Tomás Pueyo, the French-Spanish engineer and writer behind the successful Uncharted Territories Substack, joins me to dismantle the invisible forces that shape our history and future.
This conversation covers everything from why humans are horrible at understanding exponential change, the arbitrage opportunities in the podcast market, why the US has the best geography in the world (”the hardware”) while its governance (”the software”) lags behind. We also discuss why the Luddites might have been right, the “social media politician” of the future, why education is mostly signaling, and how air conditioning and mosquito eradication could change the destiny of nations.
I hope you enjoy this conversation as much as I did. We’ve shared some highlights below, together with links & a full transcript. As always, if you like what you hear/read, please leave a comment or drop us a review on your provider of choice.
— Jim
Books Mentioned
Guns, Germs, and Steel; by Jared Diamond
The Case Against Education; by Bryan Caplan
One Summer: America, 1927; by Bill Bryson
Links
Highlights
The Future of Governance
Tomas Pueyo: I think government just doesn't work. The way our democracies work is adapted for how the world worked 250 years ago. You have a few bits of information that the people send to the government every four years—the vote. But we're now living in a world where you could send gigabytes of information every day. Before, we had to elect leaders to make choices for us because the bandwidth of information was so narrow. You don't need to do that anymore. The way I think about it is similar to encyclopedias. We had encyclopedias, which were a group of people in a room writing articles. Then we moved to Wikipedia, where we have more articles, faster and better, because we had a coordination mechanism to aggregate information. Can we do the same for democracy? What is the mechanism where we can aggregate all this information so we can have better decisions? Maybe we don’t even need to elect people at that point because the mechanism of aggregation makes the decision.
The Twitter Brain
Tomas Pueyo: 100%. When I think about this Twitter thing, it’s not obvious to me that it's not a brain yet. The way it works is you and I would be neurons. As neurons in that brain, we wouldn't realize what the brain is thinking. It's very similar to how a neuron works. It's asymmetric: you have one person sending information and a bunch of other people listening, exactly like axons and dendrites. Information flows through Twitter the way it flows through the brain; the most interesting ones get amplified. You could imagine, if it were a brain, what big decisions it could take. One of them could be: who would be the President of the United States? Arguably, Twitter had a big influence on that decision. It could be that we are neurons inside of Twitter and we don't realize that it's already thinking.
Why The U.S. Wins in Terms of Geography
Tomas Pueyo: Most people don’t realize that the US geography is probably the best in the world, bar none. You start with defensibility: two oceans. Canada is too cold to be a threat. Mexico is too mountainous and desertic, meaning it’s harder for Mexico to develop and threaten the U.S.
New Orleans is probably one of the most important cities because it’s the mouth of the Mississippi River Basin. The Mississippi River Basin has more than half of the world’s naturally navigable waterways. It’s so flat, and there’s so much water coming from the Rockies and the Appalachians. The cost of transportation is the single biggest driver of wealth. If you halve the cost of transportation, you can multiply the wealth of a region by up to 16 times.
Not only that, but the East Coast all the way to Houston has a series of islands that protect ships from the sea, creating an intercoastal highway. This area connects to the Great Lakes, and in Chicago, the distance between the two basins is just a few miles. Why does the US have massive amounts of oil and gas? Because the Mississippi Basin used to be a sea. It’s unbelievable the amount of assets the United States has.
Argentina is kind of a mirror image. It has the Rio de la Plata and the Paraná—very similar, flat, mountains on both sides, fertile land. Yet Argentina is substantially poorer. What made the United States special is that it has one of the best geographies—the “hardware”—and also one of the best “softwares” (systems of government) we’ve come up with.
The Dangers of Socialism
Tomas Pueyo: I agree with you on the socialism side. Part of it is short-term versus long-term thinking. Socialism works really well in the short term because you give all the benefits and use the money you saved; it takes decades for the pain to be suffered. Venezuelans were happy in the first few years of Chavez. Now we’re 25 years into this, and it’s a disaster.
The other part is that the narrative of socialism is beautiful: “We’re all going to be nice to each other and help.” It just doesn’t work. Communism is beautiful, but it doesn’t work. The narrative is very hard to fight, and I think it’s going to get worse.
In the context of the mayor of New York, I think it’s not a fluke; it’s a trend. I connect it to AI. We’re seeing graduates not getting jobs. If you worked for years to get your degree and have $200,000 in debt, you’re going to be irate. You’re supposed to be part of the elite, and now you’re nobody. That’s what Peter Turchin would call the “overproduction of elites.” For socialism, it’s always the elites that push it down on people.
It’s going to get worse with AI because AI is going to start with white-collar jobs. It’s going to automate the jobs that are easiest to automate, which are usually entry-level. The most specialized, educated people are going to have much more leverage with AI. So one of my biggest fears is a move towards socialism in the short term, which AI might provoke.
🤖 Machine-Generated Transcript
Jim O’Shaughnessy
Well, hello, everyone. It’s Jim O’Shaughnessy with yet another Infinite Loops. I’m very excited about today’s guest, Tomas Pueyo, a French-Spanish writer, engineer, entrepreneur, whose work sits at the intersection of maps, math, and imagination. Oh, man, I’m going to love talking to you. His work came to global attention early 2020 when his viral essays, “Coronavirus, Why You Must Act Now” and “The Hammer and The Dance”, helped millions to understand what exponential spread really meant. You know, what’s interesting is that those two pieces led to an incredibly popular Substack called Uncharted Territories, where you use geography, history, and technology and data to explain the world, where it’s been, where it’s going. But I always think about that Bartlett quote, and I want your opinion on it. “The greatest shortcoming of the human race is our inability to understand the exponential function”. Welcome.
Tomas Pueyo
Thank you. Thank you for having me. Yeah, that is exponential. It’s weird because I had a good intuitive sense of what these were because of my previous job. I was handling Facebook viral apps. And I built a few that grew exponentially. And when you grow, you see it grow every day in this exponential way, you get a good sense of it. But humans, I don’t think we’ve evolved in a world where anything grows exponentially. Nothing. Because this way we have a sense of linear growth, maybe exponential growth in, for example, what fruit flies, like how they reproduce themselves, things like that. But very, very few otherwise. And so I don’t think we have an intuition at all. We see lines when we zoom in and we need to zoom out and see history for us to understand these exponential curves.
Jim O’Shaughnessy
Yeah, I’ve often said that math especially, it used to baffle me, and I think it baffles me less now. But it does seem, when you look at humans in general, there seems to be this 1,2,3…, a lot. Yeah. It’s sort of mentality. And I think that understanding exponential growth, understanding that compounding can go both ways, can go positive and negative, are kind of simple concepts, not the exponential part, but the compounding, certainly. Why do you think that it is a challenge for us to think mathematically?
Tomas Pueyo
I think a lot... about the way humans think is very, very shaped by evolutionary psychology. And so whatever we evolved around is what we do. And what you said around the quantities, one, two, three, and a lot, reminds me a lot of what I think Stalin said, right? Is it one person killed is a terrible?
Jim O’Shaughnessy
Yeah, one death is a tragedy, a million is a statistic.
Tomas Pueyo
And why? Because we never found, like we never killed a million people as we evolved. We could kill one, we could kill 10, we could kill 100. It was always the enemy. So when that happened, it was tragedy when it was us. So that kind of intuition, I think, we haven’t developed at all. And compounding is clearly one that you know well. I think stats is another example where we’re so bad. We have such a bad intuition at probabilities. And it makes so many mistakes when thinking without taking anything into consideration.
Jim O’Shaughnessy
Yeah, I often say that we are deterministic thinkers living in a probabilistic world and tragedy or hilarity often ensue.
Tomas Pueyo
Even in your job, not job, but investing, it’s a perfect example of this. VCs, for example, when I talk with private equities, they don’t understand VCs. It’s like, what are you guys doing? You’re investing in 100 companies and... And you’re just hoping that one is going to be successful. And the way that you have no due diligence compared to what we do in PE. And it’s fun how just a very small detail of just the odds of success of a given company can change completely the job that you do. That’s the power of some of these stats.
Jim O’Shaughnessy
Yeah, and if you look at them closely enough, one of the things that we’ve found is there are arbitrage opportunities. Because as you say, most VCs, when they’re making an investment, They’re counting on power laws and they’re counting on the fact that that investment can return the entire fund. So if they have a $200 million fund and they’re investing $20 million, they want that $20 million to at least be able to grow to $200 million. What that leaves, from our perspective, is a huge class of companies where the TAM, total addressable market, is not big enough for a VC to think, yeah, that could return my entire fund. But they’re immensely profitable. And so our venture division looks for those types of companies because your moat kind of is other VCs can’t invest in that company because they could, but they won’t because it doesn’t have the ability to return the entire fund.
