Entrepreneurship and Regulation with Per Bylund

CEO of Monetary Metals Keith Weiner interviews Professor of Entrepreneurship at Oklahoma State University Per Bylund on regulation, entrepreneurship and more. Dr. Bylund has published research in top journals on both entrepreneurship and management. He has also published in the Quarterly Journal of Austrian Economics and the Review of Austrian Economics. He has founded four business startups and writes a monthly column for Entrepreneur magazine.

Per and Keith discuss:

-The definition of entrepreneurship, innovation and invention
-Investing, Venture Capital and Startups
-Path Dependency and First Movers
-Henry Ford and the Model T vs the Horse and Carriage
-Disruptive Schumpeterian Innovation and Uber
-How companies pay workers and the living wage
-How socialists misunderstand production and value creation

Additional Resources

Gold Outlook Report 2022
The Problem of Production
The Seen, the Unseen, and the Unrealized
Per’s Research


Benjamin Nadelstein: Welcome back to the Gold Exchange podcast with founder and CEO of Monetary Metals, Keith Weiner. My name is Benjamin Nadelstein, and today we are pleased to announce our guest author of “The Seen, The Unseen and the Unrealized, How Regulations Affect Our Everyday Lives” and “The Problem of Production, A New Theory of the Firm”, Associate Professor of Entrepreneurship in the School of Entrepreneurship from Oklahoma State University Per Bylund.

Keith Weiner: Most of our episodes touch on the issue of money, credit, interest rates, banking, et cetera, because that’s the focus amount of Monetary Metals and that’s the focus of a lot of my economic studies. However, I’m also really interested in entrepreneurship and really excited to chat with Per Bylund today who studies entrepreneurship and focuses on entrepreneurship. First of all, welcome Per to the podcast.

Per Bylund: Thanks for having me. It’s cool to be with you.

Keith Weiner: Awesome. I figured I’d start out with a really basic question. Define an entrepreneur. And what does an entrepreneur do?

Per Bylund: You know entrepreneur. It’s one of those things where everybody thinks that they know what it is. But when you start to actually study it and you start to find the limits of the definition, then it’s not so clear anymore. Very often when we talk in just everyday language, we use these sort of vague definitions of all kinds of terms, but we understand each other anyway. It’s fine. But in research, you really need to know when one concept ends and another begins. And entrepreneurship is one of those where it’s used in many different ways and it’s used vaguely pretty often. Often we think of someone who starts his own business. Well, I mean, the classical question then is, okay, someone who starts a franchise, who starts a new McDonald’s restaurant, is that an entrepreneur or is it not? Because they’re really more of managers than they are entrepreneurs in the sense that they’re not starting something new, they’re not trying to discover demand and profitability and everything. They’re not trying to figure out exactly the offering that consumers would like. They definitely cannot pivot or anything like that that entrepreneurs usually do. Because in McDonald’s restaurant, it’s a McDonald’s restaurant. It’s going to be exactly the same as every other McDonald’s restaurant in operators.

Keith Weiner: And McDonald’s has a different finance model or pioneered a finance model. But those are really operators or maybe the better term of the managers.

Per Bylund: Yeah, exactly. But at the same time, they’re still owners of sort of an enterprise and all this stuff. So are they entrepreneurs or not? I mean, they do take a risk, all of this stuff. So it’s not that easy. But when I do entrepreneurship and study entrepreneurs, I do it from an economics perspective, which in a sense is easier, but in some sense it’s also harder what that means is simply from my Austrian perspective, entrepreneurship is simply the driving force of the market. It’s the force of change to market structure in a sense. So it’s anything that is in some sense disruptive. I would put that in the entrepreneurship categories. It has to do with new value creation in some sense and it’s not simply imitating or simply doing what someone else did or it’s not running a business that has already been in existence for 20 years in a market that is sort of stagnated. What I’m interested in is really the really disruptive entrepreneurs that change everything like the iPhone or the Ford Model T or whatever, something big like that, but also creating new types of or at least new value in economic terms for consumers, whether you’re not your B to B or B to C, but still doing something novel, some kind of innovation. And I use innovation in sort of the technical sense that innovation is bringing a product to market and making it valuable to consumers. Invention is the idea of something but innovation is bringing it to market.

Keith Weiner: That’s a really important distinction. And I remember being involved in computer software back in the early 90s and mid 90s and everybody used to really put down Bill Gates because he wasn’t an inventor and it wasn’t writing new lines of code anymore I think he had in the past and they didn’t quite grasp the distinction between an inventor who says I have a new algorithm that can do XYZ versus an entrepreneur who innovates and says I see a way to bring this to market add economic value and obviously make a profit doing so right and recognizing that difference.

Per Bylund: It suddenly makes sense what any investor or say venture capitalist or someone like that would tell you that it’s not the idea that matters, it’s the implementation, it’s the person. So they’re investing in the person to run the business and the person to make most out of it. So they’re investing in someone they trust in someone they believe has the expertise and the stamina I guess too and really wants to have sort of the right attitude that person, they invest in that person. But of course there has to be some idea for the business but the idea itself is not what is important. Whereas very often people have the idea that being an entrepreneur just means you have to come up with this great idea and if you have a great idea then it’s basically automatic. But it turns out that that’s not actually the case. The idea doesn’t matter a whole lot, it’s the implementation of it. And very often we see that if we look at businesses it’s not very often that the first mover is actually most successful because they make all the mistakes and they have to figure out exactly what can be sold.

