Satoshi gave the world Bitcoin, a true “something for nothing.” His discovery of absolute scarcity for money is an unstoppable idea that is changing the world tremendously, just like its digital ancestor: the number zero.
Zero is Special
“In the history of culture the discovery of zero will always stand out as one of the greatest single achievements of the human race.” — Tobias Danzig, Number: The Language of Science
Many believe that Bitcoin is “just one of thousands of cryptoassets”—this is true in the same way that the number zero is just one of an infinite series of numbers. In reality, Bitcoin is special, and so is zero: each is an invention which led to a discovery that fundamentally reshaped its overarching system—for Bitcoin, that system is money, and for zero, it is mathematics. Since money and math are mankind’s two universal languages, both Bitcoin and zero are critical constructs for civilization.
For most of history, mankind had no concept of zero: an understanding of it is not innate to us—a symbol for it had to be invented and continuously taught to successive generations. Zero is an abstract conception and is not discernible in the physical world—no one goes shopping for zero apples. To better understand this, we will walk down a winding path covering more than 4,000 years of human history that led to zero becoming part of the empirical bedrock of modernity.
Numerals, which are symbols for numbers, are the greatest abstractions ever invented by mankind: virtually everything we interact with is best grasped in numerical, quantifiable, or digital form. Math, the language of numerals, originally developed from a practical desire to count things—whether it was the amount of fish in the daily catch or the days since the last full moon. Many ancient civilizations developed rudimentary numeral systems: in 2000 BCE, the Babylonians, who failed to conceptualize zero, used two symbols in different arrangements to create unique numerals between 1 and 60:
Vestiges of the base-60 Babylonian cuneiform system still exist today: there are 60 seconds in a minute, 60 minutes in an hour, and 6 sets of 60 degrees in a circle. But this ancient system lacked a zero, which severely limited its usefulness. Ancient Greeks and Mayans developed their own numeral systems, each of which contained rough conceptions of zero. However, the first explicit and arithmetic use of zero came from ancient Indian and Cambodian cultures. They created a system with nine number symbols and a small dot used to mark the absence of a number—the original zero. This numeral system would eventually evolve into the one we use today:
In the 7th century, the Indian mathematician Brahmagupta developed terms for zero in addition, subtraction, multiplication, and division (although he struggled a bit with the latter, as would thinkers for centuries to come). As the discipline of mathematics matured in India, it was passed through trade networks eastward into China and westward into Islamic and Arabic cultures. It was this western advance of zero which ultimately led to the inception of the Hindu-Arabic numeral system—the most common means of symbolic number representation in the world today:
The Economization of Math
When zero reached Europe roughly 300 years later in the High Middle Ages, it was met with strong ideological resistance. Facing opposition from users of the well-established Roman numeral system, zero struggled to gain ground in Europe. People at the time were able to get by without zero, but (little did they know) performing computation without zero was horribly inefficient. An apt analogy to keep in mind arises here: both math and money are possible without zero and Bitcoin, respectively—however both are tremendously more wasteful systems without these core elements. Consider the difficulty of doing arithmetic in Roman numerals:
Calculation performed using the Hindu-Arabic system is significantly more straightforward than with Roman numerals—and energy-efficient systems have a tendency to win out in the long run, as we saw when the steam engine outcompeted animal-sourced power or when capitalism prevailed over socialism (another important point to remember for Bitcoin later). This example just shows the pains of addition—multiplication and division were even more painstaking. As Amir D. Aczel described it in his book Finding Zero:
“[The Hindu-Arabic numeral system] allowed an immense economy of notation so that the same digit, for example 4, can be used to convey itself or forty (40) when followed by a zero, or four hundred and four when written as 404, or four thousand when written as a 4 followed by three zeros (4,000). The power of the Hindu-Arabic numeral system is incomparable as it allows us to represent numbers efficiently and compactly, enabling us to perform complicated arithmetic calculations that could not have been easily done before.”
Roman numeral inefficiency would not be tolerated for long in a world enriching itself through commerce. With trade networks proliferating and productivity escalating in tandem, growing prospects of wealth creation incentivized merchants to become increasingly competitive, pushing them to always search for an edge over others. Computation and record-keeping with a zero-based numeral system was qualitatively easier, quantitatively faster, and less prone to error. Despite Europe’s resistance, this new numeral system simply could not be ignored: like its distant progeny Bitcoin would later be, zero was an unstoppable idea whose time had come:
Functions of Zero
Zero’s first function is as a placeholder in our numeric system: for instance, notice the “0” in the number “1,104” in the equation above, which indicates the absence of value in the tens place. Without zero acting as a symbol of absence at this order of magnitude in “1,104,” the number could not be represented unambiguously (without zero, is it “1,104” or “114”?). Lacking zero detracted from a numeral system’s capacity to maintain constancy of meaning as it scales. Inclusion of zero enables other digits to take on new meaning according to their position relative to it. In this way, zero lets us perform calculation with less effort—whether its pen strokes in a ledger, finger presses on a calculator, or mental gymnastics. Zero is a symbol for emptiness, which can be a highly useful quality—as Lao Tzu said:
“We shape clay into a pot, but it is the emptiness inside that holds whatever we want.”
More philosophically, zero is emblematic of the void, as Aczel describes it:
“…the void is everywhere and it moves around; it can stand for one truth when you write a number a certain way — no tens, for example — and another kind of truth in another case, say when you have no thousands in a number!”
Drawing analogies to the functions of money: zero is the “store of value” on which higher order of magnitude numerals can scale; this is the reason we always prefer to see another zero at the end of our bank account or Bitcoin balance. In the same way a sound economic store of value leads to increased savings, which undergirds investment and productivity growth, so too does a sound mathematical placeholder of value give us a numeral system capable of containing more meaning in less space, and supporting calculations in less time: both of which also foster productivity growth. Just as money is the medium through which capital is continuously cycled into places of optimal economic employment, zero gives other digits the ability to cycle—to be used again and again with different meanings for different purposes.
Zero’s second function is as a number in its own right: it is the midpoint between any positive number and its negative counterpart (like +2 and -2). Before the concept of zero, negative numbers were not used, as there was no conception of “nothing” as a number, much less “less than nothing.” Brahmagupta inverted the positive number line to create negative numbers and placed zero at the center, thus rounding out the numeral system we use today. Although negative numbers were written about in earlier times, like the Han Dynasty in China (206 BCE to 220 BCE), their use wasn’t formalized before Brahmagupta, since they required the concept of zero to be properly defined and aligned. In a visual sense, negative numbers are a reflection of positive numbers cast across zero:
Interestingly, negative numbers were originally used to signify debts—well before the invention of double-entry accounting, which opted for debits and credits (partly to avoid the use of negative numbers). In this way, zero is the “medium of exchange” between the positive and negative domains of numbers—it is only possible to pass into, or out of, either territory by way of zero. By going below zero and conceptualizing negative numbers, many new and unusual (yet extremely useful) mathematical constructs come into being including imaginary numbers, complex numbers, fractals, and advanced astrophysical equations. In the same way the economic medium of exchange, money, leads to the acceleration of trade and innovation, so too does the mathematical medium of exchange, zero, lead to enhanced informational exchange, and its associated development of civilizational advances:
Zero’s third function is as a facilitator for fractions or ratios. For instance, the ancient Egyptians, whose numeral system lacked a zero, had an extremely cumbersome way of handling fractions: instead of thinking of 3/4 as a ratio of three to four (as we do today), they saw it as the sum of 1/2 and 1/4. The vast majority of Egyptian fractions were written as a sum of numbers as 1/n, where n is the counting number—these were called unit fractions. Without zero, long chains of unit fractions were necessary to handle larger and more complicated ratios (many of us remember the pain of converting fractions from our school days). With zero, we can easily convert fractions to decimal form (like 1/2 to 0.5), which obsoletes the need for complicated conversions when dealing with fractions. This is the “unit of account” function of zero. Prices expressed in money are just exchange ratios converted into a money-denominated price decimal: instead of saying “this house costs eleven cars” we say, “this house costs $440,000,” which is equal to the price of eleven $40,000 cars. Money gives us the ability to better handle exchange ratios in the same way zero gives us the ability to better handle numeric ratios.
Numbers are the ultimate level of objective abstraction: for example, the number 3 stands for the idea of “threeness” — a quality that can be ascribed to anything in the universe that comes in treble form. Equally, 9 stands for the quality of “nineness” shared by anything that is composed of nine parts. Numerals and math greatly enhanced interpersonal exchange of knowledge (which can be embodied in goods or services), as people can communicate about almost anything in the common language of numeracy. Money, then, is just the mathematized measure of capital available in the marketplace: it is the least common denominator among all economic goods and is necessarily the most liquid asset with the least mutable supply. It is used as a measuring system for the constantly shifting valuations of capital (this is why gold became money—it is the monetary metal with a supply that is most difficult to change). Ratios of money to capital (aka prices) are among the most important in the world, and ratios are a foundational element of being:
“In the beginning, there was the ratio, and the ratio was with God, and the ratio was God.” — John 1:1*
*(A more “rational” translation of Jesus’s beloved disciple John: the Greek word for ratio was λόγος (logos), which is also the term for word.)
An ability to more efficiently handle ratios directly contributed to mankind’s later development of rationality, a logic-based way of thinking at the root of major social movements such as the Renaissance, the Reformation, and the Enlightenment. To truly grasp the strange logic of zero, we must start with its point of origin—the philosophy from which it was born.
Philosophy of Zero
“In the earliest age of the gods, existence was born from non-existence.” — The Rig Veda
Zero arose from the bizarre logic of the ancient East. Interestingly, the Buddha himself was a known mathematician — in early books about him, like the Lalita Vistara, he is said to be excellent in numeracy (a skill he uses to woo a certain princess). In Buddhism, the logical character of the phenomenological world is more complex than true or false:
“Anything is either true,
Or not true,
Or both true and not true,
Or neither true nor not true.
This is the Lord Buddha’s teaching.”
This is the Tetralemma (or the four corners of the catuskoti): the key to understanding the seeming strangeness of this ancient Eastern logic is the concept of Shunya, a Hindi word meaning zero: it is derived from the Buddhist philosophical concept of Śūnyatā (or Shunyata). The ultimate goal of meditation is the attainment of enlightenment, or an ideal state of nirvana, which is equivalent to emptying oneself entirely of thought, desire, and worldly attachment. Achievement of this absolute emptiness is the state of being in Shunyata: a philosophical concept closely related to the void—as the Buddhist writer Thich Nhat Hanh describes it:
“The first door of liberation is emptiness, Shunyata
Emptiness always means empty of something
Emptiness is the Middle Way between existent and nonexistent
Reality goes beyond notions of being and nonbeing
True emptiness is called “wondrous being,” because it goes beyond existence and nonexistence
The concentration on Emptiness is a way of staying in touch with life as it is, but it has to be practiced and not just talked about.”
Or, as a Buddhist monk of ancient Wats temple in Southeast Asia described the meditative experience of the void:
“When we meditate, we count. We close our eyes and are aware only of where we are at in the moment, and nothing else. We count breathing in, 1; and we count breathing out, 2; and we go on this way. When we stop counting, that is the void, the number zero, the emptiness.”
A direct experience of emptiness is achievable through meditation. In a true meditative state, the Shunyata and the number zero are one and the same. Emptiness is the conduit between existence and nonexistence, in the same way zero is the door from positive to negative numbers: each being a perfect reflection of the other. Zero arose in the ancient East as the epitome of this deeply philosophical and experiential concept of absolute emptiness. Empirically, today we now know that meditation benefits the brain in many ways. It seems too, that its contribution to the discovery of zero helped forge an idea that benefits mankind’s collective intelligence — our global hive-mind.
Despite being discovered in a spiritual state, zero is a profoundly practical concept: perhaps it is best understood as a fusion of philosophy and pragmatism. By traversing across zero into the territory of negative numbers, we encounter the imaginary numbers, which have a base unit of the square root of -1, denoted by the letter i. The number i is paradoxical: consider the equations x² + 1 = 0 and x³ + 1 = 0, the only possible answers are positive square root of -1 (i) and negative square root of -1 (-i or i³), respectively. Visualizing these real and imaginary domains, we find a rotational axis centered on zero with orientations reminiscent of the tetralemma: one true (1), one not true (i), one both true and not true (-1 or i²), and one neither true nor not true (-i or i³):
Going through the gateway of zero into the realms of negative and imaginary numbers provides a more continuous form of logic when compared to the discrete either-or logic, commonly accredited to Aristotle and his followers. This framework is less “black and white” than the binary Aristotelean logic system, which was based on true or false, and provides many gradations of logicality; a more accurate map to the many “shades of grey” we find in nature. Continuous logic is insinuated throughout the world: for instance, someone may say “she wasn’t unattractive,” meaning that her appeal was ambivalent, somewhere between attractive and unattractive. This perspective is often more realistic than a binary assessment of attractive or not attractive.
Importantly, zero gave us the concept of infinity: which was notably absent from the minds of ancient Greek logicians. The rotations around zero through the real and imaginary number axes can be mathematically scaled up into a three-dimensional model called the Riemann Sphere. In this structure, zero and infinity are geometric reflections of one another and can transpose themselves in a flash of mathematical permutation. Always at the opposite pole of this three-dimensional, mathematical interpretation of the tetralemma, we find zero’s twin—infinity:
The twin polarities of zero and infinity are akin to yin and yang — as Charles Seife, author of Zero: Biography of a Dangerous Idea, describes them:
“Zero and infinity always looked suspiciously alike. Multiply zero by anything and you get zero. Multiply infinity by anything and you get infinity. Dividing a number by zero yields infinity; dividing a number by infinity yields zero. Adding zero to a number leaves it unchanged. Adding a number to infinity leaves infinity unchanged.”
In Eastern philosophy, the kinship of zero and infinity made sense: only in a state of absolute nothingness can possibility become infinite. Buddhist logic insists that everything is endlessly intertwined: a vast causal network in which all is inexorably interlinked, such that no single thing can truly be considered independent — as having its own isolated, non-interdependent essence. In this view, interrelation is the sole source of substantiation. Fundamental to their teachings, this truth is what Buddhists call dependent co-origination, meaning that all things depend on one another. The only exception to this truth is nirvana: liberation from the endless cycles of reincarnation. In Buddhism, the only pathway to nirvana is through pure emptiness:
Some ancient Buddhist texts state: “the truly absolute and the truly free must be nothingness.” In this sense, the invention of zero was special; it can be considered the discovery of absolute nothingness, a latent quality of reality that was not previously presupposed in philosophy or systems of knowledge like mathematics. Its discovery would prove to be an emancipating force for mankind, in that zero is foundational to the mathematized, software-enabled reality of convenience we inhabit today.
