Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.
Speaker 3: I'm Tracy Alloway.
Speaker 4: And I'm Joe. Wasn't all Joe?
Speaker 3: You're a homeowner now right?
Speaker 4: Yeah, it's very fun.
Speaker 3: Tell me, tell me how fun it is.
Speaker 2: I know you've had a few issues that cropped up
Speaker 2: basically as soon as you brought your new place.
Speaker 4: I don't want to talk.
Speaker 5: Let's go, let's move on.
Speaker 2: No, this is part of my carefully planned Yes, I know.
Speaker 4: Yeah, it's annoying and you have to deal with stuff.
Speaker 4: And I may have mentioned Alicia one time. Actually have
Speaker 4: been lucky by and large, But yes, it was very funny.
Speaker 4: You know. The I think literally the day or two
Speaker 4: days after it closed on my apartment in the East Village.
Speaker 4: You know, it's like whether there was something wrong before
Speaker 4: you just there's the phone number of somebody, just call it. Yeah,
Speaker 4: we still the building still is a super right, you know,
Speaker 4: the landlord just deals with replacing something. And then I
Speaker 4: think literally the day after we closed, there was like
Speaker 4: a window leak and it's like, wait, is there no
Speaker 4: longer a number? Do I have to pay for this myself?
Speaker 3: So who did you find to fix the window.
Speaker 4: Dad, I don't remember. There is still a super of
Speaker 4: the building of the super, but we had to write
Speaker 4: a check.
Speaker 3: Okay.
Speaker 2: One of the things that has surprised me about being
Speaker 2: a homeowner is like how low tech a lot of
Speaker 2: the housing construction and fix it actually is. Right, So,
Speaker 2: if there's a leak in your ceiling, in your roof
Speaker 2: or something, it's literally either you or some guy that
Speaker 2: you hire going up on a ladder and like putting
Speaker 2: down a few more shingles with a nail gun.
Speaker 3: Right, it all seems very old.
Speaker 5: What did you think was going to happen?
Speaker 4: But is it gonna be like some like unit tree
Speaker 4: like robots crawl up? Then?
Speaker 2: No, Seriously, it's the year twenty twenty five and we're
Speaker 2: still putting houses together with like, you know, the hammers.
Speaker 4: And someone someone comes with the box and they look
Speaker 4: through to the difference like, no, this doesn't fit this
Speaker 4: does it?
Speaker 1: Oh?
Speaker 4: I got it? And then the one second I don't
Speaker 4: have the right screw it, and they go around to
Speaker 4: a construction store a little right back, I got this,
Speaker 4: I got Yeah. Yeah, it's still pretty probably the way
Speaker 4: it looked when we were kids.
Speaker 2: Okay, well, anyway, I've been thinking about it because a
Speaker 2: couple months ago the Richmond Fed put out this paper
Speaker 2: and it was all about productivity in housing construction and
Speaker 2: the fact that construction labor productivity in housing has fallen
Speaker 2: by more than thirty percent from nineteen seventy to twenty twenty.
Speaker 2: So you think about the arc of economic development. You know,
Speaker 2: normally there are productivity improvements as we invent new efficiencies
Speaker 2: and as we invent new technology and ways of making things.
Speaker 2: That hasn't happened in housing. It's still the guy showing
Speaker 2: up with a toolbox.
Speaker 4: This strikes me as a really important element of the
Speaker 4: housing affordability conversation that I don't think gets enough attention,
Speaker 4: which is, it's easy to talk about zoning, and I'm
Speaker 4: sure there are issues there that need reform. It's easy,
Speaker 4: you know, permits and all that stuff. It's easy to
Speaker 4: talk about financing, et cetera. However, housing is a product
Speaker 4: and things get built at a cost and then sold
Speaker 4: as some profit margin above that. And if that underlying
Speaker 4: cost keeps going up, and it definitely has in say
Speaker 4: New York City and other areas, if that underlying cost
Speaker 4: keeps going up, then that is going to push up
Speaker 4: the cost of housing regardless of what you do on
Speaker 4: now again, like maybe zoning can make help with productivity gains,
Speaker 4: et cetera. Nonetheless, it continues to get more expensive for
Speaker 4: the actual construction of a home, unlike many other built goods. Right,
Speaker 4: I mean, the issue is that we don't build homes
Speaker 4: in China. Unfortunately, if we did, that would solve the problem.
Speaker 4: We don't, and maybe we could talk a little bit
Speaker 4: about why we don't, but maybe one day will but
Speaker 4: that would help a lot.
Speaker 5: Well.
Speaker 2: On that note, I mean, there happen attempts through history
Speaker 2: to have prefab houses, right, And some of the old
Speaker 2: prefab houses that you order from, like the Sears catalog
Speaker 2: in the nineteen twenties or nineteen thirties, those are gorgeous
Speaker 2: and I would happily live in one of those today.
Speaker 2: But we should talk about why it seems difficult to
Speaker 2: build houses or at least more expensive than some other things,
Speaker 2: and also why it seems that manufacturing other products seems
Speaker 2: to get more efficient over time while housing seems to
Speaker 2: kind of sect up all right, So we do, in
Speaker 2: fact have the perfect guest, I'm very happy to say
Speaker 2: we have Brian Potter, who is the author of the
Speaker 2: Construction Physics newsletter on Substack. I subscribe to this and
Speaker 2: it's fantastic.
Speaker 3: He is also the.
Speaker 2: Author of the new book The Origins of Efficiency, and
Speaker 2: a senior infrastructure fellow at IFP. So really the perfect guest. Brian,
Speaker 2: Thank you so much for coming on the show.
Speaker 5: Thanks for having me.
Speaker 2: Congrats on the book Origins of Efficiency. Are we right
Speaker 2: in thinking that housing hasn't become that much more efficient
Speaker 2: of a process?
Speaker 6: You are correct, and you know the productivity metrics. Those
Speaker 6: metrics are quite complicated and you can measure in different
Speaker 6: ways and different things right, slightly different trends. Some of
Speaker 6: them just show flat productivity rather than fall in productivity.
Speaker 6: But the general point is yet, yes, it has not improved.
Speaker 6: Unlike almost every sort of other like physical good has
Speaker 6: gotten you know, cheaper and less expensive to make overtime.
Speaker 6: Housing is not like that at all.
Speaker 4: And you worked for several years for a prefab housing
Speaker 4: company or something like that.
Speaker 6: Yeah, my background is as an engineer. I worked as
Speaker 6: a structural engineer for about fifteen years. That's what my
Speaker 6: training is and just that is basically just designing buildings.
Speaker 6: So I designed parking garages and water treatment plants and
Speaker 6: apartment buildings and stuff like that. And I had, yeah,
Speaker 6: worked at different facets of the industry, and as you say,
Speaker 6: it seemed extremely inefficient to me. We're putting up these buildings.