Tomas Pueyo
Right. So it is interesting. So when you think about in these terms and you apply that thinking to podcasts, like is there a world, like what are the types of podcasts or interviews or sessions that you would have that have enough recharge opportunity? Where’s the market completely underserved there? Have you thought about this?
Jim O’Shaughnessy
I have at length, and I think that the podcast market, as saturated as it seems, is still kind of blue sky in terms of what you could develop. I think that the idea that you really want to grow huge might be the limiting factor there. I think that there are many, many types of podcasts in niches where you can grow a perfectly respectable audience. If you have the right guests, you have the right conversations, et cetera, in a variety of niches where you’re going to get, you know, 25, 30, 50,000 listeners, and that certainly supports an ad-based model, you’re probably not going to get super rich. But if you’re passionate about that, and I think that’s where the fit is. There are so many people, and we’re going to get to your passion in a minute here, but there are so many people who not only have incredibly deep domain knowledge, but they also are just absolutely passionate about the subject. I think those people could do very, very well starting a podcast, but they have to be persistent and patient, right? If you look at the stats on podcasts, 90% of them never get past seven episodes. And it’s the hyperbolic discounting that is another flaw, I think, in human OS in that, hey, we got to grow now, this quarter, right? And podcast, you need to have a long period of time and a variety of guests to build your audience.
Tomas Pueyo
So you think there’s not going to be many more Joe Rogans? Because that is saturated, that people try to go for the bigger audiences. It’s mostly the niches where it’s their space.
Jim O’Shaughnessy
I’m kind of a never say never guy because I don’t have complete knowledge. And therefore, I have to discount my own instinct sometimes. So I’m sure that some other Joe Rogan will emerge under very different circumstances. It’s kind of like, you know, Warren Buffett. Who’s the next Warren Buffett? Who’s the next Warren Buffett? And my point has always been there’s going to be a next Warren Buffett. There is going to be somebody who achieves great success. But he or she is going to do it in a very different manner than Warren did. It’s always wise to study how the Warren Buffetts and Charlie Mungers of the world looked at the world. I think that’s very useful. But then, you know, you’re going to want to synthesize some of that knowledge as you make your own path in the world. Sure. I want to get to you, though, because you are a very interesting guy. What was that like? What was that like in 2020, having those essays, like literally translated into 40 different languages, tens of millions of people reading it?
Tomas Pueyo
Like, what does that feel like? That was nuts. So I was in San Francisco in my two-bedroom apartment with my wife, my three children, My wife was pregnant on the 4th. We both had a job, a day job. No nanny because now it’s closing. And everything was closed. No school. So it was quite intense. But just before that happened, just before closing... I was just working in a startup. I was doing product and growth. And we started talking about these virus that is happening in China. And I started looking into it. I started reading the papers. I think that’s one of the things that few people do. There’s an edge in reading papers. It still is. And given my background, I had a good sense of what exponentials meant. We saw what happened in Italy. We had seen what happened in Iran. It was growing exponentially in both countries. Italy had just closed. So it was, I think, reasonably obvious that the rest of the world was going to close because you could see the exponentials starting in literally everywhere. So that’s the moment in which I start posting. And that first article got, I think, that I can count 65 million reads, most of them within a week. And then when I posted it, every country was like, no, we’re not going to close. And then within a week, everybody had closed. And so I think that was crazy. I think the craziest part is I had all of three weeks of experience in the field of epidemiology. And I find myself talking to presidents of governments and advising them in their epidemiological strategy, which is freaking nuts. I think it tells you a lot of the world and the level of knowledge that is available to governments that I was able to get into that kind of world and advise these governments.
Jim O’Shaughnessy
What was the single most surrealistic moment then?
Tomas Pueyo
I think, like, when I woke up, I think it was on March 11th, and my phone was just a buzzer. It was just buzzing constantly. It didn’t stop, right? Like, in four hours, the notifications. And seeing, like, some of the names at the time, Twitter was showing me where some of the people who had retweeted or post posted those tweets, and these are, like, very important people is that that’s kind of nuts and i think what’s nuts is not just that but it’s also the massive contrast between what’s happening virtually and what’s happening in real life because in real life i’m in the chaos of my in my apartment in my underwear like reading papers and really you have all these people who are famous talking about like the article so that’s kind of the it’s weird a weird juxtaposition so i think that was a weird one and the other one is talking with the a president of government, face-to-face, not face-to-face, virtually, with all his team members, and looking at the data with him and the team. And that’s kind of so weird. I’ve been studying at that point for two months epidemiology. So weird that I’m advising a president. But also, how is this possible? How many things must have failed for me to be able to be here and actually be the one that’s most knowledgeable. Because I was the most knowledgeable in that room. Like that’s crazy to me, crazy.
Jim O’Shaughnessy
Yeah, that’s got to be just like a really bizarre feeling.
Tomas Pueyo
Yeah, I think it speaks a lot to one of the topics that I’m always so interested in. I think governments just doesn’t work. I think the way our democracies work is adapted for probably worked 250 years ago, right? The way it works is just you have a few bits of information that the people send to the government every four years, and that’s the vote, right? But we’re now living in a world where you can send gigabytes of information every day, every meeting from every person. And so before we had to elect leaders to make choices for us because the bandwidth of that information was so narrow. But you don’t need to do that anymore if you have this information. And so this ability to send information and receive it. So the way I think about it is a lot of, OK, if we had encyclopedias, which were a group of people in a room writing articles, and then we moved to Wikipedia and we have more articles, faster and better. And that’s just because we had a coordination mechanism to aggregate all this information. Can we do the same for democracy? What is the mechanism where we can aggregate information all of this information from so many places so that we can have better decisions and we don’t even need to elect people at that point because it’s the mechanism of aggregation of information that makes a better decision. So I think a lot about these things.
Jim O’Shaughnessy
Yeah, it’s something I’ve thought a lot about as well. And what I always keep in mind is the cultural lag time to adopt. And, you know, we are interesting creatures, we humans. And one of the things is kind of the dual thing that you see. On the one hand, it often takes... society a long time to get comfortable with even the idea that we should discuss. You know, the traditionalists are like, what do you mean? You can’t discuss replacing nation states and democracies with communities like, you know, that just can’t happen. And then I think it was Max Planck who said progress happens one funeral at a time. And like the old guard that won’t even consider it just literally starts dying. Yeah. And the younger people basically have grown up with that idea kind of swimming in their mind. Yeah. One of the things that I’m intrigued by is this idea of having citizen juries that are randomly selected. There has to be some sort of criteria, right? Yeah. But, and you have two conversants talking different parts of a policy, right? So, you know, your conversant number one is in favor of policy A, person two is opposed, and they have the ability to bring as much data to the jury as they want. They have the ability to do whatever they want. And there’s something that what intrigues me is that seems to touch on both sides of our humanity. And by that, I mean the jury system is a very, very old and established system, at least in Western society. And so traditionalists don’t immediately say, no, never. They’re like, oh, juries actually do work pretty well. And then they’ve done some I had a guest a few years ago who was advocating for this. And the results were pretty impressive. When you looked at the the poll of, you know, the the society where the proposition was being discussed, it might it might have skewed like 90 percent against 10 percent in favor. And then they would use this experimental jury system with the advocate and the respondent, and it flipped. Pete, just by getting the information in an unfiltered format, these regular people made actually really good decisions. What do you think about that?
Tomas Pueyo
There’s so many thoughts. It’s super interesting. I think two or three thoughts very quickly. I agree with your points on the fact that it’s so hard to move people’s opinions. I think most leaders believe that. And as a result, they don’t even try. The idea of politicians follow the Overton window rather than shifting in. And having been during COVID close to these people, I think they underestimated the ability to change people’s minds because they’re not good enough at creating these narratives to change people’s minds. Just to give you an example, I was in Channel 4 in 2020, just at the beginning of all these countries closing, Channel 4 in the UK. And there was an official epidemiologist from the country explaining how they couldn’t do anything. But they couldn’t close the country. They had to let it run. Right. And afterwards, we I read some some internal papers that that’s what the government had done. They had looked into the possibility of talking with of getting the population to lock down and they thought it was impossible. And I remember because when I was there, I was preparing for that moment. And when he said this, I said something like, what, are you going to kill 200,000 people? Is that what you’re going to do? I am putting my hands on my face. And that was a purposeful movement because I knew that with this angle, it would draw people’s attention to the catastrophe and then the fear would make them more open to a lockdown. And so I think this is true in that moment, but it’s true in general. You can do a lot more than that. Now, I think what you say makes a lot of sense from a storytelling point perspective, because you were saying, hey, I’m going to use conflict. When you use conflict between two sides, conflict is something that people really, really understand. It’s the basis of storytelling. So I’m going to have both sides pushing against each other. And I think there’s a lot of truth in this. I’m wondering if there’s a way to keep that conflict and at the same time eliminating the limiting factor that is having just two people gathering this information, right? So could we have, for example, on both sides, not one person, but a group of people or even everybody who could be providing the evidence, who could be providing the arguments and the people who are having that debate, for example, They are selecting or, you know, they’re getting the best pieces so that instead of just limiting by the bandwidth of two people, you can have like lots of different people crowdsourcing that kind of those arguments. And I think that there’s something there. There’s something around keeping the storytelling of the conflict, but at the same time crowdsourcing the information and the argumentations.