Zero was liberation discovered deep in meditation, a remnant of truth found in close proximity to nirvana — a place where one encounters universal, unbounded, and infinite awareness: God’s kingdom within us. To buddhists, zero was a whisper from the universe, from dharma, from God (words always fail us in the domain of divinity). Paradoxically, zero would ultimately shatter the institution which built its power structure by monopolizing access to God. In finding footing in the void, mankind uncovered the deepest, soundest substrate on which to build modern society: zero would prove to be a critical piece of infrastructure that led to the interconnection of the world via telecommunications, which ushered in the gold standard and the digital age (Bitcoin’s two key inceptors) many years later.
Blazing a path forward: the twin conceptions of zero and infinity would ignite the Renaissance, the Reformation, and the Enlightenment — all movements that mitigated the power of The Catholic Church as the dominant institution in the world and paved the way for the industrialized nation-state.
Power of The Church Falls to Zero
The universe of the ancient Greeks was founded on the philosophical tenets of Pythagoras, Aristotle, and Ptolemy. Central to their conception of the cosmos was the precept that there is no void, no nothingness, no zero. Greeks, who had inherited their numbers from the geometry-loving Egyptians, made little distinction between shape and number. Even today, when we square a number (x²), this is equivalent to converting a line into a square and calculating its area. Pythagoreans were mystified by this connection between shapes and numbers, which explains why they didn’t conceive of zero as a number: after all, what shape could represent nothingness? Ancient Greeks believed numbers had to be visible to be real, whereas the ancient Indians perceived numbers as an intrinsic part of a latent, invisible reality separate from mankind’s conception of them.
The symbol of the Pythagorean cult was the pentagram (a five-pointed star); this sacred shape contained within it the key to their view of the universe—the golden ratio. Considered to be the “most beautiful number,” the golden ratio is achieved by dividing a line such that the ratio of the small part to the large part is the same as the ratio of the large part to the whole. Such proportionality was found to be not only aesthetically pleasing, but also naturally occurring in a variety of forms including nautilus shells, pineapples, and (centuries later) the double-helix of DNA. Beauty this objectively pure was considered to be a window into the transcendent; a soul-sustaining quality. The golden ratio became widely used in art, music, and architecture:
The golden ratio was also found in musical harmonics: when plucking a string instrument from its specified segments, musicians could create the perfect fifth, a dual resonance of notes said to be the most evocative musical relationship. Discordant tritones, on the other hand, were derided as the “devil in music.” Such harmony of music was considered to be one and the same with that of mathematics and the universe—in the Pythagorean finite view of the cosmos (later called the Aristotelean celestial spheres model), movements of planets and other heavenly bodies generated a symphonic “harmony of the spheres”—a celestial music that suffused the cosmic depths. From the perspective of Pythagoreans, “all was number,” meaning ratios ruled the universe. The golden ratio’s seemingly supernatural connection to aesthetics, life, and the universe became a central tenet of Western Civilization and, later, The Catholic Church (aka The Church).
Zero posed a major threat to the conception of a finite universe. Dividing by zero is devastating to the framework of logic, and thus threatened the perfect order and integrity of a Pythagorean worldview. This was a serious problem for The Church which, after the fall of the Roman Empire, appeared as the dominant institution in Europe. To substantiate its dominion in the world, The Church proffered itself as the gatekeeper to heaven. Anyone who crossed The Church in any way could find themselves eternally barred from the holy gates. The Church’s claim to absolute sovereignty was critically dependent on the Pythagorean model, as the dominant institution over Earth—which was in their view the center of the universe—necessarily held dominion in God’s universe. Standing as a symbol for both the void and the infinite, zero was heretical to The Church. Centuries later, a similar dynamic would unfold in the discovery of absolute scarcity for money, which is dissident to the dominion of The Fed—the false church of modernity.
Ancient Greeks clung tightly to a worldview that did not tolerate zero or the infinite: rejection of these crucial concepts proved to be their biggest failure, as it prevented the discovery of calculus—the mathematical machinery on which much of the physical sciences and, thus, the modern world are constructed. Core to their (flawed) belief system was the concept of the “indivisible atom,” the elementary particle which could not be subdivided ad infinitum. In their minds, there was no way beyond the micro barrier of the atomic surface. In the same vein, they considered the universe a “macrocosmic atom” that was strictly bound by an outermost sphere of stars winking down towards the cosmic core—Earth. As above, so below: with nothing conceived to be above this stellar sphere and nothing below the atomic surface, there was no infinity and no void:
Aristotle (with later refinements by Ptolemy) would interpret this finite universe philosophically and, in doing so, form the ideological foundation for God’s existence and The Church’s power on Earth. In the Aristotelean conception of the universe, the force moving the stars, which drove the motion of all elements below, was the prime mover: God. This cascade of cosmic force from on high downward into the movements of mankind was considered the officially accepted interpretation of divine will. As Christianity swept through the West, The Church relied upon the explanatory power of this Aristotelean philosophy as proof of God’s existence in their proselytizing efforts. Objecting to the Aristotelean doctrine was soon considered an objection to the existence of God and the power of The Church.
Infinity was unavoidably actualized by the same Aristotelean logic which sought to deny it. By the 13th century, some bishops began calling assemblies to question the Aristotelean doctrines that went against the omnipotence of God: for example, the notion that “God can not move the heavens in a straight line, because that would leave behind a vacuum.” If the heavens moved linearly, then what was left in their wake? Through what substance were they moving? This implied either the existence of the void (the vacuum), or that God was not truly omnipotent as he could not move the heavens. Suddenly, Aristotelean philosophy started to break under its own weight, thereby eroding the premise of The Church’s power. Although The Church would cling to Aristotle’s views for a few more centuries—it fought heresy by forbidding certain books and burning certain Protestants alive—zero marked the beginning of the end for this domineering and oppressive institution.
An infinite universe meant there were, at least, a vast multitude of planets, many of which likely had their own populations and churches. Earth was no longer the center of the universe, so why should The Church have universal dominion? In a grand ideological shift that foreshadowed the invention of Bitcoin centuries later, zero became the idea that broke The Church’s grip on humanity, just as absolute scarcity of money is breaking The Fed’s stranglehold on the world today. In an echo of history, us moderns can once again hear the discovery of nothing beginning to change everything.
Zero was the smooth stone slung into the face of Goliath, a death-stroke to the dominion of The Church; felled by an unstoppable idea, this oppressive institution’s fall from grace would make way for the rise of the nation-state—the dominant institutional model in modernity.
Zero: An Ideological Juggernaut
Indoctrinated in The Church’s dogma, Christianity initially refused to accept zero, as it was linked to a primal fear of the void. Zero’s inexorable connection to nothingness and chaos made it a fearsome concept in the eyes of most Christians at the time. But zero’s capacity to support honest weights and measures, a core Biblical concept, would prove more important than the countermeasures of The Church (and the invention of zero would later lead to the invention of the most infallible of weights and measures, the most honest money in history—Bitcoin). In a world being built on trade, merchants needed zero for its superior arithmetic utility. As Pierre-Simon Laplace said:
“…[zero is] a profound and important idea which appears so simple to us now that we ignore its true merit. But its very simplicity and the great ease which it lent to all computations put our arithmetic in the first rank of useful inventions.”
In the 13th century, academics like the renowned Italian mathematician Fibonacci began championing zero in their work, helping the Hindu-Arabic system gain credibility in Europe. As trade began to flourish and generate unprecedented levels of wealth in the world, math moved from purely practical applications to ever more abstracted functions. As Alfred North Whitehead said:
“The point about zero is that we do not need to use it in the operations of daily life. No one goes out to buy zero fish. It is in a way the most civilized of all the cardinals, and its use is only forced on us by the needs of cultivated modes of thought.”
As our thinking became more sophisticated, so too did our demands on math. Tools like the abacus relied upon a set of sliding stones to help us keep track of amounts and perform calculation. An abacus was like an ancient calculator, and as the use of zero became popularized in Europe, competitions were held between users of the abacus (the abacists) and of the newly arrived Hindu-Arabic numeral system (the algorists) to see who could solve complex calculations faster. With training, algorists could readily outpace abacists in computation. Contests like these led to the demise of the abacus as a useful tool, however it still left a lasting mark on our language: the words calculate, calculus, and calcium are all derived from the Latin word for pebble—calculus.
Before the Hindu-Arabic numerals, money counters had to use the abacus or a counting board to keep track of value flows. Germans called the counting board a Rechenbank, which is why moneylenders came to be known as banks. Not only did banks use counting boards, but they also used tally sticks to keep track of lending activities: the monetary value of a loan was written on the side of a stick, and it was split into two pieces, with the lender keeping the larger piece, known as the stock—which is where we get the term stockholder:
Despite its superior utility for business, governments despised zero. In 1299, Florence banned the Hindu-Arabic numeral system. As with many profound innovations, zero faced vehement resistance from entrenched power structures that were threatened by its existence. Carrying on lawlessly, Italian merchants continued to use the zero-based numeral system, and even began using it to transmit encrypted messages. Zero was essential to these early encryption systems—which is why the word cipher, which originally meant zero, came to mean “secret code.” The criticality of zero to ancient encryption systems is yet another aspect of its contribution to Bitcoin’s ancestral heritage.
At the beginning of the Renaissance, the threat zero would soon pose to the power of The Church was not obvious. By then, zero had been adapted as an artistic tool to create the vanishing point: an acute place of infinite nothingness used in many paintings that sparked the great Renaissance in the visual arts. Drawings and paintings prior to the vanishing point appear flat and lifeless: their imagery was mostly two-dimensional and unrealistic. Even the best artists couldn’t capture realism without the use of zero:
With the concept of zero, artists could create a zero-dimension point in their work that was “infinitely far” from the viewer, and into which all objects in the painting visually collapsed. As objects appear to recede from the viewer into the distance, they become ever-more compressed into the “dimensionlessness” of the vanishing point, before finally disappearing. Just as it does today, art had a strong influence on people’s perceptions. Eventually, Nicholas of Cusa, a cardinal of The Church declared, “Terra non est centra mundi,” which meant “the Earth is not the center of the universe.” This declaration would later lead to Copernicus proving heliocentrism—the spark that ignited The Reformation and, later, the Age of Enlightenment:
A dangerous, heretical, and revolutionary idea had been planted by zero and its visual incarnation, the vanishing point. At this point of infinite distance, the concept of zero was captured visually, and space was made infinite—as Seife describes it:
“It was no coincidence that zero and infinity are linked in the vanishing point. Just as multiplying by zero causes the number line to collapse into a point, the vanishing point has caused most of the universe to sit in a tiny dot. This is a singularity, a concept that became very important later in the history of science—but at this early stage, mathematicians knew little more than the artists about the properties of zero.”
The purpose of the artist is to the mythologize the present: this is evident in much of the consumerist “trash art” produced in our current fiat-currency-fueled world. Renaissance artists (who were often also mathematicians, true Renaissance men) worked assiduously in line with this purpose as the vanishing point became an increasingly popular element of art in lockstep with zero’s proliferation across the world. Indeed, art accelerated the propulsion of zero across the mindscape of mankind.
Modernity: The Age of Ones and Zeros
Eventually, zero became the cornerstone of calculus: an innovative system of mathematics that enabled people to contend with ever-smaller units approaching zero, but cunningly avoided the logic-trap of having to divide by zero. This new system gave mankind myriad new ways to comprehend and grasp his surroundings. Diverse disciplines such as chemistry, engineering, and physics all depend on calculus to fulfill their functions in the world today:
Zero serves as the source-waters of many technological breakthroughs—some of which would flow together into the most important invention in history: Bitcoin. Zero punched a hole and created a vacuum in the framework of mathematics and shattered Aristotelean philosophy, on which the power of The Church was premised. Today, Bitcoin is punching a hole and creating a vacuum in the market for money; it is killing Keynesian economics—which is the propagandistic power-base of the nation-state (along with its apparatus of theft: the central bank).
In modernity, zero has become a celebrated tool in our mathematical arsenal. As the binary numerical system now forms the foundation of modern computer programming, zero was essential to the development of digital tools like the personal computer, the internet, and Bitcoin. Amazingly, all modern miracles made possible by digital technologies can be traced back to the invention of a figure for numeric nothingness by an ancient Indian mathematician: Brahmagupta gave the world a real “something for nothing,” a generosity Satoshi would emulate several centuries later. As Aczel says:
“Numbers are our greatest invention, and zero is the capstone of the whole system.”
A composition of countless zeroes and ones, binary code led to the proliferation and standardization of communications protocols including those embodied in the internet protocol suite. As people freely experimented with these new tools, they organized themselves around the most useful protocols like http, TCP/IP, etc. Ossification of digital communication standards provided the substrate upon which new societal utilities—like email, ride sharing, and mobile computing—were built. Latest (and arguably the greatest) among these digital innovations is the uninflatable, unconfiscatable, and unstoppable money called Bitcoin.
A common misconception of Bitcoin is that it is just one of thousands of cryptoassets in the world today. One may be forgiven for this misunderstanding, as our world today is home to many national currencies. But all these currencies began as warehouse receipts for the same type of thing—namely, monetary metal (usually gold). Today, national currencies are not redeemable for gold, and are instead liquid equity units in a pyramid scheme called fiat currency: a hierarchy of thievery built on top of the freely selected money of the world (gold) which their issuers (central banks) hoard to manipulate its price, insulate their inferior fiat currencies from competitive threats, and perpetually extract wealth from those lower down the pyramid.
Given this confusion, many mistakenly believe that Bitcoin could be disrupted by any one of the thousands of alternative cryptoassets in the marketplace today. This is understandable, as the reasons that make Bitcoin different are not part of common parlance and are relatively difficult to understand. Even Ray Dalio, the greatest hedge fund manager in history, said that he believes Bitcoin could be disrupted by a competitor in the same way that iPhone disrupted Blackberry. However, disruption of Bitcoin is extremely unlikely: Bitcoin is a path-dependent, one-time invention; its critical breakthrough is the discovery of absolute scarcity—a monetary property never before (and never again) achievable by mankind.
Like the invention of zero, which led to the discovery of “nothing as something” in mathematics and other domains, Bitcoin is the catalyst of a worldwide paradigmatic phase change (which some have started calling The Great Awakening). What numeral is to number, and zero is to the void for mathematics, Bitcoin is to absolute scarcity for money: each is a symbol that allows mankind to apprehend a latent reality (in the case of money, time). More than just a new monetary technology, Bitcoin is an entirely new economic paradigm: an uncompromisable base money protocol for a global, digital, non-state economy. To better understand the profundity of this, we first need to understand the nature of path-dependence.