It’s path dependent as well. So they sort of start treading down one path and they get stuck there where someone else is following suit and then sort of imitating or at least emulating what the first mover is doing. They don’t have to make all these mistakes. That the first mover made. And they can also try another version of the product or service, and they can figure out where the real consumer value really is. Very often the second mover can be much more profitable than the first mover. And it’s not unfair that they didn’t have the idea because they had plenty of ideas. It’s just that the core idea was sort of out there already, but they innovated and made things valuable to the consumer, whereas the first guy was more of an inventor and got the idea out there but didn’t actually create a whole lot of value based off of it. So the potential is really an innovation, not an invention.

Keith Weiner: I was going to say I think that VCs generally do not want to invest in inventors, and some inventors can successfully make the transition from inventor to entrepreneur, but many either can’t or don’t want to. I’ve always thought of it as the inventor is saying, I think I can make this work. Meaning if I connect these two diodes to this transistor and this lamp and all these different things together, then the invention will work. As I imagine it in my mind. The entrepreneur says, I think I can make this work, and he needs something pretty different. But he uses the same word, which is work. And what he means is, I think I can find a market that I can profitably address by solving this. I can use this to solve a problem of theirs. I wonder what you think of this. My working definition of entrepreneur as somebody who sees a problem like everybody sees problems in the world out there. Most people just kind of have a drink with their colleagues and bitch and moan about it. Some people think to lobby the government to fix all their problems. The entrepreneur is the crazy guy who says, I see a way to make money solving this problem.

What do you think of that as a concept?

Per Bylund: Well, I think in general it makes sense. And very often when we teach entrepreneurship, too, we try to tell the students or if we consult with entrepreneurs or whatever, we try to make them think about the customer and think about the problems that the customer has that you can solve for them. So in that sense, it’s accurate. But I would think that very often a successful entrepreneur is an innovator who really comes across or invents in some cases too, but a solution to a problem that no one knew they had. Very often you can create a whole lot of value by offering something and people go, Whoa, wait a minute. Wow, this is fantastic. This is awesome. This is so valuable to me in my life, but I had no clue I had that problem. I had no clue that I actually lacked this thing or that I could be better off in this sense, right? In a sense. It’s like the quote that people use a lot, and I tend to use it a lot, too. Henry Ford, when they said had I asked my customers what they wanted, they would have said faster horses, and they didn’t know they had the problem in the sense problem, quote, unquote, that they didn’t have an automobile because they were using horses and carriages, and that was it.

If they wanted to travel faster, if they saw what would a better world look like? Well, it would be faster horses or horses that eat less hay or horses that don’t poop as much in the streets or whatever, those kinds of problems. Whereas Henry Ford wasn’t really into that line of business. He was like, just replace the whole freaking thing with a horse that doesn’t eat and doesn’t poop and doesn’t need a stable and a horse that is just a machine. It’s a solution to a problem that no one really had. I agree, Keith, what you’re saying.

Keith Weiner: But would you agree with the formulation that he abstracts the problem? The problem is really you need to get from point A to point B or carry something from point A to point B and not how can I ride a horse faster? And the consumer may be thinking, how can I ride a horse faster or poop less? And he’s thinking, how can I get you from point A to point B? Faster, more reliably, cheaper with less poop.

Per Bylund: Right. It’s sort of striking at the core, right. It’s figuring out that what they’re trying to achieve is not really faster horse or a cleaner horse or whatever, but it’s actually getting to the destination in a much more reliable and faster and more comfortable way. In this case, Henry Ford’s innovation here was just a cheap car that worked well. They all loop the same, too, and they could replace horse and carriage. But it’s also the case that you have innovators and entrepreneurs who provide something new and something really valuable that doesn’t actually replace straight off something else that is already in existence. We think of these examples very often as the car replacing horse and carriage, maybe a gun replacing bow and arrow or whatever. And those things. It’s exactly the same function. It’s just a new generation of solution. But I think that is exactly the problem. I mean, it’s exactly the same problem as in the Ford quote, that people think faster horses because they can’t really think outside the box. So he has a bigger box in the sense that he thinks within. So he thinks, oh, let’s just replace the horse and carriage altogether.

Well, I mean, there are other products that people launch and they try on the market that solve problems that no one had any solution to before there was no horse and carriage. So they just immediately went for another type of solution to something that no one had any clue at all that they would be better off doing.

Keith Weiner: I think Clayton Christensen defines disruptive innovation as an innovation that the incumbents core customers don’t care about. And with the sustaining innovation is something that the core customer wants to pay more to get more of. And so it’s that disruptive innovation that does something new and different that the whole world doesn’t know they need. And maybe they don’t need it at first until it becomes more mature and better. And then all of a sudden, 20 years later, how could the world possibly live without Google? Or 40 years later, how could the world live without the Internet? Or 60 years later, how gold the world live without computers? Is a computer just a faster advocates or faster editing machine? Probably not, because it’s not that we’re recording this using a voice over Internet thing. We’re using Zoom. Zoom isn’t just a faster version of the adding machines they had in the 1940s.

