CW 1044 FBF - Real Estate Investing vs The Self Driving Car, Land Values of the Future

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Welcome to the Creating wealth show. This is your host, Jason hartman. Episode number 568. 568. We've got a bunch of things to talk to you about today. I've got Naresh here with me and one of the things you may not have heard of, it's the labor content fallacy. The labor content fallacy. So we're going to talk about that. We're going to talk about the future. And as Yogi Berra said, the the future ain't what it used to be. And I think that quote was very prescient based on what's going on nowadays. So a lot of good stuff. Let's dive in. How are you, Naresh?

I'm doing great, Jason. Just doing my thing in Florida. How's San Diego treating you?

Good, good. Life is good. Life is good. I gotta tell you though, like I said before, the weather here is not as good as Phoenix. I know many people think I'm crazy, but whatever. We, we, we did all the small talk on that before, so let's not do it again this time. Let's dive in and talk. We got a lot of on the agenda today and you know, we talk a lot about economics, inflation, employment, unemployment, what it means to real estate investors and how we can design our investment portfolio for these big changes. How we can design our investment portfolio for the misleading statistics that we get from the government, how we can design our portfolio for, you know, the absolute stupidity that goes on in government and what goes on in Washington D.C. we know that Wall street basically owns Congress. Their lobbyists are there every day of the year. Or every day they're in session at least, and they're constantly influencing them to make laws in their favor. And so, you know, we got to take matters into our own hands as investors. We've got to do what makes sense for us and what will protect us from all of these various forces that are so out of control and so opposite our interest. And you know, some of the forces are good overall, like technology. And we're going to talk about that today. When we dive into the labor content fallacy, they have significant impact to us as real estate investors, some of which may be deflationary, some of which may really cause us to abandon or really, really rethink in very significant ways the three cardinal rul of real estate. And I've talked about this before, what are the three cardinal rules? Come on, folks, we all know them. Location, location and location. But technology could really change that pretty significantly, I think. So that's probably a good opportunity for our style of investing. I think it is. So we'll dive into that today. What should we cover first?

How about we talk a little bit about the labor content fallacy?

Okay, so this is a big one. So first of all, what the heck is the labor content fallacy? You know, it reminds me of the concept of the, the zero sum game. We've heard that before. This is what I think is one of the huge fallacies of the left wing political ideology. And so when it comes to the zero sum game, which is somewhat similar to the labor content fallacy, not exactly. And kind of the Malthusian idea, these things all relate to each other, I think, and here's why, you know, the zero sum game says that if, if the government needs more money, it should just simply raise taxes. But that doesn't work because when you raise taxes, you change the incentive structure of, of people and the way they organize their lives and the way they spend and invest. And ultimately what you do when you raise taxes, I say is that you in, in the, in the medium to long run, maybe not the immediate short run, but the medium run, which means a couple years. And the long run, of course, the, you know, the, the next decade you reduce tax revenue. And Reagan proved this, and Arthur Laffer proved this. Now many people have maligned those guys. Okay? Arthur Laffer, by the way, was the guy who created what's called the Laffer curve. And they believe that they really proved the validity of supply side economics, of trickle down economics. And largely, I think this holds water. I think it's true today. And you know, we've seen that. We even saw that with Bill Clinton, with his administration in so many ways. And so if you increase taxes, people reduce investment because they're not rewarded to invest. And when you reduce investment, you decrease overall economic activity. And when you decrease overall economic activity, you ultimately decrease tax revenue. And that's bad for everybody. So the labor content fallacy is kind of similar to that, isn't it? Because when we talk about technology and the disruption of technology and the fear of people losing their jobs and high unemployment, and we talk about robotics and the self driving cars and 3D printing and nanotechnology and biotechnology and energy technology and all of this stuff where we appear to be at the point in history where this is like a hockey stick on a graph and that hockey stick represents exponential growth. Maybe we're there, maybe it's just another advancement like it always has been. You know, like when they invented when, when Edison, well really, maybe it was Tesla who did it, but who knows who should get the credit? Invented the electric light bulb, okay. And you know, when the steam engine was invented, when the wheel was invented, when fire was discovered. That's not an invention, that's a discovery. But you know, maybe that's what everybody thought throughout history. What are your thoughts?

Remember, you're listening to Flashback Friday. Our new episodes are published every Monday and Wednesday.

