2025-05-30 00:02:00
In technology, the obvious revolutions often come last.
The internet was around for decades before it felt personal. It started in labs, crept into offices, and only later landed in our homes. The smartphone wasn’t just a new form of communication – it was the moment computing shifted from corporate IT departments to our front pockets.
AI is accelerating faster than any previous wave of technology. In less than five years, we’ve gone from jaw-dropping demos of GPT-3 to a reality where millions of people interact with AI every day (sometimes without realizing it). Most of the attention so far has focused on the technical layer: model performance, token pricing, enterprise use cases. But the most transformative changes are likely to happen at the level of interface, brand, and emotional resonance.
The tools that stick won’t just be the most accurate. They’ll be the most intuitive, the most culturally fluent, the ones that feel like they belong in your life without demanding to be learned. That’s where the real leverage lies, and where consumer AI is about to get very interesting.
Because something big is happening now. Token costs are falling (OpenAI has slashed prices by more than 90% since 2020) making it cheaper and more feasible for developers to build and ship consumer AI applications. Fine-tuning models is becoming easier. The technical moat (if there ever was one) is evaporating. And as infrastructure becomes cheaper and more accessible, AI’s next act is coming into focus: the consumer.
“What once felt modern now feels immovable. These bedrock apps ossified, and AI is revealing just how brittle they’ve become.”
Because consumers don’t care about your model size. They care whether it helps them get through the day with a little less friction.
Think about the tools we use every day: Gmail. iCalendar. Whatsapp. They were built for the web, optimized for mobile, and essentially left to rot. What once felt modern now feels immovable. These bedrock apps ossified, and AI is revealing just how brittle they’ve become. They weren’t designed for a world where your technology listens, adapts, and acts without instruction.
Consumer AI isn’t about chatbots. Not the way we’ve come to know them, anyway. It’s about escaping the tired web of buttons and dropdowns we’ve been clicking through for years. The real opportunity is interface: tools that don’t just respond to commands but anticipate context. It’s not just about better UX. It’s about a new class of interaction altogether.
This could mean a home-buying concierge that doesn’t just show you listings, but understands your daily commute, dog-walking routine, and what kind of light you like in the mornings. A personal finance system that syncs with your partner’s calendar and cash flow, so you plan together without talking about money every day. Or a piano coach that listens as you play and adjusts your practice routine in real time, because you finally have a teacher with infinite patience.
Chatbots might have kicked off the era of conversational AI, but the revolution is in what comes after: ambient, embedded, invisible tools that behave more like teammates than software.
“The winners will look less like OpenAI and more like Nike or Pixar: emotionally fluent, culturally embedded, behavior-shaping machines hiding in plain sight.”
Some of this is already happening. Well, sort of. Rewind.ai is giving users searchable memory across their digital lives. Rabbit’s R1 promises to remove the “app layer” entirely by turning natural language into actions. Humane’s Ai Pin, while flawed, is at least asking the right question: what does computing look like when you don’t have to look at a screen?
None of these products have nailed it. Most were met with bad reviews. Some feel like punchlines. But they’re reaching for something important. They’re trying to imagine a future where interface is no longer constrained by screens and keyboards. That matters. And while they’re clearly not the final form, they point toward a frontier we haven’t yet fully explored. These are the early missteps of a new genre; not failures of ambition, but signs that something new is struggling to be born.
History reminds us that form factor changes are rarely incremental. The PC didn’t lead to the smartphone – it required a complete reimagining of interface, distribution, and consumer behavior. We are due for another leap like that. Apple’s Vision Pro, Meta’s Ray-Ban smart glasses, and AI-driven wearables like the Oura Ring are early hints of what might come next.
Still, the path to mass adoption isn’t paved in code: it’s paved in trust, usability, and relevance. This is where many investors hesitate. Enterprise AI is easy to underwrite: there’s a sales pipeline, an efficiency metric, an ROI. Consumer AI feels squishier. It relies on taste. On cultural timing. On brand. It’s harder to spreadsheet.
But that’s what makes it so compelling.
“The best consumer AI product of the next five years won’t wow you with its intelligence. It’ll earn your trust. And never ask for your attention.”
Brand, after all, is a proxy for trust. And trust is the most valuable commodity in a world where AI agents will act on your behalf. Within five years, the most beloved AI product won’t have an app, a screen, or a UI, and its brand will be more trusted than your bank. Consumer AI isn’t a technical breakthrough; it’s a cultural one. The winners will look less like OpenAI and more like Nike or Pixar: emotionally fluent, culturally embedded, behavior-shaping machines hiding in plain sight. That’s where the defensibility lies – not in proprietary models, but in emotional resonance and behavioral lock-in. Just like Apple. Just like Spotify. Just like every consumer product that became infrastructure in disguise.
So where does this go?
