Eli Dourado joins Jordan McGillis to discuss economic productivity and areas such as space and energy, where innovation can thrive.
Audio Transcript
Jordan McGillis: Welcome to 10 Blocks. I’m Jordan McGillis, economics editor of City Journal. My guest today is Eli Dourado, chief economist at the Abundance Institute, a new think tank focused on creating space for emerging technologies to grow, thrive, and reach their full potential. Eli, thanks for coming on.
Eli Dourado: Great to be here, Jordan.
Jordan McGillis: Let’s start with the name of your new shop, the Abundance Institute. Abundance is a concept that is so hot right now. I think I’d credit The Atlantic’s Derek Thompson with really popularizing it in the last couple of years. But your group and a couple of others, like the Institute for Progress, are doing the real fundamental work here. How do you conceive of abundance and why is it having this moment?
Eli Dourado: I think of it almost entirely in economic terms. I think of it in terms of ... Total factor productivity is kind of my North Star, right? And so total factor productivity is basically how much output do you get for inputs that you put into the production process. So for a given quantity of capital and labor, how much output are you able to get? So I think this is a better North Star than something like GDP or GDP per capita. They have all kinds of perverse things. If we all worked twice as many hours, we could probably get GDP to be higher than it is today, but then we would have half as much leisure time.
So I think TFP is a better metric of saying ... Okay, adjusting for how many hours of labor you put in, how much capital you have, because we can always increase capital by saving more, which is no fun, right? We like to consume. So yeah, adjusting for how much capital and how much labor, how good is the economy able to turn inputs into outputs?
And you can think about this in a number of different sectors of the economy. In housing, we’ve gotten worse at turning inputs into output, right? In health, we’re getting worse at turning inputs into outputs. So that’s how I think about it. Good, broad-based growth means that in every sector of the economy, or almost every sector of the economy, you’re having rapid growth and the ability of the economy to turn inputs into outputs. The whole system is getting more productive. That’s what I think about in terms of abundance.
Jordan McGillis: And our system is not getting more productive, is what’s driving your motivation here?
Eli Dourado: Well, it’s certainly getting productive more slowly than it used to. So I just looked up these numbers and the Biden administration so far, in three and a half years of data, total factor productivity grew about a little over half a percent a year in that time period. And we used to grow at 2% a year. So the Biden administration has achieved about 2% cumulatively, and we used to do 2% a year.
Jordan McGillis: When you say, “used to,” when were we hitting that figure?
Eli Dourado: Say 1920-ish, when data was not quite as good, but 1920-ish to about 1973 is the conventional cutoff point where things started to slow down. And then we also did achieve about a 2% growth rate. And there’s a period from about 1995 to 2005 that also hit that mark. But then the periods outside of that, since 2005 or between 1973 and 1995, were significantly slower.
Jordan McGillis: And just in the last few years, I’ve seen this field really bloom with these different groups I mentioned, including yours. What’s driving that new trend?
Eli Dourado: I think people are starting to realize that there’s a lot of obstacles to economic growth that are self-imposed, that we are doing this to ourselves. So if you look at the innovation economics literature, going back to someone like Paul Romer, it was always like ... Okay, ideas drive growth. We need to do more R&D. And if we do R&D, we’ll create new ideas and apply those in the economy, and that we’ll all be wealthier.
And there’s lots of evidence now that that doesn’t work that way. If you think about the YIMBY movement, which is kind of like abundance but only for housing, or narrowly cabin to the housing industry or the housing sector. We don’t need any new technologies or new R&D or anything like that to build a lot more housing, make housing more abundant, make it cheaper. I think you could have denser housing with better neighborhood character at an affordable price. So you could have ... There’s no trade-offs really needed. You could densify center of cities, you could still have people have their nice suburbs. There’s no trade-off needed, and it’s just a matter of policies getting in the way of the deployment of that kind of housing.
And I think people are starting to realize, “Oh, okay, we see that this is clearly the case in housing. Is it also the case in energy and energy deployment? Is it also the case in healthcare and the way we bring drugs and devices to market versus the way we handle the more human part of medical services, doctors and nurses and hospitals,” and so on.
