Uncovering Fraud Through Data Analysis

Joe Lonsdale is a co-founder of the data analytics firm Palantir; OpenGov, which provides cloud software services for governments; and the University of Austin, which seeks to reform higher education. He's the managing partner of 8VC, a tech and life sciences venture capital fund, and is chairman of the board of the Cicero Institute, a nonprofit working to "restore liberty, accountability, and innovation in American governance."

Reason's Nick Gillespie asked Lonsdale why he relocated to Texas from California, how to curb government overreach while providing essential services, his goals for his podcast American Optimist, and his 2020 article, "Libertarianism is Dysfunctional, but Liberty is Great."

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This interview has been condensed edited for style and clarity.

Nick Gillespie: Your venture capital firm is called 8VC. What is that referring to?

Joe Lonsdale: Originally, we had a firm called Formation 8 with some Korean partners, and they took formation, I took eight. Eight's a lucky number in Asia. It's a lucky number actually in Judaism. It kind of represents beyond the seven days. So you can see infinity is tied to eight. It's a lucky number. You have to have lucky numbers. 

Gillespie: And does it tie into the history of Silicon Valley at all?

Lonsdale: It does as well. We talk about waves of innovation in Silicon Valley. And the second big wave of innovation was the semiconductor wave. That's why it's called Silicon Valley, because of the silicon wafer. One of the three Nobel Prize winners who invented the transistor, [William] Shockley, he brought eight of the most impressive people he could find to Silicon Valley. And it turned out he was a great scientist but a terrible boss. And he kept giving them lie detector tests. And finally, they left and said enough of this, we're doing our own [thing]. And they got someone else to back them called [Sherman] Fairchild. So they built Fairchild Semiconductor. And those eight people at Fairchild Semiconductor, it was [Gordon] Moore of Moore's Law, it was Eugene Kleiner of Kleiner Perkins. It was the guys who built a lot of Silicon Valley. So it really pays homage to the history of the tech sector.

Gillespie: And then Shockley, just to cap that story, ended his career by promoting scientific racism.

Lonsdale: It's not ideal, I suppose. So yeah, at least fortunately, we're on the side of the eight people who didn't work for him anyway.

Gillespie: When did you move to Texas?

Lonsdale: 2020. 

Gillespie: Good time to move. Good time to buy, I suppose. But you left California. You were raised in California. You went to school in California. You've thrived in California. You co-founded Palantir in California. Why did you move to Texas? And what does that say about governance strategies?

Lonsdale: There are a lot of things California has going for it, and we still have to go there sometimes for things we do. But California got to be really broke—and I wrote a piece in The Wall Street Journal at the time [about this]—it had about a thousand people working for six companies in Austin because you couldn't really scale companies in San Francisco anymore. It became really expensive. Basically, you'd hire someone in there, you pay them $300,000, and their spouse would really resent it because their standard of living for that much money was still not very high in Silicon Valley. Your staff would have to drive over an hour to come back and forth, even if they were paid well. So really not a good place for middle-class living standards.

Gillespie: Or even upper class. If you're making $300,000, you're in the top 2 percent or 5 percent.

Lonsdale: Not a good place for upper-middle-class standard, either, I should say. There are all sorts of issues in California. It's hard to build things. If you get sued, you're probably guilty until proven innocent, so the really bad court system and just all these reasons why we didn't really want to raise our family there culturally either. I'm pretty moderate socially, but there are really crazy things going on there, and you'd best rather raise your kids somewhere sane. 

A lot of my friends actually left America. They got really negative. It's really sad. Some of them went because they made a lot of money and went to Switzerland, or Singapore, or elsewhere. And I really believe in America. I believe in our constitutional republic. I believe in the values that created this country. And so for me, choosing to go to Texas is like, let's stay here, let's fight for our country. Let's do it from somewhere sane.

Gillespie: What was most attractive about Texas? The four most populous states in the country are California, New York, Texas, and Florida. California and New York are losing people to Texas and Florida. What was it about Texas that you liked more than Florida?

Lonsdale: Yeah, we do love Florida. We love Gov. [Ron] DeSantis and the rule of law there and the great policy they do. If I was just a hedge fund investor, Palm Beach would be a great place to live. I have a lot of mentors there. Miami's a good place for that. 

Culturally, Texas is a better place to build things. There's a history of building technology companies here in Austin, Texas. There are a lot more engineers. There are a lot of great engineering schools here, a lot of great companies. If you look at who's moved here to Austin, I have a lot of my fellow entrepreneurial friends. Elon Musk is spending time in Texas, not in Florida, for the same reasons as me I think.

Gillespie: In Texas, you said it's easy to build here. Can you talk about that a little bit more? Because that is something Texas is known for. It's got a lot of wide open space. Lonsdale: Yeah, there are less stupid rules. There are less bureaucrats. Even in this house, when we were trying to do some work in the back, we called the city and they said "You're in the extrajudicial territory, call the county." And we called the county, and he said, "Are y'all dumping sewage?" And we said, "No, sir. We're trying to build this extension." They said, "What did you call me for? Do what you'd like." 

