WEBVTT - What Would Adam Smith Think of a Carbon Tax? 0:00:03.120 --> 0:00:09.760 Bloomberg Audio Studios, podcasts, radio news. 0:00:10.119 --> 0:00:13.360 Hello, Bren Talks Money Listeners, It's Maren Sunset Web. We 0:00:13.520 --> 0:00:15.920 are bringing you something very special over the next week, 0:00:16.120 --> 0:00:18.560 recordings of the conversations I had at Pamier House for 0:00:18.600 --> 0:00:21.360 the Edinburgh Fringe Festival. Now, for those of you who 0:00:21.360 --> 0:00:22.960 don't know, and I'm sure there aren't very many of 0:00:23.000 --> 0:00:24.599 you who don't know this, The Friends is a three 0:00:24.640 --> 0:00:26.920 week arts and culture festival that began in nineteen forty 0:00:26.920 --> 0:00:30.480 seven and takes place in Edinburgh in Scotland every August. 0:00:30.760 --> 0:00:33.839 For the past few years, I've been hosting conversations about markets, 0:00:33.880 --> 0:00:37.280 economics and investings from one of the most special locations 0:00:37.280 --> 0:00:40.280 as part of this festival. I do it from Pamier House, 0:00:40.280 --> 0:00:42.839 which is the last home of Adam Smith, philosopher and 0:00:42.880 --> 0:00:45.600 father of modern economics. It's where he completed the last 0:00:45.720 --> 0:00:48.440 editions of his best sellers, The Theory of Moral Sentiments 0:00:48.440 --> 0:00:51.560 and The Wealth of Nation's top reads, both of them. 0:00:51.760 --> 0:00:53.080 This year we did a four day. 0:00:53.000 --> 0:00:54.840 Run in mid August, and we are bringing you the 0:00:54.880 --> 0:00:58.240 slightly edited conversations from three of those days for this 0:00:58.280 --> 0:01:01.720 panelized spoke with Bloomberg Senior reported John Steppeck, James Ferguson, 0:01:01.760 --> 0:01:04.360 who is the founder and partner at macro Strategy, and 0:01:04.560 --> 0:01:08.000 Ed Conway, author of Material World, a substantial story of 0:01:08.080 --> 0:01:10.840 our past and the future, which is an excellent reading. 0:01:10.880 --> 0:01:12.680 If you haven't read that, go out by it right now. 0:01:12.720 --> 0:01:19.920 It's fantastic. Enjoy listening. Thank you for coming. 0:01:19.920 --> 0:01:21.240 I know there's an awful lot of shows at the 0:01:21.280 --> 0:01:23.160 festival and there are a million things you could have 0:01:23.280 --> 0:01:25.680 been to which are Builder's comedy and might have been 0:01:25.680 --> 0:01:26.400 more amusing than this. 0:01:26.520 --> 0:01:28.800 So we're very very grateful to you for coming here today. 0:01:28.840 --> 0:01:29.160 Thank you. 0:01:29.640 --> 0:01:32.240 The way this works is I ask all my brilliant 0:01:32.280 --> 0:01:34.920 guests to come up with their favorite Adam Smith quote. 0:01:34.920 --> 0:01:37.160 Although that's difficult because everyone has a lot of favorites, 0:01:37.160 --> 0:01:39.800 they're one that is both their favorite and most relevant 0:01:39.800 --> 0:01:42.240 to today. They give their quote, and then we talk 0:01:42.280 --> 0:01:44.040 about the context of that quote, where they like it, 0:01:44.200 --> 0:01:45.960 where it matters today, and then we talk about all 0:01:46.000 --> 0:01:47.680 sorts of other things that we didn't intend to talk 0:01:47.720 --> 0:01:49.440 about but which kind of come up as we go. 0:01:49.920 --> 0:01:51.800 So each one will do that, we'll discuss it, then 0:01:51.800 --> 0:01:53.640 we'll move on the next one, and then in forty 0:01:53.680 --> 0:01:55.920 minutes or so we will have questions and someone win 0:01:55.960 --> 0:01:58.240 the book and it'll be great. So we are going 0:01:58.280 --> 0:02:01.120 to start with ed who is broken the first rule 0:02:01.160 --> 0:02:03.480 of the show before you even starts, the first rule 0:02:03.520 --> 0:02:05.240 being please have a short quote. 0:02:05.800 --> 0:02:06.880 It wasn't really me that broke it. 0:02:06.920 --> 0:02:09.399 I think that was Adam Smith because he was not 0:02:09.400 --> 0:02:11.320 not known for his brevity. He was and he wrote 0:02:11.400 --> 0:02:13.520 very very as a result my quotes. 