Marc Andreessen on Software, Immortality, and Bitcoin

Marc Andreessen: Yeah. So, that piece–that was in 2011. That had a couple of messages in it. There was an explicit message and an implicit message. The implicit message was–if you remember the time, 2011 was still during the very dark days of the economic crash after the global financial crisis in 2008. So, in 2011, there was an almost comprehensive pervasive sense of tech pessimism. And, there was a sense that basically tech was over, and that this was another 2000-style crash, and that these companies were never going to come back, and venture capital was dead. Apple at the time was trading at a P/E [price/earnings ratio] of, like, six. You know, like, I used to say Apple was trading like a steel mill that was in the process going out of business, as were all the other really kind of good tech companies. And so, there was just this pervasive sense of doom and gloom.

And so, one is: I just wanted to put a stake in the ground that actually no, tech is not dead. And, in fact, tech is not going anywhere. And, in fact, there is actually a big tech boom coming, which is what happened.

That follows the explicit thesis of the piece, which is: We have hit critical mass in our era with this sort of very magical technology called software. I call it a magical technology. It’s quite literally like alchemy. I compare it to–you know, Isaac Newton spent 20 years trying to develop the so-called philosopher’s stone to be able to transmute lead into gold and he never succeeded at that.

But, now we have this just incredible technology where you can sit at a keyboard, you can type in letters and numbers on a keyboard, you can press Enter, and then things change in the real world. Right? The real world reorganizes itself according to what some coder has typed into a software.

And, there’s obvious examples of this that happened. It was happening at that time with services like Lyft and Uber. Right? The coders at Lyft and Uber type in incantations into the keyboard; they press enter; and all of a sudden a million cars and riders are going different places. There’s a thousand other examples of this.

And so, software–I sort of point out in the piece–software is sort of a magical technology in economic terms for transmuting labor into capital. It’s a magical technology for transmuting virtual into physical. It’s a magical technology for transmuting human creativity into action in the real world. And, then in fact, a world of basically ubiquitous computers, everybody having a computer in their pocket due to the smartphone, which was hitting critical mass right around that time, meant that basically this magical technology was going to sweep across basically every domain of human activity and be transformative.

And, I would argue that the last decade has confirmed that. And, then I would also add the process is still just getting started.

Marc Andreessen: They had two marketing pitches. One marketing pitch was 1,000 songs in your pocket and the other marketing pitch, the ad campaign was called Rip, Mix, and Burn.

Marc Andreessen: Right? Which meant you could rip your music: You could pull your music off of the physical compact discussion [CD] and you could transmute it into a mix. You could transmute it into software and reorganize it in bits and then burn it onto, at the time, a writeable CD. Or you could upload it onto your iPod.

Marc Andreessen: Yeah. This is the big critique that I would level against ourselves. The big critique I would level against ourselves–which is, you know, Silicon Valley, the tech industry, venture capital, startup founders–the big critique I would level against ourselves is: All of the sectors of the economy that you correctly mention, the ones that are being transformed by software, they’re all small. Right? If you look at a pie chart of gross domestic product, they’re all small.

And then, in fact, what technology does–technology does something very interesting: Technology drives down prices. Right? So, technology is deflationary in the sectors that it hits.

And so, those sectors, in many cases there’s something of an effect where you drop the price, you increase demand, you increase market size. But by and large, what’s happening is those sectors are shrinking in size. Right?

And, you know, the music industry has been through this severe kind of deflation. In fact, newspapers–you mentioned newspaper revenue has been way down.

So, there’s been this effect where basically revenue in those sectors has shrunk. And so, those sectors are basically small and shrinking.

On the other hand, you have these other sectors. And by the way, just the term I use to try to keep these straight is sort of the fast sectors are the small ones that have technology affecting them very directly and then are shrinking. And, I call them the fast sectors because they are sectors experiencing rapid productivity growth. Right? And so, that’s the first set.

Then you’ve got these other sectors. You mentioned healthcare, education. I would also add housing. I would also add law–law administration bureaucracy. And, then I would also add government.

And so, to me those are the big five that I think about a lot.

I call those the slow sectors. And, the reason those are the slow sectors is–first of all, they’re very big. They are the lion’s share of GDP [Gross Domestic Product] if you look at the pie chart.

And then, to your point: they’re not being affected by technology to the same extent. In fact, arguably, if you go into the details, probably what you would find is at least some of them are actually experiencing negative productivity growth. Right? And, you can see that by just looking at administrative bloat. Right? You see this in higher ed, right? The number of administrators has, like, ballooned out massively in the last 30 years whereas the number of professors actually hasn’t changed very much.

