[FoRK] A Conversation with Peter Thiel
eugen at leitl.org
Mon Mar 19 08:49:31 PDT 2012
>From the March/April 2012 issue: A Conversation with Peter Thiel Francis
Fukuyama talks with the renowned entrepreneur.
Francis Fukuyama: I’d like to begin by asking you about a point you made
about there being certain liberal and conservative blind spots about America.
What did you mean by that?
Peter Thiel: On the surface, one of the debates we have is that people on the
Left, especially the Occupy Wall Street movement, focus on income and wealth
inequality issues—the 99 percent versus the 1 percent. It’s evident that both
forms of inequality have escalated at a very high rate. Probably from 1973 to
today, they have gone up faster than they did in the 19th century. The rapid
rise in inequality has been an issue that the Right has not been willing to
engage. It tends either to say it’s not true or that it doesn’t matter.
That’s a very strange blind spot. Obviously if you extrapolate an exponential
function it can go a lot further. We’re now at an extreme comparable to 1913
or 1928; on a worldwide basis we’ve probably surpassed the 1913 highs and are
closer to 1789 levels.
In the history of the modern world, inequality has only been ended through
communist revolution, war or deflationary economic collapse. It’s a
disturbing question which of these three is going to happen today, or if
there’s a fourth way out. On the Right, the Tea Party argument has been about
government corruption—not ethical violations necessarily, but inefficiency,
that government can’t do anything right and wastes money. I believe that is
true, and that this problem has gotten dramatically worse. There are ways
that the government is working far less well than it used to. Just outside my
office is the Golden Gate Bridge. It was built under FDR’s Administration in
the 1930s in about three and a half years. They’re currently building an
access highway on one of the tunnels that feeds into the bridge, and it will
take at least six years to complete.
Francis Fukuyama: And it will require countless environmental permits,
litigation, and so on.
Peter Thiel: Yes. There’s an overall sense that in many different domains the
government is working incredibly inefficiently and poorly. On the foreign
policy side you can flag the wars in the Middle East, which have cost a lot
more than we thought they should have. You can point to quasi-governmental
things like spending on health care and education, where costs are spinning
out of control. There’s some degree to which government is doing the same for
more, or doing less for the same. There’s a very big blind spot on the Left
about government waste and inefficiency.
In some ways these two debates, though they seem very different, ought to be
seen as two sides of the same coin. The question is, should rich people keep
their money or should the government take it? The anti-rich argument is,
“Yes, because they already have too much.” The anti-government argument is,
“No, because the government would just waste it.”
I think if you widen the aperture a bit on the economic level, though I
identify with the libertarian Right, I do think it is incumbent on us to
rethink the history of the past forty years. In particular, the Reagan
history of the 1980s needs to be rethought thoroughly. One perspective is
that the libertarian, small-government view is not a timeless truth but was a
contingent response to the increasing failure of government, which was
manifesting itself in the late 1960s and early 1970s. The response was that
resources should be kept in the private sector. Then economic theories, like
Laffer’s supply-side economics, provided political support for that response,
even if they weren’t entirely accurate. We can say that the economic theories
didn’t work as advertised, but for Obama to try to undo Reagan-era policies,
he would have to deal with the political realities those theories were
confronting. We cannot simply say things went wrong with credit creation in
the 1980s; we also have to deal with government malfunction in the 1970s.
So you have these two different blind spots on the Left and Right, but I’ve
been more interested in their common blind spot, which we’re less likely to
discuss as a society: technological deceleration and the question of whether
we’re still living in a technologically advancing society at all. I believe
that the late 1960s was not only a time when government stopped working well
and various aspects of our social contract began to fray, but also when
scientific and technological progress began to advance much more slowly. Of
course, the computer age, with the internet and web 2.0 developments of the
past 15 years, is an exception. Perhaps so is finance, which has seen a lot
of innovation over the same period (too much innovation, some would argue).
There has been a tremendous slowdown everywhere else, however. Look at
transportation, for example: Literally, we haven’t been moving any faster.
