Revolutionary Technology of the Future — Mark Mills
Revolutionary Technology of the Future — Mark Mills
A better tomorrow relies on the technology we create today … And physicist Mark P. Mills believes innovations like the cloud will lead us into an economic boom. In this episode, he sits down with host Charles Mizrahi to discuss what conventional wisdom gets wrong about technology, where the semiconductor industry is headed, and how electric vehicles aren’t as clean as we think.
- An Introduction to Mark P. Mills (00:00:00)
- What Conventional Wisdom Gets Wrong (00:01:29)
- Revolutionary Technology (00:4:01)
- The Semiconductor Industry (00:10:19)
- Electric Vehicles (00:13:04)
- Clean Energy Isn’t Clean (00:20:08)
- The Future of Electric Vehicles (00:28:54)
- Incentives and Inflation (00:36:12)
- The 20-20-20 Rule of New Technology (00:43:16)
- The Manufacturing Sector (00:50:12)
- Innovation in America (00:56:52)
Mark P. Mills is a physicist, senior fellow at the Manhattan Institute, and partner in energy tech venture fund Montrose Lane. He has written several award-winning books, including his latest (below) on new technologies. Mills’ writing has been featured in The Wall Street Journal, Forbes, and USA Today.
In 2016, he was named “Energy Writer of the Year” by the American Energy Society. He also served in the White House Science Office under President Reagan, co-founded Digital Power Capital, and was chairman and CTO of ICx Technologies.
Before You Leave:
MARK MILLS: It has been known for a long time that the consumption of physical materials to build machines, to deliver the same unit of energy if you go wind and solar and batteries, averages 1,000% more than if you do hydrocarbons. Again, it depends on the exact material, but roughly that. So, you have a 1,000% increase on physical material consumption to deliver the same end service to society. That has consequences.
CHARLES MIZRAHI: My guest today is Mark Mills. Mark is a physicist and partner in Montrose Lane, an energy tech venture fund and also the author of several award-winning books. His latest book is The Cloud Revolution: How the Convergence of New Technologies Will Unleash the Next Economic Boom and A Roaring 2020s. He outlines the transformative power of the cloud and what technology will bring to humanity in the coming years. I recently sat down with Mark and we talked about how the conventional wisdom on the way technology will change the future is just plain wrong and how a convergence of technologies will drive an economic boom.
CHARLES MIZRAHI: Mark, thanks so much for coming on the show, I greatly appreciate it. I’ve looked forward to it since we spoke about it was last week or so. And I when I got your book, really great stuff, man.
MARK MILLS: Thank you. Delighted to talk about the book and anything you want to talk about. It covers a lot of territory.
CHARLES MIZRAHI: Yeah, the name of the book, folks, is The Cloud Revolution: How the Convergence of New Technologies Will Unleash the Next Economic Boom and a Roaring 2020s. So you put a lot of stuff in this book. And I love the fact that you went to town on reference notes and footnotes, so really, really well sourced. But before we even begin, there’s something that I was reading in one of the reviews. I’m not sure it was one of the reviews or maybe on somewhere else. And it starts off with the conventional wisdom on how technology will change the future is wrong, and you lay out a radically different and optimistic vision for what’s really coming. So first, tell me what the conventional wisdom is and tell me how they just missed the boat on this.
MARK MILLS: Yeah. Well, that’s a fair question. I think in my mind, all of us read many of the similar things, certainly in the public space. The conventional wisdom falls into two buckets. One relates to the nature of growth in the long term. By long term, I don’t mean century, but the next couple of decades. And that we’re in an era of sort of a new normal where growth rates for GDP are sub 2% and absent coming off of a recession when you get hypertrophy brief growth rates.
MARK MILLS: And that’s because, in effect, the really radical productivity-driving inventions are all behind us. I mean, there’s lots of stuff going on, but from an economist perspective — and these are economists typically saying this — it’s small ball, right? Nice, important, you know, keep getting efficiencies, but nothing equivalent to the invention of electricity or nothing equivalent to the invention of the car is coming. That’s conventional wisdom in that sense.
MARK MILLS: And then for those who are, we’ll call it the optimists or the so-called visionaries who think there’s a lot of change, they tend to think all the changes are typically in the infatuation with “green energy,” you know, Teslas and windmills. This is where other revolutions are coming and they’re important things, but they’re not revolutionary in the sense of the long span of history. They just aren’t. It’s incrementally useful, incrementally important big industries, but not revolution. So that’s the conventional wisdom. It tends to fall in those two buckets.
CHARLES MIZRAHI: Let me interject for one second. What’s a revolutionary technology? Give me an example.
MARK MILLS: Well, so the invention of a car, or the transistor, was revolutionary. And its real revolution occurred — is the point I try to make in my book — not when it was invented, but when engineers eventually got to the point, it takes a while, of making a commercially viable version of the invention or the idea. Same would be true for airplanes. Same would be true, by the way, for cell phones or television, whatever product or technology. So the question would be: Is there anything equivalent to that that’s been invented and that is approaching commercial viability? I’ll pick two examples, because that’s what you want. But I want to sort of frame what I mean by the example.
MARK MILLS: The emergence of biocompatible computing is a revolution. If you can make sensors, computer chips, control systems that are biocompatible — they can be implanted or literally ingested or injected. If one can do that, it’s a big deal. I mean, we can talk about the applications, but it’s a significantly different kind of product than anything that ever existed. It’s no longer a theoretical product or an imaginary product. These things are real. They’re pre-commercial in the sense that there’s no big industry around them yet, but it’s a product.
MARK MILLS: Another example on the other end of the spectrum would be something people have talked about, I don’t know, for certainly a better part of a century, but in some senses for centuries, which are truly useful robots — robots that can operate with humans and in the human environment, not that have to be isolated from people. That kind of robot, we can talk about what the implications of such a machine would be. But that’s really different than automatic washing machine or a welding arm in a factory that is bolted the floor. You know, a walking, operating, ambulatory, self-directing robot — in the sense that everybody knows what the word really means, even though it’s an elastic word — that’s a big deal.
MARK MILLS: You can find YouTube videos of all kinds of what I would call pre-commercial products. And there are a variety of commercial products. So the robot industry is roughly at a stage equal to the automotive industry, say, 10 years after the invention of the automobile — which would be like 1900 or 1905. And the biocompatible electronics industry is roughly where the transistor industry was before Intel was formed.