Per Bylund: Right. And sometimes things take off in the sense that the inventor or innovator had no clue. I mean, like the smartphone, the first iPhone. No one could foresee the things that we do today with smartphones. Back then, it was just what was it? The three devices in one? Right. It was a music playing device. It was some way to get onto the Web, and then there was a phone, but nothing more. Well, today we’re doing all kinds of weird stuff on this little computer in our hands, but that has sort of become a revolution step by step that no one really foresaw before. We tend to exaggerate and the impact of technology in the short term, but we do exactly the opposite. We underestimate the impact in the long run.

Keith Weiner: Yeah. I wonder how many people thought of using your smartphone to summon essentially a taxi before Travis Kalanick did. Right. Nobody thought of it.

Per Bylund: Right. And transfer money to your friend in a fraction of a second. And all this other stuff we’re doing, there’s so much now that now we can’t live without it. But in 2007 or whenever the first iPhone was launched, some people wanted to pay a lot of money for this weird device, but most people were living without it and they had no problems.

Keith Weiner: Right. Or they didn’t know about the problems. You tweeted market action is not to choose value given cost, but to choose cost given imagined value. And I think yesterday or today he tweeted, it’s not that companies pay a share of profits to workers, but rather calculate what profits they expect to be able to get and then hire workers if they can find a profitable way to do so. You want to kind of expound upon that a bit?

Per Bylund: Yeah. It’s one of those things that I, as an Austrian economist, to me, it’s obvious, but everybody’s sort of getting it wrong every damn time. I’m pushing this over and over and over again and the logic is so clear in the sense that somehow we want to think about it differently. I mean it’s really just the impact of time and the point being that you start the business and you start production before you know if anyone is actually interested in buying the product. They can say that they’re interested perhaps, and you can have focus groups and whatever else. But the thing is that when push comes to shove, will they actually hand you money and how much will they give you?

Keith Weiner: Yes. Put an underline on that and highlight that and put that in bold. Yes. You don’t know, you hope, you think you plan, you expect you did your research but you don’t really know, right.

Per Bylund: And very often people somehow still they assume like the recent tweet that you referred to was like a comment on the Joe Rogan show where he and Jordan Peterson were talking and Joe Rogan had some kind of rant about living wage and things like that and they said they were profitable company like Apple because they have this much profits they should be able to pay higher wages to everyone and make sure that you don’t have kids mining for the metals necessary for producing smartphones and whatnot else. But the problem is it places the cart before the horse, right? That every time you’re producing something you do not know what demand there will be, you do not know what anyone will be willing to pay for it. You might have a good idea if you survey 3 or 5th generation iPhone and you’re not expecting any disruption whatsoever. So you might have a good idea. You still don’t know, which means you have the costs right now and you have to probably cover those costs right now. But the value of what you’re producing is still unknown. So you can’t pay workers in the present based off of the profit that you might earn in the future.

That’s a surefire way of producing a loss and losing the business what you need to do. I mean if you really want to use your profits to pay workers more than you need to wait until after the fact, then give them a share of the profit. But you can’t raise their wages because that’s a cost in production always precedes the value and the revenue. The money coming in, right? So money is going out first and it’s coming in later, which is the cash flow problem that all entrepreneurs pretty much have. And that is killing most of the businesses pretty much as well, simply because when you grow really fast you have a lot of costs but you don’t have the revenue quite yet. Even if you sell the stuff, you usually give them like 30 days to pay or something like that. And during that time you’re ramping up and you’re hiring more people and you’re buying more inputs and all this stuff that you have to pay for. So even if you’re accounting wise making a ton of money, you still go under and you go bankrupt because you don’t have a proper cash flow.

You have a negative cash flow at the moment. And if you have a negative cash flow, you can’t cover your bills, you can’t pay any bills, you can’t cover any of the expenses that you have, and therefore you go under.

Keith Weiner: You can almost define entrepreneur as somebody who understands the difference between positive EBITDA and positive cash flow. That’s sort of a tongue in cheek definition.

Per Bylund: Yeah, but it’s not far from the truth.

Keith Weiner: Your point about incurring the cost upfront based on an expectation of a profit. I just wrote something for our Gold Market Outlook 2022 Report, which should come out a few days before this podcast hits. And I’m talking about this idea that the government wants to go after Tyson and the meat packers. I want to go after them with antitrust and all kinds of other things because the price of meat has gone up, but the price that they’re actually paying the farmers for the chickens is going down. So therefore they’re greedy. But greed is a constant, right? I mean, if somebody’s greedy today, they’re greedy yesterday too. So you can’t really use greed to explain a change at the margin. And then when you go out to these companies and I found myself writing something I think is pretty mean here, which is the socialist assumes production, that’s a given like gravity, the sun rising in the east and that there’s air to breathe. And then now that we assume production, then it’s all about divvying up who gets paid out of that production, who gets what share, and then for that matter, how that production is distributed and redistributed, who gets what share of what’s produced.

They never really stopped to ask or care, does production have conditions? Is it conditional? And if the conditions aren’t met, then the production couldn’t occur. I think that may be part of why everybody just assumes, well, if you’re making a 20% margin, you can afford to pay the workers more. They just take it for granted that you’re producing. And now they’re just proceeding to the retribution phase right now.