The energy shock has broadened to a commodity crisis. In many other areas the
present has not lived up to the lofty expectations we had. I think the
advanced economies of the world fundamentally grow through technological
progress, and as their rate of progress slows, they will have less growth.
This creates incredible pressures on our political systems. I think the
political system at its core works when it crafts compromises in which most
people benefit most of the time. When there’s no growth, politics becomes a
zero-sum game in which there’s a loser for every winner. Most of the losers
will come to suspect that the winners are involved in some kind of racket. So
I think there’s a close link between technological deceleration and
increasing cynicism and pessimism about politics and economics.
I think, therefore, that our problems are completely misdiagnosed. The
debates are all about macroeconomics, about how much money we should print. I
think you can print more money and have inflation, or stop printing money and
have deflation. Bad inflation involves commodity prices and inputs, and bad
deflation involves people’s wages, salaries and house prices. But the
middle-way Goldilocks version, where commodity prices and consumer goods go
down and wages go up, seems very farfetched. I don’t see how that sort of
outcome can be crafted in a world with no growth.
Francis Fukuyama: I understand you’re part of the inspiration behind Tyler
Cowen’s book The Great Stagnation. Apart from being a former colleague of
mine, he’s on the editorial board of The American Interest.
Peter Thiel: He did very graciously dedicate the book to me, and it’s an
incredibly powerful articulation of this theme on many different levels. I
think the question of technological dynamism isn’t often examined, but when
you look into it you see many problems, from transportation failures to the
space program and the Concorde decommissioning to how the energy failure
allows oil price shocks to undo the price improvements of the previous
century. Think of the famous 1980 Paul Ehrlich-Julian Simon wager about
resource scarcity. Simon may have won the bet a decade later, but since 1993,
on a rolling decade basis, Ehrlich has been winning famously. This is
something that has not registered with the political class at all.
Francis Fukuyama: That’s an early sign that we may be moving into a zero-sum
You made your fortune initially in Silicon Valley. Your assertions may raise
a lot of eyebrows, because skeptics would say, “What about the whole boom of
the 1980s?” There’s that famous Robert Solow quote from 1987, “You can see
the computer age everywhere but in the productivity statistics.”1
Econometricians finally began detecting that productivity jump in a more
significant way in the 1990s. I would think that rather than arguing in
general that there has been a technological slowdown, the more socially
important argument is that the distributional impact of all the cutting-edge
technological changes that have occurred over the past generation go
overwhelmingly to the smart and well-educated. If you had great math skills
during the agrarian economy of the 19th century, there weren’t many jobs
where you could exploit that and get really rich. Now you can go to Wall
Street or become a software programmer. So there’s something about the
progress we’ve had that has overlain the increasing inequality you’ve pointed
Peter Thiel: I don’t entirely agree with that description. My claim is not
that there has been no technological progress, just deceleration. If we look
at technological progress during most of the 19th and 20th centuries, it
brought significant disruption. If you built horse buggies for a living, you
would be out of work when the Ford Motor Company came along. In effect, over
time labor was freed up to do more productive things. And on the whole,
people got to be better off. I think the larger trend is just that there has
been stagnation. There are debates about how to precisely measure these
statistics, but the ones I’ve looked at suggest that median wages since 1973
have been mostly flat. Mean wages have gone up maybe 20–25 percent, which is
the greater inequality, an anemic 0.6–0.7 per year. And if you confiscated
the wealth of all the billionaires in the United States, the amount would pay
for the deficits for only six months. There has been this increase in
inequality, but it’s a secondary truth. The primary truth is this truth of
As for why inequality has gone up, you could point to the technology, as you
just have. You could also point to financialization of the economy, but I
would say globalization has played a much greater role because it has been
the much greater trend. Even though there have been a lot of bumps in the
road, your “End of History” strikes me as very much true today. Globalization
has been incredibly powerful, far more so than people could have
realistically expected in 1970. The question is, what is there about
globalization that creates a winner-take-all world? There certainly has been
a labor arbitrage with China that has been bad for the middle class, as well
as for white-collar workers, in the past decade or two.
