Tyler Cowen interviews John Arnold, John Arnold on Trading, Energy, and Evidence-Based Philanthropy (Ep. 244), June 5, 2025.
John Arnold built his fortune in energy trading by surrounding himself with smart people, maintaining emotional detachment, sensing market imbalances through first-principles analysis, and focusing with laser intensity on a single niche until he dominated it completely. Now he’s applying that same analytical rigor to philanthropy, where he’s discovered that changing human behavior for the long term proves far more challenging than predicting natural gas prices, and that the academic research meant to guide social policy is often riddled with perverse incentives and poor methodology.
Tyler and John discuss his shift from trading to philanthropy and more, including the specific traits that separate great traders from good ones, the tradeoffs of following an “inch wide, mile deep” trading philosophy, why he attended Vanderbilt, the talent culture at Enron, the growth in solar, the problem with Mexico’s energy system, where Canada’s energy exports will go, the hurdles to next-gen nuclear, how to fix America’s tripartite energy grid, how we’ll power new data centers, what’s best about living in Houston, his approach to collecting art, why trading’s easier than philanthropy, how he’d fix tax the US tax code and primary system, and what Arnold Ventures is focusing on next.
Here's the segment about the energy grid.
COWEN: What do we need to do to fix the grid? And is that just impossible?
ARNOLD: It’s not impossible. The problem with the grid is that, by nature of history, the US ended up with three grids. The first grid was in New York City in 1882. It followed the population and started to spiderweb out from there. You also had a grid start on the West Coast a few years later, but nobody really lived in the plains. The weather is bad. It’s hot summers and cold winters, and windy, and the soil is not great in parts of it. So, you had these two grids that started — East Coast, West Coast — and started to come in, and they never really met.
Then you had this third grid that started in Texas, and Texas has always had this libertarian nature to it, and federal government stay away. In the Federal Power Act in 1935, the government came in and said, “We’re going to start regulating the industry,” Texas said, “You know what? We’re going to disconnect our interconnects to Oklahoma and Louisiana, and we’re going to stay intrastate and be independent.” Now, you have these three grids. Texas is DC. The other two are AC. The two that are AC are essentially on a different heartbeat. So, there’s virtually no linkage across those.
I think what’s happened is that, as the nature of both load and generation has changed over time, you’re starting to see more discrepancies in pricing across regions. What really needs to happen is that these three grids that have been independent have different mix and portfolio of generation, and that their load has different profiles. There’s a lot of value to be created by linking loads.
In the summer, you want to move resource generally north to south and vice versa in the winter. You get the benefits of time as the sun starts setting. The five o’clock hour, people start getting home from work. It’s obviously different in different parts of the US, and you can take advantage of that difference, and then the difference in weather patterns as they move from west to east. So, the more linkage you have, the better benefit you get.
COWEN: In terms of governance, would you keep them independent? Or just have them economically more interconnected for better arbitrage?
ARNOLD: I think the nature of history is that these things are going to stay relatively independent. You’re going to have the RTOs and ISOs that you have today, generally. The Northwest is talking about creating a new regional transmission organization, so there is more integration among states, but I think each of the RTOs probably stays independent over the long term.
There's much more in the whole conversation.
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