Why financial booms and busts are the key to our progress

Danny Crichton:
You both published Boom Bubbles on the End of Stagnation by Stripe Press. And the core thesis of this book, to your point, Tobias, was limited progress, right? We are not seeing progress across sciences. We're not seeing that in our infrastructure, in our daily lives, quality of life, housing, you name it. We haven't seen progress in a lot of all these different services and material wealth. And so you try to identify A, why. And B, what I think is most interesting compared to most is instead of spending 90% of the book trying to identify that problem, which I think is also an interesting... Robert Gore and the Rise and Fall of American Growth, et cetera. You try to go completely towards the solution side of this thing. What creates progress and how does it get done fast? And that's where this title Boom comes up. And I want you to just describe for us that Earth thesis of why booms matter.

Byrne Hobart:
Yeah, absolutely. So Tobias and I actually, we first started chatting online because we had each independently written pieces about financial bubbles and just trying to rehabilitate them a little bit. So Tobias's piece was bubbles as innovation accelerators. Mine was bubbles as instances of what the philosopher and historian Eric Voegelin called the Gnostic heresy, the idea of creating perfection on earth and how it's not really doable. But what we were both thinking about was this idea that bubbles, they do involve some behavior that is irrational. It's often very easy to pick that out in retrospect. And actually even at the time, a lot of people feel like things are going a little bit crazy and they're trying to be a little bit less crazy than everyone else. They get to tag along, but still doing deluded things. But then when you look at the long-term consequences of bubbles, what you often find is that they actually get a lot of really important things right.
It's not the case for every single bubble, and we actually get into the taxonomy of bubbles a bit in the book. But there are many of them where they actually built out infrastructure that was useful for future economic growth. And the fundamental call that they made on some particular technology being a big deal, that was actually correct. And we look at some early examples. As we go earlier in time, we actually also talk about government macro projects. This is something that came up through our discussions, was that we found a lot of commonality between the two, where you start out with some really big visionary idea, some idea of how the world can be meaningfully different from what it is like right now. And then you pour a ton of capital into it. You bring together a ton of talent. You often bring together people who have very different motivations for participating in this.
So if you think about the people who were building .com startups in the late '90s, or people who were building crypto startups more recently, you have some people who have this vision of changing the world. They can see it in their head that things could be different and things could be better. You have another set of people who just, they really like these gnarly technical problems. And if you give them some business that involves processing bits and it's scaling really fast, they know that there's just an unlimited supply of really cool stuff to do. And you also have people who are total mercenaries, who are in this because it's the fastest way to make the most possible money. You don't have quite the same mercenary aspect with respect to government megaprojects. There were definitely some firms that made a lot of money during the Apollo program, but it was actually in a pretty pro-social way. One of them was Fairchild Semiconductor, so probably a win for Apollo.
But you also have people who got into those projects because they wanted power. They wanted to be able to exercise a lot of influence over other people. And one way to do that is if you help build something that hasn't been built before and you're one of the only people who understand it, then you are de facto in charge, even if that's not what the org chart says. So that was one piece of it, was just bringing together a bunch of people with different goals, giving them a ton of funding, more money than they think they can spend, and then watching them figure out new ways to spend it faster than you could imagine. But what bubbles also do, which I think is one of the key things we want to pull up in the book, is they allow you to run some processes in parallel that probably just wouldn't happen if they had to be run in sequence. So if you think about the Apollo program, there's just a lot of things you have to do to go from we are an earthbound species, to we can get people to the moon and also by the way, get them back alive. The whole getting something into space thing was actually solved a bit earlier than the get it back to earth alive part.

Danny Crichton:
Right. Right. Right.