This is amazing, this place. It just lets you do what you want. Also, the governor and the people here, when you call them up with a problem as a business, they say, "How can I help you get this done? How can I help you build?" In California, famously when Elon Musk complained to them online, they said, "Fuck you," right? So, it's a very different culture of working with you to help enable you as a builder and stay out of your way vs. getting in your way.

Gillespie: Let's talk a little bit about some of your billionaire friends who left the country rather than staying here. Everybody has a right of exit, but are they doomers in a way? You are part of the effective accelerationist movement. You are very much a white-pilled optimist about the future. What's wrong with going to Singapore?

Lonsdale: Listen, I'm a realist. They're right that there's a lot we have to fix about America. My father raised me to be courageous. And your job as a leader is that you confront things that are broken and that's what you're supposed to do. That's part of me. It's part of my masculine urge, that I have to fix things. I have to stand up for what's right. And so to me, it's just not who I am, to run away. 

And I could see the argument in different contexts in history where it did make sense to run away. Like I had Jewish relatives, some of whom fortunately left Poland on time. That was correct. I don't think there are places to run away to right now [where we] could get away from the types of battles that we need to fight in the world, that we need to win in the world. It's not obvious to me that liberty, freedom, markets, innovation for health care win out if America goes the wrong way. So, we have to have that fight here because if we lose, we'll probably lose everywhere else.

Gillespie: Are you always looking toward the future?

Lonsdale: I like to think I'm an entrepreneur who sees the world for how it is. I see what's possible. I see the gaps. I see where we are now, where we could be. I think that we can see what'll happen if we don't do something, what will happen if we do something. And I've built a lot of companies because I realized this thing's broken, but here is what's possible. And I see a lot of those gaps around policy and government as well. And I'm optimistic that with the right builders, we could do it. I'm not optimistic these things will just happen. But I'm optimistic that if a bunch of us get together and we fight for it, then we can win.

Gillespie: So let's talk about artificial intelligence, and how that plays out, because this seems to be the new bugaboo right now. Everybody is freaking out about it. What are the concerns over AI right now? And why are you on the positive side of things, rather than the "we got to slow down and regulate everything to death" side?

Lonsdale: There are a couple of different buckets I put the concerns into. One of the more extreme concerns, which was expressed well by people like Tim Urban and people like Elon Musk, kind of shows this exponential takeoff of AI. Throughout American history, we've had a lot of times where there are these messianic complexes where people are convinced that the Messiah is going to come and the world is going to end. And it just seems to occur every couple of generations. And this is a kind of secular version of a messianic complex that they're arguing for.

Gillespie: But you don't know if it's Jesus or the Antichrist, right?

Lonsdale: You could argue either one, very interestingly, or analogs of either one in some interesting ways. And so people are saying, yes, this thing takes off, it starts to improve itself, and it's very impressive how well this is working. And so how are we going to have to bear a new form of God effectively that's a thousand times smarter than people and just basically runs the world? And in 10 to 30 years, [that's] pretty unlikely, but there are smart people who believe that's the case and that's a worthy conversation.

Gillespie: But you're a smart person, and you're not betting on that. You're betting on something else.

Lonsdale: If it actually turns out that it is possible to create that with this technology, I don't think we're going to stop it long-term anyway. And I don't know if there's much I could do about it. So we can have that debate. It seems pretty unlikely to me. It seems like it'll take a lot longer than people think.

Gillespie: What are the things that AI will do for people that they're not understanding?

Lonsdale: So there are two buckets. There's a messianic bucket, and that's one argument. It's a very separate argument we can discuss or not, which is this very crazy end-of-time sort of debate. And then there's the everything-else argument where they're afraid of disinformation and destroying jobs. We shouldn't conflate the two arguments, right? They're two separate arguments, like, if you're going to have a God who destroys a job, that's like a stupid thing to debate. It's going to be different anyway. 

So let's go to this bucket over here, what's actually going to happen. And as far as I could tell, this is going to be one of the best things ever for humanity. Productivity is the underlying factor for how well our civilization is doing, how well the economy is doing. And productivity can go way up over the next decade. It could basically free us from drudgery. It can make things really inexpensive for poor people and for everyone else.

Gillespie: Can you give a specific example of how you think—granted, all predictions are wrong—that AI will make life easier or better for people?

Lonsdale: So let's start with what it's already doing. So there are some that came out in the last month from companies like Klarna, which is a big payments company, and people have to call and deal with them. And they have 70 percent of the calls being handled by the AI now. And the people are happier with those calls and can call back less to bother them afterward. [It's] saving [Klarna] a lot of money on those. And there are lots of versions of this. 

Michael Dell—who's also a major presence here in Austin—was saying the other day when he was here that he thinks he's going to have 20 percent higher productivity for his company of 100,000 people. And so basically, there are all sorts of applications of that. Michael is a very serious guy. He doesn't just make wild claims. He actually sees how in the next two years he's going to have certain salespeople being helped, certain marketing documents, certain customer support processes. 