Per Bylund: I think you’re right, but I think it’s even worse than that when we’re talking about socialist. And something that I’ve written a little bit about is how Socialists tend to think of the economy in terms of production management. It’s not really about value creation. They assume not only production, but they assume that the value is already there. They assume that the value is being produced. Then the question is just, oh, who should get the value? But the whole problem in the economy is not that, oh, the value is already there floating out there somewhere. The problem is figuring out where will the value be at? Again, it’s a time issue. How do we use resources in the present and dedicate them and use them up really in production for some good that will be available in the future and do that in such a way that we get more and more value and as much value as possible out of it? How do we solve that problem? It’s not production management because anyone can really well, not anyone. But it’s a much easier, simpler problem to solve, trying to maximize or optimize the production process and get a little more output for the inputs that you put in than it is to say, oh, wait a minute, we should probably stop producing all of this stuff and instead producing something else.

It’s again, the automobile versus horse and carriage. A socialist could say, oh, the economy is all about horses and carriages, so we should just manage it a little harder, a little tighter, and then everything will be fine. But the economy is really about saying no horses and carriages. That’s not actually a very good way of doing this. We should have automobiles instead. So we need to try that out and try different versions of it and see which sticks, what actually works. What do consumers actually want when they try it, when it’s hands on, when they get the chance to buy different types of automobiles, can compare those with horse and carriage and all these other opportunities that they have. Is it actually valuable then? Well, then you make money as an entrepreneur, but most of them fail, of course, because it’s really hard to predict the future.

Keith Weiner: Yeah. Do you think entrepreneurship facilitates more entrepreneurship?

Per Bylund: Yeah, in a sense it does. In the simplest case, it certainly does. If someone is sort of a trailblazer and is the first mover and happens to find some kind of product or whatever that is profitable, many entrepreneurs will copy or emulate what they’re doing and add other expertise and other ideas to the mix and that it will expand and they will try to sort of exploit that whole market. So in that sense, yes. In terms of the market process, overall, I think it’s more of a Schumpeterian, creative destruction thing, that some disruptive entrepreneur creates something new that is of greater value, that in a sense gives us more valued output for the resources that we had on hand, but that at the same time replaces previous productions of other types of goods that are no longer valuable enough for us to use resource to produce them. So that’s sort of an unfolding of new ways of producing stuff and new stuff to produce. And that’s the market process. Overall, I think it’s a better description.

Keith Weiner: I was also thinking of take something like Ebay, where they created this platform that then other entrepreneurs. And I’m thinking of two categories of entrepreneurs. One is what would have been submarginal craftsperson. A woman who does needlepoint for creative pillows or a guy who has a wood shop and he makes interesting old fashioned wooden toys or something would have been submarginal pre ebay. It’s just not that big a market in a 20 miles radius of your house if you lived in some random town somewhere, but then ebay suddenly allows them to create a store, do a little bit of branding, and then suddenly everybody in the country can buy that and participate. That the other being something like I’m not particularly into these super hot hot sauces, but I have a couple of friends who are apparently there’s a whole market for these bottled hot sauces that the humid measure, they used to measure the heat is the Scoville unit. And I think the average jalapeno pepper is 10,000 Scoville or something like that. And then the hottest, like natural pepper that had been cultivated before this market was a couple of hundred thousand Scoville units, Scotch bonnet or something like that.

And then this whole thing has spurred because there’s now, I think one leading store, maybe a couple of stores on ebay, on Amazon, taking advantage of their platform that are now selling these peppers, ghost peppers and all kinds of other things that some of them get to a million Scoville units plus. And then they distill these peppers and they have hot sauces that are in the 5 million global unit range. And there’s this whole, I mean, small it’s not a big scalable. We’re going to be a multi billion dollar business. But there’s a whole market. There are several entrepreneurs innovating, and it was only possible because of ebay or Amazon.

Per Bylund: Right. And that’s really the exact same effect on the market as the Sears had with the Sears catalog back in the day. I mean, the people depended completely on only their local grocer or the local store, and they could only buy what was in the store. But then with the catalog, which served exactly the same purpose as a sort of platform, a way for producers to reach new customers, to expand the market in that sense, we’re seeing this over and over again. Actually, I have a paper on this with Mark Packard where we’re talking about how very often the market it’s not really a smooth process, but it takes leaps forward. And one way that the market solves these problems and sort of expands the reach and thereby makes these new, weird, really niche innovations possible and feasible, economically speaking, is by providing these platforms and these ways of getting in touch with and communicating with and producing for customers that you would never find otherwise.

Keith Weiner: Right. Expanding their reach both in terms of the message and the distribution. So you just focus on making the hottest hot pepper and not worry about how am I going to profitably advertise to everybody in the world because only one in a million people want hot sauce over a million gold units, right?

Per Bylund: Yeah, I certainly don’t. But today you can be an entrepreneur, and you can pretty easily online set up production in a factory in China, and then make sure you have transportation on some ship for a couple of months from China to LA or something like that, and then have a truck pick it up there. And you can sit at home, do this with your freaking laptop, and you can have a global business where you’re really using the division of labor, the global division of labor and producing where it costs the least. You can tweak production in an instant as well. So what we’re seeing is a revolution in production. I’m really looking forward to and excited about seeing where this ends up because things are moving so fast now that it’s just amazing.