So first off, this is all very, in my opinion, it's good stuff. This is good for innovation, it's good for technology, and as you just discussed, it's good for the economy. Because what this is doing, this labor content fallacy, it essentially means that people are no longer required to produce products and to run the products we can now automate. And to give you some examples, run the manufacturing.

You mean to say.

Yeah, right, right, run the manufacturing. Just many different facets of the product cycle. And to give you an example, let's take the, the driverless cars. Do you want to take the driverless cars or we.

Yeah, yeah, so. So I think the self driving car, the autonomous car really is going to hurt all of these people who bought high end real estate with expensive land. Now that goes back to the Hartman risk evaluator, right? Where I see, I say buy, buy properties with cheaper free land. So you're essentially a commodities investor because the high land value markets are the cyclical markets, the ones with the big shifts where the prices are high and low and they are the roller coaster ride, they always have been. I don't like that. As a conservative, prudent investor, I like reliable cash flow, mailbox money that's my view of it. So, Naresh, I want to play a little audio clip for our listeners and I'm sure you're going to have some comments about it because I'm not the only one who sees the effects of the autonomous vehicle on real estate. Listen into this.

Autonomous cars will be commonplace by 2025 and have a near monopoly by 2030. And the sweeping change they bring will eclipse every other innovation our societies experience. That's prediction of a blog posted in the tech and Science section on CBSSF.com it's called How Uber's autonomous autonomous cars will destroy 10 million jobs and reshape the economy by 2025. For more, we're joined on the KCBS RingCentral.

And that's the other big concern we're going to talk about today. When you mentioned the labor content fallacy and you know, 10 million jobs, I mean, can you imagine 10 million jobs evaporating? How terrible that sounds. But maybe it's not so bad. So hang on a second and we'll, we'll talk about that Newsline by its.

Author, Zach Cantor, a founder of several startups in the automated automotive space. Good morning. Thanks for joining us.

Hey, good morning, Stan. Good morning, Holly.

The title of the post is ominous, to say the least. How exactly is this going to work?

Well, I think, you know, when a lot of people think about the future, I think it's easy to imagine a lot of the major things have already happened or that they're going to occur in the distant future. But I think these things are going to happen in the next few years. And you know, when you look at the major automakers and startup automakers like Tesla, they're going to have cars, autonomous cars, fully autonomous cars on the road by 2020. So that's not really a prediction or a pie in the sky, sci fi type of thinking. That's what's already going to happen. And I think it's going to happen much. The adoption is going to happen very quickly. And by 2025, we're going to see a predominantly autonomous fleet.

So keep in mind that automotive industry experts have said basically with normal cars that it takes about eight years to mostly replace the auto fleet. Okay. That's the typical cycle. You know, you don't see many cars on the road that are older than eight years. All right, that's, that's what they, the experts will tell you. But with the autonomous vehicle, it, it will probably happen a lot faster because this isn't just an upgrade, this is a game changer. In so many ways on the road.

One of your central arguments is that when this happens, when we don't need to be tied to the car as the driver and owner of it, we'll have a lot fewer cars on the road. The argument is that so much of the life of a car is spent sitting doing nothing.

Yeah, I mean, the statistics are pretty staggering. You look at, you know, the average car is used about 4% of the time. The rest of the time, it sits, which is why.

So just understand that the average car is used 4% of the time. 96% of the time, the car is not being used, yet the owner has to pay for it. And this is the one of the huge benefits of the sharing economy, because when you look at Lyft, Uber, Sidecar, Airbnb, all of these sharing economy type of businesses, what they've basically done is they've taken all these unused assets in the world and put them to work. And similarly, there are companies where you can rent your car out, not drive it around and not, you know, do become a driver for a Lyft or Uber, but you can rent your own car. So it's not, it's not just costing you money that other maybe 96% of the time. So. Interesting point there too, but it gets even more interesting.

But he's like, Uber are going to be, you know, gaining a lot of popularity and running the autonomous fleets. I think in the future, people like you and I probably won't purchase or buy cars. We're just going to use cars on demand.

