Episode #325: Bhu Srinivasan, Author, Americana, “Is The Entrepreneur More Important Or Is The Movement And Moment More Important?”
Guest: Bhu Srinivasan is the first-time author of Americana: A 400-Year History of American Capitalism. He’s currently the founder and CEO of SCORETRADE, which is developing the fastest and most precise in-game sports prediction experience possible.
Date Recorded: 6/16/2021 | Run-Time: 1:14:47
Summary: In today’s episode, we go all the back to the 1400s and hear how venture capital was behind the discovery of America. Bhu talks about some of the most successful entrepreneurs in American history, including Vanderbilt, Carnegie and Rockefeller. We talk about the role the government has played in helping American capitalism thrive, and the history of booms and busts and the role they serve over time.
As we wind down, we discuss the future of capitalism in the U.S. and around the globe, and hear about Bhu’s current venture around crypto and sports gambling.
Sponsor: AcreTrader – AcreTrader is an investment platform that makes it simple to own shares of farmland and earn passive income, and you can start investing in just minutes online. AcreTrader provides access, transparency, and liquidity to investors, while handling all aspects of administration and property management so that you can sit back and watch your investment grow. If you’re interested in a deeper understanding, and for more information on how to become a farmland investor through their platform, please visit acretrader.com/meb.
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Links from the Episode:
- 0:39 – Sponsor: AcreTrader
- 1:32 – Intro
- 2:24 – Welcome to our guest, Bhu Srinivasan
- 4:53 – Book suggestions similar to Bhu’s book, Americana: A 400-Year History of American Capitalism
- 5:49 – Bhu’s origin story from being in India and moving to America
- 10:16 – The Mayflower and the venture capital foundation of the US
- 20:36 – Thoughts on Rockefeller, Carnegie and Vanderbilt
- 26:20 – Comparing the scale of enterprise of early entrepreneurs to today
- 30:13 – Old industrial empires generating as much revenue as the government at the time
- 34:36 – How the role of government has changed over the past couple hundred years
- 41:59 – The role of booms and busts
- 49:38 – Innovation we may see arise in the near future and how they disrupt the world today
- 57:25 – Analyzing the key differences and state of capitalism in America
- 1:01:58 – Policy changes that could help improve our society as it stands today
- 1:05:05 – What’s on the horizon and what Bhu’s plans are for the future
- 1:10:31 – Using Donald Trump tweets as a sports betting investment signal
- 1:13:27 – Learn more about Bhu; bhusrinivasan.com; Twitter @bhu_srinivasan
Transcript of Episode 325:
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Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.
Sponsor Message: Today’s episode is sponsored by AcreTrader. I personally invested on AcreTrader and can say it is a very easy way to access one of my favorite investment asset classes, farmland. AcreTrader is an investment platform that makes it simple to own shares of farmland and earn passive income. And you can start investing in just minutes online. AcreTrader provides access, transparency, and liquidity to investors while handling all aspects of administration and property management so you can sit back and watch your investment grow. We recently had the founder of the company, Carter Malloy, back on the podcast for a second time in Episode 312. Make sure you check out that great conversation. And if you’re interested in a deeper understanding and for more information on how to become a farmland investor through their platform, please visit acretrader.com/meb. And now, back to our great episode.
What’s up y’all? We have a great show for you today. Our guest is the author of “Americana: A 400-year History of American Capitalism,” which is one of my all-time favorite books. In today’s show, we go all the way back to the 1400s and hear how venture capital played a role in the discovery and development of America. We talk about some of the original 50 baggers, involving pirates. We also hear about some of the most successful entrepreneurs in American history, including Vanderbilt, Carnegie, Rockefeller. We talk about the role that government has played in helping American capitalism thrive, then the history of booms and busts and the role they serve over time. So we wind down. We discuss the future of capitalism in the U.S. and around the globe and we hear about our guest’s current venture around crypto and sports gambling. Please enjoy today’s episode with Bhu Srinivasan. Bhu, welcome to the show.
Bhu: Meb, thanks for having me, a great pleasure.
Meb: I’m so happy to have you here but I’m also sad. I just mentioned you are residing in Marin. I was just there running up and down the dipsy steps, heading up to…what is that, the mirror trail or down towards Stinson, all around? Beautiful town you picked.
Bhu: Oh, my gosh. It is one of the great natural places in America. It’s a stunning couple hours from Tahoe. It’s so close to San Francisco. Ten minutes, 15 minutes from Pacific Heights in the Marina and all that so great spot. It’s pristine and unspoiled for thousands of acres. I don’t know how they kept it that way but we’re starting with an anti-growth story to start our talk on capitalism.
Meb: I briefly lived in San Francisco, and we’ll talk about your timeline because I know you caught part of the internet bug. But I timed it completely, exactly almost a moment, wrong timing. All my friends were moving out, like, late ’90s, and I got there after the internet bust when all the champagne stopped flowing freely everywhere. But my thoughts every time I go back despite a lot of the what you would think is the Twitter commentary on San Francisco proper falling into the cracks of earthquake zone with all of its struggles, every time I go back to NorCal, San Francisco Bay Area, only thought I have is, “Man, California is so magical. These taxes are worth it.” That’s the only thought I have.
Bhu: Yeah, the pricing…exactly. You know what, when I go even by Sausalito or Mill Valley and Tiburon and those places, you see the Bay, you see the city, I mean, it’s just spectacular. Obviously, politics are not completely optimal all the way through. But, overall though, I think it’s just a magical place to live. And California is a magical place to live. I mean, you have all these detractors out there, but, I mean, can you really imagine a place where you got skiing, you got this Big Sur, Carmel, you got Los Angeles with its cultural scene, you got beautiful San Diego, you got where you are. I mean, it’s all over the place. And the beauty of California is north of San Francisco, we still have almost an entire state to go. I mean, we’re like the midpoint of California.
Meb: Trinity Alps is on my to-do list. I’ve never been there outside of Redding. I got a few bucket list items. I mean, it takes a whole decade to check off everything. Never been to the Salton Sea, anywhere up the coast, North Mendocino. California Board of Tourism, hit me up, you can sponsor the podcast, next episode. All right, Bhu. You’ve written one of my favorite books. And it came out a few years ago, “Listeners”, you got to check it out. And I would put it in a pretty rarefied category. And I’m going to list the others here. If you kind of think about economics and market history, there’s about half a dozen books, and we’ll add these in the show note links, that I consider to be must-reads, but I include yours on this list. There’s “Capital Ideas Evolving” by Bernstein, “The Myth of the Rational Market” by Fox, “Fooled by Randomness,” Taleb, “Against the Gods,” Bernstein, of course, the oldie, ” Extraordinary Popular Delusions and the Madness of Crowds,” “The Four Pillars of Investing,” Bernstein, “Money” by DK Books, and “The Birth of Plenty.” Half of the list is the various William and Peter Bernstein’s but I put capitalism in that same category. I want to talk a lot about it today because, first of all, kudos, amazing book.
Bhu: Very humbling to hear that. Thank you, Meb. That’s very kind of to say that.
Meb: And I was a little late to it. It came out, and I don’t remember quite when it crossed my desk and I’ve been trying to wrangle you on this podcast ever since. So I’m stoked to have you. Let’s hear the origin story because you got a little bit of an interesting one. You didn’t grow up in Marin. You grew up in India. Is that right?
Bhu: I did. Yeah. So I came to this country when I was eight, first was sent to Virginia to live with my aunt, and then moved to Buffalo, New York. And then from Buffalo, my mother was doing her postdoc at Roswell Park, which is a cancer institute. And so we moved to San Diego, and she was in her late 30s and doing her postdoc and got her first job at one of the start-ups in San Diego. And then we just moved to Seattle after that. One of the things that I trace our own families’ migration, to some degree, mapping the economic evolution of America, and the origins of the project really came out when I did a freshman year history paper for Richard White, the acclaimed Richard White, who is a historian that I highly recommend. He’s the foremost scholar of the American Gilded Age for sure. And it was a very special treat to have him as a historian and as someone teaching a freshman year history class with hundreds of students at the University of Washington. But I was able to get his personal attention for this one essay because it was a survey class of American history from the founding all the way to 1979.