Speaker 6: We're putting up these houses, you know, on site by
Speaker 6: hand with a guy with a hammer. You know, it
Speaker 6: doesn't look that different than it did one hundred years ago.
Speaker 5: You know.
Speaker 6: On my side, it was like, we're designing these buildings
Speaker 6: from scratch every single time, instead of designing at once
Speaker 6: and then making you know, a million copies of it
Speaker 6: like you do with a car or something like that. So, yeah,
Speaker 6: it seemed when I was, you know, much younger, it
Speaker 6: seemed like incredibly backward and inefficient to me. And then
Speaker 6: in about twenty eighteen, I had a chance to join
Speaker 6: an extremely well did constructions prefab startup called Kata that
Speaker 6: promised like, oh, we're going to come in, we've raised
Speaker 6: all this money, we're going to change all that. We're
Speaker 6: going to build buildings and in factories and it's going
Speaker 6: to be so much more efficient. We're going to be
Speaker 6: the Henry Ford of housing, and we're just going to
Speaker 6: sweep away these old methods of building and uh it,
Speaker 6: long story short, they did not work out at all.
Speaker 6: They had raised a very very large amount of venture capital,
Speaker 6: about like two or three billion dollars in VC.
Speaker 5: And they burned through it in a few years and.
Speaker 6: Declared bankruptcy and then the Yeah, and in the aftermath
Speaker 6: of that, I wanted to understand why had it all
Speaker 6: gone so wrong? Beyond just you know, startups are hard, right,
Speaker 6: startups to have a high, you know, a naturally high
Speaker 6: failure rate, you know, and whatever operational missteps they may
Speaker 6: have made. I kind of came to believe that there's
Speaker 6: sort of fundamental thesis that if you build these things
Speaker 6: and in factories like we build everything else, it will
Speaker 6: get cheaper. I came to believe that was either sort
Speaker 6: of not quite correct or at least missing a very
Speaker 6: big piece such we didn't know specifically what we needed
Speaker 6: to do in these in these factories to make the
Speaker 6: cost fall.
Speaker 2: So why are houses, I guess so customized and not
Speaker 2: standardized to your point.
Speaker 6: Yeah, So there's a lot of reasons. One is just
Speaker 6: you know, to go back to your point about permitting,
Speaker 6: there's a very very large number of permitting jurisdictions in
Speaker 6: the US something like twenty thousand different jurisdictions, which each
Speaker 6: might have their own slightly different versions of building codes
Speaker 6: that sort of need to be enforced. There's just you know,
Speaker 6: different building sites or different sizes and shapes and have
Speaker 6: different you know, soils will which require different things, different
Speaker 6: environmental design factors. You know, different wind speeds. If you're
Speaker 6: in California, you need to design for earthquakes, if you
Speaker 6: need in Florida, you need to design for hurricanes. So
Speaker 6: there's all these factories that kind of conspire to make
Speaker 6: these sort of housing market very kind of fragmented, and
Speaker 6: it's hard to build a very very large number of
Speaker 6: like a uniform product. The builders do try to do that,
Speaker 6: they have somewhat standardized designs. It will punk down in
Speaker 6: like different developments across the country, but it's quite difficult
Speaker 6: to do in really really large numbers.
Speaker 4: Talk to us a little bit more about prefab housing specifically,
Speaker 4: or housing in a factory. There have been multiple attempts,
Speaker 4: and as Tracy mentioned, you used to be able to
Speaker 4: buy a home from seers. Talk a little bit about
Speaker 4: the sort of recent trends in this area, because you
Speaker 4: do over the last several years, you've heard a lot
Speaker 4: of maybe the last decade you've heard a lot of
Speaker 4: excitement about this idea. And as you mentioned, you worked
Speaker 4: for a well funded startup. Why now, like what's the
Speaker 4: general thinking and then maybe we could get into the
Speaker 4: sort of the gap between the theory and then what
Speaker 4: happened in practice.
Speaker 6: Yeah, so prefab is like this perennially popular Yahni.
Speaker 4: It's always it's always the next time.
Speaker 6: Yeah, It's always the next big thing that's going to
Speaker 6: come along. And so every you know, decade or two,
Speaker 6: you will kind of see these trends, like some big
Speaker 6: company will come along like, oh, I'm going to revolutionize
Speaker 6: the building with the housing industry with prefab construction. So
Speaker 6: and yeah, these these attempts stretch back a pretty long way,
Speaker 6: you know, And I became something of a student of
Speaker 6: these companies that have tried and failed. So right after
Speaker 6: World War Two you have this company called the Lustron
Speaker 6: Home Company, which made these very interesting homes, many of
Speaker 6: which are still around.
Speaker 5: You can actually go look at them.
Speaker 6: But they're made these like steel panels covered in porcelain
Speaker 6: that turned out to be quite well made and quite durable.
Speaker 6: And they got government financing to sort of fund their operation.
Speaker 6: They had set up shop in this big what was
Speaker 6: once one time the biggest factory in the world. It
Speaker 6: was three purpose to aircraft engine factory.
Speaker 4: Well they looked pretty cool.
Speaker 5: Yeah, they're very neat.
Speaker 6: I live in Atlanta, and there's some in Atlanta that
Speaker 6: you can go and look at. But they went bankrupt
Speaker 6: after quite a few years. In the nineteen sixties, there
Speaker 6: was this company called Sterling Homes that said, oh, we're
Speaker 6: going to be the next you know, Henry Ford of construction.
Speaker 6: They went bankrupt in a few years.
Speaker 5: Yeah, they were.
Speaker 6: Part of this government program called Operation Breakthrough, which was
Speaker 6: trying to fund the development of like mass production housing techniques.
Speaker 6: That program basically failed. None of their companies that they funded,
Speaker 6: and there were quite a few of them ended up
Speaker 6: sort of succeeding and breaking through and creating sort of
Speaker 6: these mass produced housing products. So you kind of see
Speaker 6: the same thing happening over and over and over again
Speaker 6: where people are trying to use prefab to like dramatically
Speaker 6: reduce the cost of construction. And there's ways that you
Speaker 6: can do that in kind of like a very limited sense,
Speaker 6: and you can also like build a successful business off
Speaker 6: of prefab where you're not necessarily trying to compete on
Speaker 6: low cost, but things like oh we can build much
Speaker 6: faster or stuff like that, but nobody has managed to
Speaker 6: do what everybody is trying to do, which is like,
Speaker 6: you know, be the Henry Ford of housing.
Speaker 3: Okay, what's the sticking point? Then?
Speaker 2: I know you walk through some of the reasons that
Speaker 2: houses tend to be customized, things like soil types and
Speaker 2: zoning and regulation. But is that just the story of
Speaker 2: why we can't have prefab houses that are like across America?
Speaker 6: So there's yeah, I kind of look at this in
Speaker 6: two ways. I think of it as terms of it's
Speaker 6: very hard to introduce some of these like improvements, these
Speaker 6: sort of strategies you have for improving efficiency into the
Speaker 6: construction process without accumulating like more costs elsewhere in the process.