So that's another big question. What does that mean for the auto industry and all the jobs tied to the auto industry? I mean, if. Do the naresh. Can you imagine the math on this? If. If a car isn't used 96% of the time on average, and mine is used even less, maybe 98% of the time, mine's not being used because I hardly ever drive. That's basically like a 20 to 1 ratio. Okay, so that means that you could have 1 20th the number of cars on the road. And not just that with the autonomous component of it. Once they all get to be autonomous, like the way they're predicting by 2025, which ain't that far away, okay, they could increase the packing capacity of highways by about six fold. So, you know, cars can drive bumper to bumper at 100 miles an hour safely, and there would be a lot fewer cars. So, I mean, the ripple effects in the economy are huge. You know, what does this mean to, you know, Detroit what does it mean to Japan? I mean, what does it mean to Germany where so many cars are, you know, manufactured if this happens now? The other thing is that, you know, just because cars are autonomous doesn't mean people won't have their own car the way most people do nowadays. But it's an interesting question. You know, I was reading this Techno Futurist article a while back that talked about how self driving cars could actually be unowned. In other words, they could own themselves. I mean, amazing, but it's amazing what it means to people who own properties in high land value areas. This is a game changer for real estate. Keep listening. He addresses that.

Should I be excited because it's going to be cheaper for me or should I worry because there may be fewer jobs?

Well, I think you should be excited on both fronts. I think that there's going to be fewer jobs in the existing industries, but I think that it's going to create a huge amount of new jobs in the future. I mean, we're talking a trillion dollars is spent on purchasing and maintaining cars every year. And so that's a huge amount of disposable income that's going to be freed up. I think it's going to spur a lot of innovation.

So an extra trillion dollars to spend on real estate. Maybe. Maybe people could afford nicer places to live. Maybe they could upgrade their housing because they're spending less money on transportation. Maybe they could upgrade, you know, take more vacations, eat better food, have more entertainment. I mean, there's a lot of implications to that, right, Naresh?

Oh, yeah, absolutely. This is, in my opinion, this is a good thing. I'm just a little skeptical about the dates that they mentioned in the, in the clip that you played. 20, 25 is nine years or 10 years or almost nine years away. And do you really think people are going to adopt this that quickly?

Oh, yeah. I think this is a giant revolution. I think between this and literally 3D printing, we are going to see massive changes in the world and the economy. And we've got to think about this in terms of the way we invest. I mean, when you look at the other, I mean, the self driving car is arguably a robot. Okay, it is a robot. And the other types of robotics are just astounding. What's coming up? Some of them very scary. These sort of military and police type robots. Remember the movie Robocop? There's a lot of potential bad uses for this stuff, but overall it's pretty good. Okay, so let's keep listening in because he touches on the real estate topic.

You know, but it's also going to be faster and cheaper. You know, they did a study and they said that if New York City's taxi fleet was autonomous, you'd see pick up times in the neighborhood of 30 seconds, and a trip would cost 50 cents a mile.

We'll see if the taxi union thug cartel allows that to happen.

That's a pretty attractive proposition.

When we look at the way we live, it's not just the fact our houses often have garages tacked on to them or our streets have extra lanes for parking, but literally the way we live is based on using a car, the way we use it. Now, how would that change in the vision you have?

I mean, I think that there's, there's big impacts in terms of planning. I mean, you're not going to have to worry about parking. Traffic is going to be a thing of the past. Probably the biggest thing that I look at in terms of the way the world is to.

Going.

Going to change is that a lot of times now people have to live very close to a city because commuting reasons. But when you have autonomous cars that can go at 120 miles without traffic, all of a sudden living within, you know, 100.

And he meant 120 miles an hour without traffic. Okay, not 120 miles in range, but pretty interesting there, isn't that. I mean, that is a game changer. I mean, all of the garages that could be converted to an extra room if people didn't own their car. What was that statistic? I shared it on a recent show, and I can't remember that the typical city or town is, I think, 40% parking or something like that. And if, you know, I, I kind of doubted that statistic at first, but then I just walked down the street and I thought, look at all these parking spaces, parking lots, parking on the street, parking in driveways, parking in garages, whether they be, you know, your own garage in your house or a commercial garage in a parking structure. I mean, what a. What a giant change, huh?

Oh, yeah, this is, this is. Just to hear this interview sounds amazing, without a doubt. But again, in nine years, this is what, what our world is going to be. Well, the United States, maybe not the entire world, but this is what it's going to be like. If it picks up that quickly, man, we're going to be living in a very, very different world.

Yeah, definitely. And I think a better one in a lot of ways. Here we go.

Miles of a city is Pretty reasonable. So I think you're going to see the urban sprawl sort of translate to a suburban sprawl and we're going to see a much, you know, more spread out environment overall.