0:02:14.000 --> 0:02:16.040 If the audience is going to see here, and. 0:02:15.919 --> 0:02:17.280 That's what I mean when I say we may not 0:02:17.320 --> 0:02:18.560 have a full twenty minutes of questions. 0:02:18.760 --> 0:02:21.040 So that's that's our hour, isn't it. Do you want 0:02:21.080 --> 0:02:22.520 me to reader? I'm going to do it. I'll do 0:02:22.560 --> 0:02:22.839 a bit. 0:02:23.320 --> 0:02:24.799 Well, well, I tell you what, why don't you pull 0:02:24.840 --> 0:02:26.960 out a bit of the c and then I mean 0:02:27.000 --> 0:02:29.120 you can you can read, you know, maybe Okay. 0:02:29.200 --> 0:02:31.720 So it's it's from the Wealth of Nations and it's 0:02:31.760 --> 0:02:36.120 about woolen coats. The woolen coat, for example, which covers 0:02:36.160 --> 0:02:38.560 the day laborer, as coarse and rough as it may appear, 0:02:38.680 --> 0:02:40.839 is the produce of the joint labor of a great 0:02:40.880 --> 0:02:43.440 multitude of workmen, the shepherd. The sort of the wool, 0:02:43.480 --> 0:02:46.120 the woolcomba, or kada, the dire, the scribble, you to 0:02:46.160 --> 0:02:48.000 get the idea, and it goes on a bit. The dire, 0:02:48.080 --> 0:02:50.640 the scribbler, the spinner, the weaver, the full of the dresser, 0:02:50.880 --> 0:02:53.640 with many others must all join their different arts in 0:02:53.760 --> 0:02:57.680 order to complete this homely production. How many merchants and 0:02:57.760 --> 0:03:01.400 carriers besides must have been employed in tron splant, transporting 0:03:01.440 --> 0:03:03.959 the materials from some of those workmen to others who 0:03:04.000 --> 0:03:06.720 often live in very different different parts of the country. 0:03:06.760 --> 0:03:09.440 I'm gonna stop there, because you get the ideas. So 0:03:10.480 --> 0:03:12.680 when I started kind of getting interested in economics, there 0:03:12.720 --> 0:03:15.640 was this essay called Eye Pencil by a guy called 0:03:15.720 --> 0:03:18.400 Leonard Reed, an American economist, and it was all about 0:03:18.440 --> 0:03:20.519 the story of a pencil and how a pencil is made. 0:03:20.520 --> 0:03:21.960 And that's fascinating because in. 0:03:21.960 --> 0:03:24.640 The course of this essay you learn how you know 0:03:24.639 --> 0:03:26.240 that actually this is a very complex thing. 0:03:26.280 --> 0:03:26.920 To make a pencil. 0:03:26.960 --> 0:03:29.160 You need the wood that's chopped down from a tree 0:03:29.520 --> 0:03:31.440 in the US, You need the lead, the graphite that 0:03:31.440 --> 0:03:33.600 comes from another part. You need the metal that becomes 0:03:33.600 --> 0:03:35.400 the bit that attaches the eraser. You need the rubber, 0:03:35.400 --> 0:03:37.600 and so on and so forth, and the kind of 0:03:37.600 --> 0:03:39.760 punchline of this is there is no single person who 0:03:39.800 --> 0:03:43.560 knows how to make a pencil, and I remember being quite. 0:03:43.400 --> 0:03:43.920 Obsessed with this. 0:03:43.960 --> 0:03:47.240 But of course, as with so many of these themes, 0:03:47.320 --> 0:03:50.320 Adam Smith came up with at first, and actually his 0:03:50.400 --> 0:03:55.160 point here is that the complexity of even supply chains 0:03:55.200 --> 0:03:59.440 back in the eighteenth century was way beyond what any 0:03:59.480 --> 0:04:02.440 single per and could fathom. And each of us carry 0:04:02.480 --> 0:04:05.040 around or where in the case of wool and coats, 0:04:05.120 --> 0:04:07.800 we carry a oron products that are made by so 0:04:07.920 --> 0:04:10.320 many different people in different parts of the world, with 0:04:10.360 --> 0:04:13.280 such complexity, and we just don't spend much time thinking 0:04:13.320 --> 0:04:14.800 about it. And it's one of the wonders I think 0:04:14.800 --> 0:04:19.840 of the modern world that the market often can help 0:04:19.920 --> 0:04:23.359 us produce these things which