1274: Home Prices, 100 Year Bonds & Startup Countries & Seasteading by Patri Friedman

I started researching on real estate investing about three or four years ago. Two years ago I was lucky enough to stumble upon the podcast when I was doing a search. I listened to you for probably three or four months, but I was hooked after the first episode. Just everything from the real estate information, politics, the philosophy, the economics. And after about three or four months I decided, you know, I'm going to put my information in and see what Platinum comes back with. So I plugged my information in on the website, contacted me a couple of days later and by the way, he has been a tremendous resource for me, just pointing me in the right direction, especially as somebody with no prior experience to real estate investing. But he definitely pointed me in the right direction, helped to educate me and help to show me different sources of information where I can better myself as a real estate investor.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on a investing some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial independence day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating wealth show, episode 1274. 1274 and no need to adjust your volume or headphones. This is Adam today. Jason. Don't worry, he is not being bombarded by Dorian. He's not not out. For that reason he lost his voice, which as you all know is probably making him sit at home banging his head against the wall saying I need to talk. I need to talk. So we're going to talk about a few things today before we get to his interview with Patrie Friedman. It's based on seasteading and starting your own country, which I had never heard of before I heard his interview here. But before we get to that, let's talk about some interesting news in the home front. There is an article that Jason linked to on our Facebook group that's talking about how in July home prices in car dependent areas were rising faster than home prices in walkable neighborhoods and they're making it sound like some big deal. Well, let me tell you why it's not. If you look at what's going on in our economy and what we've talked about here, we've talked about how the cyclical markets, we're seeing prices on the higher end start to soften. And whenever you hear people talking about walkable neighborhoods, most of the time they're talking about your downtown areas, you know, the areas where you have your, you know, high rises next to your restaurants, next to your, you know, museums. And those areas are the areas that are currently being hit. Your suburban areas, your quote unquote drivable areas, are the areas where your more affordable homes are now not in cyclical and hybrid markets. That doesn't necessarily mean cheap. Don't get me wrong, I'm not talking cheap. What I'm saying is they're cheaper than the homes that are downtown and are in the walkable neighborhoods. So it's not surprising that as our housing market in general starts to cool off that we're seeing the walkable neighborhoods having more trouble with sales because they're the higher priced homes. They're the ones who are going to be head first. And so, you know, just look at it. You got to look at these articles with the, with the skeptical eye and see, well, are they really telling me, is it really that important? Is it really that surprising? They're saying, yeah, you know, it's declining now, but for the last four years home prices were going faster in walkable neighborhoods than in car dependent ones. Well, yeah, of course, because people were thinking things were going to be great. You know, prices risk going to keep going up and up and you got to get in now before prices start going down. And then they realize, oh wait a minute, it's softening. My neighbor can't sell their house. Do I really want to buy there? My friend's having trouble selling their house. Do I really want to buy there? So it's really not that surprising. So don't let that scare you off. The other thing I want to talk about is the fact that the United States government is considering selling a 100 year bond.

100 years. Now I don't know if you've listened to Jason's longevity and biohacking show, but I'm pretty sure that I'm not going to live to be 140. So if I'm buying this bond and if you're buying this bond, if we're being honest with ourselves, all we're doing is paying more in taxes. And guess what? The coupon is on this. You ready for this? You put Your money in for 100 years.