I'll give you one other one: health care billing. Sounds like a boring area. Why are we talking about it? Over $200 billion a year is spent on health care billing in the United States. It's people in office parks going back and forth with insurance companies, and there's like tens of thousands of rules, each for thousands of companies—a mess. Millions of people try to do this. And so it turns out, we already have companies that are making that a few times more productive, which is going to pull another $100 billion of waste out of the economy. So this productivity hitting in all these areas seems very likely over the next few years.

Gillespie: Let's talk about Palantir. You are one of the co-founders. And it was 2003, is that right? 

Lonsdale: I was 20-21 years old, and we started it back then.

Gillespie: How did you start it at that age?

Lonsdale: I just finished at Stanford. I was helping Peter [Thiel]. Peter Thiel was an investor with Facebook at the time, and we had a hedge fund we were running together. I was an intern at PayPal—and the Chinese and Russian mafia were stealing all of our money. Peter Thiel and Elon Musk merged two companies to become Paypal. And so we had to figure out how to stop the bad guys. 

And it turned out that with all the talent that had been brought together in Silicon Valley around that first tech bubble in 2000, we were able to figure out things like how to investigate bad guys that were way ahead of what the government was doing. This was a shocking realization, that all these young engineers were actually way ahead. In the computer science world, you hear stories about the National Security Agency in the 1970s doing things that no one even understood until 15 years later.

Well, the congressional hearings built them. But honestly they would do things and people would look at it and then academics can't explain it. And then I could have just learned why with much more advanced theories much further on. So they were way ahead of us in the government from the mid-20th century. But that was no longer the case in 2000. 

And so we started helping the FBI and Secret Service to arrest the bad guys at PayPal, and my roommate and I got really interested in this. Wow, there's all this investigative stuff we're doing, and 9/11 happened and the government was spending billions of dollars on, frankly, backward things, that we're not nearly as advanced. We said, wow, this is really dangerous. We have bad guys attacking our country. We have people violating civil liberties, not using the data right. Let's build something that could take the best and brightest in this area and extend it to help all of our allies stop the bad guys.

Gillespie: What was the genius inside of Palantir?

Lonsdale: If you want to go to the highest level, we were ranked No. 1 in Silicon Valley for the talent. So there are a lot of very hard engineering problems all combined, you have to do just all these things. David Hume was a big inspiration for us of how reason works, how the mind works, like what are the ways in which the human mind can grapple with data that's too big to be kept inside one human mind. 

You had tens of billions of dollars being spent gathering all types of data in thousands of databases. How do you as an analyst look at this and connect the dots? And so you had to basically figure out how you start with one set of objects and properties and link them in various ways to other things and say, show me everything connected to this by this type of data. Show me everyone where this person's flown with. Show me everything that's connected to this where they have similar names, maybe the same person. Show me everything they've paid for, and then show everyone they've paid and watch the cash flows. Just helping people get their minds into massive data and then monitoring it in a way that's intuitive to them, so that when some random signal intelligence six months later showed a payment between two suspicious guys, all of a sudden they can connect the dots and we can find where the bad guys are. So it's really hard to say who's allowed to see what data. 

Gillespie: From a libertarian perspective, the engineering and technological feats are fantastic. The idea of following data flows where you can find bad behavior and target that, rather than doing large sweeping nets of all sorts of people, that's great. And obviously, the successes that Palantir talks about the most is unveiling China's GhostNet program, as well as probably helping to locate Osama bin Laden. 

Lonsdale: Palantir is behind thousands of terrorists being targeted and eliminated.

Gillespie: Then what are the concerns? How do you work with a government that is known for violating civil liberties on a fairly regular basis? How do you build a system so that you're not merely the handmaiden to a surveillance state?

Lonsdale: The whole core of Palantir was basically a civil liberties engine from the start. What data are you allowed to see and in what context? And how do we bring that together in light and show you only what you're allowed to see that lets you get your job done. The problem is, a lot of these guys, maybe they think they're Jack Bauer in the show 24, someone who's in charge of catching the bad guys, and they're going to break the rules. And we don't want you to be able to break the rules if you're not supposed to break them, but we want you to get the bad guys anyway. That's the whole point of this. 

So it's actually a really hard data problem. Like what are you legally allowed to see? And what's the policy? And we don't set the policy. But we make it so it's very transparent. So if Palantir's installed a certain part of the FBI or the CIA or anywhere else, the people running that can go back and look, here are the rules, here's what was done, here's where the rules were changed, here's who changed them. 

You have basically full audit logs, full audit trails, and you're doing things within their system. And you do need to make things so you can change the rules because there is policy change that happens. But it needs to be transparent, needs to be clear who did what. So someone can't just get in and do something inappropriate.

Gillespie: Here's a strange question. What is your reaction to people like Julian Assange and WikiLeaks or Edward Snowden?