The Path-Dependence of Bitcoin
Path-dependence is the sensitivity of an outcome to the order of events that led to it. In the broadest sense, it means history has inertia:
Path-dependence entails that the sequence of events matters as much as the events themselves: as a simple example, you get a dramatically different result if you shower and then dry yourself off versus if you dry yourself off first and then shower. Path-dependence is especially prevalent in complex systems due to their high interconnectivity and numerous (often unforeseeable) interdependencies. Once started down a particular pathway, breaking away from its sociopolitical inertia can become impossible—for instance, imagine if the world tried to standardize to a different size electrical outlet: consumers, manufacturers, and suppliers would all resist this costly change unless there was a gigantic prospective gain. To coordinate this shift in standardization would require either a dramatically more efficient technology (a pull method—by which people stand to benefit) or an imposing organization to force the change (a push method—in which people would be forced to change in the face of some threat). Path-dependence is why occurrences in the sociopolitical domain often influence developments in the technical; US citizens saw path-dependent pushback firsthand when their government made a failed attempt to switch to the metric system back in the 1970s.
Bitcoin was launched into the world as a one of a kind technology: a non-state digital money that is issued on a perfectly fixed, diminishing, and predictable schedule. It was strategically released into the wild (into an online group of cryptographers) at a time when no comparative technology existed. Bitcoin’s organic adoption path and mining network expansion are a non-repeatable sequence of events. As a thought experiment, consider that if a “New Bitcoin” was launched today, it would exhibit weak chain security early on, as its mining network and hash rate would have to start from scratch. Today, in a world that is aware of Bitcoin, this “New Bitcoin” with comparatively weak chain security would inevitably be attacked—whether these were incumbent projects seeking to defend their head start, international banking cartels, or even nation-states:
Path-dependence protects Bitcoin from disruption, as the organic sequence of events which led to its release and assimilation into the marketplace cannot be replicated. Further, Bitcoin’s money supply is absolutely scarce; a totally unique and one-time discovery for money. Even if “New Bitcoin” was released with an absolutely scarce money supply, its holders would be incentivized to hold the money with the greatest liquidity, network effects, and chain security. This would cause them to dump “New Bitcoin” for the original Bitcoin. More realistically, instead of launching “New Bitcoin,” those seeking to compete with Bitcoin would take a social contract attack-vector by initiating a hard fork. An attempt like this was already made with the “Bitcoin Cash” fork, which tried to increase block sizes to (ostensibly) improve its utility for payments. This chain fork was an abject failure and a real world reinforcement of the importance of Bitcoin’s path-dependent emergence:
Continuing our thought experiment: even if “New Bitcoin” featured a diminishing money supply (in other words, a deflationary monetary policy), how would its rate of money supply decay (deflation) be determined? By what mechanism would its beneficiaries be selected? As market participants (nodes and miners) jockeyed for position to maximize their accrual of economic benefit from the deflationary monetary policy, forks would ensue that would diminish the liquidity, network effects, and chain security for “New Bitcoin,” causing everyone to eventually pile back into the original Bitcoin—just like they did in the wake of Bitcoin Cash’s failure.
Path-dependence ensures that those who try to game Bitcoin get burned. Reinforced by four-sided network effects, it makes Bitcoin’s first-mover advantage seemingly insurmountable. The idea of absolute monetary scarcity goes against the wishes of entrenched power structures like The Fed: like zero, once an idea whose time has come is released into the world, it is nearly impossible to put the proverbial genie back in the bottle. After all, unstoppable ideas are independent lifeforms:
Finite and Infinite Games
Macroeconomics is essentially the set of games played globally to satisfy the demands of mankind (which are infinite) within the bounds of his time (which is strictly finite). In these games, scores are tracked in monetary terms. Using lingo from the groundbreaking book Finite and Infinite Games, there are two types of economic games: unfree (or centrally planned) markets are theatrical, meaning that they are performed in accordance with a predetermined script that often entails dutifulness and disregard for humanity. The atrocities committed in Soviet Russia are exemplary of the consequences of a theatrical economic system. On the other hand, free markets are dramatic, meaning that they are enacted in the present according to consensual and adaptable boundaries. Software development is a good example of a dramatic market, as entrepreneurs are free to adopt the rules, tools, and protocols that best serve customers. Simply: theatrical games are governed by imposed rules (based on tyranny), whereas rulesets for dramatic games are voluntarily adopted (based on individual sovereignty).
From a moral perspective, sovereignty is always superior to tyranny. And from a practical perspective, tyrannies are less energy-efficient than free markets because they require tyrants to expend resources enforcing compliance with their imposed rulesets and protecting their turf. Voluntary games (free market capitalism) outcompete involuntary games (centrally planned socialism) as they do not accrue these enforcement and protection costs: hence the reason capitalism (freedom) outcompetes socialism (slavery) in the long run. Since interpersonal interdependency is at the heart of the comparative advantage and division of labor dynamics that drive the value proposition of cooperation and competition, we can say that money is an infinite game: meaning that its purpose is not to win, but rather to continue to play. After all, if one player had all the money, the game would end (like the game of Monopoly).
In this sense, Bitcoin’s terminal money supply growth (inflation) rate of absolute zero is the ultimate monetary Schelling point — a game-theoretic focal point that people tend to choose in an adversarial game. In game theory, a game is any situation where there can be winners or losers, a strategy is a decision-making process, and a Schelling point is the default strategy for games in which the players cannot fully trust one another (like money):
Economic actors are incentivized to choose the money that best holds its value across time, is most widely accepted, and most clearly conveys market pricing information. All three of these qualities are rooted in scarcity: resistance to inflation ensures that money retains its value and ability to accurately price capital across time, which leads to its use as an exchange medium. For these reasons, holding the scarcest money is the most energy-efficient strategy a player can employ, which makes the absolute scarcity of Bitcoin an irrefutable Schelling point—a singular, unshakable motif in games played for money.
A distant digital descendent of zero, the invention of Bitcoin represents the discovery of absolute scarcity for money: an idea as equally unstoppable.
Similar to the discovery of absolute nothingness symbolized by zero, the discovery of absolutely scarce money symbolized by Bitcoin is special. Gold became money because out of the monetary metals it had the most inelastic (or relatively scarce) money supply: meaning that no matter how much time was allocated towards gold production, its supply increased the least. Since its supply increased the slowest and most predictable rate, gold was favored for storing value and pricing things—which encouraged people to voluntarily adopt it, thus making it the dominant money on the free market. Before Bitcoin, gold was the world’s monetary Schelling point, because it made trade easier in a manner that minimized the need to trust other players. Like its digital ancestor zero, Bitcoin is an invention that radically enhances exchange efficiency by purifying informational transmissions: for zero, this meant instilling more meaning per proximate digit, for Bitcoin, this means generating more salience per price signal. In the game of money, the objective has always been to hold the most relatively scarce monetary metal (gold); now, the goal is to occupy the most territory on the absolutely scarce monetary network called Bitcoin.
A New Epoch for Money
Historically, precious metals were the best monetary technologies in terms of money’s five critical traits:
- recognizability, and
Among the monetary metals, gold was relatively the most scarce, and therefore it outcompeted others in the marketplace as it was a more sound store of value. In the ascension of gold as money, it was as if free market dynamics were trying to zero-in on a sufficiently divisible, durable, portable, and recognizable monetary technology that was also absolutely scarce (strong arguments for this may be found by studying the Eurodollar system). Free markets are distributed computing systems that zero-in on the most useful prices and technologies based on the prevailing demands of people and the available supplies of capital: they constantly assimilate all of mankind’s intersubjective perspectives on the world within the bounds of objective reality to produce our best approximations of truth. In this context, verifiable scarcity is the best proxy for the truthfulness of money: assurance that it will not be debased over time.
As a (pre-Bitcoin) thought experiment, had a “new gold” been discovered in the Earth’s crust, assuming it was mostly distributed evenly across the Earth’s surface and was exactly comparable to gold in terms of these five monetary traits (with the exception that it was more scarce), free market dynamics would have led to its selection as money, as it would be that much closer to absolute scarcity, making it a better means of storing value and propagating price signals. Seen this way, gold as a monetary technology was the closest the free market could come to absolutely scarce money before it was discovered in its only possible form—digital. The supply of any physical thing can only be limited by the time necessary to procure it: if we could flip a switch and force everyone on Earth to make their sole occupation gold mining, the supply of gold would soon soar. Unlike Bitcoin, no physical form of money could possibly guarantee a permanently fixed supply—so far as we know, absolute scarcity can only be digital.
Digitization is advantageous across all five traits of money. Since Bitcoin is just information, relative to other monetary technologies, we can say: its
- divisibility is supreme, as information can be infinitely subdivided and recombined at near-zero cost (like numbers); its
- durability is supreme, as information does not decompose (books can outlast empires); its
- portability is supreme, as information can move at the speed of light (thanks to telecommunications); and its
- recognizability is supreme, as information is the most objectively discernible substance in the universe (like the written word). Finally, and most critically, since Bitcoin algorithmically and thermodynamically enforces an absolutely scarce money supply, we can say that its
- scarcity is infinite (as scarce as time, the substance money is intended to tokenize in the first place). Taken in combination, these traits make absolutely scarce digital money seemingly indomitable in the marketplace.
In the same way that the number zero enables our numeric system to scale and more easily perform calculation, so too does money give an economy the ability to socially scale by simplifying trade and economic calculation. Said simply: scarcity is essential to the utility of money, and a zero-growth terminal money supply represents “perfect” scarcity — which makes Bitcoin as near a “perfect” monetary technology as mankind has ever had. Absolute scarcity is a monumental monetary breakthrough. Since money is valued according to reflexivity, meaning that investor perceptions of its future exchangeability influence its present valuation, Bitcoin’s perfectly predictable and finite future supply underpins an unprecedented rate of expansion in market capitalization:
In summary: the invention of Bitcoin represents the discovery of absolute scarcity, or absolute irreproducibility, which occurred due to a particular sequence of idiosyncratic events that cannot be reproduced. Any attempt to introduce an absolutely scarce or diminishing supplied money into the world would likely collapse into Bitcoin (as we saw with the Bitcoin Cash fork). Absolute scarcity is a one-time discovery, just like heliocentrism or any other major scientific paradigm shift. In a world where Bitcoin already exists, a successful launch via a proof-of-work system is no longer possible due to path-dependence; yet another reason why Bitcoin cannot be replicated or disrupted by another cryptoasset using this consensus mechanism. At this point, it seems absolute scarcity for money is truly a one-time discovery that cannot “disrupted” any more than the concept of zero can be disrupted.
A true “Bitcoin killer” would necessitate an entirely new consensus mechanism and distribution model; with an implementation overseen by an unprecedentedly organized group of human beings: nothing to date has been conceived that could even come close to satisfying these requirements. In the same way that there has only ever been one analog gold, there is likely to only ever be one digital gold. For the same quantifiable reasons a zero-based numeral system became a dominant mathematical protocol, and capitalism outcompetes socialism, the absolute scarcity of Bitcoin’s supply will continue outcompeting all other monetary protocols in its path to global dominance.
Numbers are the fundamental abstractions which rule our world. Zero is the vanishing point of the mathematical landscape. In the realm of interpersonal competition and cooperation, money is the dominant abstraction which governs our behavior. Money arises naturally as the most tradable thing within a society—this includes exchanges with others and with our future selves. Scarcity is the trait of money that allows it to hold value across time, enabling us to trade it with our future selves for the foregone opportunity costs (the things we could have otherwise traded money for had we not decided to hold it). Scarce money accrues value as our productivity grows. For these reasons, the most scarce technology which otherwise exhibits sufficient monetary traits (divisibility, durability, recognizability, portability) tends to become money. Said simply: the most relatively scarce money wins. In this sense, what zero is to math, absolute scarcity is to money. It is an astonishing discovery, a window into the void, just like its predecessor zero:
Fiat Currency Always Falls to Zero
Zero has proven itself as the capstone of our numeral system by making it scalable, invertible, and easily convertible. In time, Bitcoin will prove itself as the most important network in the global economic system by increasing social scalability, causing an inversion of economic power, and converting culture into a realignment with Natural Law. Bitcoin will allow sovereignty to once again inhere at the individual level, instead of being usurped at the institutional level as it is today—all thanks to its special forebear, zero:
Central planning in the market for money (aka monetary socialism) is dying. This tyrannical financial hierarchy has increased worldwide wealth disparities, funded perpetual warfare, and plundered entire commonwealths to “bail out” failing institutions. A reversion to the free market for money is the only way to heal the devastation it has wrought over the past 100+ years. Unlike central bankers, who are fallible human beings that give into political pressure to pillage value from people by printing money, Bitcoin’s monetary policy does not bend for anyone: it gives zero fucks. And in a world where central banks can “just add zeros” to steal your wealth, people’s only hope is a “zero fucks” money that cannot be confiscated, inflated, or stopped:
Bitcoin was specifically designed as a countermeasure to “expansionary monetary policies” (aka wealth confiscation via inflation) by central bankers. Bitcoin is a true zero-to-one invention, an innovation that profoundly changes society instead of just introducing an incremental advancement. Bitcoin is ushering in a new paradigm for money, nation-states, and energy-efficiency. Most importantly, it promises to break the cycle of criminality in which governments continuously privatize gains (via seigniorage) and socialize losses (via inflation). Time and time again, excessive inflation has torn societies apart, yet the lessons of history remain unlearned—once again, here we are:
The Zero Hour
How much longer will monetary socialism remain an extant economic model? The countdown has already begun: Ten. Nine. Eight. Seven. Six. Five. Four. Three. Two. One. Liftoff. Rocket technicians always wait for zero before ignition; countdowns always finalize at the zero hour. Oil price wars erupting in Eurasia, a global pandemic, an unprecedented expansionary monetary policy response, and another quadrennial Bitcoin inflation-rate halving: 2020 is quickly becoming the zero hour for Bitcoin.
Inflation rate and societal wellbeing are inversely related: the more reliably value can be stored across time, the more trust can be cultivated among market participants. When a money’s roots to economic reality are severed—as happened when the peg to gold was broken and fiat currency was born—its supply inevitably trends towards infinity (hyperinflation) and the functioning of its underlying society deteriorates towards zero (economic collapse). An unstoppable free market alternative, Bitcoin is anchored to economic reality (through proof-of-work energy expenditure) and has an inflation rate predestined for zero, meaning that a society operating on a Bitcoin standard would stand to gain in virtually infinite ways. When Bitcoin’s inflation rate finally reaches zero in the mid 22nd century, the measure of its soundness as a store of value (the stock-to-flow ratio) will become infinite; people that realize this and adopt it early will benefit disproportionately from the resultant mass wealth transfer.
