Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, we're recording this on June sixth, and yesterday we
Speaker 2: got the news of New York City Governor Kathy Hochel
Speaker 2: permanently putting a pause on a proposed congestion tax people
Speaker 2: driving into the City of Manhattan from the outer boroughs
Speaker 2: or other states. And I have to say, like reading
Speaker 2: about the whole thing like it kind of depresses me.
Speaker 4: It's crazy that story.
Speaker 3: I'm sorry, but Joe saw me kind of going off
Speaker 3: on this in an internal chat room yesterday when the
Speaker 3: news kind of filtered out. But regardless of where you
Speaker 3: sit on the ingestion pricing debate, I think we can
Speaker 3: all agree that a last minute you turn, after years
Speaker 3: and years and years of public consultation, all this matter,
Speaker 3: after the installation of the machines that we're supposed to
Speaker 3: take photos of everyone's license plate and actually get the fees,
Speaker 3: that this is not an ideal outcome to actually cancel
Speaker 3: the plans two weeks before they were supposed to go
Speaker 3: into effect.
Speaker 5: Yeah.
Speaker 2: Look, I'm a neutral journalist at a mainstream publication, so
Speaker 2: I have no opinions on policy. Ever, it is not
Speaker 2: my job. But it does seem to me that there's
Speaker 2: something wrong if you spend like probably one hundred million
Speaker 2: dollars in studies and you talk about something for sixteen
Speaker 2: years and you have all these things and then it's
Speaker 2: like at the end, it's like nah, and it's like
Speaker 2: how do we like build anything in this country?
Speaker 4: It's just surreal.
Speaker 3: Sorry, the more I think about it, the more I
Speaker 3: just like start laughing and then kind of crying as well.
Speaker 4: It's it's crazy.
Speaker 2: But of course this comes up all the time in
Speaker 2: so many episodes we do, whether it's around housing, or
Speaker 2: whether it's about electrification, or whether it's about installing offshore wind,
Speaker 2: whatever it is. It seems like there is a major
Speaker 2: problem in this country about like how long it takes
Speaker 2: to plan things, how long it takes to get permits
Speaker 2: for things, the cost of construction. The crazy thing with
Speaker 2: the congestion text, it wasn't even like a construction thing.
Speaker 2: You know, it's literally just tolls. It's not like they
Speaker 2: had like build some new bridges and you know, demolish
Speaker 2: tens of thousands.
Speaker 3: Well, they still spend a lot of money on it.
Speaker 3: But yes, I take the point. It's not like they
Speaker 3: were building a new highway that would go through you know,
Speaker 3: some neighborhoods or something like that.
Speaker 2: Right, right, It's also crazy to me anyway, I do think, like,
Speaker 2: you know, this recurring question of like why is it
Speaker 2: so hard to build stuff or just actually like take
Speaker 2: any decisive policy towards anything, seems like a real problem.
Speaker 5: Oh.
Speaker 3: Absolutely, And even though this particular issue I think we
Speaker 3: can all agree was very contentious, there.
Speaker 4: Are people who feel wrongly on both sides.
Speaker 3: There are other things that I think have more collective
Speaker 3: public support and maybe certainly bipartisan support. So I think
Speaker 3: most of Americans, most politicians would agree, for instance, that
Speaker 3: housing supply is kind of a bipart is an issue now.
Speaker 3: But even on something like that where everyone kind of
Speaker 3: agrees like, yes, this is a problem, we need more supply,
Speaker 3: we need places for people to actually live, there are
Speaker 3: all these questions about how you actually decide where to
Speaker 3: put those houses, and then even more controversially, how do
Speaker 3: you fund that, Like what does support for real estate
Speaker 3: residential real estate actually look like? Where does the financing
Speaker 3: come from. How do you structure that? Is it the
Speaker 3: form of subsidies, is it the form of incentives? Is
Speaker 3: it public private partnerships. It just seems like there are
Speaker 3: so many points in the process at which you can
Speaker 3: kind of like get stuck.
Speaker 2: So many, so many Anyway, I'm really excited because we
Speaker 2: do have the guest today. We're going to be speaking
Speaker 2: with someone who is extremely interested in this topic and
Speaker 2: sort of puts his money where his mouth is, spends
Speaker 2: a lot of money researching and trying to think up
Speaker 2: solutions to some of these things. We're going to be
Speaker 2: speaking with John Arnold. He's the co chair of Arnold Ventures.
Speaker 2: Prior to that, he was a famed energy trader, made
Speaker 2: his fortune at Centaurus Energy. Prior to that, I learned
Speaker 2: he was the recipient of the single biggest cash bonus
Speaker 2: when he was a trader at Enron, where he was
Speaker 2: not accused of any wrongdoing a bunch of people there
Speaker 2: obviously were. And now he is a philanthropy co chair
Speaker 2: Ernold Ventures, as I mentioned that, among many other things,
Speaker 2: works on problems like this. In fact, they do a
Speaker 2: lot of health, criminal justice, higher ed public finance, all
Speaker 2: of which could probably make for a great specific episode
Speaker 2: of the podcast. John, thank you so much for coming
Speaker 2: on out Laws.
Speaker 5: It's a great honor to be on my favorite financial podcast.
Speaker 4: Hi, thank you.
Speaker 2: I'm skeptical favorite, but thank you.
Speaker 3: Just accept the compliments show and move on.
Speaker 2: We'll take it. So we're going to get into all
Speaker 2: this permitting. And you had a great tweet yesterday. Actually
Speaker 2: you did a little mini history of the congestion pricing
Speaker 2: in a tweet. Starting in two thousand and seven, Mayor
Speaker 2: proposes worded FED grant two thousand and eight, plants finalized
Speaker 2: two thousand and eight to twenty seventeen in stalllah blah
Speaker 2: blah blah, environmental assessment, another delay, another delay, and now
Speaker 2: the indefinite delay. I want to get into all that,
Speaker 2: but before we do, there are a lot of billionaires
Speaker 2: who want to give away their money and have philanthropies,
Speaker 2: et cetera. I get the impression that Arnold Ventures tries
Speaker 2: to solve these problems sort of differently, or try to
Speaker 2: have a novel approach to giving your money away. What
Speaker 2: is the sort of driving philosophy behind what you do?