Lonsdale: There's good and bad there. So as a libertarian, as someone who thinks the government wastes tons of money on tons of incompetent things, you want whistleblowers to call out the government, you want to call out waste, you want to call out bad actors. 

Palantir, along with some really talented people, helps stop a lot of major attacks. We literally helped eliminate thousands of terrorists that were planning attacks on us that we wouldn't have otherwise found or stopped, including those famous ones as you alluded to that we don't talk about in public because we don't want crazy people coming for us. But in general, we were close to people who helped uncover tons of these different rings of people who are clearly planning violent attacks in America. Some cases stopped them only with very little time to spare. And it's very frustrating to me that because you have so much competence in stopping these things, people now assume you don't need anything at all in the intelligence community. 

So I agree, there are abusive elements of the intelligence community. I agree that a lot of times, when something's confidential, they're using that to get away with nonsense. But I disagree with the idea that there are not bad guys that we have to fight. And so for me, it's like, let's make the government competent, but let's make the system so it watches the watchers.

Gillespie: How does Palantir help keep the government accountable?

Lonsdale: Actually, to Joe Biden's credit, at the time as vice president, I think he was involved in helping bring Palantir in a long time ago and making sure that we were tracking where all this money was going, because there is just generally a lot of fraud around these issues. And so the more you track any kind of government spending well, the more you understand it in a confident level, the more you're going to find all sorts of bad actors. Unfortunately, this was not always applied to my knowledge to COVID spending. It wasn't always applied as much as I would have liked it to be.

Gillespie: How does that system work?

Lonsdale: If you go back to the complicated fraud problem at PayPal, you're basically mining through the information and you're connecting different analyses and you're finding, first of all, cases that are of known fraud, which are not that hard to find. And you're modeling those to search for things that are similar, and you're piecing through it and you're flagging a bunch of suspicious things. A person does not have time to go through millions of these things. But if you flag things that are very suspicious to them and then show all the data in an intuitive way to them, they say, "Wait, this is obviously something that's wrong."

I remember back at PayPal, there'd be payments, there'd be a bunch of emails that were clearly all set up by the same person, like "baseball2000" or "Yahoofootball2000" or whatever it was, and all the money's going to those accounts and going out of the banks right away, and it's clear it's a coordinated network or something. The computer didn't know for sure. But once you show it to a person, it becomes obvious. So you work together on these things.

Gillespie: Can you ballpark what percentage of stimulus payments were either wrong or shouldn't have been made?

Lonsdale: I don't have that information myself. Palantir is a nonpartisan company. I don't even run it anymore. I'm close to a lot of people behind it. I remember at the time, even President [Barack] Obama agreed, for example, there's lots of fraud in Medicaid. We should probably go after it. He visited us. He was going to do it. His office ended up stopping us from doing it. They didn't want that. Their office doesn't want us to, because they don't want the narrative out there admitting how bad it is, which is frustrating, because we can actually fix most of it. 

Gillespie: Is there any way to change that political calculus?

Lonsdale: You need a really strong, really competent president who's willing to do it. Policy-wise, the Trump administration was willing to, but there's a certain level of confidence that wasn't always there on the follow through. And people have pushed back, and they drop it.

Gillespie: I mean, every president's like this. I'm not going to touch your Medicare. And that might mean I'm not going to touch your Medicare even if you're getting it under the wrong circumstances.

Lonsdale: It's not even for people. I think most of the fraud goes to a lot of very sketchy doctors and health systems. Those places are very powerful special interests. And it just creates a huge headache to go after them. And you need a president who wants to focus on the issue. And listen, there are lots of things to focus on. I'm not telling you this is the most important thing. It does bother me as an American that we waste $100 billion or whatever it is on this nonsense.

Gillespie: Are you going to vote for Donald Trump or Biden?

Lonsdale: I spend most of my time in the states because that's where I can make a huge difference. I have teams in 20 states for Cicero. I respect people very much who would never vote for Trump. I respect people who think Trump's policies are much better than Biden's. And so it's not something that I tend to weigh into.

Gillespie: Do you respect people who definitely will vote for Biden?

Lonsdale: I generally think there's a lot of failed policies. I generally think that there are some people in this administration I admire, but overall, I do not admire this administration. I understand why some people morally still prefer Biden to Trump. That's not my point of view right now.

Gillespie: Is something fundamentally broken, where we are looking at a rematch of Joe Biden and Donald Trump?

Lonsdale: They do seem probably slightly too old to be the people we should be electing. I understand why people are really angry at the way Donald Trump's been treated. Jeb Bush and I wrote a piece on him in The Wall Street Journal talking about how both Elon Musk and Donald Trump had the court weaponized against them. And I see people who agree with a lot of the policies Trump did and are feeling he's treated really badly. So I know why that makes them want to fight for him. I don't think the country is broken or anything like that. I respect different views on these things.