Speaker 6: And then so at the same time that the gains
Speaker 6: that we've found in terms of like these strategies for
Speaker 6: efficiency improvement have historically been much more limited than you
Speaker 6: see and like if you're producing you know, a car
Speaker 6: or a light bulb.
Speaker 5: Or something like that.
Speaker 6: And at the same time we've continually added like more
Speaker 6: regulations and more difficulty you know, more administrative overhead and
Speaker 6: getting stuff built, which is slowly like driving up the
Speaker 6: cost even as like a you know, we're not sort
Speaker 6: of accumulating these productivity improvements.
Speaker 4: What's an example of Okay, this on paper looks like
Speaker 4: a productivity gain that we get in a factory, but
Speaker 4: then you pay for it somewhere else.
Speaker 6: Sure, so you know a very simple example. You know,
Speaker 6: if you're building a car in a factory, you build
Speaker 6: the entire car right, it rolls out of the factory
Speaker 6: line and the car is complete. A building is too
Speaker 6: big to come out of the factory all in one
Speaker 6: piece and get sent to the job site or whatever.
Speaker 6: So what happens is you have to sort of build
Speaker 6: you're building in chunks.
Speaker 2: You know.
Speaker 6: That's why prefab construction is often called modular construction, because
Speaker 6: you build it in these modules. And there's different strategies
Speaker 6: for like how you break a building into modules, but
Speaker 6: you're always like breaking it into these pieces. And what
Speaker 6: happens when you break it into pieces is that you
Speaker 6: have to add a bunch of extra stuff that you
Speaker 6: wouldn't have had to add if you were just building
Speaker 6: it on site. So transporting it down the road, you
Speaker 6: have to sort of design that to be rigid enough
Speaker 6: to like not collapse under like the load of like
Speaker 6: being bounced along on a truck. I used to work
Speaker 6: at a company that build concrete parking garages, which are
Speaker 6: built from prefabricated you know materials. They build these like
Speaker 6: big concrete pieces and then drive them down the road,
Speaker 6: and that was like the controlling design factor is designing
Speaker 6: to survive the loads that it would concur during transportation.
Speaker 6: And then once you have those pieces driven down and
Speaker 6: gotten to the job site, you have to like stitch
Speaker 6: them together, and so you have all these extra connectors
Speaker 6: and this extra complexity and attaching them together that again
Speaker 6: doesn't exist in sort of the conventional construction process.
Speaker 4: It's kind of crazy to think that, whether we're talking
Speaker 4: about a house or a parking garage that's presumably designed
Speaker 4: to last for decades, that a very significant factor in
Speaker 4: engineering is that few hours that it goes down the road.
Speaker 4: I mean, that's what sounds like, yeah, like that that's
Speaker 4: like that's going to last forever, but it has to
Speaker 4: be there just for that, like that short transport perer.
Speaker 2: In the case of parking garages, for sure. I guess
Speaker 2: that's why We do have some prefab houses in the US,
Speaker 2: and they're called trailers because you can actually move them, right.
Speaker 2: How much of this is also maybe a liability question
Speaker 2: where if you were producing prefab houses, presumably it's not
Speaker 2: the company that's putting them together on site. It's usually
Speaker 2: contractors or someone you hire to do it. And I
Speaker 2: imagine there's like a disconnect between the contractors on the
Speaker 2: ground who are putting this stuff together and the company
Speaker 2: that's building the parts.
Speaker 6: There is to some extent, I think that specific liability
Speaker 6: is not necessarily the biggest controlling factor. What is a
Speaker 6: big controlling factor, and I've written an essay about this,
Speaker 6: is that the construction cost, like the cost of developing
Speaker 6: and putting up a new building, the sort of distribution
Speaker 6: of that is extremely fat tailed and right skewed. Which
Speaker 6: so basically what that means is that a construction project
Speaker 6: that goes under budget, that goes really really really well,
Speaker 6: maybe you're like ten percent over budget or under budget,
Speaker 6: maybe you're fifteen percent under budget. You know, you can't
Speaker 6: push down that cost very much. But a project that
Speaker 6: goes over budget can be one hundred or two hundred
Speaker 6: or three per hundred percent over budget. So what that
Speaker 6: means is that the risk involved in like introducing some
Speaker 6: new system that you're not sure really how it works,
Speaker 6: it's just the payoff is so asymmetrical. It's so much
Speaker 6: more likely to cause like a massive overrun than to
Speaker 6: sort of save a relatively small amount that these sort
Speaker 6: of builders are like rationally incentivized to not introduce some
Speaker 6: radically new technology that's going to dramatically change how things
Speaker 6: go because the potential costs are so extremely high.
Speaker 4: Sort of maybe dovetailing with Tracy's question, you know, or
Speaker 4: maybe in the case of Kata or some of these others,
Speaker 4: it's like, Okay, they have some vision, but because they're
Speaker 4: not doing the entire thing all around the country, including
Speaker 4: presumably transport, et cetera, how much is the issue like
Speaker 4: maybe scale on those ends experience with that, Like in theory,
Speaker 4: if you had a really big experience on the ground
Speaker 4: distribution and final assembly workforce or whatever, it is, like,
Speaker 4: how much would that help? And how much is the
Speaker 4: issue that people who work on the ground, etc. Just
Speaker 4: aren't doing this full time?
Speaker 6: Yeah, that's like a part of it is, like, you know,
Speaker 6: this modular construction is kind of a somewhat niche aspect
Speaker 6: of the construction industry. There are quite a few experts
Speaker 6: in it that know how to do it, and they
Speaker 6: do it fairly regularly, and you can usually find them
Speaker 6: in like any given market. I would say a different
Speaker 6: point that you kind of alluded to. Scale is like
Speaker 6: another definitely big issue where it's like it's not like
Speaker 6: a semiconductor where you can make a million of them
Speaker 6: in a factory in Taiwan and ship them all over
Speaker 6: the world. Right, That's another big aspect that makes it
Speaker 6: hard to sort of gain efficiencies from factory production and
Speaker 6: goes to what I was talking about where it's hard
Speaker 6: to do that without introducing costs elsewhere in the system.