Byrne Hobart:
So you need the actual craft itself, and you need a part that's fit for human habitation. You also need a way to actually launch it. You need guidance systems, and you have to design all of this stuff being very, very conscious of the weight that you're carrying because that tells you how much energy you have to use to get it off earth. And for a lot of these things, you could imagine someone noodling on these designs for just one little piece of it themselves. If you are an aerospace engineer and it's 1955, and you've read maybe a little too much science fiction, so you ask yourself, "Okay, what would I build that is a craft that could take off from the moon and potentially get back to earth?" And someone else might be noodling around on the same lines and might say, "Well, if I were an astronaut in space, I would probably need some kind of suit. I probably don't want to be exposed to the lack of elements, but still it's a good idea to insulate myself, so maybe I should design some cool spacesuit sort of thing."
But there's no market for one of those if the other one doesn't get built. And there were a lot of things for which there's no market for any of it unless all of it gets built. And so for a long time there were actually people who were messing around with these ideas, and diagramming stuff out, and they would get some slide rules and figured out some of the math behind some of it. But there wasn't a reason to build all of it until there was. Until there was an actual deadline, until JFK said before the decade is out, et cetera. So at that point, everyone realizes that is the sound of the starting gun.
If it gets built, it gets built within the decade and every part of it has to get built by whoever is best at that. And so if I've been thinking about these ideas, or if I've been thinking about, "Okay, what is the smallest, most lightweight, most reliable computer I could design and we'll imagine that I don't care about the budget." And then suddenly it's the Cold War era, US government, and they are allocating their budgets for something that is technically, it's not a defense investment. On the other hand, the Apollo program was an effort to see just how precisely could the US control a rocket delivering some sort of payload to arbitrary places in our solar system, obvious military implications there, even if they were not always explicitly spelled out.
So you realize this is the time to do it, we've got to build it. And also that everyone else who is able to build other components of this, they realize it's the time to build too. So they build it as well. And we see that pattern show up in both the mega projects and in the financial bubbles. The best way to illustrate this concept on the financial bubble side is to treat the long arc of Moore's law and rapid improvement in desktop software as itself a form of bubble. Where what basically happened in cycle after cycle is, all the software companies designed software that would not work on contemporary PCs, but would be able to work on the next generation of PCs. And then all the chip companies design chips that are radically overpowered and just too much for the software of today, but that will be necessary to run the software of a couple of years from now. And so as long as both sides are pretty much aligned on what that pacing looks like, and as long as Microsoft trusts Intel and Intel trust Microsoft to ship the next thing on time, it's actually rational for both of them to build something that has no market today but will have a market in the future.
That kind of thing can feed on itself for a long time. And we see that in other bubbles too, where we don't have a case study on this, but I think the rise of the internal combustion engine is also a really cool example of this. Where scaling up the production of cars was important, but also scaling up the production and distribution of gasoline was itself a really hard problem. But it turned out that if you opened the first gas station in town, suddenly there were a lot more people who wanted to buy cars. And so you're actually doing a lot more business. And then meanwhile, if you're a car company, you're scaling up on the assumption that there's not a gas station in every town, but there definitely will be if the Model T gets cheap enough.

Danny Crichton:
I'm struck by, if you think of the dot bubble, right? There are all these associated technologies, and this is not as hardware focused, but you had the server component, but you also had this idea of, "Look, we needed encryption, we needed payment software, we need ways of displaying dynamic websites." We went from static to dynamic, I wanted to show a product page. And so all these needed to be built. And in my view, what's interesting is when you have this boom mentality, you get rid of this blockage on taking a risk and you're saying, "Look, there are no eCommerce websites, therefore there's no way for me to take a credit card online. Why would I go build PayPal or x.com at the time?" But you're saying, "Look, I can see what's happening right now. Thousands of people are getting in this market, everything's happening superfast. Let's just dive in and run with it and see where it goes.
And I can imagine you can see this in fracking where you have a hardware, a material logical component, a construction component, an infrastructure component. And look, there was no fracking. And then suddenly a couple of years later, everyone's fracking all across the United States, and there's a huge number of technologies that are associated with that development and all of them are risky in and of themselves. And the boom, whether from you call it rational exuberance, and I actually really love this term, of saying, "Look, I don't literally know there's going to be a market on the other side here, but if X, Y, and Z hold up, I am looking at making $1 billion and I'm willing to take the risk and the gamble that that's going to go well."
That's on the private market side. On the other half you're talking about with the government-made projects to me is a little bit more obvious, which is to say, "Look, if Congress passes a law that says we're going to put $100 billion to work solving a massive problem." Yes, there's all these Easter eggs, there's all these large chunks of cash that you could potentially make if you build something that's useful in that context. I think it's interesting that you connected the two together, because then I think psychologically for me, those seem very separate... It's obvious when the government submits a large contract through say the National Defense Authorization Act, less obvious in the bubble that all de-centralized, all capitalistic actors looking at private return of capital and that incentivizes me. But let me ask Tobias, when you got into this, you have this background in crypto and I used to cover crypto and you're based in Zurich. We did a conference with TechCrunch years ago in Zug, and back then, this was I think 2018, 2019. So we were just before the big crash. Most of these coins and tokens have done really, really well, but at the time they were not doing so hot. We managed to get everyone here. But there were all these enabling technologies that were coming out around crypto, blockchain, both on the hardware, on the software side, and that incepted this whole ecosystem that didn't exist prior to that.
How did you get into this world of boom, this thesis and connect with Byrne on it?