CHARLES MIZRAHI: Right, in 1950s with the transistor was there. OK, so just so we’re all on the same page, and I just want my listeners to … Because you throw a lot of information here, which just makes you think after each chapter, which I love, and it was really very good stuff. So the semiconductor on its own is a big deal. But the semiconductor embedded in so many different products and technologies, that’s the bigger deal, that’s the adaptation of the technology, right? So sitting in the ivory tower, a classic example is fax machines back in the 1940s. You’re able to do it. There was a technology, but the adaptation didn’t come until the 80s, late 70s, 80s, and that’s when you see that. Really I think it was the 90s even. That’s when you see that tremendous revolution, if you will, right? That’s what we’re talking about.
MARK MILLS: Yeah. So let’s talk. If one is an investor or an analyst or whatever, you know, a futurist or in business, you want to know what’s going to disrupt your industry, to use that overused phrase. There’s two points on the development curve that one cares about … When there’s a lot of growth from a very low base, that is, just when something becomes practical, an awful lot of people get involved making the thing. Early days of the automobile, just to go back in history, gives an easy example. The United States had something like 400 automobile manufacturers…
CHARLES MIZRAHI: I did a count on that. The late 1890s to early 1910 or 1920, close to 3,000.
MARK MILLS: Well, yeah, I’m looking more at the … So you go from thousands of automobile tinkerers and makers to right around 1905 to 1925, when GM started doing the roll up. There were still 400 big ones.
CHARLES MIZRAHI: But still, to go from thousands where everyone is tinkering to 400 is huge and then another 20 years to go to three!
MARK MILLS: Exactly. And you know that people were making money at every stage of that cycle. But there was nobody making automobiles before the invention of the automobile. So that phase is interesting. So you’d want to know, and I think to beat it to death, robotics are at the phase where we’re going to go to the thousands of manufacturers and then consolidate downward over time. But the other stage is to know when something that was new.
MARK MILLS: The transistor, invented obviously in the 50s, became a business in the 60s roughly, but really started to go in the 70s with Intel. Intel is a good flagship. We started to go when Intel was created. That’s when we began to see a lot of growth. But a lot of people think the transistor age is sort of peaking, that we’re at the beginning of the end of the growth, and it’s sort of a mature industry. I think we’re at the end of the beginning. I think that the growth phase for semis is now taking off, that we’ve now consolidated. It’s kind of like, again we use automobile example because they’re comparably big industries. But when the automobile industry started consolidating when Ford and General Motors were big in the 20s, they were big companies then by any measure. But look at the growth from 1920s for the next 80 years of the automobile sector, of the world. I think we’re in 1920 for transistors and semiconductors, broadly speaking.
CHARLES MIZRAHI: Let me stop you a second. Let’s use baseball terms. Where would you say we are in the semiconductor industry at this point? First inning, fifth inning, eighth inning. Where do you think we are?
MARK MILLS: Robots, first inning. Semiconductors are in the fourth or fifth inning.
CHARLES MIZRAHI: Really, that late? You know, I did a lot of research over the past year on semis. And the more I find out about them, how we’re now going to the electrification of semiconductors. Yeah, fourth or fifth, fair. I always say like the second inning or so, it’s not the first inning. First inning was about 20 years ago. So the way I see it, but you please chime in.
MARK MILLS: Well, yeah, we have to define our terms. First inning, for me, the broader timeline — 1970s for the first inning.
CHARLES MIZRAHI: OK. So, you’re saying 1970 was basically Intel, Gordon Moore, that whole rise there. Would you go to 60s? Would you say basically Fairchild at that point?
MARK MILLS: Fairchild, RCA — I worked for RCA in the semiconductor business. My first job was designing and processes for semiconductors and large-scale integration. And it was a big industry then, but we were very much in the first innings. The invention stuff that went before is not first innings. Those are inventions and tinkering. That’s the thousand automobile makers in the late 19th century.
CHARLES MIZRAHI: That’s batting practice. That’s not even a real game yet.
MARK MILLS: Yeah, I’m taking a different timeline than you. So if you accept my timeline — first innings are the 70s, Fairchild, TI, IBM, RCA, big companies. And if you think in those terms and we’re now in, let’s call it, the fourth inning, 50 years later. There’s a lot going to happen in the next 50 years, a lot. So I’m with you. That’s why I say we’re not anywhere near the ninth inning, or we’re not playing. We’re playing early on, but we’re growing from an incredibly big base. I mean, we’re already an industry —if you count it in all of its forms and penumbra — a trillion-dollar industry. And that’s fourth inning? Come on, this is huge.
CHARLES MIZRAHI: I just heard a conference call, I think it was Lam Research, I’m not sure. I forgot, I was listening to so many. They were talking about the industry going from $500 billion to $1 trillion by 2030. So, give me an industry on the other extreme. We were saying robotics. Give me another industry in the ninth inning.
MARK MILLS: Well, I guess if I were going to pick one, I think we’re probably in the eighth or ninth inning of electric cars, even though I know you like them and I like them too. The amount of headroom to expand the market share for electric vehicles … You know, I think of electric vehicles as an addition to the model options that are available for personal vehicles. It’s a great addition. It’s like adding diesel versus gasoline or SUV versus a sports car. There’s a lot of options in how cars are made. But the percentage of cars that can be electrified with technology as we know it is going to be pretty limited.
CHARLES MIZRAHI: Why is that?
MARK MILLS: Well, bits and materials. It takes stuff to make electric cars, and there’s a profoundly naive sense of how much we can expand the supply chain to build the electric cars. I mean, I’ve been writing about this a lot and testified before the Senate and Congress on it many times over the years, not because it’s my original research. I worked for a mining company in Canada in another part of my peripatetic early youth. I love mines. I love mining, but you want to talk about a difficult industry to move quickly? It’s mining. The average time to build and bring a mine online, and the scale of minerals required.
MARK MILLS: So from the U.N. to the International Monetary Fund and the World Bank and EU, in the last few years, all of them have decided to do studies that have gotten very little attention, asking the question of how much — not just lithium, but how much cobalt, nickel, common metals, copper, aluminum, the common stuff, as well as the exotic stuff … How much of that stuff will be needed to build batteries, never mind solar panels and windmills? How much will you need to build them with the technology we have today? Because we build with what we know, we can’t build with what we think we might have later. And everyone, including the IEA in a seminal study they did last year — which is an honest study, 300 pages of graphs and data — points out that the world is not mining today, nor planning to mine, even a fraction of the quantity of those minerals needed for the aspirations for these plans. Not even a fraction.