Speaker 6: The cost of like moving these modules around is so
Speaker 6: large that it's typically not economic to ship it like
Speaker 6: more than a day's drive, because then the costs just
Speaker 6: gets so high. And so what you have instead of
Speaker 6: like one giant factory that can like produce really really
Speaker 6: large scales, even sort of these modular companies that are
Speaker 6: doing like large amounts of business, they all tend to
Speaker 6: be like done in factories like that are spread across
Speaker 6: the Yeah. So like so like you talked about, like
Speaker 6: trailers like manufactured homes, which is one area that you
Speaker 6: can actually see some pretty substantial loss reductions due to
Speaker 6: various things. Partly, it's like they're targeting a lower end
Speaker 6: of the market and stuff like that, so like the
Speaker 6: finishes and stuff aren't quite as nice. But if you
Speaker 6: look at like the way that their business is structured,
Speaker 6: they have like more than a dozen factories spread all
Speaker 6: across the US, and then each one is serving like
Speaker 6: a day's drive catchment area. So they're not building like
Speaker 6: fifty thousand houses or whatever in one factory. It's more
Speaker 6: it's closer to like five hundred or a thousand or
Speaker 6: something in one factory. And so the economies of scale
Speaker 6: that you can capture in like a given operation are
Speaker 6: just fairly limited.
Speaker 2: Joe, I have to mention here, we didn't tell Brian
Speaker 2: that we were going to be talking about housing construction
Speaker 2: and trailers and all of that. This is all just
Speaker 2: off the top of his head.
Speaker 4: He said, down, We're like, by the way, can we
Speaker 4: talk about this?
Speaker 3: Yes?
Speaker 2: Okay, you kind of alluded to it in your previous answer,
Speaker 2: But if you were going to choose a manufacturing process
Speaker 2: that was the polar opposite of housing.
Speaker 6: What would it be, oh interesting, probably something like chemical manufacturing,
Speaker 6: you know, or like you know, raw met real manufacturing,
Speaker 6: something like steel or something like that. Because chemical manufacturing
Speaker 6: it's you know, the sort of ultimate form of like
Speaker 6: a manufacturing process, which I kind of talk about in
Speaker 6: the book, is what's called like a continuous flow process
Speaker 6: where it just like continuously transforms your group of inputs
Speaker 6: into the output of what you're doing just one you know,
Speaker 6: continuously without any sort of waiting, interrupting or batching or
Speaker 6: anything like that is all flows and it's continuously transformed
Speaker 6: during the process. And that's what like chemical manufacturing, you know,
Speaker 6: very efficient chemical manufacturing is done, and most other like
Speaker 6: really efficient manufacturing processes they ultimately tried to sort of
Speaker 6: converge on something that looks like that. So like the
Speaker 6: assembly line and like mass production is kind of a
Speaker 6: way to like get something that approaches like a continuous
Speaker 6: flow process in these like very complex manufactured goods with
Speaker 6: like thousands of parts. That was why it was such
Speaker 6: a huge transformative thing, is because now you could have
Speaker 6: this continuous flow process which existed before for you know,
Speaker 6: much simpler things, but now you could adapt that to
Speaker 6: like these really really complex goods like cars, and that's
Speaker 6: why it was such a transformative thing when it was
Speaker 6: sort of invented in the early twentieth century.
Speaker 4: I'm curious do the economics or the dis economics of
Speaker 4: building houses in this way do they inform your perspective
Speaker 4: at all on the prospect for small modular nuclear reactors.
Speaker 4: I mean, there sounds like there are some similarities, especially
Speaker 4: when it comes to like learning curves, et cetera.
Speaker 3: The soil of.
Speaker 4: Yeah, do you have any views on that? Yeah, having come,
Speaker 4: do you think there's any parallels? So, yeah, because this
Speaker 4: is also something that is always the next decade away,
Speaker 4: right yeah, yeah.
Speaker 5: Yeah, so yeah.
Speaker 6: So I talk about economies of scale in the book,
Speaker 6: and we're talking about like nuclear stuff. There's like kind
Speaker 6: of two related economies of scale that in some ways
Speaker 6: kind of pull in different directions.
Speaker 5: One is called and.
Speaker 6: You see this with like other sort of processing equipment,
Speaker 6: which is I called geometric scaling, which is basically, as
Speaker 6: you build a piece of equipment physically larger, it costs
Speaker 6: less per unit of whatever it is that you're producing,
Speaker 6: basically because of like area volume relationships. As you double
Speaker 6: the volume of something, you less than double the amount
Speaker 6: of like surface area required to enclose it and be
Speaker 6: that like tanks or pipes or stuff like that. So,
Speaker 6: like chemical process and equipment or like power plant equipment,
Speaker 6: tends to get cheaper per unit of what you're producing
Speaker 6: up to a certain point, and eventually you run it
Speaker 6: gets you run into difficulties, and those scaling and loss
Speaker 6: stop working. And this is one reason why power plants,
Speaker 6: you know, in electricity, got cheaper over sort of most
Speaker 6: of the course of the twentieth century, is because we're
Speaker 6: building these power plants physically larger. But with nuclear you
Speaker 6: run into these very nasty dis economies of scale around
Speaker 6: the same thing was because as a nuclear plant gets bigger,
Speaker 6: the accidents that could have get more dangerous. For like
Speaker 6: a very small reactor, you can make it so you
Speaker 6: basically can't have a melt down, there's just not enough
Speaker 6: heat in there to like melt through your container or whatever.
Speaker 5: But for a very.
Speaker 6: Large one, the heat gets so large that the accidents
Speaker 6: become the risk becomes much much larger, and so you
Speaker 6: have to have these like very involved safety systems that
Speaker 6: maybe you don't need to have on like a smaller reactor.
Speaker 6: So that is something that maybe points to a reason
Speaker 6: why these maybe small.
Speaker 5: Modular reactors were better.
Speaker 6: Plus, as you say, now you're getting it's sort of
Speaker 6: the benefits of like getting yeah, series production and repeating
Speaker 6: it over and over and over again. But there is
Speaker 6: that trade off is that you're not getting those geometric
Speaker 6: effects that traditionally, like a lot of this like processing
Speaker 6: type equipment, has relied on to get cheaper.
Speaker 2: This actually reminds me of something I wanted to ask,
Speaker 2: not necessarily about nuclear but just manufacturing in general. When
Speaker 2: I think about efficiencies, I think about stuff like reducing
Speaker 2: costs as much as possible, maybe just in time, inventory
Speaker 2: management and stuff like that. The problem is that if
Speaker 2: something goes wrong, there's very very little cushion for protection.
Speaker 2: And I'm curious, when it comes to efficiency, how do
Speaker 2: people balance streamlining production with I guess building in redundancies
Speaker 2: in case the worst happens.
Speaker 6: Yeah, that's that's really interesting. And the Toyota producttion system
Speaker 6: slash Lean, which is like a descendant of it, which
Speaker 6: I talk a lot about in the book, is kind
Speaker 6: of an interesting balance of these two things. Because everybody
Speaker 6: thinks Lean or Turte production system, it's like, oh yeah,
Speaker 6: just in time, get rid of inventories. You don't have
Speaker 6: all the costs. You know, your factories can be smaller,
Speaker 6: blah blah blah. But really what it is, it's sort
Speaker 6: of a balance of like, for every factor that you
Speaker 6: can control, try to like have like the flow be
Speaker 6: like as smooth as possible and eliminate all this like
Speaker 6: you know, slack and waste in the system. But for
Speaker 6: the things that like you can't control, you should have
Speaker 6: your system adaptable to sort of accommodate that and be
Speaker 6: have sort of a flexibility built into it.