Speaker 5: Yeah, it might be good to start at the beginning
Speaker 5: of our phone tropy efforts. My wife, Laura, and I
Speaker 5: came out of professional careers from the private sector. I
Speaker 5: was in energy trading for seventeen years. Kind of got
Speaker 5: burnt out after those seven teen years. My wife was
Speaker 5: an m and a lawyer. She kind of got burnt out.
Speaker 5: And we had this fledgeling foundation at the time that
Speaker 5: was doing work in mostly in K twelve reform efforts,
Speaker 5: and I think a lot of people from the financial
Speaker 5: sector kind of got involved in those efforts in the
Speaker 5: two thousands, and then after two thousand and eight, we
Speaker 5: got very interested in the public pension crisis that was happening.
Speaker 5: Both the funding design and benefit design we viewed as
Speaker 5: flawed and started working in that area. And then we
Speaker 5: got interested in criminal justice reform, and we stepped back
Speaker 5: and saw, wait a minute, the tie amongst these three
Speaker 5: very disparate areas is that they're all related to public policy.
Speaker 5: It's all about the rules and incentives of the systems
Speaker 5: that drive behavior. And so we started thinking more and
Speaker 5: more about public policy as the framework for our philanthropic
Speaker 5: efforts and really believe that there's a shortage of philanthropy
Speaker 5: focus on this very important issue of policy. We think policies,
Speaker 5: yes it's sustainable, it's scalable, and it's structural change in
Speaker 5: a way that maybe funding programs is not. But for
Speaker 5: a variety of reasons, it tends to be underfunded from
Speaker 5: the filmtharbic community. It's changing a little bit. But that
Speaker 5: really laid us down this pathway of getting involved in
Speaker 5: a number of areas of public policy, including infrastructure and
Speaker 5: the energy and climate and housing debates.
Speaker 3: How do you decide what you want to look at?
Speaker 3: Because I was searching for some of your previous projects,
Speaker 3: and there's a lot of them. So criminal justice reform
Speaker 3: is probably one of the ones that you're better known for,
Speaker 3: charter schools, which you just mentioned, but there are other
Speaker 3: things like high drug prices, expensive college textbooks, even geoengineering,
Speaker 3: which I don't think a lot of billionaire philanthropists have
Speaker 3: even begun to look into the quality of academic research.
Speaker 3: I think that's something you've been working on as well.
Speaker 3: But it seems like a very varied collection of interests
Speaker 3: that you have.
Speaker 5: It is we kind of get drawn to issues where
Speaker 5: there starts to be bipartisan support at least out of
Speaker 5: a where at a suboptimal equilibrium, and so there starts
Speaker 5: to be some political consensus of desire for change. Now
Speaker 5: finding what the overlap is across the two parties can
Speaker 5: be a much more challenging endeavor. So we're looking for
Speaker 5: those types of issues where at least one side is
Speaker 5: starting to move and there starts to be this political
Speaker 5: window that's opening for reform. We're looking for areas that
Speaker 5: have promising ideas. There's we're not necessarily going into areas
Speaker 5: saying here's our idea. We're not the experts in it,
Speaker 5: but we survey the field and try to find out, oh,
Speaker 5: here's a promising idea. Maybe we can support this or
Speaker 5: test this or evaluate that in an idea and I
Speaker 5: think you know again, we're looking for areas that have
Speaker 5: this public policy focus to it, where it's about the
Speaker 5: rules and incentives of systems and how can we change it.
Speaker 5: And then we have to believe that we as an
Speaker 5: outside third party can have influence on a system, which
Speaker 5: in some areas we can and some I think we've
Speaker 5: had to turn away thinking that it's not obvious how
Speaker 5: we can have a positive influence on those areas.
Speaker 3: This is going to be my next question, actually, But
Speaker 3: once you identify an area where there either is bipartisan
Speaker 3: support or the I guess first inklings that this could
Speaker 3: have bipartisan support, what's the value proposition that you bring
Speaker 3: to the table, Because just to play devil's advocate, but
Speaker 3: you know, if both sides of the aisle are interested
Speaker 3: in this and are discussing solutions, then maybe they can
Speaker 3: figure it out on their own.
Speaker 5: I wish it were that easy. Yeah, I think most
Speaker 5: of our work centers around one of three roles. The
Speaker 5: first is providing tension in a system. So from a
Speaker 5: economist framework, it's often areas that have a concentrated benefits
Speaker 5: diffuse costs area. So you can think about healthcare, where
Speaker 5: you have many companies that get one hundred percent of
Speaker 5: their revenue from the system. They're very dedicated and inclined
Speaker 5: and very motivated to be involved politically. And so some
Speaker 5: of the strongest, if not the strongest lobbies in DC
Speaker 5: are from the healthcare industry, whether it's pharmaceutical or hospitals
Speaker 5: or physicians or insurers, PVMs, et cetera. And the costs
Speaker 5: of the system fall to individuals, it falls to the taxpayers,
Speaker 5: it falls to individual firms, and none of those really
Speaker 5: have the incentive to put significant resources to counter the
Speaker 5: weight of industry, and so we see a rule for
Speaker 5: trying to provide proper tension into a system, and so
Speaker 5: we're stepping in, Like when you have everybody in DC,
Speaker 5: every lobbyist trying to advocate for more money into the system,
Speaker 5: we're stepping in saying, how can you bend the cost
Speaker 5: curve in healthcare without having any compromise on quality of care?
Speaker 5: And it is a very lonely position because you know,
Speaker 5: again there's not much incentive.
Speaker 2: For others to do this.
Speaker 5: And a second aspect we get involved in is the
Speaker 5: development and piloting of new ideas. I was talking about.
Speaker 5: You know, we survey a field and try to see
Speaker 5: what are academics, what do practitioners, what are their ideas
Speaker 5: as to how the system could be performing better, and
Speaker 5: do they need resources in order to kind of more
Speaker 5: fully develop the idea or even start to test the idea.
