260 | Marc Andreessen On Everything: The Need to Build, Web3’s Value, Political Realignments, Collapsing Trust, U.S. History, and More | The Realignment Podcast

Check out The Realignment Podcast Episode Page and Show Notes

Key Takeaways

  • The work that’s gone into building the internet and digital networks over the last 30 years is comparable to the work that went into building the physical networks, like the railroads and highways, during the second industrial revolution period of the 1880s to 1920s
  • Every historical achievement started as speculation
    • Today, society is willing to take digital risks but has become extremely adverse to taking analog risks 
  • “Nuclear is by far the safest form of energy [for humans and the environment] that we know how to make.” 
    • But regulators in the U.S. won’t allow new nuclear plants to be built 
    • Starting in the 1970s, the U.S. has basically made it illegal to build real-world infrastructure in a very deliberate way
  • Americans’ trust in large-scale institutions has declined over the last 50 years, and the primary question is whether social media caused the collapse of trust or simply exposed the rot that previously existed
  • The future of the internet could involve the creation of networks built from the bottom-up that are more participatory and effective at solving today’s problems, instead of the existing top-down, traditional, hierarchical institutions that are losing the trust of the people 
  • Today, managerial capitalism has overtaken bourgeois capitalism and largely become “capitalism” as we know it
    • The emergence of venture capital and private equity in the 1970s and 1980s is the “revenge” of bourgeois capitalism 
  • Many of the misconceptions in the crypto space are caused by people working backward from price, when they should be working forwards from fundamentals
  • Ironically, the three most dysfunctional areas of our current society – housing, education, and healthcare – are also the most critical for achieving the American Dream
  • The current system has been wired in a way that makes ordinary people so frustrated that they resort to more radical politics
    • Fixing housing, education, and healthcare would reduce political polarization 

Books and Articles Mentioned 

Intro 

  • Marc Andreessen (@pmarca) is the co-founder and general partner at the venture capital firm Andreessen Horowitz, also known as a16z, which is one of the most prominent VC firms in the world. Marc’s blog and podcast explore tech, cultural trends, news, and the future as they relate to his famous “software eats the world” framework.
  • Check out these Podcast Notes from Marc’s appearance on the Joe Rogan Experience 
  • This chat with Marc, Saagar Enjeti, and Marshall Kosloff discusses how the second industrial revolution shapes his view of America today, the effects of shifting from a high to low institutional trust society, Web3, venture capital, how economic crashes shape the tech sector, and why it’s “time to build”
  • Host – Saagar Enjeti (@esaagar) and Marshall Kosloff (@makosloff)

The Second Industrial Revolution (1880s-1920s) vs. Today

  • A significant portion of what we consider “modern life” was built out of the second industrial revolution, a period that is often written off as an era of robber barons and “evil capitalism”
  • The second industrial revolution built out all the real-world networks we use today
    • Examples: railroad network, telegraph network, telephone network, radio network, interstate and highway network, and electrification network
  • The work that’s gone into building the internet and digital networks over the last 30 years is comparable to the work that went into making the physical networks during the second industrial revolution 
    • However, since the 1960s and 1970s, the U.S. has essentially outlawed the kind of industrial development that happened during the second industrial revolution
    • Starting in the 1970s, the United States has basically made it illegal to build real-world infrastructure in a very deliberate way
    • “Anything that someone attempts to build in the real world gets hung up in court.”

Speculating: Good or Evil?

  • Speculation is perceived as “good” when it works but “evil” when it doesn’t work  
  • Everything new that’s been done in history was speculative, by definition
    • A level of risk existed for any pursuit worth doing
  • Today, society is willing to take digital risks but has become highly adverse to taking analog risks 
  • Venture capital and private equity play a critical role in society by building and improving businesses, respectively