Speaker 5: So like one.
Speaker 6: Example is after the sort of you know, to bring
Speaker 6: back to nuclear, after I believe the sort of Fukushima
Speaker 6: nuclear accident in Japan, Toyota had a ran into like
Speaker 6: a shortage of like automotive semiconductors for a while, and
Speaker 6: they realized that this was like a big like potential
Speaker 6: like just bottleneck in their process. So after that, even
Speaker 6: though they're like so focused on you know, inatory minimization
Speaker 6: and whatever, after that accident, they basically decided they were
Speaker 6: going to like stockpile certain critical things that maybe had
Speaker 6: difficult lead times or something like that, and so they
Speaker 6: stockpiled like serio automotive semiconductors. And so during COVID, when
Speaker 6: all of a sudden there was all of a sudden
Speaker 6: a huge like shortage of like automotive semiconductors, Toyota for
Speaker 6: a while was like much less affected by some of
Speaker 6: these other than other car manufacturers because they had learned
Speaker 6: the lesson that oh yeah, in sort of you know,
Speaker 6: logistics crunches, these semiconductors can be quite difficult to get.
Speaker 6: And so basically people were saying, Hey, I thought you
Speaker 6: were all about like inventory minimization or whatever. But then somebody,
Speaker 6: you know, some spokesman basically responds like, no, this is
Speaker 6: basically a standard lean solution, where it's you try to
Speaker 6: minimize the sort of waste in the sort of areas
Speaker 6: that you can control, but in the stuff that you
Speaker 6: can't control, you need to sort of adapt your system
Speaker 6: to accommodate it.
Speaker 4: I want to talk more about housing, but I want
Speaker 4: to do a little detour. America seems to have gotten
Speaker 4: because I'm trying to understand sort of big picture the
Speaker 4: trajectory is in this country for various things. You know,
Speaker 4: I joked in the beginning, the problem with housing is
Speaker 4: that we haven't found a way to offshore to China.
Speaker 4: If we did, then probably housing would have gotten cheaper
Speaker 4: like everything else that we have manufactured there. But I'm
Speaker 4: curious some do you have like a theory because I
Speaker 4: have heard a satisfactory answer why the US seems to
Speaker 4: have gone backwards in plane construction, Like why does Boeing
Speaker 4: seem to be worse at the job of building an
Speaker 4: airplane than it was, say twenty years ago.
Speaker 6: Oh yeah, that's interesting. One point about your housing construction
Speaker 6: in China. They're actually our companies that like try to
Speaker 6: do this stuff in China. They were like manufacture these modules.
Speaker 6: But again to my point about you know, you incur
Speaker 6: all these shipping and all that, you know, they have
Speaker 6: to they have to break them into modules and put
Speaker 6: them on these boats and bring them over. So it's
Speaker 6: you know, it's a very sort of niche business in
Speaker 6: terms of bowing. I mean the standard you know story
Speaker 6: there is that they went into this merger with McDonald douglas,
Speaker 6: the finance people.
Speaker 4: I don't like the standards. Yeah, and here's why, because
Speaker 4: I love it so much, right, and so it's like, oh,
Speaker 4: it's such a good story. Perfect, it's too perfect. They
Speaker 4: brought in the finance people. They care about the shareholders
Speaker 4: too much. Looking at the Boeing stock chart, you would
Speaker 4: not think this is a company that cares a lot
Speaker 4: about shareholders, right, They care about shareholders too much. And
Speaker 4: if they had just stuck with the engineers. I love
Speaker 4: that story, and because it feeds all of my biases,
Speaker 4: I'm like skeptical.
Speaker 6: Yeah, And I mean, you know, a big part of
Speaker 6: it is just manufacturing commercial aircraft is like extremely hard.
Speaker 6: There's like a reason that only like right now to
Speaker 6: maybe three maybe four companies in the in the entire
Speaker 6: world do it. Boeing Airbus, Embraer in Brazil of all places,
Speaker 6: and then promac Is looks like it's going to be
Speaker 6: the big fourth one.
Speaker 5: You know.
Speaker 6: Japan tried for many years to sort of break into
Speaker 6: the commercial aircraft manufacturing market, and they were, you know,
Speaker 6: after spending like billions of dollars, they were.
Speaker 5: Basically gave up just because it was so difficult.
Speaker 6: There used to be many more competitors in the nineteen
Speaker 6: seventies and they sort of got winnowed down one by one.
Speaker 6: One or two plane projects that don't pan out and
Speaker 6: you're basically out of business. That's essentially what happened to Lockheed,
Speaker 6: and so it's just a very very difficult business to
Speaker 6: sort of be in. And so Boeing is having a
Speaker 6: lot of struggles right now, but you know, earlier in
Speaker 6: the twenty first century you have air Bus having a
Speaker 6: lot of struggles.
Speaker 5: They had all sorts of problems.
Speaker 6: I think on their A three eighty that they were
Speaker 6: rolling out, they're at like a lot of delays and
Speaker 6: stuff they had to fix on it as well. So
Speaker 6: a big part of it is just it's a very
Speaker 6: difficult business to be in. There's very few people that
Speaker 6: can kind of really do it effectively.
Speaker 4: Here's a question that I've wondered about, and maybe it
Speaker 4: relates to planes, and maybe it relates to housing, maybe
Speaker 4: it relates to other things like when you see us
Speaker 4: going backwards or stalling out, Like here's my question, could
Speaker 4: we have some sort of I don't know if Dutch
Speaker 4: disease is the right answer, where it's like maybe in
Speaker 4: the middle of the twentieth century there were people who
Speaker 4: were working on the floor or working in management at
Speaker 4: Boeing in a plant somewhere in Washington who are really
Speaker 4: on the ball and really whatever. And now in that
Speaker 4: same person in twenty twenty five could make ten times
Speaker 4: as much money working for a startup in Silicon Valley
Speaker 4: or Wall Street, et cetera. That there's some sort of
Speaker 4: like levels of you know, awareness or skill or agentickness
Speaker 4: or whatever, et cetera, and that because we have these
Speaker 4: other areas where there's so much money, that there's like
Speaker 4: a type of individual who used to maybe work in
Speaker 4: a sort of construction related field that left that and
Speaker 4: then it's changed the talent distribution with you.
Speaker 6: Yeah, I think that's definitely a part of it. There's
Speaker 6: like a theory in certain circles that we've just we've
Speaker 6: gotten like in a sense, too good at like allocating
Speaker 6: talent efficiently or whatever. So like somebody extremely like talented
Speaker 6: and smart, it's like, okay, we're going to send you
Speaker 6: to be a software developer or an AI programmer or
Speaker 6: work in finance or whatever, and your the value that
Speaker 6: you can contribute there is going to be very highly rewarded.