In the next 18–24 months, most consumer AI experiments will flop. The hardware won’t work. The assistants will misfire. The reviews will be brutal. That’s fine. That’s how interface revolutions always begin; not with polish, but with friction. What matters is that a few teams will get it right. They’ll combine cultural intuition with technical leverage. They’ll design not for features, but for feelings. And when they launch, it won’t be clear whether they’re apps or brands or behaviors – only that they make life easier, more human, more yours. The best consumer AI product of the next five years won’t wow you with its intelligence. It’ll earn your trust. And never ask for your attention.
2025-05-21 23:51:00
This year marks the 40th anniversary of the MIT Media Lab, a place I helped create not to organize what was already known, but to make space for what wasn’t.
It was interdisciplinary before the word became decor. It was designed for people who didn’t fit into departments. In fact, many of its founding faculty were misfits in the most productive sense: outsiders in their own disciplines, a veritable Salon des Refusés. We weren’t solving problems. We were developing solutions without knowing the problems. That’s how breakthroughs happen, at the edges, where curiosity is free to wander and orthodoxy is politely ignored.
The Lab’s purpose then, as now, was to explore what computers might mean for everyday life. Not computing, but living. It was never only about technology. It was about perspective. As I’ve said before, the best vision is peripheral vision.
The same could be said of Bauhaus, Black Mountain College, and Bell Labs. These were not just institutions of instruction. They were catalysts that attracted visionaries and outsiders, bringing together brilliant minds who might otherwise never have collaborated. They treated form as a form of inquiry. They questioned the boundaries between disciplines and then blurred them deliberately. They approached taste as methodology. And they did it by creating space—not just physical space, but cultural permission—for experimentation without expectation.
Today, we find ourselves in a moment that requires a similar response.
AI is not simply a faster way to do what we’ve already done. It’s a medium shift, a new substrate for thought, interaction, and aesthetics. But instead of treating it that way, we’re drizzling it onto legacy systems in ways that feel fundamentally mismatched. A few assistants here, a couple auto-completes there. More productivity, less imagination.
What we need is not more apps. What we need are new models, ones that challenge assumptions rather than reinforce them.
The environments that foster true innovation combine friction between disciplines, treat computation as a raw material, and allow design to lead rather than lag. One such effort is unfolding in New York: AIR, short for AI Residency, a new kind of accelerator for design-led AI products. Founders are encouraged not to chase metrics, but to ask better questions. What does it feel like to use this? What kind of world does it assume? What kind of relationships does it create?
Too much of today’s AI conversation revolves around scale: How many users? How fast is the inference? How good is the ROI? These are fine questions, but they are not the interesting ones.
The interesting questions are more fundamental: What new literacies will we need? What new misuses will emerge? Can this technology help us understand ourselves better?
History tells us that significant ideas rarely come from the center. They begin at the margins, where ideas are allowed to be incomplete, even incorrect. Places where success is not the goal, but learning is.
Efforts like AIR matter because they create the conditions where breakthroughs tend to happen. The next big thing often starts as something strange. It does not arrive fully formed, or announce itself with clarity or consensus. It is shaped by small, curious groups, exploring the paths others have overlooked.
The Media Lab taught me that the future doesn’t start with a plan; it starts with an experiment. If history is any guide, the future of technology won’t be determined by incumbents or insiders. It will be authored by small groups with unusual perspectives and the freedom to follow them.
We should support that pursuit. We should build the spaces that make them possible.
Because what comes next is not a product. It is a provocation.
2025-05-09 04:16:00
Which of my strongest beliefs are formed on second-hand information vs. first-hand experience?
If I could not compare myself to anyone else, how would I define a good life?
Whose views do I criticize that I would actually agree with if I lived in their shoes?
Who do I envy that is actually less happy than I am?
Looking back, am I any good at anticipating how I would feel and react to risks that actually occurred?
Is my desire for more money based on the false belief that it will solve personal problems that have nothing to do with money?
How many of my principles are cultural fads?
Whose silence do I mistake for agreement?
What kind of lifestyle would I live if no one other than my immediate family could see it?
What events nearly happened that would have fundamentally changed my life, for better or worse, had they occurred?
What views do I claim to believe in that I know are wrong but I say them because I don’t want to be criticized by my employer or industry?
How much of what I do is internal benchmark (makes me happy) vs. external benchmark (I think it changes what other people think of me)?
Am I thinking independently or going along with the tribal views of a group I want to be associated with?
Whose approval am I auditioning for?
Which of my principles would I abandon if they stopped earning me praise and recognition?
If I could see myself talk, what would I cringe at the most?
What question am I afraid to ask because I suspect I know the answer?
How much have things outside of my control contributed to things I take credit for?
How do I know if I’m being patient (a skill) or stubborn (a flaw)?
What crazy genius that I aspire to emulate is actually just crazy?
What strong belief do I hold that’s most likely to change?
Which future memory am I creating right now, and will I be proud to own it?
Am I addicted to cheap dopamine?
If I were on my deathbed tomorrow, what would I regret most?
2025-05-06 21:00:00
We launched Collab+Sesame in 2016 as a pre-seed and seed-focused fund with a simple but powerful thesis: as tech entrepreneurs come of age, they would create a new wave of products and services to transform the kids’ space.