2%. 2%. So in one year, essentially maybe two, if you're lucky, you're at break even as it keeps going on, you know, 98 years later, 2%. Come on. I mean, this is essentially just people telling the government, keep my money, I don't need it. If you're actually thinking about doing this, even if you are able to hand it off to your kids, you know, they're going to have to wait another 30 years before they get it, if not longer, you know, so 100 year bond that's coming from the federal government, just look at it and say, pass. Now, there are some countries that for some reason have had a whole lot of success. Austria did it two years ago. They raised $3.8 billion with 2.1% rate, which is just insane. And it did so well that it sold more. Just recently, they sold another 1.3 billion. And you really have to look at the confidence that people must be lacking in their country to be willing to invest in a hundred year bond. I mean, I have a lot more confidence in our government and our country that over the next hundred years I can get better than 2% and that our currency is still going to be around. Because think about it, if the bond doesn't come to maturation, that means something horrible went wrong with our government, which means something horrible went wrong with the United States. So at that point in time, is it really your biggest concern? I don't think so. Personally, who knows, Maybe you don't agree with me and you're looking forward to it. They haven't announced a date as best I can find out, but they are considering it. So we'll see if they actually decide to go through with that and then how much. Americans believe that locking their money away for 100 years is a good idea. To me, if you're thinking about doing it, just write the Treasury a check for extra taxes, let him burn that money and you'll never see it again. Before we get to Jason's interview with Patrick Friedman, I just want to remind you, if you are wanting to go on the cruise with Jason and go see the fall foliage up in the northeast, you can go to jasonhartman.com cruise and get signed up for that. But we also have Prophets in Paradise coming up in late October. Look on the website for that. And Prophets in Paradise will also include a market tour. We're scheduling that right now and working with the local market specialists to get that nailed down. But it looks like we're hopefully going to be able to see some of the new construction that's going on in Florida and a couple other finished products that are available for purchase as well. So go to jasonhartman.com events, see all the good stuff going on. And enough of my voice. Let's get to Jason's interview with Patrie Friedman.

It's my pleasure to welcome Patrick Friedman to the show. He is executive director and chairman of the board of the Seasteading Institute. He's the grandson of the world renowned Milton Friedman and son of David Friedman. Patri, welcome. How are you?

I'm doing great.

Good to have you on the show. I read about seasteading many years ago and then I had the pleasure of actually meeting you in person at our mutual friend's home in Bel Air maybe, I don't know, 10 years, maybe 12 years ago, where you talked about seasteading. And this is a pretty interesting concept, I almost want to say. It's the concept of startup countries.

So what is seasteading and what is a startup country?

So seasteading is the idea of building homes on the ocean, and not just homes, but communities and eventually countries. And the reason is that, well, I view government as an industry just like any other. And if you start thinking about it as an industry, we just use our financial analyst or economics hat you realize that it's a really messed up industry because new firms can't enter. You can't just make your own country. There's no startup sector. And so of course there's not much innovation. And the idea is that we could fix this if we opened a new frontier and people could go and start new countries trying out new systems of government just like America did a couple hundred years ago. And maybe we can find a new operating system for the 21st century.

Okay, well, you know, you start a new company with an idea and some capital and a certain jurisdiction in which you do it, and you're subject to the laws of that jurisdiction, obviously. But I don't know if what you said is exactly accurate. Just to be fair, you can start a new country. The problem is you need a military with which to do it. Right. New countries are always started by force, aren't they?

That's right. Yeah. You can start a new country if you're willing to win a revolution. And some people say an election, but that's not really true. We can see even when candidates who want to engage in great reforms win an election, they're dealing with the entire mass of laws, the bureaucracies and the organizations that are in place. And they can't just change the direction of an entire country. And that's probably good. They shouldn't be able to. What we're saying is that we also need places that have more experimental rules chosen by smaller teams of people, maybe even for profit companies in some cases. We view these as sort of the next evolution of imagine like master planned communities meet special economic zones where the real estate developer is not only putting together the project, but also even looking around the world at the best legal codes and choosing what legal codes to use and operating the courts and the police and not just the development.

Interestingly, that's exactly what at least smart entrepreneurs do when they set up a business. If it's within the United States. They shop between 50 states and maybe Puerto Rico and Washington D.C. as well. And they decide where is it best to form my corporation or llc, what place has the most favorable laws. And you know, maybe they don't physically need to be there, maybe they do and they shop. You know, it's a marketplace and it's a wonderful thing. People vote with their feet, as it should be. But you know, it's interesting. I love real estate. I've been in that business all my life. I especially love income property. And I remember years ago here hearing the preamble to the National national association of Realtors induction. And it starts with under all is land, right? And, and even in our high tech world where we have cyberspace and cryptocurrencies and virtual reality and augmented reality, if you want to start a country, you got to have a piece of land, right?