Consider, too, that in 1960 we spoke of the First World and the Third World;
today we speak of the developed world and the developing world, the part that
is looking to copy the West. The developed world is where we expect nothing
more to happen. The earlier dichotomy was fairly pro-technology and in some
ways more agnostic on the prospects for globalization. The present dichotomy
is extremely bullish on globalization and implicitly pessimistic about
technology. Of course, we can point to the great fortunes that have been made
in the tech industry, but of the great fortunes that have been made in the
world over the past twenty or thirty years, most have not been made in
technology. Look at the Russian oligarchs. Maybe one out of a hundred
billionaires has a tech-related fortune. The others are a political thing
linked somehow to globalization. So that’s why I think it’s important to
quantify these things correctly. We tend to focus a lot on the optimistic
tech narrative that notes a lot of progress, but I think the more important
question is why it hasn’t been happening.
There certainly are a lot of areas of technology where, if it were
progressing, we would expect a lot of jobs to be created. The classic example
would be clean technology, alternate energy technology. If you were to retool
the economy toward more efficient forms of energy, one would realistically
expect that to create millions of jobs. The problem with that retooling is
that the clean technology just doesn’t work—namely, it doesn’t do more for
less. It costs much more, so it isn’t working—at least not yet.
Francis Fukuyama: Thinking again about inequality, the problem isn’t that
people are lazy. It’s not that working-class people don’t have a work ethic.
In a sense they’re victimized by the advances of technology and globalization
and so forth. The classic response to that is to urge the state to protect
them. Take Karl Polanyi’s view that these forces can’t be defeated or pushed
back, but that there must be some form of guided social adjustment, because
society on its own adjusts much less quickly than underlying technology and
trade patterns change. But then, if you say we’re stuck because the
government can’t do anything, there isn’t a solution. Or at least there isn’t
the classic solution: more redistribution and active labor market policies
like they have in Scandinavia, which arrange for worker retraining.
In terms of clean tech, I think the classic infant-industry argument might
apply here. It’s true that it isn’t competitive with fossil fuel technology
right now, but we’re walking very rapidly down a cost curve, especially in
solar tech. Governments have provided a certain amount of help in
commercializing technologies. Certainly the Chinese have been doing this big
time, which is why they’ve undermined our alternative energy industries.
Where do you stand on that kind of intervention?
Peter Thiel: We have different kinds of challenges on the government side.
One is a little more philosophical in nature: We tend to think the future is
indeterminate. But it used to be seen as a much more determinate thing and
subject to rational planning. If it’s fundamentally unknowable, it doesn’t
make sense to say anything about it. To put it in mathematical terms, we’ve
had a shift from thinking of the world in terms of calculus to statistics.
So, where we once tracked the motions of the heavenly bodies and could send
Voyager to Jupiter over a multiyear trajectory, now we tend to think nature
is fundamentally driven by the random movements of atoms or the Black-Scholes
mathematical model of financial markets—the random walk down Wall Street. You
can’t know where things are going; you only know they’re going to be random.
I think some things are true about this statistical view of the future, but
it’s extremely toxic for any kind of rational planning. It’s probably linked
in part to the failure of state communist central planning, though I would
argue that there is something to be said for some planning over no planning.
We should debate whether it should be decentralized or centralized, but what
the United States has today is an extremely big government, a quasi-socialist
government, but without a five-year plan, with no plan whatsoever.
If you were to telescope this now down to a single issue like clean energy,
the unplanned statistical view of the future is that we don’t know what
energy technology will work, so we’ll experiment with different things and
see what takes off. The planned view says that two are most likely to be
dominant, and so the government has a role to play in coordinating resources
and making sure they work. So if it’s nuclear power, it has to free up space
at Yucca Mountain, deal with zoning rules and get plants built, and it’s a
complicated project at the regulatory level. The same is true of solar or
wind power. If government wants high-speed rail, it must overcome local
zoning rules. My guess is that at best we can push on just a handful of these
major things, but that sort of determinate push requires a view of the future
that is very specific, and that’s not now the kind of view people have.