Keith Weiner: Not to put a damper on that, but switching topics are kind of a negative one. President Reagan once quipped, if it moves, tax it. If it keeps moving, regulate it, and if it stops moving, subsidize it. Can you share some thoughts on how entrepreneurs can or do cope with regulatory uncertainty?

Per Bylund: Well, I think the most common effect in a sense of regulatory uncertainty is that you don’t get businesses. It really introduces high costs. That just makes a lot of ventures. They’re not feasible anymore. There’s just no economics in it, and the risk is high.

Keith Weiner: Didn’t you coin or use the term where Bastiat talks about The Seen and The Unseen, and didn’t you add a term, The Unrealized? I think it was right.

Per Bylund: I wrote the book, The Seen, The Unseen and The Unrealized. The problem with regulations is it’s not that they only have an effect in the presence, which is sort of the seen and the unseen. It’s really talking about the trade off and it’s talking about the counterfactual. Right. But in the presence. What I’m trying to emphasize with the unrealized is that, well, the market is a process, and it’s a cumulative process, which means a regulation that stops entrepreneurs from pursuing certain value, creative ends means they will have to go somewhere else, which, of course, creates less value. That’s the seen, the unseen. But it also means that whatever could build off of what they were going to do but didn’t, that we will never see. So this means that new jobs, new types of expertise, new types of products, new types of solutions for people, all these things will simply never come to be. Instead, we get a lower value type of gadget or product that fits in the regulatory apparatus. And of course, the regulatory apparatus, it’s made by politicians. Politicians are not very imaginative people. I mean, they’re not entrepreneurs. They’re not imagining what the future will look like.

They pretty much see only the present and history. So, of course, regulations will create all these problems with basically the future that entrepreneurs are building for us will not be as futuristic because of regulations. And that’s the whole unrealized concept.

Keith Weiner: I think that regulation. First of all, it’s always sold on the promise that it’s going to protect the little guy, the tenant, the patient, the borrower, the employee, the consumer. And yet I think it always is written because of course, it’s a big crony incumbent to help draft it in the first place. It’s always written in a way to benefit the crony incumbent. A major Corporation is already there in the market, dominating it, and it protects them from that entrepreneur who would otherwise maybe disrupt their business.

Per Bylund: Yeah, of course. And even in the rare case where this is not actually the case where there are no incumbents that are influencing these regulations, and I’m not sure that ever happens. But if it were to happen, who will be able to adapt to these regulations and take advantage of them first? All the incumbents, those who are already in market, those who survive the introduction of these regulations, they will be able to take advantage of this situation. The new entrance, the entrepreneurs who were to start businesses in a couple of years but haven’t really seen an opportunity yet, they will have a much harder time to deal with these regulations. Usually the case, just like you say, is things like Amazon and Walmart supporting jacking up the minimum wage like crazy. Why would they do that? It’s going to eat from their profits people say. Well, maybe it’s also going to keep out a lot of new businesses that might compete with them, because both Walmart and Amazon were small to begin with and they had to compete with whatever existed before them. And usually these big businesses, they toppled pretty easily. When some entrepreneur has a new innovation and does something completely different, much like Uber did to taxi businesses, taxi businesses who are sort of resting on their laurels.

They were not innovating whatsoever, and they were just doing business like they always had done business, and they were relying on protective regulations and medallions and whatnot else. And then suddenly they were gone. And why? Because Uber invented a new market space. Right.

But they had to go around instead. In the case that there had been an open market, then the taxi companies would have been long gone already. But they sort of lived past their sell by date by many, many years because they were protected. The same thing with Walmart and Amazon. They get this higher minimum wage and whatever else in terms of regulations that they can deal with, that they already have the cash flow and everything to cover those expenses. The startup does not. The startup has a huge problem with getting money, getting that revenue at the right time to cover expenses. If they then would have to also assume costs that are much higher because of regulation, then they’re never going to be able to compete with the big Dragons. And many of them will simply not start at all. I mean, many entrepreneurs will in a sense fail, or at least decide not to start simply because it’s almost an impossible situation.

Keith Weiner: I remember when I first read that Amazon was in favor of the state collecting sales tax on products that were sold over the Internet. And at first I was kind of surprised by that because I thought that’s really going to slow their growth and the growth of their market. But then it clicked for me. They weren’t worried about growth anymore at that point. They thought, okay, if good sold through the Internet has to go through the sales tax process. It isn’t just 50 state sales tax rates. Every state is broken down into counties, cities, sewer districts on and on and on, and each one has its little surcharges. If you’re buying cigarettes in this fire district, then there’s a 1% surcharge on that. And if you’re buying food in this county but not these other counties in the state, then food is not subject to sales tax because it’s very complicated problem when you need tax experts and it experts to build a system to track at all. And of course, no small to medium enterprise could possibly build all that. So then you have to come to Amazon and pay them to be your distributor for which they’ll be happy to help you for.

I don’t know if they take a 25 or 30% cut of your gross revenues to do that. Is that not a perfect example of that sort of cronyism, I guess, supporting that kind of regulation?