And the essay was, trace your personal family’s history against the contours of American history. And I couldn’t do that, obviously, because this class ended in 1979 and my family came here in 1984. So I had to get an exemption for what do I write from 1984 to 1994. You got 10 years. Well, so 10 years, we conceived this project, the paper, where I would trace the decade from ’84 to ’94, alongside what was happening in the American economy, what was happening with foreign policy, etc., etc. And what I stumbled upon was that America, the economic trajectory is largely decided by these next big things. So you could have the internet browser, the internet browser ultimately makes its way into the mobile phone, and that sets up a whole slew of applications that are based on top of it. So one next big thing leads to another next big thing, leads to another next big thing.
And since my mother was in biotech, we could, to some degree, trace that. On top of that, you could see that most of these biotech companies and start-up companies in Seattle, when they got large enough, were going public on the NASDAQ as opposed to the NYSC. So you also saw that. So you were starting to see the early days of the internet develop. I was there in 1995 when I took this class and had this essay due. So we were able to kind of see some of these contours taking shape. And then 20 years go by, I didn’t end up pursuing a degree in history. I ended up being very seduced by the .com bubble that was happening around me, in Seattle especially. And I was very economically motivated. And so 20 years later, I was thinking about a television series. I was thinking about my next adventure in media, and I was thinking about it as a television series. So I thought I would take a 40 episodes over 400 years, almost a 40 for 400, like ESPN’s 30 for 30, and do 40 next big things and do a large-scale television series.
And I had all the right pieces developed, but I ended up getting a book deal rather than a television deal. And I had a very acclaimed publisher in Penguin Press that took it and it sold in a day. So stunning to me that here, I was putting all this effort into trying to get a television deal and I just ended up getting a very quick book deal. And I just had to sit down and write it. So I holed myself up for a couple of years. And it was just an absolute pleasure, by the way. I mean, if you ever get a chance to interrupt your life that way and are able to just dive into a project like this, it was just immense. Certainly, one of the great highlights of my life.
Meb: Good. I’ll take the opposite foil on writing a book because every time I’ve put one out, I say, “This is the most excruciating experience.” Anytime author friends reach out, they say, “What are your advices?” I’m like, “Don’t do it. Don’t do it unless you have to.” And then, the actual experience for me was always very condensed and manic. But then once you’re done, super proud to have done it. I can’t think back to anything in freshman year that I would want to follow up on thinking back to university. But what a cool story. And don’t cut yourself short yet because this could be still a documentary or video series. You get to option this thing out. Come down to LA, we’ll put this in the works. I would love to see something like this put into production.
Bhu: I got to just crash on your couch and then start taking these calls. Yeah.
Meb: You wouldn’t be the first one. But the cool thing, I mean, look, let’s go through the book a little bit. And I don’t want to spoil it for all the listeners, of course. And I doubt we could because it is 30-ish chapters that each one of them could be its own story. But thinking of today and where we are, but going back to the U.S. origin story to where already within the first five pages, I learn like 20 things that I didn’t know, part of which it was almost like a venture capitalesque beginning to this country. You tell us a little bit about Mayflower and how some of this got started?
Bhu: Well, exactly. I mean, speaking of venture financing, the people that finance the Mayflower and the Virginia Company were literally called merchant adventures. So they would call a capitalist, an adventurer that’s staking his capital. And so that’s the provenance for the term venture capital. Now, the thing that was intriguing, whenever you’re trying to take on a large-scale project like this, you’re always looking for hooks. And especially because I had conceived this as a television project, you want each episode to some degree stand on its own, and at the same time, become a part of a very cohesive whole, so that you get a different experience if you watch the whole thing or read the whole thing. But if you want to jump in here and there, you’re able to get to some degree of a fully encapsulated experience.
So in doing that, you’re always trying to find hooks. And one of the things that had always kind of informed my personal history, my family’s personal history is we come here from economic motivations. We’re not coming here to flee war. We’re not coming here as refugees. Most people from India that are coming here that have advanced degrees or degrees in the first place are really making an economic calculation. And so our family did the same thing. And so you go back in time, you say, “Well, how far can we go back where these economic motivations are the real driver and catalyst for immigration to this country?” And you trace it all the way back to the Virginia Company. Before Virginia became a colony, it was a company. And as a company, in 1606, it gets formed, and they have to go find shareholders that are willing to finance this venture. And this is not all that different from Christopher Columbus going to Queen Isabella to finance. And it’s not a small thing to get a ship financed with all these provisions to go on a new world exploration. I mean, we’re seeing this with Mars and other things in space now. But it’s no different then. This was a fairly new thing.
So when you look at that type of risk capital, you then think, “Okay, if there are shareholders involved and there’s a profit motivation, how much of that informed the Mayflower’s voyage?” And then you go into the actual documents. And that’s one of the great joys of a project like this is you get to read these letters, these primary letters in the financing of the Mayflower where Pastor Robinson is writing his agents in London as to what’s going on with the financing, what’s going on with the terms. They’re arguing over liquidation preferences, what we know now as liquidation preferences in the start-up world, what happens to the pro-rata distributions of profits. And so these types of things were negotiated. And that doesn’t make it into the traditional history of pilgrims fleeing religious persecution.
Meb: Well, and even to the last moment, I mean, I remember you talking about in the book where you’re like the original settlers had agreed to something like a four-day workweek. And then they got to keep their houses. And then they show up in England from Holland, and the terms have changed. This sounds like such a modern story where there’s this battle between the financiers, and the laborer, and capital, and everything in between and it’s just almost like a drama of today that’s set hundreds of years ago.
Bhu: And they couldn’t finish that. So it took them another 30 days to close this financing because this was a real sticking point. So the pilgrims were going to say that four days of the week dedicated to the collective enterprise, two days of the week dedicated to their own individual enterprise, and then one day a week for God, obviously. Once in London, the financier said, “Well, they want six days all dedicated to the collective enterprise because all of the proceeds at the end of this venture are going to be distributed pro-rata to the shareholders.” And if you agreed to go, you got a share. If you agreed to put up a little over 10 pounds, you got a share and didn’t go, and so you’re a passive investor. But at the same time, the investors felt that if you were going to go, you should just be working for the collective benefit of everyone. And then on top of that, the houses themselves that you build should be a part of the collective venture and not held by the individual, so very interesting.
But because this couldn’t get sorted out in 30 days, and it didn’t get sorted out until after they’d left, it cost 30 days. And 30 days in New England in the winter is a very, very critical 30 days. So it took them an extra 30 days to land in New England. And by the time they got here, winter was pretty much in full effect, fairly substantial impact on how they survived over the winter. Half the people that came over on the Mayflower had died that spring. So it had some really tragic consequences. So for start-up entrepreneurs in Silicon Valley that think that they have it bad, just think back to the Mayflower negotiation.
Meb: The story of Sir Francis Drake being one of the privateers where the investments on one of them had returned. It was a 20-bagger or something you’d say in modern parlance. But they’re just like these massive riches of funding and then pirating, essentially, some of the investments we would talk about today.
Bhu: Very much so. And, in fact, Sir Francis Drake is the main road that runs through Marin. And the reason why is Sir Francis Drake’s voyages had been all over well before Virginia Company over the Mayflower. And these privateering syndicates exactly, I mean, they were almost state-sponsored ventures to be able to go out and raid other ships and raid other sovereigns, other commercial ventures and colonial ventures. And similarly, I think one of the things that the privateering syndicates, what it did, was it had basically said you cannot have one shareholder that could finance this whole thing. It’s just too expensive a voyage. So you have to have limited liability. You have to have a share structure where you can sell off your interest to someone else. So you start seeing the necessity for the modern corporate form. These are some of the things that drove the corporate form on these privateering syndicates. And then eventually, that same structure morphed into what the Virginia Company, the East India Company, other ventures needed for non-privateer activities.
Meb: I learned so much in this book. Almost every chapter, there was something where I was surprised or was interesting. And I got a whole deck of dog-eared pages. I mean, one of them, I think we have all become aware of the role in the early days of, as far as a product that really built a lot of the country, thinking of tobacco. I grew up partially in North Carolina and saw the effects many hundreds of years later. But everyone is aware of the slave impact. But in the early days, there was a lot of indentured servitude, which I didn’t know was an actual impact and even a thing. I’ve got so much of the history leaves out some of the economic, I feel like, parts of the incentives. Any other general takeaways from the early days of kind of the colonies that you thought stood out as being particularly surprising, or interesting, or head-scratchers as you put pen to paper?