Tobias Huber:
So as I mentioned, I have a philosophy background, so I've been always very obsessed in the question concerning technological progress. So what's the nature of innovation? So there are many famous models of progress. There's Engel's and Marx's more theological model of historical progress. There are cyclical models of progress, also Spengler's model of history. And so I came into tech via Bitcoin, and I did research in a research group that tried to resurrect in a quantitative way, bubbles and crashes. Given my philosophy background, I was really trying to develop a unified theories of progress, but based on bubbles. And so what's interesting from a philosophical perspective is that bubbles fuse agency with destiny. So one way to think about bubbles is to think purely macro-economically about bubbles. So we have these large historical phenomena that recur over a long time period. And there are some economists, more kind of heterodox economists that make the case for bubbles as drivers for innovation.
And so Byrne and I have been very concerned about the question whether we are making enough progress. And so we realized that bubbles accelerate not just techno-economic progress, but also social progress. And so the question concerning the nature of innovation is also tied to the question whether we are living in a nature of acceleration, or stagnation or even decline. And so we approached the stagnation hypothesis that for example, Peter Thiel and Tyler Cowen developed, through the lens of bubbles. And so what's a unifying feature or a recurring theme in all these bubbles, is that they increase our collective or social risk tolerance. And so you can think of bubbles as a mechanism to take more risks. That's why it's interesting to apply this model not just to purely capitalistic examples, bubbles that are obvious and form in financial markets, but also bubbles that are scale invariant, and IE, they occur in different levels. So a bubble can occur in the level of a startup, a bubble program in the human genome project, or they can even occur on an even larger scale in terms of techno-economical paradigm shift.

Byrne Hobart:
On the question of bubbles and social progress. Tyler Cowen has a really good argument that really there are so many things that we're not entirely sure about in terms of our priorities and our values, but whatever it is that we want, we can probably get more of it if we're just richer. And that if we believe that people in the future have moral worth, they don't have less moral worth than we do, and he has some really clever arguments for why we should hold that true. That if that's the case, then the actual thing to prioritize is long-term growth in just per capita GDP. And we can settle a lot of the questions later on, and we'll also be maybe rich enough that we don't have to care that much about the exact way that a lot of these issues get settled. So that is one piece to the extent that our thesis is true, and we really hope it is, that bubbles do actually contribute to long-term economic growth. They create this foundation that allows output per hour adjusted for capital inputs to rise at an above average rate for an extended period as we deploy the things that we only discover through this parallel innovation process.
Yeah, that makes us all better off. But there's another piece of it, which was something that we actually observed when we'd written this previous paper on Rene Girard and bubbles, and it was a very fun piece to work through, get to do a lot of reading history, reading literature, literary fiction about financial bubbles, et cetera. Lots of fun. But one of the things that came out of that was this observation that when you have a bubble, one of the after effects of that is often that it makes the world more legible. It can literally add a dimension to the world, whether that is the early Trans-Atlantic and Trans-Pacific trade, meaning that we actually need both axes of the coordinate plane measurable, you need latitude and longitude.
And then the railway bubble in the 1830s and 1840s had this really interesting effect where people start talking about specific times. Now that travel is more precise, and now that there is such a thing as getting off of one train in order to make a connection to another train, you actually care if it is five minutes or seven minutes past noon. Whereas if people are mostly traveling on foot or on horse, it's just a little bit more like this evening is a precise time. So what we notice is it continues to hold true, that as you roll the tape forward, you see bubbles that continuously make certain aspects of the world just more tractable and more understandable, whether that is the dot-com bubble, just taking a lot of things that they weren't really designed as a business that could be reduced to SQL queries that can then be displayed in some HTML form.
But it turns out just a whole lot of the economy is basically very lazy, inefficient SQL queries that could be just done more directly. And then you look at Google realizing, I don't think this was Google's explicit thought process at all, but one way to read the story is, "Okay, Jeff Bezos realized, hey, catalogs are just, they should be in a database. And that books are a category where it's a uniquely good idea to be able to search for them. We search for lots of different kinds of metadata and find the stuff you're looking for." And then Google realized that, "Okay, there's this other latent data source, which is the links between pages. We can treat that as a graph of not just which page is more or less important, but also which pages are more and less associated with particular topics. And then a search engine is a nice front end on that observation."
It turns out to be a very lucrative front end, but I think it was a cool discovery either way. And even when you look at some of these physical bubbles, they also just mean that we have things that we should measure that we did not have to measure before. So we know a lot more about what happens under the surface of the earth, because we've been looking there for hydrocarbons for a very long time and it just pays off to know exactly what's under there and how it works. And we also know a lot more about how things behave at very, very small scales because now a lot of the components of chips actually exist at those scales, and you have to worry about those effects. When you have components that are the width of a couple dozen atoms, a lot of the usual Newtonian rules are not the best guideline to how reality actually works. So I don't think we ever found a case for how that's intrinsically related to bubbles, but it is like this uncannily common side effect of them, that we discover these new measurements of the world or apply existing measurements in a more fine-grained way.

