today. you would create a private market pretty quickly and so like in dental and plastic surgery and sort of a lot of optional medical procedures you would actually get a competitive situation you get improvement like you get optometry you know with lasik you look at dental with like veneers and braces and all that stuff and kind of all the dental surgery stuff they do or if you look at plastic surgery like those fields do seem to be advancing because they're private payers they have people who are you know voting with their money so we need to do some equivalent of that in the normal health care system people lose their minds they don't want to think one step ahead they're like no no well what about the broke person well the broke person has no income so yeah they're like well 20 is too much for some people okay you can put some deductible in there but generally if you don't have some private market where people are paying a lot of the times for what are medical procedures you're just not going to get this feedback loop that you're talking about you're not going to have this ability to spend more money into the system right now like very wealthy people can spend voluntarily in the system but the prices aren't anywhere the rate cards aren't anywhere the system's not designed for it it's like if you go shopping for medical care and you want to pay out of your pocket sometimes they'll quote your price that's 10x what they charge the insurance company have you heard sid's story from gitlab do you know sid so he was uh i mean he had a massively successful IPO, then was diagnosed with a rare cancer and has achieved, has lived way past the prognosis, has really taken it into his own hands.

18:55I think he went from kind of, he did frontline chemo and then there was one alternative that was available. He exhausted it and the doctors were like, we've got nothing for you. I think like six or seven companies have come out of it. There's now 20 or 30 drugs in his escalation ladder. He's still alive. um over years later he's doing great i saw him the other day and he basically created his own like personalized medicines and uh treatment plan yeah there's there's a handful of these anecdotes that i've heard now i it is really clear to me that at the high end if you just kind of have like you're not dealing with insurance you have the resources you're like i want the full toolbox of modern science outcomes are possible that that like your normal like if you go and ask your doctor like oh what will happen if i do this they will just start shouting and throwing things but it is clear that that much but like that crazy things are possible at the high end i think that this type of like n of one medicine is actually going to end up being a really rich source of research for understanding how to build more translatable things it requires a ton of agency from the patient in a moment where they're at their weakest which is pretty uh ironic my friend passed away from cancer and like last thing he wanted to do was research n equals one medicine because he was just, you know, like dying by the weak.

20:12But this is where AI should really shine and come up with the right solutions and democratization of like, what can you actually do when you find yourself in that situation? It's kind of crazy how few people get access to this just from a knowledge perspective, not just monetarily speaking.