MARK MILLS: So we are short those minerals based on the current growth rate for EVs in a year or two. We know that’s already happening because the mineral commodity prices are spiking, not because of the war in Ukraine, not because mines have shut down anywhere. It’s because the marginal demand. And as you know, in a commodity, if I increase the marginal demand a few percentage points above trend line, just a few percentage points, prices really go up a lot. And we’re talking about demand increases for common minerals from 500% to 7,000% over current production levels — global production levels. I’ll just go out on a limb and say it won’t happen because no one’s building mines at that rate. It could happen eventually. Human beings are really good at building machines, but there’s a physics principle in building machines and mines and big infrastructures. It takes time. There’s inertia to it.
CHARLES MIZRAHI: You put a whole chapter in here, I think it’s chapter 14, where the machines energize everything. You put a graph in here in terms of lead acid batteries, nickel metal hydride battery, lithium ion battery, fuel cells and you see the ranges. But my question is, Mark, is that based on what materials we’re using? I’m trying to think of that example — I just can’t at the time — where everyone was thinking … It had to be the building of a transistor, right? To put X amount of data information on it or the processing power of a transistor was limited to the transistor until the semiconductor came along. You know, there was a sea change. And I’m with you, you’re right. You cannot produce enough of X if you don’t have the components to make X. So even though everybody wants an ice cream cone, if you don’t have enough ice cream cones, not everyone’s going to get them.
MARK MILLS: Put differently: if you don’t have enough cows. So everybody wants an ice cream cone. We decide we’re all going to eat ice cream cones. And then you can work up the supply chain to the number of cows you need to make the milk. And if this has happened, to use that example, and what if you’d learned that policies mandating eating ice cream instead of wheat were put in place by governments and incentives and subsidies were put in place for that? But you needed the number of cows in the world to increase by 1,000%.
CHARLES MIZRAHI: But then here’s the switch. At some point, the marketplace will come up with: “Hey, how about coconut ice cream, or made from coconuts or almonds or something?” Tell me if I’m wrong on this one, because you have a much better handle on this than I do. I hear everything you’re saying about EVs. The limitations are going to be the materials that make the batteries, that make the end product. I’m with you. What about if someone comes out with a solid-state battery or some X Factor, doesn’t that change everything?
MARK MILLS: Well, sure. Yes, it does. I’m an inveterate optimist, my book’s very optimistic, as you know. But I’m also a realist. Yes, it changes everything, but the timeline matters. And what is it that you changed? So I know the hot thing is to talk about solid-state batteries. It’s a new buzzword. It doesn’t have any real fundamental meaning, because it doesn’t change the basic chemicals being used in the batteries. We shift the chemical soup around a bit. You can use less cobalt and use more nickel. You can use manganese, you can add silicon to the graphite anode. But the fundamental fact is…
MARK MILLS: Let me divide it, if I can quickly, into two buckets. One is the scale problem, no matter what the material is. The second problem you’re correctly addressing is just changing the material.
CHARLES MIZRAHI: But hang on. Expand on scale. Explain for my listeners, what do you mean by the scale problem?
MARK MILLS: So we’ll do scale first, then we’ll talk about the magic material. That’s why I have a whole chapter in my book on the energy materials nexus. I think most analysis failed to appreciate not only how important the material sciences are, but what a big deal it is. But back to scale. I think you have a Tesla. So I like Teslas. I happen to like the fit and finish of the new Mercedes EV better, but you know, Teslas are fine. They drive great. Elon Musk deserves credit and his engineers for arguably designing probably the best lithium battery that’s ever been designed in history. It’s really quite an engineering feat. He really doesn’t get enough credit for this. I mean, he gets adulation, but the engineering credit is deserved here.
MARK MILLS: Here’s the point. An EV like a Tesla has a thousand-pound fuel tank — the battery. That’s replacing 100 pounds of gasoline. All right. First of all, you know, that’s not nothing, the electric motors don’t save you much weight compared to the weight of an internal combustion engine. They say it’ll be 100 to 200 pounds. Electric motors are heavy, they’re full of copper and they’re made from aluminum and steel. And they’re heavy, as is the internal combustion engine, and they’re pretty small and pretty light these days. So the main trade going from exactly the same car — they all have wheels, they all have seats, they all have glass. When you go from the car that’s got a gasoline engine and a 100 pounds of gasoline to an electric vehicle, you have a thousand-pound fuel tank. To make that thousand-pound battery, you have to dig up — for that one car — about 500,000 pounds of material somewhere on Earth. Five hundred thousand pounds per car are dug up somewhere on Earth because of the quantities of nickel, aluminum, manganese, cobalt…
CHARLES MIZRAHI: For those who are listening who are totally absorbed with renewable energy and clean energy and green energy, let’s real talk time out. It’s really not that clean or renewable, as you might think, because those things don’t don’t come out of the sky and land in your factory. They have to be mined. There is a whole carbon footprint that is pretty large that we don’t like to talk about.
MARK MILLS: Well, it’s more than pretty large. So the mining industry, roughly speaking, uses more energy than the global aviation industry, first of all. Like aviation, it uses lots of oil, because these big trucks are diesel powered. They use lots of coal and lots of natural gas. You could talk about greening the mining sector, and they do, and I don’t blame them. But that takes even longer than anything else because these big multimillion-dollar mining machines are designed and built and operated each for decades. I mean, they’re running for 30 years. You don’t replace them every three years. These are very big, expensive machines. So it’s a long time before we stop using oil to do mining. And most of the mining isn’t here. We don’t like to mine in America anymore or Europe. So we export the environmental challenge — and it is a challenge — to China, Africa, South America, all Asian countries.
CHARLES MIZRAHI: The way I look at it is not as a challenge, I look at it as a football. We don’t want the football in our backfield. So what we do? We throw it somewhere and say: “Look, it’s not here.” Well, I don’t think what’s happening over there is not having an impact here. You know, it’s just silly.