Per Bylund: Yeah, exactly. It really boosts their profits. Just like you said, if you want to start a business, you basically have to go through Amazon. If you’re starting that type of business, you have to do it because you cannot assume all the costs to figure out all those sales tax rates and all this other crap in all counties throughout the country. Which means then that the option would be to start an online business and only service your own county or a few counties that you choose. There’s no point in being an online retailer or an online shop, whatever, serving just a few counties. What’s the point of that? It’s basically a brick and mortar store, but instead of having the actual store, you’re just online. But it’s a local store anyway. That doesn’t make any sense. And then the option is to go through Amazon and give them a huge cut. But there’s nothing else. Everything in between is gone because of regulation and the additional cost burden added by regulations.

Keith Weiner: Right. And then what would the average person say? Well, of course, goods purchased online should have to pay sales tax. That’s how we support our schools and fire departments and all these things. And then in the next breath lament, why is Amazon eating all of the small businesses that are more nimble, more creative, better serve the customer, and then even really make the connection? That’s why it’s a big part of why.

Per Bylund: Yeah, but it’s a complex connection. I mean, you have to really explain it in multiple steps in order to understand what is going on and also understanding the whole time aspects, the temporal aspect of the market, that next generation of mom and pop stores will be mom and pop stores online. But it’s now impossible because you demanded the sales tax locally to support whatever infrastructure or something constructing a new mall or whatever locally. Because of that decision, you put an end to the mom and pop stores online you would have benefited from in just a couple of years.

Keith Weiner: Right. And they don’t do that. My personal experience, having started and then sold company called DiamondWare, which was in a largely unregulated space, we were doing software development, building a technology for 3D spatial audio for real time voice communications. So had we been using the DiamondWare platform for this call, people would be able to hear your voice coming from one location in three dimensional space and my voice coming from a different location in space. And as the more people the busier the call gets, the more value that adds. But largely unregulated, we didn’t really need to file for permits or worry what a regulator might think for the most part. Now, Monetary Metals obviously, anything touching finance and investment is highly regulated. And my observation has been gone through what we’ve done with our law firms at Monetary Metals, not only do you need a lot of money upfront, so you start a business. What kind of valuation can you get for a business idea that’s nothing more than a piece of paper? And an entrepreneur, even if it’s an entrepreneur with a track record, what kind of valuation can you get for that thing?

You’d be lucky if you get a million or even a couple of million dollars. But on that valuation, you somehow have to raise cash to pay for big, expensive New York based international law firms because you can’t go to your local one or two person attorney office to get kind of opinion letters to give you some kind of freedom to operate or something. You need to be really serious about that. So not only do you need more money than probably most startup entrepreneurs have personally can raise, and not only do you need a connection to get into a law firm like that, you need to be a sophisticated consumer of legal services. It’s pretty easy to go to a major law firm, start paying them $1,000 an hour, $1,500 an hour to generate some sort of “work product”, which I’ll put in scare quotes, and they’ll be happy to do that for you. Add in for an item or until you run out of money. It’s a lot harder to get to clarity that this is the innovation I want to do. This is the clarity I need, and it’s a lot harder to work with them to get an opinion letter that says, okay, based on what you’re doing this is free and clear from the worst of the regulations. This is what you have to do to comply and get to a set of things that you can actually comply with with the resources you have at that stage. You actually have to be a smart consumer of legal services in addition to having the money. And then the question for anybody who thinks about entrepreneurship is, what do those two things? What could this thing possibly have to do with entrepreneurs that are going to make our lives better and bring new products to consumers and create new value and new wealth?

Per Bylund: Yeah, I mean, that’s a good point. And it’s the same thing, really, with all these other things that are required of businesses, like registering for sales tax that we already mentioned accounting, different rules and different reports and all these forms and everything that have to be filed and at certain dates with certain authorities and all this other stuff. I mean, there’s so much you need to know as a new business owner, as an entrepreneur, that usually you have no clue about. I think very often or at least I’ve encountered this very often that entrepreneurs, they start businesses and they grow and become sort of successful before they realize all the laws that they were breaking. So many entrepreneurs, they start businesses. And after the fact, when you ask them, oh, how did you think of this and how come you became successful? I mean, many of them would say, it’s luck and all this stuff, but they would also comment on that had they known all of these rules and regulations and all these licenses necessary and all this other stuff, had they known that from the beginning, they would never, ever have started the business.

They started it because they were ignorant in a sense. They had an idea and innovation. They wanted to do something. And they were, as most entrepreneurs are, they are doers. So they started doing it. And then they figured out step by step after a while, that whoops I needed a license like that. Then I’ll apply for a license like that, even though I’ve already done business that required this license for six months or whatever. Oh, I needed this, too. Oh, well, then I should probably apply for that, too. And then you need to hire people to take care of all these paper shuffling back and forth. But you don’t do that from the beginning because you can’t afford it and you have no clue. You don’t know that it’s there. You don’t know that you have to do it. So in a sense, the reason we have many of these entrepreneurs is that the government sucks at enforcing its rules. And of course, we’re lucky that they’re not doing that and that they can’t because otherwise we wouldn’t see any startups. We wouldn’t see any of these many beautiful businesses that hire us and provide us with great goods and high salaries.