Jim O’Shaughnessy
Yeah, I think that’s a good extension of the idea. I’ve been fascinated by the idea of smart swarms for a while. Yes. And I think that that would be a superior outcome, probably. The one thing that I...
Tomas Pueyo
Our current democracy is not real democracy. You don’t really have a voice. You are giving it to somebody else who is then using it for corruption, blah, blah, blah. We want a true democracy. What would that look like? And then you’re opening people’s mind to having another take on what the structure of the organization could be.
Jim O’Shaughnessy
And you could even use history to reframe, right? Like, so you could say direct democracy. Here’s where it was used or partially used. Here were the results.
Tomas Pueyo
What? You’re right. Direct democracy is not always great, as we know in California. So the mechanism of information aggregation needs to be really well thought through because the Californian
Jim O’Shaughnessy
I agree. I agree. One of the things that I think is we were chatting earlier before we started to record and you said that you and I had spoken on Twitter a couple of times. And I originally kind of thought Twitter could emerge and maybe still can. I don’t know. As kind of the world’s first global intelligence network. Where people literally find each other through ideas or things that they are interested in, etc. And then I would throw AI and the introduction of AI into that. And the logistics problem with an AI agent gets seriously mitigated, in my opinion, because I think one of the things we started talking about exponential, right? And again, it’s your idea that we didn’t evolve to understand that, I think is a key insight. And I think that the lack of a really... good, maybe just enough to be dangerous, insight into evolutionary biology and psychology helps us think about what we evolved to be like. And it wasn’t to be able to scale this quickly, this, this fast. But I think we can. I mean, I think, I think ultimately, I think ultimately a series of small examples, like the jury one that I gave you, I’m all in favor of trying to, Lots of different things. I mean, as long as they aren’t obviously harmful, right? And experimentation, iteration, like that’s how you get to a better place. You get a better explanation, right? But you can only get that better explanation by trying a bunch of different things.
Tomas Pueyo
100%. So a couple of thoughts. When I think about this Twitter thing, for me, it’s not obvious that it’s not a brain yet. So the way it works is you and I would be neurons. And so as neurons in that brain, we wouldn’t realize what the brain is thinking. But it’s very similar the way we work, like Twitter works. to how the brain would work. Every person is connecting to each other. It’s asymmetric. So you have one person sending information and a bunch of other people listening. So that’s exactly like the axons and dendrites sending and receiving information. Information flows through Twitter the way it flows through the brain. The most interesting one gets sent and amplified more and more. And so there’s... You could imagine, for example, if it were a brain, what would be some big decisions that it could take? And one of them could be, okay, who would be the president of the United States? And arguably, Twitter had a big influence in that decision. And so it could be that we are neurons inside of Twitter and we don’t realize that it’s already thinking, but it is. I think your second point is super interesting also on trying lots of different things. And one way to think about it is we’ve had about 200 countries for decades now, and that’s kind of it, right? And that’s not enough competition, because each one of these countries has a monopoly on their local market, which is their geography and most of the population, but doesn’t move that much. And that’s why I think the current of the new nation states, which Balaji Srinivasan calls network states, is so important. I think the idea is that you do need competition between countries, that’s where most of the value is going to come from, from governance. Because otherwise, with the monopolies that they have, that countries have zero incentive on changing that much. Luckily, I think China is actually, like the rise of China is a good thing for the United States because it now has an opponent. So as opposed to China, it needs to improve the way it was improving as opposed to the USSR. But for the last 20, 30 years, I think the U.S. probably did not improve the way it should have because it didn’t have a worthy opponent. And so it had no push to improve its governance.
Jim O’Shaughnessy
That’s a really interesting point that I agree with. At the fall of the Berlin Wall, followed later by the fall of the Soviet Union itself, one thing that I noticed was the splintering of the various groups within the West— Because at least in the in the United States, the one thing that did kind of unite both political parties was the foreign policy view towards the Soviet Union as an opponent. Now, we did a lot of fucking stupid things, but but we also that unanimity is. encouraged working together on, hey, we’ve got to get to the moon. Sputnik, you get Apollo, right? And so your idea of competition, I think, is well taken. But then what about the idea, and this isn’t my view, but it’s one I just thought of, what about the idea that many of our major, major innovations have come as a result of war?
Tomas Pueyo
Yeah. So interesting. War is really competition. Yeah. And competition spurs development. I think Jared Diamond, right, is the one who proposed that Europe... Yeah. Guns, germs, and steel. Yeah, right. That’s right. And it grew because it has this combination of enough separation of countries from geography to allow independent developments. and making it very hard to unify. but close enough that you could be fighting each other all the time. So you could specialize, but also you had to keep at the edge of technology innovation because otherwise your neighbor was going to kill you. Whereas in China, China is a massive, massive plane from Beijing to Shanghai. That’s the hard line of the hand. And then you have huge barriers around it. You have the deserts in the north. You have the Tibet in the mountains, the Himalayas to the east. You have the ocean to the west. They have jungles and mountains to the south. So that promoted the unity of China. As long as they didn’t have unity, they were killing each other and they were progressing so fast. But the moment they had unity, that’s what happened with the Ming. They stopped looking around. They started looking inside. And so I think that’s very, very true. Obviously, you don’t want the downside of war. So the question becomes, how can you keep... the upside of war which is all this competition without the downside and I don’t have a good answer but I would say today there’s way too many countries that can get away with very very poor management and they still don’t lose like Venezuelans in North Korea are obvious examples and so that’s not just for Venezuelans and North Koreans it’s bad for everybody because we don’t get the benefit from the competition with countries like this one so I think that’s really bad
Jim O’Shaughnessy
Yeah, and I used to kind of joke, but kind of not, that North Korea and South Korea was the cleanest and best A-B test that anybody could ever conduct, right? Same people, different system, different outcomes. Unbelievable. And what sometimes frustrates me Is how can people not see this? It’s obvious. It’s obvious. And and yet we still have the kind of this movement that won’t die. Right. Like Venezuela, the richest country in Latin America. imposes a socialist system on the country. And however many years later, one of the poorest countries in Latin America, the list goes on and on and on. And yet with all of this empirical data, We still have, I mean, like if the polls are to be believed, young people probably prefer socialism to capitalism or free markets. And I personally think that a lot of that is from an emotional base, but it’s also from a base that is solvable in that, listen, if, so when I was young, I got married when I was young, I was 22. It was in 1982 and interest rates were double digit. Yeah. The first, the first home I bought, I had to actually take paper back from the owner of the house because the bank wanted something like ridiculous, like 17% for a mortgage. And, and the owner was going to cut me a break and give me 15% mortgage. And I was like, wow, I just, this is modern man. Right. Yeah. And yet today, I think that younger people have some legitimate beefs. I think that the, you know, the NIMBY movement, you know, not in my backyard. Yeah. And I was saying being unobtainable for many of them. The uncertainties in the job market, like, I get it. I get why they would be pissed off. And so I’m not saying, oh, you know, kids today. I think they’ve got legitimate beefs. And some of them are solvable and others will take more time to solve. But I think this is kind of a good place to slide into your idea of, like, maybe a juried This is a good idea. Maybe we should sponsor something like this. Like a juried system where the jury is selected sort of at random, right? And then we’ll use your idea where people or groups of people who support, you know, idea A. I’m just inventing this right now. Yeah, yeah, yeah. Who support idea A. go up against the people supporting idea beef. Wow. That, that might be a really interesting thing because if I was young today and I, I’d be pissed off, too, that I couldn’t afford to buy a house, that my mobility was limited, all of those things. And I think that at least we could reframe it by, hey, these are real problems. Let’s see if we can find a collective solution that makes sense to a jury of our peers.