Danny Crichton:
Well, there's a lot of these spillover effects. We actually talk about this in the risk Gaming newsletter over the last couple of years of new capabilities, new scientific instruments, the ability to see the world in ever more precise ways opens us up whole new categories of exploration. So CRISPR-Cas9, the ability to actually genetically edit a strand of DNA suddenly leads to xenotransplantation. Suddenly it's leading to specific therapies that can be customized by person. And that takes some time, and CRISPR-Cas9 and CRISPR technologies are about a decade old at this point, but the first companies are coming through right now. And then the second generation, this becomes I guess in the scientific literature of this idea of the scientific endowment or the knowledge endowment, we're all taking from this wellspring of new ideas, new theories, new technologies, and that allows us and empowers us to create the next generation. There's the argument for organizations like the National Science Foundation, NIH, et cetera, et cetera.
What I think you also are pointing out though is that there's a cultural spillover. So you're talking about the railroads, and one of the signs of modernity that a lot of cultural historians focus on is time. This idea that we never used actually have chronometers. We didn't really care to know the time, it didn't matter. And suddenly there's all these technologies that obviously had massive spillover effects. But one of the interesting things you're doing here with Boom, is you are making a cultural argument. A lot of folks are focused on stagnation from a cultural lens, the idea of maybe decadence, a indefinite pessimism, different ways of describing what's happening in the culture. But at the solution side, I think you're getting at something really interesting. Which is you're saying, look, what we need is more, you call it rational exuberance, but I would just focus on exuberance. Which is to say, "I'm looking at this potential of, hey, we could be a multi-planetary species, and it feels like the whole culture is a bank at a teller window looking for a mortgage loan."
It's like, "All right, so it looks like here you want to go to Mars. I'm looking at a return of 6.23% according to my Excel spreadsheet, and according to sell J9 that will lead me to making $500 of profit. I'm out." What you're saying is like, "Look, you're not including all these different factors. You're not including the systematic benefits, the cultural spillovers." And so if we just had a little bit more exuberance, a lot of this private investment that always waits on the sidelines would be more a part of it. So one part of it is let's talk about the cultural aspect. And two, a corollary to this is are we getting too smart about bubbles? Meaning we're starting to see the bubble too quickly and we're like, "Well, that's a bubble. We got to get me out of here." And so the exuberance ends too quickly before the party is over and we actually had a good time.

Tobias Huber:
So one way to distinguish these innovation accelerating bubbles is rational exuberance from more destructive bubbles, which have a socially net negative impact, is to distinguish bubbles in terms of their orientation towards the future. Because we mentioned so many examples of bubbles in this conversation. And one way is to define an innovation accelerating bubbles in terms of how the bubble envisions the future. So if a bubble envisions the future as the continuation of the present, then most likely it's going to be a destructive bubble because the underlying conceptual model is one of mean reversion and momentum. So the future just looks like the present only more so, and so often these bubbles involve depth and leverage. So these bubbles tend to be value destructive. Bubbles in contrast, which assume or which envision the future more as a rupture with the present, or as a break we give an order, tend to be more innovation accelerating. And so the cultural argument for bubbles is an argument for more vision, right? Bubbles provide a vision. And to some extent we have been too negative about bubbles because we think from a rational perspective we understand how bubbles work, but there's a deeper culture or even metaphysical dimension at work.

