Reid Hoffman on Systems, Levers, and Quixotic Quests (Ep. 85)

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Mercatus Center
Jan 15 · 42 min read

When Reid Hoffman creates a handle for some new network or system, his usual choice is “Quixotic.” At an early age, his love of tabletop games inspired him to think of life as a heroic journey, where people come together in order to accomplish lofty things. This framing also prompted him to consider the rules and systems that guide society — and how you might improve them by identifying key points of leverage.

At first, he thought he’d become an academic and work with ideas as one of those Archimedean levers. But he ended up focusing on technology instead, helping to build PayPal, LinkedIn, and now many other ventures as an investor at Greylock Partners. But he still thinks ideas are important and tries to employ a “full toolset” when trying to shift systems.

Reid joined Tyler to talk about all these leverage points and more, including the Silicon Valley cultural meme he most disagrees with, how Wittgenstein influenced the design of LinkedIn, mystical atheism, what it was like being on Firing Line, why he’s never said anything outrageous, how he and Peter Thiel interpret The Tempest differently, the most misunderstood thing about friendship, how to improve talent certification, what’s needed from science fiction, and his three new ideas for board games.

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Listen to the full conversation

Read the full transcript

TYLER COWEN: We’re here today with Reid Hoffman, and I’d like to start, more or less, at the beginning. On your Wikipedia page, it says that you “drove oxen in high school.” What does this mean?

REID HOFFMAN: [laughs] Well, what it means is, I went to this great high school in Vermont called the Putney School. Part of the reason I selected it is because of its belief in the diversity of a human being.

Not only are we intellectuals and thinkers, and you have to learn how to think and how to study and how to write and how to speak and how to do math and all the rest of it, but you also learn other aspects. You do art and blacksmithing and work, and part of the work is it’s on a farm, and so some maple syrup farming, some shoveling of cow manure, and some driving of oxen.

COWEN: And are you good at driving oxen?

HOFFMAN: I’m terrible.

COWEN: What’s the skill required for driving oxen?

HOFFMAN: Partner with someone else who knows what they’re doing.

COWEN: And that’s a school after the John Dewey model, correct?

HOFFMAN: Yes.

COWEN: So if I think of your subsequent work and ideas of civil society, plurality, democracy — does it all come from your time in high school?

HOFFMAN: Probably it is well informed by that, but not foundational. I would say that probably the way that I tend to have grown thinking in networks and thinking of evolution, of incentives and cultures, probably didn’t come from Putney. But the diversity of human experience, of thinking of human beings as complicated entities that have lots of different kinds of expression and lots of different motives, probably did come from childhood and most especially boarding school at Putney.

COWEN: And where did it come from in childhood, then, if not from Putney?

HOFFMAN: The nature-nurture question, which is always some blend of both because we always have these false dichotomies — nature or nurture — and it’s always, actually, how do they combine?

I would say that it’s probably the fact that both of my parents are lawyers, and when I would want to articulate a desire for something, I’d have to make a case. And as I was thinking about the society as I found it, I would think about how people are different and what kinds of ways you would need to argue to get what you want.

Then my dad, when I was, I guess, in ninth grade — no, no, earlier than that — when I was nine years old, hired a babysitter who would entertain me by playing Dungeons & Dragons. Dungeons & Dragons made me start thinking about life as a heroic quest in which you had a number of different players, all of whom are coming together in order to accomplish something.

COWEN: What is the early influence on your thought that you feel you have and other major figures in Silicon Valley maybe don’t? Because a lot of people have played board games growing up, right? A lot have read early science fiction. But you’re different. Is there more New England in you? Or what’s the missing variable?

HOFFMAN: Well, it might be that the missing variable is that I deeply value intellectual work and public intellectual work, that I found —

COWEN: But that’s not fundamental, right? What’s the temperamental variable, the personality variable, the thing that happened to you when you were nine that, say, makes you so different from Peter Thiel, Elon Musk, and others?

HOFFMAN: Huh, that’s interesting. I guess it may be the question of how you respond to different circumstances. Peter grew up in his high school at Foster City. I, pre–high school, was in Berkeley. They’re not that far apart from each other.

But I guess what I would say is that, when I encountered and saw suffering of people around me, and that would range anything from — my mom was one of the first women through law school at Cal and joined Wilson Sonsini. Partners then were making jokes about “Now they’re letting the secretaries become lawyers,” and so forth.

Seeing what impact it would have, my reaction was, how do we reformulate society to be on trend to less suffering and to more evolution of who we would be? I don’t know if it was a particular experience of it that was like this one catalytic moment, this moment of epiphany, other than that was the way that I was reacting to a set of things that I was seeing.

COWEN: If we think of Peter Thiel and Elon Musk, they could arguably, by the standards of many people, be called weird. I’ve reviewed all the books you’ve written and a lot of your public talks. I can’t recall you saying a single thing that’s outrageous in any way whatsoever. Why aren’t you weirder?

HOFFMAN: [laughs] Maybe I mask it better. That’s my Straussian element, that I hide my weirdness. I would say that a little bit of it comes down to a theory about what is the right way of evolving discourse.

I think I probably do have a variety of views that people would think is weird. I, for example, think of myself as a mystical atheist, which is neither the full atheist category nor any religious category, but some blend in the middle. Or the fact that I actually think that the notion of capitalism is one of the world’s leading interesting technologies, but it’s not a particularly good philosophy, and you’d think that’s odd for an entrepreneur or an investor, and so forth.

So I have areas where I would say groups of people would think I’m weird. I may not highlight it because I tend to always speak in a way to, how do I think I help us make the most progress? And I would only say the weird things if I thought that was the thing that would result from that.

COWEN: So there are weird things that are in your mind?

HOFFMAN: Yes, yeah.

COWEN: If I view your work as a complete outsider, I think of you as a living embodiment of John Dewey, and you went to a John Dewey–inspired school. So social communication is a critical idea, a big emphasis on a certain kind of communitarian experience of democracy, pragmatism, thinking in terms of large-scale systems.