The Solyndra bankruptcy is a detailed example of this. It strikes me that the
Obama Administration’s response should have been, “Well, Solyndra failed, but
here are two or three companies we awarded loan guarantees that are working
great.” They didn’t give that response. There’s a bad explanation and a worse
explanation for that. The bad explanation is that none of these companies are
working. The worse explanation—the one I believe is true—is that no one at a
senior level in the Administration even thinks about the question of
technology. It’s assumed to be a statistical, probabilistic thing that’s best
figured out by portfolio allocations of capital to different researchers, and
not a worthwhile subject to think about. This is a radically different
position than, say, that of John F. Kennedy, who could talk about the nuts
and bolts of the Apollo space program and all the details of what was needed
to make it happen. So it’s a much different way of thinking about the future.
If there is going to be a government role in getting innovation started,
people have to believe philosophically that it’s possible to plan. That’s not
the world we’re living in. A letter from Einstein to the White House would
get lost in the mail room today. Nobody would think that any single person
would have that kind of expertise.
Francis Fukuyama: Well, clearly, Silicon Valley was in many ways the product
of a government industrial policy, DARPA. So much of the early technology,
the creation of the internet itself, the early semiconductor industry, were
really spinoffs from investments in military technology that were obviously
pushed very strongly by the government.
Peter Thiel: My libertarian views are qualified because I do think things
worked better in the 1950s and 60s, but it’s an interesting question as to
what went wrong with DARPA. It’s not like it has been defunded, so why has
DARPA been doing so much less for the economy than it did forty or fifty
years ago? Parts of it have become politicized. You can’t just write checks
to the thirty smartest scientists in the United States. Instead there are
bureaucratic processes, and I think the politicization of science—where a lot
of scientists have to write grant applications, be subject to peer review,
and have to get all these people to buy in—all this has been toxic, because
the skills that make a great scientist and the skills that make a great
politician are radically different. There are very few people who are both
great scientists and great politicians. So a conservative account of what
happened with science in the 20th century is that we had a decentralized,
non-governmental approach all the way through the 1930s and early 1940s. At
that point, the government could accelerate and push things tremendously, but
only at the price of politicizing it over a series of decades. Today we have
a hundred times more scientists than we did in 1920, but their productivity
per capita is less that it used to be.
Francis Fukuyama: You certainly can’t explain the survival of the shuttle
program except in political terms.
Peter Thiel: It was an extraordinary program. It cost more and did less and
was probably less safe than the original Apollo program. In 2011, when it
finally ended, there was a sense of the space age being over. Not quite, but
it’s very far off from what we had decades ago. You could argue that we had
more or better-targeted funding in the 1950s and 1960s, but the other place
where the regulatory situation is radically different is that technology is
much more heavily regulated than it used to be. It’s much harder to get a new
drug through the FDA process. It takes a billion dollars. I don’t even know
if you could get the polio vaccine approved today.
One regulatory perspective is that environmentalism has played a much greater
role than people think. It induced a deep skepticism about anything involving
the manipulation of nature or material objects in the real world. The
response to environmentalism was to prohibit scientists from experimenting
with stuff and only allow them to do so with bits. So computer science and
finance were legal, and what they have in common is that they involve the
manipulation of bits rather than stuff. They both did well in those forty
years, but all the other engineering disciplines were stymied. Electric
engineering, civil engineering, aeronautical, nuclear, petroleum—these were
all held back, and attracted fewer talented students at university as the
years went on. When people wonder why all the rocket scientists went to work
on Wall Street, well, they were no longer able to build rockets. It’s some
combination of an ossified, Weberian bureaucracy and the increasingly hostile
regulation of technology. That’s very different from the 1950s and 1960s.
There’s a powerful libertarian argument that government used to be far less
intrusive, but found targeted ways to advance science and technology.