MARK MILLS: It is silly. So it’s having lots of impacts. It’s having environmental impacts, social impacts. The people who do mining in those countries are not as kind as many Western mining companies that mine here. Some of them are fine, I’m not besmirching all of them. But there’s some pretty horrific practices in other parts of the world. And it’s not like I’m the first one to point that out, it was widely noted — we’ll give credit to the New York Times and The Washington Post that did research a few years ago and found something like 20% to 30% of the labor in Congo, mining cobalt, are children. That’s not so good. I mean, these are obvious things.
MARK MILLS: But the scale problems. Let’s come back to scale. So what you’d want to know, if to deliver a mile of driving — or heat a ton of silicon or grow a pound of wheat — you want to know not just how much energy it takes, you want to know that, but you also want to know how many pounds of stuff I have to dig out of the Earth to make the machines to deliver that unit of energy, that mile of driving. And in the energy world — in the car world and the electricity production world, in that universe — it has been known for a long time that the consumption of physical materials to build machines, to deliver the same unit of energy if you go wind and solar and batteries, averages 1,000% more than if you do hydrocarbons. Again, it depends on the exact material, but roughly that. So you have a 1,000% increase on physical material consumption to deliver the same end service to society. That has consequences.
MARK MILLS: Now, it may be that the materials are cheap. They have been cheap. As you increase a larger share of, let’s say driving. Right now, 1 in 100 vehicles on the world’s roads, less than that, are electric vehicles. Under that, let’s just say, 0.8, but call it 1 in a 100. So 1%. And world electricity and world energy broadly … About 3% of world energy comes from wind and solar. But these are very big numbers. But even though they’re tiny percentages, a very big market. So that was less than half that two years ago because it’s doubled for both of them. That marginal increase and that building those machines to do that at global levels, fed back up the supply chain to monstrous increases in demand for copper, nickel, aluminum, lithium. Lithium prices are up about 1,000%.
MARK MILLS: So the consequence of this, first order, is the scale. Once you start building tens of millions of cars, each car has 200 pounds more copper than an internal combustion engine. Each car has 200 pounds more aluminum.
CHARLES MIZRAHI: And you have to dig for that, you have to mine for that. There’s environmental damage…
MARK MILLS: And costs. So the question of scale comes to this point that I was trying to make with respect to my lack of conviction that it’s a revolution on two counts. We aren’t planning, nor is anybody doing anything about scaling the supply chain to make it possible. So it won’t happen. It just won’t happen because we’re not doing it.
CHARLES MIZRAHI: So going back to our ice cream example, we just don’t have enough. Even if everybody wants an ice cream cone, we just are not at the point where if everyone did want ice cream, we have enough cows, we have enough grass, we have enough feed. We don’t have enough of that to produce the end result.
MARK MILLS: So if everybody keeps wanting those ice cream cones, what happens is the price of the milk goes up and the price of the cow goes up. Because the way commodities work is that the last guy really wants it. He bids up the price to get it. Because the guy behind doesn’t pay that price, that creates the vicious cycle of inflation of commodities, which is what’s going on. And the scale problems are really clear when you read the reports that have been written by lots of environmental agencies themselves and the U.N. The world isn’t producing them. And if the world tries to produce it, we have the problems you’ve described in the environment. We have geopolitical issues. We create shifts in supply chains. Not that none of it could ever happen. It just won’t happen in the timeframes needed.
MARK MILLS: In the IEA report, they pointed out it takes an average of 16 years to build a new mine from scratch to being operating — average of 16. If you assume the world decides I need them faster, call it 10 years, really cut it down. In America, it’s 30 years, 20 to 30 years. Politicians decide they want to do it. So everybody wants their ice cream cone, but it’s going to take 10 years before there’s enough cows to make the milk. In the meantime, everybody’s bidding it up. It won’t end well because people will say: “You know what? Maybe I don’t want ice cream. I’ll go back to bananas.”
MARK MILLS: So the scale problems are really staggering when you look at changing the world’s energy systems. We are going to have more EVs. There’s going to be more windmills. But it’s not going to eliminate hydrocarbons and transition us to some nirvana. It will require the same stuff that drilling does. You have to dig stuff out of the ground, build machines made out of steel and aluminum, have ships and trains and trucks and deliver stuff and then convert it refineries that use chemicals. To make a battery, think about the supply chain. To get the copper or the manganese or the nickel, you’ve got to not only dig up rocks, you’ve got to crush the rocks. It takes a lot of energy. And dissolve them. Think about that. You’ve got to dissolve rock somehow, which has chemicals, which take energy, and it has environmental challenges. And then use chemical processes to extract and refine the pure elements, the copper or whatever it is. So the scale stuff is what will make these aspirations not happen, not because people want them to happen or don’t want them to happen. It’s not a political opposition.
CHARLES MIZRAHI: It’s reality. OK, so let me ask you this question, Mark. Tesla, I think Musk mentioned the problems, brought this to everyone’s attention. But General Motors, Ford — we’re just at the cusp, from the consumer side, of coming out with more models than you could shake a stick at. Every company has a model coming out. My question to you based on this background or really the context that you just gave. You know, be careful what you wish for, right? I think it was something where I saw that if you put Tesla in the list of cars sold in the United States compared to ICEA internal combustion engines, I think it would be number 11 or 17 somewhere around there.
MARK MILLS: Sounds about right.
CHARLES MIZRAHI: You have the F-150, you have all these other cars which are extremely popular. Ford comes out with their new F-150. Everybody wants that car. Everybody wants ice cream cones. Walk with me. Give me level two and level three thinking. What do you see happening a year or so from now? Because I know what’s happening with the car industry now, with used cars and regulators just from the semiconductor problem. But here we’re talking about everybody wanting to be green. And we have an administration in Washington which declared war on fossil fuel.
CHARLES MIZRAHI: And this, folks — I don’t want to be getting any emails — has nothing to do with me being a Democrat or Republican. It just is. You have an administration which said they’re going to war on fossil fuel, and everything they’ve done has pointed in that direction. The same with the Trump administration was the opposite. It was drill baby drill. So it’s not a political thing. It just happens to be what the administration is doing now, and it’s not forcing, but it really is telling you where things are going to be going.
CHARLES MIZRAHI: So, in that big large question that I’m formulating, what happens when all this — to borrow one of your words — all of this converges? You have the consumerism, you have the push for renewables, you have the EVs. And I didn’t even talk about the shortage of fossil fuel, which drives a lot of these things. What do you see happening?