The same thing is happening in healthcare. Right? We’re sort of drowning in administrative costs.

And so, this so-called slow sector, slow productivity growth, slow adoption of new technology, probably negative productivity growth, and then as a consequence of all of that, rising prices. Right? And so, all of those sectors have the characteristic–housing prices keep rising, healthcare prices keep rising. Healthcare, you know well, but healthcare now is a fifth of the American economy–right?–and still growing. And then, of course, education. The price of a four-year private college degree in the United States is going to reach a million dollars. And, it’s going to reach a million dollars in, like, the time horizon of those of us who have young kids.

And so, it is this tale of two cities. There’s a long discussion to be had, of course. And there’s entire fields of study around basically what’s wrong with these slow sectors.

And, there’s lots of aspects of regulatory capture and government entanglement and cartels and monopolies and indirect payment and so forth and so on. But, there’s also just a really big technology factor, which is: those sectors are not absorbing technology very fast.

One of the big opportunities in my world is to go after those sectors. Is to inject new technology into those sectors in the same way that we’ve injected new technology into media, entertainment, retail, and so forth.

Optimistically, what I would say is there’s an opportunity to basically crack the price curve. There’s an opportunity to take these sectors and turn them from slow sectors into fast sectors. If we do that, we should be able to crack the price curve. Right? We should be able to over time–you know, tilt the price curves in the other direction–which I think would be overwhelmingly a positive thing for all of us. But, boy, there’s a lot of work involved to do that.

Marc Andreessen: Yeah. Well, there’s this–I always point out there’s this amazing thing in antitrust law–antitrust cases–where, basically, no matter how a company prices its products, it’s in trouble. Right? High prices are gouging. Low prices are predatory. And, the same prices are collusion. Right? And, all three are illegal.

A very similar thing happens, actually, in these sectors. Like, healthcare, you mentioned, which basically is: If you think about what are people mad about? People are mad about, for example–like, every reporter, every newspaper journalist in the world is really mad about the collapse of pricing and, you know, information. They’re really mad about the rapidly falling–basically the collapse of the pricing of the media industry. They’re very angry at tax–

So, there you have a constituency that really hates falling prices and very much wishes that prices would rise.

On the other side–on the healthcare side, right?–that same person goes to their doctor and experiences spiraling healthcare prices and is really mad that the prices are rising. And, very much wishes that something would happen that would correct those price curves and cause those prices to fall. Of course, the doctor is in the exact opposite situation. He or she loves the rising healthcare prices, or very much would like the information to continue to get cheaper.

So, there is–this is basically the way that I decode a lot of the sort of anti-tech kind of sentiment that you see running around in the last decade, which is: One set of people are really mad at us for the effect that we’re having on the fast sectors and another set of people are really mad at us for the effect that we’re not having on the slow sectors.

Marc Andreessen: Now, I happen to know where I think the world should go, but it will be the case that as this stuff–this is now major league stuff, right? We’re not talking just, you know, video games or whatever, anymore. We’re talking about the entire economy.

And so, kind of, these effects and people’s perceptions of these things and the different–to your point–the different constituencies, the different pressure groups, the different industry groups, their views, the political capture–like, all that stuff is becoming very primary.

And, by the way, we see that in our companies. We just have more and more companies all the time that are getting embroiled or injecting themselves into regulatory and political affairs that would’ve been inconceivable even 10 years ago.

Marc Andreessen: I think it’s–you know–I think you’re right. I’d add to that, it’s a fear-driven, comfort-driven thing. There’s a great example, which is, right?–surveys, polling shows all the time people absolutely hate Congress. Right? Congress will have a 10% approval rating and people love their Congressmen. Incumbent reelection is, like, 90%.

My interpretation of healthcare is basically people hate the healthcare system, but they love their doctor. And, that’s an emotional response. Right? It’s an emotional response on both sides–which is: you hate the healthcare system because it feels big and scary and bureaucratic and like it’s a lot of times out to kill you. You love your doctor because he or she is the person who’s trying to save your life. So, there’s that.