Industrial Investing Today, Specifically in Nuclear Energy 

  • The industrial stagnation of today can be traced back to the 1970s under President Richard Nixon, specifically two initiatives that he launched:
    • Initiative #1: creating the Environmental Protection Agency (EPA) – the EPA specifically is not responsible for the stagnation, but its creation symbolizes the legal regime that was constructed that could block industrial development 
    • Initiative #2: Project Independence – the building of 1,000 nuclear reactors by the year 2000 to become more energy independent 
  • Nixon’s two initiatives were naturally at odds and clashed for decades 
    • Today, it’s obvious which initiative has won: the legal regime of blocking development has overwhelmingly prevailed over the initiative to build 
  • The Nuclear Regulatory Commission has authorized the creation of 0 new nuclear plants in the last 40 years
    • “They are the nuclear prevention commission.” – Marc Andreessen
  • “Nuclear is by far the safest form of energy [for humans and the environment] that we know how to make.” – Marc Andreessen 
    • Fukushima: people erroneously think that there were mass casualties; there is a court case in Japan that’s trying to determine if the number of deaths from the Fukushima incident is 0 or 1, as an elderly man that was in the vicinity of the incident recently died of lung cancer
    • Three Mile Island: 0 deaths 
    • Chernobyl: it was a military reactor (vice civilian) run by the Soviet Union, which had a reputation for poorly-run operations 
  • Trying to invest in nuclear today is like pushing on a rope; you can’t build nuclear fusion or fission plants in the U.S. because regulators won’t allow it, despite many of Marc’s friends trying
    • Maybe they can build a fusion plant in China or Antarctica, but not in the U.S. 
  • All the reactors we have today are 40-year-old designs, a byproduct of not allowing entrepreneurs to build new plants 
    • The reactors we have today are “ancient”
    • There is an entirely new way to build reactors today that works much like server farms do today that making nuclear even safer than it is today 

The Concept of Rational, Irrationality 

  • Given that there are only so many hours in the day, it can be irrational for a person to become rational on a particular subject 
  • It might be more rational for the person to stay irrational on that subject because it would detract them from the areas that they’re more productive in

Bourgeoisie Capitalism vs. Managerial Capitalism 

  • Bourgeoisie capitalism involves a person with direct ownership of the business entity
    • Example: robber baron types that built and owned the railroads
  • Managerial capitalism involves even larger-scale industrial enterprises, but instead of being controlled by a single person, there is an intermediate layer of managers 
    • Example: board of directors, executive team
    • The manager is in control of the operation but doesn’t own the operation 
    • Author James Burnham developed the term “managerial capitalism” in the 1940s
  • Today, managerial capitalism has overtaken bourgeois capitalism and largely become “capitalism” as we know it
    • Example: Fortune 500 companies 
    • Business schools create professional managers to run these large-scale enterprises that are no longer run by their owners
  • The emergence of venture capital and private equity in the 1970s and 1980s is the “revenge” of bourgeois capitalism 
    • Managerial-capitalism companies might be good at running at scale, but they’re generally bad at innovating because they’re run by managers that are good at managing, but not good at building new things (hence the emergence of venture capital), and they’re not good at voluntarily reorganizing for efficiency (hence the emergence of private equity)
  • Venture capital and private equity essentially make money by closing the arbitrage between managerial and bourgeois capitalism for a given company 

Americans’ Declining Trust in Institutions 

  • Americans’ trust in large-scale institutions has declined over the last 50 years
  • The “gazillion-dollar question:” did social media cause the collapse of trust in institutions or did it expose the institutional rot that had always existed?
  • Counterfactuals worth consideration:
    • What if social media existed during the Bay of Pigs, the Cuban Missile Crisis, the Kennedy assassination, Vietnam, or World War II?
    • What would social media have exposed during these events and periods?
  • Social media allows for people and events to be examined in a way that was previously impossible
  • The Fallacy of Historical Determinism: the assumption that whatever happened in history was inevitable
    • When we examine how we experience the present-day and compare it to the past (which is impossible), it’s important to envision what it would have been like to live through the past the way we live through the present today 