are just amazing. And so 0:04:23.720 --> 0:04:25.200 you know, I'm going to try not as much as 0:04:25.200 --> 0:04:26.760 I can not to puff my book in the course 0:04:26.800 --> 0:04:28.640 of doing this, but it's hard because it's been ingrained 0:04:28.680 --> 0:04:30.440 in me in the last year. So one of the 0:04:30.440 --> 0:04:32.080 things I tried to do in that book is to 0:04:32.160 --> 0:04:34.719 do the same thing for a smartphone, and it's just 0:04:34.839 --> 0:04:39.520 it's obviously it's impossible, but even before the semiconductor that 0:04:39.600 --> 0:04:43.359 becomes the heart of that smartphone, you know, is actually made, 0:04:43.920 --> 0:04:45.960 the silicon that you need to make that goes through 0:04:45.960 --> 0:04:49.880 this incredible transformation, goes around the world multiple times, it 0:04:49.920 --> 0:04:52.839 gets kind of vaporized, turns into all sorts of different things. 0:04:53.240 --> 0:04:56.599 Hundreds of different companies are working on it. These things 0:04:56.600 --> 0:04:58.640 are just hidden away. And I think the more that 0:04:58.680 --> 0:05:01.520 we spent some time thinking about how stuff is made, 0:05:01.640 --> 0:05:03.599 how it got to us, then the more a I 0:05:03.600 --> 0:05:06.240 think we would appreciate the stuff, the more b I 0:05:06.240 --> 0:05:08.800 think we'd have wonder in the world around us, because 0:05:08.839 --> 0:05:11.800 it really is kind of amazing what's happening inside our devices. 0:05:12.200 --> 0:05:15.320 And also see I think we would understand a little 0:05:15.320 --> 0:05:18.640 bit more about the kind of compromises that happen along 0:05:18.640 --> 0:05:21.279 the way, because to make anything involves quite a lot 0:05:21.320 --> 0:05:24.280 of emissions. It involves a lot of energy and involves 0:05:24.279 --> 0:05:27.800 a lot of effort, and in economics we're not particularly 0:05:27.800 --> 0:05:29.760 good at kind of embedding those things within it each 0:05:29.800 --> 0:05:33.680 of different models. There's a vague talk about externalities, but 0:05:33.880 --> 0:05:36.760 the closest I've come to kind of actually trying to 0:05:36.839 --> 0:05:39.880 understand the challenges facing us as we do that zero 0:05:39.920 --> 0:05:42.000 and also just understanding the wonder of the world is 0:05:42.040 --> 0:05:44.840 to think about an item of product and what it 0:05:44.880 --> 0:05:47.720 takes to make it. So, you know, Adam Smith, I think, 0:05:47.760 --> 0:05:50.560 had that kind of principle early on. It's inspiring to 0:05:50.560 --> 0:05:52.800 think about how things are made and how many people 0:05:53.240 --> 0:05:57.240 are underneath that kind of hidden, that hidden backstory of 0:05:57.279 --> 0:05:58.200 all the things that we're touching. 0:05:58.240 --> 0:05:59.720 And when it kind of starts frightening, doesn't it when 0:05:59.720 --> 0:06:01.560 you think there isn't a single person who knows how 0:06:01.600 --> 0:06:03.080 to make a whole hair, a plane, Oh, knows how 0:06:03.080 --> 0:06:03.800 to make a whole car. 0:06:03.880 --> 0:06:05.280 No, well, they don't know how to make a pencil. 0:06:05.400 --> 0:06:07.960 And so let's alone, you know, the plane, or the 0:06:08.120 --> 0:06:10.240 semiconductor or all of these other things. But that's the 0:06:10.279 --> 0:06:12.320 wonder of economics. And I think that's what Smith was 0:06:12.320 --> 0:06:13.760 trying to get across it. This is quite an early 0:06:13.800 --> 0:06:17.440 quote in the book. It is this is amazing because 0:06:17.480 --> 0:06:19.960 this is the human story, is how we cooperate to 0:06:20.320 --> 0:06:22.000 make things. And so he was talking about wool and 0:06:22.000 --> 0:06:24.400 co at that point. You know, wool was one of 0:06:24.400 --> 0:06:27.719 the great industries of this nation. But it goes today, 0:06:27.760 --> 0:06:29.880 it goes today, and I think we need to tell 0:06:29.920 --> 0:06:32.200 those kind of stories in an inspiring sense, but also 0:06:32.240 --> 0:06:34.440 in a kind of realistic sense about there's some challenges 0:06:34.440 --> 0:06:36.760 there about carbon emissions, about water use, all of the 0:06:36.800 --> 0:06:37.440 other things as well. 0:06:37.480 --> 0:06:39.800 It's the drive to zero that really made you start 0:06:39.839 --> 0:06:41.760 thinking about this and that one of the things. 