Tomas Pueyo
There’s so much to say about this. The narrative, I agree with you on the socialism side. I think the Part of it is what we were discussing before on short term versus long term. Actually, socialism works really well in the short term because you give all the benefits and you can still use the money that you saved and the systems. It takes decades sometimes for the pain to be suffered. Venezuelans were really happy in the first few years or even decade of Chavez. we’re now 25 years I think into this and now so that’s I think part of it the other part of it is that I think the narrative of socialism is beautiful of oh we’re all going to be nice with each other and pay and help that it just doesn’t work it’s amazing it’s beautiful communism is beautiful it just doesn’t work right and so the narrative it’s very hard to fight this narrative and I think it’s going to get worse right so in the context of Mamdani being voted as the mayor of New York, I think this is not a spike. This is not a fluke. This is a trend. And the way I think about this is, I connect it to AI, which we’ve touched in the past. But we’re seeing that all these graduates are not getting jobs. And if you worked for four, five, six years to get your degrees, you have $100,000, $200,000 in debt, and you’re not getting a job, you are going to be irate. You’re supposed to be part of the elite, and now you’re nobody. And so that’s what I think Peter Turchin would call the overproduction of elites. Right. And so and for socialism, it’s always the elites that push it down on people. And this is perfect. Like these elites are overproduced right now and it’s only going to get worse with AI. Because AI, by definition, is going to start with white-collar jobs, and it’s going to start by automating the jobs that are the easiest to automate, which is going to be usually entry-level, or the easiest ones. It’s not going to be the ones that make the most money. The most specialized, the most educated people are going to have much more leverage to with AI, and so they’re going to be able to do substantially more, they’re going to be substantially more productive, and it’s going to be faster. It is already faster to work with an AI than to work with an entry-level person. So I think one of the very first consequences of AI in the short term, like moving into its direction of UBI and whatever, but that’s a long term. In the very short term, I think my biggest fear is a move towards socialism, which AI might provoke. And I have a couple more thoughts, but I think this is an important one. So I want to pause here.
Jim O’Shaughnessy
Yeah. And I guess the pushback would be on, for example, the kids who are in debt to the college, et cetera. I like to think of, OK, what if a college education were a tradable stock? What would happen? What would that stock be doing right now? I think it would be at a 52 year low. I think it would be at a 10 year low. And the idea that we now have the tools where that certification. Right. I barely have a BA and I and I only have a BA because my mother would have killed me had I not gotten it. Right. I came up in the generation where it was just absolutely mandatory. at least for people like me, that I had a college degree. But honestly, it was a waste of my time, I think, for the most part. I have a degree in economics, which I never use, because the theories and hypotheses that I learned, even when I was learning them, I was always the guy like, but have you thought about this? Has your econometric model ever met an actual human being? Right? And no. So, I mean, The planted axiom is you must have a degree to be successful. And I would question that. Now, certainly in things like, you know, doctors, lawyers, et cetera, Of course. But the idea that the majority of people going to college, that’s a result, in my opinion, at least in the United States, of the GI Bill after World War II. At the turn of the century, of the 20th century, in 1900, 2% of Americans attended college or university. And so there wasn’t that overproduction of elites, right? Yeah. And I’m all in favor of... See, I think a degree suggests competence. It suggests that you can... Play by the rules that you might not agree with of that university and that, you know, you are a competent individual. I think proof of work in today’s environment, like I haven’t hired anyone at O’Shaughnessy Ventures based on their degree. Not one person.
Tomas Pueyo
It was all proof of work. There’s this book I’m reading right now, The Case Against Education. I don’t know if you’ve heard about it from Brian Kaplan at George Mason University.
Jim O’Shaughnessy
Yeah, I have.
Tomas Pueyo
And the case is so overwhelming that most of education, not all, but most of education is signaling. You’re not learning. You’re just showing that you’re intelligent, that you can work hard and you can do what you’re told. And that pushes you into a race because if everybody else does it, then you need to do it too, right? So everybody gets more education. It goes back to the point that you’re mentioning where if 10% of the population has a degree, that’s a high signal. But if it’s 60%, now the signal is meaningless and then you need to get more. And so it’s just more of a waste. Of course, as a politician, you cannot say, hey guys, the education that you guys are getting is worthless. So we’re going to stop paying for it, especially for you and you in social sciences, which are learning nothing. So you cannot say that. But I think your point is the answer to this. Where if you say, hey, really education is not very useful. But the way the education, like the world is going is that you don’t even need it anymore because you can prove by doing. I think that’s to me the answer. And also there’s probably another one around the cost of education where you can learn so much faster through AI, right? So you might, I’m sure you know, but maybe not all of your audience knows about Bloom’s two Sigma problem, right? Where you can take a 50% percentile student and get that student to 98% percentile just with only one intervention, which is one-on-one tutoring. There’s nothing else that comes even close. And the problem is, as a tutor, you cannot have one-on-one tutor for everybody, but now with AI, you can. And so to me, that’s kind of where we can figure this out, where you can eliminate all the cost of education and all the credentialism by pushing people to one-on-one tutoring. I know you guys support synthesis, which goes kind of in this direction. So I think that’s one of my hopes, where if we clearly explain to people... the education your kids are receiving is worth only 20% of what you think it is. But if you do it this way, it’s much cheaper and it’s better. I think that’s where naturally people are going to move from standard education to one-on-one AI-based tutoring.
Jim O’Shaughnessy
Yeah. And I agree that that will be a burgeoning area of probably private industry to begin with. Yeah. And the thing that we have to keep in mind, though, is that like good old Walt Whitman, we all contain multitudes, right? And literally... A thing that might even be more important to human beings, at least by my lights, is status and prestige. And if you look deeply into history— Once you see it, you can’t unsee it, right?
Tomas Pueyo
What are some examples of that, the most salient examples in history for you?
Jim O’Shaughnessy
The idea, probably the easy example is just going back to when 2% of the population went to university. the idea first off you were high status if you had a college degree yeah my grandfather we have huge gaps in the generations in my family and my grandfather was born a hundred years before my son he was born in 1885 and he got and he got a college degree which was super high status back then But even within that, there was variation, right? If you were a Harvard or Yale man or a Princeton man, well, the world was your oyster, right? And I think part of the thing there with the status and prestige was... There were very limited venues for you to gain high status, high prestige, right? The arts, academia, government. Government’s a good example, right? The government used to be a fairly high prestige position, right? You think of George. And it drew very, very capable people like George Marshall, right? Came up with the Marshall Plan after World War II, right? The the the rule back then was, say, you’ve done really well in whatever your chosen profession or career was. You would often see those people when they ended that career go into government service. Right. Because it was seen as kind of a bank to the country that where you were allowed to succeed. Yeah. I mean, Elon’s recent foray gives us a different example. Right. And so I think, though, that like case systems, class systems, like they perpetuate. historically it’s pretty hard to find a society. I mean, the American experts, like for example, I, I, I love this idea. Um, when America, where the American experiment was formed, um, one of the things that the diplomatic core of America decided was American diplomats bow to no foreign royal, um, aristocrat, etc. That was unheard of. Literally, and people really got upset when the American diplomats would go in front of foreign kings or queens and not bow. That’s crazy. That was such a breach of etiquette, right? But I suspect that there will be new venues that will become incredibly prestigious that we don’t even know about right now.
Tomas Pueyo
I agree. I think we already have some examples like Influencer. is an extremely meritocratic way of getting status now it is um in some circles like people uh laugh at it but There’s a huge status coming from it. That’s why 50% of children want to be YouTubers. And in a very big way, I think it’s much better than an education or at least a big chunk of education because of the point that it is very meritocratic. If you don’t do the best content, you’re not going to be there. You’re not going to be at the top. You need to be learning constantly from competition. You need to be thinking like seeing okay what do you do analyzing them reverse engineering it you need to push do things much more interesting than than they used to be than others are are doing and so it’s an extremely extremely meritocratic uh a field that has come from nowhere um and that really pushes people to to improve and so this is an example of uh reaching status through an alternative from education. And I think I want to see more of that. I think another example is obviously the solopreneur idea or the nomad’s entrepreneur, which was basically impossible up to just five years ago, or barely possible, and now it’s completely possible. You have all these companies that can be created by anybody from anywhere. And so those are the things that AI and the internet, I think, are allowing. that are going to undermine some of these fundamental problems of education, for example, by giving status to those who really deserve it rather than the ones who just toiled for a long time to get it.