Jordan McGillis: And so healthcare and housing and energy has all been pretty notorious for the regulatory burdens upon them. What about the more far-out ideas like space exploration and things like that?
Eli Dourado: Space is an interesting one because we’ve had so much progress in the last few years, but it’s all been one singular company that has been providing most of that progress, which is SpaceX. And the lesson I take away from that, there’s nothing inherently about the human capital of SpaceX engineers that is that valuable. They all go to school with ... They went to the aerospace engineering programs with the same people who are at every other company. And the thing that SpaceX does differently is it designs iteratively, right? And so we all saw the Starship Rocket get caught, the booster get caught by the launch tower, on the chopsticks. And what an incredible moment, but it didn’t start there. Five years ago, out in the desert, they launched a crappy water tower type thing with maybe ... I’m not sure how many engines. Maybe one engine. And they just fired it up a little bit, translated it a little bit to the side, and then landed it. And that was called Starhopper. And it was just an extremely subscale, extremely quick and dirty product.
And so my takeaway from the progress in the space sector is that you need that iterative development cycle. That’s what drives progress. And it’s so interesting to see in how many other sectors, the iterative development process is basically not allowed. So if you want to build the Starhopper of nuclear power plants, go out in the desert, build something quick and dirty for $5 million in three months, and just test out some theories about what could make it more efficient, gather data to support your NRC application. You can’t do that. The entry barrier is that you have to have a fully licensed NRC reactor, which means you can’t get that kind of progress.
So I think one answer to your question is that we’ve seen progress in space, but it’s because, unlike in many of these other sectors, you can iterate still. Now the question of why other companies are not iterating in the same way is also a hard one.
And then I think the other piece of it is there still are a lot of obstacles to really becoming a space-faring civilization, even with the progress at SpaceX. So there’s a lot of regulatory obstacles. There is no high-cadence launch regime right now for launch licensing. Once SpaceX is launching several times a day on Starship to move a lot of mass into space, it’s not clear that the FAA is going to be able to handle the volume of launch licenses because they haven’t built a system to do that yet. I think there’s still questions about what does it look like if humans are going up into space en masse. Right now, basically you operate on a waiver system. So you can sign a piece of paper that says, “I understand that rocketry is dangerous, and putting myself on this much fuel is dangerous,” that’s what’s enabled humans to go to space so far, but if we start imposing more rigorous requirements on that, that could also slow progress in human space flight.
Jordan McGillis: Among many other areas, you have pretty deep expertise in aerospace and the FAA. I believe you used to work for Boom, a new company that is attempting to launch supersonic air travel at a commercial level. What can you tell me about the developments there and what the barriers are to Boom really taking off?
Eli Dourado: Yeah. So the biggest barrier I think is the overland ban over the United States. So you cannot fly supersonic in general ... Without a special flight authorization, you can’t fly supersonic over the United States. This has far-reaching consequences for supersonic companies. You can enter the market, of course, as an airliner that only flies over the ocean. There’s a big enough market for that. I’m convinced there’s hundreds of planes to be sold just to serve the market of transatlantic, if you have the range, transpacific, other cross-ocean markets. And you can go with no fancy technology. You could just replicate Concorde. Might want to size it down a little bit relative to Concorde, but you can do that.
The problem is that that is actually a really hard place to start. So Boom is taking a real crack at it, but they’re trying to do an airliner that I think these days, it’s a 60 to 70-passenger airliner. It’ll go Mach 1.7, which is twice as fast as we go today. Would be amazing. I just got back from Asia last week. And man, that was such a long flight. I would love to fly that supersonic. The problem is that building an airliner is one of the hardest engineering projects you can do. So the complexity of an aircraft program is exponential with basically the mass of the airplane. So the bigger the airplane, the more complex it is. And the safety bar is so high that it ends up costing billions of dollars to do it. It is very hard to finance and actually succeed at getting a new company to bring an airliner to market.
I think a much better scenario would be to start with a smaller plane that can fly supersonic, but if it can fly supersonic and it’s a small plane, it’s got to be able to fly supersonic over land because people don’t generally charter or buy jets to only fly over the ocean. And so if you could fly supersonic over land, small plane, that’s a much easier entry point into the market. And I think we would get a lot of investment into supersonics once we get a rule that says you can fly over the United States supersonically as long as your boom is no louder than X. Right? And if you have a number there that’s attainable, I mean, frankly, I’d even think you’d see Boom pivot to something smaller that could meet that bar.