MARK MILLS: Then we have to come back to your other question, but I’ll answer that. I’ll give you the short answer and then the explanation of why I think what’s going to happen is going to happen. But I want to come back to your other question. It’s really important. I get it all the time. Once you tell people there’s limits to what you can do with lithium batteries, they say: “Well, we’ll just invent a different material and better battery.” And we will. But let’s come back to that because I think that’s really important to understand too. So I think you articulate it exactly right. Forget why the politicians do what they do. And it’s really kind of sad that we’ve politicized energy issues, but they are.
CHARLES MIZRAHI: We politicized energy. We politicized climate. We politicized virtually everything. So put that aside.
MARK MILLS: You know, it’s a great line the British prime minister made years ago after a disastrous coal mine collapse. I forget which prime minister, which is just embarrassing. Anyway, he started thinking about the political fallout from that coal mine disaster in Wales and his chief of staff, said: “But these children have died. How can you talk about politics at a time like this?” And he famously looked at her, and in a British accent, which I won’t attempt to imitate even though my father was British. He said: “My dear, everything is political.” Everything is political. We live in a political world, I get it. I’m not bemoaning that, except we still have to deal with facts.
MARK MILLS: So, here’s what’s going on. You’re absolutely right. We have policies, not just this administration. Policies largely for decades in America have been ranging from mildly hostile to very hostile to hydrocarbon production. So it’s not like we have drill baby drill presidents really. They’re just less hostile because the regulations are pretty tough. The American experiment with energy has not been equivalent to the Saudis or Guyana, where they’re thrilled when they find oil, they just they say drill, baby drill. So let’s just stipulate that. But you’re right. What we have in place are epic oppositions, both economically and politically. By economically I mean in the investment world, where the pressure to not invest overtly and implicitly in oil and gas is enormous. So that’s had an effect.
MARK MILLS: We’ve reduced discoveries and drilling and exploration, and the world still gets 84% of all of its energy from hydrocarbons — oil, gas and coal. And oil use is returning to its pre-lockdown levels. But supply is not growing at the same rate. That means prices go up and they’ll keep going up as long as that formula stays in place.
CHARLES MIZRAHI: Let me just summarize this in one sentence. What you basically said for those keeping careful eye, because Mark gives you way more detail than I do. Great stuff. You have limited supply and increasing demand. What happens? Price goes up. That’s why we’re paying more money for oil.
MARK MILLS: It’s the proverbial perfect storm. Three things intersect that simultaneously make a bigger wave. That’s what the movie was about. But actually, in physics, that’s how it works. You get an intersection of three coincident things. So the second thing is, as you know, is the higher price of oil and gas raises the cost of making the machines, operating the machine, shipping the stuff. Everybody knows that. So diesel fuel is more expensive. So everything you ship from wheat to your computers is more expensive. So that’s a secondary, if you like, derivative inflationary effect, including making electric vehicles because the oil’s more expensive to mine the lithium. So you make the lithium more expensive.
MARK MILLS: At the same time, the third, a triple whammy, is that I artificially increase the demand for ice cream — or lithium batteries. I tell everybody they have to use one or I’ll subsidize you if you buy one. So in that case, that supply can’t keep up with demand because no one is subsidizing the mining. Nobody is saying I want to give away money to mine more nickel in America. In fact, we’re doing the opposite.
CHARLES MIZRAHI: We’re giving you more money to buy a car, the end product, which ia being totally head in the sand and not realizing that there’s a whole chain behind it that gets you that. It’s like watching how the sausage is made. Nobody wants to see how the sausage is made, they just want their frank. A lot of stuff goes in there, and nobody wants to look at it.
MARK MILLS: And one of the miracles of modern society is that I don’t have to care about how sausages are made. They get made inexpensively, safely, reliably and delivered to me until that stops. And it stops when people do naive and silly things. This is what we’re doing now. But the answer to your question, in short, is that we have set in place epic forces for inflation — may be significantly different than anything in recent history, which I think the Fed is going to have a hard time fighting. The Fed is trying to fight inflation, as you know, by slowing the creation of money — which is inflationary — and raising interest rates to slow demand by slowing economic growth. So the blunt tool. But in the meantime, other government policies are directly — unintentionally, we’ll assume — fueling inflation by decreasing supply of critical things or increasing demand for things for which there is not enough supply.
MARK MILLS: So the net effect is we’re going to be in an inflationary period, which is politically incendiary. Consumers are going to be very unhappy. Everything’s more expensive now. Everything’s going to get more expensive. Green machines are more expensive. Elon Musk and BYD. BYD is the biggest EV maker in China. Both announced price increases for the cars entirely because of commodity price increases — mostly lithium right now, but the others are going up. In fact, Elon Musk even announced a price increase for SpaceX launches because of commodity price increases. So if you want to have a sense of everything’s any more expensive because of these bad policies, from SpaceX — which, who cares, right? Well, people care. People who watch satellites that do environmental monitoring had cheap launches. Launches are getting more expensive.
MARK MILLS: That’s not a good thing politically, it’s not good for the economy. I don’t think consumers will like it. I don’t think they’ll tolerate it. I don’t know how it will play out politically. I mean, I have opinions on that. But as a practical matter, it means that in the short term, any technology, any company, any software, any piece of automation that can add efficiency, that can dampen the effects of inflation and what I’m doing with the inflated good, the inflated energy cost will be a good play if I’m an investor because you’re going to have to live with $4 or $5 higher diesel fuel or gasoline. You want to have a more efficient machine. If you want to put up with the chemicals going in and the batteries being more expensive, you have to find a way to get cheaper chemical processing.
MARK MILLS: These are all very challenging industrial processes, but they are amenable to efficiency improvements and tiny improvements when prices are high are a really big deal. So there’s a lot of businesses, I think, that will benefit from that during that cycle. And that cycle will break. I mean, all these cycles, they’re called cycles for a reason. It’ll break. We’ll either have a recession, a big recession which kills demand and prices go down. Or we’ll have a political revolution where the electorate will say: “Please do something to increase supply. What will it take to increase supply?”
CHARLES MIZRAHI: Or stop offering incentives to increase demand.
MARK MILLS: Well, stop it. Just stop the nonsense.