Yet you don’t cite Dewey much. There’s Wittgenstein. Aristotle you talk about in your philosophical background. My take on you — what is it getting wrong? What am I missing?

HOFFMAN: It’s funny, I tend to be outward bound in my changes in the system, so these are great questions to get me to try to reflect on my interface point to it. I guess what I would say is that I tend to think in terms of systems — Dewey was a system thinker — but then I tend to think in terms of Archimedean levers, by which you change the systems.

And I tend to think that there’s a number of different types of Archimedean levers. It can range from ideas or memes. It can range from incentives or culture, and it can range from leaders building organizations or institutions or reforming or renovating those institutions. And I tend to think that you should play a toolset across the whole thing.

Now, to some degree, Dewey is a classic pragmatist, and there’s that pragmatism that is definitely one of the things that I, as part of the institution and institution-building, think is super important.

But I also value that intellectual work, in terms of just the ideas, and including far-out philosophy. The audio class that I’m listening to right now is science fiction as philosophy, as a re-lens onto everything. And just those pure ideas, the bold ideas which may be always incorrect, are still important to be part of the mix.

COWEN: Early in your life, what was the science fiction that resonated with you most, and why?

HOFFMAN: Early in my life? That answer may be not that interesting. I mean, it may —

COWEN: Oh, it’s definitely going to be interesting.

HOFFMAN: I would say Dune with Frank Herbert because of thinking of the broad scale of the interplay of politics and religion in the evolution of society, because science fiction is, by making these artificial future societies, a lens onto our own. I would say Isaac Asimov’s question around psychohistory in the Foundation series. And then things where you start thinking about Heinlein, The Moon Is a Harsh Mistress and also Stranger in a Strange Land. Those were probably the early ones. And then Ender’s Game was probably towards the end of the arc of my childhood science fiction.

COWEN: And that reflects the empathy emphasis?

HOFFMAN: Yes.

COWEN: And what is it that really bugged you in science fiction, or you disliked or you rejected? It’s always a good window into what people really think.

HOFFMAN: Yes. I would say that usually science fiction is too simplistic in its theories of human nature, that the characters are, to some degree, too uni-dimensional.

COWEN: And this bugged you as a 12-year-old?

HOFFMAN: Oh, absolutely.

COWEN: Yes.

HOFFMAN: The question is that the motives are a complication. For example, people say we’ll be egoful or egoless, and it’s actually a spectrum. The way that our egos are shaped and they get expressed is a set of triggers and desires and narratives that we’re telling ourselves about the story that we’re living and what we’re doing in the world. And that’s not one simple bit. A lot of the — especially Isaac Asimov, who has a bunch of interesting theories — the characters all tend to be these enormously cardboard cutouts.

On Avalon Hill board games

COWEN: Avalon Hill board games. How good were you at them?

HOFFMAN: [laughs] I think you know the answer to this question, which is, I don’t recall losing one.

COWEN: And which of your qualities are responsible for your being so good at Avalon Hill board games?

HOFFMAN: I think what I did is, I learned at an early age what counts as a strategy, how tactics relate to a strategy, and what counts as a differential strategy when you are in a conflict with another person.

I was never as good as a number of people at chess and so forth. Those games always struck me as inaccurate to real world because they didn’t have a gap between epistemology and metaphysics. They didn’t have the uncertainty, the fog of war. They didn’t have randomness elements to them, a bunch of things that are actually in fact very present in life.

Whereas Avalon Hill games — you had to have plans B. You had to have — if the die roll went against you, what else would you do? What was your fallback plan for what you’re doing? You had to have a model of how the other person was thinking about it, and you had to be thinking about what are the ways that you might see things coming together in ways that the other person wouldn’t, within this fog of war and fog of uncertainty.

COWEN: My favorite Avalon Hill game was Blitzkrieg. Have you ever played it?

HOFFMAN: I don’t think I’ve played Blitzkrieg. I played Tactics II a lot, but also a bunch of the other theater war ones, like North Africa and the other ones.

COWEN: Is speed of conquest important in Tactics II?

HOFFMAN: Yes.

COWEN: So it’s like blitzscaling, but early on, the early-on version? What kind of board game would you invent?

HOFFMAN: Although, by the way, to go back to that, the choices — and I’m sure we’ll get to this blitzscaling — is when to move fast and when not to move fast. It’s not always move fast, but be capable of moving super fast when you need to.

COWEN: But unlike in tech, it doesn’t depend on whether or not you have a network good. It depends on something else.

HOFFMAN: Yes, there’s a competition, a bunch of other things.

Now, if I were to invent a board game . . . Actually, I’m going to give you three board games because I think all three will be interesting. One would be a political economy game of creation of companies, partially because I actually think teaching the skills of entrepreneurship is important for how do we make progress in society, how do we solve the future of middle-class jobs, et cetera. The second is what would Life 2.0 be as a game? You go back to the old Milton Bradley Game of Life 1.0.

COWEN: Of course, I know it well.

HOFFMAN: Yes, and then, how do we choose a life now, and what would be a board game about choosing that life, and how would that be essentially refactored? And then the third would be probably a game of . . . think of it as the future of humanity. As human beings are evolving, who would we choose to be? You’d almost think of it like a World of Warcraft game, but as opposed to pure fantasy, it’s that evolution of the human condition.

COWEN: Are you actually going to create these games?

HOFFMAN: I’ve thought about all three of them, which is the reason why —

COWEN: Is that a yes or a no?

HOFFMAN: Probably.

COWEN: Probably?

HOFFMAN: Yes.

COWEN: And how actively will you be involved in that creation?

HOFFMAN: If so, it’s a question of time and prioritization.

On philosophy

COWEN: Now, you have a master’s degree in philosophy from Oxford, and there you won the Matthew Arnold Prize. What did you win it for?

HOFFMAN: Actually, I now know this wonderful Oxford expression called proxime accessit, which is, I would have won it except there was one better essay than mine. So it was an award, but it was a proxime accessit award. It was writing an essay on Matthew Arnold’s relevance to modern society.

COWEN: Why was the other essay better than yours?