Speaker 5: And then the third area we often get involved in
Speaker 5: is evaluation. And I think this is a very underfunded
Speaker 5: aspect of public policy, is trying to figure out what
Speaker 5: works what doesn't. And this includes what programs work and
Speaker 5: what policies work. And I think that's led to some
Speaker 5: surprising findings over the years that things that seem obvious
Speaker 5: that they should be productive, should be efficient, turn out
Speaker 5: to have counterproductive aspects to them, and you might not
Speaker 5: be a good policy or a good program.
Speaker 2: What's an example of that, something that everyone thoughts like, yeah,
Speaker 2: let's do this, and then when you actually looked at
Speaker 2: the results, no, it didn't.
Speaker 5: This is a small one, but I think it's very tilling.
Speaker 5: Is there was a program that was started, I think
Speaker 5: it was in the eighties or nineties of a Scared
Speaker 5: Straight where the idea was, let's take high school students
Speaker 5: who were kind of starting on the pathway of misbehavior
Speaker 5: that people thought they might be going into criminally justice
Speaker 5: involves individuals and will take them into prisons in jails
Speaker 5: and show them how horrible it is in these places
Speaker 5: and try to quote unquote scare them straight. And you know,
Speaker 5: this program went on for a number of years, got
Speaker 5: federal funding, state funding, and then someone came around and
Speaker 5: did an evaluation and they did a RCT you know,
Speaker 5: put some people through the program, some people not, and
Speaker 5: it turned out after the fact that those that had
Speaker 5: gone through the program actually you know, committed more crimes
Speaker 5: than those that didn't and so you know, kind of
Speaker 5: had this theoretical background, but when you actually apply in practice,
Speaker 5: you often get very different results than what the theory said,
Speaker 5: or there are unintended consequences of those programs that are
Speaker 5: very hard to think about in advance.
Speaker 2: One of the debates I see online a lot is
Speaker 2: whether it's productive from like a political standpoint, to sort
Speaker 2: of always talking about worst case scenarios. And there's a
Speaker 2: lot of people it's like, oh, yeah, when you're talking
Speaker 2: about say climate, always air on the worst situation. And
Speaker 2: then there's other peoples like, no, let's actually talk about
Speaker 2: what the most likely situation is or whatever. And I
Speaker 2: find this sort of an interesting, interesting sidetrack.
Speaker 3: Absolutely, I've seen that argument before that if you're always
Speaker 3: focused on the worst case, then you're never going to
Speaker 3: do anything much less get out of bed in the morning.
Speaker 4: But John, I wanted to.
Speaker 3: Ask you as well, in addition to the evidence based approach,
Speaker 3: there's something else that you do that's a little bit
Speaker 3: different to a lot of other philanthropic organizations, and that
Speaker 3: is the actual structuring of the company. So Arnold Ventures.
Speaker 3: I think you have different aspects of the organization, but
Speaker 3: one big part of it is structured as a limited
Speaker 3: liability company versus say a charitable foundation or a donor
Speaker 3: advised fund. And I'm really curious why you decided to
Speaker 3: take that approach because to date, there aren't that many
Speaker 3: billionaires that have gone down that route. Zuckerberg is probably
Speaker 3: the big exception there. But how did you decide to
Speaker 3: take that line? In terms of organizational structure.
Speaker 5: Part of this was a realization that research alone doesn't
Speaker 5: pass laws, and that we had to have the political
Speaker 5: know how and advocacy and comm strategies tied directly into
Speaker 5: our five H one C three work, charitable work, the
Speaker 5: research focus, and so we created these two arms. Over
Speaker 5: the years, we had our C three and we had
Speaker 5: our C four. They have different tax treatment, and so
Speaker 5: we had to have this Chinese wall between the two,
Speaker 5: and it became very annoying because we had some employees
Speaker 5: that were with the C three and some that were
Speaker 5: with the C four. Now we're very strongly advocate that
Speaker 5: we want to put more research and more evidence based
Speaker 5: findings into government, into policy, and so trying to combine
Speaker 5: those organizations had a lot of synergy. And so what
Speaker 5: we did was we brought all employees up into this
Speaker 5: LLC and we could knock down the Chinese Wall. There
Speaker 5: was a few kind of negative tax consequences from that,
Speaker 5: but in the grand scheme it wasn't that significant, and
Speaker 5: we thought the benefits from having one organization where employees
Speaker 5: could both be experts on the research as well as
Speaker 5: sit and talk with policy makers to advocate for better policy,
Speaker 5: was the better approach.
Speaker 2: Let's get into some of the the infrastructure and policy
Speaker 2: questions that we let off with. You know, we're talking
Speaker 2: about this congestion pricing seventeen years was about to go
Speaker 2: into effect, finally delayed at least in definitely two weeks
Speaker 2: before it was about to go into effect. When you
Speaker 2: look at a story like this and you watch it
Speaker 2: and you see how long it enfolds and then never happens.
Speaker 2: Is this being replicated across the country on smaller scales
Speaker 2: all the time that we don't see because they're not
Speaker 2: as big. And as you look at situation after a situation,
Speaker 2: what do these have in common? I mean, this wasn't
Speaker 2: even an infrastructure project, which blows my mind. It was
Speaker 2: just basically increasing the tolls. But what's really going on
Speaker 2: here that it's so hard to get a policy like
Speaker 2: this past.
Speaker 5: You're right, that is not an infrastructure project, but it
Speaker 5: was very illustrative and similar to the timeframe and journey
Speaker 5: that many infrastructure projects in the US are now facing.
Speaker 5: And maybe we start back with and the environmental framework
Speaker 5: for this country really got started in this three year
Speaker 5: period between nineteen seventy and nineteen seventy three under Republican
Speaker 5: Richard Nixon, with bipartisan support, and this was the creation
Speaker 5: of the EPA. It was the creation of NEPA, the
Speaker 5: Clean Air Act, Clean Water Act, and Endangered Species Act,
Speaker 5: and even today, that's really the framework that most of
Speaker 5: the environmental law is based upon. And those were enacted
Speaker 5: for good reasons and have been very effective policies as
Speaker 5: a whole. If you think back before nineteen seventy, there
Speaker 5: were a lot of environmental disasters in this country, from
Speaker 5: the Cuyahuga River catching on fire, to the smog that
Speaker 5: you saw in la in Houston and Pittsburgh, to the
Speaker 5: oil spill in Santa Barbara, and so there was a
Speaker 5: reason why there was broad both voter support and bipartisan
Speaker 5: support for this and it's had good impact over the years,
Speaker 5: but it's changed, and I'd say starting at the turn
Speaker 5: of this century, although that's not a hard turn, but
Speaker 5: two things happened. One was that the courts started becoming
Speaker 5: more aggressive about interpretation of these laws and made it
Speaker 5: harder and harder for developers to build things. The second
Speaker 5: was that opponents to projects became smarter about how to
Speaker 5: utilize the laws to stall and ultimately cancel many projects.