Sesame Street’s Endowment took a courageous step. It entrusted us with its brand, one of the best brands in the world, along with decades of research, a global audience, and a reputation built on kindness and learning, and said, “Show us what you can do.” We were humbled by that vote of confidence, and every day since, we’ve been mindful of the responsibility.
Fast-forward to present day, and here are the numbers through March 31, 2025:
These metrics rank in the top decile for Net DPI, Net TVPI, and Net IRR among all global venture capital funds in that vintage (PitchBook’s Q3 2024 benchmarks, with preliminary Q4 data).
But these returns are about more than just numbers. Along the way, we’ve been fortunate to back some incredible teams, including Lovevery, Outschool, Step, OK Play (acquired by Dapper Labs), Yup (acquired by Prenda), Luminopia, and others. Their hard work and vision have been instrumental in shaping this success.
Beyond financial returns, these numbers represent the foundation for new research and initiatives that reach millions of children worldwide. Every dollar we’ve returned to Sesame Street’s Endowment flows back into the mission that first inspired us: helping kids learn, empathize, and explore.
Collab+Sesame isn’t a story about charity, nor a conventional venture fund. It’s proof that when you blend rigorous investment discipline with a genuine mission, you can deliver market-leading returns and meaningful change.
Read our 2016 launch post and explore how Wired, TechCrunch, and The New Yorker covered the start of this journey.
Hat tip to Tim Brady and Geoff Ralston for creating ImagineK12, which was an early inspiration for Collab+Sesame.
2025-04-24 15:09:00
Thirty-seven thousand Americans died in car accidents in 1955, six times today’s rate adjusted for miles driven.
Ford began offering seat belts in every model that year. It was a $27 upgrade, equivalent to about $190 today. Research showed they reduced traffic fatalities by nearly 70%.
But only 2% of customers opted for the upgrade. Ninety-eight percent of buyers preferred to remain at the mercy of inertia.
Things eventually changed, but it took decades. Seatbelt usage was still under 15% in the early 1980s. It didn’t exceed 80% until the early 2000s – almost half a century after Ford offered them in all cars.
It’s easy to underestimate how social norms stall change, even when the change is an obvious improvement. One of the strongest forces in the world is the urge to keep doing things as you’ve always done them, because people don’t like to be told they’ve been doing things wrong. Change eventually comes, but agonizingly slower than you might assume.
Dunkirk was a miracle. More than 330,000 Allied soldiers, pinned down by Nazi attacks, were successfully evacuated from the beaches of France back to England, ferried by hundreds of small civilian boats.
London broke out in celebration when the mission was completed. Few were more relieved than Winston Churchill, who feared the imminent destruction of his army.
But Edmund Ironside, commander of British Home Forces, pointed out that if the Allies could quickly ferry a third of a million troops from France to England while avoiding aerial attack, the Germans probably could, too. Churchill had been holding onto hope that Germany couldn’t cross the Channel with an invasion force; such a daring mission seemed impossible. But then his own army proved it was quite possible. Dunkirk was both a success and a foreboding.
Your competitors can probably innovate and execute as well as you can. So every time you uncover a new talent you’re proud of, temper your thrill with the acceptance that other people who want to win as badly as you probably aren’t far behind.
Notorious BIG once casually mentioned that he began selling crack in fourth grade. He explained:
They [teachers] was always like, “Take the talent that you have and think of something that you can do in the future with it.”
And I was like, “Well, I like to draw.” So what could I do with drawing? What am I gonna be, an art dealer? I’m not gonna be that type. I was thinking maybe I can do big billboards and shit. Like commercial art.
And then after that I got introduced to crack. Haha, now I’m thinking, commercial art?! Haha. I’m out here for 20 minutes and I can make some real, real money, man.
Incentives drive everything, and most of us underestimate what we’d be willing to do if the incentives were right.
When Barack Obama discussed running for president in 2005, his friend George Haywood – an accomplished investor – gave him a warning: the housing market was about to collapse, and would take the economy down with it.
George told Obama how mortgage-backed securities worked, how they were being rated all wrong, how much risk was piling up, and how inevitable its collapse was. And it wasn’t just talk: George was short the mortgage market.
Home prices kept rising for two years. By 2007, when cracks began showing, Obama checked in with George. Surely his bet was now paying off?
Obama wrote in his memoir:
George told me that he had been forced to abandon his short position after taking heavy losses.
“I just don’t have enough cash to stay with the bet,” he said calmly enough, adding, “Apparently I’ve underestimated how willing people are to maintain a charade.”
Irrational trends rarely follow rational timelines. Unsustainable things can last longer than you think.
When the Black Death plague entered England in 1348, the Scots up north laughed at their good fortune. With the English crippled by disease, now was a perfect time for Scotland to stage an attack on its neighbor.
The Scots huddled together thousands of troops in preparation for battle. Which, of course, is the worst possible move during a pandemic.
“Before they could move, the savage mortality fell upon them too, scattering some in death and the rest in panic,” historian Barbara Tuchman writes in her book A Distant Mirror.