Zero and infinity are reciprocal: 1/∞ = 0 and 1/0 = ∞. In the same way, a society’s wellbeing shrinks towards zero the more closely the inflation rate approaches infinity (through the hyperinflation of fiat currency). Conversely, societal wellbeing can, in theory, be expanded towards infinity the more closely the inflation rate approaches zero (through the absolute scarcity of Bitcoin). Remember: The Fed is now doing whatever it takes to make sure there is “infinite cash” in the banking system, meaning that its value will eventually fall to zero:
Zero arose in the world as an unstoppable idea because its time had come; it broke the dominion of The Church and put an end to its monopolization over access to knowledge and the gates to heaven. The resultant movement—The Separation of Church and State—reinvigorated self-sovereignty in the world, setting the individual firmly as the cornerstone of the state. Rising from The Church’s ashes came a nation-state model founded on sound property rights, rule of law, and free market money (aka hard money). With this new age came an unprecedented boom in scientific advancement, wealth creation, and worldwide wellbeing. In the same way, Bitcoin and its underlying discovery of absolute scarcity for money is an idea whose time has come. Bitcoin is shattering the siege of central banks on our financial sovereignty; it is invoking a new movement—The Separation of Money and State—as its revolutionary banner; and it is restoring Natural Law in a world ravaged by a mega-wealth-parasite—The Fed.
Only unstoppable ideas can break otherwise immovable institutions: zero brought The Church to its knees and Bitcoin is bringing the false church of The Fed into the sunlight of its long-awaited judgement day.
Both zero and Bitcoin are emblematic of the void, a realm of pure potentiality from which all things spring forth into being — the nothingness from which everything effervesces, and into which all possibility finally collapses. Zero and Bitcoin are unstoppable ideas gifted to mankind; gestures made in the spirit of “something for nothing.” In a world run by central banks with zero accountability, a cabal that uses the specious prospects of “infinite cash” to promise us everything (thereby introducing the specter of hyperinflation), nothingness may prove to be the greatest gift we could ever receive…
Thank you Brahmagupta and Satoshi Nakamoto for your generosity.
Scientists who have fought pandemics describe difficult measures needed to defend the United States against a fast-moving pathogen.
Terrifying though the coronavirus may be, it can be turned back. China, South Korea, Singapore and Taiwan have demonstrated that, with furious efforts, the contagion can be brought to heel.
Whether they can keep it suppressed remains to be seen. But for the United States to repeat their successes will take extraordinary levels of coordination and money from the country’s leaders, and extraordinary levels of trust and cooperation from citizens. It will also require international partnerships in an interconnected world.
There is a chance to stop the coronavirus. This contagion has a weakness.
Although there are incidents of rampant spread, as happened on the cruise ship Diamond Princess, the coronavirus more often infects clusters of family members, friends and work colleagues, said Dr. David L. Heymann, who chairs an expert panel advising the World Health Organization on emergencies.
No one is certain why the virus travels in this way, but experts see an opening nonetheless. “You can contain clusters,” Dr. Heymann said. “You need to identify and stop discrete outbreaks, and then do rigorous contact tracing.”
But doing so takes intelligent, rapidly adaptive work by health officials, and near-total cooperation from the populace. Containment becomes realistic only when Americans realize that working together is the only way to protect themselves and their loved ones.
In interviews with a dozen of the world’s leading experts on fighting epidemics, there was wide agreement on the steps that must be taken immediately.
Those experts included international public health officials who have fought AIDS, malaria, tuberculosis, flu and Ebola; scientists and epidemiologists; and former health officials who led major American global health programs in both Republican and Democratic administrations.
Americans must be persuaded to stay home, they said, and a system put in place to isolate the infected and care for them outside the home. Travel restrictions should be extended, they said; productions of masks and ventilators must be accelerated, and testing problems must be resolved.
But tactics like forced isolation, school closings and pervasive GPS tracking of patients brought more divided reactions.
It was not at all clear that a nation so fundamentally committed to individual liberty and distrustful of government could learn to adapt to many of these measures, especially those that smack of state compulsion.
“The American way is to look for better outcomes through a voluntary system,” said Dr. Luciana Borio, who was director of medical and biodefense preparedness for the National Security Council before it was disbanded in 2018.
“I think you can appeal to people to do the right thing.”
In the week since the interviews began, remarkable changes have come over American life. State governments are telling residents they must stay home. Nonessential businesses are being shuttered.
The streets are quieter than they have been in generations, and even friends keep a wary distance. What seemed unthinkable just a week ago is rapidly becoming the new normal.
What follows are the recommendations offered by the experts interviewed by The Times.
The White House holds frequent media briefings to describe the administration’s progress against the pandemic, often led by President Trump or Vice President Mike Pence, flanked by a rotating cast of officials.
Many experts, some of whom are international civil servants, declined to speak on the record for fear of offending the president. But they were united in the opinion that politicians must step aside and let scientists both lead the effort to contain the virus and explain to Americans what must be done.
Just as generals take the lead in giving daily briefings in wartime — as Gen. Norman Schwarzkopf did during the Persian Gulf war — medical experts should be at the microphone now to explain complex ideas like epidemic curves, social distancing and off-label use of drugs.
The microphone should not even be at the White House, scientists said, so that briefings of historic importance do not dissolve into angry, politically charged exchanges with the press corps, as happened again on Friday.
Instead, leaders must describe the looming crisis and the possible solutions in ways that will win the trust of Americans.
Above all, the experts said, briefings should focus on saving lives and making sure that average wage earners survive the coming hard times — not on the stock market, the tourism industry or the president’s health. There is no time left to point fingers and assign blame.
“At this point in the emergency, there’s little merit in spending time on what we should have done or who’s at fault,” said Adm. Tim Ziemer, who was the coordinator of the President’s Malaria Initiative from 2006 until early 2017 and led the pandemic response unit on the National Security Council before its disbanding.
“We need to focus on the enemy, and that’s the virus.”
The next priority, experts said, is extreme social distancing.
If it were possible to wave a magic wand and make all Americans freeze in place for 14 days while sitting six feet apart, epidemiologists say, the whole epidemic would sputter to a halt.
The virus would die out on every contaminated surface and, because almost everyone shows symptoms within two weeks, it would be evident who was infected. If we had enough tests for every American, even the completely asymptomatic cases could be found and isolated.
The crisis would be over.
Obviously, there is no magic wand, and no 300 million tests. But the goal of lockdowns and social distancing is to approximate such a total freeze.
To attempt that, experts said, travel and human interaction must be reduced to a minimum.
Italy moved incrementally: Officials slowly and reluctantly closed restaurants, churches and museums, and banned weddings and funerals. Nonetheless, the country’s death count continues to rise.
The United States is slowly following suit. International flights are all but banned, but not domestic ones. California has ordered all residents to stay at home; New York was to shutter all nonessential businesses on Sunday evening.
On Friday, Dr. Anthony S. Fauci, chief medical adviser to the White House Coronavirus Task Force, said he advocated restrictive measures all across the country.
In contrast to the halting steps taken here, China shut down Wuhan — the epicenter of the nation’s outbreak — and restricted movement in much of the country on Jan. 23, when the country had a mere 500 cases and 17 deaths.
Its rapid action had an important effect: With the virus mostly isolated in one province, the rest of China was able to save Wuhan.
In a vast, largely closed society, it can be difficult to know what is happening on the ground, and there is no guarantee that the virus won’t roar back as the Chinese economy restarts.
But the lesson is that relatively unaffected regions of the United States will be needed to help rescue overwhelmed cities like New York and Seattle. Keeping these areas at least somewhat free of the coronavirus means enacting strict measures, and quickly.
Stop transmission within cities
Within cities, there are dangerous hot spots: One restaurant, one gym, one hospital, even one taxi may be more contaminated than many identical others nearby because someone had a coughing fit inside.
Each day’s delay in stopping human contact, experts said, creates more hot spots, none of which can be identified until about a week later, when the people infected there start falling ill.
To stop the explosion, municipal activity must be curtailed. Still, some Americans must stay on the job: doctors, nurses, ambulance drivers; police officers and firefighters; the technicians who maintain the electrical grid and gas and phone lines.
The delivery of food and medicine must continue, so that people pinned in their homes suffer nothing worse than boredom. Those essential workers may eventually need permits, and a process for issuing them, if the police are needed to enforce stay-at-home orders, as they have been in China and Italy.
People in lockdown adapt. In Wuhan, apartment complexes submit group orders for food, medicine, diapers and other essentials. Shipments are assembled at grocery warehouses or government pantries and dropped off. In Italy, trapped neighbors serenade one another.
It’s an intimidating picture. But the weaker the freeze, the more people die in overburdened hospitals — and the longer it ultimately takes for the economy to restart.
South Korea avoided locking down any city, but only by moving early and with extraordinary speed. In January, the country had four companies making tests, and as of March 9 had tested 210,000 citizens — the equivalent of testing 2.3 million Americans.
As of the same date, fewer than 9,000 Americans had been tested.
Everyone who is infected in South Korea goes into isolation in government shelters, and phones and credit card data are used to trace their prior movements and find their contacts. Where they walked before they fell ill is broadcast to the cellphones of everyone who was nearby.
Anyone even potentially exposed is quarantined at home; a GPS app tells the police if that person goes outside. The fine for doing so is $8,000.
British researchers are trying to develop a similar tracking app, albeit one more palatable to citizens in Western democracies.
Fix the testing mess
Testing must be done in a coordinated and safe way, experts said. The seriously ill must go first, and the testers must be protected.
In China, those seeking a test must describe their symptoms on a telemedicine website. If a nurse decides a test is warranted, they are directed to one of dozens of “fever clinics” set up far from all other patients.
Personnel in head-to-toe gear check their fevers and question them. Then, ideally, patients are given a rapid flu test and a white blood cell count is taken to rule out influenza and bacterial pneumonia.
Then their lungs are visualized in a CT scanner to look for “ground-glass opacities” that indicate pneumonia and rule out cancer and tuberculosis. Only then are they given a diagnostic test for the coronavirus — and they are told to wait at the testing center.
The results take a minimum of four hours; in the past, if results took overnight, patients were moved to a hotel to wait — sometimes for two to three days, if doctors believed retesting was warranted. It can take several days after an exposure for a test to turn positive.
In the United States, people seeking tests are calling their doctors, who may not have them, or sometimes waiting in traffic jams leading to store parking lots. On Friday, New York City limited testing only to those patients requiring hospitalization, saying the system was being overwhelmed.
Isolate the infected
As soon as possible, experts said, the United States must develop an alternative to the practice of isolating infected people at home, as it endangers families. In China, 75 to 80 percent of all transmission occurred in family clusters.
That pattern has already repeated itself here. Seven members of a large family in New Jersey were infected; four have already died. After a lawyer in New Rochelle, N.Y., fell ill, his wife, son and daughter all tested positive.
Instead of a policy that advises the infected to remain at home, as the Centers for Disease and Prevention now does, experts said cities should establish facilities where the mildly and moderately ill can recuperate under the care and observation of nurses.
Wuhan created many such centers, called “temporary hospitals,” each a cross between a dormitory and a first-aid clinic. They had cots and oxygen tanks, but not the advanced machines used in intensive care units.
American cities now have many spaces that could serve as isolation wards. Already New York is considering turning the Jacob K. Javits Convention Center into a temporary hospital, along with the Westchester Convention Center and two university campuses.
Gov. Ron DeSantis of Florida said on Saturday that state officials were also considering opening isolation wards.
In China, said Dr. Bruce Aylward, leader of the World Health Organization’s observer team there, people originally resisted leaving home or seeing their children go into isolation centers with no visiting rights — just as Americans no doubt would.
In China, they came to accept it.
“They realized they were keeping their families safe,” he said. “Also, isolation is really lonely. It’s psychologically difficult. Here, they were all together with other people in the same boat. They supported each other.”
Find the fevers
Because China, Taiwan and Vietnam were hit by SARS in 2003, and South Korea has grappled with MERS, fever checks during disease outbreaks became routine.
In most cities in affected Asian countries, it is commonplace before entering any bus, train or subway station, office building, theater or even a restaurant to get a temperature check. Washing your hands in chlorinated water is often also required.
“They give you a sticker afterward,” said Dr. Heymann, who recently spent a week teaching in Singapore. “I built up quite a collection.”
In China, having a fever means a mandatory trip to a fever clinic to check for coronavirus. In the Wuhan area, different cities took different approaches.
Cellphone videos from China show police officers knocking on doors and taking temperatures. In some, people who resist are dragged away by force. The city of Ningbo offered bounties of $1,400 to anyone who turned in a coronavirus sufferer.
The city of Qianjiang, by contrast, offered the same amount of money to any resident who came in voluntarily and tested positive.
Some measures made Western experts queasy. It is difficult to imagine Americans permitting a family member with a fever to be dragged to an isolation ward where visitors are not permitted.
“A lot of people’s rights were violated,” Dr. Borio said.
Voluntary approaches, like explaining to patients that they will be keeping family and friends safe, are more likely to work in the West, she added.
Trace the contacts
Finding and testing all the contacts of every positive case is essential, experts said. At the peak of its epidemic, Wuhan had 18,000 people tracking down individuals who had come in contact with the infected.
At the moment, the health departments of some American counties lack the manpower to trace even syphilis or tuberculosis, let alone scores of casual contacts of someone infected with the coronavirus.
Dr. Borio suggested that young Americans could use their social networks to “do their own contact tracing.” Social media also is used in Asia, but in different ways.
China’s strategy is quite intrusive: To use the subway in some cities, citizens must download an app that rates how great a health risk they are. South Korean apps tell users exactly where infected people have traveled.
When he lectured at a Singapore university, Dr. Heymann said, dozens of students were in the room. But just before he began class, they were photographed to record where everyone sat.
“That way, if someone turns up infected later, you can find out who sat near them,” Dr. Heymann said. “That’s really clever.”
Contacts generally must remain home for 14 days and report their temperatures twice a day.
Make masks ubiquitous
American experts have divided opinions about masks, but those who have worked in Asia see their value.
There is very little data showing that flat surgical masks protect healthy individuals from disease. Nonetheless, Asian countries generally encourage people wear them. In some cities in China where masks are compulsory, the police even used drones to chase individuals down streets, ordering them to go home and mask up.
The Asian approach is less about data than it is about crowd psychology, experts explained.
All experts agree that the sick must wear masks to keep in their coughs. But if a mask indicates that the wearer is sick, many people will be reluctant to wear one. If everyone is required to wear masks, the sick automatically have one on and there is no stigma attached.
Also, experts emphasized, Americans should be taught to take seriously admonitions to stop shaking hands and hugging. The “W.H.O. elbow bump” may look funny, but it’s a legitimate technique for preventing infection.
