📚 Bradford DeLong, Economic historian and author of Slouching Towards Utopia: An Economic History of the Twentieth Century, joins us for a kick-ass conversation about the intersection of history, economics and investing.
We learned a tremendous amount from Professor DeLong’s book and his depth of historical and economic understanding.
Brad DeLong regularly shares his economic insights at https://braddelong.substack.com/
Segments:
00:00 Introduction to Tesla and Guest Speaker
00:43 Welcoming Brad DeLong
03:21 The Dangers of Timing the Market
13:51 Optimism vs Pessimism
17:25 Techno-Feudalism and Modern Capitalism
25:48 The Accelerating Pace of Technological Change
29:30 Investing in the Age of Misinformation
35:39 The Unseen Costs of our Consumption
39:56 The Enigma of Elon Musk
49:17 Technological Advancements and Society’s Future
57:51 Can the US Handle Its Debt?
01:04:31 Bitcoin: Digital Gold, or Fool’s Gold?
01:21:42 Final Thoughts and Wisdom
 Slouching Towards Eutopia, with Brad DeLong
[00:00:00] Brad: Tesla stock is a way of demonstrating a kind of meme like allegiance to a particular socio cultural intellectual movement associated with Elon Musk.​
[00:00:12] Luke: to Wall Street Wildlife, where we explore the complex world of markets, finance, and how to tap into your inner beast as an investor.
[00:00:33] Today, we’ve got a guest who’s going to help us dive deeper into the history and dynamics behind the economic systems we often take for granted.
[00:00:43] Krzysztof: We are welcoming to the jungle the esteemed brad de long a renowned economic historian professor at the university of california berkeley Professor de long is not only an expert in economic theory and policy, but also someone Who has [00:01:00] contributed profoundly to our understanding of modern economic history. His work bridges the gap between academia and the practical realities of markets, finance, and government policy. Sweet.
[00:01:14] Luke: Towards Utopia, which offers a deep dive into the extraordinary economic growth and transformation of the 20th century. He’s also,
[00:01:23] Brad: New York Times bestseller.
[00:01:26] Luke: and
[00:01:27] Brad: It’s a requirement from my publisher that I say that every time the book’s title is mentioned.
[00:01:32] Luke: I gather there’s, it’s a 600 page book with another 400 pages on the cutting room floor, I recall you saying. Um, but we don’t want to sell you short. Brad, because you’re, you were also former deputy assistant secretary of the U. S. treasury under the Clinton administration, where you had a key role in shaping economic policy, uh, Brad’s insights span from the industrial revolution to the digital age, and they give us a unique [00:02:00] lens through which to view today’s financial landscape.
[00:02:04] If you want to understand why the global economy behaves the way it does and how historical events continue to influence the present, Brad DeLong is your man.
[00:02:14] Brad: Incredibly flattering. Um, do I also get assigned a beast?
[00:02:19] Luke: You may be a beast, you can choose your own animal.
[00:02:22] Brad: Oh, I have to choose my own animal. animal that tries to minimize fees and taxes, while at the same time looking out for the very long run and not getting so far over my skis that a single bad day can wipe me out?
[00:02:38] Krzysztof: We’ll get back to you, right? I was like, yeah, yeah, that’s a good question. What animal that’s a smart animal So one last point, uh, nothing we say today Is
[00:02:48] Brad: Investment advice.
[00:02:50] Krzysztof: So we are not responsible for any financial outcomes that may or may not occur. So, brad, here’s the thing. Um, [00:03:00] your professor and as I read your book with great delight, I kind of thought of you also as a little bit of an economic provocateur because you say really fascinating things and you pick sides and you have
[00:03:12] all these human opinions.
[00:03:14] So it’s an honor to have you here with us at
[00:03:16] Brad: Thank you. Mm
[00:03:18] Krzysztof: into like real life situation. One year ago, more or less, took a good hard look at our, at the macro economic picture of the United States. And what I saw. Look to me at that point, really grizzly. so I sort of like got in involved with like this really dark, pessimistic outlook on things.
[00:03:43] I was looking at, commercial real estate values plummeting and, you know, properties being sold for way less than they were bought out. Massive amounts of debt everywhere, credit card debt, you know, individual debts, uh, auto loans going, uh, [00:04:00] belly up,
[00:04:00] Brad: Mm hmm.
[00:04:01] Krzysztof: the national You know, out of control from my point of view in the trillions. And so here’s what I did. I, after being an investor for 20 plus years of never really weighing macro stuff
[00:04:18] Brad: Right.
[00:04:19] Krzysztof: heavily. For the first time in my life, I looked at all this and I, and I basically said, this is no bueno. This is just really bad. I had a case of PTSD from 2008
[00:04:32] Brad: Mm hmm.
[00:04:33] Krzysztof: out from the market. did the market do? As soon as I did that, it went straight up.
[00:04:39] Brad: Yes.
[00:04:40] Krzysztof: that’s to be expected, right?
[00:04:42] Brad: Although only a small part of it went straight up.
[00:04:45] Krzysztof: Okay,
[00:04:46] Brad: of it kind of bumped along, and a very small part of it went really straight up.
[00:04:51] Krzysztof: here’s my question, right? So obviously, right, there’s all these nuances, the things I sold went straight up, but that’s not even the point. question [00:05:00] I really wanted to ask you is, how is it, was it stupid for me to allow my macroeconomic view of things? to inform my investing decision. that’s kind of a sub question to this history is backwards looking
[00:05:23] Brad: Mm hmm.
[00:05:23] Krzysztof: are forward looking.
[00:05:25] Brad: Right,
[00:05:26] Krzysztof: Can studying history make somebody a better investor?
[00:05:31] Brad: I say studying history can definitely make someone a much better investor because the first thing history teaches you to ask why does Ms Market think what it does at any particular moment and what reason do you have to, you think, to think that you know better? Then mismark it with respect to this security or indeed with respect to the index value as a whole
[00:05:56] Krzysztof: let’s see. So, [00:06:00] is this a little power, not parable? It’s a real world example from my life. It’s easy to blame coincidence or bad luck, right? But the first time in my life where I took macro economic
[00:06:13] Brad: Yeah
[00:06:13] Krzysztof: seriously, the outcome was the opposite of. What I wanted it to be. And I feel in the back of my mind that in the case, me thinking I’m smarter than I actually am, you know, because all of a sudden I had all these extra data
[00:06:29] Brad: Yeah,
[00:06:30] Krzysztof: parts.
[00:06:30] And
[00:06:31] Brad: yeah, yeah, but lots of other people did and lots of other people with deep pockets did and lots of other people who Spend their lives focusing on the macro economy for most for most of the day And not just as an avocation not just as something as a their day job Knew that as well and you god knows they were all terrified a year ago You know that inflation had come down a lot, [00:07:00] but federal reserve interest rates remained very high And there was a huge amount of stuff that was in commercial real estate, which had been You which had been le financed on the belief that you could refinance it at lower interest rates than you could at the time, and there was this depressed housing market because the lots of people had locked in low interest rate mortgages and they weren’t selling when interest rates were high, and so the housing market was next to flat.
[00:07:27] Frozen, which had implications for how many houses people would like to build. The chances that the economy would continue to go up rather than enter some kind of recession seemed low, you know a year a year and a half ago And you know that was most of what you were reacting to but almost all of that was already in the price And then as people looked around and as the u.
[00:07:52] s economy approved to be much more resilient than people had imagined as it turned out that Consumers had more in the [00:08:00] way of liquid assets left over from the plague than they thought they’d had before as it turned out that there was a large investment boom as know, enthusiasm for crypto was replaced by much better founded enthusiasm for for what we now call AI. Um, it’s been a very, very, very nice macroeconomic, you know, configuration, you know, that the U. S. economy touched down in its soft landing from its inflation problem 16 months ago, and has continued to power on on the landing without crashing. And so far, it looks so good. as well. Now people are q and t to keep growing at 3 percent per of it from immigration ex From high demand, including demand fueled by some additional government spending. most of it simply because they think the prospect [00:09:00] of making lots of money from investment, um, lots of money from investment are very, very good.
[00:09:06] Krzysztof: based on your answer, Brad, I think to follow up by asking you this. My core principle as a longtime investor has always been stay invested in the market because that’s the longterm trend,
[00:09:23] Brad: Yes.
[00:09:24] Krzysztof: interesting because, you know, the thesis of your book plays on that a little bit,
[00:09:28] Brad: Right.
[00:09:28] Krzysztof: here I was thinking all of a sudden the information was overwhelming me to the negative
[00:09:35] Brad: hmm.