Keith Weiner: That’s why the worst that we should ever fear to occur would be a regulatory apparatus that was perfectly efficient. I shutter. When you’re talking about businesses start and then break the rules and don’t even know it. I think your ability to get away with that kind of depends on which regulations you’re breaking. So, for instance, if you’re breaking the city taxi medallion regulations, then it’s probably only limited downside to doing that. And obviously, we’ve got away with it for years. And I don’t know what kind of notices the cities were mailing them and what they were doing about it or whatever, but they needed work through other age of regulation, practicing medicine without a license. I don’t know if you remember the incident some years ago, the company 23&ME you send them, I don’t know if you scrape your cheek or whatever, and then they read, print out your entire genome, and then they tell you all about your genes, and then including some of the health risks you have. This gene was it bracket two indicates women are at very great risk for certain cancers. And then the FDA is not only draconian, but very aggressive in enforcing these things and then force them to shut that down.

So now they can tell you what your genes are, but they’re not allowed to tell you that that gene means this. Or in the area of finance and investment, securities regulations are not something that anybody should mess around with.

Per Bylund: Right. There are plenty of examples of this. And health is a good one where you can’t really do anything that is even close to health advice or financial advice without having the proper licenses and all this stuff. But even if you have those licenses, I mean, many physicians would perhaps want to start a little clinic or something like that, or start their own small hospital and stuff like that. But in many States, we have these CON laws, the certificate of need laws that even with the proper licenses and the proper expertise and everything like that, the regulated licenses. So the state approves of your expertise whether you have it or not. It’s a different matter. But I mean, this certificate of needs laws that basically say that, well, you need to apply to start a new hospital, and you need to get your future competitors, the incumbents, those businesses or those hospitals already in business, they have to write a letter in support of your application saying that, yes, we need a new hospital here. How often does that happen that these existing hospitals say, oh, we need more competition? Yeah, of course, of course. Any businessman does not want more competitions head to head.

So this certificate of needs laws are just outrageous regulations. It’s very difficult to understand the type of reasoning behind it. Obviously, there’s an efficiency reasoning. There’s usually an efficiency argument made for all of these regulations. But even recognizing that there could potentially be some efficiency gain just stopping doctors from creating their own clinics, unless the clinics they will compete with say, okay? That doesn’t make any sense whatsoever.

Keith Weiner: I think what tends to happen is this is how the propagandists operate, as they say, oh, you don’t want regulation. Look, back in the 1930s, people were selling poison that killed people, but they sold it as a cure. And so if you don’t accept the entire package deal of everything in the modern regulatory apparatus, then you must be for allowing people to sell cyanide as a snake oil cure or whatever. And it’s like a giant package deal where if you accept this, you have to accept that once people accept that healthcare providers of healthcare have to be regulated, then it’s like they lose all interest, zone out. And anything that can be proposed under that label, anything that can be sold under that banner, anything goes and without any real justification being provided or any real justification even being expected or asked for by the voters. Well, I know that doctors are regulated and that protects me, so I’m good with that. And now I want to go back to the football game. How do you argue with that?

Per Bylund: Yeah, that’s a good question. Especially in a world where one of the most common causes of death is health care. Even looking at the facts, it’s not working very well. How do you deal with that? People have this romantic view, I think, of regulations as not doing what they’re actually doing and what you can point to that they’re actually doing but doing what they’re promising to do. And that’s usually a huge difference between what the actual effect that they have and what they promise to do. And of course, as I do in the book talking about the unrealized, the actual effect that we can measure is the one in the present compared to the alternatives that exist. It’s not the cumulative effect over time that we’re stopping entrepreneurs from discovering value. So even the cost that we can measure is much lower than the actual cost.

Keith Weiner: No idea. It’s incalculable.

Per Bylund: Right. It’s definitely beyond what we can calculate or imagine, because it is all about entrepreneurs imagining these things and trying them out and figuring out what actually did work.

Keith Weiner: I mean, when we have supersonic air travel today, if there hadn’t been a FAA, that one, we can say yes because the FAA blocked it for 30 years, many decades. That one we know. What are all the things, there could be a cure for cancer right now. I wrote an article for The American Spectator as an angel investor sitting in the room hearing a pitch by a group that had gotten a whole bunch of patents. I think it was out of Johnson and Johnson, but I don’t remember where the patents had been developed and where all the research had originally been done. And just listening to the FDA challenges they had, one of which a lot of people I said this to were almost incredulous, that everybody understands that in order to bring a drug to market, you have to do all the research to not only prove that it’s safe, but it proves it’s effective. And so Johnson and Johnson have been doing that research for ten years or something. But when selling, putting together the patents in a way to spin this out and say, okay, we don’t want to do this anymore, but we’ll spin it out into something that could be a viable business, that they can raise capital and go forward.

Keith Weiner: That company can’t really the way the regulations are structured doesn’t really inherit Johnson and Johnson’s file with the FDA for all the research they’ve done. So they basically set back and have to redo it. And a lot of people just flat out just believe, oh, come on. And that doesn’t make any sense. I’m like you expect regulation to make sense if you’ve seen any of that. But anyways, myself and I think every other investor in that room said this doesn’t make any sense to invest in. We’re not likely to see a return that sounds too long, too expensive. And of course, by then the patents would be expired if you have to redo all that research. And so there was something that was a pretty promising drug that could help in cancer treatment. I mean, I didn’t evaluate it, but at face value, it was promising. Nobody went any further because the regulatory process was too complicated and too expensive and too time consuming. So they didn’t get any capital. I mean, everybody in that room knows you could get cancer tomorrow. Everybody in that room has family or friends who’ve had cancer or might get cancer.