Bhu: It’s a lot of the things that the obvious things are what really stand out, the obvious things that are overlooked. So when we think about the Mayflower and the financing of the Mayflower, if I told you there are 100 people on the Mexican border that travelled all the way from El Salvador, and they chartered a 737 to come to America with a year’s worth of provisions, you would ask, “How did they charter a 737? And how did they get a year’s worth of provisions? Who are they? How did they get them?” And so with the Mayflower, the story of these persecuted, religious separatists just doesn’t make any sense because they were already living in Holland. So why would they go to England and agree to be under the thumb of the king? And when they’re negotiating…when they’re riding the Mayflower compact off the shore of America, they’re pledging obedience to king and God. And so that’s one thing. And the second thing is you’re in North Carolina. So the Carolinas have the Anglicans. Pennsylvania had the Quakers, You have Maryland, it’s a Catholic. It’s for Lord Baltimore, who’s Catholic. So, in fact, if anything, the king was highly permissive in having these various different religious groups get parts of the American enterprise at the very beginning. And at the same time, King Charles I gets executed. I mean, so he gets beheaded. And so you have the English Civil War. And you have a lot of political turmoil in England at the time. And you have a lot of people that are in fairly substantial and dire straits in terms of poverty. And they are eager to take a one-way ticket to America to serve as indentured servants.
And to your point earlier, one of the reasons why that mechanism worked is in the swampy soils of the Chesapeake, you had a fairly high death rate due to malaria and other things like that. So it didn’t make sense at that time for people to bring over a slave because if you have the full capital cost of a slave and they died, you lost your entire capital investment. If you brought over an indentured servant, where after seven years you had to give them a piece of land, and some tools, and initial state to set themselves up, well, if they die within those seven years, you don’t owe them anything. So the economics of that malarial soil causing a huge liability in terms of having slaves brought over and having a high fatality rate for them didn’t make sense in terms of…I mean, as morbid as the math is, but that’s what it dictated. And then once the soil was largely made fertile and largely started growing things, you were able to have slaves, and the equation changed. And once England stabilized, it didn’t make sense for people to want to flee England quite as much. You also didn’t have the land to give away. So if you were someone that brought over an indentured servant and you have to give them a bunch of land, well, now the land is a lot more valuable. Fifty years into the Virginia, as a colony now, you have tobacco as the next big thing. And it doesn’t make sense to give away soil that’s delivering you this cash crop, so you’re better off bringing on slaves.
So those are the things that you dive in when you’re trying to tell a story like this, that mathematically makes a lot of sense. And I think when you have commercial aspirations, and for business people and investors, going into the data like this helps you to build a much better story that makes a lot more sense than a purely political, or religious, or military story.
Meb: You think about so many economic incentives. I mean, even the seven-day workweek, talking about six days being economic-related and one day for religion, whereas the message was always a religious one for the persecution at least I read about in the history books. As you think about the development of the country, we go through these chapters and you had tobacco and cotton and then evolving eventually into the next stages of war, oil, steel, machines, light, retail, unions. I mean, everyone is almost like a whole book and trusts. I feel like there’s some different perspectives on how people thought about them in the time and today. But the names like Rockefeller, and Carnegie, and Vanderbilt, what did you learn about those guys as they were kind of the early entrepreneurs and most famous, wealthy capitalists of this story?
Bhu: The first part of the story is really about America conquering this land, so what happens? Until the steamboat…and steamboat is obviously something that Vanderbilt was very involved with, but the steamboat, until you had the steamboat, you really couldn’t travel faster than the speed of wind, the speed of water, or current, or the speed of an animal. And that’s the limitation on human travel, so that’s the faster you can get a message to someone, that’s the fastest you can bring goods to someone. And you couldn’t go upstream. So you couldn’t go up the Mississippi River. You couldn’t go up the Hudson River. You couldn’t go up the Chesapeake River. You oftentimes had to have horses on the side pull a ship with ropes. So this is a fairly big and limiting factor. But once you had the steam engine, you were able to have commercial boats that could do that. And it took a long time for the steam engine to be optimized so you can actually have it commercially viable. There’s a limiting factor here. So if you put a lot of wood or coal, a lot of weight on it, you couldn’t go very far. At the same time, if it was too big to be able to carry the fuel source, once again, it cannot go very far. So there was this optimization problem that took almost 20 years to work out.
And one of the key things with the book was how much of the state’s efforts were used to catalyze some of these inventions? So when you look at the steamboat, the commercial steamboat, the State of New York gave Robert Livingston, who was a fairly wealthy person, aristocratic family, and they gave him a charter. They said, “Look, it’s a conditional monopoly that if you are able to successfully prove a viable steamboat that can go above five miles an hour upstream and carry 20 tons, you can have a 14-year monopoly.” And so it’s a conditional monopoly. So he had a couple of years to basically prove the viability of his venture. And if it did, he would have a 14-year monopoly that he would be the only one that would have the right to operate commercial steamboats on those waters. But he also has another job. So he’s the minister to France. And he’s the one that’s negotiating the Louisiana Purchase. And while he’s there in Paris, he stumbles into a guy named Robert Fulton. And Robert Fulton is this magnificent artist…not magnificent as an artist yet, but he’s magnificent all the way around. But he started this as an artist, magnificent talent, certainly. And he’s writing things on torpedoes. He’s writing things on canals. He’s coming up with all these kinds of technologies. And until he runs into Robert Livingston, who has this conditional monopoly rights in New York, they worked together on having this very large steamboat. And he’s able to conceptualize a very large line, and then they’re able to execute that. And in 1806, 1807, they’re able to deploy this, and all of a sudden, steam travel opens up in the United States.
Then there’s this ferry boat captain, this young man named Vanderbilt, who’s there operating ferries between Staten Island and Hatton, and he sees that steam is the next big thing and decides to try to get a job as a steamboat captain. And he’s able to do that. And over the next 20 years, 30 years, he’s just very parsimonious young man, he accumulates a savings operating these steamboats, and eventually is able to buy a steamboat, is able to borrow and able to buy a steamboat. And from there, he starts getting into railroads and everything else. So that’s Vanderbilt.
So this next big thing shapes the trajectory of these iconic entrepreneurs. So is the entrepreneur more important or is the movement and the moment more important? And in my book, I generally treat the moment, the next big things as the driver.
Somebody was going to win that market. Somebody was going to win that market and somebody was going to become a Vanderbilt.
And then you have these other things that happen as well. If you look at one of the seminal Supreme Court decisions in 1824, it’s Gibbons versus Ogden, and Gibbons is the one that was Vanderbilt’s boss in a sense. He was the owner of the steamboats. And he had sued Ogden because Ogden had done a deal where he got the monopoly rights. He got rights from the monopoly to operate steamboats from New Jersey to New York. And the Gibbons versus Ogden is what opens up interstate commerce. It says that look, a state cannot give monopoly rights to an operator within the state and preclude others from outside of the state from being able to navigate American waters. This is the thing that opens up interstate commerce and basically says only Congress has the right to regulate interstate commerce. So this is the decision that opens it up. But it all goes back to this next big thing of the steamboat. So lots of times the regulatory system has to keep up with unintended consequences of these monopoly rights. And these monopoly rights were a stimulus to get somebody to invest in a risky venture trying to commercialize the steamboat in the first place. So that’s something.
So there’s no one formula for figuring out, from a policy framework, what exactly the optimal route is. You have to constantly make adjustments. And that’s one of the things you find out early on from American history.
Meb: Looking back, there are so many parallels and, like you say, influences. You talked about the exclusivity. It reminds me of sort of the drug patents today with some of the breakthrough treatments. You talk about some of the monopolistic behaviors. And I remember in the book, talking about some of these examples with steamboats where they’d buy competitors, or enter a new market at basically zero costs and forced them to sell. And I don’t know, if you were to kind of tie a line between the earlier period of these entrepreneurs and today, do you think it’s a situation where this push-pull between these really big, today you’d point to the Bezos’, and the Gates’ of the world, their scale versus back then, is it comparable, is it a time where it was more outsize today or back then as we think about so much discussions of inequality and everything else? What are the similarities and what are the differences?