“In Asia, where they went through SARS, people understand the danger,” Dr. Heymann said. “It’s instilled in the population that you’ve got to do the right thing.”
Preserve vital services
Federal intervention is necessary for some vital aspects of life during a pandemic.
Only the federal government can enforce interstate commerce laws to ensure that food, water, electricity, gas, phone lines and other basic needs keep flowing across state lines to cities and suburbs.
Mr. Trump has said he could compel companies to prioritize making ventilators, masks and other needed goods. Some have volunteered; the Hanes underwear company, for example, will use its cotton to make masks for hospital workers.
He also has the military; the Navy is committing two hospital ships to the fight. And Mr. Trump can call up the National Guard. As of Saturday evening, more than 6,500 National Guard members already are assisting in the coronavirus response in 38 states, Puerto Rico and the District of Columbia.
High-level decisions like these must be made quickly, experts said.
“Many Western political leaders are behaving as though they are on a tightrope,” said Dr. David Nabarro, a W.H.O. special envoy on Covid-19 and a veteran of fights against SARS, Ebola and cholera.
“But there is no choice. We must do all in our power to fight this,” he added. “I sense that most people — and certainly those in business — get it. They would prefer to take the bitter medicine at once and contain outbreaks as they start rather than gamble with uncertainty.”
Produce ventilators and oxygen
The roughly 175,000 ventilators in all American hospitals and the national stockpile are expected to be far fewer than are needed to handle a surge of patients desperate for breath.
The machines pump air and oxygen into the lungs, but they normally cost $25,000 or more each, and neither individual hospitals nor the federal emergency stockpile has ever had enough on hand to handle the number of pneumonia patients that this pandemic is expected to produce.
New York, for example, has found about 6,000 ventilators for purchase around the world, Governor Cuomo said. He estimated the state would need about 30,000.
The manufacturers, including a dozen in the United States, say there is no easy way to ramp up production quickly. But it is possible other manufacturers, including aerospace and automobile companies, could be enlisted to do so.
Ventilators are basically air pumps with motors controlled by circuits that make them act like lungs: the pump pushes air into the patient, then stops so the weight of the chest can push the air back out.
Automobiles and airplanes contain many small pumps, like those for oil, water and air-conditioning fluid, that might be modified to act as basic, stripped-down ventilators. On Sunday, Mr. Trump tweeted that Ford and General Motors had been “given the go-ahead” to produce ventilators.
Providers, meanwhile, are scrambling for alternatives.
Canadian nurses are disseminating a 2006 paper describing how one ventilator can be modified to treat four patients simultaneously. Inventors have proposed combining C-PAP machines, which many apnea sufferers own, and oxygen tanks to improvise a ventilator.
The United States must also work to increase its supply of piped and tanked oxygen, Dr. Aylward said.
One of the lessons of China, he noted, was that many Covid-19 patients who would normally have been intubated and on ventilators managed to survive with oxygen alone.
Hospitals in the United States have taken some measures to handle surges of patients, such as stopping elective surgery and setting up isolation rooms.
To protect bedridden long-term patients, nursing homes and hospitals also should immediately stop admitting visitors and do constant health checks on their staffs, said Dr. James LeDuc, director of the Galveston National Laboratory at the University of Texas Medical Branch.
The national stockpile does contain some prepackaged military field hospitals, but they are not expected to be nearly enough for a big surge.
In Wuhan, the Chinese government famously built two new hospitals in two weeks. All other hospitals were divided: 48 were designated to handle 10,000 serious or critical coronavirus patients, while others were restricted to handling emergencies like heart attacks and births.
Wherever that was impractical, hospitals were divided into “clean” and “dirty” zones, and the medical teams did not cross over. Walls to isolate whole wards were built, and — as in Ebola wards — doctors went in one end of the room wearing protective gear and left by the other end, where they de-gowned under the eyes of a nurse to prevent infection.
Decide when to close schools
As of Saturday, schools in 45 states were closed entirely, but that is a decision that divided experts.
“Closing all schools may not make sense unless there is documented widespread community transmission, which we’re not seeing in most of the country,” said Dr. Thomas R. Frieden, a former C.D.C. director under President Barack Obama.
It is unclear how much children spread coronavirus. They very seldom get sick enough to be hospitalized, which is not true of flu. Current testing cannot tell whether most do not even become infected.
In China, Dr. Aylward said, he asked all of the doctors he spoke to whether they had seen any family clusters in which a child was the first to be infected. No one had, he said, which astonished him.
That leaves a quandary. Closing schools is a normal part of social distancing; after all, schools are the workplaces for many adults, too. And when the disease is clearly spreading within an individual school, it must close.
But closing whole school districts can seriously disrupt a city’s ability to fight an outbreak. With their children stuck at home, nurses, doctors, police officers and other emergency medical workers cannot come to work.
Also, many children in low-income families depend on the meals they eat at schools.
Cities that close all schools are creating special “hub schools” for the children of essential workers. In Ohio, the governor has told school bus drivers to deliver hot meals to children who normally got them at school.
China’s effort succeeded, experts said, in part because of hundreds of thousands of volunteers. The government declared a “people’s war” and rolled out a “Fight On, Wuhan! Fight On, China!” campaign.
Many people idled by the lockdowns stepped up to act as fever checkers, contact tracers, hospital construction workers, food deliverers, even babysitters for the children of first responders, or as crematory workers.
With training, volunteers were able to do some ground-level but crucial medical tasks, such as basic nursing, lab technician work or making sure that hospital rooms were correctly decontaminated.
Americans often step forward to help neighbors affected by hurricanes and floods; many will no doubt do so in this outbreak, but they will need training in how not to fall ill and add to the problem.
“In my experience, success is dependent on how much the public is informed and participates,” Admiral Ziemer said. “This truly is an ‘all hands on deck’ situation.”
Prioritize the treatments
Clinicians in China, Italy and France have thrown virtually everything they had in hospital pharmacies into the fight, and at least two possibilities have emerged that might save patients: the anti-malaria drugs chloroquine and hydroxychloroquine, and the antiviral remdesivir, which has no licensed use.
There is not proof yet that any of these are effective against the virus. China registered more than 200 clinical trials, including several involving those treatments, but investigators ran out of patients in critical condition to enroll. Italy and France have trials underway, and hospitals in New York are writing trial protocols now.
One worry for trial leaders is that chloroquine has been given so much publicity that patients may refuse to be “randomized” and accept a 50 percent chance of being given a placebo.
If any drug works on critical cases, it might be possible to use small doses as a prophylactic to prevent infection.
An alternative is to harvest protective antibodies from the blood of people who have survived the illness, said Dr. Peter J. Hotez, dean of the National School of Tropical Medicine at Baylor College of Medicine in Houston.
The purified blood serum — called immunoglobulin — could possibly be used in small amounts to protect emergency medical workers, too.
“Unfortunately, the first wave won’t benefit from this,” Dr. Hotez said. “We need to wait until we have enough survivors.”
Find a vaccine
The ultimate hope is to have a vaccine that will protect everyone, and many companies and governments have already rushed the design of candidate vaccines. But as Dr. Fauci has explained multiple times, testing those candidate vaccines for safety and effectiveness takes time.
The process will take at least a year, even if nothing goes wrong. The roadblock, vaccine experts explained, is not bureaucratic. It is that the human immune system takes weeks to produce antibodies, and some dangerous side effects can take weeks to appear.
After extensive animal testing, vaccines are normally given to about 50 healthy human volunteers to see if they cause any unexpected side effects and to measure what dose produces enough antibodies to be considered protective.
If that goes well, the trial enrolls hundreds or thousands of volunteers in an area where the virus is circulating. Half get the vaccine, the rest do not — and the investigators wait. If the vaccinated half do not get the disease, the green light for production is finally given.
In the past, some experimental vaccines have produced serious side effects, like Guillain-Barre syndrome, which can paralyze and kill. A greater danger, experts said, is that some experimental vaccines, paradoxically, cause “immune enhancement,” meaning they make it more likely, not less, that recipients will get a disease. That would be a disaster.
One candidate coronavirus vaccine Dr. Hotez invented 10 years ago in the wake of SARS, he said, had to be abandoned when it appeared to make mice more likely to die from pneumonia when they were experimentally infected with the virus.
In theory, the testing process could be sped up with “challenge trials,” in which healthy volunteers get the vaccine and then are deliberately infected. But that is ethically fraught when there is no cure for Covid-19. Even some healthy young people have died from this virus.
Reach out to other nations
Wealthy nations need to remember that, as much as they are struggling with the virus, poorer countries will have a far harder time and need help.
Also, the Asian nations that have contained the virus could offer expertise — and desperately needed equipment. Jack Ma, the billionaire founder of Alibaba, recently offered large shipments of masks and testing kits to the United States.
Wealthy nations ignored the daily warnings from Tedros Adhanom Ghebreyesus, the W.H.O.’s director general, that far more aggressive efforts at isolation and contact tracing were urgently needed to stop the virus.
“Middle income and poorer nations are following the advice of international organizations while the most advanced nations find it so hard to implement it,” Dr. Nabarro said. “That must change.”
In declaring the coronavirus a pandemic, Dr. Tedros called for countries to learn from one another’s successes, act with unity and help protect one another against a threat to people of every nationality.
“Let’s all look out for each other,” he said.
Investment visionary Kiril Sokoloff, chairman and founder of 13D Global Strategy & Research, draws on his deep knowledge of history and on the interplay between different market forces in order to forecast what’s ahead — and to suggest how savvy investors ought to position themselves today. In this deep-diving conversation with Real Vision co-founder Raoul Pal, Sokoloff helps answer the most pressing questions around markets and the economy. He also provides a read on how other significant minds are making sense of the increasingly powerful forces that are shaking our financial world. Filmed on July 10, 2019 in upstate New York. To learn more about 13D Publications, visit www.13D.com/trial Note: When this interview was filmed, gold was trading at about $1,400 per troy ounce.
There is a trust and debt problem.
Why is it that equity returns are at record-highs – and yet beating the market is harder than ever? Josh Wolfe, co-founder and managing partner at Lux Capital, sits down with Mike Green, chief strategist and portfolio manager at Logica Capital Advisers, to explore this question. After Wolfe discusses a few of his recent successful venture exits, the pair discusses how excessive liquidity is making it harder to deploy capital, a process Green calls “alpha-degradation.” Other topics include Tesla, Bloomberg, and the “first-mover disadvantage.” Filmed on January 23, 2020, in New York.