HOFFMAN: I don’t know. I never saw it. They didn’t send it to me.

COWEN: What do you think of Matthew Arnold today?

HOFFMAN: Wow, that’s a question that I have not encountered since 1991.

COWEN: Is he too elitist?

HOFFMAN: No.

COWEN: Pretended to be a radical but was a fusty old white guy? How do we process him now?

HOFFMAN: [laughs] No, no, no. There’s a problem with elites, where essentially incompetent people try to lock in their own position, prestige, and power, and that critique of elitism is a critique that I’m sympathetic to. But the maximum expression of human potential, from wherever it comes from within human society, is something I think is super important. And the valuing of being extraordinary in a number of different ways, including intellectual and a bunch of others, is, I think, super important.

And I think Matthew Arnold’s values of those sorts were very good. I think the primary thing that I was writing about in that essay was that one can articulate very good conservative values that are not trying to lock in the past against the future, but trying to articulate principles that help guide you in your own evolution of thinking about concepts like liberty and others.

COWEN: To whom do you give greater credit, Socrates or Plato?

HOFFMAN: Aristotle.

COWEN: Why Aristotle?

HOFFMAN: Well, Socrates, as you know, we basically only know through the writings of a number of his students. I found that Aristotle’s intersection of studying the world and thinking was a much better form of philosophy. This may get back to your Dewey observation earlier, that says actually, in fact, philosophy is not the thing that you sit in the cave doing, but something you do as you participate in society.

You still want to have theories of human nature, theories of cognition, theories of how you formulate truthful or false theories of the world and theories of human nature. One of the expressions I used when I was an undergraduate to describe the kind of philosophy I wanted to do is transcendental anthropology, which is, you’re looking at what humans are doing, but you’re applying Kantian analyses to it in order to derive good philosophy.

COWEN: How did your interest in the late Wittgenstein influence the construction and design of LinkedIn? I’m sure they ask you this all the time in interviews.

HOFFMAN: [laughs] All the time. The question I’ve always been expecting. I would say that the notion of thinking about — a central part of later Wittgenstein is to think that we play language games, that the way that we form identity and community, both of ourselves and as individuals, is the way that we discourse and the way that we see each other and the way that we elaborate language.

That pattern of which ways we communicate with each other, what’s the channel we do, and what’s the environment that we’re in comes from insights from — including later Wittgenstein, who I think was one of the best modern philosophers in thinking about how language is core to the people that we are and that we become.

COWEN: What else from philosophy influenced the construction and design of LinkedIn?

HOFFMAN: Well, a few things. One is, philosophy allows you to articulate theses with clarity. One of the things that philosophy tries to do is say, “Well, what’s your actual argument? What’s your actual theory? What’s your actual position?”

That actually ties into one of the things that I give advice to entrepreneurs and to myself, which is to write out your clearest set of investment theses about what it is you believe the world is and is becoming, what your strategy is at making it happen, and why you can have a rare or unique position in so doing.

And then articulating theories around, for example, having a theory of human nature, so that if you say, “The reason why I think this product will succeed is because this is where humanity will go when these kinds of technologies and these kinds of products and services are made available to them within their cultures and within their incentives.”

COWEN: Do you think of the LinkedIn page itself as strictly functional, or is there an aesthetic principle behind it that comes, actually, from philosophy or the arts in some manner?

HOFFMAN: Well, one of the things that I am still working towards with LinkedIn is the hope of what is the transformation of society that I would love to see LinkedIn become. For example, most people who encounter LinkedIn say it’s your public professional identity, and it’s a nice way of finding new business transactions, which might be a new job, might be starting a business, might be a business consulting opportunity, all of which is true.

But what I’m actually hoping to do is have all of the business world move in the number of single-transaction games to thinking about their entire business life and relationship and work as multi-transaction games. Can we actually move within the game theoretic framework to saying, “Now my incentive is to always act, when I’m transacting or I’m doing business with other people, to think about it as a multi-transaction basis.” Because not only will I think that evolves a lot of productivity, but I think that will also evolve the society and morality in the right way because we should prefer non–zero-sum games.

COWEN: The labor market recovery from the financial crisis seems to have been especially slow. We had a president, President Obama, whom you think highly of. We have all these social media, including LinkedIn, that ought to bring people together with the right jobs more quickly. And yet the labor market recovery has been so slow. Why is this?

HOFFMAN: There’s two or three reasons. One is, I think, unfortunately, while entrepreneurship is doing quite well in Silicon Valley and a few other places, it’s actually been on the decrease across the US. We need to get back to the formulation of new firms, entrepreneurship across the entire country because that gives you adaptive places where people can go.

Another thing is, it’s trite but true that educational systems that encourage what Ben Casnocha and I referred to in The Start-Up of You as being in permanent beta, which is always learning. You need to be learning for the current modern networked age, and to be constantly learning, and make sure as many kids as possible learn that and keep learning because then you can adjust to the new jobs. And some of that’s also creating entrepreneurship and new firms.

Those are, I think, among the reasons, and we try to help that with LinkedIn. But it’s a big rock, so the Archimedean lever needs to be particularly strong.

COWEN: What was the philosophy class at Stanford you met Peter Thiel in?

HOFFMAN: “Mind, Matter, and Meeting” taught by Professor Bratman.

COWEN: And are you a philosophical dualist? I know you’re a mystical atheist, but are mind and matter the same substance or are they different? Was Descartes correct?

HOFFMAN: No, I am what Buddhists refer to as a non-dualist, which is kind of entertaining because you’d think you’d just say you’re like a monist or something, versus a non-dualist.

But I think the point of being subtle about saying a non-dualist is, you say, “Well, there may actually be some kind of spread of substances, but they’re not actually, in fact, disconnected.” So, if you said, “Well, maybe there’s a spiritual nature that involves some things that are not what we would refer to as the material plane,” then you say, “Well, I’m not sure we wouldn’t, as we studied that just to resolve that to materialism.” That could be one outcome, but you’re open minded to the question.

COWEN: I’m a determinist. Are you?