Well, Mark Twain said buy, not stop making it. And we're saying production resuming. I mean, absolutely. And part of the idea here and now I want to admit that there's downsides. The ocean is expensive, it's a tough environment. And that's why we're initially focused on building close to shore. We have designs that will work eventually for large deep ocean seasteads, but it's going to be a while. But the potential to be able to make new jurisdictions and make cities. You know, one of the neat things about the ocean is that you can move things as large as skyscrapers. I mean, a cruise ship is as big as a skyscraper and it moves constantly. So cities on the ocean could actually be modular and rearrangeable where you can not only vote with your feet, but vote with your house or vote with your commercial real estate property. And we have partners in the Netherlands who design floating homes there and they're able to do really neat Things like when a floating office building gets upgraded, instead of having to demo it, tear it down, they instead sold the smaller building and towed it off to a new location and installed the bigger building. So there's some really amazing things possible where cities are competing for people, competing for capital, and even competing for the very floating real estate that the cities are made of.

Okay, so, you know, you admit that the ocean is a tough environment. And I would agree with you, certainly. I mean, some of these cruise ships could almost be a country. You know, they're pretty large, they're, they're getting pretty big. Why not just buy a piece of land for. From a country? Maybe there is some country that would sell you a piece of land and allow you to make it a sovereign country. Right? Has that occurred to you? Or is it really you gotta be on the ocean?

Well, I think that building on land in partnership with a country is viable, but the approach that I and my other nonprofit startup societies foundation are advocating for that involves working with a country to govern a part of their territory that they designate. And with their oversight, the company or the developer would get to set part of the laws. And the reason for this, you know, first off, we're not ready as a movement or as a species for small groups to buy sovereignty. But the other thing is that actually in international law, part of how sovereignty works is it's being recognized by all of the other countries. And so if a developer makes an agreement with one country to do what's called a charter city inside that country and get to bring in best practice laws from around the world, they're essentially operating in international law under that country's sovereignty. And so every country that recognizes that host country would recognize them. But if you got a country to sell you land with sovereignty, then you go from being recognized by 150 countries to being recognized by one country. Because even if they say this land is not ours, we recognize your sovereignty, no other country is recognizing you. And that means you only have one. One country recognizing you.

Yeah, fair enough. That's a good point. So how do you get the other countries to recognize you? Do you go and petition the United nations or something?

It's a complex question because there's no established procedure to become a new nation. There's a lot of customs and guidelines. And I think what I'm saying is why we're working with countries today and probably for the next 10, 20 years in order to make these smaller developments on land and on the ocean, is that it's going to take a while. To solve those problems and the size of development that you need in order to credibly get recognized by countries, you know, it's just a lot bigger than anyone can manage right now.

Right.

Billion dollar development is not enough to go get recognized by 150 countries.

Yeah, got it. So there are new countries being formed. I mean, the map does change occasionally, right?

Yeah, they're being formed regularly. And a number of countries has been growing quite a bit in recent decades. As my patron, Peter Thiel, what do.

We have now, about 206 countries or 193? I don't know. It depends who's counting, maybe.

Exactly. It does depend who's counting. But what's happening there. So what's different is that those countries, that they're countries that are splitting based on, say, ethnic or religious grounds. And what we're proposing is something that's intentional, that's not historical, that's looking forward instead of looking backward, that says, hey, here's a group of people with an idea about how to make a better city with better laws. How about they try it out? We'll see who moves there. It's doing it as a business and not just based on historical plan associations.

That is super cool. I love the concept, for sure. I've been saying for years, I mean, there's a couple states within the U.S. that would be likely secession candidates, right? Texas is obviously one of them. I think Texas and Hawaii and maybe Rhode island, one of those is. Or Maine, I don't know which one. But, you know, up there, there's kind of one that's sort of really libertarian. I think it's Rhode island. Right.

Or New Hampshire.

Or New Hampshire. New Hampshire. Thank you. Thank you. So sorry for my ignorance on that, but I just couldn't remember, you know, like I always say, if Texas was to secede from the Union, the first question is, would they let it happen? Right. Would. Would the government roll tanks in there? Would there be fighter jets flying over, bombing, you know, who know, who knows? It's never been tried. Right. But if it did, I always said it would become the Hong Kong of the United States because it would be this, this Mecca where all the capital would flee to the most friendly. You know, money goes where it's treated best and that's what would happen. So there could be a secession concept, right?

There could be, but I think it's tough to do because in the US Secession is associated with darker aspects of our past. And I definitely think that the Union is starting to strain a bit. But it's still the United States, I think, is still a lot stronger than, say, the European Union. And I think it'll be a while. What you're saying about capital, part of what I see is that capital is already flowing really effectively between jurisdictions based on where it gets the best treatment. And that's great. But what we want is for people to be able to flow more between jurisdictions. And we want governments to be competing for citizens by being great places to live and work the way that they compete for businesses today. So that's part of the idea.