[00:09:36] Krzysztof: and In hindsight, it was a mistake to
[00:09:39] Brad: Yes.
[00:09:41] Krzysztof: Is that, is that, you know, the, the doomsday clock is right or broken clock is right twice. do you think that’s a investing principle that could, massage out of this mistake? That in fact, it is better to stay invested [00:10:00] regardless of what the doomsday clock is saying, because there will always be somebody that’s yelling that the house is on fire.
[00:10:06] Brad: Well, there is always somebody yelling that the house is on fire. on the other hand, as long as Earnings yields are three or 4 percent above. Then there is actually money flowing into these companies whose stocks are a claim on the profits are. since you have real property, you’re kind of mostly indexed against inflation in the long run. So, what else could you invest in that was, was going to return you three or four percent plus inflation, you know, looking forward? And the answer is, well, something is going to happen to cause multiples, right? Price earnings multiples on the, for the market index as a whole to crash. And then the question is, what is that thing? that thing is obvious to you, why isn’t been, why isn’t it already obvious to Ms. [00:11:00] Market? And unless you have a very, very, very good story. About why the forthcoming collapse in valuation multiples is not, is coming, but is not very obvious to Ms. Market right now, you had better stay in, you know, that timing the market peaks is a very, very difficult thing to do. Maybe you should have timed the market peak in 1929 with price earnings ratios too high and with the Federal Reserve clearly in the business of raising interest rates to try to curb stock market values. Probably you should have, Timed the market and gotten out at least of the NASDAQ, you know, in 1999. If only because by then it was very obvious, you know, that as my freshman roommate, Andre Schleifer pointed out in 1998, the earnings companies were reported were vastly, vastly in excess of the profits that the [00:12:00] Bureau of Economic Analysis was booking for corporations. which meant that those earnings were highly likely to be and restated way, way down.
[00:12:12] And so the price earnings multiple of the market was simply a fake. maybe, maybe, but maybe not, you know. you should have timed the market in 2007 and 2008, when it was also quite high. Um, but then again, that would have required your understanding a great deal about the interior of the financial plumbing, and thus the vulnerability of the banking system to a small real estate crash homes between Los Angeles and Albuquerque. very, very pupil had. you know, otherwise there’ve been lots of times when people say Jesus price earnings ratios are too high. They’ve always been lower than this. They’ll come back down and otherwise ever since 1870 other than those three [00:13:00] examples Well over time price earnings ratios have been rising on the stock market You know in large part because as time goes past people more and more people realize more and more of the benefits of diversification And become less and less scared of the stock market. so this has pushed us from a situation back in 1870 the normal value of the stock market was something like 14 times earnings now when the normal value of the stock market is something like 25 times earnings, you know, and maybe it really ought to be 33 times earnings, right? That bond interest rates are not high enough to make you think that if you’re long term and patient, you’ll do better than bonds and bonds that in stocks, even at 33 times, even at a 33 times earnings, Purchase, um, buy in for stocks.
[00:13:52] Krzysztof: All right.
[00:13:53] Luke: there’s quite a famous Paul Samuelson quote, the stock market has predicted nine out of the last [00:14:00] five recessions. Um,
[00:14:01] Brad: scared. It gets scared. Easily. Um,
[00:14:05] Luke: there’s a,
[00:14:06] Brad: grinder at Princeton likes to say that the 10 year treasury bond is a 10 year asset, but at trades as if it were a one year duration. As we, in fact, have seen it do for the past three years. It’s wandered all over the place in reaction to all kinds of things that aren’t really news. reshaped the implicit view of the future of the American economy that’s there. And the stock market is even worse, especially in this age of day trading. and hyper algorithmic, um, financial flows.
[00:14:36] Luke: and actually the conversation we’re having now makes me think of a section of your book. Um, because I’m certainly, I consider myself an optimist and I think to be a successful investor if you take a long term view. You inherently need to be optimistic about the future and the trajectory of society and, and the companies that you’re invested in, but at the same time, you can’t put the blinkers on.
[00:14:58] You have to see things clearly, [00:15:00] and I think in your book, you describe yourself as an optimistic economist. Do you have any thoughts on when it is time, when, when, when the time is right to be pessimistic, skeptical, cynical?
[00:15:12] Brad: For the market as a whole, when valuation multiples are very high and you have good reason to think that current earnings are fake. other than that, you know, you, as long as you can be patient and not get yourself scared and sell out, and wait for 20 or 25 years, know, there has not been a case in U.
[00:15:35] S. history since, Um, I actually suppose the last one was the period that ended in the great stock market crash of 1873, back when the stock market was a bunch of canals and railroads and nothing else, and not that many railroads either. you’re always going to do better by sticking to diversified stocks and simply hanging on.
[00:15:55] Krzysztof: Smell,
[00:15:56] Brad: You know, now my friend Larry Summers says, you know, there is a chance [00:16:00] that your country will become like, say, over the past 25 years. Or there is a chance that your country will become like Britain in the generation and a half after World War II, in which it greatly lags its peer, its peer, European countries in economic growth and in which labor, you know, labor party taxes take a huge honking deal. even then after 25 years, even though the results had been disappointing relative to bonds come 1975 in the case of Britain and come today in the case of Italy. Looking forward, looked very, Britain looked very attractive in 1975 and Italy looks very attractive today as its stocks are claims to very valuable companies with lots of opportunities for earning profits, real profits they’re earning now, and plenty of possibilities for multiple expansion. Then, and so even if you do badly in one generation in the stock market, [00:17:00] then very likely to do well in the next. and so Over time, you can kind of self diversify. Over time, you kind of can insure yourself by diversification. At least you can if you can convince your children and your grandchildren to follow the same investment strategy that you do.
[00:17:18] Krzysztof: Yeah. Sweet. Okay, so valuations matter. Huh? Look at that. Brad, I wanna change tack a little bit
[00:17:26] Brad: Mm hmm.
[00:17:26] Krzysztof: to go into some philosophical economic theory, and I’ve been in my spare time dabbling. In theorists that suggests that what the United States has now is not really capitalism, it’s turned into something called techno feudalism is a term I’ve heard, which suggests, you know, it’s based on this idea that giant technological companies like metal, Google, Apple, have killed all reasonable [00:18:00] competition, right?
[00:18:01] And they’re farming all our privacy, uh, data for their own profit. And that essentially we’re no better than feudal serfs were some time ago, but it’s kind of more insidious and sort of, you know, hidden from plain sight. the way out is that You know, they’re selling themselves that, yeah, we’re capitalists.
[00:18:22] This is all part of the game, but not really. And so my question to you is how fucked are we? I sort of see you smiling and
[00:18:31] Brad: for one thing, we’re 20 times as rich as our surf ancestors were back before the Bubonic Plague, when not only was the Bubonic Plague on the way, but they had to spend 60 percent of their incomes on their 2, 000 calories plus essential nutrients a day, plus enough clothing that they were not desperately cold, and enough shelter and firewood that they were not desperately wet, that. Even working [00:19:00] class Americans today have more than 20 times that feudal standard of living. So, for technosurfs, we are the most spoiled and cosseted technosurfs, you know, in the world, or the world has ever seen. no, I mean, I think the more, the serious argument is that, you know Just as serfs really had to keep their heads down and give one third of their crop to the local thug with a spear in the castle on the hill, you know, or else. they couldn’t run away because before the bubonic plague, um, there was no space for them in the manor attached to the castle over the next hill. Because the Population was full up for Malthusian reasons, and so if you tried to run away, the lord in the castle over the next hill would simply send you back, and you’d get whipped and branded and be worse off than before. You know, after the Black Plague, after the Black Plague, when Europe had emptied out, You had much more bargaining power because you could threaten to run away because everyone wanted labor, everyone wanted peasants, and no one would return anything, but that’s a [00:20:00] big digression. here the idea is we have very limited attention and lots of people grabbing for it. And so whoever it is can grab our attention, can figure a way to harvest it, for either for themselves by Raising the charge for our cable bill and regarding on the fact that our attention is so scattered to keep us from actually comparison shopping for exactly how many streaming services do we want to have and which cable company do we want to pay. And on the other hand, you know, sell, renting our eyeballs out to advertisers, many of whom then are not really in the business of selling us things we will be happy to have bought, but rather selling us things that we will be sorry afterwards that we have bought. And that this world in which our attention is so overwhelmed by all the things to do, and so fragmented, creates an awful huge opportunity for a large number of, well not a large number, a small number of very large [00:21:00] organizations to grab our attention, then charge us substantial amounts for it. And they all have a very strong interest in stasis. Which might harm or erode this very good deal that they have. Like, you know, in that sense, I really am a technosurf to Comcast, and I keep thinking there should be a way to get out of this, and I keep failing to find a strategy that works. You know, I am definitely a technosurf to Apple.