So there's always been this move towards cities. Right. And now what he's saying, and I agree with it, that, you know, people can really live in suburbia without much consequence. First of all, the question is, do they even need to get in a car and go to work? Because, you know, obviously technology has changed that game completely. It certainly changed it for my business. But then if they do need to get in a car and show up someplace in person, that becomes so much easier, so much less, less expensive, so much simpler. So a lot of real estate implications.

Good thing or bad thing from where you sit?

I think it's a great thing. I think innovation is always good. I think that when people are performing the same tasks over and over and over again, like driving, it's wasted effort. And I think that we're going to free up a lot of human capital, a lot of smart people to work on, work on other things instead of wasting something like 30 or 40 hours they're spending every year in traffic.

Before we let you go, address the one concern people always have about this and that's the notion of the loss of freedom they like. People even will tell you, I don't mind sitting in traffic.

I like my car, I like my.

Car and I can control when I sit in traffic.

I mean, I think it's going to be less freedom for some people and more for freedom for others. I mean, I think when you look at someone who's trying to get away from a bank robbery, probably considerably less freedom. But someone who has no mobility and maybe can't drive themselves, or someone who wants to be working while they're driving, I think those types of people are going to have a lot more freedom.

Appreciate your time this morning. Zach Cantor, a futurist whose piece about the autonomous car is worth a read. It's online@cbssf.com in the tech and stuff science section. We'll also post a link from the KCBS radio Facebook page.

Just wanted to make sure I got all the right attributions in there, but fascinating stuff, folks. Think about it. If you're a soccer mom or a soccer dad that's listening, can you imagine how, you know, the, the, the burden on parents would be dramatically reduced because you wouldn't necessarily have to chauffeur your kids around. Maybe that will just be in an automated Fashion, I don't know. Of course, you know, there's issues with the kids, safety and so forth, but a lot of that is becoming automated, too. A lot of that is becoming taken care of. You know, this one hugely popular app right now, I think it's called Walk Me Home or something like that. It's like a safety app. There are safety apps for smartphones with, you know, little panic buttons on them and, you know, things where you can alert a certain trusted circle of friends that you're walking from here to here, and they can just track your movements if you're walking down through a city at night in a sketchy area. So that could be true for kids, too, for elderly people. There are just so many implications. But everybody has bemoaned the concept of urban sprawl and suburban sprawl. And first in the 50s, when all that kind of began and the automobile became so romanticized and so popular, you know, it was great. The suburbs, that. That's when they. They really began. And now, you know, I think there could be a trend back toward the suburbs. So again, when you're thinking of a real estate investment, think about this. There's a lot of implications to it and mostly good. But the fear we have is high unemployment. You know, what. What will be the unemployment problem? And that brings us back to Naresh, the labor content fallacy, which basically says that people have unlimited desires and will just dream up something else they want and other entrepreneurs and humans will dream up how to fulfill it. Right.

Just a reminder. You're listening to Flashback Friday. Our new episodes are published every Monday and every Wednesday.

Yeah, well, initially, there's going to be some. It's gonna have to take some time for this to figure itself out. So, yes, unemployment will be a problem kind of early on in this process, but I think in the end, as you know, technology is usually great, almost always great for the economy. It automates things. It improves the quality of lives that we're able to live. And the unemployment is going to shift. I think people will find a way to innovate and to find more work to kind of blend in to this advancement.

You are so right. Just remember, though, the thing that really gets people, I mean, in the last economic downturn, what really got people is the lag time when the change is occurring. Okay. That's what gets you is. Is the. The changeover period. And so, you know, when those workers need to be retrained, when all of this stuff needs to happen. Right. That's the hard part.

Right. And it'll be interesting to see how these car companies, you brought this up earlier. How are they going to innovate? They're going to be forced to innovate. What are they going to do? How are they going to pivot again? I don't think they're going to go completely out of business. They'll find a way. A lot of these companies have been around for a long, long time and they've had to face some trying times. They've had to face all sorts of technological advancements. But like you said, there's going to be a lag. There is going to be a lag.

There will definitely be a lag. But at first it's going to be booming, like, you know, for the next maybe 10 years of the automotive industry. For the companies that are innovative, that are really on the front lines of the autonomous vehicle revolution, business is going to be great for them. Because think, think of, think of the tens of millions of cars out there and the concept of replacing the entire fleet. And especially if that pace of replacement hastens, if it moves faster, they're going to have booming business. At first it's going to be phenomenal for them. But then ultimately, yes, they have to change and hopefully they'll get into self driving airplanes.