Bhu: The thing is it’s not like aristocratic men took over these industries. Even then, even with Vanderbilt, this was someone that was reputed to be illiterate. This is someone that figures out not only how to dominate commercial steamboats, but eventually in railroads. He’s obviously a very powerful man in railroads as well. And he’s a master of the corporate form. And yet, he was regarded as someone that was illiterate. And then you’d go to the 1830s, and 1830s is because that’s when…1835 is when Carnegie was born, and 1839 was when Rockefeller was born.
But Carnegie, he wasn’t born in this country. I mean, he comes here, I think, in 1848. He’s a 13-year-old boy from Scotland. He was educated in Scotland, but here he has to drop schooling. So he was not in the labor force in Scotland when he left. His father lost work as a piecemeal weaver with industrialization coming to England. When the elder Carnegie loses his job, they immigrate to the United States. And as soon as they land in Pittsburgh…they land in New York and they make their way to Pittsburgh, as soon as they get there, he is sent immediately to a boiler room to work. And so Carnegie writes in his memoirs later on that he never saw the sun for a couple of years while he’s down there in the basement working in this boiler room. And eventually, he gets an opportunity to deliver messages for a telegraph office.
And that’s the first time he’s around an office environment where he’s dealing with the leading businessman of the day in terms of just delivering messages. And then from there, he gets discovered as someone that’s highly talented and being able to decipher messages just by audio, the taps of telegraph as opposed to actually writing it by hand. And so that’s how he makes his way up into the graces of the Pennsylvania Railroad. And from there, he gets into the steel business to sell steel, doll the different railroads. So he took advantage of these opportunities. But this is not someone that came from aristocratic circumstances or even privileged circumstances.
Same thing with John D. Rockefeller, very similar story. It’s not like he came from great wealth either. So, to some degree, it’s always these upstarts that have dictated the trajectory of the American enterprise. That doesn’t mean that there aren’t significant excesses. It doesn’t excuse excesses at all. And I think we’re at a new time in terms of how big these companies are. Certainly, when you look at industrialization, there’s almost a capacity to limitation in terms of how big you can get, how quickly just because you still have physical infrastructure. And it’s like Tesla, how big can it get, how fast can it get that big? It can’t happen over two or three years the way that a Twitter or Clubhouse. When you look at something brand-new like a Clubhouse, it can go to a $4 billion, $5 billion valuation within 12 months of inception. That’s not something you can do in anything that has a physical component to it. So that was a natural limitation.
And now with network effects, with the cost of software, you’re just seeing a whole new type of enterprise altogether. And sometimes, history has these parallels and history rhymes. And other times, it’s things that are unprecedented. You just haven’t seen this movie before.
Meb: On the flip side though, I think I remember you saying or talking about that the size and scope of some of these companies back then relative to the government size was much larger than today if you were to compare revenue of some of these giant companies to the government versus today, even if you have a $2 trillion Apple, their revenue compared to the U.S. government. Is that a reasonable extrapolation or comparison?
Bhu: One, an excellent point, and two, Meb, you are highly prepared, and I do not see you looking at any notes at all. So you are a very careful leader, my friend. But that’s exactly right. So U.S. Steel, for instance, is a perfect example. So U.S. Steel, in 1901, when U.S. Steel was put together. So U.S. Steel was a JP Morgan creation. He wasn’t a large shareholder. He was the banker on it. And the largest building block of what ended up becoming U.S. Steel is Carnegie Steel, all the Carnegie Steel interests and there’s nothing federal steel. And it’s an amalgamation of a whole bunch of other steel operators that they put together as U.S. Steel. It’s the first company that’s coming to market with over a $1 billion market cap. And the whole deal comes together in three or four months from forming the syndicate to getting the company trading in the public markets. It’s almost like stack now. I mean, you see these stacks, that’s how fast they’re happening. Of course, this is a vastly different scale.
The revenues of U.S. Steel were very similar to the revenues of the United States government in 1901. It was almost similar. I think it was in the hundreds of millions of dollars. But it was very similar number. And that’s one of the things that struck me is how close, within like two or three percentage points they were the same scope. And this then colors some of the approaches that Teddy Roosevelt has towards some of these large corporations. Teddy Roosevelt is a Republican, young republican president who takes over after William McKinley is assassinated in the same year, in 1901. He starts seeing the power of these companies and how large some of these conglomerations are getting, that they’re the size and power of the American government itself. And that’s when Teddy Roosevelt takes a much more aggressive approach in terms of looking to regulate some of these corporations, as to how large they’ve gotten that they’re almost sovereign powers in and of themselves. And if continued, it would have some deleterious effects on the American Republic.
So that was the interesting thing. And at the same time, this was a fairly new thing. You didn’t have companies of this scale. And one of the reasons you point out, and this is, once again, circumstantial, it’s that you look at the entrepreneurs that were born in the 1830s. They came of age during the Civil War. So during the Civil War, the North made tons and tons of money. There was all kinds of things that you could sell to the government, produce, which Rockefeller had made his early fortune in produce, steel, oil. Titusville is where we discovered oil and drilled for oil in 1859. And it sets off a gold rush almost at the same time when the Civil War is raging. And so you had a lot of profiteers during the Civil War in the north, certainly. And these were men that were in their late 20s, early 30s that were born in the 1830s. And so by the time they’re starting to get to retirement age, around 1900, at the turn of the century, they’re like, “Well, what do we do?” Because the industrialization of America, they were able to take advantage of it. They had made money during the Civil War, and how do you transfer assets that you can transfer to the next generation. But increasingly, those enterprises were too large to just be able to transfer it that way. You need professional management. And this is when you start seeing new companies come onto the stock market.
So in 1900, the bulk of U.S. market cap was railroads. And so this is when people want to diversify. They want other sectors to have exposure to. And so you start seeing all types of conglomerates being created and these new trust mechanisms. They were called trust, but they weren’t trusts anymore, they were just large corporations. And they were starting to just come into there where one family would sell a company into one of these conglomerates. It’s the equivalent of selling into a SPAC now. It’s almost very similar, the way you sell into a SPAC. That’s what these families were doing. So you had a lot of need, investor need and you had also supplier need, meaning the people that actually are selling companies that are too big to turn over to your sons, you had a public vehicle that you could sell into. So that’s sort of was happening right at the turn of the century. And that’s exactly what you were pointing out that, yes, and as a result, it was creating these very large corporations. But at the same time, the U.S. government was much smaller, even relative to population, relative to its landmass. Everything else is quite insignificant. You didn’t have an income tax yet.
Meb: Interesting you mentioned railroads. If you look back, I mean, they were like I think half or over half a market cap back then. And despite that sector declining to essentially near zero in the U.S., the railroad industry has actually outperformed the broad market. That’s an interesting factoid for investors. I can quote my Timpson Marston guys for that one. If you look at this push-pull with government as people think of size and its role it played, I mean, even the example you gave of Tesla, there’s been a lot of incentives. You had a quote in the book that said, “Capitalism in America was not an arm’s length ideology. It was an endlessly calibrated balance between state subsidies and social programs, government contracts, regulation, freewill, entrepreneurship and free markets.” How has the citizen or how has the general populace viewed the role of government as well as how has government’s role changed in the development of the country in the past couple of hundred years? I mean, I know that’s a really broad question. But are there any brushstrokes we can take away?
Bhu: Well, yes, I think you have to answer a question like that. Let’s say you take it back to the 1870s. 1870s is when you’re starting to see consumer goods enter the home from distant places. Until this point, you really don’t have a full-scale consumer society. Largely, everything that you’re buying is locally sourced. You might have some cloth from elsewhere, but you’re not having the store of consumer goods all over the place. But 1870s, post-Civil War America, you have department stores that are opening up everywhere. And every major city is starting to get these big cast iron department stores. You’re starting to see consumer goods just flock everywhere. You’re starting to see railroads that are able to distribute products far and wide. So consumer society starts emerging, you need, to some degree, some consumer protection. These are things that people start coming to grips with that you cannot just trust the market entirely. And one of the things is this.
