Invest Like the Best with Patrick O'Shaughnessy
· Dan Wang
[00:00:00] S1: Equilibrium is a really important concept here because it implies that no state really feels the need to shift in a big way. I think the scary thing might be that something upsets the equilibrium—where one country feels under threat in some way. First, I think I only partially agree with you that the U.S. feels very self-sufficient at the moment. You're right: by a lot of simple conventional measures, imports are something like 12% of U.S. GDP, and that's not a huge amount. But in a crisis, it turns out that the U.S. actually really needs that 12%. I think a lot about the early days of COVID, which speaks to another difference between China and America. In the early days of COVID, the U.S. struggled to produce anything as simple as masks and cotton swabs. I was living in China, and one of the most instructive little moments I remember was going up to a factory manager around Shanghai. This factory manager marveled to me that American manufacturers didn’t get their act together to produce really important goods. In this Chinese guy’s formulation, too many American companies asked themselves whether making masks and cotton swabs was part of their core competence. And for very few companies, that’s their core competence—so they didn’t make it. Chinese companies say that making money is their core competence; therefore, they go make what the market demands, which then was masks and cotton swabs. So I was grabbing masks made by Foxconn, which normally makes iPhones, and by JD.com, one of China’s biggest e-commerce retailers. They just decided to retool a lot of their factory lines to produce what the market needed. Then there was some complacency and lack of hustle among American manufacturers to actually produce these things. In the early days of the pandemic, a lot of consumer goods were in shortage. Furniture was in shortage. Random fruits ran out depending on which part of Mexico had a COVID outbreak at that time. And generally speaking, the American manufacturing base has not covered itself in glory over the last 20 years. It’s not just Boeing, Intel, Tesla, Detroit—broadly, there’s all sorts of rust and inability to move. If we take a look at China’s energy imports, they’re importing less and less, in part because they’ve scaled up so much solar capacity within China.
· Dan Wang, Patrick O'Shaughnessy
By the end of this year, China is expected to add 500 gigawatts of solar capacity. The U.S. is expected to add about 50 gigawatts—just one order of magnitude less. There are 33 nuclear plants under construction in China right now, and zero under construction in the U.S. The Chinese have been much more successful in shifting their consumers toward buying electric vehicles. By the end of this year, one out of every two cars sold in China will be electric. They’ve been able to blunt this dependence on foreign energy. It’s not growing so much, and perhaps it will decline soon enough. There are all sorts of ways in which they’re also very serious about food self-sufficiency. They’re also very serious about semiconductor self-sufficiency. And so this is again where I see, if the U.S. and China are in competition, China’s been much better at patching up its own problems than the U.S. has. [00:00:00] S0: The factory story—the retooling to make masks and cotton swabs—sounds like a very high-agency thing. Which society do you think is higher agency?
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: The factory story—the retooling to make masks and cotton swabs—sounds like a very high-agency thing. Which society do you think is higher agency? [00:00:00] S1: I think it’s China. I think China is a high-agency, high-T society. Once they decide to build infrastructure, it comes out and it gleams. Once California decides to build infrastructure, it’s 17 years—and it’s going to be 20 years—before anyone is able to get close to riding high-speed rail. There are various ways to measure something like social trust in China. By a lot of conventional measures—like, if you lose your wallet in the park nearby, will someone return it to you?—that share is rather low. But I was thinking of this definition of social trust from the scholar Francis Fukuyama, who said something like: social trust is the measure of spontaneous coordination—of people able to get together quickly, make decisions quickly, and act quickly. At least in the early days of COVID, that’s something China really had. Manufacturers were working well together; tech companies made it clear where fever clinics were on mapping services; and the government stepped up in a big way as well. The U.S., at least in 2020, really did not do any of these things. [00:00:00] S0: We haven’t touched at all on the lawyerly tendencies of U.S. society. You talk about engineering in China and the U.S. being run by lawyers. What are the pros and cons of that? Very different orientation.