Jim O’Shaughnessy Yeah. And, you know, I had a series which we kind of aborted because we got so busy doing other things called The Great Reshuffle. And I started thinking about this back in 2015. And I was like, I think we are in for a tsunami of change. We still called it machine learning back then, but it was based on the things that I saw emerging from the global connectivity of the internet, machine learning. Essentially, the world was one where time, space, and geography were collapsing. And and yet. Your work also suggests that geography is incredibly important, right? People can move, but often don’t move. I think, for example, one of the reasons that America succeeded as brilliantly as it did was first geography, which I want to ask you about. But but also in the self-selected sample that came here. If you think about it, right, what kind of person came to America? Well, they weren’t like the average villager that was sitting right next to them in church. That’s right. They were very, very different. We have kind of a hypomanic edge to the American DNA because of the people who came here, right? If you think about it, it’s 1850, and you and your family have lived in Ireland for 1,000 years. And you decide, you know what? I’m not going to be a dirt farmer anymore. I’m going to leave everyone I know, the culture I know, the home I know, everything. And I’m going to get on a ship and I’m going to go sail to this new country and try my luck. That is a very different kind of personality type than the ones who stay. But OK, so they get here. Tell us about your version of why, because this is something I’m fascinated by and I really believe in. One of the greatest bounties of America, other than the Bill of Rights and the rule of law and all these wonderful things, is our geography. Yeah. Talk about that a little bit.
Tomas Pueyo
Yeah. So I don’t think most people don’t realize that the U.S. geography is probably the best in the world. Yep. Bar none. And so you start by the defensibility, obviously, the two oceans. Canada is too cold to be a threat. People don’t realize that Mexico is too mountainous. And it is also desertic. And both of these things mean that it’s substantially harder for Mexico to develop. It’s always going to be poorer from a geographical standpoint. And it’s also reasonably hard to conquer or to threaten the U.S. That is, though, the point where the U.S. is the most threatened because New Orleans, which is probably one of the most important cities in the U.S., is not so far away from Veracruz, which is the biggest port in Mexico. Why is New Orleans so important? Because it’s the mouth of the Mississippi River Basin. And one thing that people don’t realize is that the Mississippi River Basin has more than half of the world’s naturally navigable waterways, right? So the rivers are most of them navigable because it’s so flat. The entire Mississippi Basin is so flat. And there’s so much water that comes from the Rockies and the Appalachians and the North. And so massive, massive And that’s super important because that’s another thing that people don’t realize. The cost of transportation is the single biggest driver of wealth. If you have the cost of transportation, you can multiply the wealth of a region. up to 16 times. It’s crazy. It’s a question of geometry. It’s just a fact. And so having the single best network, just natural there, is unbelievable. Not only that, but also the costs. especially the east coast all the way to Houston, have a series of islands that protect boats and ships from the sea. So you could have this intercoastal highway to the... So transportation is amazing, but also this area is connected in the north to the Great Lakes, which are also connected to the ocean. And the distance between these two basins from a navigable standpoint, is just a few miles. And they’re in Chicago. Chicago is actually just a few miles from the Mississippi Basin, which is kind of nuts. And that’s why Chicago is so big. And so you add, there’s a bunch more, like for example, why does the US, it has a massive amount of oil and gas because of the history that it has. Usually like the Mississippi Basin in the past was a sea and the seas developed oil and gas over history. So you add one after the other and it’s just unbelievable amount of assets that the United States has. I think people underestimate how important this is. There’s also the other side of it, though, which is Argentina is kind of a mirror image to the United States. Whereas it has the Mississippi for the United States, Argentina has the Rio de la Plata and the Paraná. Very similar. It’s not as big, but it’s quite similar. Very flat. You also have mountains on both sides. Massive amount of very fertile land in the middle, just like the Mississippi basin. And so you have a lot of these, and yet Argentina is substantially poorer than the United States. And so I think what really made the United States special is that it has one of the best geographies in the world. And also, so that’s the hardware, but also the software is one of the best that we’ve come up with so far.
Jim O’Shaughnessy
Yeah, and I’ll throw in the amount of farmable land in the United States is also off the charts.
Tomas Pueyo
That’s right. And a couple of things on this, there’s a few reasons for this. One of them is it was a sea in the past, so it’s very recent soil. which has lots of sediments from that time, but also having all the water come from both sides, from the Appalachians and the Rockies, also brings with it all the sediment. And so you have constantly all the sediments brought on both sides, and that helps. And that’s the reason also why Argentina... is so fertile. It also was a sea. It also gets a lot of sediment from both sides. So yes, that’s why actually the United States I think is the He’s one of the first exporters of food in the world. People don’t realize he’s also one of the first producers. In fact, most of these are temperate countries like Germany, Netherlands, United States are some of the biggest exporters of food, not just per capita, but just overall, because they’re so good. And of course, they have the technology to make the best use of it.
Jim O’Shaughnessy
So give me an example of a country where just the geography alone puts them into such a hole that even if you even I love your idea of the hardware software. I’m going to steal that from you. And so so where the hardware, the geography is just awful. Even if you put the best software on top of it, it’s still going to have a really hard time.
Tomas Pueyo
Yeah, there’s so many. I’ll just give you an example. So so Colombia. if you look at the map of Colombia it’s basically flatland and then some like two mountain ranges and all the population is on the mountain ranges nearly all is on the mountain ranges that doesn’t like if you go to Europe or the United States People do not live in the mountains because mountains are cold. It’s much harder to transport everything because you need to pass all these mountain passes and building roads through mountains is much more expensive. So the infrastructure doesn’t get built and you don’t have infrastructure, so you don’t have trade. So it’s very, very bad. But in Colombia, if you don’t build on the mountains, you’re in the jungle. And if you’re in the jungle, you get all the diseases, you get terrible heat, you get rain all the time, wet bulb events. And so it’s really, really, really bad. And so all the population is on the mountains. And in the mountains, we have the problem that we mentioned before, where it’s just poorer because it’s so expensive to build infrastructure and you don’t have trade. So in fact, you can go through the world and around the equator, you don’t find, you barely found any rich country for this reason. In the equator, you have to live in the mountains. Otherwise, it’s unbearable. If you live in the mountains, trade is bad. And there’s also more conflict in mountains because people are more isolated from each other in the mountains. So cultures diverge. So that’s one of the reasons, for example, if you move to Africa around the same level, you have, for example, Ethiopia. 120 million people. They get a lot of rain. So the land is very fertile. But every ethnicity, every valley has a different ethnicity. They all hate each other. You don’t have train because infrastructure is too expensive. So that’s another example of a country that just geography is so, so bad that it’s so, so hard for it to get out of that hole.
Jim O’Shaughnessy
Are there any solutions that you have come up with for these countries?
Tomas Pueyo
Yeah. Actually, one of the richest countries in the world is Europe. Snap on the equator, and that’s Singapore, right? So it’s very special if you’re a city-state. And as a city-state, you can do things that you cannot do as a country, as a bigger country. But Singapore is an example of this. And Lee Kuan Yew was very articulate about this. He said... Singapore is impossible without AC air conditioning. And it’s so, so, so important to have AC for the development of Singapore, because otherwise you could only work in the morning and in the evening, right? So once you have AC, you can work through the day, and now you can be substantially more productive. So you have two options, right? If you go into the equator, you either have the mountains in which you have the problems that we mentioned, or... you’re on the valleys, which you have the other problems. So you need different solutions. If your country, if your populations are on flatlands close to the sea level, first is you need AC. And for AC, you need electricity. And electricity, you don’t get grids that work when you’re poor. So thankfully, now solar is solving this. So solar and battery is becoming substantially cheaper. You combine these with AC, which are heat pumps. That’s the same thing, so actually extremely efficient from an electricity standpoint. So I think that’s one of the big, big, big ways in which these countries are going to have a huge hope for them in the coming decades. It’s not just the temperature, though. It’s also the disease. And so one of the things that I haven’t researched fully, but I’m like 70% convinced right now is that we should eliminate some mosquito species. They are by far the biggest killer of humans. They are also some of the biggest sources of disease, not only for humans, but also for animals. And so just eradicate them. Just eradicate them. We don’t need them. Nature doesn’t need them. So I think with these two things, you can solve the problem for the flat countries. And then the ones that are in mountains, you have a problem because you do need the infrastructure. because otherwise you cannot move the goods. Thankfully, you can move information, right? And now you don’t even need the cable. You can do this through Starlink. And so hopefully you have countries like Colombia, Ethiopia and whatnot that can have more of a solar plus Starlink kind of economy and that can develop them. But for the physical goods, you will still need to build infrastructure. And that’s something that costs just capital for decades. which Brazil has been doing for nearly a century now. They’ve been consistently investing in capital and infrastructure in the country to compensate for the fact that they have so many mountains.