Byrne Hobart:
There's this personal finance guru who I really enjoy his writing, Ramit Sethi, he's very well known, very high profile. And one of the things that sets him apart from a lot of other people who offer that kind of advice, is that he's just clearly, completely disgusted by the idea that you would skip Starbucks every day and put the money in your 401k, and when you retire, you have more money. Just make a little bit more money. It's much easier to make enough money that you can pay for your daily Starbucks treat and actually enjoy yourself. And he coined the term rich life, which is a great, great marketing hook. But to your bank teller analogy, it's the rich life way of being a decent civilization. That you say, "Yeah, there are things that get higher returns, but we're not doing those things. We're actually doing this. It's really, really fun. It could pay off massively, it could also be a complete flop. But we won't know until we try. We want to try and we are just such a rich country, such a rich civilization that it's not going to make a huge material difference to your life."
If it turns out that $600 billion got dumped into the AI market in the last couple of years, including GPU costs, trading costs, that cost of all these people's time, and we don't get much more than we have today. We're not that much poorer. We are $600 billion poorer. We're also a very, very rich country and it's a wash after a couple of years. So I think that is the right edge. We shouldn't act as if there's this great scarcity of capital. The actual scarcity is of well-directed capital and attention focused on things that can actually have enormous impact. And it's also the case that as a country gets richer, there are just a lot more opportunities to make money doing the incremental optimizations. And that work is actually important, and it is useful for everything to get slightly cheaper over time, or for things to get priced a little bit more efficiently over time, for the logistics network to get slightly higher utilization, et cetera. That stuff is important for people's aggregate well-being.
But in a capitalist system where you do have pretty strong incentives to do that stuff, it does get taken care of pretty directly. You don't need some kind of policy action to tell the Fortune 500 that they should try to find even more ways to increase their profit margins. They will figure that out on their own. But there is actually more room for policy to affect the question of are the current members of the Fortune 500 going to mostly be the same companies 20 years from now, or will we have totally new companies, totally new industries? Will some of these big companies die because there's a competitive threat that we wouldn't even define as a competitive threat today? In the same way that if you had asked people in say, the early '90s, what's going to happen to the Yellow Pages as a business?
People might've had ideas, but I think they would've completely missed the idea that actually the thing that makes that totally obsolete is that you have a map that can just get you point to point directions, and turn by turn directions to any location. That that map is going to be peppered with ads, the ad load will start at zero. So you'll start out using this service to find local businesses because there aren't any ads. And over time the ads will be about as good as the content. If you are searching for information on local businesses, you are basically asking to be shown an ad, and it's just up to Google to figure out how do we make sure the ad is as good as what you'd be looking at anyway, and then we can charge for exactly the same service that we used to not really monetize?
So just the overall volatility of the economy, the meta-volatility of are there industries that are just soaring? Are there industries that are collapsing? That does contribute a lot to the optimal allocation of resources. And when you talk about optimal allocation of resources in a developed economy, that is mostly service sector, so that's most of the rich world today. What you're talking about is people, there are things that are rate-limited by the number of machines you can get, or how much steel you produce, et cetera. But a lot of the hard projects that a US, or Western European, or Japanese company or Korean company would work on, they are just limited by, there's a finite supply of smart people. And the more cool and esoteric this thing is, the harder it is to actually find who would be really good at it. And so this is one of the functions when we talk about bubbles redirecting talent, that is part of what we're talking about is that bubbles just drag in people who either were intrinsically interested in the topic and they can finally make it a reality.
When you read about in space travel, there was this thing floating around Twitter recently that there were interviews with high school valedictorians in Jeff Bezos's hometown, and Bezos was one of the people interviewed. And he says, yeah, his big plan is turn earth into a park and move all humans and all human activity into space. That's his plan as a teenager. So once the rockets are actually working pretty well, and once there is actually room for the private sector to participate, he realizes, yeah, its time, let's do this. And a lot of other people grew up having very, very similar dreams, and their day job can be making that a reality and they all get stock options too. It's great.

Tobias Huber:
So another way to frame this is bubbles transcend standard risk benefit calculations. So bubbles can be very risky for individuals or industries on a short timeframe, but on a long enough timeline, the reward can be civilizational.