[00:21:25] Krzysztof: yeah. Yeah.
[00:21:26] Brad: Because, every year, I think, Jesus, I’m paying so much, I really ought to shift over to Linux and save oodles and oodles of money by getting a much cheaper phone and much cheaper computers and, you know, doing my backups in a way less expensive than Apple iCloud and so forth, and, you know, Yet the convenience of it, the fact that it just works, um, keeps me there.
[00:21:51] Krzysztof: Right. But it sounds, it sounds, if I’m hearing you right, Brad, you’re not worried on that big, massive level. That [00:22:00] capitalism itself is,
[00:22:01] Brad: No, no, and I’m not worried because of the Federal Trade Commission and the Justice Department’s antitrust division. That if you look at them over the past 50 years, the standard narrative is that in high tech they have largely failed. You know, they just slapped IBM on the wrist. They failed to break up Microsoft.
[00:22:21] You know, they’re You know, the Apple antitrust case didn’t, or private antitrust case by Epic didn’t go anywhere. You know, Google is going to find its way out. Do you know Elon Musk is kissing up to Trump to get whatever investigations of Tesla are undertaken dropped, and so on and so forth. But the problem is that antitrust threat has been a very powerful force. know, because IBM was scared of antitrust, it did not squash Microsoft. Because Microsoft was scared of antitrust. It not only did not squash Apple, but in fact gave Apple large amounts of money and business so Apple [00:23:00] could survive, so Microsoft could point to the Justice Department and say, See, we have a competitor. Because Microsoft, was under antitrust threat, you know, well, it did indeed squash Netscape. You know, it squashed Netscape absolutely mercilessly. Marc Andreessen said is, I’m going to turn Windows into a low quality assembly of badly debugged device drivers while the browser takes over the world. And Bill Gates and Steve Ballmer turned on a dime and, you know, SPLAT! Internet Explorer is completely free and totally integrated, and the only value Netscape has is that the netscape. com domain is the first thing on the internet a bunch of people saw. Which I think was a very bad thing for Mark Andreessen, that it’s turned him much more into someone interested in finding techno monopolies, rather than someone interested in changing the world by creating useful, by funding and creating useful technologies, but that’s also another story, um, about the scarring of Mark Andreessen by that [00:24:00] experience. after that, Microsoft did not feel like it could try to squash Google and Facebook. right now, Google is terrified of the Justice Department. And so it’s not able to squash open AI at all, or even really try to. Um, and Facebook is massively interested in not being, in any way under the thumb of, you know, Google or Apple and so is desperately going to spend however money it takes so that the next computing platform is there alongside Google and Apple making its hardware, making hardware as well. And so far appears to be Potentially eating everyone else’s lunch as we move beyond whatever comes beyond the cell phone There’s still a lot of competition among these platforms, um, but it takes place at a generational timescale rather than at a to year or month to month timescale. So [00:25:00] yes, we are technosurfs in that each of us, we are going to be enslaved for the next decade or so to our current set of arrangements that have captured our attention and harvested. Generations of tech are getting smaller. And so in 10 years, Things will be different and the deck will be reshuffled, you know, and so the miracle of capitalism by which technology improves enormously, but the overwhelming bulk of the benefits go to consumers and workers. Rather than to bosses with intellectual property and with physical property. Who would like to harvest it all, but you know, at least as long as the Justice Department keeps the big tech guys terrified of being too obviously a monopolist, it seems like we’re still good.
[00:25:50] Luke: So much to unpack there, Brad, but maybe I’m going to start with your comment on this stuff is moving at sort of a generational [00:26:00] timeframe. Like those generations are getting shorter and shorter as I think you implied. And some, I’m an investor in most of these big tech companies and I’m a fan of their products and,
[00:26:10] Brad: went long NVIDIA early. Yes.
[00:26:15] Luke: you. Um, uh, but I think it’s perhaps more insidious and more dangerous than just. Tension economy and buying our eyeballs and. So as we think again, I think about your book slouching towards utopia, you talked early in the book about, um, how like the, the printing press and newspapers and telegraphs and radio like technology of the time, uh, helped mobilize democracy and get, you know, get people really talking to each other and was a real accelerant
[00:26:43] Brad: also non-democracy, right? Um,
[00:26:46] Luke: well precisely because if we think about like very modern, technologies and maybe wind the clock back eight or nine years, like the Cambridge Analytica scandal with Facebook.
[00:26:57] And you had this insidious British company [00:27:00] being the villains like, like from the TV shows and, but shaping people’s opinions, um, in a, in a really insidious manner. So like clearly regulation and antitrust is incredibly important to manage the control that these companies have. But I wonder is, is technology moving so fast that regulators just can’t keep up.
[00:27:21] Brad: well, they aren’t keeping up, right? All they can do is they can put the fear of antitrust, the antitrust division into the one who’s the one who’s won the current round. but so far that’s been kind of good enough. But there are very serious reasons to think about the broader societal consequences. You know, I remember my sister telling me about her and her Irish American Catholic husband, you know, Paul Mahoney, touring the churches of England, old England. And, you know, Paul saying, you know, that, you know, gee, all of these other cathedrals everywhere else we’ve been, you know, Ireland, Spain, Italy, Germany, [00:28:00] France, they all have these so called wonderful stained glass, you know. Why are all, why don’t we have any of this wonderful stained glass in all of these medieval cathedrals of England? At which Julie said, um, turned to him and said, Well, Paul! My ancestors were English Puritans, and they shot out those stained glass windows for target practice. You know, the coming of the printing press together brought us the Protestant Reformation, which brought us the injunction that you needed to learn to read to read the Bible. And so two centuries of people reading the Bible benefit of their priests telling it what it really, really, really meant and drawing conclusions led to two centuries of near genocidal religious war. In Western Europe, you know, kind of the estimates of a third of the population of Germany dying in the Forty Years War, and England getting off very, very, very lightly. Although the Irish would dispute any claim that [00:29:00] Oliver Cromwell was kind of a tea and cookies guy. Um, the Irish would still dispute that very, very much. And similarly, right, that the kind of mid twentieth century intellectuals of the Frankfurt School being absolutely terrified of radio, you know, because only with radio could Adolf Hitler short circuit the normal mechanisms of German politics establish a genocide promoting relationship with the German people.
[00:29:28] Krzysztof: that’s yeah.
[00:29:30] Brad: Similarly, uh, similarly, today, there’s a very strong sense that disinformation and misinformation run much more rife than they have run ever before, and we are not able to That our system of social learning and thinking is not able to deal with the fact that we’re getting in so much information in so many ways from sources that work very, very hard to look trustable, you know, even though they are not.
[00:29:59] very much. You know, [00:30:00] and yes, this is a very big and substantial problem. And it means that, the enormous wealth we have relative to all previous human civilizations is maldistributed. And we are also having great difficulty in utilizing it. You know, we’re taking an awful lot of wealth and you, we don’t think we’re conspicuously using it way to make us feel safe and secure and be healthy and happy.
[00:30:26] Krzysztof: So Brad, could I put a point, put a point on this question? this is something that, uh, Badger, Luke and I go back and forth a lot. an interesting company we want to invest in, but then there’s the shadowy side. Let’s say we label it shadowy on everything you said. Yeah. in the problems of information, misinformation, you think it’s okay to, based on those principles, invest in a company like Meta or is there like a moral ethical line that you think [00:31:00] investors ought to draw for themselves and say, beyond this line, you know, I don’t?
[00:31:04] Brad: Well, you know, I mean, In the sense of what should, you know, kind of prompt one’s in the business of promoting a platform, right? what obligations does it have toward those stakeholders who are its users? And, you know, the hope would be that people think not just in Danny Kahneman’s term, short, But also long, you know, that people think not just oh, I saw this thing. It’s horrible. I’m going to react Oh, look, here’s this horrible thing You know, I have to keep my eyeballs glued to the screen and be terrified because it’s very important I learn about this particular disaster happening now And, you know, so you get such things as Donald Trump and, J.