There’s a powerful urge to think risk is something that happens to other people. Other people get unlucky, other people make dumb decisions, other people get swayed by the seduction of greed and fear. But you? Me? No, never us. False confidence makes the eventual reality all the more shocking.
Some are more susceptible to risk than others, but no one is exempt from being humbled.
Dr. Dan Goodman once performed surgery on a middle-aged woman whose cataract had left her blind since childhood. The cataract was removed, leaving the woman with near-perfect vision. A miraculous success.
The patient returned for a checkup a few weeks later. The book Crashing Through writes:
Her reaction startled Goodman. She had been happy and content as a blind person. Now sighted, she became anxious and depressed. She told him that she had spent her adult life on welfare and had never worked, married, or ventured far from home – a small existence to which she had become comfortably accustomed. Now, however, government officials told her that she no longer qualified for disability, and they expected her to get a job. Society wanted her to function normally. It was, she told Goldman, too much to handle.
Every goal you dream about has a downside that’s easy to overlook.
Historian John Meecham writes:
When we condemn [the past] for slavery, or for Native American removal, or for denying women their full role in the life of the nation, we ought to pause and think: What injustices are we perpetuating even now that will one day face the harshest of verdicts by those who come after us?
This applies to so many things.
What is the modern version of cigarettes, which were doctor-recommended just a few generations ago? We didn’t know dinosaurs existed 200 years ago, which makes you wonder what else is out there that we’re oblivious to today. What company is the modern Enron, so obviously a fraud? What do most people – not a few wackos, but most of us – believe that will look something between hilarious and disgraceful 100 years from now?
A lot of history is just gawking at how wrong, how blind, people can be. Disastrously wrong, embarrassingly blind. Millions of people, all at the same time. When you then realize that today will be considered history in a few generations … oh dear. It’s unpleasant. But also fascinating.
Apollo 11 was the first time in history humans visited another celestial body.
You’d think that would be an overwhelming experience – literally the coolest thing any human had ever done. But as the spacecraft hovered over the moon, Michael Collins turned to Neil Armstrong and Buzz Aldrin and said:
It’s amazing how quickly you adapt. It doesn’t seem weird at all to me to look out there and see the moon going by, you know?
Three months later, after Al Bean walked on the moon during Apollo 12, he turned to astronaut Pete Conrad and said “It’s kind of like the song: Is that all there is?” Conrad was relieved, because he secretly felt the same, describing his moonwalk as spectacular but not momentous.
Most mental upside comes from the thrill of anticipation – actual experiences tend to fall flat, and your mind quickly moves on to anticipating the next event. That’s how dopamine works.
If walking on the moon left astronauts underwhelmed, what does it say about our own earthly goals and expectations?
John Nash is one of the smartest mathematicians to ever live, winning the Nobel Prize. He was also schizophrenic, and spent most of his life convinced that aliens were sending him coded messages.
In her book A Beautiful Mind, Silvia Nasar recounts a conversation between Nash and Harvard professor George Mackey:
“How could you, a mathematician, a man devoted to reason and logical proof, how could you believe that extraterrestrials are sending you messages? How could you believe that you are being recruited by aliens from outer space to save the world?” Mackey asked.
“Because,” Nash said slowly in his soft, reasonable southern drawl, “the ideas I had about supernatural beings came to me the same way that my mathematical ideas did. So I took them seriously.”
This is a good example of a theory I have about very talented people: No one should be shocked when people who think about the world in unique ways you like also think about the world in unique ways you don’t like. Unique minds have to be accepted as a full package.
More:
2025-04-10 02:55:00
Below is a transcript from a recent podcast I did on the tariff news.
My business that I use for my books and my speaking and whatnot is called Long Term Words, LLC. Now, the name of that is not very important. Nobody sees it unless I’m doing a talk with you or something. But let me tell you the origin behind that name, why I picked that name, because it’s relevant to today’s episode.
I’ve always wanted at least the opportunity that anything I write in a book or an article, that it has at least a fighting chance to still be relevant, 10, 20, even 50 years from now. I only want to write about things that are timeless because I’ve never enjoyed, as a reader, reading news that has an expiration date on it.
If this news article is not going to be relevant a year from now, it shouldn’t be relevant to me today. That’s always been my philosophy, and I’ve wanted to do that with my own writing. Write things that at least have a fighting chance for somebody to read and enjoy and maybe learn from many decades into the future.
That’s always been the goal. Long term words. I bring that up because today’s episode is going to be a rare departure from that in which I’m gonna talk about something that is happening in the news today and this week, and that is tariffs and the market reaction to it. We’ll get in that as well. So if that’s not your thing, if you’re only interested in the long term words, this episode might not be for you.
So before I jump into my detailed thoughts about what I think is going on, let me put my cards on the table. I think the tariffs are a terrible idea. Not just a terrible idea, but a horrendous idea.
Now I understand that all of us, everybody, including me, everybody can live in their own bubble. Particularly for these topics where it’s very hard to divorce economics and money from politics. So if you disagree with that broad view and you think the tariffs are a good idea, let me just state I respect you. I’d love to hear you. Everyone sees the world through their own unique lens, and it’s naive to assume that my lens is clearer than yours, even if it might be different.