Speaker 5: And one example of that is instead of filing all
Speaker 5: your objections to a project at the same time and
Speaker 5: let them be heard simultaneously, what opponents started doing was
Speaker 5: file one opposition. You know, wait a couple of years,
Speaker 5: is that chugged through the court system. When that got reconciled,
Speaker 5: then file your next claim and then do your next claim.
Speaker 5: And so a process that should have taken two years
Speaker 5: to hear the oppositions and the complaints about it ends
Speaker 5: up taking ten years to do it. And that does
Speaker 5: several things right, and it greatly increases the cost to
Speaker 5: the developer to do it. It increases the time to
Speaker 5: bring these important infrastructure projects to the market, and it's
Speaker 5: just provides this kind of general sense of malaise that's
Speaker 5: developed across both the end users of these infrastructure projects
Speaker 5: as well as the developers.
Speaker 3: So I know you spent a lot of time in
Speaker 3: DC as part of your philanthropic push, But when you're
Speaker 3: talking to politicians or other policy makers, or maybe even
Speaker 3: court officials or people from the judiciary, is there a
Speaker 3: recognition that this is an issue now, that it is
Speaker 3: harder to build things, or that it just takes longer.
Speaker 5: Absolutely, And I think the passage of the IRA really
Speaker 5: changed the discussion around permitting. And I think, you know,
Speaker 5: there was a growing sense around the difficulties that the
Speaker 5: environmental framework we're creating for projects, but then the IRA
Speaker 5: passed this kind of deregulation or this desire to look
Speaker 5: at the kind of environment process was historically a Republican
Speaker 5: one or a conservative one, right, And then the IRA
Speaker 5: passes and the CBO scores the environmental provisions at I
Speaker 5: think three hundred and ninety one billion dollars, and then
Speaker 5: as the private sector and as environmental orgs spent time
Speaker 5: with that law and started thinking about what does this
Speaker 5: actually mean. You started hearing numbers that were actually in
Speaker 5: excess of a trillion dollars. And this was kind of
Speaker 5: a secret that was going around the environmental community was
Speaker 5: don't tell anybody but this is a trillion dollars of
Speaker 5: new spending on environmental projects because they were modeling this
Speaker 5: on spreadsheets. And then the reality sets in and the
Speaker 5: reality is that modeling things on spreadsheets versus actually building
Speaker 5: physical infrastructure is two radically different things. And so then
Speaker 5: the next twelve months was about holy cow, like, we
Speaker 5: need to change and make it easier to build, because
Speaker 5: instead of trying to stall and cancel projects, in order
Speaker 5: to have an energy transition in this country, we need
Speaker 5: to build a lot of things. And so there's a
Speaker 5: lot of energy infrastructure that needs to get built. Now.
Speaker 5: The same rules that we're making it difficult to build
Speaker 5: clean energy infrastructure were also making it difficult to build
Speaker 5: traditional oil and gas infrastructure. And so today the Mountain
Speaker 5: Valley Pipeline, which has gotten very famous because of the
Speaker 5: discussions over the past couple of years, is very near completion.
Speaker 5: But there's no other interstate pipeline that's in development after that,
Speaker 5: and the developers have pretty much given up because you've
Speaker 5: now had three major pipelines that ended up getting canceled
Speaker 5: or very significant delays. That has greatly affected the economic
Speaker 5: outcomes of those projects, and so developers are saying, we
Speaker 5: don't know what the rules are anymore to build these projects,
Speaker 5: and so we're not even going to start because we've
Speaker 5: seen three instances where they became financial albatrosses. And all
Speaker 5: this was happening on the energy side at the same
Speaker 5: time time that the housing side really started to pick up,
Speaker 5: and this was coming from a lot of this originated
Speaker 5: in California, which the lot of well known stories about
Speaker 5: the difficulty of building housing, especially a workforce housing in California,
Speaker 5: and there started to be the creation of a YMBI
Speaker 5: movement and real questions about what are all these hurdles
Speaker 5: that are in the way of development, and that helped
Speaker 5: to spur this whole movement around the abundance agenda. And
Speaker 5: so all these things are coming together and we see
Speaker 5: that there is now great political will from both sides politically,
Speaker 5: but also includes a lot of the environmental groups who
Speaker 5: had traditionally worked to kill projects and delay projects are
Speaker 5: now realizing they need to find projects to support.
Speaker 2: So let's drill deeper into this because we actually recently
Speaker 2: did an interview with the CEO of ORSTED Americas and
Speaker 2: slow permitting for offshore wind was one of the bottlenecks
Speaker 2: that he cited. I saw you've done something with a
Speaker 2: sort of like more advanced power lines so that clean
Speaker 2: energy in one part of the country can be distributed
Speaker 2: to other parts of the country, et cetera. But what
Speaker 2: are the sort of specific issues that arise in permitting
Speaker 2: or maybe what are the specific types of reforms that
Speaker 2: would be necessary so that this trillion dollars can actually
Speaker 2: get spent in some sort of relatively efficient manner that
Speaker 2: produce it good, Like, what are the actual issues that
Speaker 2: play here?