[00:31:48] D. Vance saying that, you know, illegal Haitian migrants have moved to Springfield, Springfield, Ohio in the tens of thousands and they’re eating the dogs, you know, they’re eating [00:32:00] the cats. Well, you know, actually they’re not illegal, they have temporary protected status under an immigration decision by the Trump administration. Um, they didn’t just decide to move to Springfield, Springfield had a lot of jobs left open and the Republican government of Ohio and the Republican local power structure of the county said we want people to come, we have a good place with lots of good jobs, lots of good housing, low prices, you know, the entire Republican power structure of Ohio has been very, very happy with the movement of much less than 10, 000 Haitian immigrants to Springfield, and has been telling Trump and Vance to the fuck stop for a month now. And Trump and Vance do not. What should Facebook do? In order to keep this amount of misinformation flowing, if there are these bad political actors out there. the hope would be people will start thinking slow as well as fast, and will say, wait a minute, this particular platform [00:33:00] is a lousy one that is not working for my good, that is working to scare me, to terrorize me, to blue, to glue my eyeballs to my screen, so it can then sell, um, it can then sell my eyeballs as ads for overpriced crypto funds and And I need to drop this particular platform from my list of places I go to and replace it with a place that takes more of a responsibility for actually curating things so that I see things that will make me happy and informed. Things from my friends and family and not have an algorithmic timeline that mistakes panic and fear For engagement and happiness. And I think, you know, at least Mark Zuckerberg is now making noises about how he’s learned his lesson, you know, how he wants threads to be actually a place for information. and for enjoyment and for communication and [00:34:00] definitely not for politics in modern American polarized politics, which is kind of designed. know, to make people unhappy. I’ve dropped TikTok. I’ve dropped TikTok precisely because their algorithmic feed did not make that same distinction. I’m a big Substack booster because Substack is saying let’s slow down and let’s go through print and long form video than short form, you know, button punching agit. I would say that Facebook made a hell of a lot of mistakes in the 2010s. Especially ones regarding the coordination of genocide in various poor countries of the world. But is trying as hard as it can to loo to learn its lesson. And I would say that, you know, they, um, unlike Google now, which definitely does seem to be in the business of let’s not sacrifice, let’s not do anything to improve the quality of our search results if it leads to fewer advertisements. [00:35:00] You know, unlike Google, I would say that Facebook is now trying hard to do the right thing, and they’re very smart people. so I would say, yes, there’s a line, but I would say the only business right now that really looks like it’s on the other side of the line is Google,
[00:35:15] Krzysztof: interesting.
[00:35:16] Brad: where the degeneration of search results over the past Ten years has been quite remarkable and where there are documents suggesting it’s a fairly explicit strategy of if we do something that improves search results and it causes fewer ads well then we roll it back.
[00:35:32] Krzysztof: Yeah, so right. It’s complicated, isn’t it? And horizons change and shift. Uh, and I guess it seems right.
[00:35:39] Brad: there is a deeper and darker question, perhaps the most horrible thing to happen in the world economy since 1500 was the Atlantic slave trade, right? The stealing of 20 million Africans from Africa, the transfer of them across, the Atlantic Ocean, the deposition of them in the Caribbean and [00:36:00] the southern United States. United States, actually 13 million of them, because 7 million died along the way, either in Africa or the Middle Passage. And then, you know, beating them up until they grow as much cotton, tobacco, and sugar as possible. And yes, enormous profits from this went to the slaveholders. enormous profits of this went to the slave traders. But it was also the working class people of England, of Europe, of the American North, got much cheaper sugar, much cheaper tobacco, much cheaper cotton, much better jobs in the factories of the industrial revolution, because the pace of industrialization was sped up by 20 years, at least, by the fact that you had really cheap American slave grown cotton. than having to pay the serfs of Egypt or the farmers of India for more money, um, for the cotton. the consequences of, you know, genocide, [00:37:00] exploitation, theft, and so forth ramify so enormously through a global market economy. And your, um, your status as an investor in a company is not all that much worse than your status as a consumer.
[00:37:16] Thank you very much. And we do try, we try to avoid conflict diamonds. We make whimpers about rare earths from Xinjiang, you know, and the oppressions of the Muslim, oppressions of Muslims in Xinjiang from forced cynicization and so forth. Yeah. But actually acting ethically in a global market economy in which all you see is the price is a very naughty and very difficult question, and it’s not one you can think you can avoid by drawing a few simple. bright lines around those few actors that you identify are bad.
[00:37:50] Krzysztof: Yeah, that’s such an important point, right?
[00:37:52] Brad: Instead, know, perhaps, you know, that you should, that there comes a point where your attention should be devoted not to [00:38:00] is this company that I’m investing in a bad actor, but rather how much of my total consumption bundle is in some sense ill gotten gain. That I do not have any legitimate, um, title to, and how much of what I spend, how much should I impose an own sales tax on myself to try to figure out how to in some way compensate the people who have been done very dirty by the process now and in the past that has produced all these wonderful things that are being shipped to me remarkably cheaply.
[00:38:34] Krzysztof: that’s, uh, right. That to me condensed is, uh, sounds similar to my principle of there is no holy place to stand you know, it gets, you get, can get righteous
[00:38:47] Brad: on the one hand, You should not presume that you have found a holy place, you know, because you haven’t. On the other hand, you should not care about the fact that the ground you stand on is unhallowed. [00:39:00] You know, there are an awful lot of people out there who are doing an awful lot of things. you are benefiting enormously from we have these beautiful oriental rugs in our house Which are items of kind of pleasure and beauty. We do the people who wove them were who tied those knots were not paid anything we would regard as fair You know We owe a very large debt to them and to their successors try to make pakistan a much richer and much more equal country as before We have to think as fast as we can, as much as we can, by what means we have available. And when we conclude, we really don’t have very good means to do much of anything to make Pakistan better. At least not without making it worse, with bombs and bullets in the first place. And then military occupation which goes wrong in the second. We need to be thinking harder about what means we might be able to use.
[00:39:56] Krzysztof: yeah. So, you know, this, I think is a nice segue [00:40:00] to I’ve now had on my mind, Brad, for longer than, than I think is, is good for me.
[00:40:06] Brad: Mm hmm
[00:40:07] Krzysztof: I, I. Intent to ask this in the most sincere way. I’m really not trying to make a talking point, but I’ve been following the story of Elon Musk, CEO of Tesla space X, for a long time.
[00:40:21] Brad: He used to overpromise and overdeliver a remarkably large share of the time.
[00:40:26] Krzysztof: so at this moment that I’m asking you this question, I see him as a genuine embodiment of contradiction and conflicting principles, and I sincerely am confused by him. And I really don’t mean I’m not, I’m really not being cute here.
[00:40:42] Brad: Yes!
[00:40:43] Krzysztof: And so I What I want to ask you is One like help me out of my confusion if you can but like is he so it’s a several part question like is he just? plutocratic Elite member that’s only in it, you know for himself and [00:41:00] is just being shifty and how he’s attaining that or Like it’s his now all in status is going all in for Trump Like a, a symptom of that or like what is good about him? What is bad about him from your point of view? How do you like reconcile if you see
[00:41:16] Brad: Well,
[00:41:16] Krzysztof: way,
[00:41:17] Brad: I’m an
[00:41:17] Krzysztof: I’m
[00:41:18] Brad: immensely talented and hardworking and quite weird guy. Who wanted to make better technologies we could go to Mars and decarbonize the world. Right? Going to Mars. Colonizing and terraforming Mars. He very much wants to do that. He thinks that’s a very worthwhile objective. He’s been hoping to kind of accumulate enough resources to actually do that and to start humanity on that particular journey. Both because having a second Earth like planet would be really, really cool, us with lots more resources, make humanity a better and a happier place. [00:42:00] And also, you know, two baskets to put your eggs in is in some sense better than one if you care about the future of humanity. You know, similarly, at least limiting the size of the extraordinary experiment in global warming and climate change we are now conducting on the U.
[00:42:15] S., or at least gaining the option to limit the size of the magnitude of that experiment we’re undertaking is a very worthwhile thing. You know to accomplish and that just as bill gates and steve jobs were at the start not in the business of becoming world dominating plutocrats But instead in the business of changing the world by making really cool Technologies that would help an awful lot of people and maybe getting rich and having an exciting life along the way You know, so elon musk was of that particular ilk. I suppose The big worry is that by now he’s shifted, and by now he’s shifted away from that focus on I’m in the business of forcing you, forcing human technology forward [00:43:00] in ways that are very useful, to some other, you know, really much weirder business. Now SpaceX still looks to be in very good shape. Right?