Look, I’m a free market person. Of course. I understand the need for law and regulation and even tariffs in certain situations like masks during covid when we are reliant on other countries for things that we desperately needed, or military supplies, you don’t wanna re reliant on other countries making your military supplies in a war.
So tariffs can absolutely have their function in a well-run economy. But this what’s going on in the last week seems completely backwards, I think, to everything that we know and have learned about economics. Let me give you one analogy that’s been helpful to me with this. For nutrition science in terms of what kind of diet should you eat, what is the best diet that you and I can eat to live the healthiest life?
Nutritionists and health experts fiercely disagree on what the best diet you should eat. Should it be keto, should you be vegan? Everything in between. There’s so many different nuanced views over nutrition. But everybody agrees that eating lots of refined sugar is bad. There’s no disagreement about that. If you’re eating lots and lots of processed, refined sugar, that’s not good for you, even if there’s so much disagreement about everything else, and I think that is how economics works as well. There is so much disagreement. Among economists and politicians and investors over how to run the economy, what’s the right level of taxation?
Should it be more, should it be less? What’s the right level of regulation? Fierce disagreements among very smart people, but tariffs are the equivalent of refined sugar. You’ll be very hard pressed to find many economists. Of course, there’s always going to be one or two standouts here or there that make a lot of noise.
But one of the most agreed upon topics in economics is that tariffs are bad and trade wars are destructive. And the broad reason why is because tariffs by and large do two things. They raise prices for consumers and they make manufacturers back at home less competitive.
And one good way to explain this, I think that’s been helpful for my thinking, is just understanding the value of specialization of trade.
Now, I am a writer. I might have some skills at writing. I do not have any skills whatsoever at plumbing or electricity.
So when I need those things resolved, I hire a plumber, I hire an electrician because they are much better at those tasks than I am in that situation. When I hire a plumber, the plumber is not taking advantage of me. Even though I have a trade deficit with him, because he’s probably not buying my books, but I’m buying his services.
I have a trade deficit with the plumber. Nobody is being taken advantage of in that situation. He has a skill that I don’t, I can exchange my money for his skills. Everybody is better off. He’s better off. I’m better off.
Most people can understand that at the individual level. And that is also true at the economic level. There are some skills that the United States has that we are ridiculously good and talented at. There are other things that other nations are much better than us. And there’s no shame in that, just in the same way that I am not shamed at the fact that I’m not good at plumbing.
It is specialization of labor. So I think in the United States historically and today, we are extremely good, I think we are the best in the world at three things, entrepreneurship, service, and very high end manufacturing like planes and, and rockets. I think we are the best in the world at that, but just like the plumber is much better at other things than I am, there are things that other countries are way better than the United States at manufacturing a lot of certain goods, particularly mass goods, particularly lower end goods like clothing and shoes.
I spoke to A CEO last week, and he told me something that was helpful in my thinking here. He said, look, if you give instructions to Chinese workers and you say, here’s how to make this part, here’s step one, step two, step three, they are better than anyone in the world at making that part.
They can do it cheaper, faster, more efficiently, higher quality. But if you went to those Chinese workers and you said, please go design me a new part, they’re not that good at it. Americans are way better at that task than assembling that part, and that’s why the back of your iPhone says, designed in California, made in China.
That’s exactly what he was speaking to.
So look, my, my standard asterisk here, you might disagree with that. You might have different views. None of this is black and white, but the statements about it almost always are, which makes this a hard thing to talk about. So if you disagree with those views, lemme say it again. I respect you. I would listen to you. I’m just putting my cards on the table.
One big factor that I think gets lost here. And I’m gonna speak in a second why I think there is such a push among certain people for tariffs and why they think there is the need for them. I’m going to speak to that in a second, but one factor that I think is very lost here is that, yes, the United States has lost a lot of manufacturing employment over the last 50 years.
Of course, it absolutely has. And often when that is addressed, it is immediately jumped to, that’s because we ship those jobs overseas. The factories that used to be in Indiana and Tennessee and Mississippi, we shipped them to Mexico and Canada and China. There is some truth to that. Of course, indisputably. There is, I think, a bigger truth that gets lost, which is that where a lot of those jobs went was not necessarily to another country, it was to automation.
My favorite example of this, I wrote this 10 years ago, I had to go fish this up from an old article that I wrote is about a US steel factory in Gary, Indiana. In 1950, this individual factory produced 6 million tons of steel with 30,000 workers. In 2010 it produced seven and a half million tons of steel with 5,000 workers. So during this period, they increased the amount of steel that they were making, and they did it with 25,000 fewer workers. They went from 30,000 workers to 5,000. That story, I think, can be repeated across virtually everything that is made in the United States and around the world over the last 50 years.