In the Sears catalogue, which starts up…Sears catalogue, other catalogues as well, you would often see cures for alcoholism, cures for the opium habit, cures for this, and cures for that. You would see cures for cancer, cures for tuberculosis. You would see cures for blindness, cures for impotence, all sorts of things. So you could open up a… Anybody can go to Amazon and buy an old Sears catalogue right now from the 19th century, late 19th century. And you could look at all of the crazy promises that are made in the medicine section. Easy to see. So now, when you sell a product like that, you don’t have the liability, you don’t often see it for a long period of time. So if something is doing damage to you, it might be 5 or 10 years before the damage is done. The consumer cannot possibly know and be able to inspect the product and diligence properly. It’s impossible.
Meb: It’s like knowing if your private equity manager is any good. You’re not going to know for a decade. It’s the best business model ever. It’s funny you mentioned the Sears catalogue because the younger listeners are like, “What are you guys talking about?” But I certainly remember as a young child being able to flip through the Sears catalogue. That’s how you found out what cool toys there were. You flip through this beautiful glossy magazine. You’re like, “I didn’t even know I wanted that, but now I do.” It’s like endless scrolling on the internet but instead, it was a 500-page. Also, listeners are probably like, “What’s Sears?”
Bhu: But when you look at like 1896, 1897, you’re seeing this cure of the alcohol habit. A lot of times the cure for the alcohol habit would just be alcohol. They would put it in these potions and they would say, “Here’s the cure for the alcohol habit. If you take this, you’re not going to want to drink.” And largely, what it is alcohol. So you’re basically getting drunk off of the cure. So that’s when you start seeing like 1905, 1906, same thing, once again. In Teddy Roosevelt’s administration, you’re starting to see, well, there’s a need for regulation in terms of protecting the consumer. So forget about protecting labor, or environmental standards, or anything like that. The consumer now, they’ve fully bought into capitalism. They’re seeing how cheap these goods are in the Sears catalogue. There are tons and tons of them. They can very clearly see that they’re living much better than their parents did. And older people are also seeing themselves that this is a country that emerged from a very bloody civil war, and here you’re having this enormous consumer surplus, certainly, and enormous selection of consumer products. Within a week, you can order a piano that’s delivered to you in Omaha, this fairly substantial consumer revolution happening.
So they fully bought into the fact that the dividends of capitalism are life-enhancing in a highly materialistic way. But even though these people have bought in, now, all of a sudden, the consumer has a backlash in terms of medicines, these patent medicines. They’re called patent medicines, but there’s no patent behind it. People are just highly secretive about what’s contained in these medicines, and same thing with meat in terms of food. So this is Upton Sinclair’s book. Lots of times you can also look at the power of literature and power of fiction in exposing certain excesses. And Upton Sinclair exposes that everything from dead rats to all types of things that shouldn’t make its way into meat are happening in these giant meatpacking plants in Chicago and writes this pretty big expose in fictional form. And this book, “The Jungle,” makes its way into the corridors of government, and the American public has revolted when Teddy Roosevelt sends actual agents into some of these meatpacking facilities in secret and finds out that exactly this is what’s happening, that what Upton Sinclair had written in fictional form is exactly what’s happening in reality.
So once again, the American consumers revolted. They don’t want to put dead rats falling to the same thing that their children are eating, and canned meats and other things like that. So now all of a sudden, you have federal meat inspectors that have to inspect meat facilities. And that still exists today. So it’s a consumer revolt in the things that are most sacred, food and medicine, that brings the federal government into a consumer regulatory and consumer protection framework. And from there, you can look at other products, banking, can anyone tell the solvency of a bank, can you take a person that has an average education and look at a bank’s balance sheet and look at their loan portfolio and say, “Hey, is this bank going to be solvent or not after the next financial crisis?” And so then you have need for the FDIC and other things like that. These are basically stabilizing frameworks. You don’t want a revolution. So lots of times, consumer protection, labor protection, environmental protection, what I think of these things are shock absorbers. And if you think about a car, you think about a 911, it’s a rough ride, you put a shock absorber and, of course, it’s taking a little bit away from performance. The more luxurious the ride, the less responsive the car is going to beat every bump in the road, the less you can optimize for it as a driver.
And that’s what it is. So you’re giving up a little bit of GDP growth for a little bit of stability. So you’re just buying insurance, just like you buy insurance on a house. Your income is going down to some degree because you’re taking…a part of your discretionary income is going down if you insure things. But that’s the way that you should look at this regulatory framework. At least that’s how I looked at it when I was treating the emergence of some of these things, safeguards and shock absorbers, that it certainly does cost something. And it does take away from your GDP growth, but downturns, it protects you from having revolution.
Meb: There’s still some echoes I think in the nutraceutical world today, which is a massive industry where, I mean, I don’t know, 90% of the products probably don’t do what they say they do. But they kind of skirt the whole FDA process. There’s been a lot of push-pulls, and we talked about a couple things that I think is probably near and dear to our listener’s hearts that you and I have both experienced at times too, which is the U.S., and the world, of course, but today versus even 50 years ago, versus 100 years ago, versus 200 years ago, if you look at the financial system and capital markets, I mean, what massive differences there are gold standard, no central bank, various currencies, the development of stocks, junk bonds right down the road here in LA, FDIC, on and on and on, and also this constant of booms and busts. You and I lived through my favorite one. But you’ve seen that in history everywhere, and no comment on what we’re going through today. Any threads you’d like to pull on during this book that you thought were particularly interesting as you did the research on any of those topics of the financial sector and booms and busts throughout the last 400 years?
Bhu: Lots of times, I think what sets off these boom cycles, these bubbles, it’s not irrational in my view. Lots of times what happens is there’s a collective truth. Everybody knew that radio in the ’20s was going to be this absolute next big thing. Everybody’s seeing it. It’s transformative. It’s the first time in human history that everybody’s listening to a program at the exact same time. And it’s the first time that someone in New York and someone in Washington DC are able to get the same bit of information at the exact same time. And it’s this collective trance that you can put yourselves in during sporting events, during news broadcast. So that’s when you see RCA become the high-flying stock of the ’20s. Same thing with automobile stocks in the ‘teens. You’re starting to see all types of automobile companies emerge. General Motors is an amalgamation of a number of these different brands.
So anytime you start seeing the consumers react and get excited about the next big thing, and investors get excited about it, and entrepreneurs think of this as fertile opportunity, and everyone sort of agrees, you’re going to have the conditions for a bubble to some degree. But the bubble has a fundamental truth to it, just like the.com bubble. The shape of the book is obviously the next big thing, after the next big thing, after next big thing, all the way for 400 years. But if we take it all the way to the ’90s…and let’s look at crypto now, bring it to crypto now and let’s look at what happened in the ’90s because I did not think that I would see another bubble form to the same extent that I did in the .coms in the 90s but you’re, to some degree, seeing it now. And the reason why is it’s an exciting field. Crypto is certainly a very exciting field. If it does what its biggest cheerleaders say it’s going to do, it’s certainly going to be very transformative. But in the 1990s, everyone knew that the internet is a big deal. You had, even in 1992, during the election between Clinton and Bush, Clinton and Gore were talking about the information superhighway. They were talking about the information superhighway during that campaign before the browser, before Mosaic, before Netscape. This is in 1992. Mosaic comes the year after, Andreessen, when he’s student. And the Netscape browser comes a year after that. And that’s when everybody’s eyes are opened up, that this browser has HTTP, you can use HTML to have this link. This link now retrieves the page served to you via server. It’s going to transform every industry. The entire world somewhat believes it. You start seeing .com on the side of billboards. They don’t quite know what’s going to happen with it. But people are speculating in domain names. It has a lot of parallels to the crypto movement now.
And at the same time, you can say, “Well, AOL didn’t quite make it.” It was worth $200 billion in the year 2000. Netscape didn’t make it past the ’90s. This is the most iconic company there is. It’s a browser. A lot of our young listeners certainly might not even know. Mark Zuckerberg didn’t know, even though Marc Andreessen was on the board of Facebook. He has Marc Andreessen. What did Netscape do again? Lycos, Excite, Yahoo, Alta Vista, Real Player, I mean Real Player, that was a company I interned at, Ask Jeeves. So you look at all those companies that dated, but the internet didn’t fade. The web didn’t fade. You had $2 trillion companies that emerged from that era, both Google and Amazon. You saw Apple, which was a complete…also ran in 1997, take advantage of it, ultimately finding its complete and total dominance when it took the web and put it onto a phone. So that was the moment that, okay, it put it all together, once again, this big UI breakthrough creates this complete next big thing in terms of mobile platforms.