Transcript00:01MIKE GREEN: Well, you can tell by the smile on my face, I’m happy to be here.00:04I’m sitting down with one of my best friends, Josh Wolfe, so excited to be back here in00:08New York and chatting with you.00:09Welcome back to Real Vision.00:10JOSH WOLFE: Symmetrical happiness.00:12Always thrilled to be with you.00:13MIKE GREEN: Every time you come on the show, we get to talk about a new success.00:18Last time, we talked about the magic.00:19You were so excited about CTRL-labs, and pushed you on the idea that maybe you were falling00:23in love with something and where’s my sales commission?00:26JOSH WOLFE: Man, we got to do these interviews more often.00:29It’s been a streak of good luck.00:31MIKE GREEN: With CTRL-labs, now, you sold it to Facebook.00:34Remind people what CTRL-labs is, remind me why you’re begrudging in the sale.00:40What do you think Facebook wants to do with something like this?00:42JOSH WOLFE: The thesis behind CTRL-labs which led to three nights of sleepless nights in00:47pursuit of this entrepreneur, Thomas Reardon and Patrick Kaifosh, his co-founder, was premised00:53with this intercepting phenomenon that I call these two arrows, one of inevitability, and00:59one of the perception of the impossibility.01:01Inevitability is this directional arrow of progress where it doesn’t necessarily tell01:04you who the entrepreneur is or what the company is but there’s this inevitable high probability01:09that this is the way that technology is trending.01:12The impossibility is when everybody else in the field, peer VCs, just don’t see it.01:16They think, oh, that’ll never work.01:18It’s impossible.01:19Impossibility ends up dictating low prices or less competition and inevitability raises01:23our confidence and conviction.01:25In this case, the arrow of progress, the inevitable, was the idea that something we call the half-life01:31of technology intimacy.01:33This buzzword that we coined but basically 50 years ago, you had a giant ENIAC computer,01:37you physically went up and pulled some plugs and buttons.01:39First half-life, 25 years ago, you have a personal computer and you’re tickling the01:43keys, you’re touching the monitor, you’re flipping the power switch on the back.01:4612 and a quarter years ago, the next half-life, you have a laptop, physically touching your01:51thighs, becoming a little bit more intimate with you, you trade the mouse for a trackpad.01:54Six and a quarter years ago, now you’ve got your phone cradled in your hand.01:57First thing you touch in the morning, last thing you touch tonight, separated from your02:00body only by a thin film of fabric.02:01Three and a half years ago, your iWatch.02:0324 hours a day on your hand or 18 hours a day.02:06A year and a half ago, AirPods with a computer inside for voice recognition.02:09That directional arrow of progress, the inevitability was computability was becoming more and more02:14intimate and close to you.02:15We shared that thesis with a lot of people and then we ended up meeting this researcher02:18at one of our other companies, Charles Zucker, who’s a PhD neuroscientist.02:21He said you got to meet this guy, Reardon.02:23Reardon was the inventor of this technology that we use called Internet Explorer when02:27he was at Microsoft as a young guy.02:30He was one of 17 kids, 10 biological, seven adopted.02:34Just insane family situation.02:35Bill Gates taps him, he goes and works at Microsoft for a decade from ’90 to 2000.02:40He’s also Bill’s right hand guy during the monopoly DOJ trial.02:43Then after making a lot of money and being technologically renowned and reasonably wealthy,02:49he does what anybody would do in his shoes, he starts another company, Openwave, which02:52ends up creating a mobile browser that we all use and then goes back to college and02:57gets a degree in Classics in Latin.02:58Then spends the next near decade getting a PhD in Neuroscience, where the thesis he was03:03working on is this myoelectric response.03:05The idea that you could detect from the surface of your skin, the roughly 15,000 neurons,03:12that innervate roughly 14 muscles in your hand, which is important because if I’m typing,03:16my brain is telling my fingers to do something.03:18If I am turning a knob or switch or a lever or doing anything, my brain is subconsciously03:24telling my hand to move.03:25He figured out how you could take that signal, detect it and map it to the technological03:30devices we use.03:32Instead of having to type on a keyboard, instead of having to type a switch, instead of having03:35to turn a thermostat, I could effectively either do that motion in free space, or, and03:40this was the crazy part, think about making that motion and I can control the devices.03:44MIKE GREEN: We talked about this last time.03:46You highlighted that even if we go back and look at the Tom Cruise film, Minority Report,03:51where he has this dynamic and he’s moving this, he’s wearing gloves, he’s making the03:55gestures, et cetera, what Thomas Reardon figured out was that that subconscious thought was04:00actually sending a signal that they are then restricting and so the process of learning04:04how to type on Mavis Beacon is actually just your brain sending those signals to your fingers,04:09your fingers then figuring out how to do it, and you’re training that interface back and04:12forth.04:13CTRL-labs basically shortcuts that process.04:15JOSH WOLFE: In fact, they had a maddening demo, which we may have talked about, where04:19you try to hit the button before the device knows that you intend to hit the button and04:25you can’t do it.04:26MIKE GREEN: That’s amazing.04:27JOSH WOLFE: It can detect your intention to fire your muscle and move it before you actually04:31move it, which makes that, because if you have 1000 neurons that are activating a single04:35muscle, if there’s 100 of them, and if you were to do this now and you think about just04:38moving a finger, you get the sensation, this feeling of that finger, and it can detect04:43that.04:44I became obsessed with the entrepreneur, I lost sleep in pursuit of the deal for three04:48nights.04:49My wife, when she finally met Reardon was like you, you’re responsible for this household04:53duress.04:55It was an amazing experience, but it was too short.04:57It was too short.04:58It was about a year and a half, almost two years and Facebook made an entry on the company,05:01which we rejected.05:02Zuckerberg came back and made a more persuasive entry.05:05These founders, some of whom, unlike Reardon, had never made money before.05:09It was very compelling, the amount of capital that Facebook was going to invest into the05:14company on an ongoing basis, as well as the liquidity that people were going to get now.05:19I wish we would have held it longer.05:20I truly think this would have been a $10 billion business instead of something a little under05:22a billion dollars, but it was a great outcome for our investors and a thrill to be part05:26of what I think is going to be a historic technology that we will all be using.05:29MIKE GREEN: Now, I want to come back to this but this also brings up another topic that05:33you and I’ve discussed before, which is basically the concentration of capability inside companies.05:38What we have very clearly seen are companies like Google and Facebook, Apple, Microsoft,05:44have become very acquisitive.05:45They have an extraordinarily low cost of capital and have been able to buy these.05:50Do you think for Thomas Reardon as he thinks about going inside Facebook, that that creates05:56a limitation or that that changes the trajectory of the technology versus its original vision?06:00JOSH WOLFE: I’ll give you two answers because I tried the no answer.06:04I tried the moral suasion.06:06I tried– and this was at a time when Zuck was in front of Congress being lambasted as06:11a poster child of technological excess and election meddling.06:14I’m trying to make the case, my God, you are going to take a technology that can capture06:17your neural intention and give it to Facebook?06:20You’re going to spend the next two years in front of Congressional committees yourself.06:23I tried emotional suasion with my kids, saying don’t sell, sending videos to the board.06:28We don’t trust Facebook.06:29I tried financial suasion to do a secondary in capitalized business.06:33In the end, I think Reardon actually had a very rational view of this.06:36Again, he worked for Bill Gates at Microsoft when Microsoft was arguably the evil empire.06:42His view was back then, Bill Gates was a lot more powerful, and Microsoft was a lot more06:45powerful than Facebook is today.06:48Bill today is considered a president of the world in many ways.06:51He’s curing malaria, he’s taking on poverty, he’s doing big global things in a way that06:55many of our other elected leaders are not and there’s no reason that you couldn’t imagine06:59a decade hence, as hard as it is, that XOC because of Chan Zuckerberg Initiative might07:04find a cure to Alzheimer’s or something and suddenly be in that same position.07:08I think the idea that there’s going to be the monopolistic power concentrated, he felt07:13was overblown.07:14The thing that I think was really appealing to him, when you get bit by the bug of taking07:19Internet Explorer from one person to a billion users, the idea that you could take this technology07:26and its ability to let humans express themselves and control the world around them, from one07:31person or in our case, a few dozen people to 8 billion people, which is his goal, you07:37want a platform like a Facebook.07:41I think that the world will be better off with this scaling and I think it will unleash07:46many technologies in almost this moral imperative case to invent so that genius can get unleashed07:51and unlocked, that a lot of genius will get unlocked as people start to use this and discover07:56what they can create with it.07:57Again, I just wish it was still in my hands for a few more years at a much higher multiple.08:02MIKE GREEN: I wish it was to actually, but you didn’t try the physical violence approach,08:06which might have been my return.08:10Last time we got together, we had a similar discussion.08:12This time, it was John– that time, it was Johnson and Johnson acquiring the robotic08:17surgical company– JOSH WOLFE: Auris for just under 6 billion.08:22MIKE GREEN: Yes.08:23Exactly.08:24I haven’t had a robot operate on me yet.08:27Do you keep tabs on how that progress is developing, how that technology is developing and what08:32the next stages are when you exit these vehicles or just the bandwidth that that would consume?08:37JOSH WOLFE: No, we continue to track that because again, the thesis is sound and the08:40idea that the skill of a human in the operating room is the rate limiting factor to be able08:46to scale surgeries, particularly if you are a highly skilled surgeon.08:49The ones that make the most money, they’re the most sought after for the most sophisticated08:53procedures.08:54I think that that’s going to start to go away and the sophistication of the surgeon will08:57be embedded in the machine.08:59We see that across the history of technology where somebody that has manual dexterity,09:04that has precision replicability, rather than that being the implicit knowledge of the surgeon09:10through many experiences, why should they not be able to effectively download that into09:15a machine so that that can scale and reach many?09:17MIKE GREEN: It’s interesting.09:19Every time you and I talk, occasionally I get shivers down my back.09:21I’m reminded of a paper by Mark Koyama describing the innovations that actually led to the creation09:27of the Industrial Revolution.09:29One of those innovations was actually the transition from needlepoint in designs and09:34fabric to printed fabric can go.09:37What they did was they introduced variety into the consumption basket of young women09:41being courted by young men and that the young men had to enter into the labor force to obtain09:45dollars so that they could actually go buy stuff dramatically changed the work habits09:49of the world.09:51When you say something like that, and you highlight that type of technological development,09:55I can only see the number of opportunities that it expands in terms of the capability10:00to lower the costs, increase the ability of people to have the surgeries that they might10:04otherwise not have in the United States, the developing world, et cetera.10:09Really excited to see how that moves forward.10:12My next bet for the one though, that’s going to be acquired, is one you just started talking10:15about, which is the Variant Pharma.10:17JOSH WOLFE: Yeah, this is early.10:20It’s consistent with the theme which we follow, which is the decreasing gap between science10:23fiction and science fact.10:25In this case, the inspiration really came from X-Men and Professor X puts on this helmet10:31called Cerebro and is able, from a call crowd of mutants ridiculously, to spot the one in10:35a million person who can shoot lasers out of their eyes and conjure fire from their10:38fingers.10:39He got us thinking, okay, if there’s a one in a billion chance of some super rare phenotype,10:43a trait, which has [indiscernible], seven people walking around that have extreme high10:48oxygen saturation at high altitudes, they get into an accident, their bones don’t break,10:53they have extremely high metabolism, lots of interesting traits, and you just have to10:57go and find them.10:58Now, the other interesting thing, and here’s where there’s this arbitrage is the vast majority11:02of money and effort and research and talent has gone into sequencing, pale, male, stale11:07white Europeans, people like us.11:09Maybe not the stale part, but very few people have gone to the outer regions of the world11:15because those people don’t have money to find these outlier traits in these outlier regions.11:20I think that there is an absolute genetic goldmine of these people who are quite literally11:29mutants whose traits, and it’s really important because the team here, the fourth or fifth11:36person that they hired was a computational geneticist but the second and third was a11:39cultural anthropologist and an ethicist because they want to get benefit sharing and have11:44these people participate in both the economic profits but also the scientific progress that11:50comes from finding these unique individuals.11:52You will take a minority mutant population and end up helping find cures for the masses.11:58I think it’s an area of medicine in genetics that has never been explored.12:01We started the company, filled a team, they have now gone and it’s interesting we call12:05them at the moment Treks.12:07There’s a lot of thought– T-R-E-K, like a trek.12:13Which even they don’t really love that, they killed the idea of a mission, because that12:17has a connotation of expertise of your [indiscernible].12:20Lots of consideration about that even just like how do we approach these populations12:24who are rightly skeptical from having been exploited in the past by big companies or12:28explorers, or whatever.12:29We don’t call them explorations, we don’t call expedition.12:32There’s a lot of thought into the etymology of what we call these– MIKE GREEN: Extreme12:35wokeness.12:36JOSH WOLFE: Yeah.12:38They’ve done a handful of different partnerships, the ones that have been publicly announced,12:42I’ve been with them, our recent New Zealand who have really interesting metabolic traits.12:46Pakistan, which is a genetic island population and that Pakistan is not an island geographically,12:51but there’s a lot of interrelated marriages and cousins marrying cousins.12:55Because of that, you get interesting traits, which are likely or more likely to have a13:00monogenic condition, a similar gene that goes [indiscernible] and does something.13:04Then they just went to Nepal and were with the Sherpas and it was absolutely stunning.13:09They brought back some video.13:10They have a Nat Geo documentary person that’s going around with them filming their treks.13:15These Sherpas are going up with hundred pounds on their back and they’re completely not out13:20of breath and our team is dying and there is a genetic predisposition for that.13:25MIKE GREEN: You skipped one that actually caught my attention, was just the Samoan populations.13:30Very quickly, like from reading about the Varian Pharma website, resistance to diabetes13:36in the Samoan population run something like 30%.13:42As a result, the statistics was to replicate a Variant Pharma study that required only13:4810,000 people in Samoa, would require roughly 10 million, if I got those numbers correct,13:54in Europe?13:55JOSH WOLFE: Yes.13:56Because you already have the traits manifest in the people.13:57You’re not searching for all this needle in haystack, you have all the needles.14:01MIKE GREEN: It’s just absolutely incredible.14:03I don’t think people can fully appreciate the revolution that’s in front of us from14:08this standpoint.14:09I have a number of friends that are in the biotech space.14:12One who is going to join us tonight to drink after this event.14:17They are highlighting that there’s just this extraordinary advances coming in the biotech14:22space as people approach things from a standpoint of how do we change the way we study it, not14:27necessarily how do we change the tools?14:29The ’80s and the ’90s were largely about innovations in terms of what are the tools?14:35JOSH WOLFE: Sequencing.14:36MIKE GREEN: Right, exactly.14:37Now, you’re talking about the redesign of the actual process of how do you think about14:41the problem?14:42JOSH WOLFE: Exactly.14:43In fact, the way that we think about it is search is really, arguably the first competitive14:46advantage because you’re trying to find and identify these populations, some of which14:48they’re not publicly disclosing.14:49I’ll share one with you, not where it is but what the traits are.14:53Sequence, which is relatively as you point out, because the technological curves in this14:56are commodity, then you want to go and basically develop and you’re either going to partner15:01with Big Pharma, or in some cases, develop your own clinical trials, and that’s a lotmore money.It’s really the search of how do you partner and develop a competitive advantage.Arguably, the most important competitive advantage is trust, with the reputation that you have, how you’re contracting with local researchers, how you’re treating the local population,15:19how you’re prioritizing them, how you’re deprioritizing them, if that might be the case and what legacy15:24you leave.15:25One of the populations, South America, nine people were mean.15:29This is like a tiny group of people who have extremely high metabolic rate that spikes15:35at night.15:36Adaptation to the environment, temperature precipitously drops, they almost have like15:39a Heat Shock Protein that raises their body temperature.15:42Now, if you think about this, if that proved and I don’t know if it is, but if it proved15:45to be a monogenic condition, the gene makes the protein that raises the body temperature15:48at night and that was a targetable