Very interesting thing that I read the other day: China, the manufacturing powerhouse of the globe, has fewer manufacturing workers today than they did 10 years ago. They’re making more stuff than ever before. They’re building factories faster than ever before, and they have fewer people working in those factories because China, more than anybody else probably throughout history, is installing and using robots and automation in their manufacturing at a ferocious pace.
And so you can keep making more and more stuff but you need fewer and fewer people working on those assembly lines. That is often lost in the debate because if we were to bring back the manufacturing capacity to the United States, and that’s a separate debate, that’s a much longer debate, but let’s say that we do, it would not in any circumstances bring back the manufacturing jobs and the employment levels that we had in the 1950s. It’s a very different world today than it was back then. One way to get a very good view of this is to go onto YouTube and search for a video of Tesla factories. Because Tesla, very similar to China, is big on automation in its assembly and robots. And compare a modern Tesla factory to the 1950s Ford assembly line. It could not be more night and day, it could not be more different. The modern assembly line is robots and machines. Versus the assembly line back in the 1950s, which was biceps and backs and legs. That today has been replaced by automation.
One other example of this in the auto industry in 1990, not that long ago, the average American auto worker like working on an assembly line, their share of total auto production was about seven vehicles per year. So take the number of vehicles that were produced in the United States, divide that by the number of auto workers, and it was about seven.
The average worker was responsible for seven vehicles per year by 2023. Again, that’s just like one generation apart. Not even that much. The average auto worker in the United States was responsible for producing 33 vehicles per year. It went from seven to 33.
So we are, we are still producing a lot of cars in the United States. We still make a lot of vehicles here in the United States. It just does not require the amount of labor that it used to.
Just a few years ago, the economics journalist Neil Irwin wrote, “in the newest factories, one can look across an airplane hangar size floor, and see only a small handful of technicians staring at computer screens, monitoring the work of the machines. Workers lifting and pushing and riveting are nowhere to be seen.” And so I think that that is how manufacturing works today. It is very high output and low head count. At least much lower than it used to be.
So even as a US faces a manufacturing boom, which it has by the way in the last decade, easy to overlook, that manufacturing just can’t be expected to create the kind of employment that you saw many decades ago.
Okay, so that is a good leadway into another topic, which is about what the world was like during the golden ages of manufacturing that we remember, you know, the people who are working in the auto plants and the steel mills in the 1950s and the 1960s and through the 1970s, I think that is by and large the world that a lot of people want to go back to. Very understandable. I do not look down upon them for wanting to go back to that world in the slightest because it was a great world. It was amazing when there were tens of millions of manufacturing jobs in the industrial parts of the United States.
The people who did not go to college, or even people who did, could go get and earn good wages, that was great. It was a wonderful thing, but lemme tell you at least part of why it occurred at the time. At the end of World War II in 1945, Europe and Japan were decimated into rubble. Whereas the United States, of course, had all of its manufacturing capacity intact and had all these gis coming home.
There were 16 million GIs who came home in 1945 and had all this pent up demand to buy homes and washing machines and cars and all the new gadgets. And because Europe and Japan were in rubble, America, by and large had global manufacturing to itself. It had like a monopoly on global manufacturing at the time because Europe and Japan was still trying to build themselves back from the devastation of the war.
China at this period was still kind of an economic backwater, wasn’t really part of the equation. It was also trying to recover from the ravages of World War II. Places like India and Bangladesh and Thailand that manufacture a lot today weren’t really part of the global manufacturing equation back then.
There was this period when, because of the state of global geopolitics, America had a manufacturing dominance to itself for a good 20 years from probably 1945 through the end of the 1960s. That was also a period when, for many different factors, we don’t need to go into all of them, but white collar workers were not making that much money.
If you worked on Wall Street in the 1970s, that was not a place to make a lot of money. That was an admin accounting job that was not very looked highly upon because you didn’t make that much money. Bankers were not making nearly the kind of money that they made in the decades before or after. This period, and that was important because the blue collar manufacturing workers, by comparison to others in the economy, to others in their town, were doing great.
So even if their wages were lower back then than they would be today, even adjusted for inflation, when the manufacturing worker compared themself to the banker or the accountant, or the lawyer or the doctor, by comparison, he said, I’m doing pretty great. I’m doing pretty well. And then two things happened starting around the 1970s that really accelerated in the eighties and nineties, which was one Japan and Europe kind of after having recovered from the ravages of World War II became manufacturing powerhouses in their own right.
One of the first signs of this was when Honda, Nissan and Toyota started selling cars in the United States, and people realized in the US that, Hey, actually. These are pretty good cars. These aren’t bad. It was easy to look down upon ‘em at first because they were small and had tiny little engines relative to the Chevy Camaro or the, the T-Bird, but this came during a period in the seventies and eighties when gas prices surged and all of a sudden those tiny little engines in a Honda Civic or a Toyota Corolla we’re what people wanted. And then all of a sudden, out of the blue, you went from incredible American dominance in car manufacturing from gm, Ford, and Chrysler to Honda, Toyota, and Nissan actually taking a lot of market share.