CHARLES MIZRAHI: In my house, we have the den and the kitchen are on the same heat thermostat. So when someone sitting in the den gets hot, instead of turning down the thermostat, we open up the French doors. So you have 40 mile an hour winds coming in, increasing the heat while they’re trying to get cold. And I said, You guys realize what you’re doing? You know, this is not stopping. Just get up and lower it. You can’t have two forces working against each other. And I think, you know, one of the things that I didn’t like from day one, I didn’t quite know the impact and the ramifications the way you do. And you spell it out really beautifully. When they had the government incentives for EVs, my first thought was this doesn’t end well. It never ends well. When you’re cycling up demand based on a political ideology of I want to be all green, anything green is going to work, solar … It didn’t make economic sense and eventually you have to pay the piper. That’s the just way I saw it.
CHARLES MIZRAHI: I definitely didn’t do fourth level thinking like you just did and laid out there with the cost. That’s brilliant and kudos for really setting the table on that. But when the government starts — and I don’t care what administration, Democrat or Republican — when you start to turn that dial and you want things to be made quicker, realize that there are repercussions way down the supply chain that you’ll have — intended and, most importantly and most deadly, unintended consequences. And you never know when they’re going to kick you in the ass.
MARK MILLS: You’re absolutely right, and so your instincts are correct. In fact, when I wrote my book … What I typically do in the research is you have an instinct about something, one has an instinct. Then you go looking for the numbers and the facts, trying to get a sense of was the instinct right? And if it was wrong, why was I wrong? And if I’m right, what are the data to support that you’re right?
MARK MILLS: In this case, I think we will see what I would call peak subsidies. You can’t just keep doing round trips. I mean, a good example of a silly subsidy to your open window and thermostat is, you know, Governor Newsom — not to be political, but he did something rather silly and they’ve done this in European countries, so he’s not alone. Gasoline prices go up. Right. So what does he do? He wants to write checks to people. Well, that introduces a new bureaucracy. You have to collect the money some other way. Why not just cut the gasoline tax? That happens instantly. Costs nothing in terms of the overhead, a stroke of a pen. He can suspend the gasoline taxes, let’s just say temporarily, entirely, because California has the highest gasoline taxes. If he wanted, he could micromanage it, suspend it for people below a certain income or whatever. But the point is he chose the equivalent of turning the heat up while they open the window. It’ll just stimulate gasoline demand in the state of California. Because you’re already sending them a check to buy gasoline. What are they going to do with the check? Buy gasoline.
MARK MILLS: To come back to your question about where we’re heading. I’m a little worried about what we’re doing politically and economically to the western world. India and China are not doing this to themselves, but we are in terms of inflation and damage to our economy. And the only way to turn the ship is political. It’s going to be political. We have to decide we can’t do it this way. It doesn’t mean that people who think we can make fundamental changes in technology to do something — like your earlier question, if this battery solution is not the right one and we don’t have the materials, how about a new technology? Wouldn’t somebody just invent something different or better? So is that possible? Sure, it is. Then what’s the timelines? Which we can talk about.
MARK MILLS: But there’s no question there’s always new inventions. The key with economies is back to where we started. How long does it take to go from the invention to a practical product to commercially scaling it? And when I did my book, I did some research on this because I had this instinct like you. I’m driven a lot by instinct. So, I’m a physicist, not an engineer. So that’s the typical back of the envelope. You sort of think about something that seems right, but then you got to figure out, is it really right? There’s sort of a 20-20-20 rule in big systems. That is, it takes 20 years from the invention of a technology, the discovery of something, before you’re making something that’s quasi commercially useful — about 20 years. And then it’s about 20 years before it starts to significantly impact markets and have a product that scales. Lithium chemistry was invented, by the way, by an Exxon chemist in the 1970s — which is kind of ironic. It’s too bad they didn’t stay in that business, right?
CHARLES MIZRAHI: It’s like Eastman Kodak creating the digital camera, you know?
MARK MILLS: Yeah. But it was 20 years before the lithium battery began to enter markets in the 90s, and it was expensive. But it’s what made cell phones possible, and laptops. And it was almost another 20 years before they were cheap enough and good enough, scaled enough, that the first sedan, Tesla sedan, showed up — the revolutionary change in fuel for lots of cars. But that’s 20-20-20. If you look at all kinds of technologies, the idea that we’re accelerating at that pace isn’t really true for big things that really change society. And it’s annoying to people for easy things like changing fashion. You know, changing the fashion of clothing or changing an app on a phone has a high velocity. But the other stuff just doesn’t.
CHARLES MIZRAHI: Correct me if I’m wrong. Didn’t BYD start out as a battery maker in China?
MARK MILLS: No, BYD was a military contractor.
CHARLES MIZRAHI: BYD, the company that Buffett invested in. They were a military contractor first?
MARK MILLS: Mhm, and they still are. They’re the principal supplier, at least they were some years ago, of batteries and battery technology to the Chinese Navy and Chinese military.
CHARLES MIZRAHI: But they started out in the battery business.
MARK MILLS: Yeah.
CHARLES MIZRAHI: That was the whole thing, with Munger and Li Lu…
MARK MILLS: Great company. They started in the battery business. They went into the car business because they said, if the battery is the single most expensive part of the car, why would I sell that? And in effect, Elon Musk did not invent a car. As you know, that’s why he was emphasizing the point…
CHARLES MIZRAHI: And he didn’t start Tesla.
MARK MILLS: Exactly. But what he did was he had the brilliance to make sure there were engineers around him, engineered the battery because the battery is the key. But you know, look, I think we’re on a bad track briefly, we’re going to go through another inflationary cycle and it will trigger a recession. How much of a recession is impossible to know, because governments have a capacity to make them worse by doing stupid things, and maybe we’ll get lucky. But I think one thing that’s different and I would say on a recovery from a recession this time, we may already be in recession frankly. I think when the March numbers come out, we’ll probably see we’re pretty close to 0% growth. When you look at the freight index, this is a bleeding edge indicator as you probably know, it fell off a cliff in the middle of March and went down, which is the goods being shipped around. So people were feeling the heat from the inflation and buying the stuff, and they’ve sort of gone through the lockdown burst of buying lumber and doing additions.
CHARLES MIZRAHI: And the freight index Mark is referring to is the cost to move goods by ship containers from one end of the Earth to the other. That was originally $2,000 to $3,000 a container. Then it went high, I think was $25,000. Now it’s receded. Not that things have gotten better.