Speaker 5: Yeah, this applies not only to clean energy, but to
Speaker 5: all energy infrastructure and kind of all linear infrastructure. You
Speaker 5: think about linear infrastructure, which includes rail and highways and transportation,
Speaker 5: transmission pipelines. All these things have gotten very very difficult
Speaker 5: to build in the twenty first century. So the question
Speaker 5: is kind of what to do, and that's where things
Speaker 5: often kind of start to bog down. There's been kind
Speaker 5: of extensive negotiations between Senator Mansion and Senator Brosso in
Speaker 5: the Senate, and they've been reported days away from potentially
Speaker 5: releasing a bill that it starts to address this. And
Speaker 5: the framework that they've mentioned would do a lot of things,
Speaker 5: and I think The question is that oil and gas
Speaker 5: has traditionally had exceptions on some of the environmental framework,
Speaker 5: and so everybody talks about NEPA and the categorical exemptions
Speaker 5: that certain industries have from the NEPA process, and so
Speaker 5: oil and gas has a lot of exemptions from that.
Speaker 5: Clean energy generally doesn't. So things like geothermal, the transmission
Speaker 5: that's necessary to unlock the wind and solar resource, and
Speaker 5: then even things like sighting of wind turbines all end
Speaker 5: up tied up in a lot of environmental process that
Speaker 5: either stall or make them uneconomic. And so the question
Speaker 5: is that do you bring clean energy down and make
Speaker 5: it at an equal basis to oil gas and make
Speaker 5: everything easier to build, or if we do nothing, and
Speaker 5: oil and gas is becoming harder and harder to build
Speaker 5: and everything across the energy spectrum becomes very difficult to build.
Speaker 5: So going back to what are the specifics, one is
Speaker 5: what is the role between federal and state on trying
Speaker 5: to permit things? And so there's this inherent tension between
Speaker 5: needs of society and the preferences of a community. Right,
Speaker 5: we need energy, we need transportation, mining, workforce, housing, et cetera. Right,
Speaker 5: but individual neighborhoods usually prefer that that be built somewhere else,
Speaker 5: and so the question is what's the right tension in
Speaker 5: that system between society versus the community, And that really
Speaker 5: boils down to federal versus state and local. And so
Speaker 5: the question that needs to be addressed is, especially on
Speaker 5: a lot of these linear infrastructure projects, where are projects
Speaker 5: of national signs diifficants that need the ability for the
Speaker 5: federal government to come in and permit it because it's
Speaker 5: of national strategic interest. A second issue is around these
Speaker 5: judicial reforms and again allowing these objections to come in,
Speaker 5: allow them to be heard, but that the opponents to
Speaker 5: projects need to present those objections in a timely manner,
Speaker 5: and the courts need to hear those objections and rule
Speaker 5: on them in a tiny manner. And the agencies need
Speaker 5: to respond to anything that's coming out of Lowe's rulings
Speaker 5: in a timely manner. And I think kind of the
Speaker 5: combination of those two things is really what the permitting
Speaker 5: reforms are looking like.
Speaker 3: So I have two questions on permitting reform, and the
Speaker 3: first one is if we agree that speed of build
Speaker 3: out is important here in addition to actually freeing up
Speaker 3: the financing.
Speaker 4: Then why didn't the.
Speaker 3: IRA just include permitting reform from the beginning? And then secondly,
Speaker 3: you know you mentioned NIPA, the National Environmental Policy Act.
Speaker 3: What do we give up in permitting reform because you know,
Speaker 3: I imagine a lot of these rules and regulations exist
Speaker 3: for a reason, and so I would also think there
Speaker 3: would be some sort of trade off in maybe liberalizing
Speaker 3: some of those rules.
Speaker 5: Yeah, let me start with the second question, and that's
Speaker 5: it's about balancing the interests of the system. And so
Speaker 5: the United States has gone through a history where it
Speaker 5: just built everything and barreled through neighborhoods. And I think
Speaker 5: Robert Moses in the forties and fifties was the great
Speaker 5: example of this. And on one hand, he got a
Speaker 5: lot of things built. On the other hand, he barreled
Speaker 5: through neighbor hood's created a lot of pain and a
Speaker 5: lot of inequitable outcomes, particularly amongst the poor and minority groups.
Speaker 5: And so that's not the right way to do it.
Speaker 5: But I think there's growing consensus that where we are today,
Speaker 5: where it's very very difficult to build anything, is also
Speaker 5: gone too far in the other extreme. So again it's
Speaker 5: about balance neighborhoods and communities need to be heard. Objections
Speaker 5: need to be heard and litigated. We need to find
Speaker 5: the best way to do these projects. But we can't
Speaker 5: let perfect be the enemy of the good. And a
Speaker 5: lot of these times, like we need to build stuff,
Speaker 5: we need to build transportation infrastructure, we need to build housing,
Speaker 5: we need to build energy infrastructure, there's going to be
Speaker 5: trade off with every project. No project is going to
Speaker 5: be perfect, and so the question is what's the right
Speaker 5: standard with regards to you Why weren't these in the
Speaker 5: IRA bill And that was just you know, the congressional
Speaker 5: rules about what could be part of reconciliation and pass
Speaker 5: with fifty votes versus requiring sixty And the parliamentarian ruled
Speaker 5: that permitting reform was not a financial issue and therefore
Speaker 5: needed sixty votes, needed regular order, and so Senator Mansion,
Speaker 5: as part of the negotiation, came to an agreement with
Speaker 5: Leader Schumer that Schumer would bring to the floor a
Speaker 5: permitting reform bill in the future, and that came very close.
Speaker 5: Senator Mansion realized that it didn't have the sixty votes,
Speaker 5: and so it never actually came to the floor, but
Speaker 5: discussions and negotiations have been continuing ever since.
Speaker 2: You know, I'm very fascinated by this idea that many
Speaker 2: problems come down to one extremely motivated but small opposition.
Speaker 2: Whether it's a community, whether it's the one percent of
Speaker 2: people on Long Island who get into the city via car,
Speaker 2: whatever it is, that they end up having more cloud
Speaker 2: or influence in a way than a bunch of other
Speaker 2: people who don't even really know about the project, or
Speaker 2: don't think about it, or can't see it's tangible impacts
Speaker 2: on something like permitting reform at the national level. Who
Speaker 2: are the interests as you've identified them, making some of
Speaker 2: these votes harder to get to the floor or get
Speaker 2: to sixty votes.