Let's talk a little bit more practically for a moment. What is a seastead? I mean, what is it made out of? What makes it float? And how big big would one need to be to kind of be a viable country, you know, and where would it be floating? You said that right now you were looking at models that were like these close to shore models. But it has to be, what, like, four miles offshore to be in international waters or something. Tell us about all the kind of like, really physical type of stuff.

So the ocean is divided into a number of zones. The first 12 nautical miles from shore is called territorial waters, and it's exactly the same as being on land once you're out.

So it's 12 miles, not four. Okay. You got to go a lot further. Yeah.

There's a common misconception that things are just a free for all outside of that, and they're really not. So if you're a ship, then once you're outside 12 nautical miles, as long as you're on a journey between two different countries, then you're regulated by the state whose flag you fly. It's like a corporate registration. So you register your ship and they have sovereignty over you once you're outside territorial waters. And that's actually an incredible system from the competitive governance angle, because this is a virtual association where you're franchising their sovereignty. So I think there's a lot that could be done with, you know, what I call ship steads. I think that medical treatments, for example, on a cruise ship, like medical tourism, but instead of having to fly someplace, you know, you get on a ship in LA that just goes to Mexico and back.

I think one of the concerns there is if you got to have surgery, keeping the knife steady, you know, that's.

What I thought, too. But it actually turns out from Navy experience that it's because ships make these long, slow rolling motions rather than any, like, sudden jerks that it's not so much of a problem. So practically, that's One design that we've covered is the ship. Now then the easiest design is if you're in sheltered waters. Then you can do it like a floating home where you have platforms that are say, hollow concrete boxes or foam filled concrete boxes and that you just put normal buildings on top of. That's one way you can go. And then there's the oil rig, which we did a, we commissioned a design. So we have a patented oil rig, residential seastead design. And those have these long pillars. So then the flotation is below the water. And then you have a pillar so that there's not very much surface area at the water line. And then the pillars hold up a platform and you build on top of that. And each of these kind of has different trade offs depending on where you are and how big you are. And you asked how big these need to be. So here it really depends on the economies of scale. If you're close to land and you could build one of these developments for just hundreds of people, for example. But if you want to be your own country, I think that you need to have tens or hundreds of thousands of people. And we really need to scale up the smaller developments first.

Okay, so who would fund building? I mean, these are giant projects, right? And you know, it begs the question, I mean, every sovereign country is susceptible to invasion. You know, if they have wealth, somebody's gonna want it. And some burglar with a military like Napoleon or Saddam or whomever, they're gonna come and get it sometime, right?

Well, I mean, that's a concern, but that's a way in which the world's really changing, is that we're currently in a phase where countries aren't doing hard imperialism. We're of course seeing sort of soft imperialism from places like China. And maybe I would say that Russia would be the only great power that's doing something closer to actually taking territory. So I think that if you're following international law and you know, initially you're plugged in through one or more agreements with existing countries until you're large enough to sort of be bigger than many of the smaller countries and then claim independence and of course have a military. You know, I've always said that the big worry is not pirates, it's nation states. But, you know, nation states these days, they are not in the business of conquering places, fortunately.

Okay.

So especially it matters if you don't threaten their economic interests. So one of our core principles is the idea that if these little polities are going to want to have their sovereignty Respected, then they better respect the sovereignty of all the much bigger, much older countries. And that means, for example, that seasteads can't help citizens evade the laws of their country. So you know, things like you certainly wouldn't want to let any seastead export drugs that are illegal in other countries or help residents hide money and dodge taxes like, because those things are disrespecting the sovereignty of other countries over their citizens. And that's the last thing we want to do.

Okay, what else do we have to know? I mean, there's so many issues. What about a passport? What about funding? You didn't answer the question about funding these giant projects. I mean, it is a startup, so you got to raise capital. Now, Peter Thiel, is he one of your backers?

