Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, John Arnold
[00:00:00] S0: What about education as something upstream of crime? Have you observed or discovered in your work a useful or interesting relationship between those two things? And how do you think about the system of education as well? [00:00:00] S1: The first issue we got involved in was K-12 Ed, because the outcomes there are associated with almost any outcome you could think about that matters, whether it's drug dependency, or economic outcomes, or criminal outcomes. [00:00:00] S0: So the relationship is strong. Better K-12 equals better outcomes. [00:00:00] S1: Yes, there's strong correlation. Then you try to like, okay, is there causation here? If I can improve the educational outcomes, does that change? I think the answer is generally yes. I think the hard part is, how do we improve educational outcomes? That's a question the United States has been struggling with for decades. We've been able to do it a little bit as a society, but we haven't cracked that nut. What's maybe surprising is this is true globally as well. We've worked with a number of charter schools, worked with Teach for America over the years. Almost every country around the world that has a significant K-12 system has come to America to try to figure out what we're doing because they're facing the same challenges on education that we are.
· John Arnold, Patrick O'Shaughnessy
[00:00:00] S1: Yes, there's strong correlation. Then you try to like, okay, is there causation here? If I can improve the educational outcomes, does that change? I think the answer is generally yes. I think the hard part is, how do we improve educational outcomes? That's a question the United States has been struggling with for decades. We've been able to do it a little bit as a society, but we haven't cracked that nut. What's maybe surprising is this is true globally as well. We've worked with a number of charter schools, worked with Teach for America over the years. Almost every country around the world that has a significant K-12 system has come to America to try to figure out what we're doing because they're facing the same challenges on education that we are. [00:00:00] S0: What makes you most hopeful in that area? I had Joe Liemandt on the show talking about Alpha School last year. That seems young, but extremely promising in some of the early results. I always try to catch myself to not be too overly optimistic about technology solving all of our problems, but it sure does seem like AI could solve a lot of the problems in education, maybe. I'm curious what you think.
· Patrick O'Shaughnessy, John Arnold
[00:00:00] S0: What makes you most hopeful in that area? I had Joe Liemandt on the show talking about Alpha School last year. That seems young, but extremely promising in some of the early results. I always try to catch myself to not be too overly optimistic about technology solving all of our problems, but it sure does seem like AI could solve a lot of the problems in education, maybe. I'm curious what you think. [00:00:00] S1: I think there's a lot of promise. I think there's promise in Alpha School. What my hesitancy to get too excited about is, we've been hearing this promise from the EdTech industry for 20 years now. We've adopted more and more technology in the classroom over that 20 years, and outcomes have gone down. You talk to any of these providers of an EdTech platform, and they have all this data they're going to show you the remarkable results that they get from their students. Then you step back and you just never see it in the actual data applied in the real world. [00:00:00] S0: Is that like the solar thing, where the AI system is the equivalent of the solar panel? It's getting better and better and cheaper and cheaper, but that's not actually the thing that matters. It's more the rest of the stuff in the system.
· Patrick O'Shaughnessy, John Arnold
[00:00:00] S0: Is that like the solar thing, where the AI system is the equivalent of the solar panel? It's getting better and better and cheaper and cheaper, but that's not actually the thing that matters. It's more the rest of the stuff in the system. [00:00:00] S1: I think there's a question of how do you engage with kids? Oftentimes, kids have short attention spans. It's probably more true today than it's ever been. We can all probably think back about some remarkable teacher that we had that just captivated us and kept our attention for the full 60 minutes of a class. We can also think about teachers that were just terrible and you wouldn't pay attention at all. And I think part of the challenge has been that sitting there, staring at a screen, oftentimes just has not been an engaging format for people. The question is, can some combination of AI, plus AR or VR, try to create some type of more engaging – both content as well as the delivery of the content, that we haven't seen before? I think there's promise there. I want to be optimistic, but again, I'm so frustrated with the lack of results that we've seen from this field for decades, with a lot of promise being there for a long time and just seeing nothing.
· Patrick O'Shaughnessy
[00:00:00] S0: I feel greedy asking you about all these different systems, but there are two more that I really want to hear about. Those being healthcare and journalism, which is one that I'm personally interested in, of course. Maybe starting with healthcare. Everyone knows the headline stats, the percent of GDP that healthcare represents has ticked up steadily over time. Outcomes, in many cases, haven't gotten better. There are some countervailing things like GLP-1s that seem to be a modern medical miracle of sorts that can address some of these problems and costs in the healthcare system. When you assess that overall system, where does your attention get drawn? What are the things you've discovered are most interesting and important?
· John Arnold
[00:00:00] S1: We've had this multi-decade financialization of the healthcare system. That's really driven up costs as people have figured out ways to get in, start businesses or consolidate businesses, and take advantage of some of the regulations that exist in the field to maximize firm profits. Healthcare violates every principle of a competitive market from econ textbooks. Thinking about even, what information does the patient have? What information does the payer have versus what are the incentives of the provider, who has this asymmetric information advantage and also gets to decide what treatments you need? So you load up all these market failures onto the system, and that requires this huge system of regulations to try to overcome that. If there were no market failures, then you could just say no need for government policy here – government regulation, we step back. But with all the market failures, you need books and books and books, and tens of thousands of pages of regs about how to deal with every certain thing. And you have a third-party payer, whether the government or a private insurance company, for the vast majority of the system. So it creates all these rules that then private industry will naturally try to seek and find out, where’s the gap in the rules. And this happens in every industry. Right now, one of the big things is skin substitutes. If you get a burn, you need some type of new skin, there’s regs about how those get reimbursed. In the first six months whenever a product is released, there's not history of how low that product has been priced before, so the federal government gives a lot more latitude on how a manufacturer of that product can price it for the first six months. Then, as the market starts to react, after six months, the government now puts more regulation on price. So what manufacturers have done is introduce a new product, let it be out there for six months. Take that off the market, introduce a new one that's slightly different, and the prices keep going up. There are some kickbacks. It's just an example of this cat and mouse game that constantly happens on government or private industry, rights or regulations, and then everybody tries to figure out how to beat that.