The Internet: Past, Present, and Future

  • Like many of society’s inventions, the creation of the internet was largely a military project
    • The original funding for building the internet was to create a command and control system for the U.S. military to survive a nuclear strike
  • When Marc got involved in the internet, it was mostly built on loose libertarian ideals that communication, connecting people, information sharing, and emergent phenomena were all good things for humanity 
    • Nobody that worked on the internet had a clear idea of what its use-cases would be 
    • Peter Thiel, one of the most successful investors in the venture capital industry, has a framework of determinate versus indeterminate optimism, which is relevant to the creation of the internet and the technologies made possible by its very creation
      • Example of Determinate Optimism: we’re going to put a man on the moon
      • Example of Indeterminate Optimism: we’re going to build a network that enables unforeseen innovations 
  • The future of the internet might involve the creation of networks built from the bottom-up, instead of the top-down, traditional, hierarchical institutions that are losing the trust of the people 
    • New bottom-up networks may be more participatory than the structures of the past and may enable us to do things the declining institutions are no longer able to do
    • Distributing computing systems and decentralized cryptocurrencies may enable the creation of new “Network States”, a new concept of governing popularized by Balaji Srinivasan and an extension of the famous Sovereign Individual thesis from 1999. 
  • As the capabilities of the internet continue to expand, people will be able to select the forms of capitalism and political systems they want to participate in 

How the “Theory of Change” Applies to Crypto & Web3

  • There are three layers to the “Theory of Change” that can be applied to any historical innovation, from the PC to the internet, and now crypto: technological change, societal change, and financial market change
  • Technological progress moves in a constant, linear line of improvement, with the occasional “stair-step” jump of progress due to a technology reaching critical mass, i.e. the creation of the PC
  • Societal change moves in large, more gradual, herd-like swings of improvement, and is less predictable than technological change because humans are humans, and concrete understanding of sociology, anthropology, and human psychology is less understood than semiconductor technology, for example
  • Financial markets are extremely volatile in the short-term to the upside and to the downside, and even less predictable than technological or societal change
    • George Soros’ concept of reflexivity: what people believe can determine what happens, and what actually happens can change what people believe
    • If the stock market believes something is going to happen, it will channel capital towards it, and that capital makes it more likely that that thing happens (the feedback loop works in the other direction too) 
  • Focusing on the technological-progress layer is foundational for venture capital and investors; work forward from fundamentals, not backward from price
    • “Never reason from a price change”
    • Paraphrasing famous investor Benjamin Graham, the market is a voting machine in the short term and a weighing machine in the long-term 
  • Many of the misconceptions in the crypto space are caused by people working backward from price, when they should be working forwards from fundamentals 

The Fundamentals of Crypto 

  • “We believe the whole Web3 and NFT thing is so significant for the creative arts because it gives way to imbue a concept of digital ownership, and digital rights and privileges in a way that has not been possible up until now.” – Marc Andreessen
  • Believes the long-run monetization models of the future will not be a “pay-by-the-drink” model that we have today, but a free distribution of the core material coupled with higher-level tiers of ownership  
  • The fundamentals of crypto are more aligned with human incentives in regards to participation, ownership, and funding than the current models we use in society 

Advice to People in Tech & Entrepreneurs Thinking About the Future

  • There is no way to make accurate macroeconomic predictions
  • Instead of trying to predict the unpredictable, make contingency plans to be better prepared for the good times and the bad times 
    • For companies and venture capital firms, be sure to have enough cash for sustained downturns
  • The world doesn’t end when the tide goes out in an economic downturn, but substance becomes very important 
    • Everything gets funded during the euphoric times 
  • Funding still occurs during downturns, and historically, a lot of progress in tech and productivity occurs during the “bad times”
  • Broad economic downturns allow entrepreneurs to go back to the basics of focusing on building a solid product and finding a customer – the foundation of economic activity and the core of capitalism

Defining the American Dream & How to Fix It

  • The American Dream is the ability to provide for a family, particularly in the three dimensions of housing, education, and healthcare 
  • Ironically, in Marc’s view, the three most dysfunctional areas of the economy are housing, education, and healthcare 
    • These are giant industries that do not harness the benefits of technological change; prices rise in perpetuity 
    • If current trends continue, a four-year college education will cost $1M
    • Healthcare: everyone wants to consume, but no one wants to pay for it
  • We must fix these three areas before addressing other components of the American Dream as they are arguably the most foundational 
  • “If you put family formation, housing, education, and healthcare out of range of ordinary people, leftists are going to go super-left and want the government to provide these things, and rightests are going to go super right and they’re going to want to break up the government and have markets work a lot better, or the rightests will come all the way around and just want the government to do it.” – Marc Andreessen
  • The current system has been wired in a way that makes ordinary people so frustrated that they resort to more radical politics 
    • Fixing housing, education, and healthcare would reduce political polarization
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Notes By Stan Rizzo

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