HOFFMAN: How are you a determinist with quantum mechanics?

COWEN: Quantum mechanics — maybe it’s just the micro scale, but Einsteinian general relativity implies the universe is this frozen four-dimensional block of space-time, and there it is. Voila.

HOFFMAN: What I would say is that we certainly don’t know enough to be certain that determinism is true. That was part of the reason, the quantum mechanics question. And maybe this is actually one of the ways that I tend to think is how we evolve our culture. One of my favorite handles when I join a new computer system is “Quixotic” because if it’s all determinism, maybe we should act as if it’s not, right? Even if it is. [laughs]

COWEN: Of course, that’s the Straussian take.

HOFFMAN: Yes, right. But the question is, if we’re acting as if it’s not, do we have any possibility of creating a system in which it’s not all deterministic? And should you remain optimistic about that? Or is that just a version of self-deception? And is this an area where self-deception is intelligent, where usually self-deception is thought not to be? I guess what I would say is, I am acting like it is not all determinism, but I don’t know if that’s actually the fact.

COWEN: What did you think of Peter in that class? How was it?

HOFFMAN: Peter’s super smart. Matter of fact, I learned some of the crispness of my thinking through arguing and debating with him. I think we enjoyed the class as a way of being precise about thinking about things, like is dualism correct or not, for example.

COWEN: How do you and Peter read Shakespeare’s The Tempest differently?

HOFFMAN: Oh, boy. I think, roughly, our different readings of The Tempest would come down to the following. I think that Peter’s reading of The Tempest would view the importance of the primacy of the individual, the importance of Prospero and the magician being self-creating, and that the individual is the primary focus of what matters.

My reading of The Tempest would say the individual potential and capability are super important, but that the reading of The Tempest is the importance of starting in this magical place, in this other island, but then rejoining society with the things you’ve learned. And your contribution to the society as an individual is the macro reading of The Tempest.

COWEN: What else from Shakespeare strikes you as especially significant?

HOFFMAN: I think that the reason that Shakespeare endures tends to be less the comedies and more the tragedies. And I think it’s because one of the things that we encounter as human beings — we see suffering and we see tragedy around us. How we respond to that is the great question of how we derive meaning, what is our character. Shakespeare has an enormously good job of crystallizing that into the relationship of individuals’ psychological tragedy together with social tragedy.

COWEN: What was it like, in 1996, being on William F. Buckley’s Firing Line?

HOFFMAN: That was my very first appearance on television. Peter called me and said, “They’re looking for a technologist who’s willing to defend that governments can and should regulate speech on the internet, and I said you. Would you be willing to do that?” I said yes, so I found myself on William F. Buckley’s side, him sitting to my left, Arianna Huffington sitting to my right.

This is when Ariana Huffington gave an impassioned speech — she’s awesome; I think the world of her — that the internet was a poisoned well that our children were drinking from. I remember that speech. And the people I was arguing against were people that I deeply respect, like —

COWEN: John Perry Barlow.

HOFFMAN: John Perry Barlow, Esther Dyson. There were a number. The folks on the other side — during the break, they came over and said, “Why are you on that side? You should be on our side.” And I said, “Look, by the very specific reading of this thing, which is, can and should regulate speech on the internet — that gives you truth in advertising. That gives you liability laws. That gives you a number of other things.”

It actually, in fact, is illusion. Freedom of speech is something that we enable as a society to help us evolve towards truth, but it doesn’t mean that any lie will do.

COWEN: You come across as so idealistic in that tape. If you view it again today, does that still feel like you, the same Reid Hoffman?

HOFFMAN: I would say yes, with maybe only the following asterisk, which is, part of the reason to be 10-out-of-10 idealistic is not to be naïve, not to be simplistic, not to realize that tragedy isn’t really possible, but that is actually, in fact, the goal of our lives and what we should work towards. So, ever giving up on optimism and idealism is, I think, a tragedy in and of itself.

On PayPal’s success

COWEN: Of all the causes behind the success of PayPal, what’s the underestimated one?

HOFFMAN: Let’s see, of all the causes . . . I’d say that most people didn’t realize that when PayPal got started, it actually wasn’t paying any attention to eBay. It was launching this new payment service, and then it took off on eBay. In the first week, everyone was like, “Oh, we should get these eBay people off our system.” And then they realized, “Oh, these actually, in fact, are our customers.”

The point about it is, most people describe the success of PayPal as deterministic, based on the high quality of the talent there, the recognition of a market need, the willingness to be fast moving and learning machines in terms of how to adjust within this decrepit banking system of payments and doing all those things. And those all look like just straight down-the-road strategy and the natural quick evolution of product-market fit. And if eBay hadn’t existed, PayPal would have never succeeded.

COWEN: And what was your comparative strength on the PayPal team?

HOFFMAN: I think that would be an interesting question to ask other people, including Peter. I would say that my comparative strength was that I was willing to interface with these various massive platforms and institutions — eBay, Visa, Mastercard, government regulation, other companies — and to figure out how to win PayPal a place within those platforms, how to navigate their concerns, how to not make PayPal be organ rejection to those entities.

That ability to both tolerate very different cultures, very different mind views, very different conceptions of what’s going on, but also get PayPal a seat at the table, was probably one of my unique skills within the PayPal crew.

COWEN: And how did you learn to argue to the regulators that PayPal is not a bank? I have money in my PayPal account. It sure feels to me like a deposit, correct?

HOFFMAN: Yep.

COWEN: Arguably, there’s a kind of lending that goes on. So if you’re taking deposits and making loans, et cetera, how did you argue PayPal is not a bank?

HOFFMAN: Well, we weren’t making loans, so that’s actually an important part of it. They may be doing it now, but at the time, we weren’t making loans.

COWEN: Well, not formal loans, but there’s a transfer of money, and there’s —

HOFFMAN: Well, we’re transferring money. But for example, you could give me $100 in cash, or I can give you $100 in cash, and I’m making a loan, but the fact that we’re sitting here at the LinkedIn office doesn’t mean that LinkedIn is being a bank while we’re doing that. The fact that you’re facilitating a transaction of money doesn’t necessarily make you doing a loan.