Speaker 5: So the environmental organizations are doing a lot of soul
Speaker 5: searching today. I would say I've talked to a lot
Speaker 5: of them, and it's not correct to put them all
Speaker 5: into one grouping. There's a wide variety of them that
Speaker 5: have varying views on this. And so you get some
Speaker 5: very kind of moderate ones who are done the modeling
Speaker 5: and realize that in order to get to a lower
Speaker 5: carbon future, we're going to have to build a lot
Speaker 5: and that requires changing some of the environmental framework. And
Speaker 5: then you have some groups, you know, particularly you know
Speaker 5: with the environmental justice community, who have very legitimate concerns
Speaker 5: about how infrastructure has been built in the past and
Speaker 5: are highly reluctant to make the process easier because they
Speaker 5: are scared that things are going to be built in
Speaker 5: the same way that they have in the past and
Speaker 5: don't trust the system. And again, like there's good reason
Speaker 5: why they should be skeptical of this, but I think
Speaker 5: that's kind of across that spectrum. The environmental communities trying
Speaker 5: to figure out what to do, and there has been
Speaker 5: a lot of discussion, I will say in this community.
Speaker 5: I again have been parts of a lot of these discussions,
Speaker 5: and I think the trick is, how do you find
Speaker 5: a bill that gets support from the majority of the
Speaker 5: environmental community and also has support from industry and they
Speaker 5: get sixty votes And the reality is, you know, it
Speaker 5: has to get Republican votes as well as Democratic votes,
Speaker 5: and so it has to make everything easier to build.
Speaker 5: It cannot be a bill that just focuses on clean energy. Again,
Speaker 5: it's impossible to virtually impossible to build an interstate pipeline today. Yeah,
Speaker 5: there's the pause on LG export permitting that has the
Speaker 5: industry up and armed, and so a bill that is
Speaker 5: a compromise bill is going to make building energy infrastructure
Speaker 5: across the board easier.
Speaker 3: So I love talking to you about specific examples. And
Speaker 3: I know you're based in Texas, and of course you
Speaker 3: have an energy trading background. So I feel like we
Speaker 3: would be remiss if we didn't ask for your thoughts
Speaker 3: on the Texas power grid in particular, And if that's
Speaker 3: something that has come up on your radar, either by
Speaker 3: dint of your interest in policy or the mere fact
Speaker 3: that you are in Texas and maybe you have experienced
Speaker 3: some of the issues that have sprung up from various
Speaker 3: problems in the past couple of years.
Speaker 5: I've thought about it, and I've been part of some
Speaker 5: of the problems that have developed. The goals of the
Speaker 5: energy system are how do you make energy affordable, reliable,
Speaker 5: sustainable to the environment, and secure. Now, on the energy security,
Speaker 5: that's less of a concern for the United States because
Speaker 5: of the quantities and diversity of the energy resource within
Speaker 5: our boundaries. So now we think about reliability versus affordability
Speaker 5: and environmental sustainability, and at times you can find things
Speaker 5: that don't have trade offs in that, but sometimes there
Speaker 5: are trade offs, and so one of the trade offs
Speaker 5: is reliability versus affordability. Do you want to build a
Speaker 5: system that's four nines reliable or five nines reliable and
Speaker 5: there's a cost difference to doing so. And so different
Speaker 5: communities really we're talking about in different states and different
Speaker 5: INERK regions URCOT versus PGAM, for instance, have come to
Speaker 5: different preferences on that spectrum. And I think Texas being
Speaker 5: Texas has always prioritized being low cost, and as part
Speaker 5: of that there's a tradeoff on some of the reliability issues.
Speaker 5: It's been exacerbated by the enormous power demand growth that
Speaker 5: we've seen in URKOT, so it's struggling just to keep
Speaker 5: up with the system, and utilities now across the nation
Speaker 5: are starting to face some of these similar challenges. There
Speaker 5: was this fifteen year period roughly from two thousand and
Speaker 5: seven to twenty twenty two, where load growth across the
Speaker 5: nation was relatively flat. That kind of hid. There were
Speaker 5: some areas that were growing like Texas slash Orcot. There
Speaker 5: were some areas where load was actually contracting as energy
Speaker 5: efficiency gains were happening. But utilities are now facing load
Speaker 5: growth kind of across the board. So they're being asked
Speaker 5: to deal with that, They're being asked to deal with
Speaker 5: bringing more intermittent resources onto their grid and dealing with
Speaker 5: the reliability associated with that. They're being asked to decrease
Speaker 5: the greenhouse gas emissions on this system. And then last,
Speaker 5: how do you not end up with significantly higher bills
Speaker 5: to the customer. So I said, had the utilities and
Speaker 5: the grids only been tasked with two of those challenges,
Speaker 5: they'd be very easy. They could probably handle three. But
Speaker 5: doing all four at once right now, which is what
Speaker 5: most utilities are facing, especially in Texas, has been an
Speaker 5: enormous challenge and I think it carries enormous risks, and
Speaker 5: that's the reason why we need to build a lot
Speaker 5: of energy infrastructure in this country. Otherwise they're going to
Speaker 5: be very significant broundouts and blockouts in this decade and
Speaker 5: nobody wants that.
Speaker 2: A rare quadrilemma that will it sounds like I want
Speaker 2: to pivot a little bit to housing. And you know,
Speaker 2: there are a lot of people, particularly on the internet
Speaker 2: that you know, the MBI's and you know, permitting and
Speaker 2: all this stuff. We've got to build more and build
Speaker 2: more vertically and you know, let's just have one staircase
Speaker 2: and a multifamily building instead of two, et cetera. When
Speaker 2: you look at the overall like the cost of affordability,
Speaker 2: whether it's rent, et cetera, how much do you attribute
Speaker 2: of that to various regional and local permitting policies versus
Speaker 2: other aspects of the housing economics industry that don't automatically
Speaker 2: sort of create abundant housing.