MARK MILLS: Exactly. And the truck index is the same in America. The number of ton miles of goods carried around the country…
CHARLES MIZRAHI: Same thing with railroads.
MARK MILLS: So that tells you, that’s sort of a leading indicator that it’s cooling down. And it’s cooling down before the Fed raised rates. So it was already cooling down. It cooled down because of inflation, things that were getting more expensive. But also, I think it’s a behavioral cool down on the recovery. So we’re going to go on to another phase. And I think the phase we’re going to go into is growth in the service side. People go back to flying and vacations as they get calmer about evil COVID, and that will have a shift in investment implications.
MARK MILLS: But I think the principal difference over the next few years. And we’re locked into the inflationary cycle now, it’s hard to get out of it, even if governments tomorrow said: “Oops, my bad, I’m not going to give away money to buy electric cars anymore.” If you like one and you’re wealthy, why should I give you $15,000 to buy a $90,000 car? I should give you nothing. Anyway, even if they reverse that, it’s slow. But the technologies of the industrial sector, which is where I spent a lot of time on my book, the migration of computing in the cloud, in the internet of things, artificial intelligence, the whole ecosystem of doing industrial things — not doing informational things, not news, TV, entertainment, finance — that’s 20% of our GDP.
CHARLES MIZRAHI: So you’re talking about 3-D printing, manufacturing.
MARK MILLS: How about even something as simple as, let’s say you’re a business and you’d like to have real time visibility when you order something to sell in your store, where it’s being manufactured, when it’s going to get you, what’s delaying it? The whole supply chain. You’d like to have that as visible as a Google map.
CHARLES MIZRAHI: Your whole logistics.
MARK MILLS: That would be a beautiful thing and very economically powerful and anti-inflationary. That’s in theory been possible for a decade or two. It’s only now becoming possible — that emergence of that kind of thing, plus things like 3D printing, things like what I write about in my book, computational materials. To your other question about changing, if one material doesn’t work so well, it’s too expensive, let’s engineer a new material. Those things are now what’s emerging as possible, no longer crazy. They’re at the 1905 stage of the automobile, so to speak. And that’s anti-inflationary, profoundly anti-inflationary, and will help dampen the inflation we’re going to face and help get us out of the inflationary mess that our government has created.
CHARLES MIZRAHI: You know, I found something really insightful in your chapter on the servicification of manufacturing. Was it here or there somewhere else? I’m sorry. Oh, here it is. How big the manufacturing sector really is and how the divisions … Here it is, I think it was 20% or something. The way the government throws them all into one category and stuff. You make the case that the manufacturing sector is way bigger. You hear a lot about service in this. But your point, I forget where I saw that. I’m sorry.
MARK MILLS: Well I’m glad you point that out because I think this is a category of what I try to spend a lot of time in my book on is framing what it is we think we know in order to understand what’s going to happen. So the government has three sectors: manufacturing, services and agriculture, right? Food service isn’t manufacturing. It’s kind of nice and convenient, except my point I was making is that a service like flying an airplane, issuing you a driver’s license, operating in a hospital or a restaurant are really different industries. They’re far different from each other than manufacturing cars and manufacturing robots or manufacturing chairs. There’s much more similarity among the manufacturing industries than this amorphous over-large bucket. It would be the equivalent of forgetting that there’s a difference between a cow and a human, and just saying that they’re all animals.
CHARLES MIZRAHI: Take all mammals, right.
MARK MILLS: It’s a useless taxonomy. And manufacturing is the biggest sector of the U.S. economy when you divide it up properly.
CHARLES MIZRAHI: You put it in here, I can’t find it now, but Apple — 85% of Apple is hardware. And if you told me that Apple is a hardware company, the average person would say you got to be crazy. It’s a technology, disruptive, software, research. Bottom line: they sell things.
MARK MILLS: They not only sell hardware, they’re brilliant at managing the manufacturing ecosystem. In fact, Apple to me, epitomizes the thesis of my book if you think about it in these terms. Everybody wants to talk about tech, and by that they mean software and silicon. OK, fair enough. But technology is making everything. That’s what technology is definitionally. And we’re infusing silicon and software into all the products, like a phone is obviously by definition infused with silicon software. But it’s not just that. It has a battery, which is a chemical engine. It has a display, which is a light engine. I mean, these are different things in computing, right? But what Apple has done is brought the brilliance of using software in their business to manage their business in a way to produce a product — hardware, a phone, an earbud, whatever it is — and in manners which other business are beginning to do and understand. So if everybody begins to manage their enterprise like Apple, whatever their enterprises, but especially hardware enterprises, then you get these remarkable efficiencies. But you’re still manufacturing a product. I mean, hardware.
MARK MILLS: Google is more of a software company than Apple, although they have an awful lot of hardware businesses in their umbrella now under the Alphabet label. And they, like Amazon … Let’s use Amazon. Amazon retails a lot of hardware for other people — that’s a hardware business. But more importantly, Amazon Cloud is like — as I say in my early chapters of my book — is a physical infrastructure of the scale of which the world has never built. And the biggest builder, the Big Kahuna is Amazon, and it’s a hardware business. They’re building data centers that Google engineers call warehouse scale computers. They’re the size of shopping malls for goodness sake. And they’re building them by the millions of square feet. And it’s filled with billions of trillions of transistors that are hardware built in other factories. I mean, talk about a hardware centric world.
CHARLES MIZRAHI: The thing is, when you hear cloud, you’re thinking it’s a great name — cloud. It’s not really a cloud. It’s based on Earth, somewhere in a huge, huge, huge physical space that requires hardware.
MARK MILLS: And what’s exciting is we’re now seeing this fusion of software and hardware. The fusion of logic, bits and atoms that you hear Peter Thiel talk about. And it’s a good phrase. But everything about the world is that. Human beings are a fusion of bits and atoms, we’re biological machines with something we don’t understand. We don’t understand how our software works, even though people pretend they do, but they really don’t. We’re a long way away from understanding creativity and emotion and logic. We’re getting better at it. I think we’re sort of at a Stone Age in that.
MARK MILLS: But most of the machinery that we build is dumb. Making smart machines is really, really hard. And we’ve talked about smart machines for a long, long time. But most machinery, we manage it with smart things, but the machine itself can’t react, right? Most machines can’t, and they can’t react dynamically. That is, they can react to one specific thing like a switch. And as we start to create machines that have awareness of the physical environment and react and adapt to it, this is not a robot. This is smart materials that can self-heal when they start to fracture and break, and emulating what biology does. It’s not crazy anymore. Those are the kind of materials that are already being engineered and developed, on the cusp of being made into commercial products.