Danny Crichton:
What I want to summarize this I would say is people always think of bubbles as waste. So we go through .com, we've got all this fiber optics all around the world. We had all this networking equipment and then all of a sudden WorldCom, all the folks who were building out the networks went bankrupt. Big collapse, 2001, 2002. It actually takes about two, three years for all this to come down. But it was clear that we had over invested in networks. And what was interesting is we actually used all of it. All of that technology is used today. Nothing was wasted. Now it was wasted in the sense that we probably didn't have to build it in 1999, we didn't have to build it in 2000. We probably could have waited until 2004, 2005. But YouTube would not exist if it was not for all the fiber optic cables that were built early in the 2000s.
And we see that pattern particularly in software and engineering and technology, but we also see it in fracking, also see an energy often the case. We had a senior fellow on energy on the program here just a couple of weeks ago, and one of the things that he emphasized was really, we've never gone off any energy paradigm. We burn more wood today than we did 200 years ago. We didn't migrate or transition, there's never been an energy transition in history. We overbuild and we pulled back maybe, and then the supply ends up like, "Oh, we have all this cheap energy, what can we do with it?" And so you constantly see and across different sectors, we never actually waste this technology. We don't even waste the talent that was going in. So people built these technologies, it worked. Now we might have too much all at once to digest, so you could get indigestion if you will, from having too much too quickly.
But rarely that is a problem. And really that ends up becoming the ingredients for the next generation of technologies, because suddenly something that was very expensive, say bandwidth, or energy, or whatever the case may be, suddenly becomes, "Well, that's no longer the constraint on the supply function. Something else is the new constraint. It might be talent, it could be organizational structures, whatever the case may be. Now we have to go and solve something else to go with this out here." The other side here I want to get at is this idea of vision, which is there is no risk-benefit analysis that can be done on the edge of science. One of my frustrations personally, and we talk about this a little bit in the risk-gaming context as well as some of the actual games we do in real life, is this is the unknown, right? Particularly when we're talking about building new types of science technology, new types of organizations, no one really knows what value will actually come out of that.
No one can know prospectively before we've actually done the thing, what all these technologies are. And we've talked about the Manhattan Project I know is in the book as one mega project that you focus on, you also focus on the Apollo project. So let's just talk about Apollo. Fairchild Semiconductor supplied the chips that went into the Apollo program. Now we didn't have any idea what an integrated circuit was going to do. We also didn't really have a sense of Moore's law, computers, all this stuff. But there's this intellectual legacy of Charles Babbage. You had all of the Alan Turing from the mid-40s. We kind of knew the potential of a computer, but we had no idea all the downstream applications that were going to come by. And so one of the challenges I always see is look, if you're a bean counter in the bureaucracy trying to allocate funding to different things, in some ways it's almost better to just go for the big bold vision and say, "Look, downstream of this is a lot. Now maybe we shouldn't put $1 trillion to work and knock out half the government's budget or whatever the case may be." But it's assuming that there's a reasonable price point, go and blast down there and just see what you are left behind.
We had a podcast episode two years ago about re-genetically engineering humans to survive on Mars. So making the Mars native not earth native. And that's a pretty bold plan. That was Chris Mason, 500 years in the history of biology. But suddenly you're like, "Well, that's an open question." Maybe we explore that. And you suddenly realize like, "Look, that same technology can be used on cancer." And we had no way of predicting that pathway or that interconnection going forward. So I guess the question is, how do you start to create a culture around that? Obviously there's 1,000 visions you could potentially spend time on. How do we pick a couple that get the resources, that get the priorities, that get the organizational, that can aggregate talent in one place so that you can get those spontaneity, serendipitous connections and potentially build out the next boom?

Byrne Hobart:
One important thing to do is I think to reframe some of these discussions about risk. Because it's really easy to talk about the risk of some particular course of action, but there's also risk embedded in just not taking that course of action or just not doing things. And that was to me, is the actual existential risk that any modern technological civilization faces. Is that we find a set of activities that work, we find a political system that works, we just keep running it, keep running it, running it, and it does the same things maybe slightly better over time, but it's also just continuously depleting some fixed resource. And there's this funny thing with any resource that you have in a finite amount, where if the increase in efficiency in any given year, so output for people relative to the amount of physical stuff you put in, as long as that increase is higher than the depletion rate, then at current consumption you have an infinite supply.
So if we get 2% more out of every barrel of oil each year, and we use up 1% of the oil each year, then if we don't grow, we actually have unlimited oil. But if we run out of some of those efficiencies, we eventually reach a point where we do the same things we were doing before, but gas is a little bit more expensive, also winter's a little bit shorter and snow is a little bit rarer, etc. All of those things starts to decay. And then once you reach the point where the resources that matter are these finite resources, suddenly politics and geopolitics, it's a lot more zero-sum. If people are fighting over what's left of the inputs required for their civilization, they fight pretty hard. Whereas if the actual fight is over, how good can it be? And is my vision of how much better things can be better than the other person's vision? It's good for people to compete on that. I'm very happy for people to compete on how good they can get things to be. But that only happens if there is some step function change in the output we get from some category of resources.
And there have been, if you look at just the amount of physical stuff that poorer economies consume versus richer ones, that ratio is going to be a lot closer than the ratio of how much economic output do they get. So there is just a lot of room to expand that frontier of possibilities. And that does tend to happen one general purpose technology at a time. And there's a long aftershock where that technology gets deployed. And that's actually what we usually see is the actual creation of some two technology is an economic non-event. And then the deployment is big, and then it's really the after effect where the biggest aggregate gains show up.
So if you look at the car, there's a lot of GDP involved in just producing enough cars that every American household has at least one, pretty much. But then there was this second order effect of, "Well, now we can have suburbs for better or for worse. And now instead of almost every retailer being designed around on foot trips that are fairly frequent, you can actually have places that are a little bit more out of the way, and a bigger building because people say for groceries, are going to shop once or twice a week instead of literally every day on the way home from work." And if you do that, then suddenly it makes sense to have a lot more options at that grocery store. And you can actually get a lot of prices lower like your fixed cost per product sold, it goes down. So you have all of these really big long-term transformative effects. Where if you look at just long-term the drop in the percentage of Americans consumption basket that goes directly to food, it's a pretty staggering drop.
Food used to really, really matter in a way that it can matter for narratives, but it's just not the biggest contribution to inflation and cost for the vast majority of households. But if you ask people like, "Okay, how much of that is due to the growth of suburbs induced by the car, which was caused by the internal combustion engine, and then lots of other associated technologies that made cars better, safer, faster, et cetera?" I think that's not the connection that it would be natural to make. And that's what makes something a general purpose technology, is if some of its biggest real-world impacts, it's very counterintuitive to trace them back to this technology. We want more of those. I think AI is just, it's an exciting use case because it does feel very general purpose and the AI companies are pretty consciously... It's a very conscious decision to call your product GPT. You can work backwards into exactly what that means. But yeah, it's meant to be a general purpose technology. It's meant to have a lot of applications, and that means that its effects will actually be surprisingly indirect.