Gillespie: It is interesting though, that Trump has run twice and has gotten less than 47 percent of the popular vote each time. And it seems like it's going to be very close now. Lonsdale: Yeah, I definitely don't think he's the Antichrist. And I definitely think there are some things I really admire that he's done and some things that I dislike as well.

Gillespie: Whatever else you can say about Trump or Biden, they plainly are the end of something. They're not the beginning of something new. Are we just going to be in a holding pattern for at least four years?

Lonsdale: I don't know if that's actually entirely true. There is a lot of new stuff coming, especially on the right. Right now we have a lot of new ideas and a lot of people around the policy organizations on the right who would be running things.

Gillespie: I hope you're right. Because the narrative, which may not be right, is that nobody wants to go into the Trump administration because it's going to be a train wreck. 

Lonsdale: I think people generally want to serve the president of the United States of America, even if they don't necessarily personally always admire him.

Gillespie: Let's talk about the Cicero Institute. What's its mission statement?

Lonsdale: So, the Cicero Institute is a nonpartisan policy think tank. We have a C3, which is the education side, and the C4, which is we're working at the state level to basically increase accountability and align incentives. 

Gillespie: It's named after Cicero. Explain why.

Lonsdale: Cicero was a Roman statesman. I really admire that a lot of the wisdom we have, the kind that reignited the Renaissance, came from writings of his that were saved. And he really stood for duty and wisdom, and for how a country is supposed to work, how a country is supposed to have its citizens who are merchants or natural aristocrats getting involved and making things competent and logical.

Gillespie: What is the Cicero Institute's approach to homelessness, and how is it different and more effective than what you encountered in California?

Lonsdale: We're looking for areas where there are giant gaps in the world between how things should work and how they work today thanks to bad policy. And the homelessness stuff is a really good example of that. The way things are done now in California are just totally insane. You have a billion dollars being given out, not based on data or metrics, but based on political favors to very powerful, very corrupt nonprofit groups whose incentives are completely misaligned. So these cities and these nonprofit groups get more money for doing the wrong things.

Gillespie: I know you're a big critic of the Housing First policy, that the first thing you do to address homelessness is somehow either build more housing or give more housing to people. Why is that wrong?

Lonsdale: Seventy-five percent of these people in cities are on drugs, and 75 percent are mentally ill. It overlaps. And if you give someone who's on drugs and mentally ill a house…. I think in San Francisco, they have more people who died in these homes than who moved on to being self-sufficient. This is a total mess. And then, by the way, who gets the homes? A lot of people who are working in the nonprofit groups get the homes, and people who are close to them, of course, and we try to make it so we had to give the homes to the people who are the most vulnerable, which sounds good on paper. It's that idea of equity. There's a vulnerability index they created, which is used by most homeless groups now in most cities. Most of the cities around the country are using the progressive groups. And the index says you get more points toward a home if you're on drugs. You get more points toward a home if you've committed a crime. It's more points for violent crime. You get more points if you're not in a drug recovery program because you need it more. You get more points where kids are truant and have been taken away from you. 

If you're on the very far left and you see everything through a lens of victimhood, you say, "Oh, these things happen to you. You should get more points." If you understand the world like a person who understands logic and reason, you realize, well, these [policies] are creating incentives, right? And so our nonprofit will follow and try to help people working with the homeless industrial complex. 

Even here in Austin, homeless people walk into this thing that's been set up by these progressive groups, and they say to them, "You sir deserve a home. Here's how you can get a tent." And he replies, "I don't really need a tent. I'm sleeping on someone's couch." She says, "I'm going to pretend I didn't hear that, because you're more likely to get a home if you're in the tent. And here's how you set it up." And then he comes back two months later and she says, "Oh, you're not quite there for a home yet. The Republicans haven't given us enough funding." And he says, "I hear I would have maybe qualified for home money if I was on drugs." And she says, "Well, that might have given you enough points, but we don't like to think of it that way." 

This is literally the conversation. A lot of people don't realize our country is more insane on these things. They assume it's something more logical than this. It's not.

Gillespie: Does the Cicero Institute have model legislation for how to deal with homelessness?

Lonsdale: It does. We have eight different points. The big ones are you want to redirect money away from Housing First toward mental health treatment and drug treatment. You want to redirect things toward temporary shelter, not toward just giving away homes. It's much more efficient and scalable. You want to realign the incentives, so cities ban street sleeping and put people into the shelters. And they don't get more money for bringing more homeless people in. You want to basically realign things where the dollars given out to the nonprofit groups are given out based on metrics and goals. So you have accountability, you audit them, you say, here's your goals, and you get the money not based on being politically connected but based on what you're hitting. 

One of the big ones we really like is what is basically called diversion courts. And so you want a court that could actually force treatment for people. So if someone in San Francisco, forgive me, has pooped on the street for like a fifth time in a row, rather than say, "Oh, we can't do anything about it, just go out there and do it a sixth time," which is disgusting and bad for everyone, you say, "I'm sorry, we're not going to put you in prison because we're not jerks, but we're going to put you here in forced treatment," which is kind of like the obvious solution.