The realization was going twofold with the regulators. One was that there’s a lot of things that store value. Back in the day, you had phone cards. You have gift cards. You have a number of different things that store value. You say, “Look, PayPal is another store of value.” But it’s not a store of value in the way that a bank is a store of value, e.g., making loans. That’s in the intellectual category.

But the more deep one was, look, the concern of banking regulators is how do we protect the consumers, and how do we protect the system? We figured out how to actually, in fact, have pass-through FDIC insurance by putting our money in banks on behalf of the customers, which gave them FDIC insurance, which we’re protecting the system.

We also presented our case to the FDIC, and then later to the regulators, about why we were value and accretive to the system versus destabilizing. Between those two things, we persuaded the regulators to wait and see, as opposed to intervening. Regulators will never tell you, “Oh yeah, you’re totally fine.” But they will say, “Great. We’ll study you. Stay in contact with us, and as long as you don’t screw up, keep going.”

COWEN: Let me give you a version of the Peter Thiel question. As your reference group, take the 10 people whose views you respect the most. Make it 20 if you need to, if you’re not sure who they are. What is it you disagree with those people about?

HOFFMAN: Right. Oh, an easy one: A broad cultural meme within Silicon Valley is that the most important ways to change the world — which, this I don’t disagree with — is the creation of new technologies and new technological companies, as being the most effective Archimedean lever by which to improve the world, and everything else is decidedly secondary or tertiary because that’s the only lever that really matters.

That’s a meme that tends to go to, “We create technology companies. We tell the rest of the world to go leave us alone, not to talk to us about what we’re doing. We generally feel that we —”

COWEN: And that you agree with, you’re saying?

HOFFMAN: Well, I agree that the technological companies are a very important Archimedean lever. What I disagree with is that, as those levers become more important to society, I think that we can’t actually, in fact, say, “We should not be in discourse with society about what we’re doing.” Because actually, in fact, once you begin to have society-level impact, not just a, “Oh, look, here’s a new social game or something else, here is a new Zynga game that’s fun to play.”

Okay, who cares? I mean, it’s fun. Maybe hundreds of millions of people do it, but that doesn’t actually impact the way that society operates.

The fact is, as we get to the way that society operates, we need to add in interaction with society, accountability on the design principles and the philosophy by which we are affecting society. We have to integrate in ways by which society can give us feedback. That doesn’t necessarily always mean direction. Maybe sometimes there’s regulation or other things, but an ability to be in conversation with them.

If you look at it, my view would be that, as you have more successful tech companies that have an impact on society as a whole, part of what you should start doing is deliberately engaging in discourse with the various institutions of society in a public way, to say, “Here is the kinds of things that not only are we doing now, but what we’re trying to create in the future.”

COWEN: If tech companies are such an important Archimedean point, why has productivity growth, and indeed GDP growth, been slower since the late 1990s? We’ve had a lot more tech, right?

HOFFMAN: Yes.

COWEN: Where is it in the numbers?

HOFFMAN: My guess is my answers to you will strike you as the standard answers, but I’ll give them anyway, which is one of the problems of the GDP measure, as you know, is that it measures dollars flowing in the system, not in value flowing in the system.

COWEN: But more and more tech is monetized. There’s Amazon. LinkedIn gets you a job. GPS — you deliver more pizzas, right?

HOFFMAN: Well, there’s a bunch of those, but if you also say that part of the value of tech is taking a lot of flow of economics out of the system and providing you with goods that you otherwise would have had to pay for, but you now get for free — Wikipedia, entertainment, a bunch of other things that are flowing through the internet as examples of these, say.

Those substantially increase education, substantially increase entertainment, substantially increase other kinds of things, but they take a bunch of dollars out of the system as they’re doing them. That would give you a net GDP that doesn’t look like it’s growing, even though there’s actually, in fact, more value happening for the same amount of dollars flowing in the system.

COWEN: But if I can sit at home and read Wikipedia for free for fun, which indeed I do, that saves me money. I don’t have to go out to the movies. I should then be able to spend more money on apples, more on healthcare. GDP growth should still be robust.

HOFFMAN: Well, actually, if you still have the same number of dollars that you’re spending, and the same number of dollars is flowing through the system, that would actually suggest to you that you’re still spending your money, and you’re spending it on different things. That wouldn’t necessarily give you GDP growth.

COWEN: Why are businesses so bad at certifying talent? You’ve written on this. We have a highly wasteful system. They need to see you go through four years, six years, eight years of schooling before they know how good you are. How can that possibly make sense? What’s the market failure? And why haven’t we fixed it? We have tech companies. They’re brilliant. The smartest people run them, and they can’t fix this problem. What’s gone wrong?

HOFFMAN: The general problem is, we haven’t yet established — and I’m hopeful that LinkedIn can do this at some point, or others as well — is we haven’t established a dynamic set of certifications that we can use as signifiers that can then be deployed in a lot of circumstances.

That’s one of the reasons why most jobs are described as “must have a BA or a BS,” a bachelor’s degree, whereas a lot of jobs don’t actually need that. But it’s like, “Okay, what’s the simplest credential that everyone’s aware of that I could throw on the table that says you have some capability of learning, and you’ve been trained in some learning institution?”

And one of the things that I actually wrote is an essay that’s, I think, on both LinkedIn and reidhoffman.org, is thinking about creating a diploma that’s not this old sheepskin, but actually is a modern set of attributes and set of characteristics. And we could start looking at these certificates as something that has a much richer language that can apply to different things.

I would hope that would then unlock a lot of paths and talents, as opposed to gating it on a very narrow and simple set of credentials, which are frankly coarse, not particularly good, and don’t particularly unlock talent in the right ways, that we can do a lot more new things.

COWEN: But why didn’t we get this 13 years ago?