Jordan McGillis: I just want to be really clear here. The ban is on the speed. It’s actually not directly targeting that noise externality. It says you cannot go over-
Eli Dourado: Correct. It is a speed limit. We’ve studied human response to sonic boom for 70 years now. So we know what the acceptable levels are.
Jordan McGillis: What does the western sage-grouse have to say?
Eli Dourado: Yeah. No, I mean, it’s so funny. Sonic boom, they’ve even done studies on animal impacts of sonic boom in places where they happen regularly. And there’s a paper somewhere on the internet where somebody is studying the mating habits of mink. So it was someone’s job to watch the minks copulating and determining the effect of the sonic boom that-
Jordan McGillis: Does it give them a boost or does it hold them back?
Eli Dourado: It seems that they ignore it, once the act is underway. During the mating ritual, there’s a brief startle, but then they just pick right back up. And that’s a full-size boom. That’s not a muffled low boom that I think we could achieve through improved aerodynamic design.
Jordan McGillis: I want to ask you about your own political philosophy. I know you’ve got a George Mason econ background, which suggests you take a pretty narrow view on where government can have success in facilitating the good things in life. I don’t know if that’s correct or not, so you set me straight. But how does that framework perhaps relate to your views on things like government funding or support for science and technology?
Eli Dourado: As I’ve become maybe not an old man, but an older man, I’ve become less dogmatic in general. So I’m just very pragmatic about a lot of things. I am generally libertarian, and other things equal. I do give some weight to that. In particular, relative to a lot of other pragmatic people, I am more conscious of ... We are using violence to take people’s money away and to spend it on things. So maybe we should do that a little less, or if we are doing that, we should at least make sure we get good results for it.
That said, we’re in an existing system. And it’s hard to really, really make major structural changes. So we accept ... Okay, we’re going to do some government-funded R&D. And mostly, I just hope it’s money well spent and produces really cool value out of the money that’s spent, and that hopefully if it’s spent well, that’s a net positive return to every citizen whose tax money was taken to fund the research. And probably that bar doesn’t get hit all the time, but certainly there are cases with very high government research ROI.
But I think also government research crowds out private research, and so it can be harmful on that level. I think that as our science agencies, NIH, NSF, others, have gotten so big, one of the consequences of getting so big is that the scientists themselves are insulated and specialized in this basic research task that I think that there is actually a harm to over-specialization in basic research. I would actually like to see a little bit less specialization and see some of these scientists not only do the basic research, but then once they have a basic research breakthrough, maybe go on to do some of the translational research or even the product development or maybe even start a company and commercialize it themselves.
I think one of the most harmful, probably the most harmful aspect of the government funding research is it views the scientists almost as a customer base, and it’s trying to keep them happy, and they’re happiest when they’re just like, “Just pay me money to do basic research and I don’t have to do any of this hard capitalism stuff.” And I actually think it would be better if we didn’t insulate the scientists so much from the demands of commercialization and of getting products to market because they might think about their research in a very different and more productive way. So even if we’re going to continue funding them, let’s fund them in a way that results in these discoveries being deployed in the real world.
Jordan McGillis: How do you change the incentive structure so that rising scientists see other possibilities besides really narrow specialization and the idea that they must continue to get narrower and narrower in order to have an influence in their field?
Eli Dourado: That’s a great question. I think part of the answer has to be some kind of venture ecosystem. I don’t think that the current venture ecosystem is really doing that effectively. Those scientific founders are not good at being founders, or they don’t have the knowledge of what a good founder consists of or what even should they be doing. And a lot of that knowledge is opaque and hard to put your finger on if you’re not already deep in the venture world.
And I think that it’s something where we don’t really have a complete answer on, but I think we need to do a better job as a country or a VC industry or however you want to say it, enticing these bright, technically-minded people to start companies, and then set them up to succeed. And then they can see the whole picture. If you have the bright scientific mind, seeing the picture of basic research all the way to earning profits and scaling a company, that is amazing, but it’s pretty hard to make that transition right now out of a graduate school program to go to that, certainly directly and even over time, over the course of a career. It’s hard.