drug, you’re talking about a pill that you take a night–?15:53MIKE GREEN: Makes you skinny.15:54JOSH WOLFE: I don’t know if it makes you skinny, but you’re definitely burning fat while you’re15:56sleeping and with the obesity epidemic in the US, it would be pretty interesting.15:59MIKE GREEN: That really is just fascinating, fascinating.16:03It is my bet for the next one by the way.16:05I don’t know everything in your portfolio, but that is one that strikes me as just an16:08instantaneous.16:09JOSH WOLFE: Well, if we keep this pattern going, then the next time we sit down– MIKE16:12GREEN: I know, who wants to talk about the sale of Variant Pharma?16:14You have been begging them not to sell.16:16One of the other companies you talked about that got away from you, and I think you actually16:18became involved, Zoox.16:20This is in the self-driving space.16:22There was big announcement from General Motors or Drive more accurately in the past– JOSH16:26WOLFE: Cruise.16:27MIKE GREEN: Cruise, absolutely.16:28Correct.16:29Can you talk a little about what’s going on in that space?16:30JOSH WOLFE: Cruise was actually the one that got away from us.16:31We had offered Kyle $20 million at a 40 million pre-money so 60 million post and somebody16:40else did it, another great VC, at 80 million.16:43We thought that was double the price that we were in.16:45We were being priced disciplined on this.16:46Then we introduced Kyle to GM.16:49GM bought them nominally $4 billion, a little bit less.16:53Yeah, so that would have been 11x in nine months or something.16:58That was a big error of omission in hindsight, and that is an amazing team.17:03I think that they are serious.17:04I think that Aurora, which is another competitor, is serious.17:07I think that Zoox is the most serious, obviously biased, we’re invested but we only full stack17:13autonomous vehicle driving highway city in San Francisco, in Nevada, elsewhere, actually17:20doing robo taxi rides in Vegas.17:22Tesla, as you know, if you follow me on Twitter at all, that is mostly BS when it comes to17:28autopilot.17:29It’s actually dangerous that this is even on the road but the level of sophistication17:33that you have on everything from solid state LiDAR to the software simulation to being17:37able to navigate double parked cars, pedestrians, right hand turn, left hand turns, multi-coordination,17:43intersections, it’s really complex.17:45It’s still going to take a very long time for all of these things to see the light of17:48day, billions of dollars will be invested.17:50My hand to my heart, I actually think that the first real application of this, which17:54is another interesting phenomenon and trend that I think is going to play into cities17:58in a big way and it’s going to touch everything from Amazon to the smart home, I think you18:03will see self-driving cars first manifest in right hand turn lanes in certain city districts18:08where just like bike lanes, you are making multiple rights and doing a traveling salesman18:14problem trying to figure out how you navigate from neighborhood to neighborhood, 24 hours18:18a day delivering things, not people but things.18:21Even Zoox is focused on people and Cruise is focused on people.18:25There are some others that I think are thinking about commerce and goods.18:28Now, if you think about just the trend, again in a directional arrow progress, we are used18:32to our phone as a remote control where you press a button, you get your stuff.18:36Amazon Prime has primed us for one-hour delivery or two-hour delivery.18:40You press your button, something comes from a warehouse in New Jersey, using New York18:43as an example.18:44There is an autonomous vehicle that runs a route, gets to New York, has a human in there18:49to do the last mile delivery, which eventually might see robots that are people that are18:52trying to do that but I think it’s too many variables situations coming out of a vehicle18:56into apartment buildings and others that you’ll see that but human will come out like a FedEx19:00Delivery person.19:01Then the next thing that they will need in this value chain is access control.19:05I actually think that you’re going to see a whole suite of industrial blocks and cameras,19:09some of which you’re seeing early incarnations of, we have one called Latch Access, Amazon19:13bought a camera company called Ring.19:16There’s going to be many others in the space, but the ability to give trusted access tocomplete strangers to enter your home and treat your cupboard, your medicine cabinet,your fridge or closets in the same way you might give somebody trusted access to accessor deposit a file into a box or Dropbox or Google Drive.This idea of access control, I think it’s this next phase.19:38From pressing a button on your remote control for the thing you want, to an autonomous vehicle19:42delivering at 24 hours a day, to a human entering your home, because you’ve given the trusted19:46access.19:47Again, this is almost like if I would say 10 years ago, you’re going to get in cars19:51with strangers, you’d be like, no way.19:53Today, because you mostly trust the brand, and the accountability and the choke point19:57of an Uber or Lyft, you get into stranger’s cars.20:00I think you’re going to be letting strangers into your home to do this last quarter mileof cars.MIKE GREEN: I actually very much agree with that vision, that we are ultimately movingto an environment in which trust becomes the underlying dynamic.We’ve talked about this occasionally in the dynamic of crypto or various other thingsthat trust is becoming a feature that is embedded into the application layer.JOSH WOLFE: It’s actually the one feature that I’ve joked with Facebook Portal, is totallyabsent.I always said that.Facebook Portal just got this great design, but it’s missing the one feature which istrust.MIKE GREEN: Also my pushback on companies like Uber and Lyft actually has been the daysare going to suffer from a first mover disadvantage.They have had to address the issue of how do I transport people by “hiring” millionsof people?The process of shedding those employees is actually going to be far more difficult than20:49they think.20:50That actually sets up a dynamic in which a company like Zoox or and others who has built20:55themselves purposely, not to establish an app and get the app installed on the phone,20:59which is actually remarkably easy, although the trust layer becomes an important component21:02of it.21:04They’ve cut out the labor component that the separation there was going to create a bunch21:08of social anxiety and potentially lead to far more enforced regulations.21:12We’re already seeing this in California, where they’re being forced to treat them as employees21:16as compared to contractors.21:17JOSH WOLFE: They’re trying to say, look, we are just layered to match a driver and rider21:21and we don’t want to employ or be responsible, but you’re right.21:24The regulatory aspect of this is going to apply pressure to labor.21:26MIKE GREEN: Yeah, I think that’s ultimately right.21:28Now, you mentioned this idea that we’re going to take things, so I understand what you’re21:32saying.21:33I wonder if the challenge there is the person who has to be there to take the delivery.21:38JOSH WOLFE: I think that there will be a designated– and I’ve actually seen privately some of the21:45apps that some of these companies have, that are almost like an augmented reality thing21:49that when, let’s say a UPS delivery person, or if it was an Amazon Prime delivery person,21:54they look at their phone, they’re given a provision code to enter the apartment.21:59It takes a picture so it knows who’s there, knows what they’ve entered with.22:03They enter and they see this augmented reality thing of where they should– it might literally22:07be X marks the spot that they’re looking on the phone, put this here, or might be when22:12they go over the fridge, put this here.22:14They literally use that as a layer, which itself is another interesting thing I want22:18to talk about but the simulation layer to place things in certain places.22:22It may not be that you’re trusting them to come into your bedroom yet, for your bathroom22:25yet.22:26People will trust an Amazon Prime to come in and load their fridge and put away all22:30their groceries.22:31We get fresh, direct delivered on a weekly basis, and what do they do?22:34They come into our home, and they lay down all the bags.22:37Then my wife and I and the kids put everything away.22:40There’s no reason that I wouldn’t pay another $5 during that delivery fee to have them put22:44everything away for us in a consistent predictable way.22:46MIKE GREEN: Yeah, that consistent predictable way is actually a great distinction.22:50We have people who help maintain our home and when they unload the dishwasher, I’m constantly22:55saying, where the hell did they put this?22:58The ability to actually have that enforced in a consistent manner, I completely agree23:01with you, and I actually share your– JOSH WOLFE: We’ve read your head style, everything23:03in its right place.23:04MIKE GREEN: Everything in its right place, which sounds terrible in a lot of ways.23:08We all see those homes with the– I think the condo stuff is what it’s called, Marie23:13Kondo, where everything’s labeled and it’s got its own specific place.23:16I think you and I look at that, like, oh my God.23:18JOSH WOLFE: That stresses me out.23:19MIKE GREEN: That would drive me insane.23:21There is a component of predictability that you want to life hack, expend the minimal23:26amount of energy saying, hey, where’s the rolling pin today?23:29Where is the measuring cup?23:31When I think about that question that we started to address in terms of this self-driving capability23:38and you referred to the Tesla solution as being dangerous, which I share your concerns.23:46The challenge of self-driving, as I understand it, there’s certainly as it is presented is23:51this idea of miles on the ground.23:53How many miles do you have to travel to solve every possible permutation?23:59That seems like such a flawed model to me it, what’s your reaction to that?24:04JOSH WOLFE: I think it’s going to be a combination.24:05It’s going to be a combination of simulation where you’re trying to predict every scenario24:08from a human walking out, three humans walking out, old person, young person, ball coming24:12across, horse, dogs, different weather situations, potholes.24:16Why?24:17Because in any model, including what I would argue in human consciousness, you have this24:20prediction, memory prediction framework.24:22The computer basically has a memory based on either simulation or reality of what the24:26thing ought to be.24:28Then it experiences in real time what that reality is and maps it.24:31If it confirms to what the memory is, then the prediction, there’s no surprise.24:35This is the same thing I think that we experience in human consciousness.24:38I see you, I see if you see my funky shoes, you predict, hey, that’s Josh.24:43If you were looking at somebody else, and you saw this funky shoes and you– hey, that’s24:47Josh, but then it was Steve, you’d be like, oh, surprised.24:49Then you have this emotional salience that updates your prior, updates your model.24:53Computers are the same way.24:54These simulations in the self-driving cars and robots are the same way.24:57There’s a prior, whether that is through experience for programming, and the programming could25:02be from simulation.25:03Then there’s the actual experience.25:05Then when those map and conform, there’s no surprise, you don’t have to update the model.25:09If you think about all of the permutations that occur in reality, it’s infinitely complex.25:14You’re going to need a mix of models that are mapping onto the real world, and then25:18the ability to quickly discern.25:20In Zoox’s case, when you watch some of these videos online of the situations that they’re25:25able to navigate, in many of the cases, there’s no programming of those situations.25:29Having a double parked car, followed by a biker coming out of nowhere and a pedestrian,25:34every one of those things has to be almost consciously recognizing objects, and then25:38classifying those objects as humans, as bikes, as cars, as static objects.25:43Then intuiting what an intention might be and making a prediction about that.25:47It’s super complex, it’s going to be years of iteration.25:50I do think that these things are still very dangerous.25:53The idea of putting cars out on the road and calling them autopilot and giving people this25:57false sense of confidence is super dangerous.26:00It’s irresponsible.26:01It’s an accounting trick being used to book revenue and pull it forward, but this will26:09happen.26:10We will be in autonomous vehicles.26:11MIKE GREEN: It’s interesting, actually, because what you described as a very complex system26:18has features that I think are actually that overlay with some of the work that I’m doing26:22and I think you know this but I’m involved in some– my first machine learning projects26:25and there’s this issue of tractability, what can actually program.26:30Ironically, the transition to self-driving is the most difficult.26:35Because you have the unpredictability of human beings that may or may not conform to the26:39laws, that may or may not conform to these components.26:41Balls will always be there, children are always run out into the street.26:46The car driving itself, somebody double parking and behaving in a manner that’s not consistent,26:50having no mechanism to communicate that to you other than the very rudimentary signals26:54that come from brake lights, hazard signals, turn signals, et cetera, that’s ultimately26:59going to give way to a much more tractable problem as you have more and more machine-driven27:05vehicles on the road.27:06JOSH WOLFE: Well, especially as vehicle to vehicle protocols start to communicate the27:10intentions with each other.27:12Humans have this where if you and I are walking on the sidewalk in New York, and we come into27:15each other, you have that awkward Larry David like moment where you’re going left, I’m going27:19right then we make a mistake and the coordination problem.27:23Coordination is a function of both prediction and communication.27:25I do agree with you that you will have all kinds of layers of protocols where self-driving27:30cars and other robot systems, autonomous systems will have this coordination communication27:35protocol.27:36MIKE GREEN: Well, and we tend to take for granted the human’s capability to do that.27:42We all have the experience of making eye contact with a pedestrian crossing the crosswalk and–27:47JOSH WOLFE: You do a little dance and– MIKE GREEN: Well, even a car driver.27:50It’s just all it requires is that eye contact that allows people to be aware that you’ve27:53actually seen them then you can proceed under conditions.27:57It would be the rare assumption that you would make eye contact with the driver, enter the28:01crosswalk, and they would run you over.28:04We are very much programmed.28:06It’s built into our capabilities to understand when somebody has actually seen us.28:10That flash of recognition of this is a human being like it’s very much built in there.28:14We tend to take that for granted.28:16Machines don’t have that capability yet, or they’re developing it, as you’re highlighting28:20the Zoox, but once they have, then they’ll have their own native protocol as well that28:24makes this problem so much easier.28:26JOSH WOLFE: That, by the way, is one of the hallmarks just generally of human intelligence28:29and relevant entirely markets, which is I know that you know that I know.28:33Then it’s how many layers is that?28:36One of my kids I think, is very savvy.28:38She knows that I know that she knows that she’s like four layers whereas one of my other28:41kids is like, I know.28:43MIKE GREEN: Well, since we’re now crossing over to the virtual world, you introduce your28:46Twitter handle.28:48My character is the Vizzini from The Princess Bride.28:51I always focus on that– JOSH WOLFE: Inconceivable.28:54MIKE GREEN: Inconceivable, but the most important part for me of that character is actually28:57the iocane powder, where it’s a game being played but people are actually not aware with29:01it.29:02He believes he’s outsmarting somebody, but he doesn’t actually know the game that’s being29:05played involves poison in both cups.29:07It’s like immunity condition.29:09Which brings us to actually a discussion of a game that I’ve had with a number of people,29:12and one of our mutual friends, Mike Mobizen.29:16We’re going to transition into discussing public markets for a second here and Mike29:19has written several books and he’s talked often about the dynamic of skill development29:24in markets and how markets are becoming more challenging.29:27The alpha degradation that we’re seeing in public markets he attributes to an increase29:32in skill that is being accumulated in the market.29:35I think Michael actually misunderstands the game that’s being played.29:39He uses the poker analogy.29:41He says, we saw this online, there was a game of poker.29:45As poker moved online, there’s an explosion of players.29:48Initially, they were a bunch of Patsy’s that decided that they had been good at their local29:52games, got online and the pros were able to basically fleece these players and take their29:56money away.29:57Eventually, you’re left to the game in which only pros are playing pros.30:00JOSH WOLFE: Skill level has leveled up and a lot of the variance is more attributed to30:06luck.30:07MIKE GREEN: Correct.30:08The stock market is the extension of that analogy for him.30:12I think it’s a flawed analogy, and I wanted to get your reaction to that.30:16The way I look at it is poker is a fixed game.30:20It’s ergodic in nature.30:21We know at every point that the number of cards is going to be unchanged, there’s the30:24probability of a hand is going to be unchanged.30:26The configuration of the river or what you have in your hand can influence your perception30:30of those probabilities, but the odds really don’t change.30:34Stock markets or any form of market for that matter, is nonergodic.30:40We have no knowledge about what the distribution of the possible configurations are in the30:43future.30:45I actually think that he’s improperly framing the question, I think he’s using an ergodic30:49game to make an analogy to a non-ergodic game, in which the idea of skill development really30:55can’t exist.30:56JOSH WOLFE: I think Michael would agree that markets are complex adaptive systems.31:01There’s punctuated periods where there is a game, there’s a recognition of how that31:05game is played, then people level up to that game.31:08Then at some point, they may not be aware that the game is changing, but I think during31:11the period where people understand what the game is, the skill level is rising and so31:17the variation between investors is increasingly attributed to luck, but then, like you say,31:22the undulating landscape changes and suddenly the game that you thought you were playing,31:26you’re no longer playing.31:27You see this all the