There’s a very good book I read a couple months ago. It’s called The Reckoning, and it’s about Ford’s decline and Nissan’s rise during this period, from the 1950s to the 1990s. And a lot of what happened to, to state it very generally, it’s more complicated than this, was companies like Ford, a GM in Chrysler, had so much dominance during this period, fifties, sixties, seventies, that when they started facing competition from foreign imports in the eighties and nineties, they kind of lost their way. They had such a stranglehold monopoly on auto manufacturing that they became much less competitive. And as I said earlier, that is one function that tariffs implement is when you don’t have to compete with foreign suppliers.
You become much less competitive. You become kind of fat and happy and lazy. In a way, and that was kind of the, the broad thesis of this book was that Ford became fat, happy, and lazy while Nissan and other Japanese auto manufacturers were just surging.
And so the manufacturing dominance, not just in autos but in lots of things, heavy machinery and whatnot, started to erode in the seventies, eighties, and nineties, and really started to explode higher in the two thousands when China really came on board in terms of global manufacturing. And that occurred at the same moment when white collar workers.
And finance and accounting and office jobs started making fortunes huge sums of money. So now at the same moment that the manufacturing worker was losing their jobs both to automation and foreign competition, the white collar workers were, were just having a field day and making money hand over fist, which made what manufacturing jobs existed feel even worse by comparison because let’s say you’re an auto worker making $25 an hour in one era, that might feel great, but if all of a sudden your neighbor who is a project manager at KPMG is making 300 grand a year, your $25 an hour doesn’t feel that great anymore. ‘cause your neighbor has, has a bigger house and more cars and is sending their kids to private school.
So by comparison, you feel worse off even if your wages adjusted for inflation may have been going up. And so you put all of that together. That is a very. Shorthand history. Of course, there are a billion variables that I left out in there, but I think that shorthand history is in broad strokes what has happened over the last 80 years.
It is so understandable that you have millions of workers who say, this economy worked for me 50 years ago and it doesn’t today. My dad, my grandpa had great jobs in the GM factory and I can’t have that today. So understandable that that would be the thought process of millions of workers, and I think it is naive and insulting for people who are on my side of the tariff debate who say tariffs are a bad idea who cannot understand the views of those kind of people. Because if I was in that situation, and if lots of people who disagree with tariffs were in that situation, they’d be arguing for the same thing.
I think one of America’s strengths over time, this has been true for hundreds of years, is this sounds kind of crazy, but I think it’s true. A firm belief in things that are probably not true. That has always been a strength of the United States. This goes back to the very early days of the settlers and the colonizers, whom back in Europe were told that America was a land of absolute abundance.
And when you got there, there would be just, you know, rivers overflowing with gold and whatnot. And actually it was like a malaria swap when they got to the East coast of the United States. But we believed it was always believed that this was the promise land. That was what brought the people over. And even when they came to the United States and settled. It was that belief too. America has always been so unbelievably optimistic, particularly at the individual level, and that’s why I think we’re so good at entrepreneurship. It’s this idea that you, the entrepreneur, even if you start as a, nobody can make it to become the next Elon Musk, Bill Gates, Henry Ford, Thomas Edison. You can make it. You can do it. Not a lot of other cultures have that level of even like optimistic ignorance, because in many ways that’s what it is. But what that’s done is it’s created this incredible entrepreneurial society that has given us and the world some incredible world changing innovations in companies over the years.
And when I pair that belief with the observation that there are tens of millions of Americans who feel like the world doesn’t work for them anymore, who feels like this economy is not working for them anymore. That worries me. It worries me that a meaningful chunk of society does not have that optimistic ignorance. I mean that in a positive sense to think that, hey, the world is my oyster. The sky is the limit. I can go do it now. We’ve been through similar periods in the past, the 1930s, the 1970s, and we recovered from those. We recovered from those malaise periods, and I’m optimistic that we’ll recover from it this time, but we should not lose track of the fact that we are in one of those periods again.
Where this goes next, my guess is as good as yours. And both of our guesses are useless beacuse I don’t think anyone knows what’s gonna happen next. Interestingly, many of you will listen to this podcast the day that I publish it, which I guess is April 8th. Some of you will listen to it weeks in the future when half of what I just said will be outdated because the situation is changing so quickly.
That gets back to why I only want to do long-term words and why this is so against what I normally do. But let me say a couple of things about. Investing because that has been the initial reaction to the tariffs has been entirely in the stock market, which as I speak here, is down about 20% or so from its highs that were reached just a couple weeks ago.
Now, the tariff impact has not hit the broader economy in terms of inflation at the grocery store or mass layoffs or whatnot. But so far it’s been in the stock market. So even if that is a very minor part of what will impact the economy, let me speak to that just a bit. I, of course have, have been glued to Twitter over the last week just trying to understand what’s happening and hear other people’s views.
I’ve watched it with a sense of shock and just confusion trying to piece together what’s happened, but it has not in the slightest changed how I invest, and I extremely doubt that it ever will. I think it is possible to be an engaged and informed citizen, even a social media junkie reading the news and a calm investor at the same time.