MARK MILLS: So as you sort of look at this landscape of things and you think about what’s really going on in the subterranean part of innovation, not the superficial part, when people talk about a new invention, I mean, a new product. I was sort of an optimist when I started writing the book, I became more excited and optimistic when I finished writing it. And I ended, as you know, with an epilog what can go wrong? A lot can go wrong still. Government politics matters. I framed the book at the beginning and the end, pointing out politics matters. You can’t avoid governments screwing things up. You can Sovietize an economy, literally. Russia did that for 80 years, and they lag the world in growth, sadly.
MARK MILLS: I worry about those things, but I’m at the same time kind of optimistic that the zeitgeist in the United States is profoundly different than many other nations. And you know, I’m a Canadian. I immigrated here. There are cultural differences. No culture is perfect, I’m not doing relativism here. I’m just talking about a feature of the American culture, which was the reason I came here, and I think it’s still here, which is a combination of risk-taking, dynamism and tolerance. And the tolerance part is I think is underrated. People will tolerate government mistakes doing stupid things for a long time. Because I don’t know, maybe this is a good idea. I’m being mildly facetious. Until they find out it’s not really a good idea. Then you vote the bums out, then you try something else. I think that’s a far better way to manage getting to the future than believing that somebody is brilliant enough to direct what the future will look like.
CHARLES MIZRAHI: Yeah, that’s an interesting question, interesting points you brought up. Why, as Americans, do we have more tolerance for experimentation, failure, innovation, causing disruption as a nonconformity as opposed to other cultures? I guess because we’re a melting pot, you know, it’s people from all over the world that are like minded, that like you came here for that reason. And it kind of builds upon itself.
MARK MILLS: I think you’re right. It’s a melting pot and, you know, I’m an immigrant, so I’m biased. I’m pro-immigration. I think immigrants are great. I think we should have lots of them. I happen to think we should have a process and a border to manage how they come. But I’m a huge bull for the benefits to America. Just think about it, leaving your own homeland is really tough. It really is. And if you really want to go somewhere and make something out of your life, that’s the kind of entrepreneurial energy and zeitgeist we want in America. That’s great. I’m setting aside the obvious thing of refugees. That’s a special case.
MARK MILLS: But anyway, the question of why we’re like that was what Edmund Phelps, who I quoted my book, he was a Nobelist in economics. He wrote a book a few years ago called Mass Flourishing, and he wrote the book to explore the question that you just picked up on: Why did America uniquely benefit from the fruits of technology of the last century? Because technology has this tragedy of the Commons feature, right? You can patent stuff, but once you’ve invented it, other people can steal it, use it, borrow it, do it — and do. Or you can license it to them if you’re lucky.
MARK MILLS: So why did the United States uniquely benefit? Because it did over the last century, or the 20th century. And it’s a deep book, much denser than my book. It’s a really good book. I highly recommend it for those who want to plumb that question. The essence of the conclusion he reaches is it’s in that ineluctable feature of the American spirit, which comes from its history, from its melting pot, from its frontiers, from its geography. He gets to this unsatisfactory answer in some senses, but also, for me, a very satisfactory answer that it’s the nature of this country, which is sort of why we have these arguments — which are good arguments to have — about what is the nature of this country?
MARK MILLS: I’m a tech bull. But the reason I think I’m bullish about America being the ascendant economic nation of the 21st century is because of two things. The technology changes that are underway now are as great as anything that happened 100 years ago, and they’re all happening now. And they’re happening mainly in America, which is great because we’ll benefit from them, but we tend to be pretty good at spreading them around the world. That’s why China does what they do.
CHARLES MIZRAHI: You said that tongue in cheek. I’d say we’re excellent in spreading our culture and our inventions and our technologies to everybody. And you know, there’s one thing that I just want to just add on to that, and we’ll wrap it up here. I forget where I saw this, about 50% of Fortune 500 companies were started by immigrants and at least 50% of the CEOs are the children or themselves immigrants.
MARK MILLS: Yeah, that’s unsurprising. And I’ll add another one on the innovation side. I did a spelunking of the Nobel Prizes as they are sort of a bellwether for innovation at the pinnacle of science. And if you look at Nobel Prizes, the vast majority have been awarded to American citizens, however, the last I checked the majority — at least a half or slightly more — were either immigrants who became Americans or direct sons or daughters of an immigrant. It’s a huge brain drain to America, to the chagrin of some other countries. But why do people who become Nobel laureates want to come here? Well, I think it’s because … You could say it’s for the money, because we’re a wealthy economy. I’m sure there’s some of that, but it’s mostly because they can work in an environment that I think is fundamentally optimistic and fundamentally risk taking.
MARK MILLS: A lot of the social problems we have come from that. I mean, I’m not going to go deep into psychiatry. I had a brief digression in my book from Marshall McLuhan’s The Medium Is the Massage, because he’s a Canadian. But the psychiatry of risk-taking also gets you some of our problems. If you think about it, our social problems come from tolerance for risk taking.
CHARLES MIZRAHI: And a lot of the solutions to those problems are also there. So, Mark, we have to have you on again. This is great. You have some really great stuff here. We didn’t even touch many of the things I want to talk about what you’re looking at now — what technologies, I know robotics is one big one, but you have so many other points. We’ll definitely have you on again. So folks, the name of the book is The Cloud Revolution: How the Convergence of New Technologies Will Unleash the Next Economic Boom and A Roaring 2020s. Mark, thanks so much for being on the show. I greatly appreciate it and continued success.
MARK MILLS: Thank you. I really appreciate it. It’s fun talking to you. I’d love to come back and we could talk about augmented and virtual reality and the future of entertainment and education.
CHARLES MIZRAHI: Outstanding. Take care.
MARK MILLS: Thanks, you too.
CHARLES MIZRAHI: Thanks for listening to this episode of The Charles Mizrahi Show. If you’re a new listener, welcome! If you’ve been listening for a while, we’re glad to have you back. Either way, we’d love to know what you think of the show. Please leave a review if you listen on Apple Podcasts. Reviews make it easier for others to find the show. You can also see the video of the interview on The Charles Mizrahi Show channel on YouTube.
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