HOFFMAN: Well, part of it is that you have to have people starting to recognize that these patterns of talent can be recognized in a relatively cheap way because, right now, if I go and say, “This is a great 16-year-old, this is a great 18-year-old, this is a great 21-year-old, this is a great 25-year-old,” as opposed to “There’s only a few certifications that I can use,” I have to do a lot of reference-checking. I may have to do a lot of examination or interviewing.

It becomes expensive to look through the thousand people for the one or two that I think might be that extraordinary talent for this.

COWEN: You’ve once said that you feel you’re operating at 60 percent of your talent or capacity. At what percent are our top colleges and universities operating at?

HOFFMAN: This will be an unpopular answer because I have a bunch of friends who are great leaders in these institutions, but I would generally say probably about 30 percent.

COWEN: Thirty percent? So they’re at 30 percent, and Silicon Valley can’t beat them, as talent certifiers?

HOFFMAN: Well, I think Silicon Valley is beginning to in some ways. I think that there are various programs that go to how do we do network recognition of talent, whether that’s like YC, Village Global, other kinds of things that say, “How do we have a network certify that talent?” So I think it’s beginning there. Then we have interesting coding camps and other kinds of ways. I think we’re just beginning to really experiment with the patterns that might be able to scale.

COWEN: You’ve had a very strong record with angel investing and also venture capital. What do you think you understand about talent search and identification that other people do not, who would nonetheless be seen as quite skilled at it? What’s your unique insight?

HOFFMAN: I would say, I guess, two things. One is the network validation and how do you get to those network patterns? For example, I would rather do reference checks than interviews. If you said I had to pick one, I’d pick reference checks. And I try to figure out patterns by which the network bubbles up the talent, versus the “Oh, I’m a picker.” If I can pattern the network the right way, that would be a much, much better way of doing it, and that’s —

COWEN: When you say “pattern,” what does that mean, pattern the network the right way?

HOFFMAN: For example, take my role as an investor at Greylock. I almost never meet with an entrepreneur that doesn’t come from an introduction from someone I trust. And part of that introduction from someone I trust is, I trust different people on different things.

For example, there are some entrepreneurs that say, “Oh, this person is an absolutely great technologist,” and I go, “Well, that person doesn’t really understand technology that well, so that doesn’t matter.” Whereas this person might say, “This person has a lot of drive and a lot of grit,” and I should pay attention to them, and they are good at that kind of thing. Then, okay, how does that fit with the project that they’re working on?

I try to configure not so much . . . People would think, because I write these books and do these podcasts like Masters of Scale and other kinds of things, that I’m just trying to get the raw flow in. I’m just trying to get that person to lob an email to me from some strange corner of the world. Actually, in fact, the way that I do investing is entirely through my network.

COWEN: Let’s say you call up a reference. What question or questions do you ask that other skilled people do not?

HOFFMAN: One is, what’s this person’s greatest weakness and challenge?

COWEN: But doesn’t everyone ask that?

HOFFMAN: Well, maybe. I hope that they do, but frequently what I will do is I will say, “And if you don’t give me one that’s believable, I’ll believe that the thing is so bad you can’t tell me about it.” I try to actually, in fact, get a good answer to that question.

I also will frequently say things like, “Is this person the top-five person that you would choose to do a new venture with?” Or some relevant question of sorts. Then if they would say top five, then say, “Okay, who are the other four?” These kind of things, in order to really sort out how well this person thinks of this.

Now, sometimes they’ll say, “No, they’re not top five, but they’re still really good.” Well, that gives a lot more credibility to the discussion because that’s part of what you’re trying to assess. How much is this person actually giving me a good analytic point of view on this? And that can be a perfectly viable answer.

COWEN: How useful is five-factor personality theory to you?

HOFFMAN: I don’t even know what five-factor personality theory is.

COWEN: Not very useful, then. Well, there’s conscientiousness, there’s openness, there’s agreeableness. You categorize people.

HOFFMAN: I would say that those are attributes of the things that I tend to look at, but what I tend to be thinking about is which combinations of strengths and weaknesses are the right fit on this team. And I tend to be looking for that set. Those would be attributes that would be within it.

For example, is a person stronger as a team player or stronger as an individual contributor? Are they driven to seek teamwork, or are they driven to seek a pure excellence vector? Are they high IQ, or are they reliable in terms of the work ethic and what they are producing? How much strength in the face of adversity do they have? Those kinds of things are what I would look at on the characteristics.

COWEN: Let’s say you’re looking not for talent in the narrow sense, but you’re looking to spot a spotter of talent. How would you judge a spotter of talent and evaluate that person?

HOFFMAN: There’s probably three categories of things that I would look at. One is, do you have the basic competencies in how do you recognize does the person have skills, is a person reasonably quick and good thinker, do they have persistence, do they have good work ethics?

COWEN: But everyone will look for that, right? What’s the unique element?

HOFFMAN: No, no. But you want table stakes, so you have to have the table stakes. The next thing would be, what are the ways that you realize that the table stakes can mislead you and be wrong? Where you can find really startlingly good talent, where the traditional mechanisms don’t work?

So it’s a little bit of the contrarian question, where you say, “Hey, actually, looking for the person who dropped out of school because school was boring, and they wanted to achieve something really interesting, but they were still driven by curiosity and interest and these sorts of things,” is a way of doing it. Where people would be not counting their work in a good way because they just hadn’t achieved success yet, because people tend to proxy to success versus the capability of the work. Those kinds of things in the second category.

And then the third one is, how do you do it differentially well? What is the way that you say — and that’s obviously part of the second category — but what is the way that you spot talent in a way that you have an active theory that you’re improving about why you’re differentially good?

COWEN: So you look for people with a good active theory?

HOFFMAN: Yes.

COWEN: Or just a different active theory?

HOFFMAN: Yes. Well, a theory that is both different — they have a theory why it’s good, and they have a mechanism for improving it.

COWEN: And how has your background in philosophy affected how you view talent search and identification?

HOFFMAN: I don’t know if I’ve ever put those two things together, but what I would say is that I tend to think that . . . For example, one of the things I disagree with Aristotle on is his theory of the metals, where he did a hierarchy ranking of gold, silver, bronze within a society. I think those kinds of hierarchies tend to be simplistic and tend to underdeploy the possibilities of talent.