· Dan Wang
[00:00:00] S1: The pros of the lawyerly society are a guarantee of my favorite value in America, which is pluralism—that there is some measure of robust debate that is guaranteed in the U.S. One of the things that really thrills me about having moved back to the U.S. over the last two and a half years is that there’s always energy among Americans to try to diagnose their problems and improve on them. Two weeks ago, I went from New York to Washington, D.C., to speak at the Abundance Conference in D.C., and that is just one strand of recognition that America has lost a lot of crucial abilities to build homes, transit, and all sorts of infrastructure—and that we need to get a lot better. I think that folks in New York—and you’re one of these rallying points—are helping people understand the world as it is a little bit better, to really try to improve a lot of different things. I’m plugged into several conversations at the Hoover Institution, and there’s a tremendous sense that a lot of things in the U.S. are not working and need to get better. The problem is that the U.S. is not very good at execution. Even though we’ve realized for a long while that the manufacturing base is deeply broken in this country, the U.S. has not really been able to fix it in any compelling way. There are complaints among the American left about what should be done. There are complaints among the American right about what should be done. It’s very strange to be in this political system where elections usually have razor-thin margins, and then one side takes over, seriously overreaches, and then the other side wins by thin margins and overreaches again. I think the fundamental problem among lawyers is that they are, for the most part, protectors of the rich. That is essential in some ways, because you can’t build companies worth $4 trillion—like Nvidia—without substantial legal protections. We need a lot of lawyers in place for Nvidia to feel comfortable about doing everything that it’s doing. But I think the society won't work well if it is mostly about serving the rich. So in New York City, where we're chatting now, the rich don't really have to worry too much about affordable housing. The rich have access to these skinny skyscrapers that you can see on the skyline. The rich don't really have to deal with the problems of the subways, which are just, again, screechingly loud.
· Dan Wang
Services are quite bad compared to any European or East Asian country. And I think that the lawyers need to get out of the way a little bit in order for the U.S. to build things for the broader masses. I'll just offer two anecdotes that I think about a lot, both relating to trains. When I took the Acela train down to Washington, D.C. two weeks ago, the Acela works okay. It's not always very reliable, and I find that it is really, really wobbly. While I was on the Acela train, I came across this headline: Acela’s getting an upgrade—we're going to get new trains. I was happy about that until I read deeper into the article. It said that new trains are going to be something like 11 minutes slower than the old trains. And so, at a first approximation, we're moving slower than before. The foam seats are better—they're more comfortable—but we're going to take longer to actually get to D.C. I substantially wrote this book in my cloistered office at Yale University, and every so often, when I was tired of monastic life, I decided to be seduced by the pleasures of New York City. I'd take the Metro-North train to get from New Haven down to New York City. That train is highly reliable, though a little bit slow. I was radicalized when I found a timetable from 1914 in which it was faster to get from Grand Central Terminal in New York to New Haven about a hundred years ago than it is today. It's not totally an apples-to-apples comparison because the train now makes many more stops, but again, at a first approximation, we're moving slower than 100 years ago. And that is in part because of the lawyerly society in which a lot of homeowners in Connecticut put up their hands and said, “We shall not have a rail line running through our backyard.” The proposed route of Amtrak turned out to be much more squiggly after these homeowners decided to use their very expensive lawyers to sue and say, “No way in our backyard.” That has added quite a lot of time and quite a lot of expense to these projects, which cannot be very technocratically or rationally designed. And so this is where I'm hopeful that lawyers aren't going to get in the way of absolutely everything—especially the sort of broader infrastructure that serves the masses’ needs.
· Patrick O'Shaughnessy
[00:00:00] S0: It reminds me of this idea that if you study Eastern portraiture versus Western, in the West, almost all of them are where your face is most of the canvas, whereas in the East, often the portraiture is a small person amidst the bigger landscape—and quite representative of the two different styles. I'm curious, just for a side quest for a minute: if you had to write a sequel to the book about a country that's not the U.S. or China, what next country would you be most interested in writing about, and why?