0:06:41.760 --> 0:06:42.840 And it becomes very interesting. 0:06:42.640 --> 0:06:44.160 When you look at it because we listened to politicians 0:06:44.200 --> 0:06:46.200 speak and we listen to activists speak, and they make 0:06:46.240 --> 0:06:46.839 it sounds. 0:06:46.560 --> 0:06:49.119 So incredibly simple. We should just do this, we should 0:06:49.160 --> 0:06:49.600 just do this. 0:06:49.800 --> 0:06:53.760 But in fact, if you read your book, the underlying 0:06:54.600 --> 0:06:59.080 the mining, the materials, the energy required to produce an 0:06:59.160 --> 0:07:02.839 energy transition make it much much more complicated, much harder 0:07:02.880 --> 0:07:05.120 than most of the people who discussed it understand. 0:07:05.160 --> 0:07:05.320 Well. 0:07:05.400 --> 0:07:07.320 I mean, in a way, actually it's the other way around. 0:07:07.360 --> 0:07:10.320 I didn't intend to write a book that touched on 0:07:10.480 --> 0:07:12.560 you know, net zero and all of that different stuff. 0:07:12.760 --> 0:07:16.800 I didn't intend to get into covering the energy transition. 0:07:17.520 --> 0:07:19.800 But when you start to think, I kind of just 0:07:19.800 --> 0:07:22.440 wanted to understand how smartphone it's made. You know, how 0:07:22.480 --> 0:07:24.760 the different pits and pieces actually came together. You know 0:07:24.760 --> 0:07:27.240 what it actually takes. But when you go down that 0:07:27.320 --> 0:07:32.200 rabbit hole, you just see that making everything everything involves 0:07:32.440 --> 0:07:35.720 an enormous amount of energy and involves a enormous amount 0:07:35.720 --> 0:07:38.520 of carbon emissions. You know, to make the semiconductor, just 0:07:38.520 --> 0:07:40.680 to make the silicon that comes up the ground, you 0:07:41.240 --> 0:07:44.200 quarry some rock, you turn it into what's called metallurgical silicon. 0:07:44.240 --> 0:07:46.360 By the way, there's a whole load of other processes 0:07:46.360 --> 0:07:48.840 before it becomes a silicon chip. But just that process 0:07:49.080 --> 0:07:51.200 you have to throw it into a furnace alongside coal. 0:07:51.720 --> 0:07:53.840 You know, when people are kind of tweeting about are 0:07:53.840 --> 0:07:56.560 we really need to have fewer emissions, they are doing 0:07:56.640 --> 0:07:59.560 it on an item that has coal in its production, 0:08:00.000 --> 0:08:01.880 Doing it on an item that whose battery has has 0:08:02.000 --> 0:08:06.120 literally has oil inside it. And understanding those complexities and 0:08:06.360 --> 0:08:09.680 realizing that it is everywhere just made me think, like 0:08:09.800 --> 0:08:13.160 I can't. There's no way of describing the current world, 0:08:13.160 --> 0:08:18.360 which is the idea, without touching enormously on this, this thing, 0:08:18.440 --> 0:08:21.680 this undertaking that we have we well, the country the 0:08:21.680 --> 0:08:23.440 government has signed up to you. By the way, does 0:08:23.440 --> 0:08:28.200 anyone know how many hours of debate there was in 0:08:28.240 --> 0:08:32.240 the House of Commons before we officially signed zero into law? 0:08:34.120 --> 0:08:38.679 Actually zeros, no, it's one, it was one. It was 0:08:38.720 --> 0:08:39.839 actually eighty eight minutes. 0:08:40.559 --> 0:08:45.040 Eighty eight minutes to debate the single most consequential because 0:08:45.040 --> 0:08:47.800 I think it is the single most consequential thing law 0:08:47.920 --> 0:08:49.240 that we have ever agreed to. And then it was 0:08:49.440 --> 0:08:51.160 There wasn't even a vote, It wasn't there wasn't there 0:08:51.160 --> 0:08:53.280 was no division, It was just a and then it 0:08:53.320 --> 0:08:56.040 went through because it was done as a statutory instrument. 