Gillespie: Which is also kind of like prison, right? 

Lonsdale: It is. So, technically, they do deserve to go to prison for having broken the law, but that's really mean. Let's send them somewhere else instead of forced treatment, because you can't just let people keep pooping on our streets. It's like having an adult in the room. It's like these are children in charge, so you can't just let a person keep doing that.

Gillespie: Reason is a house with many mansions. So we have lots of differences of opinion. Within that, I agree, if you're constantly defecating on the street, there should be enforcements for that. But, in general, with a lot of policies like this, how do you make sure that you are not just creating another power structure that can be used arbitrarily by the state or by whoever's in power to punish people that for whatever reason you don't like?

Lonsdale: This is where a lot of our government is broken. We have to have separation of powers. You have to have checks and balances. [Distinguishing between the] Legislative, judicial, and executive branches is one of the key things we get wrong with our administrative state. But you do need rules about this. Then you do need a court system that enforces those rules. And you need a way to appeal to another thing outside of that court system if it's doing something wrong.

Gillespie: So let's jump from homeless people and possibly forced diversion to something else. I've heard Cicero is involved in creating nonprofit prisons. This is not a private prison and it's not a state-run prison, but it would get money based on getting its inmates not to come back to prison, not to be recidivists. How does that illuminate what the Cicero Institute is about?

Lonsdale: So again, we're all about incentives and accountability and really things that create effective functional cultures to get the best results. And right now, our prisons in America do not have effective functional cultures. They are mostly very negative cultures. They mostly have extremely poor results relative to what's possible. When you want to look for incompetence in the world, you look for volatility results. It turns out there are some programs in some prisons for the same sets of people that have like half or a third of the recidivism rate. And so how do we do that? 

A not-very-smart politician who wants to do the right thing will look at that program and say, "We're going to just pay money for that program. We're going to try to copy it." That's one level, but the higher level is how do we create a system which is as close as possible to the way the market works, where the things that are working get more funding and get rewarded and the things that are not working go away. Because the problem is, one system might work somewhere. It's not going to work everywhere else. So you want to make things echo as close as possible to a market. And they say this actually gets down to one of the core misconceptions about prisons, that we have these for-profit prisons, and that's what's ruining everything. It's 10 percent of the prisons. These for-profits are not very good in general, but it's not because they're for-profit. It's because their profit incentive is the wrong incentive. Imagine if we gave a bunch of best entrepreneurs the right incentive and said you can only make money in prisons by getting your recidivism rate down, by making sure people who come out, they come out employed, by making sure when they come out there are ways of measuring their success in the community. That's what we should be doing. There are 37 prisons in California. Imagine if we measured all of this really well. And every couple of years, we replace the bottom three or four and give rewards to the top three or four. Make it so they're all part of this mission. 

Gillespie: You relegate them. It's like British football. 

Lonsdale: So how do you do this? First of all, there's a policy we're trying to pass. There are a bunch of great policies, and unfortunately in Arizona recently, the private prisons—not the good private prisons—stepped in and they've killed some of them. But we're going to get it next year. We're going to keep fighting. But there are other places where we have passed policy for incentives for probation and parole. It's worked extremely well. 

Here's another thing we want to do: We want to take a for-profit prison. We want to buy it into a nonprofit. So imagine putting it in a nonprofit. We're going to run it inside of that nonprofit as if the policy was already there, as if our only goal was that people coming out have higher employment, as if we don't want people to come back, and I want to do that in order to show what's possible. Because again, it's back to that volatility concept. You could show that something could be much better than it is. You can inspire people to say, wait a second, how do we get more of this? Because this is possible and no one's doing it.

Gillespie: Do you think too many things are crimes?

Lonsdale: I'm not for locking up nonviolent drug offenders in general. I have people in my life who I've worked with, who spent a lot of time in jail for things that I think they shouldn't have done. I think our regulatory state is way too big, and it's way too easy to get someone in trouble for a lot of nonsense. We have 9 million words of regulation per state on average. It's a mess. So yeah, there are definitely way too many crimes. 

That said, you do need to put the bad guys in jail. And if you don't, you get really high crime rates. And there are people who need to be punished, who need to be deterred from doing what they're doing. There's a whole thing on the left about prison abolition, which is insane. And I think that's going to hurt our society. I think there's a thing on the right, which is probably too mean, where it's just like you lock up everyone and copy [El Salvador President Nayib] Bukele, which is probably not what we should do in the U.S., even though maybe it made sense in Central America. But I think that both the left and the right, we all can agree that we should run these prisons competently.

Gillespie: I was hoping you were going to say that the right and the left can agree that they really should be libertarian.

Lonsdale: I think that's the libertarian concept from the sense that you're taking the things that work about liberty, work about a free society, and you're applying it to create competence in something that we all can win on.

Gillespie: You are one of the co-creators of the University of Austin. What drew you to that project? You're a Stanford graduate. You have written you don't want to send your kids to an Ivy League or, I guess, Stanford. What is the market gap that you're hoping the University of Austin will fill?