Jim O’Shaughnessy
Yeah, the reference to Brazil reminds me of the old joke from a long time ago. Brazil is the country of the future and always will be. Always will be.
Tomas Pueyo
And so one thing that people don’t really like is because of the mountains. So because it’s so hot, in the Amazon you cannot grow anything because close to the equator, that’s another thing that I mentioned before, is you have so much rain that it leaches your ground all the time and so you cannot grow anything. And so the only places in Argentina where you can grow stuff is on the mountains, on the shield, and the shield is very acidic, so you need charcoal to improve the fertility, so you need massive amounts of or whatever other way you have to fertilize it. So you need massive amounts of fertilization, you need massive amounts of roads to go everywhere. And that just takes so many decades. And I think they’re, I don’t know, halfway through or whatever it is, but I think eventually they’re all going to have the ground that’s fertile enough and the infrastructure that’s good enough that they will be able to be re-share on the hardware side, then software is another problem.
Jim O’Shaughnessy
Yeah, I love that distinction. And it does seem to me, though, that with all of the innovations and tools now coming online, really, for the first time, we really do have opportunities to make these changes like you’ve just been describing. So for example, I’m a fan of trying a lot of different things, but I really do like some empirical evidence that it might work. And so air conditioning, the other great example of air conditioning is the American South. That’s right. Traditionally, the American South was much poorer. That’s why it held on to slavery, the stain of slavery as long as it did. And and literally in the after Civil War years, it was one of the absolute poorest regions of the United States. And then air conditioning can’t. which literally transformed the South and Southwest and made it... And look at where a lot of growth is happening right now. And most people, if you were on a quiz show, would not pick air conditioning as the final answer for why that was possible. And I like the way you think because sometimes the simple solution... You know, maybe that fellow, Akam, actually was onto something, right? You know, Akam’s razor.
Tomas Pueyo
Yeah, yeah, yeah, for sure. So I’ll touch on the Civil War and then on this last topic that you mentioned. So we’re talking about the hardware and the software, and we’re talking about them as if they were independent, but they’re not. And this is something that few people talk about. enough about um and just for the civil war one of the things that people don’t realize is that the climate uh made it um very of the north is very different from the south obviously but also that meant that you had wheat and corn and barley that grew in the north all of which are very low work crops. And so that enabled small families to have big farms, and that promotes independence, but also entrepreneurship. Because if you own your own land because you don’t need much work, you are more likely to invest in capital to have machines to optimize your production. Whereas in the South, none of these works. And the crops that work were things like cotton, sugarcane, tobacco, which take 10 to 20 or more times of work per hectare. Not only that, but also they’re very, very hard to automate because it drains substantially more. So the soil has much more mud. And so you could not very easily have... So you have a combination of things that Obviously, they were not the only cause of slavery, but one climate pushed in one direction the software and in the other one in the other direction. And we don’t take that into consideration enough because, and I think that matters because otherwise, there is a, let’s say, a narrative of potentially superiority of, hey, we’re better because we have better software, when in fact, actually, maybe you’re better because you were lucky enough to have a hardware that led you to this software, right? And until you understand these differences, you’re going to have the wrong narratives of exactly what happened, and then you’re going to have a conflict, right? on these things, right? So for example, like if you understand, for me, it’s a much more productive conversation to have about slavery to say, look, the climate was a very big component of why the West and the South, but also why the North won. And so one system is strictly better than this one. This is why this one happened. And so now let’s work to make sure that this doesn’t happen again and spread better software, right? Rather than saying, oh, we had some bad people who came here and did this bad thing just because they were bad. And so now we need to solve it in ways that are more fair. That said, I think your point on the development of the South is so, so important. I think there’s this graph where we can see the evolution of the center of mass of the United States moving from the northeast every year westward and southward. And what has happened in Arizona is just unbelievable. Phoenix, especially, but also Tucson. And those are cities that are completely impossible without AC. and without the water from the Colorado River. And so that’s very much a human ingenuity. And I think that brings the question, which is, in the 19th century, we were so optimistic about what humans could do and how they could improve the world. And then we had the two world wars, and like, oh, no, no, maybe technology is not bad, not good, and so we should stop it. But if we’re... optimistic again about it, now more realistic. We can do things that we couldn’t even dream of before. And a perfect example in the American Southwest is the Salton Sea. The Salton Sea is a dump now. It’s toxic, like it’s dead, but actually we can just build a canal from the sea. It would be reasonably cheap. And just the amount of value that would be created by sending all this water into the Salton Sea and reviving the entire Salton Sea and making all the real estate be substantially more valuable around it. You could create new communities, new societies. And that’s the type of thinking that I think we need to have today. A city like Las Vegas from the desert, we could do this kind of thing. A city like Utah, a state like Utah and Salt Lake City, we could do these types of things now if we think intelligently in terms of geography and how we can shape it to be more prone to humans.
Jim O’Shaughnessy
Yeah, and I am 100% aligned with you on that way of looking at the world. I think that there are so many things that we can do now that, like you yourself just a moment ago said, like five years ago, you couldn’t do. And I think one of the things that happens, again, here we’re back to cultural lag, right? Because we don’t understand how young we are. You go back. I mentioned my grandfather, right? Born in 1885. He was learning things and getting around and doing things that his great, great, great, great, great, great, great, great grandfather did exactly the same way. And he, you know, horses everywhere, every, you know, the majority of Americans were still on farms in 1885. And yes, they were going to the cities because of the industrial revolution, but then he lived to see man land on the moon. And, and, and so I, but I think about this all a lot, right. And I use him as my, as my flag in the ground, like, After him, now we had Telegraph, but then broadcast mediums like radio. There’s a great book by Bill Bryson, which I mentioned a lot on the podcast, because it really is that good. Because what he is able to do is create a narrative that’s really compelling, but to remind you that we’re babies. And he brings up this guy who was a radio announcer announcing Lindbergh’s return from Europe. And and he makes the observation this was the first time in human history that a single individual had had addressed millions and millions of people. That thing alone, just think of the enormity of that. Right. And then, of course, you get TV, you get movies, you get all of these things. But the point is, they look, I look at all technology and all innovation is dual use. Right. So. That ability, and I know you’ve written about this, that ability to address one to many also makes totalitarian and authoritarianism a lot easier because it gives you this huge canvas that you never had before. What are your thoughts?
Tomas Pueyo
Yeah, absolutely. So there’s this concept of print capitalism, right? The idea behind it was that books or that the printing press was the number one killer of the feudal system. It wasn’t the only one, but it was one of the biggest ones. And the reason is because before that, the church had a monopoly of information in Europe. They were networked. They sent information to each other. They used their own Latin language as their own language to communicate. So they had a center of decision-making, which was the Pope, and he spread all the information on the ideas that were kosher and not. And you go from that world where you have the printing press, and suddenly you don’t have control. Well, you don’t have control of the information anymore because it can come from anywhere. Now you have vernaculars instead of Latin that are used, so you don’t have a monopoly also on that language. And so you suddenly have this issue of not monopoly anymore of information. Of course, you can disseminate it substantially more because the marginal cost of printing something else is substantially cheaper than writing it. So you have much more information, much less centered. And then there’s another factor that is fascinating, which is that books were printed in the biggest city because that’s the city that had the most customers. And so then because you had lots of people read books on one language, then you would learn that kind of vernacular. And so the more customers you had, the more books, the more books you market customers. And then languages evolved from there. So French evolved from Parisian language. because of this Spanish evolved from the language from Castilla, Valladolid, Toledo, Madrid because of the reason and so on and so forth. And so once you had languages, you also had a unit of thought, right, where ideas spread really, really well within that unit and not across units. And that was the birth of nations, the feeling of nations. And so you have this technology that has such a massive impact in politics, in history, and we don’t realize it, right? And that has happened over and over. Just to give the example that you mentioned, just to give like 30 seconds on it, you don’t have Hitler and Mussolini and Franco and all these people, not Franco is a bad example, but Mussolini and Hitler are perfect examples of this. And why do you get these people in the 1920s? In the communist society, it’s the same. You have them because radio is the first time that you can have a marginal cost of zero of distributing voice, right? And voice carries emotion with it in a way that books don’t. And so you needed radio in order to incense hearts enough to have these totalitarianisms. And so then the question becomes, okay, If this is the case, how is the current communication tech going to change us? And we obviously have been seeing this with social media. And now AI is going to be doing this 10 times more. But people, I don’t think, are thinking proactively what’s going to happen. And just to give you a couple of examples, when we mentioned press, we mentioned radio, JFK was the TV guy. And then Obama and Trump are kind of the Twitter, the social media guys. Then it pushes harder. Like, I believe the future of politics is not politicians that get good at social media, it’s social media people who get good at politics. And we can already see some of this. AOC in the United States is pretty good at social media. In Europe, in the European Parliament, you have several parliamentarians who are YouTubers or equivalents, right? And so it’s like, okay, I believe the future of politicians in the Western world is people who are going to be so, so good at media that they’re going to create their own channels, they’re going to get a massive amount of following, and they’re going to use that to have the power to take on politics. And so, okay, how does that change society? I think that changes it dramatically.