What I would say is the question of saying the fact that you have a lens where some people are really good at certain kinds of tasks, playing on certain kinds of teams, weathering certain kinds of challenges, and what’s the combination, and the fact that you have an active theory that fits between the task that you’re trying to do and the game that you’re playing in order to accomplish that task, I think the fact of pulling that together as a theory is probably one of the things that philosophy has shaped my thinking on.

COWEN: And how has your background in board games influenced how you view finding and identifying talent?

HOFFMAN: Well, one of the things that I like about board games is, you want to have a preference for non–zero-sum games, but there’s a lot of life that is competitive sailing, and so you have to think about how do you win the competitive game as you’re working towards a non–zero-sum game?

Frequently, not all the time and not all talent, but a little bit like the answer to the earlier question, is the active theory about how you’re a good competitor when you need to compete. And by the way, I think it’s also important to choose when you compete, which is frequently an error. I’d say that some of the patterns of how you do that is at least very well described within a board game context.

COWEN: On many days, as you know, the most valuable tech company by market cap is Microsoft, and Microsoft is about, what, 50 years old. What should we infer from this? Is this the world of The Start-Up of You?

HOFFMAN: [laughs] Well, I do think, as you know, that the so-called topple rate of the S&P 500 is increasing, by which the number of companies that were previously in the S&P 500 in the last decade are now dropped out of it altogether.

Part of the acceleration of the modern age, of the networked age, is that there is much more revolution in what the top firms are, and I think that’s a good thing. I think it’s both good to have enduring institutions, and it’s good to have new blood and new innovation because that suggests that there’s a point of competing and building new things and having new technological platforms.

I do think that one of the things that the untold goodness about the renovation of the Microsoft story, which Satya is doing such a great job of, is the fact that you can build to greatness, can be challenged, and can rebuild. It’s as important as the entrepreneurial story because persistent institutions at scale that do the inventions, innovations that only scale can do, like building massive new platforms, like cloud computing, tends to come from the big companies, not tends to come from start-ups. Those kinds of things are, I think, super important.

COWEN: If I talk to political scientists, most of them will tell me that money and campaign finance don’t matter that much for elections. We see Donald Trump having been elected. He didn’t raise a lot of money early on, or indeed at any point. So what’s your underlying theory of how money can influence or improve politics, given that you have a role in this process yourself?

HOFFMAN: Well, I would prefer democracies where money has a more muted influence. I actually disagree with the view that money doesn’t have an influence. That view is like saying marketing doesn’t work, and it’s clear that marketing can work. Now, there’s the old adage —

COWEN: But you can do marketing without a lot of money.

HOFFMAN: Yes, certain kinds of marketing, not all marketing. And by the way, would we like to be a democracy where the only ways that you could succeed would be by being like a Kardashian? You have to be a celebrity of some sort in order to be a political leader? I think we would actually prefer patterns that get to success not by being a reality television star, such as our current president, but actually, in fact, success and attributes in the things that lead to the good governance of a state.

COWEN: Are you worried about dynastic rule in American politics? We have the Bushes, the Clintons, maybe something from the Trumps.

HOFFMAN: Oh, yes, another thing to give people nightmares. I would say absolutely yes, and that’s the Kardashian problem that I was generating. And it’s one of the reasons why I don’t think zero money in politics is the right answer. I do think the notion of saying, how do we shape our system so that competent governance leaders — we as a society are made more aware of them, is I think the way we need to solve that problem.

COWEN: Why did you help make a video on Alexander Hamilton versus cryptocurrency?

HOFFMAN: Well, Alexander Hamilton versus Satoshi. One macro reason — it’s fun. Another —

COWEN: But what makes it fun, right? That’s endogenous.

HOFFMAN: [laughs] Yeah, but it is also fun. I argued in a Wired article that I wrote in 2015 that the world will need one or more cryptocurrencies. I tend to find that the bankers were all like, “Oh, all the crypto guys are just hustlers and not really trying to build a good new future vision of the world,” which they are.

Yet, the crypto folks don’t realize that the banks and the sovereigns also need some interface point on how monetary systems work. So what I wanted to do is present the debate between them in a way that both sides could listen and learn, and that people who weren’t aware of it could also listen and learn. So that’s the reason. When I was thinking about that, I thought about the magic of Lin-Manuel Miranda’s Hamilton, and I thought that might be the way to do it.

COWEN: And the significant cryptocurrency we end up with — will it be Bitcoin? Will it be the Chinese e-currency, or something that doesn’t exist yet?

HOFFMAN: I think there will be Bitcoin. Don’t yet know on the e-currency, but I think it’s very possible, especially because there’s such a large market within China that if it builds there, that’s how networks start. And my guess is it’ll be at least one more additional.

COWEN: Why does the East Coast establishment hate Facebook so much, but not Google?

HOFFMAN: I think there are some good challenges and some bad challenges. I would say the bad challenges are almost like an emotional response of “People should be listening to me, and yet they’re off doing this Facebook thing and not listening to me.”

So the fact that attention flows in a different way — and that’s both economics and everything else — I think is what causes a bad response because part of Facebook is saying, “Hey, we’re enabling every individual to speak and connect and follow what they want.”

I think the good response is that once you become social infrastructure, you should also be responsive to society. Let me put that point a little bit more bluntly, which is, if you have a system that’s designed for velocity as its measure, velocity is more likely to be things that you negatively react to. It’s more likely to be anger. It’s more likely to be outrage. It’s more likely to be fear.

So just as the dynamic is that most people tend to share links before they’ve even read the thing that’s in the link, as a way of doing it, which leads to a circling thing of title bait and everything else as a way of doing it, I’d say that increases an overall agitation in society. And we say, well, that’s not necessarily good, even though each individual is following their own reflex. That overall increase in agitation is not a good thing, and we need to figure out how to do better there.