Lonsdale: Well, I hope in 15 or 20 years, the Ivy League or Stanford might be better. If you haven't been in these universities the last 10 years, you've really missed the rapid decline of them on a number of vectors. You basically had these radical, far-left ideologues conquer these places. There are more administrators than kids at Yale. There are almost as many at Harvard. And they are to the left of the professors. The professors in a lot of these departments are basically really focused on these very, very extreme ideologies. 

And you can't become a professor or even a Ph.D. student anymore if you don't go along with that stuff most of the time in these places, and it's really a rot that's kind of core to what's going on in our civilization right now, which Elon Musk calls the woke mind virus. I think [Richard] Dawkins came up with that. It really is this mind virus that is spreading from there and breaking a lot of things. I think a lot of stuff in our society, when it doesn't have to fight for its living or doesn't have to be accountable, ends up just being taken over by this virus.

Gillespie: One of the arguments used to be that you could be a leftist until graduation. But now it's gotten to a point where it's broken; the universities and the people coming out of them don't quite snap back. They're stuck there.

Lonsdale: Yeah. A lot of them go into these thousands of government-funded nonprofits all over the country and just spread ridiculous, broken ideology. They've conquered a lot of the marketing departments and human resources departments. And they're spreading ideas that are frankly anti-competence ideas. And they're very broken. You see all these blue cities all around the country, the vulnerability index we talked about for homelessness, it makes no logical sense. But they've learned in college, you don't argue against things like this. It's a virtue-signaling thing. You have to go along with it. You have to nod. You have to applaud. You have to snap or whatever the hell they do these days. And you're not allowed to say this is clearly wrong. It's bad incentives. By the way, you learn that if you're a white man, you shut up and you nod and go along. The whole thing's ridiculous.

Gillespie: What's the alternative then?

Lonsdale: The alternative is not to have an insane [Critical Race Theory] Marxist running schools. Just have one of them run by moderate, sane people. It's not a conservative thing. It's not a libertarian thing. You probably still have more moderate Democrats than anything else, because it's academia. That's generally been how academia works. You have people on both sides, right? And you have a school that focuses on the pursuit of truth. You have a school that focuses on actually educating the kids and teaching you how to speak up, teaching intellectual courage, teaching them how to have debates. Basically, the idea of intellectual humility, where you might not already have the answer. I think the whole idea of the woke mind virus is that you already have the answer and your job is to shame and ignore people who don't go along with your preconceived set of solutions. 

Instead, let's actually learn and let's violate what we thought was true and learn from both sides. It's a culture of healthy intellectual discourse, which is missing unfortunately on these campuses. We've had these seminars where kids come from Stanford, Harvard, Oxford, and Yale and these places, and they're blown away being at the seminar for a week with great professors and debating ideas and seeing debates, for example, on the whole trans issue, like get a famous trans-economist and a famous feminist to debate the trans issue. Imagine that, and do so with intellectual humility and respect. And they actually ended up hugging each other afterward, despite the kind of fierce argument for a couple of hours.

People have never even seen these debates modeled in a healthy way to them their whole lives. Our society's not in a great place with the way universities work.

Gillespie: Let's talk a little bit about getting it to a better place. You have a very active Substack and a podcast that is called American Optimist. What's the controlling idea there?

Lonsdale: I've been lucky to be able to found a handful of multibillion-dollar companies. And I'm friends with a lot of people who have done the same, and I'm involved with a lot of that. I've been exposed to a lot of things that make me more optimistic because I understand what a lot of smart people are doing to change things in health care and to save lives with new breakthroughs there. And there are just lots of cool stuff going on in the world. And I want to show people, here's what's going on, here's what the common people are doing. Here's why we can be optimistic.

Gillespie: Why do you think the country really has been in a funk at least for 10 years or so? What do you think is driving that?

Lonsdale: What are the challenges? There's definitely civic breakdown. There's definitely this weird thing going on. And it's probably because of social media and because of living our lives more online, where we're like these more disembodied people who don't have some of the same, traditional, healthy ways of relating to each other, relating to our communities. The algorithms make us far more polarized. Donald Trump's ascendancy was also tied to a lot of people in the working class facing competition from around the world and overall lifted up everyone around the world but that did make things tougher for quite a while. And so you have a lot of different areas of struggle. I'm actually quite optimistic. There are good solutions to these things, and I think it's our job to work on those solutions. But that doesn't mean these aren't real, serious challenges for our society.

Gillespie: You're young and you're already doing this. This is the type of stuff that usually people in your situation, they wait 10 or 20 years, cash out, and then start telling the world how to run itself. And that has a long and generally awful lineage. People like Henry Ford did that to very strange ends. But what drives you to be doing this now while you're still growing your business empire?

