Evidence #8
Charts covering American values, Chinese technology investment, aging, energy, weight loss drugs, unionization, and network effects-driven businesses.
Interested to get these notes? Subscribe here.
Evidence is a dinner series where guests each share a chart that is "evidence of a changing world.” Hosted by Damir and Dino and supported by Index Ventures.
This dinner was hosted in NY. We were joined by 1 technology company founder, 1 consumer products company founder, 1 director at the U.S. Department of Commerce's CHIPS Program, 1 senior banker, 1 executive at an oil & gas company, and 1 executive at a leading PR firm.
The group generally agreed that the decline of these values was bad thing for America. We discussed what could possibly reignite patriotism - perhaps the emerging rivalry with China? We also commented on how “wokeism”, aka personal grievances masquerading as genuine social concern, has seemingly filled the void that these values occupied. Is the internet and/or social media to blame? A study showed that content on the internet has only become more negative since the year 2000. Do we need to get off of our phones to feel like we’re part of a community again? Or does an existential risk need to emerge that reunites us?
Everyone should read Chip War to fully appreciate the technological race between the US and China right now. The US is investing $50bn to build out domestic production of semiconductors due to the significant risk of China taking Taiwan (with the government believing it will happen peacefully). The specific risk is that China will get access to GPUs that will enable production of more powerful weapons, computers, and AI systems than what we have. China is not waiting for Taiwan either. The Chinese government invested $300bn to increase domestic production capabilities in 2022. In terms of aggregate annual R&D spend on technology, the Chinese government is now spending an almost equal amount to the US public + private sector. China is also showing impressive results. Huawei recently released a phone that rivals the iPhone. China also recently used a sophisticated military weapon to shoot down satellites, another surprise to our government. There is concern that China will be more willing to use sophisticated military technology as it develops it. China is also leading the global race to process lithium and productize it into exportable technologies (cars, etc.). The US will have supply chain and labor challenges to overcome to domesticate semiconductor and battery production. We discussed how the US’ big advantage is immigration policy and how the country should continue to be push on attracting and recruiting the world’s best knowledge economy workers in order to maintain our leadership.
We discussed how finding happiness in a career and in retirement is more important than happiness in early life given we spend more time in those life stages. Finding purpose in a career and in life broadly is especially important. We discussed how learning the right behaviors early can lead to higher quality of life later in life (watch Live to 100). We also talked about how every incremental moment lived is a smaller % of our total life and, as a result, you need to do new things to keep life exciting and make it memorable. We mentioned how these visuals may be potentially inaccurate given how lifespans are expanding. We also had a deep discussion about the financial implications of retirement. Many Americans are unprepared for a long retirement, and this may cause wealth transfers between generations especially given the demographic situation in the US. To expand on this, in 2035 there will be 78m people >65 years old compared to 76m <18 years old. We discussed the merits of the US government implementing a baby bond program where the government funds a $1k account for each newborn and keeps the capital in a S&P500 index (which has compounded at >7% annually for 50 years) until the child reaches retirement age and can access it. This is would imply that America “is working” for the child and would in theory solve for the people’s rather poor ability to save for the long-term.
Most things that we consume have transformed into modern products. However, we are still major consumers of “old school” energy. In his book How The World Really Works, Vaclav Smil argues that the definition of a progressing society is more energy consumption per capita. The human body only consumes 90 watts of energy per day, about as much as a light bulb, but we consume a much bigger wattage of energy for our air conditioner, car, and other modern comforts. So the world will keep consuming more energy and we will need to continuously expand our energy supply. Generally speaking, the mass public doesn’t really seem to care where energy comes from. Paradoxically, the most environmentally focused citizens who constitute the Green Party are the ones who are the most vocal against nuclear energy. There was general agreement that nuclear is the solution but other challenges are that nuclear plants takes 20+ years to develop and uranium is in short supply. So it’s hard to imagine that demand for fossil fuels trends negatively in the years to come as energy demand grows. That also means that oil and gas companies will continue to profit significantly from the world’s inability to achieve an energy transition.
One of the attendees was on Ozempic. He has lost 80 pounds on the drug in 18 months. He highlighted that there is a big shortage in the US and purposefully stocks up inventory in his refrigerator. He mentioned that he tried many other lifestyle changes before starting Ozempic including dieting and exercise but could never achieve significant results. This drug mimics a hormone to creates a satiety effect. Put differently, when taking this drug, you can look at food and have no desire to eat it given your sense of feeling full. He doesn’t necessarily eat healthier but certainly eats significantly less total calories each day. This drug could be the world’s most successful therapeutic, especially given you need to stay on it to maintain the feeling of satiety. Today, ~4% of the US population is taking a GLP-1 drug, and the usage is growing 111% year-over-year with 373k new prescriptions being written each week. 40% of the world’s population is overweight or obese which suggests growth may not slow down any time soon. Growth may actually only accelerate if insurers begin to reimburse the cost given the multiple benefits for cardiovascular health, weight loss, and potentially other indications including smoking cessation. This is all beginning to have wider scale impact. Walmart and other retailers are beginning to cite revenue mix shift across product categories due to growing use of weight loss drugs. In the not far future, consumer spending on food could start to shrink which could have broader implications for the grocery and restaurant industries.
We started this discussion by arguing that this was a rather small percentage of the US total workforce that is unionized. Problems with unionization emerge when massive parts of the workforce are unionized like in Argentina where 40% of workers fall in this camp. In countries like this, labor strikes shut down the entire economy and also give unions huge leverage when demanding wage increases (which then drives structural inflation). In the US, labor strikes seem to mainly arise when a certain type of labor sees its livelihood diminished. The right answer, although hard to accept, may be that certain workers should be switched into new jobs as old jobs become obsolete. We debated a topical example of the Writers Guild of America strike which is pitting screenwriters and actors against studios. The main demands of screenwriters and actors are to receive a higher percentage of residuals (income from reruns of content) as this income has dissipated over time and to limit the use of AI technologies to research/ideation and to not be used as a tool for replacement of writers and actors. We went around as a group and commented on who we would side with - 6 of 7 attendees sided with the studios. The conclusion was that this seems like classic protectionism. Technology is advancing which is making it possible to produce a lot more content (thus hurting residuals) and soon the cost to produce content may come down another order of magnitude if AI can generate the scripts and render the scenes. The 1 opponent to the consensus argued that creativity is not dead and that it is important for our society to not cede creativity to machines.
We discussed how technology has advanced (internet, mobile, AI) and how few apparent aggregation opportunities exist in the current paradigm of how we engage with technology (largely mobile phones). The global networks for search, messaging, payments, transportation, hospitality, and many other sectors have already been built. What is left? We also discussed how hyper-attuned incumbent technology companies are to areas of change and how they are eating into the major opportunities that would historically be captured by startups. The large tech companies are so paranoid that they are preemptively investing in new aggregation points even if the potential of recouping their investment is very far off. A perfect example of this is how Meta has lost >$20bn to finance the development of its VR platform (aka metaverse). Is this the beginning of the lost era of venture capital where investors find niche SaaS opportunities but struggle to find the fund-returning network effect businesses? Or are we just not looking deeply or creatively enough for aggregation opportunities? A good counterexample may be SpaceX. While not apparent when thinking about SpaceX as a rocket launch business, SpaceX is now building out a global satellite internet business called Starlink which is only made possible by the significantly lowered cost of getting satellites into space. The hunt is on…