0:08:56.559 --> 0:08:58.800 We signed up to these things, I think, you know. 0:08:58.840 --> 0:09:01.280 Having having then gone into these kind of various rabbit holes, 0:09:01.480 --> 0:09:03.880 I realized that we have just not still at all 0:09:04.080 --> 0:09:05.120 about what this involves. 0:09:05.160 --> 0:09:06.880 And this is because we're one of the things you 0:09:06.920 --> 0:09:09.360 talk about. Whatever we discussed, this is everyone believing they 0:09:09.400 --> 0:09:11.360 live in an ethereal world or forgetting that they really 0:09:11.360 --> 0:09:13.679 live in a material world. So that debate was all 0:09:13.720 --> 0:09:17.240 about something theoretical without a thought of the practicalities behind us. 0:09:17.320 --> 0:09:19.520 Looks very easy if you live in and I inhabit 0:09:19.559 --> 0:09:21.120 that world as well. You know, I live in kind 0:09:21.120 --> 0:09:23.040 of London. I spend a lot of time talking to 0:09:23.120 --> 0:09:27.280 policymakers and think tank peoples and finance people and economists, 0:09:27.320 --> 0:09:29.680 and it's just ideas, and we kind of think that 0:09:30.040 --> 0:09:34.040 the physical things don't really matter for ideas, and that's 0:09:34.280 --> 0:09:37.440 just couldn't be more wrong, you know, anything, Any communication 0:09:37.480 --> 0:09:40.440 that we have goes these days in the Internet via 0:09:40.600 --> 0:09:42.720 some fiber optic cable. And what's that fiber optic cable 0:09:42.760 --> 0:09:44.960 made of. It's made of glass, and that what's that 0:09:45.000 --> 0:09:48.199 glass made of, It's made of sand. And understanding that 0:09:48.280 --> 0:09:52.200 physical kind of set of foundations that underlies everything, it's 0:09:52.240 --> 0:09:54.839 like the GDP that we kind of think of. I 0:09:54.840 --> 0:09:56.400 don't want to kind of get into slagging off GDP 0:09:56.440 --> 0:09:58.000 because that's very well we slag of all sorts of 0:09:58.000 --> 0:10:02.000 things are but gross messag product. It gives its enormous 0:10:02.080 --> 0:10:05.000 value because we pay enormous value and it generates enormous 0:10:05.040 --> 0:10:08.240 values to things like social networks. But you wouldn't have 0:10:08.240 --> 0:10:10.600 any social networks without the fiber optic cables. You wouldn't 0:10:10.600 --> 0:10:12.960 have any social networks without the servers that you need 0:10:13.000 --> 0:10:15.080 to provide that. You wouldn't have social networks without the 0:10:15.200 --> 0:10:17.319 energy that we need. And the whole point is that 0:10:17.320 --> 0:10:20.240 that GDP is like a big inverted pyramid with all 0:10:20.320 --> 0:10:22.600 of the big stuff, you know that kind of constitutes 0:10:22.640 --> 0:10:25.160 a lot of the value at the top, and everything 0:10:25.280 --> 0:10:28.200 is balanced on this tiny, precarious little bit of GDP, 0:10:28.320 --> 0:10:31.839 which technically speaking, is only a few dollars. But it's 0:10:32.240 --> 0:10:34.600 the stuff that makes everything else tick, you know. It's 0:10:34.640 --> 0:10:37.240 the concrete, it's the materials, it's the fiber optics, it's 0:10:37.280 --> 0:10:39.720 the semiconductors. They're worth a bit more, to be honest 0:10:39.720 --> 0:10:42.480 with you, these a but still that stuff is relatively small, 0:10:42.640 --> 0:10:44.280 and all we kind of tend to think about a 0:10:44.280 --> 0:10:46.120 lot of the time is the slice at the top. 0:10:46.200 --> 0:10:48.400 But without the stuff at the bottom, the whole thing 0:10:48.559 --> 0:10:52.960 just falls. And I think, particularly in this country, we 0:10:53.000 --> 0:10:56.680 need to think about that quite importantly, because we don't 0:10:56.720 --> 0:10:58.960 make much of the stuff anymore, for better or for worse, 0:10:59.200 --> 0:11:02.240 and it matters because without it, we're all screwed. 