[00:43:10] That everyone says that SpaceX really is, by now, Glynn Shotwell’s, and that she is doing an absolutely bang up and a superb job there. And it is spending its money very, very well, and in the long run, you know, the equity holdings in SpaceX are going to be worth what the U. S. government decides they’re worth, which will probably be substantial. But that that is something that is very, very nice to have. In addition to the old line bureaucratic NASA, in which we put most of our space travel, space exploration, and space satellite utility eggs beforehand. You know, SpaceX is a very nice thing to have, and you must get a lot of responsibility for finding funding and pushing that forward, even though he no longer seems to be really running it, in any particular sense. You know, elsewhere, He really seems no longer interested [00:44:00] in Tesla as a thing that will make cars. And the rest of the stuff, the rest of his portfolio, he seems to be even much, much less interested pushing forward new, good technologies for human betterment. instead in various forms of clowning around. Now, now look, an organization like Tesla, um, As an economist, I’d say it’s really five things. first, it’s a institution for forcing useful human technologies forward as fast as possible. You know, second, it’s a network of stakeholders in which consumers can gain substantial amounts of surplus use value by buying and operating cool, efficient, effective, well made cars. And in which managers, workers, suppliers can good, can have good lives because they can earn good incomes. As part [00:45:00] of the value chain in creating those good, cool, high quality, efficient cars. Third, it’s a vehicle by which people can save and invest for the future and earn a healthy return by investing in a high quality, forward looking, technological leading edge corporation. in a place in which investment funds are scarce and thus need to be rewarded. Fourth, it’s the bouncing ball in a short run Wall Street casino, in which the big patient boys are going to be the house. And if you wager too much money on the bouncing ball, bouncing ball in the roulette wheel, you’re going to wind up bankrupt and you should work with caution. And fifth, Buying Tesla stock is a way of demonstrating a kind of meme like allegiance to a particular socio cultural intellectual movement associated with Elon Musk. And to the extent that [00:46:00] Musk’s energies are pushed toward the first, you know, that’s actually great. That’s actually wonderful. And for a long time there were. to the extent that tests that Musk’s energies are pushed toward the second on creating an actually productive network of stakeholders that will make lots of cars and sell them and people will be happy because they’re well made and so forth. That’s a good thing to do. You know, it’s even a good thing to concentrate on, um, Earning returns for your shareholders, although not that much a good thing, right? That as we say, as Google, Facebook, and Apple shift more and more from making cool technology and from being networks of productive networks of stakeholders to say, Apple’s wanting to vacuum up every single possible dollar of services revenue it can find. From every place else so it can become a four trillion rather than a three trillion equity company, you know, that’s not so good Um, or rather that’s good only in as much it’s aligned with one or two, [00:47:00] which it is possibly But by the time you get to number go up, you know, this is exciting. We had a good earnings report.
[00:47:06] The ball in the casino roulette wheel is bouncing. You know, that’s actually a minus because you’re inducing a bunch of people to, um, take risks. They really don’t understand. And some of them are going to be very, very unhappy as a result of it. And their unhappiness outweighs fun people actually get from day trading and betting on stocks in the short term. And as for giving Elon Musk large amounts of your money and the result that it’s some kind of social declaration of allegiance to a particular movement. You know, you’ve simply become a scam artist, right? You’ve simply become as bad a guy the Oklahoma legislators who say we’re going to buy a huge amount of Bibles. the only Bible that qualifies for requirements is the one that Trump is producing, costs him 2 to buy from China and which he then charges us 60 for. So.
[00:47:59] Krzysztof: Yeah.
[00:47:59] Luke: [00:48:00] Before we jump on, before we jump on it again,
[00:48:02] Brad: good respect to Tesla is in which of those five boxes right now. And, you know, the RoboTaxi Optimus event made me think it’s very, very much toward the wrong end of the spectrum.
[00:48:15] Luke: it was an interesting event. I wonder if I could jump on a couple of your comments though. So I’ve been a Tesla shareholder since 2013 and I, actually, thank you. So it’s, and I said to Chris, I’m actually
[00:48:26] Brad: lose all your money in 2018.
[00:48:29] Luke: very, very patient. I’m a patient chap. Um, and I.
[00:48:32] Brad: that you do owe a whole bunch of that money. Kind of return you have to the Obama administration’s decision that it was going to use part of the TARP money. to try to give an awful lot of money to people starting up carbon neutral and carbon capture startups. And that every time someone rags on Obama for you about Solyndra, you should need to point back, but also Tesla.
[00:48:56] Luke: But I wonder if I, if we, I’d like to sort of jump to the end [00:49:00] of your book with this question in some ways. and, but I do want to get in a quote because I said to Christophe last week, like back in 2013 to 2020, I was an investor in Tesla because of Elon Musk and in the last couple of years. And now I feel like I’m an investor in Tesla in spite of Elon Musk.
[00:49:18] if we think about. Let’s say, let’s just say the cars and robo taxis, but maybe optimus as well. Like he, and several other mega cap companies are really driving society now towards, one where like many, many roles and the role of humans in society has changed quite a lot. you know, simplistically truck drivers, but almost any, you know, who thought the artists and the writers and the poets would be the first ones to be disintermediated, but here we are.
[00:49:49] so, and if we think about the trajectory of your book and it’s like slouching towards utopia, like if we, if we, if we now try and put on our historians of the future hats, [00:50:00] and we think about things like universal basic income and. You know, what would it, what would it mean to be a, maybe no, a different kind of productive member of society?
[00:50:12] Do you have any thoughts on where the next 130 years will take us?
[00:50:17] Brad: Oh, Those are incredibly good, incredibly deep, incredibly interesting questions. I promised myself I’d have a view on them by November 25th. When my economic history course reaches the present and then with two more lectures, one lecture on conclusions and one lecture on the future. at the moment, I would say that the current rush of, the current rush of technological development appears to be much of what we have had in stages since the early 1900s in terms of every once in a while information technology coming along. taking one third of what white collar workers do and simply making it essentially [00:51:00] free. right now, what we’re seeing is we’re seeing that summarization, you know, expansion, a good deal of search, a whole bunch of, you know, photographic touching up and image, and so forth. Is becoming much, much, much, much easier to do. And so once again, something like a third of the work that white collar workers are going to do is going to become essentially free, meaning that white collar workers will be 50 percent more productive than an average with a whole bunch of jobs disappearing, but nearby jobs growing because there are a whole bunch more, you know, who thought that the coming of the ATM would mean we’d have more bank offices rather than fewer, et cetera, et cetera. You know, and that, you know, this. You know, modern advanced machine learning models, um, Rush is one that comes from the another in the range that starts from the typewriter and the adding machine, um, continues through the mainframe, goes to the personal computer, um, goes to the [00:52:00] internet, and then goes to kind of the smartphone telecommunications revolution, each of which a third or quarter of the paper shuffling that you do No longer has to be done because you can get instantaneous communication. And this really has transformed the world. It has led to huge amounts more of high quality white collar workers, because it seems that when we’re no longer spending three quarters of our time adding up and checking columns of numbers. laboriously copying out documents by hand. there’s an awful lot more of control and organization we need to do, and an awful lot more of information we want to create, you know, and exercise. But back in 1880, You know, Friedrich Engels kind of assumed that with the coming of steam power society, you know, once people recognized that the truly valuable thing was humanity in the aggregate, humanity as an anthology intelligence, and once it was [00:53:00] true that jobs as bosses were no longer much more highly paid, no one would want to do them. Because you spent all your time adding up columns of numbers, copying receipts, and checking that everything had been, you know, and that’s incredibly boring. You actually didn’t get to do much. You were essentially a very low level Excel spreadsheet and Word document. Except it involved, you know, your hand and your brain, a lot of calculating the next cell, or typing the next paragraph.