Tobias Huber:
So the model or view we develop in Boom doesn't subscribe to the natural theory of stagnation or progress. So stagnation or decline are not hard-coded into the techno-economic system, similar to a biological organism, but rather stagnation or the re-acceleration of innovation or cultural problems to be solved. And so as Byrne mentioned, what's not truly scarce are not resources but ideas. So we need to cultivate the will to unlock nature's abundance. And so we have this line in the book that there are no limits to growth, but only the growth of limits. And so real ambition to some extent lies upstream from funding. So funding is not really the bottleneck in most cases. And so in addition to reframe our cultural understanding of risk and the civilizational opportunity costs of our risk aversion, I.E. the existential risk that Byrne mentions, one way to do this is to produce more heroic and more optimistic sci-fi. Because if you look at our culture, the cultural output right now is very dystopian, very nihilistic. And so even though this sounds not too exciting as a proposal, it might be a very effective way to create more optimistic visions of the future.

Danny Crichton:
On the last bit, James Pethicus, who was on the podcast a few months ago, author of the Conservative Futurists, he talks about instead of left-wing, right-wing, we should talk about up-wing, down-wing. And the idea is, "Hey, can you build a supply side?" There's a lot of terms for this these days in politics of a supply-side focused politics, a growth-minded politics, prosperity, abundance. There's a lot of these keywords. We've had a lot of these folks on the podcast as well. Most of those folks try to focus on, "Hey, you can have a bigger house. You can get more material wealth." I think what's interesting for your new book and the thesis that you're going at is like, "Look, we need to unleash and unlock into the animal spirits of a lot of these scientists, engineers." Josh Wolf here at Luxe always calls them like the rebel scientists of like, "I'm in a lab, I'm waiting for my NIH R01 grant. I can't do anything. I have got to apply for a grant. Some committee is adjudicating my grant application. I'm on the cusp of figuring out general relativity here."
And this is the concept of big science in the last 100 years. Einstein was a patent examiner in Switzerland, is able to discover fundamental insights around theoretical physics. Does not have a lab of 1,000 people, does not run an accelerator, does not have to do all this. And so he does not need consensus, he does not need to convince anyone to give him the time and space to go do this. Whereas today, a lot of our institutions are, I rail against this all the time of lab directors spend approximately 42 to 44% of their time on administrative overhead, whether it's applying for grants, figuring out publications, et cetera. And it's like, look, because the system requires you to publish 20 things a year, maybe you just need to publish one thing in 10 years. And that thing is, I just solved the big thing.
If the grand output of humanity was like 500 publications every decade, we'd probably be in a happier place. But I do want to draw attention to this last piece about up-wing, down-wing. We just had a recent election here in the United States. Donald Trump is coming back into power after four years of the Biden administration. And we're seeing similar power. This was the year of democracy. A majority of humans globally voted for their leaders all around the world, whether it's Japan, Indonesia, Taiwan, India, France, the UK, you go down the list, but almost everyone, it's 2024. It's a big bold divide by two four number. But obviously a lot of countries are trying to figure out where to go next. You call it the growth of limits as opposed to the limits on growth. Climate change shows up in different discussions. Prosperity, international nation state competition, whether that's US/China, Europe/China, that's almost something in China. Project me forward the next 10 years. What would you recommend for a future president, prime minister, leader of any of these heads of state? What is the agenda for the next 10 years for their countries?