Lonsdale: There are a couple of things. One is there's just a lot around us that's really broken in our society. And I worry that if you know the history of these things, when you take something that's really broken, if you don't fix it, that's when populists come in and pass crazy things. So if you don't fix health care, then health care gets socialized. If you don't fix a badly broken regulatory state, that's when they come in and just completely change all the rules and take it over and break everything. So in general, I'm worried if we just don't do anything for 10 or 20 years, things could be broken. 

America is an exceptional country, and it's very rare to get a constitution with a check on powers that enshrines liberty the way that ours did. And there are lots of things to fix now. The regulatory state has obviously grown in such a way that it's no longer really constrained by the same principles of the Constitution. So we have to go and put that back in the box and fix it. So there are big things to fix. But yeah, if we just start over from scratch, if you look at human history, like 999 times out of a thousand, we get a really bad answer. So, we don't want to burn it down. That's much worse. We have something really, really precious that we have to keep fighting for and improving. And the other thing is, I do think actually that as an entrepreneur, from what I've seen, I think your mind can work really well in your 30s, 40s, and 50s in a way where you can still learn new things in a dynamic way.

When you start to get into your later 60s and 70s and 80s, I think there's something that ossifies where it's a lot harder to create new concepts for yourself and create new expertise for yourself. I think you still can be the best in the world at what you've been doing your whole life. But to do something new, I wanted to make sure I was really learning these things in a time when I could be one of the best in the world at them.

Gillespie: Do you worry that this is also true of nations and societies, where they go through a period when they get old and senescent?

Lonsdale: That's why it's our job to come in and boldly fix them. So there are all these invisible hands of the market that get rid of old companies. And we don't have stupid companies built 100 years ago around. Imagine if your local town restaurant failed 60 years ago and it was still there. That's what the government is right now. So we basically have to go in and put these same mechanisms in, to get rid of dumb regulations, get rid of dumb parts of government. And we haven't done that very well. But the reason I'm excited about what the Cicero Institute could do is we can go into the states, we can do it in the states boldly. And then we could take those same frameworks and use them in D.C. And that's what I'm trying to do.

Gillespie: Growing up, what were the sources of the person you became intellectually and politically?

Lonsdale: So, obviously, when I was very young, Ayn Rand was an important influence in the duty of the businessman to get involved in the fight for these things. My father actually read some of these books as well. He and I don't always agree on politics, but he was into that. My younger brother was into Austrian economics. So Ludwig von Mises and Murray Rothbard had a very strong influence on me. I'm not an anarcho-capitalist, but there's deep wisdom in a lot of the structures and frameworks he came up with that were really fascinating. And when I was at Stanford, Milton Friedman was there actually. He had been in Chicago before that, and he and I regularly got lunch and his wife Rose joined us.

Gillespie: Did he pay for it? Did you get a free lunch from Milton Friedman? 

Lonsdale: I think the Hoover [Institution] did have free lunch. I was paying tuition though, so it could have been something like that. And those were really big influences on me. If I'm honest, maybe like Isaac Asimov's Hari Seldon—I don't know if you ever read the old Foundation series, but Hari Seldon's job was to kind of figure out what was going to happen over the next thousand years and to improve society. I thought that was a really great goal. I was born with a lot of talents, and I'm lucky to be good at lots of this stuff. And so I'm like, what's a really hard intellectual thing that is really important? Well, how can we have a positive impact on the future of our civilization? And so that to me was very formative as well.

Gillespie: I'm more of a Heinleinian, if we think about it in those terms. Asimov was more of an engineer. But you stopped calling yourself a libertarian. Explain why.

Lonsdale: Yeah, I wrote that piece that liberty is great, but libertarianism is dysfunctional. And in my experience with libertarians, especially from the generation above mine, it was like you sit on the couch and you yell at the TV and tell the government to stop doing things, and you maybe put some money to try to stop the government from doing things, and then the government ends up eventually doing it anyway. It ends up being even more dysfunctional and it keeps growing and you're kind of angry. And all that's not nearly as useful as getting involved in trying to put liberty-based frameworks into the government. 

So, do I think the government should be doing most of these things? No. Should the government be really small? I agree. But there are all these insights that come from liberty and they come from how our society works. Another one: vocational education in America. Do I think the government should have a bunch of vocational programs and training programs? Probably not. I'm pretty pro-liberty, but are they going to get rid of them? No, they're not. So given they're not getting rid of them all, how about we go and we say, how do we apply liberty to these things? How do you apply to them other than deleting them? We're going to go in there and say, listen, we're only going to fund you—there are 27 technical high vocational programs in Texas—based on the salaries of the students coming out. That's a market signal that you can't game. We funded based on graduation rates. They're just going to graduate people. They're going to be funded based on the salaries coming out. Guess what happened when we did that change? The salaries doubled over a period of six years. Doubled. It's completely changed the lives of 50,000 to 100,000 people. 

So you're taking these liberty and free society frameworks and you're putting them into things and you're fixing them and making the government competent. And frankly, that's where the leverage points are these days. If you understand liberty, let's fight and use those frameworks to actually fix things.

• Video Editor: Adam Czarnecki
• Audio Production: Ian Keyser

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