Speaker 5: It's a combination of the two. And I think there's
Speaker 5: no one solution that makes housing affordable tomorrow. It's an
Speaker 5: enormous system that even aggressive legislative changes are going to
Speaker 5: take a lot of time to work their way through
Speaker 5: the system. You're constrained by the supply chain of building houses,
Speaker 5: which includes labor, includes the number of home builders, includes
Speaker 5: kind of the financing available, etc. But I think there
Speaker 5: is this question of does the ability to build housing
Speaker 5: reduce housing costs? And I think you can find examples
Speaker 5: where that might not be true. I think there are
Speaker 5: some very narrow instances. I think Bay Area might be
Speaker 5: one of those where if you build another one hundred
Speaker 5: units of housing, does that just create more jobs than
Speaker 5: create more demand for house? That's true in this very
Speaker 5: narrow sense if you're just looking at one community doing
Speaker 5: a thing, and I think that brings back this broader
Speaker 5: question of you know, what's the role and responsibility of
Speaker 5: an individual town or city on building workforce housing. And
Speaker 5: I think what the kind of game theory will show
Speaker 5: is every community wants the community next door to build
Speaker 5: that house. They want to maintain their sense of community.
Speaker 5: They don't want change, you know, kind of the status
Speaker 5: quo bias kicks in and everybody says like, yes, we
Speaker 5: need more affordable housing, more workforce housing, more housing in general,
Speaker 5: build it next town over. Now, if every town says that,
Speaker 5: then you got a problem. And this is why I
Speaker 5: think there's a role for the states to step in.
Speaker 5: And this is what you've seen in California where we
Speaker 5: can't count on individual towns and cities to solve this
Speaker 5: problem on their own because the incentives just don't align
Speaker 5: with the needs of people of society. But from the
Speaker 5: bigger picture from the state of California, they're looking in
Speaker 5: saying the economic vitality of our state is dependent upon
Speaker 5: getting more people to come to the state and not
Speaker 5: just have this aging population that creates a lot of
Speaker 5: problems with workforce and with the needs of aging populations,
Speaker 5: and so it is vital to the economic vitality in
Speaker 5: order to build more housing in California, and therefore there
Speaker 5: needs to be state rules and mandates and incentives that
Speaker 5: get you to that answer.
Speaker 3: I'm going to play like I guess a bonus round
Speaker 3: of odd lots type stuff where I just ask you
Speaker 3: about various things that have come up on the podcast
Speaker 3: as problematic before and going back to Texas ties, I
Speaker 3: feel like I have to ask the Jones Act, is
Speaker 3: that something that you would ever consider getting interested in.
Speaker 5: As a longtime listener of the podcast, I can attest
Speaker 5: to the number of times as has come up. It's
Speaker 5: one where I don't see the political viability and really
Speaker 5: stayed away. Say more, unions are very much against repeal
Speaker 5: of the Jones Act, and I think there is a
Speaker 5: sense that we need a shipbuilding industry for national defense purposes,
Speaker 5: for unforeseen events in the future, and therefore in order
Speaker 5: to have one, you have to kind of subsidize one
Speaker 5: because we are not competitive building ships in America visa
Speaker 5: v rest of the world. So therefore we can either
Speaker 5: create large subsidies or mandates and we've chosen to do
Speaker 5: the latter and create this mandate that any intra US
Speaker 5: shipping has to be on a US flag vessel kind
Speaker 5: of built in the US, and therefore we have some
Speaker 5: resemblance of a shipbuilding industry in the country.
Speaker 2: Would we have more success we paired that mandate with
Speaker 2: subsidies or maybe just like a big public program or
Speaker 2: using the Navy or whatever to just construct more Jones
Speaker 2: Act compliance ships.
Speaker 5: It would be difficult. I mean a lot of things.
Speaker 5: Now the federal government has decided just to subsidize mm hmm.
Speaker 5: And again, like you can either use sticks or carrots
Speaker 5: in order to change behavior. And you know, Ira was
Speaker 5: a great example where ninety nine percent of the provisions
Speaker 5: and there are carrots. There's a methane fee that's a stick.
Speaker 5: But on the Jones Act, it's tended to be on
Speaker 5: the stick side. Given where the federal debt and death
Speaker 5: sit are and the long term risks associated with that,
Speaker 5: I'm not a strong advocate of doing more subsidies to industry.
Speaker 2: I just have one more question, but can you tell
Speaker 2: us about cross state baseball card trading arbitrage.
Speaker 5: Turns out people in New York and Canada like hockey
Speaker 5: cards much more than people in Texas. Okay, at least
Speaker 5: in the late eighties early nineties. I was a baseball
Speaker 5: card collector when I was twelve, thirteen, fourteen, and you know,
Speaker 5: it was never really that into the individual cards, but
Speaker 5: was very interested in the business of cards.
Speaker 2: I just like, it's just so perfect. It's like, go
Speaker 2: on into like billionaire energy trader. I wasn't really interested
Speaker 2: in the players or whatever, but got really interested in
Speaker 2: the business and pricing of cards. But go on, go on,
Speaker 2: tell it, tell us the rest.
Speaker 5: Yeah, yeah, and so yeah, this was kind of a
Speaker 5: little boom period that happened late eighties early nineties in
Speaker 5: the sports card industry. Kind of very much a bubble
Speaker 5: ended up being created. But there was a time when
Speaker 5: prices were very volatile. There was rising prices in general,
Speaker 5: but most importantly, there was kind of information asymmetries and
Speaker 5: so kind of what a lot of the dealers knew
Speaker 5: was just their local market. You know, the Texas Rangers
Speaker 5: baseball cards would sell better in Dallas than hockey cards
Speaker 5: would sell in Dallas, and so they priced them as such.
Speaker 5: And meanwhile you found other markets that were you had
Speaker 5: the inverse and so I kind of created almost geographic
Speaker 5: arbitrage and had figured out a way through some of
Speaker 5: the early bulletin boards on the Internet of being able
Speaker 5: to be on top of what both national pricing was
Speaker 5: as well as regional pricing disparities kind of across the
Speaker 5: sports card market. And as I was in high school,
Speaker 5: this was kind of my evening and weekend job to
Speaker 5: make a few bucks, and it ended up being pretty profitable.
Speaker 3: Geographic disparities. It sounds a bit like energy trading and
Speaker 3: the grid.
Speaker 5: It's a lot like energy trading.