Jordan McGillis: I don’t intend to make this the Eli Dourado promotional hour, but you engage in VC activities as well as your research, right?
Eli Dourado: That’s right. On the side, yeah, I do some investing as well.
Jordan McGillis: What are you doing on that side to try to advance these concepts?
Eli Dourado: I guess one of the things I do is I try to talk to founders early, on projects that I’m interested in. So really try to dial in the product that they’re aiming for to be something that ... Because I’m more interested in the hard tech space, the energy and aerospace area, that’s all stuff that’s relatively capital intensive relative to a software as a service startup. And so I think that the way that works is you have to ... Okay, you’re going to have more capital intensity, and maybe the timeline is going to be longer. So that dampens the risk-adjusted returns. So you have to have something to compensate for that. And I think that hard tech has something that can compensate for that, and that is no market risk. So I like to invest in companies where if you can do the thing that you say you’re going to do, then you’re going to make a lot of money. So if you can build this product and get it all the way to market, that is going to be a multi-billion dollar company.
Jordan McGillis: Kind of the Peter Thiel idea of you want to have a monopoly, if possible.
Eli Dourado: Yeah. I mean, I think a lot of times, the moat is just nobody else is crazy enough to try this or ambitious enough to try this. And so for example, I recently invested and blogged about my investment in a cargo airship company that is a team of four ex-SpaceX engineers who ... One of them got just airship-pilled a couple years ago after reading a previous post of mine, and just went into the rabbit hole and started a spreadsheet and worked on it for almost two years, and then decided to start the company and bring on some co-founders.
And yeah, there obviously are other airship companies, but none of them is really doing it the way I think it needs to be done, which is going really hard and fast after the transpacific cargo market. And if you can build an airship to just do that, I think that that’s one of these things where there’s not really any market risk. They’re planning to basically deliver cargo across the Pacific in less time than today’s airplane-based cargo service, and point-to-point delivery on the airship, and they can do it at less cost.
Jordan McGillis: What are the dimensions on one of these airships?
Eli Dourado: It will be the biggest flying object ever made. I don’t know what the ... Initially targeting a hundred ton payload. So similar to a 747 in terms of payload mass, but yeah, bigger, maybe 300 meters in length, for example. But yeah. It’s a big thing, right? It’s a very, very long length, high volume, bigger, bigger than anything else in the sky right now.
Jordan McGillis: Would we need new airports to accommodate this sort of vessel?
Eli Dourado: Well, working on it from the perspective of just being able to pick up and drop off cargo at an unimproved customer site. So you don’t need anything special at all to-
Jordan McGillis: Is the takeoff perfectly vertical with one of these airships?
Eli Dourado: It can be. Yeah. I mean, I think by default, it is. You have a lot of flexibility in how you operate them. I mean, I think that they are thinking about ... Don’t even land when you’re picking up cargo, right? So can you do a sky crane scenario, pick up and drop off cargo that way, and really only land for annual maintenance. So you would have a hangar somewhere with cheap land, and the airship will fly there once a year to get fully checked out and stuff. But other than that, you could take and offload cargo and maybe even refuel without landing.
Jordan McGillis: What sort of fuel would they use?
Eli Dourado: I mean, I think this is something where there’s a lot of flexibility. You could just basically ... What you want is probably electricity on board. So to power the motor. I mean, that’s another design choice that I think is contingent and could change. But if you have electricity on board, you could have a diesel generator or something else like that on board to generate power. And you can swap out the fuel. Generators will run on a number of fuels. So if we ever got another fuel that was better, we could swap it out for that.
Jordan McGillis: Okay. I want to spin back to energy. You’ve been one of the most prominent voices behind geothermal. What’s the lay of the land on that technology as we move into a new administration and potentially a different approach regulatorily?