Speaker 6: What that means is like there's you know, there's fewer
Speaker 6: people going into sort of these other sort of you know,
Speaker 6: engineering disciplines. I worked as a structural engineer, which is
Speaker 6: you know, it plays reasonably well but doesn't you know
Speaker 6: not Silicon Valley software developer. And I used to sort
Speaker 6: of tell very young engineers or engineers thinking about in
Speaker 6: college or whatever, you say, you know, if you're smart
Speaker 6: enough to be a structural engineer, you're smart enough to
Speaker 6: you know, switch to like software development and make a
Speaker 6: lot more money and have a much less stressful job.
Speaker 5: Yere's there's like this is I.
Speaker 6: Think one part of the reason why you know, Bell
Speaker 6: Labs very famous at and D R and D Lab,
Speaker 6: the US invention factory for most of the twentieth century,
Speaker 6: Why it would be very hard to have a sort
Speaker 6: of organization like that today is because the quality of
Speaker 6: talent that you could a place like that demanded would
Speaker 6: be so much more reward.
Speaker 5: Somewhere else just quickly.
Speaker 2: On aircraft, It's not like the US doesn't have a
Speaker 2: history of producing like large scale amounts of planes. And
Speaker 2: the example that everyone tends to turn to is in
Speaker 2: World War Two, right, we produced I think hundreds and
Speaker 2: thousands of aircraft very very quickly.
Speaker 3: What were the.
Speaker 2: Conditions that existed back then that allowed us to ramp
Speaker 2: up that kind of production so fast?
Speaker 6: Yeah, I've written about aircraft manufacturing during World War Two.
Speaker 6: The US actually built more airplanes during World War Two
Speaker 6: that have actually been built during for commercial purposes for
Speaker 6: the entire history of aviation.
Speaker 5: It's because we built, you know, so many of.
Speaker 6: Them, and not that many commercial aircraft get built. I
Speaker 6: think a big part of it is just the US
Speaker 6: was just such a huge manufacturing power at like the
Speaker 6: mid twentieth century. You know, we weren't building very large
Speaker 6: amounts of airplanes, but we were building more cars than
Speaker 6: anybody else. We're building more machine tools anybody else. We're
Speaker 6: making more steel than the US was, like you know,
Speaker 6: the China of today, it was like the by far
Speaker 6: the largest manufacturing country in the world, and so we
Speaker 6: just have the ability to sort of redirect this manufacturing
Speaker 6: capability and talent into sort of these these new industries.
Speaker 5: I think that was a very large part of it.
Speaker 4: You know, people think about maybe since we're talking about war,
Speaker 4: we're talking about the US as the China of the
Speaker 4: twentieth century, which is kind of cuncary.
Speaker 2: Eric Adams, Yeah, the China China.
Speaker 4: I'm curious when you think about it, like could there
Speaker 4: be more than one global manufacturing hub, because when you
Speaker 4: think about economies of scale and you think about network effects.
Speaker 4: You know, it's like, how many other cities in the
Speaker 4: US have tried to be the San Francisco or the
Speaker 4: Silicon Valley and they've never You've really never replicated when
Speaker 4: you think about sort of agglomeration and network effects, et cetera,
Speaker 4: and you think about what it takes for manufacturing, and
Speaker 4: you think about, Okay, now in the twenty first century,
Speaker 4: China is the China of the twenty first century, and
Speaker 4: you think about the efforts at US sort of reindustrialization
Speaker 4: because there's all this angst about whatever, we can't build
Speaker 4: advanced things. It's like, glob can we have advanced things
Speaker 4: if we don't also do the simple things like washing machines,
Speaker 4: et cetera. Can there be more than one in the
Speaker 4: world at any given time or does market logic sort
Speaker 4: of dictate that one will be the powerhouse.
Speaker 6: Yeah, that's a really interesting question. And so my first
Speaker 6: answer is that I don't know. And the second answer
Speaker 6: is I think historically kind of what you see is that,
Speaker 6: like transportation costs have kind of been something of a
Speaker 6: barrier to preventing one country from like just dominating production
Speaker 6: of a certain thing. So even like when in the
Speaker 6: eighties and nineties, when Japanese like chower manufacturers were like
Speaker 6: trouncing the US, it was still so expensive to like
Speaker 6: ship them from Japan or whatever that you you know,
Speaker 6: they still it was still valuable to like set up
Speaker 6: local manufacturing operations in the US. They still wanted to
Speaker 6: build their plants in the US to sort of make
Speaker 6: it not so expensive to sort of transport these things.
Speaker 6: So I wonder if, like, as transportation has gotten more
Speaker 6: and more inexpensive, I wonder if that has like shifted
Speaker 6: the logic of this. You can have this sort of
Speaker 6: like concentration of production in a way that maybe it
Speaker 6: wasn't quite didn't quite make sense to do before when
Speaker 6: like these transportation costs a bit a little bit harder.
Speaker 6: I don't know, but it's an interesting way of your
Speaker 6: interesting question.
Speaker 3: Just going back to Boeing for a second.
Speaker 2: So we talked about the classic story of what went
Speaker 2: wrong at Boeing, and it's that tension between I guess
Speaker 2: the manufacturers on the ground and the executives in the
Speaker 2: boardroom who are trying to cut costs and boost the
Speaker 2: share price and things like that. Is that like a
Speaker 2: trend or a thing that you tend to see across
Speaker 2: manufacturing where the manufacturers are constantly under pressure from the
Speaker 2: finance execs.
Speaker 3: On the top.
Speaker 2: Or are there companies out there who have like cracked
Speaker 2: that relationship where finance and manufacturers engineers kind of work together.
Speaker 6: Yeah, I think, you know, the pressure definitely seems to
Speaker 6: be constant pushing to find lower costs, and which is
Speaker 6: one reason why, you know, the trend in the second
Speaker 6: half of the twentieth century was like just outsourcing finding
Speaker 6: new places to sort of make this stuff that is cheaper.
Speaker 6: I talk about Nike in the book, and there's sort
Speaker 6: of an interesting path that Nike takes where it's like
Speaker 6: constantly hunting the cheapest sources of labor, where they start
Speaker 6: out manufacturing somewhere cheap. Right, They start out manufacturing their
Speaker 6: shoes in Japan because it's much cheaper to make them
Speaker 6: there than in the US. But then as the Japanese
Speaker 6: labor starts getting more expensive, they move their manufacturing too Taiwan,
Speaker 6: and then from Taiwan to China, and I think now
Speaker 6: it's almost all done in like a Vietnam and Indonesia.
Speaker 6: So it's just constant hunt for the new sources of labor.