So that’s what’s happening, in my view, in crypto now that people are starting to see, well, what is going to happen? If you look at HTTP, which is hypertext transfer protocol, you’ll get SMTP, simple mail transfer protocol, FTP, file transfer protocol. Now, you’re looking at a protocol that allows you to transfer economic assets between client and server, or a client and client, or server and server for all types of purposes without there being a central bank or a third-party that’s confirming that necessarily. You’re both able to write down. You’re able to have it validated by the blockchain, and it just exists. And it’s a very, very fast transmission. And so you’re having all these protocols fight over who’s going to win that, who’s going to become the standard? Is it going to be Ethereum? Is going to be Solana? Is it going to be Cardano? I mean, I could make up a bunch of names, and these could basically be protocols. I don’t know whether they exist as protocols or not, but that’s what you’re seeing. You’re seeing once again this exact same thing that we saw during the dot-com bubble happen in the crypto space. Would you agree with that, Meb?
Meb: Yeah. Well, this could have been chapter 36 and 37, what would come after mobile. I mean, crypto would definitely be in there. When did the book kind of end, 2017-ish?
Bhu: Just like I had the opening scene of the financing of the Mayflower, I had the ending scene when I was writing it. I might as well just let your readers know. But the ending scene was basically you had these protests at Zuccotti Square in New York. And you have these Occupy Wall Street protests in 2010. And while we’re having these Occupy Wall Street protests, you have people raging about the power of corporations, the power of banks, what’s happening in this country, and at the same time, they find out that Steve Jobs has just died. And that’s the final scene of the book. They find out Jobs has died, and all of a sudden, all of these people protesting capitalism as a part of the Occupy Wall Street movement are morose, are saddened by the fact that the CEO of the world’s largest company, the first trillion-dollar company, ends up becoming the first trillion-dollar company, but at that time, several hundred billion dollars was the largest market cap company in the world at the time died. And that’s the paradox of American capitalism, of both the consumer’s view of it and labor’s view of it, everything else. We all understand that there are some beneficial aspects of it, even if we’re protesting it at the same time.
And that was a very stark example that they understood Jobs’ impact. They had their phones in their hands. That’s what they were using to coordinate their movements at Occupy Wall Street. And they’re raising it up and mourning this man. So that was the final scene. And from there, obviously, you’re seeing all kinds of things happen in mobile now. You saw Uber, and Lyft, and Doordash. And look at all the companies that have gone public right now, Airbnb, you book it right off of your phone. Young people don’t even use laptops anymore. They largely use phones. You look at Snapchat. You look at TikTok, Instagram, multi-billion-dollar companies that are largely built entirely on mobile platform.
Meb: And if so we were to say chapters 36, 37, 38, without giving away addition to the book, let’s sketch them out here, what would we do? Would we do pandemic? I mean, we’d kind of have to do cryptos in a whole chapter, I feel like. Then we got to predict five into the future. What is it going to be, teleportation, space? Space could be one.
Bhu: I think electricity. I think first thing is I think electric cars are a very, very stunning thing. I mean, what’s happening here… I mean, by 2030, crypto…look, let’s see what happens. I mean, we understand that there hasn’t been a consumer use case yet. And I’m a buyer and I’m an investor. I have plenty of exposure in the crypto space. There has to be a hit. At the end of the day, there is not a consumer hit yet.
Meb: Well, there’s the fee taker. You got the coin basis. I love to give my crypto buddies a lot of crap because I say a lot of the original messaging was about disrupting Wall Street. And then I’m like, “Well, why in the world does this brokerage and fun cost 2%? Why can’t you guys do it for 10 basis points like Vanguard can? Who are you disrupting? You’re just co-opting Wall Street’s ethos and just plastering a populist message on it.” Hopefully, you’ll see the fees come down. I think you will. I think that’s an accurate take.
Bhu: Yeah, I mean, very sophisticated products happening in crypto. I mean, like compound and this entire DeFi space. I mean, basically, in a sense, before we’ve invented home loans, we’ve invented residential mortgage-backed securities. So that’s what the space somewhat feels like. It has this extremely high degree of sophistication in terms of financial products. But the end consumer product really hasn’t taken hold yet. Maybe gaming will be a catalyst. Maybe energy will be a catalyst. But there has to be something. I’m a believer that it’s going to make its mark. But in what shape it takes, it’s not quite clear yet. On the energy side and electricity, it’s very, very clear. By 2030, you’re not going to have General Motors or Ford. I mean, I think 2035, is the set target. But probably, by 2030, these guys are going to phase out gasoline-powered cars altogether.
We talk about California all day. But California is not oil-dependent. We’re not an oil producer in any large-scale way. But Texas is. So what happens to a state like that that largely is predicated upon oil production still? What happens to a dynamic where Saudi Arabia is not nearly as powerful as a swing producer on the world oil markets? What happens to Russia? So there are big geopolitical implications if oil erodes as fast as it does. And these things can happen very quickly. Ten years, you have a sudden death of oil, it has very, very large scale implications. And the same time, what happens with Chinese power when it comes to automobiles, for instance, if a car becomes an appliance, more so than a mechanical instrument, and an appliance and a computing device? The Chinese make all the phones in the world. The Chinese make all the great cameras. And if you start relying on cameras for self-driving cars, other things like that, networking equipment, that’s all Chinese. Chinese hands make that. So can the Americans compete if the Chinese are able to take the price point for a self-driving car down to $8,000, $6,000, $5,000? So what happens in those instances?
Meb: It sounds like you already have the chapter written.
Bhu: I don’t have it written yet. But I can see the writing on the wall because cars are obviously next to people’s houses. They’re the next biggest purchase. And you’re seeing consumer spend just go that direct…would you agree with that?
Meb: It’s obvious. If you could walk backwards, you can see where it’s going. You don’t necessarily know how it’s going to go there. But a simple construct of saying, “Hey, look…” And I have a Tesla. And I’m willing to do the auto-drive on the highway. But that’s about it. But you can see where it’s going. But cars, as you and others have noted, they sit idle most of the time. And by the way, I’m so excited to see the Rivian and come out with their electric trucks. They’re damn expensive. I think Ford is going to sell a gazillion of those pickup trucks they just revealed recently. You can see where it’s going. But you how it all plays out in the end game, who knows?
I mean, there was a guy on Twitter, I was listening to a podcast and retweeted the other day, who was talking about kind of food 2.0 and that category and saying, “Look, the dairy industry, as we know it, is going to be gone in 10 years.” I think there’s going to be all sorts of disruption. And so you start to think of the knock-on effects. But that’s like the story of your book. It’s constant disruption and changes. And that’s what makes it so interesting and fascinating, as an investor too.
Bhu: Definitely. And I think, even this pandemic, I think it’s going to have fairly substantial implications. I mean, look at the places that people are moving to, near Nashville. You look at Michael Burry, he’s in Nashville now. And you’re looking at new cities that people are giving another chance. So in a lot of ways, it could also end the tribalism of this country if all of a sudden you have someone living in Los Angeles and they’re like, “I can go to Mississippi or I can go to Tennessee and live in a beautiful southern town and buy a house for $300,000.” It can open things up. I think, at the same time, people have gotten used to remote work. And they might think, “I prefer to be outside rather than commuting for two and a half hours a day. And if I can chill a little bit more and I can grow some crops and this homesteading…” I mean, you’re starting to see these kind of cultural strands.
Meb: It sounds like you have a chicken coop in the backyard. You got some crops in the backyard or what?
Bhu: No. I don’t, but it’s alluring though. You’re in Los Angeles. I’m sure that you’re starting to see this exact vibe kind of take hold. People want to do that. People don’t want to just stay indoors. People don’t want to work all day in front of a screen and go do a hard workout for 45 minutes to burn off those calories because you didn’t use them during the day. I think people are going to reimagine their lives.