Francis Fukuyama: Let’s talk about the social impact of these changes. Those
stagnating median wages basically translate into a guy who had been working
in the auto industry or the steel industry at $15 or $20 an hour but is now a
very downwardly mobile checker at Walmart. So does the government have a role
in protecting that kind of individual? If, as you say, we’re up to 1789
levels of inequality, this could be a socially explosive situation—perhaps
not now, but down the road. The classic response of many capitalists is that
you have to save capitalism from its own excesses by some form of
redistribution or protecting the people hurt by it.
Peter Thiel: I think most government welfare spending does not actually go to
poor people. I don’t have a problem with the amount of money going to poor
people, and perhaps we could do somewhat more. There are some very
out-of-the-box solutions we could explore, such as a more protectionist trade
policy, which would effectively raise taxes through tariffs and protect a
range of domestic jobs. Even though that’s an inefficient move from a certain
economic perspective, perhaps it’s a better way to raise taxes than a variety
of other means. The argument has been that hampering free trade distorts
markets, but every tax distorts markets, so you need to make a relative
argument, not an absolute one.
The reality is that most government entitlements are middle-class in nature:
social security, Medicare, a lot of the education pieces. One type of reform
would be to means-test all entitlement spending, but you then run into these
difficult political problems. My larger view is that all these fixes are
simply provisional. The overarching challenge is that all the questions about
how much the government should insulate people from what’s going on depend on
how far we are from equilibrium. Take, for instance, competition with Japan
in the 1970s, when people were being paid half as much and it was disruptive
to the car industry. Was there something we could have done? Perhaps, but
China has four times as many people and wages at one-tenth of the U.S. level.
The disequilibrium goes much further.
On the one hand, we should streamline the welfare state to help those who are
actually poor, as opposed to the middle class. But at the same time we need
to do more to make people aware of the need to compete globally. One area
where government has really failed is that its use of resources have
encouraged people not to even think about the worldwide stuff. The U.S.
government in 1965 made the American people much more aware of global
competition and global trade than they are today. The economy has shifted
from manufacturing to non-tradeable services. If you’re a lawyer, yes,
there’s some complicated way in which you’re subject to international
pressure, but you’ve basically chosen a career path that doesn’t force you to
compete globally. The same is true of a nurse, a yoga instructor, a professor
or a chef. So this skewing toward non-tradable service-sector jobs has led to
a political class that is weirdly immune to globalization and mostly
oblivious to it.
Francis Fukuyama: I agree with you that we’ve bought this line from the
economists for the past thirty that globalization is inevitably going to be
good without thinking through these points you raise.
I’d like to shift now to the question of biotech and biology. I know you’ve
been an investor in companies researching issues like longevity, a personal
interest of yours. This is one of those areas, I think, where there’s
conflict between an individual’s interest in living forever versus the social
good of population turnover. Steve Jobs said this in his 2005 Stanford
commencement speech, that we should welcome death, because without it people
wouldn’t see much change. It’s like Max Planck’s old saying, “Science
progresses one funeral at a time.” Pick your discipline, and I think that’s
largely true. And actually, it seems like a lot of our fiscal woes are due to
the fact that people live too long now. We used to have population pyramids;
now they look more like Greek vases, with a big mass of older people resting
on a decelerating rate of population growth. So isn’t the cumulative impact
of advancing biomedical research into longevity going to be to worsen every
single one of the social problems you point to?
Peter Thiel: I don’t agree with the Steve Jobs commencement speech. I’m
deeply skeptical about any sort of rationalization of death. It’s tricky to
make the ethics too consequentialist, because even if it were true that
longevity is bankrupting the welfare state or the healthcare system, we can’t
unlearn the things we’ve learned. The goal of longevity research is for
people to live longer and healthier lives. If it succeeds, the key thing is
just to raise the retirement age. Retirement in many cases at age 65 is
absurd given present life expectancy, which has been going up two and a half
years each decade. In 1840, 46 years was the maximum life expectancy (among
Swedish women); today it’s 86 years (among Japanese women). And every day
that you survive, your life expectancy goes up something like five or six
hours. So the policy calibration should be to have an automatic increase of
the retirement age by three months per year.
The secondary, more scientific question is whether the claims are correct
that these technologies are producing longer, healthy lives; perhaps they’re
producing longer, unhealthy lives. I think the truth involves some of both.