0:11:02.520 --> 0:11:04.760 We we need to think about all the dirty stuff at. 0:11:04.679 --> 0:11:06.000 The bottom, and it's very dirty to make it. 0:11:06.080 --> 0:11:07.880 All that's were filthy, Yeah, we did. 0:11:08.120 --> 0:11:10.440 We were talking about rare earth metal to Ecceter on 0:11:10.440 --> 0:11:11.719 a podcast recently and. 0:11:11.720 --> 0:11:14.200 Saying that if we if we really really believed in 0:11:14.240 --> 0:11:16.240 that zero, we would have to dig up most of cornwall. 0:11:16.640 --> 0:11:19.600 Yeah you get out, Well, there's a lot of copper. 0:11:19.640 --> 0:11:21.079 There's a lot of copper. In fact, some of the 0:11:21.120 --> 0:11:24.120 grades you find of copper in Cornwall are better than 0:11:24.160 --> 0:11:25.559 some of the grades that you get in Chile, which 0:11:25.760 --> 0:11:28.880 has the world's biggest reserves of copper. So technically speaking, 0:11:28.880 --> 0:11:30.640 we could go there and mind the hell out of 0:11:30.679 --> 0:11:33.840 Cornwall and be probably copper independence. 0:11:33.480 --> 0:11:35.160 From the rest of the world. But so we're not 0:11:35.200 --> 0:11:38.680 going to do that. Seem reluctant. Nim seem reluctant too. 0:11:38.679 --> 0:11:40.160 And personally, you know, I reckon we could do with 0:11:40.200 --> 0:11:42.000 that bottle minimal but well. 0:11:42.360 --> 0:11:45.320 Yeah, nonetheless it's it's protected, so it's so no chance 0:11:45.360 --> 0:11:47.719 and and and that's that's one of the issues I 0:11:47.720 --> 0:11:49.960 think we're coming into at the moment that our ability 0:11:50.000 --> 0:11:52.959 to make all this amazing kind of stuff happen is 0:11:53.400 --> 0:11:56.280 is it's limited not so much by the geology, you know, 0:11:56.280 --> 0:11:58.040 there's no shortage of any of the stuff we need. 0:11:58.040 --> 0:12:00.480 It's limited by our reluctance to go and get it, 0:12:00.520 --> 0:12:03.040 and also to some extent by our expertise, because we're forgetting, 0:12:03.400 --> 0:12:05.480 we're forgetting how to do this stuff. One of the 0:12:05.520 --> 0:12:10.920 world's most important mining colleges in Cornwall, at Cambourne, they've 0:12:10.920 --> 0:12:12.559 they've they've shut down one of their courses for the 0:12:12.600 --> 0:12:14.360 last few years because there's not enough people who want 0:12:14.360 --> 0:12:15.360 to go and learn about mining. 0:12:15.520 --> 0:12:17.440 And this is absolutely extraordinary, isn't it, Because we're now 0:12:17.440 --> 0:12:21.079 to anyone got kids to university age done, just done 0:12:21.080 --> 0:12:24.240 a levels, looking for courses, and it's amazing how few 0:12:24.360 --> 0:12:26.080 go go into this. And you hear it over and 0:12:26.120 --> 0:12:28.320 over and over that they have trouble filling the geology courses, 0:12:28.360 --> 0:12:30.880 the mining courses, that mining engineering courses, et cetera. 0:12:31.000 --> 0:12:32.280 Because they want to save the environment. 0:12:32.360 --> 0:12:33.920 Yeah, but that's where the money is. Actually, by the way, 0:12:33.920 --> 0:12:35.840 they'll tell your children to go into the oiland. 0:12:35.640 --> 0:12:37.880 Yeah, that's how that's how you save the environment. But 0:12:37.880 --> 0:12:38.439 bye bye. 0:12:38.480 --> 0:12:40.800 By understanding how to how to get stuff out of 0:12:40.800 --> 0:12:43.400 the ground and turn it into another kind of amazing 0:12:43.440 --> 0:12:46.120 thing that will help change the world, that is how 0:12:46.120 --> 0:12:48.000 we do it. And right now, particularly in this country, 0:12:48.040 --> 0:12:49.240 we're kind of forgetting about this. 0:12:49.160 --> 0:12:50.600 But we've forgotten about it across the West. 0:12:50.640 --> 0:12:52.120 I mean gen to bring you in and we see 0:12:52.120 --> 0:12:54.760 this stuff, I know, sorry, we see this in the 0:12:54.760 --> 0:12:57.120 stock market right where we see the mining sector in 0:12:57.160 --> 0:12:59.400 the US. In the UK, smaller and smaller and smaller 0:12:59.400 --> 0:13:01.120 section of the mind getting the big tech companies are 0:13:01.120 --> 0:13:02.959 bigger and bigger and bigger. Part so you can see 0:13:03.000 --> 0:13:05.480 people adding value to the ethereal world and no value 0:13:05.520 --> 0:13:06.360 to the material world. 