Meb: I think it’s a positive trend and the connection to family. I mean, so many walls of pretense have fallen, whether it’s wearing a tie all day long. It’s relatable. You see people in their home, and there’s a two-year-old wandering around the background, or it’s messy, or it’s just life. And I feel like it’s a great trend in general. I mean, one big one in LA that I hope never goes back is of all the cities on the planet to have outdoor dining, LA, for the most part, prohibits most of it. And thankfully, all the restaurants, the struggle, the ones that even survived, they now have spilt out to the sidewalks everywhere. And I swear, if the government makes them pack it all back inside, I’m going to go nuts. But hopefully, some of these things we look back on and be like, “Why did we ever do it that other way? That’s crazy.”
Bhu: Oh, definitely. You know what, the streetcars in Los Angeles, if you’ve ever been to a streetcar exhibit in Los Angeles where you see how many streetcars, there used to be streetcars all over the place in Los Angeles. And it didn’t use to have, obviously. I mean, progress is not always progress. These large, large freeways that we’ve built, we’ve built our lives around cars rather than around what is a nourishing way to live. Certainly, I mean, when you look at Venice, or Santa Monica, or where you are, you want walkable places. That’s what makes it fun. And you want the people energy, not to be sitting in a steel box going five miles an hour.
Meb: We’re about two miles away from our house. So I joke we can only move closer to the office and further away. It’s like one of the number one determinants of unhappiness is that long, terrible commute. And I’m really frustrated because LA, if LA was like the city it was during the pandemic as far as traffic, not talking about anything else, folks, just traffic, oh, my God, it was like the best city on the planet. You could get anywhere in 20 minutes. And I’m sure everyone from Atlanta and San Francisco when I was just up there, got absolutely pounded with traffic can relate. So hopefully, the autonomous fixes some of this. I’d love to keep touch on a few more topics before we got to let you go. We’d love to hear you talk a little bit about this American form of capitalism and what it means versus some other global takes and ways other countries are going about it. Any differences, any positive aspects here or abroad that you think have potential, or negative aspects, or any just general thoughts on the state of capitalism globally? I mean, we have a lot of people in the U.S., particularly on the younger side, espousing a certain interest in socialism and other types of ideologies.
Bhu: I think it’s very hard to take lessons from one experiment and take it over to others because it is a very unique thing. I mean, look at the United States. We have two large oceans buffering us. You look at Europe, compared to Europe, first-world living standards, and yet, if you’re a German company, you have to rebrand your product to the French language, for Italian, for Spanish, for English. Even though it’s one contiguous market, there are a lot of cultural differences that don’t necessarily unify the market. So you have Peugeot and Renault in France. You have the German automakers in Germany. You have Fiat in Italy. So even culturally, you have these roadblocks.
At the same time, you look at India and China, obviously, very, very large populations. They’re fairly new countries in terms of their political forms, certainly not as in civilizational form, ’47 and ’49, fairly recent. It’s very hard to take this particular country’s results and take it over. I always think of this as the Michael Jordan of countries. You can’t teach people to play basketball by saying, “Well, just look at Michael Jordan. He just does his little fade away, hits it, and it goes back on the court and plays defense.” This is a very unique set of circumstances and ocean. War is one, natural resources. I mean, look at the immense amount of natural resources we have. If you look at throughout the ’80s and ’90s, Germany and Japan were the second and third largest economies in the world. Neither of them have oil. The United States has oil. The United States had the largest gold discovery at the time in the 1840s. So natural resource abundance is something that we’ve taken for granted in this country. But it certainly has had fairly substantial implications on our economic trajectory.
And going forward to a very large degree, we’ve had a large internal market, so one large internal market of 300 million-plus people. And China, for the first time, is going to have a very large internal market that can also afford its own products, middle class and upper-middle-class products for the first time. And that’s what you’re starting to see happen. And that’s a lot of internal momentum where you’re not looking for external demand to buy your product, but your own internal demand is your own driver, is your own economic driver. So that’s a fairly new thing. That’s going to happen in India as well. In India, you’re seeing a different set of forces unfold. You don’t have the manufacturing capacity that you’re seeing in China. You’re seeing a little bit more top-heavy, where the IT sector was the dominant driver, and still the dominant driver. Outsourcing, we took up a lot of outsourcing jobs from this country in terms of banking, insurance, business process outsourcing. That’s had some trickle-down effects, certainly. And it certainly is very ready for the internet because a lot of the computer scientists that we’re working on those other things are now looking at entrepreneurial internet products and mobile products for the Indian market. So that certainly is going to emerge as well.
But each country takes a different shape in terms of its economic development. And I do see the skepticism. And at the same time, young people are very much consumers. They’re not looking at consumer products and they’re not minimalist all of a sudden. I mean, they love differentiated consumer products. They’re buying all kinds of virtual goods. You’re looking at Fortnite. So in terms of their actual spending, they’re very much as much consumers as teenagers and young people who were in any other generation. I think what has changed though is a little bit of optimism for the future. And I think it’s a real concern. I think every generation before always thought it was going to do better than the previous generation. But I don’t think that the competitive landscape in America right now certainly leads young people to think that we’re going to continue to be the most powerful nation on Earth. So I think to some degree, it’s a reflection of reality that, okay, we’ve had this enormous economy, we’ve had this tremendous economic growth, it’s certainly been a great privilege to live in this country, but now, do we continue to accelerate forward at the same pace? Is that even possible for us to accelerate forward at that same pace, or do you need to have a little bit of a recalibration whether it’s education? I mean, at some point, we must have said, “We’re going to go K through 12 and not K through 8.” So is it a big deal to add grades 13 through 16? Lifespans are a lot longer.
Meb: Take off your economics hat, put on your policymaker hat, what do you suggest? What are the fixes? What should we be doing?
Bhu: Certainly, with healthcare, it’s a massive mess. There’s nothing efficient about the system that we have in this country right now. And I don’t think that it costs us less. I think that no matter what I think it’s basically, we know as a society that we can’t just let someone die in the middle of the street because they don’t have health insurance. We know we’re not going to tolerate that. We know we’re not going to do it. We’re not going to say, “Oh, if you can’t afford it, that’s tough.” So if we already have come to that conclusion and we know that old people, we can’t afford for them not to have health insurance, so we have Medicaid and Medicare. For young people, we certainly have all types of care. So I don’t think it’s socialism. I mean, I think you’d call it socialism. But I mean, K through 12 education is socialism. If you go into the most republican town in this country and say, “I want to eliminate public education,” they’d be up in arms. So to some degree, that’s K through 12 education is certainly socialism. In fact, it was in the communist manifesto. Karl Marx had a 10-point plan in the communist manifesto, and one of the 10 points was universal public education. So I think community colleges, I mean, I think that that certainly could be free.
And I do think that college education is another place where it’s set up a huge burden on young people. And if young people don’t buy into the system, it’s not going to last anyway. I mean, at the end of the day, you’re not going to be able to fight off an entire generation that’s coming up there that do not feel hugely optimistic about things, that feel like they’re highly burdened, they can’t afford health insurance, and because they can’t afford health insurance or their student loans, they’re not having children. It has a lot of implications. If your young people do not feel optimistic about your society, you’re not going to have a society.
Meb: I did an article surprisingly got a lot of crickets given policy proposals. I feel like anytime you wade into policy and politics, people start to lose their mind. I feel like a number of the proposals are hard to argue with or they’re just sensible. But politicians in the U.S., I think eventually head to the right direction after some cajoling. But the short term, who knows.
Bhu: It’s a large country as well. I mean, you think about this as well and I understand both the right and the left oftentimes. Not just splitting the differences down the middle, but California has a huge budget surplus because we’ve had a lot of companies go public last year. We don’t want to jinx it, right? But at the same time, you look at the federal tax burden on California, it’s fairly substantial. So we can complain about the state tax burden all we want, but the federal tax burden is much larger than the state tax burden. So you have to think about that. I mean, you have to think about, okay, is this is a republic of states or is it vary one large federal apparatus? If this state had a lot of latitude, it could probably afford health insurance for everybody in the state of California, it can’t afford it for everybody in the United States. I do think that the federal government has done very, very large. It’s lost its sense of mission certainly, without question, man. I don’t think any listener out there thinks that there’s any real middle ground right now. We’re still very much in a state of political limbo, it feels to me.
Meb: We can’t let you go without hearing what you’re up to now. What’s going in your world? What are you working on other than version two of the book?
Bhu: I am sketching out my next work. But at the same time, I’m largely focused on start-ups here in Silicon Valley. And I think I got to have one more rodeo here before I can grow this beard out and go into a cabin somewhere and focus on writing for the rest of my career. I am very much interested in the start-up world. So I am working on something.