COWEN: But if I think of a lot of people in other countries, often they will hate Facebook less. If I think of radio people, they might be skeptical about Facebook, but they rarely hate Facebook. But newspaper people seem to. How much of that is just flat-out competitive rivalry, and the newspapers have been losing?

HOFFMAN: Well, that was my first area, where the newspapers go, “You should be listening to me, and you’re paying attention to this Facebook thing instead. And I have less career prospects because Facebook is taking more of the economics than the newspaper work.”

In fact, the thing that I’m always unsympathetic to people on this, is they say, “Well, I’d like to return to the past. I’d like to go back to the golden age of newspapers.” And you’re like, “No, no. Actually, how do you design a better future? What’s the way you say, ‘Well, we want the functions, the civil function that newspapers are doing. What’s the way we design it in the modern framework?’”

COWEN: What do other people most commonly misunderstand about friendship?

HOFFMAN: I would say that people most commonly misunderstand about friendship that they think that it’s strict loyalty to the other person. So if you ask most people about friendship, they would say, “Well, I’m loyal to Bob or to Sue.”

And actually, in fact, I think what you are is loyal to the person’s aspirational better self. For example, you discover your friend is a serial murderer. Are they still your friend? “Oh, no, no, I’ll help hide the body.” It’s like, “No, no, of course not.” It’s who they are in the world and what they’re doing that’s actually, in fact, where the loyalty should lie.

COWEN: If God does not exist, where does the mystical indeed come from? Why not just bring God into the picture?

HOFFMAN: [laughs] Well, the problem is, is God is this classic way that we put human narrative, of saying, “Oh, well, there’s this entity in the sky that’s just like an amplified human being.” Now, of course, sophisticated theologians always say, “Well, it’s all the mystery, and that’s a wrong understanding of God,” and blah, blah, blah.

But I actually think the question about keeping mysticism in the picture is to say, “Don’t be overly certain about your current theory of the universe.” If we look back in history and know anything, what we know is there are certain things we believe today that 50 or 100 years from now will be thought to be stupid and crazy.

And by the way, you might say, “Well, okay, is there some kind of mystical force creating the universe?” The answer is, “Possibly.” Now you say, “Oh, it’s this particular entity, who left this particular book or had this particular prophet,” you’re like, “Well, that seems less likely.” But the fact that there might be things there, you should stay open minded to.

COWEN: Which books do you still hope to write? It’s enough to name one.

[laughter]

HOFFMAN: I definitely hope to write a book on friendship. I think that’s one of the things that’s super important in our lives. And then —

COWEN: Can friendship be learned or taught through books at all?

HOFFMAN: I think so, in part because I think that one of the ways that you learn is by asking questions. If a book can put the question in a good way that you can start thinking about it, then that creates the basis on which you can, by interacting with other people as well, learn better friendship. Friendship is a skill, among other things.

COWEN: Any other book you might plan on writing?

HOFFMAN: Well, I am thinking a lot about whether or not we should be creating some new forms of science fiction. The reason is, I think we have two failures of current science fiction. Especially in video form, there’s too little utopic science fiction, and yet if we have a hope for the future, it’s through technology, it’s through change. So we need to make sure that we are keeping that kind of utopic possibility, the optimism for it, and how do we get there?

The second is, if we look at current technological trends today, there are things that we know that are coming that science fiction isn’t addressing. For example, we know that what’s coming is, even if we don’t get to artificial general intelligence, the ways that artificial intelligence will affect all systems in the world is going to radically evolve, and how does that change our notion?

How do we have a progress of humanity in that system, which I believe is possible, but we need to be thinking about it and directing ourselves to it. Maybe the science fiction narrative form is the right way to cause that discussion and that reflection and that thinking.

COWEN: I just saw the new Terminator movie. Elon Musk is very worried about when Skynet goes live. Are you? And what probability do you assign to that scenario?

HOFFMAN: Well, this is kind of entertaining because within the SpaceX headquarters, there’s a little Skynet server room, so it’s kind of entertaining. I would say that I don’t have a zero percent worry there, but it is not my most macro worry. Do I think there’s possibilities that AI could get to something bad? Yes.

But by the way, we all discount nuclear war now because we haven’t had it for 70 years, and yet there’s still a bunch of armed nations, some of whom are kind of crazy. So the fact that a probability doesn’t go to zero doesn’t mean that I go, “Oh my God, I’m deeply worried about it.” So overall, I’d say attentive but not worried.

COWEN: But say a 3 percent chance. Doesn’t that mean we still should be obsessed with it? Because my goodness, a 3 percent chance of Skynet goes live.

HOFFMAN: Well, I’m not even sure it’s 3 percent. For example, you say, “Okay, we take pseudo–artificial intelligence systems, we tie them to a nuclear defense grid, and something that’s an unintended consequence, that isn’t necessarily evolution of intelligence, but some set of triggers cause something to happen.” That would be the category of thing that I would have more worry than you have a malicious evolution of a superintelligence.

COWEN: Last question. What makes for a good aphoristic thinker?

HOFFMAN: What makes for a good aphoristic thinker is, how do you string together a set of aphorisms such that a reader or a consumer of them comes to pulling together their own . . . It catalyzes them about how to think about something.

Prose is usually like, here’s an argument of a thesis and a set of arguments and a conclusion and evidence within that. An aphorism is to say, we’re trying to change your mindset, the German Weltanschauung, the kind of worldview, the way you’re thinking about this. It’s not to a deterministic, move you from point A to point B, but to catalyze you from moving out of your local maxima or minima. When you write well in aphorisms or you present aphorisms well, that’s what you’re trying to do.

COWEN: Reid Hoffman, thank you very much.

HOFFMAN: It’s a pleasure.

Conversations with Tyler

A podcast in which esteemed economist Tyler Cowen engages with today's most underrated thinkers in wide-ranging explorations of their work, the world, and everything in between.

Mercatus Center

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The Mercatus Center at George Mason University is the world’s premier university source for market-oriented ideas.

Conversations with Tyler

A podcast in which esteemed economist Tyler Cowen engages with today's most underrated thinkers in wide-ranging explorations of their work, the world, and everything in between.

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