Yeah, he was our first donor to the Seasteading Institute and he supported us for many years, helped us get started. I see these projects as being very much for profit. Right. So it's like a real estate development, except you're getting to bring the legal system and the courts and you ought to be able to make the land worth a lot more if you bring a good honest legal system and honest judges to a place that doesn't have them. So the money will be coming from investors seeking profit by funding your construction in return for the rents, just like any real estate. Other basics, right now we're really, it's all about partnerships with countries and starting to do small developments. We've done a decade of research and we had one partnership with French Polynesia. We had a non binding agreement where we did an environmental impact study, economic impact study, and looked into legislation that they could pass to enable a C zone, sort of a special economic zone for platforms floating alongside. But the team that did that, they tried to raise money with an ICO right after the ICO bubble burst and they kind of ran out of steam. And so the partnership is not being advanced right now, but the country is still open to it.

Okay, I'm sure I haven't asked you many questions that I should be asking. What else do you want people to know? Just kind of tell us more.

Well, I mean, I think it's interesting to think about how this fits into a lot of the changes that we're seeing in the 21st century. I mean, with cryptocurrency for example, there's a lot of overlap in interest because what is cryptocurrency? It's the idea of taking something money that has historically been done by the state in a centralized fashion. And you know, they've sucked value out of it that way and using technology to make a decentralized, more stable version. And you know, really that's what C setting is. It's taking something traditionally done by the state, namely you know, being a state and making laws and saying hey, maybe we can do it in a decentralized bottom up way that uses new technology and that fits the 21st century. So I think a lot of these trends are kind of on our side.

Okay, yeah, interesting. So I mean, I guess the seastead could use any currency they could peg themselves to, say the dollar. They could be a cryptocurrency country. So there's that. Do you want to mention something about that?

One thing that people often mistake is thinking that seasteading is about one particular society that we want to make. And so they ask us like what will the money be in your seastead? And the answ is that our goal is much bigger than that. We don't want to create one society. We want to do the research and advocacy so that any group of entrepreneurs out there who has a vision for how to make a new society or a development with new legal systems can go out there and do it. So our motto is let a thousand nations bloom. We don't want to take sides in what the laws are. We want to just want to change the industry to create a startup sector.

Yeah, and I love the way you say the industry, which is an interesting way to look at a country. And also it's it just be this marketplace of ideas and those ideas become, you know, laws and every set of laws is different. But you know, you said that a seastead should respect the laws of other countries so that other countries for example, wouldn't want to invade them more and steal their wealth and things like that. So they wouldn't allow people to dodge taxes or deal drugs or whatever. Right. But ultimately the startup country, the seastead would probably out compete the other countries to attract capital. It would have better corporate laws, it would have a more business friendly environment. And so there would be a capital flight and maybe a brain drain following the capital. Of course other countries would be upset by that. I mean look at in business, nobody loves their competitors, right?

Yeah, yeah. I mean if it works out, there would be a brain drain in capital flight. But of course I think that the greatest impact that the startup sector could have would be spurring the big players in the industry, which is the large existing nation states, to start innovating in order to be able to better compete. So I think that with through startup Societies. We're working on an open source legal system, for example, called Eulex. And so these laws and codes are going to be out there for other countries to use. So if they don't want to lose in the competition for citizens and capital, hey, all they have to do is change their laws.

Very interesting. Very interesting. Give out your website.

Sure. It's seasteading.org and I also write on Twitter as Patrissimo Patri.

Where are you located?

I'm in the Los Gatos Mountains at the very edge of the Bay Area.

Okay. And, you know, we've got to ask someone like you that because you might be out at sea and, you know, we never know. You know, you'll be out on a seastead someday. When do you see this happening? When I saw your presentation about it at our friend Judd's house. You know, you talked about decades out, even, you know, 100 years away. What's like a timeline that you might see some of this start to take shape?

We're starting to see the first seastead projects that are actually being built or have actual partnerships with countries happening right now. So if you asked me a few years ago, I would have had to say, I don't know, five, 10 years. But these things are actually starting to happen. So in the next few years, you'll see things like this. Although of course, they may or may not be described as being like this. I mean, every new product chooses its own branding, and we could see project like this either trying to position themselves as very innovative and cutting edge in order to attract people, or, you know, just as kind of nothing to see here move along, you know, if they're more worried about getting negative publicity. So keep your eye out.

Yeah, good stuff. Thanks for joining us and good luck. This is fascinating and I really wish you the best. It would be. It'd be great to see some competition in the country industry.

Good stuff. Good stuff. Thanks again.

All right, thanks for having me.

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