Meb: Can you discuss it all, or are you going to keep it under your cloak?
Bhu: We’re working on one thing in sports gaming. So we have a very large investment in something in sports gaming. And sports gaming is prediction gaming, whether you’re predicting sports, fantasy sports, sports betting, sports gaming, free to play. So we’re working on something there in terms of in-game sports. I’m a huge sports fan. When I’m not thinking about policy, and capitalism, and socialism, and communism, and literature, I’m generally watching sports.
Meb: I love it. What are your teams? What’s your sports, what’s your teams?
Bhu: I used to be a Bills fan growing up.
Meb: Well, we can commiserate. I grew up a Broncos fan. And no one really had a tougher childhood than you and I. My wife, who didn’t really grow up watching football, watched the Bills 30 for 30 and was like crying by the end. She’s like, “Wait, no, he’s not going to miss this field goal again.” And I was like, “No, this isn’t fiction. That was what happened.”
Bhu: Well, the Broncos did turn it around though. They got back-to-back Super Bowls, once Terrell Davis…
Meb: We’ve had retribution. So you guys have a good team. I think you’re on the precipice. But we’ll see.
Bhu: No. I always love watching those Broncos. I’m a huge John Elway fan, always rooting for the AFC too. And that was like all the quarterbacks on the Class of ’83, Elway, Marino, Kelly. It was a lot of fun to watch those guys.
Meb: Your origin country, I heard a stat the other day and I could be wrong, but it was talking about fantasy sports. And it was like the amount of people playing fantasy cricket is bigger than all the fantasy players in the U.S. or something just because of the sheer numbers of people that were interested in cricket. I’m sure soccer is similar, which to me seems an amazing takeaway. I’ve only seen one cricket match ever. And it went on for five days or something.
Bhu: Well, ever since the Indian Premier League, it’s been huge. And so I think that’s going to be a very, very big thing, obviously, in India. But here too. I mean, I think the sports gaming revolution is certainly coming to people’s screens where you gamify the sports’ viewing experience. The whole SPAC boom was started off by draft gangs. And I think at the same time in gaming, I think crypto is going to have a very, very huge component to it. I think that could be the first area where crypto really has full-scale applications because tokenization has very much been a part of gaming environments. So if you can kind of bridge those two things together, where in sports we’re seeing, obviously, this whole movement happen in terms of you see DraftKings and FanDuel and Penn National, all this stuff everywhere, and then you’re seeing crypto. So I figured that if I combine those two things, I’ll be okay.
Meb: We’ll definitely want to have you back on the podcast to talk about it. I mean, that’s an entirely different area. We’ve talked a little bit about sports analytics and betting on the show in the past. But it’s an area that I think everyone has a ton of interest in and obviously prediction markets. The crypto angle, you mentioned, I think it’d be fun to see when it kind of…and my belief is that it’ll become widespread once it sort of recedes into the background. And you don’t even know some of the applications are crypto-focused and there’s so much jargon in that world, but rather kind of like computers or Apple today, where your products just work. You don’t necessarily know what’s behind them. But it’s seamless, and it’s just a good user interface. That seems to me where crypto will really find it’s standing.
Bhu: I mean, I’m thinking about more from an investment standpoint, what protocols are going to win? I mean, you have a lot of investment now in protocols. People aren’t even investing in companies. They’re investing just in protocols or the tokens themselves, and there aren’t really even these companies behind it. There are these things called DAOs, these decentralized autonomous organizations, or you have automated market maker. So you have all these new things that are coming out there that are quite interesting. And sometimes, when you pay attention to it a little bit early on, it makes it a little bit easier for you to evaluate projects once they get to a little bit of maturity. And it helps to know history in real-time. And that’s something that helped me in writing this book is that when you actually exist in a commercial market in real-time, it’s easy to understand what happened in the 1870s, for instance. You can go read the paper for three, four weeks at a stretch and you pretty much understand what happened because you’re able to absorb that information the same way you would absorb it today.
But prediction markets, I think that’s another big area. Once again, I think prediction markets and politics, we’ve seen it. But I think in sports, there’s just a lot more variables. And I think it’s a lot more fun in sports than it is in is Biden going to win the election or Trump going to win the election? I think that we’re looking at highly compressed prediction markets where the entire outcome is known in three minutes, five minutes. It could be ready to complete two passes on this possession and a probability that’s highly volatile based on what happened on 1st and 10, what’s happened on 2nd and 10. Has he not completed passes 3rd and 10? He still needs two completions. If he gets a completion on this pass, right, on this certain 10 right here, what are the chances that he’s going to complete another pass on the next set or down? So that type of compressed proposition generating, pricing, and settlement I think are very interesting things as well. So that’s some of the things that we’re working on.
Meb: These sports bet, not technically a sports bet but it was during a sport event that I’ve lost more money on in my entire life, which is not a ton by the way, listeners, don’t get too excited, I’m not gambling away all of my assets, was…and I thought I had a quality edge knowing me, was how many times Donald Trump would tweet during one particular day. And the day was during, I believe it was the Mayweather-McGregor, I think. And the number was obscenely low. It was six or something, or eight. I can’t remember. So I went back and ran all his daily tweets, day of the week and day. And he tweeted on average 15 times a day. But the other part, there’s two what I consider to be unknown pieces of information. One was it was actually from both accounts, so his account and the POTUS account. And two, there was a hurricane making landfall that morning. So I’m like any president in their right mind will be tweeting things about the hurricane before they start tweeting about this fight. And son of a bitch, if it didn’t get up to like…if it was eight, it got to like seven tweets, and then he just went to bed.
So I lost, but in the terms of the bet, and again, I was betting on a book in Barbados or something, it didn’t include retweets, and he had retweeted some other stuff, of course, but Twitter’s terms of service describes a retweet as a tweet that’s been…anyway. And so of course, I was sending him emails being like, “Well, you guys don’t…” and then eventually, they’re just like, “Dude, go away. This is embarrassing.
We’re just going to give you $100 credit or something. Good luck trying to get this money back.” Anyway, I thought I had all the analytics on my side. It was a sure thing. Good thing I didn’t bet the farm because I would have no farm anymore.
Bhu: So the old render was six tweets, and he had to tweet six times about Conor McGregor?
Meb: I took the over, right, because in my mind, I was like, “Per day, he’s already at 10. And then it’s two accounts, so it should be 20. And on top of that, it’s a hurricane.” It goes to show outcomes are never certain.
Bhu: He was a sports fan. That’s one of the areas where he did keep his thumbs on the culture.
Meb: I think he was buddies was Mayweather too or something. I could be getting specifics of this entire story wrong, but directionally it’s caused me a lot of pain and anguish.
Bhu: He’s a big friend of Tyson because in his Trump casinos in the ’80s, Don King too…Don King is obviously a friend of Trump’s, and they used to have a lot of the fights at the Trump properties. I don’t know about Mayweather necessarily. But I was at Miami, speaking of Mayweather, recently. I mean, in Miami, that was a tremendous amount of energy. By the way, you talked about next big things, the next big cities, that energy to some degree was very much real as a tech hub.
Meb: Bhu, if people want to follow what you’re up to, obviously, they got to go pick up the book, “Americana: A 400-Year History of American Capitalism.” Can they follow you on anywhere else if they want to see what you’re up to?
Bhu: I’m not a big social media person. On occasion, I do follow a lot of people. I’m not a big tweeter or tweaker, either one. I just do a lot of reading and my business takes up a lot of my time. And for whatever reason, sometimes styles just don’t fit. It just never fit for me. But we connected off on Twitter though. My DMs are open, so anybody that wants to ever DM.
Meb: I would have found you no matter what from the book. I would have called your publisher and knocked on your door in Marin, so.
Bhu: Anybody can always DM me. I’m always interested in hearing from people. And I might not always get back. I’m not a highly responsive person necessarily just because I like to just be 100% focused on whatever it is I’m doing at the time. But I did hear it. And if it syncs up, I’m always interested in being in touch with people.
Meb: Listeners, pick up his book. And, Bhu, thanks for joining us today.
Bhu: Yeah, thank you Meb.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at the email@example.com. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening friends, and good investing.