[00:53:29] And that people would naturally just, you know, Take on these administrative jobs when it was their turn, but then go back to the more creative, more interesting, more communal, job. you know, even taking the clay out of the kiln and watching how beautiful, looking at how beautiful the pots were, was more engaging and more interesting than, you know, the kind of Bob Cratchit. You know, Herman Melville drone type of symbol manipulation work, you know, and that turned out to be totally wrong. And by [00:54:00] and large, us white collar workers are quite happy for the most part, because we have managed to offload so much of what we used to think of as, um, what used to actually be white collar drudgery onto our machines. so I am hopeful. you know, I am hopeful that we are going to get through this. You know, just as we got through the going of the world where farmers were 80 percent of the labor force, down to 2%. And, you know, by and large, we’re not unhappy, going from the time when manufacturing workers were 35 percent of the labor force, now to now to now 8%. And we’re not all that happy. We’re still going to find lots of very useful and interesting things for ourselves to do. For ourselves and for each other. in a society of abundance, people will be willing to pay for them. We are going to have to carefully manage things to try to keep the income distribution not too unequal. Because in a market economy, right, the only rights the market economy really sees are property rights, which means that if you don’t have [00:55:00] any property, you really don’t have any social power that society doesn’t see you at all. But, you know, provided we can make sure the income distribution is equal enough, you know, the fact that The fact that there now is Dali can produce images very, very quickly. at a level that very, that it required a highly, you to be a highly trained artist to do before. That won’t really matter because the lots of people will produce lots and lots of images. That will be about the average quality of images on the internet, which is what Dali can do, and the average quality of images on the internet is not that high. And the true experts, the true masters, will be people who understand the medium, who understand human visual processing and psychology, who understand how to make things that are really art. Very different tools will be applied in actually being, you know, a world class artist. But there still will definitely be space, [00:56:00] know, for world class artists. And lots of people will enjoy doing so. Now, um, there may be big problems, right? That the, you know, as Larry Summers likes to say, it used to be that every single Italian town had a tenor who made a good living singing in the local opera house. And, you know, now they don’t. we have a few megastars, a few who appear in, you know, appear in, um, concerts worldwide, and a few YouTube influencers who kind of remix stuff, and a lot of people wanting to break into the business, but not being able to attain the relatively high status that 1880s, even though there is so much more art and music being created. And, in some sense, that’s really not fair. but on the other hand, all of us consumers can find exactly what we like. And so, one of the injunctions that I want to lay upon all of you when you run across something [00:57:00] that you like, find the creator and email them. Because for most of the time, this will, they will not be able to make a living off of this.
[00:57:08] This will be their hobby, even though they really wish it were their job. And given that it’s their hobby, you need to reward and award them some of the respect and the praise substitutes for kind of the income and the social position that they no longer get. So if you go to San Diego Comic Con and simply say, Real cool costume to lots and lots of people, you’re doing a good thing.
[00:57:35] And we encourage you all to do that.
[00:57:37] Krzysztof: Yeah, I love this. I love this, Brad, because, you know, uh, it’s what you were talking about with sub stack and, and being able to connect human to human more. And it takes that little bit of an altruistic turn to make it real. So I really appreciate that point. I want to switch subjects a little bit because it’s not every day. That, you know, I have a [00:58:00] economic historian in front of me, and I wanted to have a chance to ask you the thing that really keeps me up at night right now, that I don’t have enough deep understanding of, I guess, global finance. to answer for myself. So help me, help me, Brad, if you can understand why the amount of debt that the U S has right now, and the rate at which it’s basically gone straight up in the last, however many five years, and I’m sure we’ll have a pretty scary chart to show our viewers.
[00:58:34] Brad: Yes.
[00:58:35] Krzysztof: Help me understand America a, if, if conceived as a business right now.
[00:58:43] Brad: Yeah.
[00:58:44] Krzysztof: still investable, given that from my perspective, I’m like, holy shit, are we going to go bankrupt any moment? Because like, how could it possibly like, help me go to sleep at night, Brad,
[00:58:57] Brad: Well, you know, how [00:59:00] fast is the American economy likely to grow in the next year? I mean, the answer is five and a half percent. It looks like we’re going to grow three percent in terms of the growth of real GDP, and it looks like the Federal Reserve is going to about hit its two percent PCE target, which really means the price level we, everyone else looks at, the consumer price index, goes up by two and a half percent. So with three percent. increase in real production and two and a half percent increase in average prices, that’s five and a half percent. And the average interest rate on the U. S. government debt right now is four percent. You know, five and a half minus four is one and a half percent, which means that our current debt relative to the size of the U.
[00:59:46] S. economy is going to shrink by one and a half percent over the next year. Now, certainly true the United States is running, a large dev government budget deficit, that we don’t just have the past debt, we’re issuing more debt, and it’s [01:00:00] certainly true that we should be stopping doing that. And it’s certainly true that a sufficient reason for voting for Kamala Harris rather than Donald Trump is that she worries about this and has greatly curbed her plans for policy.
[01:00:15] In order to keep the effect on the debt of her proposed policies close to neutral, while Trump has not. But given that, you know, the United States is in the position in which its economic resources are growing faster than its debt is. We did, that was not true during the plague. We spent an awful lot of money during the plague.
[01:00:34] That money was probably well spent. You know, but right now the United States government is in the position in which, um, It’s able to finance the interest on its, on its debt almost entirely, more than entirely out of economic growth. You know, and so we are more in the position of the medieval Medici Bank than of, say, one of Shylock’s poor customer, Antonio, confronted by the money lender. [01:01:00] You know, that it’s more the case that people are paying the U. S. government to keep their money safe. Then, with the case that the U. S. is deeply in debt and needs to figure out how to get out of it before someone carves the pound of flesh nearest our heart out and puts it on a stick.
[01:01:18] Krzysztof: so you don’t think like all the big countries like China and India moving by more and more gold and trying to in Russia, obviously getting off the US Dollar is a
[01:01:27] Brad: they’re trying. They’re trying. Um, they’re really not succeeding. As we say, demand for dwin. When the interest rate the U. S. has to pay on its debt is, becomes greater than the growth rate of the American economy, then it’s time to start to worry. You know, then it’s time to start saying we really need to balance the budget now. Then it’s time to say that there are scenarios out there which the United States undergoes some kind of debt produced [01:02:00] financial crisis. You know, until then, You know, the right policy is we should move toward budget balance, uh, but as long as interest rates are low relative to growth rates. We are making a mistake when we pass up worthwhile public expenditures and worthwhile public investments because we worry about the size of the debt. know, it’s not just the absolute size of the debt, it’s the interest rate we have to pay on the debt. You know, and it’s not just the interest rate we have to pay on the debt, it’s that interest rate relative to the growth of our economic capabilities. And yes, it’s an eye popping, mind boggling number. Um, yes, I wish the United States taxes were higher so the deficit were smaller. but we have lots and lots of human social and economic problems, and the growing national debt is way, way down there. On the other hand, things can change quickly, right? That is the Prime Minister Liz Truss of Great Britain. her Chancellor of the Exchequer, Kwasi [01:03:00] Kwarteng, lost their jobs remarkably quickly. Simply because, you know, the British bond market decided that their attitude toward their debt was a little too cavalier. And that if they had this cavalier an attitude toward the debt, What else were they thinking?
[01:03:19] There is now
[01:03:20] Luke: The uh, the British people weren’t fans of them either, but
[01:03:23] Brad: debate in British financial circles and among all the rest of us about to what extre the ad degree, the adverse reaction to the, what was it called, the mini budget? The Quartang Trust mini budget was because people were genuinely scared about Britain embarking upon a truly dysfunctional and destructive fiscal policy leading to a crisis. to what extent it was simply the revelation to financial markets that these people really are morons who have, who don’t think anything through.
[01:03:54] Luke: we’d, we’d already demonstrated that with Brexit. So this was the icing on the cake.
[01:03:59] Brad: but [01:04:00] and Quartang at least did not have their fingerprints on that, you know, but um as far as, as far as I see now it’s kind of running three to one in favor of Not that this was taken by financial markets as a sign that Britain was approaching a debt crisis But rather that this demonstrated that Quartang the Truss were morons and that thus the rise in interest rates was the coming of a moron premium into the British gilt market, than genuine worries about a financial crisis.
[01:04:28] But that’s something the economists are going to argue about for a while.
[01:04:31] Krzysztof: Speaking of things to argue about, I think this is a nice segue
[01:04:35] Brad: Yes.
[01:04:36] Krzysztof: to uh, Bitcoin seriously.
[01:04:40] Brad: Yeah. Yeah.
[01:04:42] Krzysztof: read, you know, this is another one of these issues that I’ve devoted insane number of man hours to, and I’ve taken it. Yeah. I’ve taken it seriously, both economically and philosophically.
[01:04:55] And there’s a lot of. You know, strong arguments, I would say in [01:05:00] favor. And of course, again,
[01:05:01] Brad: Well, I don’t know what this strong argument in favor is.
[01:05:06] Krzysztof: well, there’s the answer. So I’m curious. So if I let you run on it, run on, on
[01:05:12] Brad: Alright,
[01:05:13] Krzysztof: How’s it
[01:05:14] Brad: I guess first, um,
[01:05:16] Krzysztof: Actually, let me,
[01:05:18] Brad: Not like
[01:05:19] Krzysztof: can I finish framing the question
[01:05:21] Brad: Yeah.
[01:05:21] Krzysztof: bit?
[01:05:21] Brad: Yeah. We are. We are.