Speaker 6: And you see that just broadly across industries, like where
Speaker 6: New York which used to be sort of a garment
Speaker 6: manufacturing center, but as New York labor got more and
Speaker 6: more expensive, they moved you know, acroft first, you know,
Speaker 6: out of state into New Jersey, and then to the
Speaker 6: south and then overseas. So there's this constant pressure. But
Speaker 6: then there's also companies that have like I think, bucked
Speaker 6: that trend and been you know more like we think
Speaker 6: the returns from like investing in our workforce and its
Speaker 6: capabilities is going to be valuable enough that we're going
Speaker 6: to do it. I think, you know, it's a company
Speaker 6: like Newcore, which is a steel company in the US,
Speaker 6: which is like very famous in terms of like how
Speaker 6: it invests in its workforce and things like that, and
Speaker 6: they've been extremely successful in doing that. They grew from
Speaker 6: nothing to being the largest steel manufacturer in the US.
Speaker 2: I believe that just reminded me something that I really
Speaker 2: want an answer to, and you might actually have it.
Speaker 2: Why are communists obsessed with steel?
Speaker 5: Oh? Good question.
Speaker 6: I just think in the you know, sort of the
Speaker 6: early twentieth century, late nineteenth century, these were the things
Speaker 6: that like represented like industrial might and like successful country
Speaker 6: or whatever, and then they never kind of like got
Speaker 6: out of that sort of framework or whatever. So like
Speaker 6: one criticism of you know, the Soviet Union was that,
Speaker 6: you know, they were really maybe good at sort of
Speaker 6: building these like industrial things, but they never managed to
Speaker 6: build like a successful computer or anything like that. They
Speaker 6: couldn't get out of their sort of mindset. It's sort
Speaker 6: of maybe easy to measure like success in terms of
Speaker 6: like output or whatever. It's just like relatively relatively simple
Speaker 6: commodity that you can.
Speaker 3: Right, this physical thing, you can plaint so you can.
Speaker 6: Point the more tons you have, the better you've done
Speaker 6: with more complex things. Maybe it's not maybe so amenable
Speaker 6: to sort of this like top down management style.
Speaker 5: I don't know, but those are some of my theories.
Speaker 4: Let's get back to housing, because when we started and
Speaker 4: Tracy was talking about the fact that even setting aside
Speaker 4: the prefab stuff, and you're talking about it the actual
Speaker 4: on the ground one off et cetera, home building, it's
Speaker 4: arguably by some measure of productivity has gone backwards, or
Speaker 4: maybe it's flat setting aside like prefab. You mentioned zoning regulations,
Speaker 4: et cetera. What is your view for why just the
Speaker 4: normal sort of style of housing construction hasn't gotten any
Speaker 4: more efficient over the years.
Speaker 6: Yeah, and so I talk about the kind of this
Speaker 6: in the book. This goes to sort of this main
Speaker 6: thesis of the book where I sort of break down
Speaker 6: there's a specific points of intervention that you can do
Speaker 6: in any process to make it cheaper.
Speaker 5: I've talked about these a little bit.
Speaker 6: You know, economies of scale, You can make more of
Speaker 6: what you're doing, you can introduce some fundamentally new technology.
Speaker 6: You know, an example of this to talk about steel,
Speaker 6: like the best of our process for making steel, which
Speaker 6: like fundamentally was simpler and took less inputs than the
Speaker 6: processes that came before it. So I kind of break
Speaker 6: down these different factors in the book of like what
Speaker 6: you need to do to make some process more efficient,
Speaker 6: and if you can do those things, your process can
Speaker 6: get cheaper and you can sell it for less. And
Speaker 6: if you can't do those things, you're if you know,
Speaker 6: you can't make the process any cheaper. And all those
Speaker 6: basically paths to improvement are either like blocked or like
Speaker 6: very difficult to do in construction. So, like we talked
Speaker 6: about economies of scale, that's a big one. We talked
Speaker 6: a little bit about risk aversion. It's hard to kind
Speaker 6: of introduce like fundamentally new technology. The cost of your
Speaker 6: inputs is like a big one. You know, the materials
Speaker 6: and sort of energy and labor that you're using in
Speaker 6: the process. Those costs are hard to sort of reduce
Speaker 6: in construction sort of, It's very hard to make building
Speaker 6: materials and cheaper than they already are, kind of like
Speaker 6: you know, dollars per pound or dollars per like cubic
Speaker 6: foot terms. They're basically as cheap as anything that civilization produces.
Speaker 6: It's not easy to make those things cheaper than.
Speaker 5: They already are.
Speaker 6: It's also hard to use less of them in a
Speaker 6: way that doesn't make the house worse. And so all
Speaker 6: these paths are that you have, you know that a
Speaker 6: process can take advantage of to sort of get less expensive.
Speaker 6: They're all very difficult to do in construction.
Speaker 2: I just remembered another question that I always want to
Speaker 2: ask people, and I feel like you will also know
Speaker 2: the answer to this one, which is why does America
Speaker 2: build houses out of wood frames and timber versus the
Speaker 2: rest of the world where they tend to use a
Speaker 2: lot more cement and concrete.
Speaker 6: Yeah, so the wood US has historically built a lot
Speaker 6: of stuff out of wood because we had such huge
Speaker 6: supplies of it. In places like Europe, a lot of
Speaker 6: those you know, large forests got cut down way earlier
Speaker 6: and so they just didn't have the huge, huge supplies
Speaker 6: of wood that the US had, and so that kind of,
Speaker 6: you know, shaped how the technology developed. Because what is
Speaker 6: very very inexpensive, you can use it. It's a very
Speaker 6: inexpensive way to sort of build a house. They do
Speaker 6: actually do sort of still timber frame construction in other
Speaker 6: parts of the world. It's maybe not quite so dominant,
Speaker 6: but it's like used in the UK. Germany uses it.
Speaker 6: Germany actually they have some like prefab construction startups that
Speaker 6: are using like timber frame timber panel construction. It's using
Speaker 6: a lot of the Nordic countries they don't have a
Speaker 6: decent amount of supply of woods, so it's not like
Speaker 6: unheard of. It's it's most dominant in like the US
Speaker 6: and in Canada, but in other places that have a
Speaker 6: decent amount of wood they tend to use it as well.
Speaker 4: Should we completely give up on prefab or major efficiency
Speaker 4: gains in housing in the us, or like, is it
Speaker 4: just there's not a way to do this or is
Speaker 4: there still out there some magic bullet that's waiting to
Speaker 4: be found.
Speaker 3: You should tell us what happened to the company you
Speaker 3: were working for as well.
Speaker 6: Yeah, so they, Yeah, they raised a huge amount of
Speaker 6: money and they basically after raising like several billion dollars
Speaker 6: and building all these factories to like fat you know,
Speaker 6: mass produce housing, they basically ended up going bankrupt partly
Speaker 6: because they were never able to you know, sell enough
Speaker 6: of these buildings.
Speaker 5: That they were trying to sell.
Speaker 6: It's very hard to like pivot your operations when you're
Speaker 6: like invested in all this like physical infrastructure. And then COVID,
Speaker 6: you know, was kind of the final nail in the coffin.