Jim O’Shaughnessy
And continue, because this is a fascinating thesis. How will that change society? Just a couple of examples. Yeah,
Tomas Pueyo
So I think in general, politicians, for a politician to be successful, he or she needs to be good at usually two orthogonal decisions skills. One of them is communication and the other one is content or ideas, right? And those are completely orthogonal, meaning that skills being a good communicator has nothing to do with you having good ideas and being good policies. Because of that, usually The dimension that matters the most is the one that wins, and that means communication. So it’s usually in the last few decades, it’s the better communicators who are the ones who won power. But I believe that the ones who have both are going to be strictly better or are strictly better. It’s just so hard that there’s few of them. But you can see it, for example, in a debate. When you have a debate and two people are good at communication, but one of them really knows their shit and they know exactly, no, no, this policy you’re talking about, you’re completely wrong because of this and this and that and this and this and that. And so you don’t know what you’re talking about. If you’re able to make that type of argument, you destroy completely your opponents. And so I believe that that’s the type of politician that can win. I believe it was very hard in the past, but I believe it is now much more possible. And that’s where we’re going to connect two of the ideas that we had. If you have a person who is very good at communication, at storytelling, at social media as a result, but also is able to crowdsource the policies of then you can be using now your audience for two things. You can be using your audience for influence, right? It’s the broadcasting, but also for crowdsourcing the policies that you need. And so I believe that’s kind of the politician of the future is one that can be doing both at the same time.
Jim O’Shaughnessy
Yeah, I’ve thought a lot about that, and I tend to agree. There’s a fun old movie. I haven’t seen it for a long time, so please do not take this as a recommendation, because it might suck, and it might just be great in my memory. But I think it was made in the 80s, and it was called Broadcast News. And William Hurt, who was the kind of good-looking leading man of that era, And then Sean Wallace, I think his name, the guy who was the inconceivable guy. No, that isn’t him. I’ve got to get wrong. Anyway, let me just set up the thing. So there’s one guy who is a genius. He is Albert Brooks, I think, is the guy who plays him. So he is a genius. He’s like they set up his scene by he’s listening to, you know, tango music. He’s reciting poetry in Portuguese. He’s making, you know, a dish that he learned about from Bhutan. And, you know, everyone’s calling him and saying, hey, hey, what was the president who had as the vice president, the guy who was the commissions guy in New York? Oh, yeah, that was James Garfield. He was shot by Guido. And so he’s a genius. And he just wants to get on the air. That’s all he wants. He just wants to be on the air. And he gets on the air and he has flop sweat. No, no, no. He has flop sweat. He’s so nervous. And he’s tongue and he’s tongue tied. He’s like, I. So the solution was they take William Hurt, who’s an idiot. And they give them an earpiece. There you go. Yeah, yeah, yeah, yeah, yeah.
Tomas Pueyo
There you go.
Jim O’Shaughnessy
Perfect example. Yeah, combining both of them. Yeah. And so that might be the wave of the future.
Tomas Pueyo
That could be the future. But I think, like, I don’t want to avoid your question because it’s an important one. And you’re thinking, here, I’m telling you what I hope is going to happen. And I believe people are going to be, like, some people are going to be able to do this. But I think this is a question of what will happen, right? And for now, let’s table the question of AI because it’s going to change the AI singularity. But I think we can think out loud a little bit. And I want to think out loud a little bit here. So what could happen? AI right now... is going to dramatically accelerate the level of idea generation that you’re going to have and content creation. And so whereas before, to create a media, you needed a massive amount of money, you don’t anymore. So you can have small operations that can quickly come up with substantially better ideas, substantially better communicated, get an audience reasonably fast. And I think that’s very enticing. So it’s an example of the idea I mentioned before, but at a low level. With AI, you reduce the cost of... policy generation and content generation in a way that you get both better ideas and better communication. Now, does it mean that these are the people who are going to be winning elections? I don’t know. I think we need to look at the politicians who have already won to get an inspiration from social media. And the politicians who’ve won are not great. These are people who don’t have that many great ideas. They’re very out there. They use the type of content that Candace Owens would be using. Crazy ideas that people would just listen to. I think that’s kind of the fear, right? You’re going to have substantially better politicians because they can come up with better content and both ideas and videos and whatnot. But you’re also going to have those who are really, really, really good at the social media aspect. They’re going to be using hatred and polemic as a way to fuel their reach. And that reach is going to be big enough that they are going to win power. And then once they do that, probably they’re not intelligent enough in terms of policy to have good ideas on policy. And that’s not what they want in any ways, because what they cater to is the audience. And so that can probably polarize substantially more. the politics than they are today. AOC, I think, is a perfect example to where early on when I was following her, I was close to what she was saying. I think a lot of what she said made a lot of sense and she was very articulate. And I think she has become substantially more polarized and substantially less focused on content and thoughtful ideas than she used to be. I think that might be a result of social media.
Jim O’Shaughnessy
Yeah, and I mentioned that my economics degree did me no good. Well, it did teach me one thing. I’m sure. And that was called Gresham’s Law, which is bad drives out good. And Gresham’s Law was originally used to describe why currencies that had been debased Basically, people hoard the good currency, right? The pure gold. And they try to trade with the bad gold. And the bad drives out the good. So I think Gresham’s Law could definitely be applied to your thesis here. Right? Well, so first off, There’s probably more bad than good, at least from a policy, at least from a policy perspective. Right. And your your thought about AI and what it allows. I mean, that’s how our entire company is organized. I couldn’t be doing any of these verticals that we do at O’Shaughnessy Ventures if we did not have these technologies. It’s crazy. And I’m actually writing my first fiction book, and I literally could not... have written this book without AI. And so, like people, you used AI? Of course I did. Like, I’m not Amish here. And when a new tool comes on, the leverage it gives you. Just one example. one of the things that I needed to research for the book was the history of art theft and art looting and all that kind of stuff. And literally, what I was able to do in one day With AI. Weeks. No, not more. Years. Years. Because your point about the Catholic Church is well taken, right? I like to joke that the Roman Empire never died. It just became religious. But the control, opacity and control and limiting information is one path. And it’s a path that I think is awful. The allowing transparency, innovation, lots of different paths leads you to be able to scale much faster, compound much faster, et cetera. But the dying of these older networks is they’re not going to go gentle into that good night, right? It’s like every innovation, there’s a great site on Twitter, Pessimist Archive, I think is the name of the handle. And if you look, Almost every single innovation, including writing, if you take what Plato said, Socrates said about it, Plato said, Socrates said writing was a bad idea. But if you take every single innovation, you can see the initial reaction of the people that think it’s going to displace them. Oftentimes they’re wrong. It doesn’t. It actually supercharges them. But It is pure id. It is pure emotional anger. You’re betraying me. You know, when photography came out, everyone said painting had a good run, but it’s done. It’s completely gone. And of course, the opposite happened. Painters were freed from the narrow confines. Mimicking realism, yeah. Exactly. And were able to express many, many different things from abstract expressionism to point, you know, the whole thing. But the result was always gets introduced. The backlash is huge. We’re seeing it now with AI. We saw it with computers. We saw it with calculators. When I was a kid, and this is going to out me as a geek, but for my 10th birthday, all I wanted was that that was in 1970. Right. So for those of you who don’t understand what the dark ages were like, computers were really super or not computers. Calculators were really cool back in 1970. And so I asked for one. And like literally all my friends were like, what is it? You know, and so like, that’s so cool because we were going from slide rules. Right. But what did schools do? They banned calculators.