And some other cool stuff. But you know, I think, Naresh, it's worth mentioning when we talk about this labor content fallacy is this article by Gerald Huff. Okay. And this is in a website, medium.com and he makes some interesting observations and he talks about it. He says it's the phenomenon is most obvious with digital goods. Okay. And he talks about my girlfriend, Taylor Swift.

Yeah. So he says this, he says that the phenomenon is most obvious with digital goods, which exhibit essentially zero, zero marginal cost of production. Imagine 100 million consumers who save money due to automation in some industry and then they use that money to go buy 100 million downloads of Taylor Swift's latest hit. How many new jobs are created by that? 100 million in spending? You know, and of course, he's making the assumption that it's like a dollar per song, right? Sort of the itunes model. And it's really going to be $1.29, I'm sure. But he says basically zero. Basically zero new jobs were created by that spending. And then he says, what if 100 million people paid a dollar a year for the WhatsApp messaging service? Right? WhatsApp is free, of course. Facebook bought it for $19 billion a couple years ago. Okay, but what if they paid a dollar a year? How Many new, new employees would WhatsApp need to hire since they handled 450 million customers with a staff of less than 50 people. And he says the answer is not many. Of course, he doesn't talk about their supply chain. So, you know, someone needs to make more servers because there'll be more load on the servers and the computer infrastructure. Cisco's going to sell some more routers. Okay, so there, there is that, but that stuff's pretty durable. You know, it doesn't, you know, of course there's Moore's Law and you know, the 18 months that it's, it's going to be, you know, doubled in power and so forth. But, you know, mostly that stuff's kind of durable and a lot of it is manufactured through robotics. So where does this go? You know, where does it go? It's going to be an interesting time. It really is. It really is.

I'm excited about it. Listening to these futurists listening to you. We're not too far away and it's going to be a very, very interesting time to see how the United States is going to improve technologically by leaps and bounds and how this is going to affect in turn the economy and real estate.

Yeah, it's really like I always say, it's an amazing time to be alive. And we just like to occasionally talk about some of this broader, more macro stuff, if you will, on the show, because most real estate investors are just not thinking about this stuff. You know, they're, they're thinking, well, I'm a buy and hold investor and that's a good, good strategy. And I'm going to buy this property and I'm going to keep it for 27.5 years. But if you're paying extra, etc, if you're, if you're paying a premium to buy what's now considered to be well located properties, properties with prime locations, you might be very disappointed with your investment as the autonomous car gains traction and as the sharing economy gains traction, because that may just not be that big a deal. And we're not even to the point of Beam me up, Scotty. I mean, this isn't the transporter room, which we might eventually have that too. So it's an amazing time to be alive. Right?

Oh yeah, this is, this is very exciting stuff.

All right, well folks, go to Jason hartman.com and lots more information, lots more great podcasts there. I want to mention also Naresh, I wish he are joining us for this. You're an east coast guy, but you're not going to be coming to this one, but it's our Newport, Rhode island adventure with a venture alliance that's my private Mastermind group. Of course some of our clients have chosen to take the leap and come into the Venture alliance early. So we appreciate them joining. But go to jason hartman.com click on events and that's going to be fantastic. Providence and Newport, Rhode island for the Venture Alliance Mastermind five star dining, intimate mastermind sessions with real estate entrepreneurs from across the country, maybe around the world. Who knows who might come from around the world and join us too. Maybe some of our European listeners. That's going to be a great event. We're doing a side trip the day before to Martha's Vineyard as well. So you're welcome to join us for that. If you really want to get some really cool friend and hangout time with us, it would be great to have you again. Small, intimate setting. And go to jasonhartman.com click on events for that. And by the time you hear this, we should have a new site up. And I'm just going to give the domain name again. It's venture alliancemastermind.com so by the time you hear this, that should definitely be up. We got a great new website up for that with video and and some good content there. Venture alliance mastermind.com Venture Alliancemastermind.com so join us for that. And hey Naresh, I know you let me do most of the talking today as usual, but thanks for being on and helping me out.

No, thank you, Jason. It was good.

I've never really thought of Jason as subversive, but I just found out that's what Wall street considers him to be.

Really? Now how is that possible at all?

Simple. Wall Street. Wall street believes that real estate investors are dangerous to their schemes because the dirty truth about income property is that it actually works in real life.

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