I purchased stocks early last week, not because of anything that was going on in the news, but because you gotta do that every month around the first of the month. I do it every single month. I’ve done that for, uh, I don’t know, 20 years now. I’ll do it next month. I’ll do it the month after that. That won’t change. I think it, it never changes. So I think you can simultaneously dollar cost average. Remain long-term, optimistic, not panic about anything that’s going on in the world. You can enjoy life, spend time outdoors, hang out with your kids, eat good food, listen to good music, have a good time, and at the same time, if you are of the same belief of me, realize how destructive and unnecessary what we’re going through is.
You can do all of that at the same time. It’s not like you have to be optimistic or pessimistic. I am very optimistic on the long term, even if I think this is a bad idea, that’s not a contradiction. Something else I’ve been thinking about is that we have in the past been through much more uncertain times than we’re going through right now, but it never feels that way, or it rarely feels that way because when we think about the past economic crises, COVID, Lehman Brothers, 9/11, Pearl Harbor, those kind of events. We know how the story ended and we know that the story did end and we know that we eventually recovered. But whenever it is a current crisis, a current period of uncertainty, you don’t know that. You don’t know when it’s going to end. You don’t know how it’s gonna end, and some people don’t know if it will ever end.
And because of that, even if, I think without a doubt what we’re going through is less uncertain, less serious than other periods of economic upheaval. It rarely feels that way because we don’t know what’s gonna happen next. So every crisis has its own little unique flavor of what’s going on. But the common denominator is this feeling that you can’t see the future anymore. And that makes people go crazy in, turns them into political junkies. It makes ‘em make bad investing decisions. That’s always been the case. Try to avoid that. I would also say that for most investors, 99% of good investing is doing nothing.
Most investing is just not doing anything, not trading, not selling. Just letting your money sit there and to hopefully grow over the years and decades. That’s 99% of good investing. 1% of good investing is how you behave when the world is going crazy. And this, I think, is one of those periods when the market falls 20% in a week.
That is one of those periods when it is so absolutely vital that you keep your head on straight. A lot of people will mix their investing decisions with their political beliefs, and 99% of the time, that is a mistake that you are not gonna make good investing decisions if you are doing it through the lens of your tribal beliefs.
Whatever those beliefs might be. Napoleon’s definition of a military genius was quote, the man who can do the average thing when everyone else around him is losing his mind. I’m gonna repeat that because it is such a ridiculously good quote. A military genius is the man who can do the average thing when everyone else around him is losing his mind.
It is the exact same in investing to be a good investor over time. You don’t need to make a lot of genius decisions. You just need to be merely average when everyone else is making bad decisions, as many people are.
One other thing that’s very different from this period, these, this tariff period that we’re going through, if you compare it to other periods of economic upheaval like Covid and Lehman Brothers and 9/11 and Pearl Harbor, is that this could end. In the next hour, right? Like the, these tariffs could be immediately removed in the next hour.
Or even if it’s not that there could be certain laws, whether it’s from the courts or from Congress, that could end these very quickly. Obviously we didn’t have that with Covid. There was no button on anyone’s desk that said, remove the virus, just click this button. We do have that now.
And so what is very different about this is how quickly it could end, and if that were to happen, how ferocious. The rally in stock markets would almost certainly be, even if there was some permanent damage, because global trading partners don’t trust us as much as they used to this, as such a unique period of economic crisis because with the flip of the switch and the stroke of the pen or a single tweet, it could all end.
And I don’t think I can’t think of another economic crisis that was similar to that. Obviously that was, there’s no analogy for that in terms of 9/11 or Pearl Harbor or whatever. The other thing I would state, maybe I’ll end with this, is that in every period of economic upheaval and political upheaval, it is so easy to underestimate the counter forces that come from it.
When things are declining, when things are getting worse in your eyes, it is easy to extrapolate and say, well, it’s gonna keep getting worse forever. It’s very difficult to envision the counter forces of. People’s reactions and lower stock market valuations that push in the other direction. It is true in every single previous bear market that those counter forces set the seeds for the next bull market, but virtually nobody saw them coming at the time.
That lower valuations plant the seeds of the next bull market, that people becoming frustrated with this political environment. Push for change. It’s always difficult to see those, but they always happen. That is happening right now at this moment. There are counter forces all over the place that are setting up the next bull market.
Now, I have no idea when that’s gonna begin. It might start tomorrow. It might start six years from now. I have no idea, but it’s always in play and it’s easy to overlook and it leaves people more pessimistic than they should be. And so as I end this rant, that will be a departure from what I normally write and speak about,
I’ll end just by saying I’m as optimistic as I’ve ever been, particularly for the long term. I’ve always talked about the idea of rational optimism, which is the idea that I am very optimistic that the world is gonna be a better, wealthier place 20, 30, 40, 50 years from now, but I’m rational in the belief that it’s gonna be very difficult between now and then.
The path between now and then will be extremely difficult. I wrote about that many years ago, and as I sit here in this unique week, unique period, maybe that’s the belief that I always come back to. Very optimistic about the long term, even if I’m understandable about how difficult it will be to get there.