Eli Dourado: So the lay of the land is obviously, we’ve had huge gains in fracking technology over the last 20 years. It’s been genuinely one of the few bright spots in the US economy, aside from computers, which benefit from Moore’s Law. And a lot of the drilling and subsurface engineering technology that’s been developed for oil and gas is directly applicable to geothermal, but it’s not optimized for geothermal. And so we’re seeing now some experiments, both with companies like Fervo that are out in the field doing geothermal right now, the DOE has a site in Utah called FORGE, and they’re doing some drilling and development there. And what we’re seeing is that as you re-optimize the drilling equipment for geothermal, the penetration rates in this hot and a lot of times hard rock is improving. So drilling speeds are increasing, costs are going down, and the total end-to-end development time is getting cheaper in such a way that it is exactly what we need.
And then at the same time, there’s other concepts besides EGS, which is what both Fervo and the FORGE project are doing. There’s a company called Eavor that’s trying to do closed loop, which means that they don’t do any fracturing to connect the holes. The hole where you inject the water, and then the one where you get it out as steam. Instead, they’re using a radiator-type design where they’re just doing the drilling. So as the drilling costs go down, maybe that becomes much more practical. And then another concept is how deep can we go? And so if you can-
Jordan McGillis: Can we dig a road to China?
Eli Dourado: If you can drill ... Maybe not all the way to China, but let’s say between 10 and 20 kilometers down, then you start getting into much hotter temperatures.
Jordan McGillis: How deep is conventional geothermal?
Eli Dourado: Depends on where it is, but if you’re near a hot spot or something, it might not be that deep. But I think a good rule of thumb is that even if you have a good resource, it might be five kilometers down, something like that.
Jordan McGillis: Okay, so might be doubling or quadrupling that depth.
Eli Dourado: Yeah. If you can go much deeper, then you can get hot temperatures basically anywhere on the globe. And if you can do that ... Also with hotter steam, you get more efficient use of the turbine. So you have higher efficiency in conversion to electricity. So there’s a company called Quaise that I also invested in, that is doing directed energy, basically millimeter wave energy to vaporize granite. And that’s nice because you don’t send a drill bit down a hole that might break and have to be pulled out and then fixed and another one set down.
So anyway, the point being there’s lots of different approaches here and lots of progress in basically all of them. All the approaches are seeing improvements, and it would be surprising if we didn’t see some progress here. The policy obstacle, the number one obstacle right now is that the easiest place to prove out these technologies is on BLM land, out in the west where there happens to be a lot of good geothermal resources, but the permitting process for getting a project going on the federal land is very onerous. And one of the things that I hope we can get nailed down is can we get categorical exclusions from NEPA for those kinds of projects? And if we can get that going, then it’ll be a lot simpler to develop a project, either a commercial project or even just a test project on federal land to prove out some of these ideas further.
Jordan McGillis: Indeed it would. All right. Last question for you. What are you most optimistic about in the energy space over the next five years or so?
Eli Dourado: I have so many different answers. So I’ll give you a policy one and a technology one. So on the policy side, I think we’re at a unique time in terms of being able to maybe do meaningful permitting reform. My mental model was we’re going to see permitting reform basically every two years forever because no one’s ever going to do enough of it, and the existing permitting reforms that have happened two years ago and two years before that and two years before that, et cetera, they were all too small. And with the Republican trifecta, maybe there’s actually appetite for something bigger. So if that happens, I think that could be a game changer for energy generally and make it a lot easier to deploy all kinds of energy on federal land or with federal involvement, just across the board, tons more deployment.
On the technology side, I’m really excited about a novel battery cathode that’s being pursued by a company called Ouros out in Miami. And full disclosure, I invested there. And they have really good numbers coming out of the lab on how dense their cathode is. Right now, the cathode for a lithium-ion battery is most of the mass and cost of the battery. And so getting something that’s much denser in the long run, much cheaper than the existing technologies there, which are, basically, there’s only two of them right now. And this could be better than both of them, in both the cost and in the density dimensions. And if we get that going, I mean, it’s amazing to think about what we would do with much denser and cheaper batteries. And so you could have ... Actually get flying planes, and not just electric cars, but awesome electric cars.
Jordan McGillis: Our guest today has been Eli Dourado. Eli, where can our listeners follow your work?
Eli Dourado: You can follow me on Twitter, @elidourado, or on the web, EliDourado.com, or you can also follow my org, the Abundance Institute @Abundance.Institute.
Jordan McGillis: Fantastic. Thanks for coming on.
Eli Dourado: Thanks for having me, Jordan.
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