Tomas Pueyo
Ban them. Yeah. So stupid. Yeah. I’m like you. I last year I could barely use like more than like one percent of the value that I added, I think, to to. to my research was coming from AI a year ago. And now it’s like 60% of it. I still cannot trust it, but the high decisionation rate, I think has gone down from like 30% to maybe two to 3%. And so it has resulted in actually substantially deeper articles. When I read the articles from two, three years ago, They look so shallow to me. And so all of the surplus has been going to people. I have to say, though, the argument around the technology is always going to make us better is based on historic kind of... Partial misunderstanding. People say, oh, the Luddites were against the Industrial Revolution and they shouldn’t have because look how good it is for us. But it wasn’t for them. Luddites were actually right. Most of them lost their job and the alternative that they had was actually not better if they found one. And so it’s something that was better over the decades. It’s great for us, but it wasn’t great for them. And so today, the speeds of job destruction, I think, is going to be substantially faster than the speed of job creation. Because in the past, it was just like in the 19th century, there was just one job. It was agriculture. And it took us 125 years to fully automate it. Not even fully, right? But to go from 70% of the population doing agriculture to 2%, which is close to what we do today. It’s just one industry, right? It took us 125 years to automate it, which means that we had all this time to create new industries. But now the speed of destruction, I think, is going to be dramatically faster, dramatically faster. And it’s not going to be fast enough for people to recycle and find another job. It wasn’t possible for the Luddites. when it took 125 years. So imagine when the automation is going to be a matter of years. And so I think there are going to be people who will be able to recycle from one job to the other. There are going to be a bunch of people who decide to leave their job and create a company or become influencer or things like this. But the amount of people who are going to lose their job and not going to find an alternative is going to be, I believe, quite fast. It depends really on the industry. Like, for example, Lawyers, I think lawyers, are going to have an amazing run over the next few years because the cost of law is going to go dramatically down. And so that’s going to increase the volume of law in the next few years. But then a few years after that, the need for law is going to be saturated, and then the drop is going to be quite dramatic. And so we’re going to see these curves of going up and then down in many, many industries. And the up and down is not going to be a matter of decades or centuries. It’s going to be a matter of years. And so there’s going to be a lot of destruction. And I don’t think we’re getting into this clear-eyed enough because of this misunderstanding of the history. People did lose their jobs.
Jim O’Shaughnessy
So I am not in any way Panglossian about my... No, no, it’s not for you.
Tomas Pueyo
I’m not saying it against you. It’s something I hear a lot of people.
Jim O’Shaughnessy
Yeah, no. And I’m underlining your argument. I agree with you. I think that one of the things that we really, really have not spent enough time on is our mitigation strategies. Because I think that... large section of the population globally and and i always underline through no fault of their own right are are going to be displaced and we’ve got to try as many experiments to to soften that blow um For example, basic income. Empirically, it’s kind of a disaster, at least all of the stuff that I have seen on it. However, I still think we should be experimenting more with it because the situation has changed. Maybe, and I’m just spitballing here, but maybe in that environment, UBI didn’t work well. Well, we have a completely different environment now. We have an environment where, again, through no fault of their own, right? And I just think that, and I love this idea of giving a child at birth a stake in the country. There’s an idea that I support that’s been, by the way, that’s been around forever. I think Milton Friedman, the economist, was the first to suggest it back in the 60s. But on birth in the United States, you should get a modest index fund that has every American-based company in it, right? Like, let’s just use the acid being as a proxy. And then when you’re 18, you will enjoy all of that compounding, hopefully. Hopefully, that’s not through another depression. But all of these ideas, I think, are worthy of thinking about And experimenting with, because I think you are right that the dislocation is going to be bumpy. I agree.
Tomas Pueyo
Go ahead. So I agree with everything you said. I think there’s one data point I think that most people miss on this UBI tests approach, which is by nature, all these UBI tests are flawed. Because for you to give a lot of money to a lot of people for a long time is very, very expensive. So if you’re giving just $1,000 for a year, people are going to leave their jobs if it’s just a year or two or three. Because you know afterwards you’re going to have to work anyway. So the A-B tests actually don’t work, I think, really well. Thankfully, we have an amazing natural experiment that we’ve been running for over a century across dozens of countries. and for UBI, and it’s called retirement. A retirement is UBI that starts at 65, right? And do people love a retirement? They fucking love it. Like if you say, okay, we think maybe we should take away out UBI. Are you happy with it? No, no, no, no. Don’t touch my retirement, right? Not only this, but I think it also answers the question of, oh, what would happen if we just give people this UBI and morally, are they going to be lost because they don’t have a job and whatnot? Well, There’s this study that looks at people who were unemployed just before retirement, and they were very unhappy. while they were unemployed. And the moment they switched to retirement, they’re suddenly very, very happy. The day-to-day hasn’t changed, but the narrative around it has completely changed. And so that made them happy. And so to me, what this means is it’s not going to be morally corrupting everybody to have UBI because it’s not morally corrupting anybody to do retirement. Retirement, like UBI, is good for a lot of people, but not good for everybody. Lots of people when they retire, they start doing everything they wanted to do. And that’s fantastic. And some people lose the meaning in their lives. And so that’s a serious problem. But because everybody believes retirement is a good thing, therefore UBI is going to be a good thing. Now, the question I think I agree with you is how do you finance it? And I think we should put this in clear numbers to give a sense of what we’re talking about, right? If you end up, for example, having I don’t know, 30, 50% unemployment, right? 30, 50% unemployment and the working age population, I think it’s 70% in the United States, right? So I actually think today, as of today, only 45% of Americans work, right? Of all ages. And that’s with a three, 4% unemployment. Yeah, because there’s the working age population and then the percentage of that that works and that combine these two things in like 45%. Now get your unemployment from 3% to 50%, and you end up having 20% each, let’s say, 20% of the population working, which means that if you want to give $1,000 to 10 people, or to eight people, you have two people paying those $8,000. And so each one of them needs to pay $4,000, right? So the amount, all of this to say, the amount of taxes that you need to do this redistribution They can work when you have 5%, 10% unemployment, but as you have 30%, 40%, 50% unemployment, they don’t work anymore. And not only that, but with that level of taxes, people will want to leave. The ones who are paying taxes are going to leave. And so the question is, it’s a very complex question. Is it the right thing to redistribute from the wealth generator’s to the ones who are employed in that situation? And if so, how do you actually enforce it?
Jim O’Shaughnessy
Yeah. Talk about, I’m getting the hook from my producers here. I can’t believe we’ve already been together for two hours. So, you know what? This will be round one. I’m going to have you back on, and that is going to be the question we’re going to start with. We can both do a little bit of homework.
Tomas Pueyo
Let’s do it. It’s very fresh in my mind because my article from tomorrow touches on this. Oh, terrific.
Jim O’Shaughnessy
Yeah, yeah. Well, I will get a chance to read that and we’ll do round two. But at the end of round one, we always give our guests the following opportunity. We are going to make you emperor of the world for one day. You can’t kill anyone anymore. You can’t put anyone in a re-education camp. But what you can do is we’re going to hand you a magical microphone, and you can say two things into it. And the two things you say are going to incept the entire population of the world. They’re going to wake up whenever their tomorrow morning is, and they’re going to think, you know, I’ve just had two of the greatest ideas ever. And unlike all the other times, I’m going to actually start acting on both of these ideas today. What are you going to incept in the world, Tomas?
Tomas Pueyo
Just one clarification here, because the word emperor is the one that is... If I’m an emperor, supposedly, I have regulatory power. But here, it’s not regulatory power. It’s just idea power, right? Idea power.
Jim O’Shaughnessy
That’s right. It’s influence power.
Tomas Pueyo
Got it. So... Okay. My brain is going towards how do I get people to stop believing that regulation is the way to solve most of our problems and then think of it as regulation is a tool. It’s good in some situations, but it’s a lot of over process. And so we need to get rid of that over process to progress because technology and capitalism is the best way to grow the economy and therefore happiness. And so I think that’s kind of like a very poorly formed idea, but it is the combination of regulation is a tool that has been overused and you need to be very thoughtful about it. in order to unleash technology and capitalism because those are the biggest forces in human development. I think that’s probably the biggest one. That comes for one. The other one probably goes back to the thing that we said is democracy is not what we’ve been doing. What we’ve been doing is a very basic version of it. And the better version is one where everybody should be adding information to the system. And we need a mechanism to take that information in and make the decisions for governance. I think that’s probably the second one.
Jim O’Shaughnessy
Those are both great ones to contemplate. Tomas, this has been super fun. We will put your Substack and all the other information in the show notes, and you will be hearing for us for round two.
Tomas Pueyo
Awesome, Jim. It was a pleasure. Thank you for having me.
Jim O’Shaughnessy
Pleasure was mine.