0:13:06.920 --> 0:13:09.719 Yeah, but you know this is potentially a function of 0:13:10.679 --> 0:13:13.560 weird things in the market rather than necessarily how things 0:13:13.600 --> 0:13:16.760 always going to be. If you have passive ETFs, then 0:13:17.679 --> 0:13:20.600 big components like the Magnificent seven and the passive ETF 0:13:20.600 --> 0:13:20.840 go on. 0:13:20.880 --> 0:13:22.760 Not everyone's an investor explaining the Magnificent seven. 0:13:23.000 --> 0:13:25.120 Oh well, the Magnificent Seven was a group of seven 0:13:25.160 --> 0:13:30.160 stocks in the US which were more than their weight 0:13:30.200 --> 0:13:32.079 in the action of the of the index was very, 0:13:32.160 --> 0:13:34.079 very high. So if you look at the formans of 0:13:34.120 --> 0:13:36.480 the S and P, it's gone up quite substantially. With 0:13:36.520 --> 0:13:38.920 the SMP equal weight, it's been pretty much flat, and 0:13:39.320 --> 0:13:41.440 the only components that have made it go up are 0:13:41.480 --> 0:13:43.480 the biggest stocks in the index. But there's kind of 0:13:43.480 --> 0:13:45.559 a catch twenty two going on here, because if people 0:13:45.640 --> 0:13:49.000 put their money into the index and ETF, then the 0:13:49.000 --> 0:13:51.199 index has to buy the stocks more of the stocks 0:13:51.240 --> 0:13:53.040 that have gone up than of the stocks that didn't 0:13:53.080 --> 0:13:55.880 go up, which means you're compounding your error. If it 0:13:55.920 --> 0:13:58.160 is an error. We'll probably go into whether it is 0:13:58.200 --> 0:14:00.560 an error or not. Well, I got I say one 0:14:00.600 --> 0:14:03.120 thing quickly back so the main it's no longer a 0:14:03.120 --> 0:14:05.800 magnificent seven. Tesla dropped at and then Amazon dropped at 0:14:05.840 --> 0:14:09.160 and you know, it's brilliant Vidia. So basically, in Vidia 0:14:09.240 --> 0:14:12.080 is sort of driving this whole story. But in Vidia 0:14:12.360 --> 0:14:15.440 is is precariously balanced. I thought of this when you 0:14:15.440 --> 0:14:18.920 were doing your pyramid. In Vidia is precariously balanced on 0:14:19.240 --> 0:14:22.960 three numbers. It has very high margins because it charges 0:14:23.040 --> 0:14:26.800 very high prices, and because it's doing this, it's creating growth, 0:14:26.800 --> 0:14:29.480 so it has a very high multiple. But it does 0:14:29.560 --> 0:14:32.560 mean that those are three very vulnerable. You don't need 0:14:32.640 --> 0:14:35.200 to kill more than one of those and it's all over, 0:14:36.480 --> 0:14:39.320 and if you kill more than one at once, maybe 0:14:39.320 --> 0:14:42.160 all three go. So so we've built ourselves a very 0:14:42.160 --> 0:14:47.200 precarious situation that will be revealed soon but not yet. 0:14:47.600 --> 0:14:50.280 And I think that's quite analogous to what's happening in 0:14:50.360 --> 0:14:53.360 the world of students who all think that, you know, 0:14:53.440 --> 0:14:56.160 all you've got to do is buy an electric vehicle, 0:14:56.200 --> 0:14:59.480 and you're saving the planet genuinely, probably, and even the 0:14:59.520 --> 0:15:01.720 people teach and then probably genuinely, they haven't thought through 0:15:01.720 --> 0:15:04.200 it much more than that, and we'll discover. 0:15:04.400 --> 0:15:07.640 Okay, so back to lydia error AI bubble. 