time.31:29Hedge fund guys before ’07 didn’t care about macro at all.31:33They were just bottoms up stock pickers, long short equity, short always overvalued, be31:38long, it was undervalued.31:39All of a sudden, everybody came, all the quarter letters, while the top value guys were suddenly31:44talking about macro.31:45They were pledging, oh, well, we didn’t because the game changed, macro mattered.31:50I think that at any given point in time, now you could argue it’s people that are getting31:53smart to the structure of the market as you are about passive indexation and inflows and31:58incremental flows and how that is changing the game.32:03I think Michael’s point is markets are complex adaptive systems, people can get wise to what32:09the game is.32:11They may not realize that the game has changed, but as long as there’s a general agreement32:14about the game, skill level rises and variance is more attributed to luck.32:17MIKE GREEN: That’s fascinating insight in terms of the way I’ve been thinking about32:21it, because it resonates with me, a discussion I had recently with a legendary investor from32:25the 2000s who I’m not going to name, said to me, Mike, I was meant to invest in the32:302000s.32:31The game that is being played today, I don’t understand.32:35I’m at this point too old and too rich to try to figure it out entirely.32:39It’s really interesting to think about it in that context.32:42Because it becomes a question of are those who have been so successful and accumulated32:46the– JOSH WOLFE: Half listening and half thinking about who I think it is, and I think32:48I know who I think it is.32:50MIKE GREEN: Do you think you know what I think I know?32:53JOSH WOLFE: Inconceivable.32:55MIKE GREEN: Exactly.32:56That actually becomes a really interesting question, though, because it then raises the33:01issue of have we allowed that concentration of wealth, have we allowed that to blind ourselves33:05to the potential that the game has completely changed, which certainly what my research33:08would lead, that the market is no longer the market as people think about it?33:12There are exploitable phenomenon, but it requires a complete rethinking of how you approach33:16the problems.33:18As phrased in those terms, I completely agree.33:21I think that will still lead me to say that it’s actually not skill development.33:25That would be a cyclical phenomenon that would show up slightly differently, the tools that33:30were developed for how we manage markets, how we think about them were largely created33:34in that time period.33:36The assumptions that we make in the use of those tools, things like alpha, beta, Sharpe,33:41et cetera, I think are actually improperly suited for the current environment but that33:45brings us then into the general discussion of public markets, which is, let’s talk about33:49how you see the world of public market’s valuations, and how you think about how that is either33:54influencing or being influenced by the private markets as you primarily participate in.33:58JOSH WOLFE: I just had a dinner with also a very prominent and maybe the most prominent34:02CIO in the endowment world.34:04I asked him, do you see risks about liquidity and illiquidity in both public markets and34:11private markets?34:12In the public markets, is it a function of passive indexation and inflows and whether34:17it’s Fed, algos, momentum, whatever it is, dollar and by everything rising, what happens34:22if there are withdrawals and everything comes down?34:25His view on that was with passive roughly 20% of market structure today?34:31MIKE GREEN: It’s about 35%.34:32JOSH WOLFE: Okay with but I think you’ve made the point that something like 80% or 90% of34:36the incremental dollars are going into passive?34:37MIKE GREEN: Far more than 100%.34:39JOSH WOLFE: Okay.34:40His view was when it got to like 90%, he would be worried and I recalled and actually raised34:45you as an example, I said, I have a smart friend who mathematically has shown actually34:48when it gets around where we are now, 35%, I thought it was for, that’s when you get34:52the structural runaway risk on liquidity side of passive indexation.34:57That was on the public side.34:58On the private side, he has done something interesting, which was, he never wants his35:04illiquid portfolio to be more than 50% of the endowment.35:06What he’s done because of who he is, has gone to the underlying GPs and said, give me your35:10hand to the heart mark of what you think this is worth, not the fast 157 mark based on accounting35:17basis.35:18Historically, when he did this, in 2000 and in 2007, or ’08, both saving them from substantial35:25drawdowns during the crisis.35:27It was somewhere between 25% and 30% discount to what any given company that ended up exiting35:32in that year, proved to exit at.35:35There was a level of conservatism that the managers expressed because they valued the35:39relationship with this particular CIO.35:41They said they were going to be super honest and ethical about what their hand to the heart35:44was because they wanted to continue to be hired as a manager.35:48Today, he says it’s between zero and 10%, so elevated valuations on the private equity35:54side.35:55If you look at the total amount of PE money today– MIKE GREEN: Well, just to be clear35:57what you’re saying.35:58What they are saying is they see no discount to where they’ve marked it in the event that36:02they would have to sell under distress type conditions?36:04JOSH WOLFE: Correct.36:05MIKE GREEN: That’s astonishing.36:06JOSH WOLFE: $1.5 trillion of PE assets are sitting on the sidelines right now, so there’s36:10an enormous amount of dry powder.36:12Now if you’re a public market investor, maybe that’s a positive thing.36:14MIKE GREEN: Well, wait a second.36:15Again, I want to be clear, when you say PE assets are sitting on the sideline, this is36:19the cash that has been raised but not yet deployed?36:22JOSH WOLFE: Correct, by buyout funds and venture funds.36:24Venture is a mouse to the elephant here, but 1.5 trillion globally, 800 billion of that36:30is North America.36:31That’s about two times the level of what it was 10, 11 years ago going into even then36:36a PE crisis 2007, ’08, ’09.36:38VC itself has raised about 50 billion across 250 funds in each of the last two years, which36:44is four times what it was 10 years ago.36:46Again, we’ve talked about this in the past, but the number one thing that is predictive36:49of returns is not the BCG McKinsey, whatever.36:53It’s the amount of capital that’s flooding in.36:54The amount of capital that’s flooding in is undeniably high.36:57You look at some of the surveys for LPs, they will say 80% of them feel unequipped in a37:02downturn that they’re well-positioned, yet two thirds of them are continuing to increase37:06their allocation to PE notwithstanding the numbers that I just gave you.37:11When there was a downturn, and you had this denominator effect, again, 10 years ago, two37:16thirds of those LPs were not making any new commitments to new funds on a private equity37:22side.37:23They anticipate that they’re not quite there, but they can’t help but continue to allocate37:26and I think that’s setting up a problem.37:28You had public markets to your point up 32%, 33%?37:31MIKE GREEN: 31% last year.37:33JOSH WOLFE: Denominator effect.37:35If that were to continue, great, everybody’s portfolio looks good.37:37You got high marks on these private equity for the other people that are not doing this37:40more conservatively.37:41If the public markets were to decline, you have a denominator effect, what are people37:45going to do with this PE portfolio?37:48There’s going to be a race for secondaries and liquidity.37:50I think the secondary guys in the next few years are going to be really well-poised,37:53they might be sitting on cash for longer than people expect.37:57On the public market side, there’s really interesting thing that Jim Grant had recently38:04shown, PE on the S&P; is 21, 22.38:07The PE is of course market cap weighted on the S&P; 500, but if you market cap weight38:14the E part, instead of just aggregating and averaging as it is, you actually have a 3238:18times multiple.38:20MIKE GREEN: Is the difference– the way it’s calculated on the public indices is what’s38:23called the harmonic median.38:24Effectively, you are going through and it’s almost like ignoring the outliers.38:29JOSH WOLFE: Because each of the cases aren’t you’re taking a multiple where you’re taking38:33the PE of Apple times the weighting of Apple and the PE of GE and the weighting of GE and38:37just basically aggregating that.38:39MIKE GREEN: Not quite.38:40The details, we can walk through another point, so it’s the calculation is actually what’s38:46called the harmonic median.38:47If actually, you’re going through the 50th percentile type dynamic.38:50You’re 100% right.38:53The other point that I would raise is that we’ve never seen a larger gap between GAAP,38:58G-A-A-P, and the “operating earnings” that make up that 21, 22 PE that you’re referring39:03to.39:04JOSH WOLFE: Well, and on top of this, you have something like 95% of companies that39:05are now reporting non-GAAP earnings.They’re making up funny metrics.39:10Now, we saw this in WeWork on the private side, when you had community adjusted EBITDA.39:14Tesla is like ground zero of like ridiculous terms like, what are delivery sales?39:19What does that actually mean?39:21There’s a lot of companies that are just using funny language because in a bull market, people39:23are less scrutinizing.39:25I think that that’s really a ripe situation where you have lots of non-GAAP accountingterms that are signifiers of risk.You have S&P; growing revenue 3%, 4%, 2%, 3%, 4%?MIKE GREEN: Somewhere in that range, yeah.39:36On per share basis, slightly higher, but yeah.39:40JOSH WOLFE: Most of the 31%, 32% return over the past year was mostly for multiple expansion39:44because I’ve had– MIKE GREEN: More than 100% actually flat to slightly negative earnings.39:47JOSH WOLFE: For the past four quarters.39:49People are paying higher multiples for lower or negative growth.39:52One interesting thing and this is a forming hypothesis that is a little bit more wishful39:56thinking from the venture side.39:59If we are at peak earnings, and people have been talking about peak earnings forever,40:02but if we’re at peak earnings, and corporates are looking and saying, okay, how do I actually40:06maintain margins at a time where 60% of COGS is labor, I think that there will be an increasing40:12turn to technology.40:14Now, I don’t know the timeframe.40:15That’s not going to be like, okay, let’s quickly implement the system and lay off a bunch of40:18people and maintain our margins again.40:20I do think that some of the things that we’re investing in, whether it’s metal 3D printing40:23or certain technological systems for efficiency, you have the opportunity for at least margin40:30stability against a situation where revenues are declining, prices are coming down.40:36There’s another question about what happens to input costs?40:39Well, a lot of smart people are– and I don’t know if you agree with this or not, but weak40:44dollar, long commodities, long gold, higher input prices, smaller margins.40:49MIKE GREEN: Not on that account.40:50JOSH WOLFE: You’re in the higher dollar camp?40:52MIKE GREEN: I tend to think that we’re going to have a higher dollar simply because the40:56global system is ultimately set up on a collateral basis and everything we’re describing in terms41:02of high valuations and increasing risk is actually touching that collateral dynamic.41:07We’re concerned about the risks that the collateral contracts.41:10If the collateral contracts and the debt actually becomes increasingly due, which means the41:13dollar is under demand.41:16I fall into the higher dollar camp, but– JOSH WOLFE: Do you have a view on margin pressure?41:21MIKE GREEN: I think the margin pressure is likely to come actually from a couple of different41:25areas.41:26We’ve seen unequivocally the margin pressure.41:29We’re allowing the system to increasingly run with tight labor, whether that shows up41:35in wages or not is heavily influenced by the composition.41:40When you have lots of old people, wages don’t go up all that much because they tend not41:45to ask for raises and that tends to conceal the relatively rapid wage gains that we’re41:50seeing in the younger generation.41:51There’s a couple of good reports that I could send you on that stuff.41:54JOSH WOLFE: I do wonder if the wage gains are happening taking into account the amount41:58of new company formation.42:00When you have a flood of capital into any sector, if there’s a lot of company formation,42:04those companies are competing with each other for talent and so wages are rising.42:08I do wonder if some of that capital inflow starts to abate, that you would actually see42:13more people consolidating, more supply of talent going into fewer companies, and wage42:17suppression.42:18MIKE GREEN: What we’re seeing is actually more on the opposite side.42:20The rates cut– while you’re very active in the process of business formation, I actually42:24would suggest that many of the statistics that we receive from the Bureau of Labor Statistics,42:28the BLS, are inflated by the assumptions around business formation.42:33Actually, the data suggests that business formation has fallen dramatically, not your42:37type of business– JOSH WOLFE: The mom and pop shops and independent contractors.42:42MIKE GREEN: That type of business formation has taken an extraordinary hit.42:46That, in turn, actually weirdly increases the potential for this to behave in a convex42:54fashion because what you’re beginning to see, and you’re seeing this very clearly in the42:58data is as the economy has slowed in this last cycle, we have seen overtime hours decline,43:03we have seen weekly hours decline, which has pressured some of the headline numbers in43:07terms of the average weekly compensation that people are receiving, you’re beginning to43:10see this show up and stress in terms of credit cards, et cetera.43:13The early signs of some weakness are there.43:16The primary dynamic that we’re actually seeing is this issue of hoarding of labor.43:22Companies are seeing decreased utilization of their labor but because of the headline,43:27finding new employees is so hard, they’re resisting with every fiber of their being43:32letting go employees that they currently have.43:34We haven’t yet seen that turn and we may not.43:37It’s very hard to know how that plays, but the data actually suggested it’s heading in43:41the opposite direction of the way that your hypothesis– JOSH WOLFE: That wages will continue43:44to rise.43:45MIKE GREEN: We are at an inflection point in which that could continue to tighten.43:48That’s one of the risks that the Federal Reserve may have created with reinforcing the cycle43:53with the interest rate cuts.43:55Only the future can actually tell us what actually ends up happening.43:58JOSH WOLFE: Demographics.44:00Let me ask you, because I always love your views.44:01MIKE GREEN: I’m interviewing you.44:02JOSH WOLFE: But your answers inform me.44:05MIKE GREEN: I understand that.44:07Nobody is interested in what I have to say on this topic.44:09We’ll talk offline on the demographics.44:11I want to touch though on a topic that demographics does influence that you and I both care fairly44:15passionately about, which is politics, the election that’s approaching.44:19You and I have publicly sparred, you have supported Bloomberg as a candidate, he wouldn’t44:25be among my last choices.44:28I’m interested to hear how you’re thinking about it.44:30I’m sure– JOSH WOLFE: Mine is very simple.44:32These are debates that I used to get into with Lauren, my wife, that I never really44:38thought the president matter.44:39I thought that all you needed was a good figurehead, who mostly was the better looking person that44:44conveyed all the evolutionary psychology appeals of symmetry and dominance and that stuff.44:50I think, in this case, I want the candidate and this is something that Bill Gates who44:56I serve on a board with said to my friend, Andrew Sorkin at the [indiscernible] conference45:00earlier this year, I just want the most professional person that really resonated with me, I just45:05want the most professional person.45:09The rancor that I see, the debasement of the office that I see with the current individual,45:16maybe I have this false nostalgia of pining for somebody that can set a level of behavior45:22and that is presidential, one that I want my kids to look up to and say like that is45:27the way to behave.45:28That is the way to make decisions.45:29That’s the way under pressure or criticism to react.45:33My preference for Bloomberg is really in actually thinking that unlike Trump, he’s actuallya billionaire and he can’t be bought and that the appeal that he has is more about legacythan short term gratification.45:45I find him to be the most professional and the most rational, but tell me your counter45:53thesis.45:54MIKE GREEN: My counter thesis would be almost saying exactly what you’re saying, which ishe perceives himself as the most professional but doesn’t perceive himself as a statesman.Someone who’s meant to represent.You can actually see it in what he is describing is his approach to the central office.He’s going to open it up, turn it into a bullpen, he’s going to manage it.He’s going to manage the US economy like he’s managed Bloomberg.That, unfortunately, is not the job of the president.My fear is, is that he very clearly doesn’t know that.46:23JOSH WOLFE: Do you think with the management of New York, which is a vibrant, complex,46:28diverse economy, that he did a bad job?46:31MIKE GREEN: I don’t I think that he did a bad job, but I think that he was handed a46:34gift.46:36The inflation that we saw through the 1990s created a revenue stream.46:39We, unfortunately, are going to run out of time here.46:42We didn’t get to talk about China, which you’ve also become very vocal on.46:46You and I are both involved there.46:47Let’s treat that for another time.46:49JOSH WOLFE: I will say, to your credit, this was something I was hyper bullish on in the46:53idea that there were two Chinas, an old China and a new China.46:56You would say, Josh, you’re wrong, you’re missing this.46:59I got to tell you, you changed my mind because I’ve come to see the evils and the skepticism47:04and there’s an idealistic view about what China could be and there’s a realist view47:09of what it is today, and I become much more in your camp.47:12It’s a great example of something I’ve changed my mind on because of you.47:14MIKE GREEN: To your credit, you absolutely have done that.47:17I’m very excited to see that.47:19My guess is we’ll get the same way with Bloomberg.47:20Hope we don’t actually see the need for that to happen once he’s in office.47:24Josh, as always, such an amazing time spending with you.47:27The time flies by and we’ve run out of it now.47:29Look forward to seeing you again.47:32Hopefully within a year.47:33JOSH WOLFE: Thank you, Mike.47:34Always good.47:35MIKE GREEN: Take care, Josh.