[01:05:24] Krzysztof: because obviously it seems you have a, you have a view on it. Um, but with something like Bitcoin as a new form of money doesn’t show up every day, right?
[01:05:35] I mean, and so all of a sudden this is like a, we’re a year, what, 15 into this experiment. And, and so, and what I’m seeing is that seriously, okay. players are now taking this more seriously than ever before. What, how do you fit it into your own economic historical model? Like, what is this thing? Or are you [01:06:00] just dismissing it as a game?
[01:06:02] Or, yeah, how do you, understand it?
[01:06:05] Brad: Oh. Um Yeah.
[01:06:07] Krzysztof: actually, sorry, sorry, one last thing,
[01:06:09] Brad: Yeah.
[01:06:10] Krzysztof: think this is a crucial distinction that I want to make for our listeners. And for maybe you, based on my own due diligence, I would say honestly, that the majority of crypto is garbage and casino like scams,
[01:06:23] Brad: Right.
[01:06:25] Krzysztof: If you could bracket out the huge majority of it and say, serious people, the REM, the remaining portion, the serious people are in fact doing a lot of work in Bitcoin and some other few, few projects that let’s just keep that distinction, I guess, clear.
[01:06:46] Well, I’m not talking about the garbage.
[01:06:48] Brad: all right. Let me make not two, but four distinctions, right? The first are non algorithmic stable coins. There are going to be enough people who do [01:07:00] not trust their own country’s currencies. Who also do not want to be under the United States regulatory umbrella for reasons good and not so good. who also are attracted by the idea of someday these things will become, so will become, We’ll enter a state in which transactions costs are orders and orders of magnitude smaller, not just than Visa, but either of Swift and other interbank transfer things. And so stable coins will be a way in which you can transfer wealth from one person to another all over the globe for extraordinarily low fees and frictions. know, and that just as people on the farmer’s market are now saying would you please pay me with Uvenbo rather than through Visa? So stable coins will have a permanent place provided that the people building them bother to actually have [01:08:00] accountants and regulators who will say yes this stable coins reserves are Actually there rather than having been stolen or given away to Sam Bankman Fried or something So, yeah, there is going to be a roll for stablecoins. There is a question whether central bank digital currencies will take the bulk of that roll over eventually. I think they probably will, but there still will be a roll for stablecoins, even if central bank digital currencies. flourish as I think they will, and I think they should. The second is the enormous pile of crypto garbage. The third is Bitcoin. Understood as a thing held by early adopters of Web3 use cases, right? There are going to be useful use cases for what we think of as Web3 technologies. Which are databases based on blockchain that are world writable and trustable that you know I would [01:09:00] love if all of my follower counts, all of my follow counts on all my social media accounts since the beginning of time Were in a web3 database out there trusted on blockchain that I would have written to Because then anyone who wanted my social graph in order to make a welcoming service for me Could access it and you set up my room in their service Whatever it was and that would produce much much much more competition And even though Mark Zuckerberg and Facebook would hate that so, so much, it would have been such a very nice thing to have.
[01:09:37] It’s a solution of the Byzantine General’s problem, know, say, that many years, so many years ago. There will be such use cases in the future. You know, the idea that Bitcoin that when such a service starts up, it will let people use Bitcoin to pay for it. Because if it lets people use Bitcoin to pay for it, it has all these enthusiastic early adopters [01:10:00] of Web3 like technologies there.
[01:10:02] It gives them a stake in the success of my service, and I’ll be happy to give them a stake in the excess, in the success of my service in order to jumpstart its growth. That originally was the case for why Bitcoin should have value. You know, that Bitcoin gives you a call option on the future real useful Web3 technologies because the people who start the useful Web3 technologies will want to pay for this jump starting of their service. That’s gone. Nobody believes that now. Not even the weirdest people at Andreessen Horwitz talk about the future use of Bitcoin as that bitco that future Web 3 use cases will give preferential access and treatment to Bitcoin. Which leaves Bitcoin 4. Which means Bitcoin as simply a piece of digital gold.
[01:10:54] You know, as a token. That has a limited supply [01:11:00] and a value that people expect to have value because people expect that other people will expect it to have value because other people expect it to have value will expect it to have value. In that, it’s kind of like Tesla. a value of 750 billion right now in its equity value instead of the 240 billion or so that a reasonable present discounted value of the Tesla business would suggest it should have. You know, 500 billion of fumes and various other things. Created by people expecting things will have value, and expecting because they expect other people think they have value, because expecting other people will have value. eventually the chain is supposed to come to an end. Either real profits for a real company, or people feeling extremely happy that they have pledged allegiance to Elon Musk as their techno superstar god. or whatever. In the case of you can make an argument that [01:12:00] there’s enough upside in the auto business, enough real speculative upside in the other businesses that Musk may start, and there’s enough value in future people gaining utility by pledging allegiance to Elon Musk as technogod to justify the valuation. In the case of Bitcoin 4, now it’s simply social expectations all the way out until the heat death of the universe.
[01:12:25] Krzysztof: Brad, can I, I want to challenge, I want to push back a little bit on this point or ask
[01:12:30] Brad: The fact that
[01:12:31] Krzysztof: but
[01:12:32] Brad: it’s very, very real. There are these expectations that did find will have social value all the way out to the heat death of the universe. And that’s a wonderful, that magnificent and scary thing.
[01:12:44] Krzysztof: me ask you this, um, you said, I think, uh, I’m on board with, but the, the market cap of gold is what? 18 trillion? Thereabout, right?
[01:12:54] Brad: Yes.
[01:12:55] Krzysztof: And that has going for it, just a history, like that’s the best form of money [01:13:00] humans had up to, would say now,
[01:13:03] Brad: Right.
[01:13:04] Krzysztof: trillion is Is a massive amount
[01:13:07] Brad: Yes. Yes.
[01:13:09] Krzysztof: or just, uh, if you, uh, for argument’s sake, that Bitcoin is a better form of gold,
[01:13:15] Brad: Bitcoin can get 10 percent of the gold market as the digital gold because it was the first mover into this and nothing else can copy it.
[01:13:25] Krzysztof: Why can’t it get all of it? Why can’t Bitcoin be, why can’t we be a hundred years from now? You know, and another economic historian is looking back at the period saying, God, it was so obvious Bitcoin does everything gold does, but better.
[01:13:41] Brad: Well, gold is shiny. Being shiny and pretty has an edge.
[01:13:46] Krzysztof: That can’t be, that
[01:13:48] Brad: You know,
[01:13:48] Krzysztof: be the whole case
[01:13:49] Brad: but yeah, there is, there is a question of whether there is an asset, how it can be that there is an asset that [01:14:00] produce earnings or dividends, and yet ever, in any state of the world, and yet holds onto its value, is a very interesting one, you know, that people actually have to like looking at it. Which, they do, you can, you can like looking at your Bitcoin balance, you’re allowed to like looking at, you know, to like looking at the gold bangles your daughter has on her arm that’s her dowry in Singapore, you’re allowed to do that, you know, either, There’s, you know, you like looking at it, or it’s thought to have sufficient insurance qualities associated in its asset price that when you plot it on something like the capital asset pricing model line, a required return of zero. Right, that then you can support a positive value if it’s correlation with the overall market that people do we want to overall market beta that people want to insure against it’s negative [01:15:00] correlation is high enough that it has a required rate of return on zero. and you know, that is a sustainable long run equilibrium, but that actually requires that if the world truly go does go to hell in a handbasket, Bitcoin becomes more and more valuable. And yet I can’t see, if the world electricity grid goes down, Bitcoin having value somehow. I can see sewing needles, bottled water, and ammunition, having value. So, I were wanted to go into the crypto business, I would start buying containers and filling them with sewing needles, bottled water, and ammunition, parking them along the Hudson River, outside of New York, and saying, here’s my crypto curr um, currency. It’s tied to Bitcoin, but it also gives you a claim on these containers full of useful things in case it go hell does go to hell in a hand basket. And I think that really ought to in the long run, outcompete Bitcoin because you’re getting the return characteristics of Bitcoin. Plus you’re getting [01:16:00] this insurance when things don’t go to a hand basket.
