Invest Like the Best with Patrick O'Shaughnessy
· 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?
· Dan Wang
[00:00:00] S1: I think this would be challenging because I really believe that the future will be determined by these two big countries. I think what's most important is for these two countries to get along. On my very first page, I denounce Europe for being a mausoleum economy—where things are very beautiful, but things are also very dead. I don't quite yet believe that India and Indonesia are ready to challenge these two bigger powers. But I think this gets back to the broader question of the equilibrium that you brought up. What we don't want is too much destabilization. What most Americans, as well as most Chinese, ought to be thinking about is: how do we avoid a conflagration? How do we avoid a hot war? World War I took something like 10 million lives. World War II took something like 50 million. And we don't want to get to World War III, in which tens of millions die. There's a scenario in which the U.S. strategy over the last 30 years has been to hope that markets and the Internet would change China for the better and transform this communist system into something more like a liberal democracy. That has not worked out, and that, I think, could be firmly laid to bed. Now we have to ask: is there some sort of uneasy equilibrium that we can stumble into to avoid a hot war? At least my guru at the Hoover Institution, historian Stephen Kotkin, would say what we need is a new Cold War in which the two countries decide not to have a very big fight but rather to compete on the level of systems—to deliver better for their people. I think a lot of people are nervous about this Cold War framing, including me. The Cold War was not very cold for a lot of other countries, like Vietnam. The Cold War created so many abuses within both the Soviet Union and the U.S. in the name of competition. Maybe “Cold War” is not the right analogy, because there’s huge trade and integration between the U.S. and China right now, whereas there was essentially no trade between the U.S. and the Soviet Union in the past. So we should come up with some new term to try to understand both of these countries and to keep competition on the level of companies—as well as on who’s delivering the better vision for their own people—rather than anything bigger involving a conflagration in the Pacific. God forbid.
· Patrick O'Shaughnessy
[00:00:00] S0: The USSR collapsed at the end of the Cold War. What is China doing most differently from Russia that you think will not lead to an eventual collapse of the Chinese system?
· Dan Wang
[00:00:00] S1: I think the Chinese are excellent students of history. There are maybe several countries that they really study. First and foremost, it is the Soviet Union. They diagnosed the problem of the Soviet Union to have been in the late ’80s, when Gorbachev tried to achieve both economic reform and political reform at the same time. The story of the Soviet Union is one in which the political system imploded, and then nobody picked up the pieces to get the system back up again. That’s the first thing they try to avoid. They also really try to avoid the fate of Japan, which suffered an economic implosion by the late ’80s and never quite recovered. So I think the first reason to believe that China will not suffer a political collapse like the Soviet Union or an economic collapse like Japan is that there’s history here to suggest a better path forward for them—they want to avoid these mistakes. Whether they can actually avoid them is a different question. Maybe they’ll come up with some whole new, novel, interesting mistake that creates some sort of collapse in either scenario. But I think history will not repeat in exactly the same way. China is a Leninist system like the Soviet Union, but it has a thriving, substantial consumer economy that’s doing superbly well in creating all sorts of products the Soviet Union never made. The Soviets focused on heavy industry—it produced a lot of steel and chemicals, but very few goods for its people. China is not like Japan in a variety of ways. But one that’s quite pertinent to me is that if we look at Japanese exports throughout the ’70s and ’80s, a product from Nintendo, Mitsubishi, or Toyota was almost entirely Japanese value-add. These were Japanese companies making Japanese products. Part of the complaint of the Reagan administration was that Japan was too closed and needed to open up. By contrast, China has been much more open than Japan. China is most famously known for building Apple’s iPhones and Tesla’s vehicles. And the communist system recognized that it was so far behind technological leaders that it mostly threw open the doors—with some restrictions—to Western companies to produce in China and then previously make mostly foreign goods, only assembling these different components. At this point, a great deal of Apple’s supply chain is made up of Chinese components as well.