Speaker 3: I have just one more question, and it relates to,
Speaker 3: I guess a sort of provocative point, but an important
Speaker 3: one and one that I'm sure you've addressed before. But
Speaker 3: I think it's fair to say that there is some
Speaker 3: public distrust of billionaires getting into policy making, and we
Speaker 3: can maybe go into why that that's happened. But I'm
Speaker 3: sure you might reply that your sort of evidence based
Speaker 3: approach maybe differentiates you from some others. But even when
Speaker 3: you're taking a more rigorous scientific methodology to addressing some
Speaker 3: of these large scale problems in the American economy and
Speaker 3: you're looking at all the evidence, it feels like there's
Speaker 3: still a question over who gets to decide. I guess
Speaker 3: what evidence matters. And this is maybe where you get
Speaker 3: into questions of unfairness or the idea of like why
Speaker 3: do billionaires get to say that this is the thing
Speaker 3: that we should be looking at, other thing we should
Speaker 3: be paying attention to. What would be your response to
Speaker 3: those sort of criticisms.
Speaker 5: So I think it's a very fair take and that
Speaker 5: we need to think about what our role is in
Speaker 5: society and why, because we have resources, you know, why
Speaker 5: do we get to play in some of these areas.
Speaker 5: And I think about the counterfactual and that again, a
Speaker 5: lot of our role we see is providing tension systems
Speaker 5: that if we were not involved in the healthcare system,
Speaker 5: in higher ed system, in infrastructure and criminal justice and
Speaker 5: electoral reform and energy and all these areas, the ones
Speaker 5: who would have the political power, the ones who would
Speaker 5: be funding the lobbies and have the political strategy, would
Speaker 5: solely be in some cases those with an economic incentive
Speaker 5: of the system. And so the one thing we bring
Speaker 5: is that we don't have financial incentive or financial conflict
Speaker 5: on things that we're advocating for, whereas almost everybody else
Speaker 5: in DC or a state legislature who's out there lobbying.
Speaker 5: The reason they are paying a lobbyist, the reason they're
Speaker 5: investing that money is exactly because they have a financial
Speaker 5: stake in the system that they're trying to protect. And
Speaker 5: so we're providing that tension in the system. And we
Speaker 5: are not the ultimate arbiters, right the politicians. The political
Speaker 5: system decides, but they should have all the facts. Whenever
Speaker 5: the politician, whenever the policy makers are making the decisions
Speaker 5: are passing laws, they should get kind of the full
Speaker 5: scope and have as much information as they can. And
Speaker 5: I think that's what our role is.
Speaker 2: John Arnold, so great to have you. Really appreciate you
Speaker 2: taking the time. Thank you for coming on odd Law.
Speaker 4: Great.
Speaker 2: Thank you, Tracy. I found that to be a great conversation.
Speaker 2: I feel like this idea of like interest asymme tree
Speaker 2: is sort of at the heart and it's obvious in
Speaker 2: some sense, but it's like as a sort of framework
Speaker 2: to think about the difficulty in doing things, like a
Speaker 2: very useful idea. You know, I on a day to
Speaker 2: day basis, I wasn't really thinking that much about the
Speaker 2: congestion pricing thing. But I'm sure that the representatives of
Speaker 2: you know, the various neighborhoods in Long Island where you
Speaker 2: might have a lot of working class commuters or people
Speaker 2: in trades having to come in on their vans, were
Speaker 2: extremely motivated by this particular question.
Speaker 3: Oh absolutely, you know. The thing I thought was interesting
Speaker 3: was the example of the filings against proposed sites and
Speaker 3: the idea that I think everyone has this like sense
Speaker 3: that things have become more complex, and there might be
Speaker 3: various reasons behind it, but one of them surely has
Speaker 3: to be that people are getting better every day at
Speaker 3: just dealing with the existing system, and so you see
Speaker 3: things like more sophisticated legal strategies where instead of unloading
Speaker 3: a bunch of protestations or counterclaims against one particular project
Speaker 3: at one moment in time, you get that slow drip
Speaker 3: process of filings which ends up gumming up the system.
Speaker 3: And it is reasonable to say, like, I don't think
Speaker 3: we've seen a good response to those more sophisticated strategies
Speaker 3: that are aimed at gaming the system.
Speaker 2: Tracy, have you ever seen that website wtf happened in
Speaker 2: nineteen seventy one.
Speaker 3: I've never looked at it, but I've heard of it.
Speaker 2: So it's like basically this whole thing of like life
Speaker 2: started getting more expensive and a bunch of stuff going downhill.
Speaker 2: And the conceit of the website is that nineteen seventy
Speaker 2: one is when Nixon took us off the gold standard,
Speaker 2: and so it's like, oh, if we only returned to gold,
Speaker 2: then you know, all these lines would go in the
Speaker 2: other direction. But I think it's also very interesting that
Speaker 2: that was exactly also the time when and some of
Speaker 2: these big NIPA and other related permitting things first started
Speaker 2: getting kicked into gear that three years that he identified
Speaker 2: nineteen seventy to nineteen seventy three. And I would just
Speaker 2: put forth that if you are very sort of like
Speaker 2: obsessed with the idea that a bunch of things started
Speaker 2: changing in nineteen seventy, maybe do with something on the
Speaker 2: monetary side, but it might also be worth looking into
Speaker 2: how policies that affected the cost of construction, cost of energy,
Speaker 2: et cetera also changed during that exact time.
Speaker 3: You know, you need Joe, you need John Arnold to
Speaker 3: spend a bunch of money rigorously testing the theory that
Speaker 3: nineteen seventy one changed everything.
Speaker 2: Or he could just buy the website and just changed
Speaker 2: the entire premise of the website. So a bunch of
Speaker 2: people go there and get different ideas.
Speaker 4: That too, All right, shall we leave it there.
Speaker 2: Let's leave it there.
Speaker 3: This has been another episode of the All Thoughts podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guest John Arnold, He's at John Arnold FND.
Speaker 2: I think that stands for a foundation. Follow our producers
Speaker 2: Carmen Rodriguez at Carmen Arman, dash Ol Bennett at Dashbot
Speaker 2: and Kilbrooks at Kilbrooks. And thank you to our producer
Speaker 2: Moses Ondem. More odd Loots content go to Bloomberg dot
Speaker 2: com slash odd Lots, where we have transcripts, a blog
Speaker 2: and a newsletter and you can chaut about all of
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Speaker 3: in