The average seventy-year-old is healthier, but at the margins there are
longer periods of suffering, such as with Alzheimer’s. About a third of
people age 85 have either Alzheimer’s or some incipient dementia. If we can’t
cure some of these late-stage ailments, there’s a prospect of a very long
period of debility before death. I think the jury is still out.
To take a step back, the entire longevity research program is the culmination
of the Western scientific project. It was part of Francis Bacon’s New
Atlantis, and has been a recurrent thread through much of the past 400 years
of science. I don’t think we can abandon it or carve it out without
abandonOne of the concerns is with innovation. Part of what produces
innovation is generational turnover. You see this in academia all the time.
The people with the best ideas are younger professors. When you get to be my
age, you more or less stopped thinking 25 years ago. If you live another 25
years, you’ll probably have the same dumb ideas you do today. In a sense,
there’s a remorseless evolutionary logic to the fact that one generation has
to grow up in different circumstances, adjust to that and see the world
Peter Thiel: One of the critical areas of research today is neurobiology. The
trickiest organ to deal with is the brain system. We can imagine replacing
other organs as they wear out with artificial ones, but you wouldn’t want to
have your brain replaced. So the longevity project must look at brain
functioning and find ways to improve it over time. I think significant drug
advances in neurobiology have happened over the past 15 years, and there’s
good reason to believe we’ll see more progress in the next few decades.
Even if mathematicians peak in their twenties, as you suggest, a
writer-philosopher has a long shelf-life, so you’ve picked a good career path
for the age of longevity. I still think the correct answer is to figure out
ways to acknowledge the fact, to address tenure and other systems that
privilege the old over the young.
Francis Fukuyama: Look at California, for instance, where we spend much more
on Medicare and pensions for the old than on K-12 education.
Peter Thiel: It’s a political problem, I agree, because old people vote and
young people do not or cannot. On the other hand, if you look at the venture
capital industry, it tends to allocate a lot of capital to younger people who
start companies. The university is a strangely problematic case where it’s
hard for young researchers to get funding. I think the public sector is more
broken than the private sector.
Francis Fukuyama: As a last topic, let’s turn to your thoughts on education.
You’ve made the case that many people overinvest in higher education. So you
offered fellowships to allow people to drop out and start companies. Beyond
that, what’s the agenda in terms of reforming the system? More privatization?
There was a recent piece about people connected to the Obama Administration
lobbying for less regulation of for-profit education. It seems like that’s
become a pretty politicized area. What’s the next step in fixing this
Peter Thiel: Again, I look at this through my overarching view of forty years
of technological stagnation, and an attendant unawareness of it because a
series of bubbles have distracted us. There’s an education bubble, which is,
like the others, psychosocial. There’s a wide public buy-in that leads to a
product being overvalued because it’s linked to future expectations that are
unrealistic. Education is similar to the tech bubble of the late 1990s, which
assumed crazy growth in businesses that didn’t pan out. The education bubble
is predicated on the idea that the education provided is incredibly valuable.
In many cases that’s just not true. Here and elsewhere people have avoided
facing the fact of stagnation by telling themselves stories about familiar
things leading to progress. One fake vector of progress is
credentialing—first the undergraduate degree, then more advanced degrees.
Like the others, it’s an avoidance mechanism.
The bias I had five years ago was that my foundation should start a new
university and just do everything better. I looked into it in great detail,
examining all the new universities that have been started throughout the
world in the past ten years, and found that very little has worked. It has
been a huge misallocation of capital, and donor intent got lost on all sorts
of levels. I started out wondering how you could allocate money for the
improvement of education and concluded that there was no way to do it.
This relates to the problem I mentioned earlier with taking a statistical,
unplanned approach to the f of campus speech codes; it’s a much more
pervasive problem. For instance, part of what fuels the education bubble is
that we’re not allowed to articulate certain truths about the inequality of
abilities. Many of our destructive bubbles are linked to political
correctness, and that’s why Strauss is so important today.
Francis Fukuyama: Excellent. Thank you very much.
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