Speaker 6: I'm not completely pessimistic. I mostly just think if you're
Speaker 6: going to sort of try to change the industry with PREFRAB,
Speaker 6: you need to have a very strong thesis as to
Speaker 6: what specifically this time is different and you know why
Speaker 6: it didn't work previously and what is now has changed?
Speaker 6: What constraints have been relaxed that will make it possible now?
Speaker 6: And I don't have any number of things could change
Speaker 6: that you know, certain materials get cheap enough, it gets
Speaker 6: like inexpensive enough to build a factory, you know, any
Speaker 6: number of things. I think that very very good automation
Speaker 6: and robotics have a good chance of changing this, just
Speaker 6: because even if nothing else toware you know, I'm not
Speaker 6: the most creative person in the world, you know, I
Speaker 6: can't necessarily come up with like some amazing new way
Speaker 6: of putting a house together. But if even if nothing
Speaker 6: else works, if you have like a robot that costs
Speaker 6: five thousand dollars and like basically duplicate you know, ninety
Speaker 6: ninety five percent of what a person can do, that
Speaker 6: would effectively solve your problem. Right, you drop in these
Speaker 6: robots and you build you know, whatever it is that
Speaker 6: you're trying to build using this robotic much less expensive labor.
Speaker 6: And I have a sort of like vignette in the
Speaker 6: conclusion of the book as to what that might look
Speaker 6: like in the future.
Speaker 2: So we could get the drones that go up on
Speaker 2: the roof and fix leaks and stuff like that.
Speaker 5: Anything's possible, all right.
Speaker 2: Brian Potter, thank you so much for coming on all thoughts.
Speaker 2: Really appreciate it.
Speaker 5: Thank you. It's great to be here.
Speaker 3: Joe, that was a really fun conversation.
Speaker 4: Yeah, that's really fun. I love Brian's stuff, and I
Speaker 4: feel like one of those conversations where both of us
Speaker 4: could just ask a bunch of questions we've been meaning
Speaker 4: to ask for a long time.
Speaker 2: I did read currently, his new book, The Origins of
Speaker 2: Efficiency has a bibliography that's like six hundred items long. Amazing,
Speaker 2: which is incredible to think about him pouring over like
Speaker 2: six hundred different reference sources.
Speaker 4: We didn't get into it in this conversation, but he's
Speaker 4: written about his process before. Yeah, like, okay, I want
Speaker 4: to learn about some new industry like fighter jets or
Speaker 4: whatever it is, and how he goes about diving into it,
Speaker 4: et cetera. And yes, it seems like we.
Speaker 3: Talk about stuff. I should probably read that.
Speaker 5: Yeah, totally.
Speaker 2: Speaking of which, I am very proud of us for
Speaker 2: not mentioning the word deflator at all in a conversation
Speaker 2: about housing productivity, housing construction productivity. I should just mention
Speaker 2: that Richmond fed paper that I talked about in the intro.
Speaker 2: So their conclusion was sort of an amalgamation of all
Speaker 2: the factors that we talked about in this conversation. So
Speaker 2: they basically said they think that smaller construction firms have
Speaker 2: reduced incentives to invest in technological innovation because you don't
Speaker 2: get that economy of scale. And in fact, if you
Speaker 2: look at areas with stricter zoning laws and things like that,
Speaker 2: you can see that they actually have even less construction
Speaker 2: productivity than other areas. Again because like the incentives and
Speaker 2: the economies of scale just shrink and shrink and drinks.
Speaker 2: That's kind of interesting.
Speaker 4: It would be interesting. Something I was sort of curious
Speaker 4: about during that is I wonder if if you just
Speaker 4: look at one market where it's very flat and dry,
Speaker 4: I just think about Arizona or anything like that, Like,
Speaker 4: have they seen productivity gains there? Especially think about some
Speaker 4: of our conversations with Chase Emerson where there's one master
Speaker 4: plan and a bunch of houses we all have driven
Speaker 4: by them that all look exactly the same. Do you
Speaker 4: get those learning curves at least on some limited effect?
Speaker 4: I would be curious about that.
Speaker 2: I feel like to some extent that is the story
Speaker 2: of the Sun Belt States, Right, you have cheaper houses
Speaker 2: there because you can have these big development, but.
Speaker 4: Its scale and scale all the way down, And so
Speaker 4: I like that point that he made, which is that
Speaker 4: you can identify the sources of efficiency gains. Scale is one,
Speaker 4: a scientific breakthrough such as the best of our process
Speaker 4: in steel is another one, et cetera. But they're not magic, right,
Speaker 4: They're not just going to emerge. You know, you probably
Speaker 4: get some efficiency gains just from you know, repeatable process
Speaker 4: or sales as labor force that gets better over time,
Speaker 4: but by and large, you're not just gonna the silver
Speaker 4: bullet isn't gonna come out of nowhere. Yeah, and especially
Speaker 4: the fact that there are all these sort of very
Speaker 4: fundamental reasons why you can't have scale, or even in
Speaker 4: the factories that build the prefab homes cannot be a
Speaker 4: gigafactory due to distribution costs. You see why you run
Speaker 4: into that constraint.
Speaker 3: That's what I was thinking.
Speaker 2: It's like the tyranny of physics. Basically, like, even though
Speaker 2: we have all these technological breakthroughs, transportation has gotten cheaper
Speaker 2: over time, you're still limited by geography and the realities
Speaker 2: of you know, real world objects. And I guess that's
Speaker 2: why you can have gigafactories for something like chips, yeah,
Speaker 2: which are really easy to send abroad.
Speaker 3: Their tiny but you can't do it for some.
Speaker 4: Large and I really am curious about the sort of
Speaker 4: the point about talent distribution and whether they're you know,
Speaker 4: in the nineteen fifties, for a certain type of talent,
Speaker 4: the Boeing factory was the best place they could have
Speaker 4: gone and the cutting edge, and that was the cutting edge.
Speaker 4: And now the Boeing factory still more or less resembles
Speaker 4: the Boeing factory of the nineteen fifties, with maybe similar
Speaker 4: pay scales and so forth. I'm sure the nominal pay
Speaker 4: has gone up a lot, but there are just so
Speaker 4: many great opportunities to make ten times or much more
Speaker 4: money elsewhere, and so that there's sort of remaining talent,
Speaker 4: whether that has an effect on how well it can operate.
Speaker 3: I'm very interested in, you know, what Boing needs go on?
Speaker 2: They need like a Madman style TV series that glamorizes
Speaker 2: the aircraft manufacturing process and gets people interested in it again.
Speaker 4: Yeah, no, that's a really good idea.
Speaker 3: All right, that's a free idea for Boeing. All right,
Speaker 3: shall we leave it there, Let's leave it there.
Speaker 2: This has been another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 4: And I'm Jill Isenthal. You can follow me at The Stalwart.
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