The macro–the kind of the macro-observation that I would make is that I think if you chart–and maybe we could put up for your listeners but Mark Perry has this chart he keeps updated that he calls the Chart of the Century which shows the price curves–right?–of these different sectors. And, it sort of famously shows healthcare, education, housing, these spiraling prices basically straight to the moon in red and then these falling prices in the fast sectors in blue. And, if you just, you know, you just chart that out, right, basically what you see is–you know, going to the very basis of this conversation, what you see basically is–the three markers of what at least in the United States we call the American Dream, which is to say, a viable, reasonable, aspirational middle-class lifestyle–the three markers have and always have been: You own a house, you have great medical care, and you have great education for your kids.

And, if you have those three things, you achieve the American dream and you are a successful, you know, provider for your family. You’re able to provide your kids with a better life than you have.

And that’s sort of–you know, that’s the foundational aspect of life in a sort of middle class, kind of bourgeois kind of world. And, other countries have their own articulation of it, but it’s those three things over and over again.

And, what we’ve done, collectively, right? is, you know, by having those be the three sectors that have these just incredibly rapidly spiraling upward prices, what we’ve done and what we’re doing is pricing the American dream and its equivalent in other countries out of the reach of a lot of people.

And, it’s just like basic logic: That’s like, okay, what would happen? If you ran an experiment on politics, and you did that on purpose and you were trying to see what political response you would generate, the response would be populism.

And, by the way, the response would be left-wing populism in the form of people who would want the government to step in and fix this. And, then the response would be right-wing populism by people who would want to overthrow the existing system and have a different approach.

And of course, in our politics, that’s exactly what we see.

And so, with my economic hat on, it’s like: Oh, this is just straight obvious cause and effect. This is societal self-harm. You know: We should not do this.

Marc Andreessen: Yeah. And, in fact, when you look at–I’ll just make one more point on this because our companies live this every day. When you look at how the government tries to help in these three sectors, right, what you see basically is the same pattern in each of the three sectors. And, it has two parts. And, the two parts are restriction of supply and subsidies of demand.

Marc Andreessen: Right. And, the restriction of supply–the restriction of supply–takes the form basically of regulatory capture and then monopolies and cartels. Right?

You can just take education as an example. Education is very straightforward on this. K-12 [Kindergarten through 12th grade] in the United States is a government monopoly. And then the university system is a cartel. And, we know the university system in the United States is a cartel because access to federal funding for a college or university is controlled by what’s called accreditation. And, the accreditation agencies are run by the existing universities. Right? And so, it’s a self-governing cartel–

Marc Andreessen: And, lo and behold–

Marc Andreessen: Hospitals. Same thing.

Marc Andreessen: Of course, professional associations. New doctors, new nurses. Right.

So, one theory of [inaudible 00:20:45] healthcare is there are nurses, there are also nurse practitioners. Maybe we should have a lot more nurse practitioners. The nursing unions go–so yeah.

So, you see this, basically, this restriction of supply. This, either directly government-directed restriction of supply, or government-enabled and supported. The government makes Federal Student lending available to the accredited colleges and universities and not to the others even though those are not government agencies. And, even though the accreditation bureau, the bureaucracy itself, is not a government agency. It’s sort of a de facto extension of the government.

So, you just see this restriction of supply thing over and over again.

And, then to your point, the subsidization of demand. You have, you know, trillions of dollars of subsidies into residential mortgages and house purchases in the last 60 years. You have trillions of dollars into student loan funding and all kinds of other subsidies for universities. And, you have many trillions of dollars in subsidies into healthcare, through Medicare and all these other government systems.

And so, again, it goes back–it’s like Micro/Econ 101, right?

Marc Andreessen: Take a market: You restrict supply, you subsidize demand, you get prices to the moon.

Marc Andreessen: California, we’re now providing consumer gas subsidies. The California government sent out–it’s actually a great–this is such a great example. So, the California government sent out $400 gas cards because gas is getting expensive. So, they sent out $400 per car that you own. And, so, first of all, it was great for me. Like, I own two cars: I got $800 bucks.

Marc Andreessen: I really need it.

Marc Andreessen: I’m not the most obvious recipient of government aid. And yet I got it. So, congratulations to me.

And, then, you know, by the way, my neighbors–right?–who own one car or own zero cars, because they’re, you know, environmentally responsible and they bike all the time, they got zero subsidies.

And, then, of course, the twist is, California does everything it can to prevent new drilling of energy–right?–new oil and gas extraction.

And so, once again, it’s a case study: restrict supply, subsidize demand, and be absolutely–every single time–absolutely surprised by the result. Right? We’re like goldfish on this issue. Like, we’re stunned every single time prices rise.

And so, anyway that is what we’re trying to do.