Everybody who has money to invest would love to invest in something that could help cure cancer. They have a social reason as well as a financial incentive to do so. And yet nobody in that room was willing to put money in. So anyways, that was my experience, observing that at first hand. And so I don’t know what ever happened to that drug. I’m going to assume it never doesn’t ever pass to go to market, which is a real shame.

Per Bylund: Yeah, you could argue that the whole economy the way it is, it’s really distorted like crazy with malinvestments all over the place. Just the existence of patents means that you have a lot of investments into the patentable, but not patentable. Right. So even those drugs there might be I have no clue, of course, but I don’t know, vitamins or minerals, whatever like that. With a little bit of research, you could probably find cures for whatever, or at least you could use some supplements to make sure that you don’t get cancer or that you minimize the chances or whatever. But those things don’t do not happen because you get investments instead in what can be patentable and protected in that sense. And then, of course, you get another step following from this, where you have big Pharma lobbying Congress to make vitamins prescription based, which they’ve tried a number of times, where you shouldn’t be able to go to the grocery store or the pharmacy or whatever and pick up, say, a bottle of vitamin C, because that should be something you need to go to the doctor first and get a prescription. And why? That doesn’t make any sense at all.

But why? Well, it’s because they want to protect their business and expand the market for Pharmaceuticals instead of competing with all these vitamins and sort of natural remedies and what have you all of this stuff. Right. So you have all these distortions that are just stacked on top of each other, and that is what the market, the way we see it, what would it look like without regulations? Well, we would definitely be very much wealthier than we are. The prosperity level of the world would be enormous. But what would it look like? I have no clue. There’s no way of knowing, because everything today is so distorted.

Keith Weiner: I was going to say and this kind of segues into the average person who’s defending the European style socialized medicine, the National Health Service of the UK or whatever the equivalents are in Germany and France and the rest, and they point to the US and say, well, look at your capitalist system. See how expensive it is? It isn’t really that much better than our system, but it costs ten times more. How do you begin to explain? No, you got it all wrong. Whatever the word is for a highly regulated system where a drug takes ten years and a billion dollars to get approval, if you’re lucky, because it’s the same thing with the product and hiring the labor. You have to spend a billion dollars in that ten years upfront and hope that as a back end that gives you an approval and you can go to market. So huge amounts, huge numbers of drugs obviously never go through that gauntlet, too, right?

Per Bylund: I mean, the big companies, the big Pharma companies, they want to make sure that only drugs that cost a billion dollars can be approved because otherwise they’re going to have a lot of small competitors.

Keith Weiner: Right.

Per Bylund: So they want it to be really expensive.

Keith Weiner: So whatever the word is for our system where you can’t practice medicine without a license, you can’t open the clinic without your competitors writing a letter saying there was a need for you to open the clinic where the drugs are controlled by the regulatory agency, which cares not when it kills people. You can measure the gap between when Europe approves something and when the FDA approves something and how many people die just on the FDA’s wait period. And for certain heart medications. I’ve measured hundreds of thousands of deaths on certain medications and this entire scheme and on and on and on with how doctors are paid and what’s called insurance today, which is really just outsourced welfare state wherever it is, for this tangled mess, which is utterly dominated by the government in every aspect, in every area. The word for that is not capitalism, and people still use it as the American system is capitalist. The European system is socialist. Isn’t socialist system better? And I think in a certain sense, you could say the US system is more fascist in the sense of Mussolini. It’s private ownership under government control versus the outright socialist of the European system.

And they’re saying that in this particular flavor of fascism, the flavor of socialism is slightly less bad. Maybe that’s true. I hope we can find a way to make a set of arguments to get back to something that’s a little freer and therefore a little more prosperous.

Per Bylund: Well, I mean, that really takes us back to entrepreneurship, right? We already mentioned Uber and how they disrupted cab companies and cab companies were super protected and they were making money. Some of us remember what it was like to take a cab, and that was not a nice experience. Taking an Uber is so much nicer and faster and it’s cheaper and everything is better. And I think that’s what we’re going to expect to see in other industries that are heavily regulated and protected by those regulations. And I mean, some industries, I just expect some entrepreneur to figure out how to Uberify in a sense, those industries by just doing something in a different way so that it doesn’t fall under the same regulations. And healthcare is one and higher ed is another. Both of those are so ripe for disruption. I mean, they’re so heavily protected that it’s taking a while for someone to figure out how to challenge these incumbents and challenge the whole industry. But there’s so much money to be made and so many consumers to be made better off by someone trying. So I think we’re already seeing it in academia a little bit already with online courses and online degrees and new universities like the University of Austin and the Mises Institute’s master program in Austrian economics and things like that.

They’ve been trying online education for quite some time. But I think the problem there is that they’re not innovating. They’re doing what universities are doing, but doing it a little bit better because they understand the Web technology better than the universities do, which is not hard. But what they need to do is offer a different type of service. And then when that happens, I think we’re going to see a revolution in both healthcare and higher ed.

Keith Weiner: That was the hope of mine and a cause for some optimism. But thanks so much. This has been a fascinating conversation. I think something that our listeners will greatly appreciate and a lot of good ideas that you’re working on and keep on tracking. Great.

Per Bylund: Thanks for having me on.

Keith Weiner: All right. Thank you.

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