[01:16:02] So your negative beta is actually. Truly bought rather than something you’re simply waving your hands on and claiming in spite of empirical evidence Suggesting that bitcoin trades like a high tech stock than like gold
[01:16:16] Krzysztof: Okay, right. We have a, I sense, Luke, that we have a Bitcoin bear in the house. All
[01:16:22] Luke: You’re not, you’re not liking it, are you, Christophe? You were definitely hoping for a different pack, huh? You know,
[01:16:28] Brad: last for a very very long time,
[01:16:31] Krzysztof: right. Uh,
[01:16:32] Brad: you know, there were
[01:16:33] three thousand years ago, right there was some kind of german trying to tell his children why they shouldn’t stand on top of a hill under a tree in a hurricane Or, not a hurricane, in a rainstorm. There are no hurricanes in German. And what he told his children was, you know, hear that rumbling. That huge rumbling off in the distance. Those are actually the badly greased wheels of a very large cart. [01:17:00] The cart is drawn by two goats, two very large goats up in the sky. Riding the cart is an enormous red bearded guy with a magic hammer named Thor. He has huge anger management problems. You know, you can tell he’s chasing after his girlfriend, Sif, who makes the grain grow, and you can tell because when Sif passes by, the rain falls. And Thor is following after her in his cart, but he has huge anger management problems because he’s having problems catching up with her. And if he sees you at the wrong time, ZAP! Did you just see that zap? That was Mjolnir. That was the magic hammer of Thor. Don’t stand on top of a hilltop under a tree in a rain thunderstorm. Instead, get in a ditch and crouch down. Useful thing to tell your children. arresting story, them to behave right. There actually were a number of people at the high school [01:18:00] neighboring mine in Washington, D. C. who stood on top of Mount St. Albans, the highest point in the District of Columbia, where St. Albans School is located, during a thunderstorm and got zapped, Not a true story. And yet, you wander around the weirder parts of San Francisco now, you can find people, who wear Thor’s hammer around their necks, sincerely pray to Thor, and are confused by the fact that somehow they’re also supposed to pray to Loki. And you know, Bitcoin very much looks to me like a religion of that ilk, and the fact that there still are devotees to Thor in San Francisco makes me think there probably still will be Bitcoin, probably still be Bitcoin true believers in Haight Ashbury in 3000 years.
[01:18:45] Luke: you know, Christophe, I’m going to, I’m going to call time on this one cause you’re not going to get the answer you wanted, but I do, Brad, Brad, I do think you may have found, you may have found your Wall Street wildlife animal. I think you might be. The goat, [01:19:00] which is, uh, you know, bringing the thunder to our podcast, but also, uh, clearly the greatest time historical investor
[01:19:08] Brad: boiled every evening in order to feed Thor and his friends.
[01:19:12] Krzysztof: right. Okay. Okay. I,
[01:19:14] Brad: morning, the following morning, they come alive again, uh, ready for another hard day’s work of pulling the thunder chart, the thunder cart around the heavens.
[01:19:22] Krzysztof: So we have a difficult decision to make because Brad’s either going to be the, bear or, or the goat of Thor. So we’ll figure that out, but wait, I do have one. This
[01:19:33] Brad: Oh no,
[01:19:33] Krzysztof: you
[01:19:34] Brad: I’m not, I’m not going to be a Bitcoin killer. I think that in three thousand, if you have Bitcoin and you throw up in three thousand years, in Hadeshpur, you’ll find someone to buy it from you. And at least in the good states of the world, we’ll all be so rich that you’ll be able to get a positive rate of return as you show up for this, with this historical artifact.
[01:19:52] Um, but I don’t, I do not think, I think you should buy Bitcoin knowing it has zero [01:20:00] fundamental value.
[01:20:00] When everything else you buy,
[01:20:03] Krzysztof: But,
[01:20:03] Brad: that Tesla has a third of its fundamental value much more securely backed than Bitcoin does. And so to the extent that you have any of the Warren Buffett, Graham, um, DNA in you, should buy Tesla in preference to Bitcoin. and you should probably, you should buy the S& P index in preference to Tesla. And you should buy things where you should be smart beta, and actually buy an index that you think, It has big recent winners with low earnings purged from it in preference to the S& P.
[01:20:37] Krzysztof: okay,
[01:20:37] Brad: investment advice, simply a statement about what the historical balance of the probabilities strongly suggests.
[01:20:44] Krzysztof: okay, I just need to ask you one thing. Everything you described against Bitcoin now is the same critique against money. just a story about a story, about a story, about a story.
[01:20:57] Brad: except you [01:21:00] can pay your taxes with U. S. dollars. Yeah, that they’re advanced tax receipts. That in 1864, when the Confederate government stopped collecting taxes, right? Um, Confederate dollars stopped being worth anything. There were very, very few people willing to hang on to their Confederate dollars because of their meme allegiance to the Confederacy as an idea. It was simply, these things are good for paying taxes, and because they’re good for paying taxes, people will accept them. And when they stop being good for paying taxes, not even in deepest, darkest, whitest Alabama could you get someone willing to take confederate dollars.
[01:21:40] Krzysztof: Yeah. Fair enough. Okay. So that maybe brings us to, our last question, if you’re okay with it.
[01:21:47] Brad: that’s fine.
[01:21:48] Krzysztof: you wrote such an interesting book. Um, it’s by the way, to all our listeners, it’s
[01:21:52] Brad: Thank you.
[01:21:53] Krzysztof: You have a lovely,
[01:21:55] Brad: Thank you.
[01:21:55] Krzysztof: Oriole style and it’s
[01:21:57] Brad: Yes.
[01:21:57] Krzysztof: engaging and pleasurable. And it’s
[01:21:59] Brad: find [01:22:00] something interesting on every page, I’ve failed. If you don’t find on every page a, um, reason to turn the page to find out what happens next, I’ve failed. Um,
[01:22:11] Krzysztof: you are
[01:22:12] Brad: admittedly, my publisher is still whimper that it’s 600 pages rather than 350. And I won’t be upset if you don’t finish it, or if you just dip into a piece of it and then go to another piece as well.
[01:22:22] Luke: and listeners. I mean, I, I would just say, I’m, I’m not a historian and I’m not a huge reader, but reading Brad’s book, I feel like it saved me having to read like another hundred histories of the 20th century. So this is your shortcut.
[01:22:35] Krzysztof: Yeah, that’s right. He’s not exaggerating. Badger barely knows how to read. He’s,
[01:22:39] Brad: Okay.
[01:22:40] Krzysztof: literate. So here’s what I want to ask you, Brad, there’s a lot of wisdom in this book. And I’m, I mean that I’m someone,
[01:22:46] Brad: Thank you.
[01:22:47] Krzysztof: the
[01:22:48] Brad: Thank you.
[01:22:48] Krzysztof: and I dabble with, you know, like human wisdom and so forth. If, if we step back for a second from the pure business economic stuff, I want to ask you that if you have, [01:23:00] uh, had a business card that, uh, gives our listeners a slogan or saying, or an idea that you want them to take seriously based on your life’s work to revisit the slogan or idea on this business card that you’ve given them. would you want this business card to say
[01:23:21] Brad: how about, think of whatever thing or experience has been the best for you today. and figure out how you can create a world that rewards the people who made it. So that you could have used it or experienced it. Think about how to make a world that those who made it richer and happier. That is, don’t think that you’ve paid your debt to everyone who has created all the things that enable you to live your best life. by paying them just the money on the barrel head that was charged to you.
[01:23:54] Luke: There’s certainly a lot to be said for, for being grateful and, thinking about all of the [01:24:00] different journeys that we’ve all gone on, that have all brought us together to chat on this podcast, maybe be a listener to this podcast. I certainly feel very fortunate.
[01:24:07] Brad: Okay, and I will now, with pride, forever after, wear my name as Tan Grissner, Teeth Bearer. First of the Goats of Thor.
[01:24:18] Krzysztof: that’s, that’s fantastic, Brad. Uh, it’s been such a delight to have you on and maybe fingers crossed. Maybe this might not be the last time,
[01:24:28] Brad: Oh yeah. Oh yeah. No, this will be fun. This will be fun.
[01:24:31] Krzysztof: can our listeners and fellow investors and participants in the market and life find you in your work? Where do you want us to point them?
[01:24:42] Brad: Currently, braddelong. substack. com And I think the Substack people are, in general, worth boosting. as people who are actually trying to make a better and more informative internet and public sphere here in the 21st century.
[01:24:57] Krzysztof: Awesome. I agree. I agree with that [01:25:00] wholeheartedly. I, uh, I follow your sub stack. It’s, it’s awesome. You’re, you’re prodigious in your,
[01:25:08] Brad: Thank you.
[01:25:09] Krzysztof: which is, it’s so great to see and to read.
[01:25:12] Brad: Okay.
[01:25:13] Luke: Fabulous Brad. It was fantastic having you on the Wall Street Wildlife podcast. Thank you so much for your time.