0:15:08.000 --> 0:15:11.720 The thing about AI is that a I don't know 0:15:11.720 --> 0:15:17.240 anything about it, but they're telling us that they can 0:15:17.320 --> 0:15:23.040 create artificial intelligence with large language models. This is generative 0:15:23.040 --> 0:15:25.400 AI as opposed to sort of narrower I think narrower 0:15:25.560 --> 0:15:28.000 functioning AI is fine, you give it a specific task, 0:15:28.040 --> 0:15:30.080 but then that's not really AI, is it. But once 0:15:30.120 --> 0:15:33.360 you talk about sort of wider use AI your tea, 0:15:33.440 --> 0:15:35.920 you're basically saying, learn it from this data. 0:15:36.040 --> 0:15:36.560 What data? 0:15:36.600 --> 0:15:38.920 Well, the stuff on the internet. Go and read the internet. 0:15:39.200 --> 0:15:41.800 So they go and use these large language models and 0:15:41.840 --> 0:15:43.840 they read the Internet, and they come back and go, right, 0:15:43.920 --> 0:15:46.600 I know everything you okay? Can you tell them there's 0:15:46.600 --> 0:15:51.040 been stuff that's true, stuff that's false? Define sarcasm. Do 0:15:51.120 --> 0:15:54.200 you know when someone's taking making a joke or being 0:15:54.400 --> 0:15:56.440 rude or being naughty? You know they have doesn't got 0:15:56.680 --> 0:15:59.120 a clue. So we've got this major I think block 0:15:59.520 --> 0:16:02.520 between what a child learns and really, you know, we 0:16:02.560 --> 0:16:05.640 should look at young children and what they learn. And 0:16:05.720 --> 0:16:07.640 they learn a language in three years, even though no 0:16:07.640 --> 0:16:09.400 one tells them what it is, what a language is, 0:16:09.600 --> 0:16:11.760 but they learn it, you know, and they and they 0:16:11.800 --> 0:16:15.440 understand how to walk, rebalance themselves, not fall over too often, 0:16:15.960 --> 0:16:17.640 and they all the time they're they're looking at these 0:16:17.840 --> 0:16:20.280 I remember once when the earliest stages of AI, the 0:16:20.640 --> 0:16:25.240 military was trying to design software to identify foreign enemy 0:16:25.240 --> 0:16:29.360 tanks versus friendly tanks. And that was fine, except then 0:16:29.400 --> 0:16:32.080 they discovered that all the pictures of the tanks that 0:16:32.080 --> 0:16:34.600 they'd taken, which were enemy tanks, they've taken on cloudy days, 0:16:34.600 --> 0:16:36.880 and all the friendly tanks were blue sky days. So 0:16:36.920 --> 0:16:39.720 they had this problem that the software was identifying the weather. 0:16:40.440 --> 0:16:41.920 So then they said, okay, that we've got to make 0:16:41.960 --> 0:16:44.400 it cleverer than that. And then they had tanks driving 0:16:44.440 --> 0:16:48.560 through bushes and you know, the software is going like, well, 0:16:48.560 --> 0:16:50.440 that's a bush. And so in the end they tore 0:16:50.440 --> 0:16:52.440 their hair out and went back to it. So AI 0:16:52.560 --> 0:16:54.760 is going to come along in my career in finance, 0:16:54.840 --> 0:16:58.120 which is now Mariam waspening the other day, far too long, 0:16:58.760 --> 0:17:02.760 we've had probably every at least every sort of cycle, 0:17:03.280 --> 0:17:06.720 there's been some fantastic new mathematical idea that's going to 0:17:06.800 --> 0:17:10.280 take off and revolutionize investing. Start all the way back in 0:17:10.320 --> 0:17:13.280 eighty seven with portfolio insurance, and then we had you 0:17:13.320 --> 0:17:17.119 know iterations of similar types of iterations ever since, and 0:17:17.320 --> 0:17:20.280 almost all of them fall down on almost always really 0:17:20.400 --> 0:17:25.080 quite basic stuff. For example, the reason why we had 0:17:25.119 --> 0:17:31.520 the collapse of sort of subprime housing securities was because 0:17:31.520 --> 0:17:36.080 they made a decision that when modeling securities that all 0:17:36.080 --> 0:17:39.880 the datall be independent. Well, most people aren't statistians probably 0:17:39.880 --> 0:17:42.040 know what that means. But that assumption is that whatever 0:17:42.040 --> 0:17:44.560 happens today is going to have it's going to be 0:17:44.560 --> 0:17:47.800 totally independent from what happens tomorrow. So you go, okay, fine, 0:17:47.960 --> 0:17:51.720