Byrne Hobart:
You want to be gradual so that you can accelerate fast. And I think that one piece of that is special economic zones, both in physical locations and for particular industries. I think it would be an interesting experiment to say, what if we said that if you're in a sufficiently advanced node for producing new chips, you can defer that environmental review. We'll get to it later. And if you did actually eradicate some special species, you'll pay a big fine, but you'll do it later and you can actually build the chips now. That would help a lot in just creating a lot more regulatory clarity. And also just, it's a way to get governments to operate closer to startup speed, which they shouldn't do for a lot of things. You actually don't want them to be as dynamic on things like traffic laws. You don't want them to be A-B testing that stuff in 1,000 different ways in 1,000 different places. You actually want that stuff to be very boring and predictable. And I'd say for banking regulations, also boring is a pretty good thing.
But there are categories where you actually want to not floor it immediately, but just start accelerating and see how fast you can get before there are actually problems. That is one piece of it. I think a lot of it though, we didn't talk about policy that much in the book as we're not trying to make a bunch of policy recommendations, not just because we weren't sure who would win, but also just a lot of this, it does have to happen at a personal level. Bubbles are not born. Sometimes some of the more boring ones, they do start because someone passes a law and it has some weird unforeseen consequence, but a lot of times it's a much more personal story. It's a story about people who find some new idea that they cannot stop thinking about and they are just relentlessly focused on making that come true.
And we basically want to find more of those people who are on the edge of, do I do my weird startup and there's not a name for what I'm doing because no one's doing it? Or do I take the job at Meta or Amazon or something? And those are all fine companies, and you'll do plenty of useful things for the world at those companies. But probably the most useful thing, which is lower expected value for you, but higher expected value for society is dive into the bubble. But then because of that coordinating thing, you have more people who are doing these risk seeking bubble-licious activities. They do actually become safer. They become safer if you are not just doing something crazy, but you're not just a cult member, but you're a cult leader and can get other people on board with this vision. You can almost define it in terms of the risks that we're willing to accept. That there should be more Elizabeth Holmes's, more Adam Newman's, more people who a ton of money goes into their project and it's a complete flop.
I would hope that the next Elizabeth Holmes is not literally lying about life-saving treatments. But if the next Elizabeth Holmes is also maybe talking about the roadmap for the next couple of years as if it's a little bit more present, using that prophetic present tense of it hasn't happened yet, but it's inevitable so we might as well treat it as if it already had happened. There are a lot of domains where that is basically what people do, and where companies just they start out as like, this is wildly exaggerated. And if the SEC ever looked at what you were saying to your first couple employees, that would be securities fraud. But then reality has to catch up to the hype and the hype has to escalate. So as long as the hype is escalating more slowly than reality is catching up, things are actually on the right path.
And those can intersect in the same way that if you're losing a ton of money, but your revenue is growing faster than your costs, at some point those lines intersect. So you want to want to be cognizant of that line intersecting thing, and to realize that if you have gotten yourself this totally war idea of how big your project can be, and how quickly it'll happen, it's okay. That is, you're in good company even though some of the people you're in company with are in prison right now. Some of them do actually end up doing very, very well. They do make orders of magnitude more money than even the biggest frauds end up destroying.

Tobias Huber:
So we make the case of bubbles function as vehicles or mechanisms to generate reality distortion. So in other words, if we want to make more progress, we need more bubbles, we need more exuberance. But this is, as Byrne mentioned, an argument that doesn't really scale. Because the only kind of concrete policy recommendation that we can derive from our book is that we need more collective illusion. And this might not be the most attractive political pitch.

Danny Crichton:
When I think about some of the names you just listed. Obviously no one's recommending fraud. But what you're getting at is the real challenge of how do I convince someone about a new project, a new idea? And we're in this rational bureaucratic universe, and you're saying, "Well, that doesn't make any sense." I don't have any proof of that because there is no proof. And so what ends up happening is you have the most extreme versions of this where the people who are boldest about lying, are most convincing, are most persuasive, are the ones who rise to the top. And I do think what you're getting at is to say, "Hey, how do we just empower some of the people who maybe aren't as good as persuasion?" Because they're literally not fraudsters, but they have the same bold vision. So I go back to the dot-com generation of a Jeff Bezos is like, "I'm going to sell everything on the internet."
Sergey and Larry at Google are saying, "I'm going to make the entire world's information easily searchable through the web instantaneously." And those massive visions can come true. And it's interesting that we increasingly can't seem to get that through, whether it's a venture capital industry, or federal government or internationally, that you basically have to lie to get the same level of resources they were able to pull off. And that is going to be left as an exercise to the reader of your new book, Boom: Bubbles in The End of Stagnation." Byrne Hobart and Tobias Huber, thank you so much for joining us.

Byrne Hobart:
Thank you so much for having us.

Tobias Huber:
Thanks so much.

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