The U.S. Economy with Peter Thiel

Uploaded by HooverInstitution on 05.12.2008

Robinson: Welcome to Uncommon Knowledge, I'm Peter Robinson. When I first got to know my
guest Peter Thiel he was a struggling student at Stanford Law School, since then he as co-founded
PayPal, become one of the principle investors in Facebook and turned his present company
Clarium Capital into one of the leading hedge funds in the nation; this past September Forbes
put Peter on its list of the 400 richest Americans. A point to bear in mind as Peter and I talk
about economics, during that same period of time my principle
achievement was to go from a 30 to 15 year mortgage. Peter argues that a book published
in France in 1968 under the title [foreign language], showing off for you there,
or The American Challenge has a lot to say to us in the United States in 2008.
Today on Uncommon Knowledge Peter Thiel, a 40 year old book, and the state of the American
economy. Segment one, How America Once Looked, by the way, first question, this book was
published the year you were born how did you even hear about it let alone tell me that
you wanted to talk about it on this show?
Thiel: Well, one of my friends told me I had to read the book a few years ago and it was
-- it's always striking to read these books about the future that were written in the
past and the question is, how does the present map up to compare with the way the future
used to look?
Robinson: Okay, so, Jean Jacque Servan Shriver [assumed spelling] published The American
Challenge in France in 1967 the American translation in 1968, 40 years ago and he argues
that the economy of the United States was so dynamic that, "In 1980 the United States
will have entered another world," by the year 2000, "Life will be as different from what
it is today as our society's now are from Egypt or Nigeria, American will be a post
industrial society with a per capita income of $7,500, there will be only 4 work days
a week of 7 hours per day, the year will be comprised
of 39 work weeks and 13 weeks of vacation with weekends and holidays; this makes 147
work days a year and 218 free days a year and all this in America within a single generation."
It didn't pan out as Servan Shriver predicted, how come?
Thiel: Well, I think that's a very interesting, very important question the basic thing that
Servan Shriver predicted was that you were gonna have this exponential growth in
technology and I think the very difficult problem is there's been less growth than people
thought there was going to be. And we have, obviously, the big headline type stuff you
have stories on Google and Apple all these very high-profile tech companies. But in some
sense the compound growth has been less than people thought even with globalization,
even with the computer revolution, the Internet revolution, the biotech revolution it somehow
has not added up to quite as much a difference as people thought. And so today
people in the U.S. have to compete more with the rest of the world than they did 40 years
ago where as if you have this exponential technological growth you might have to compete
less because we'd be so much further ahead of the rest of the world.
Robinson: Okay
Thiel: It goes to something very interesting that's gone wrong with the way people thought
the future was gonna look and, ya know, if you were in the mid 1960's people thought
it was gonna be the Jetsons, we're gonna have vacation trips on the moon and flying cars
and robots doing all your work and it hasn't quite happened, it's been just much slower.
Robinson: Right, the only robot that does any work that I'm aware of is the Rumba little
carpet sweeper, that's as far as we've gotten. Now, I should repeat, or I should make note
that The American Challenge, [foreign language] swept Western Europe; this is not as if
you've noticed a book that sort of slipped through the cracks 40 years ago this was an
enormous book. The argument that this man laid down was bought by western Europe and
substantially by the American elite Arthur Slessenger [assumed spelling] in the American
translation there's a big long forward by Arthur Slessenger, Jr., so the question I
guess would be, was it just a hysterical Frenchman getting over-excited or was it a reasonable
argument at the time and in some fundamental sense the American economy has under performed?
Thiel: I think it was a reasonable extrapolation from what was going on at the time, so if
you looked at the world if you were born in 1950 and you were looking at the world
in the late 60's it looked like everything was just getting better automatically every
single year. And certainly, and then it somehow slowed
down a lot and you had the oil trucks, the resource constraints of the 70's, it got
restarted sort of in the 80's and 90's but we really had 40 years of much slower growth
than before.
Robinson: Alright, let me attempt to contradict you. Economist Art Laugher [assumed spelling]
and Steven Moore [assumed spelling] in their new book The End of Prosperity, "America's
net worth climbed in real terms from 25,000,000,000,000 in 1980 to 57,000,000,000,000
in 2007, more wealth was created in the United States in the past 25 years than in the previous
200 years. In 1967 only 1 in 25 families earned $100,000 or more where as now in constant
dollars almost 1 in 4 families do." That's really a very, very impressive record, right?
Thiel: Well, you have to sort of --
Robinson: We may not be flying to the moon but this is a substantial achievement, the
American economy has been amazingly prosperous.
Thiel: Well, you have to drill down a lot of the facts.
Robinson: Okay
Thiel: So I think the acid prices have gone up tremendously for -- and we've had an incredible
bull market in equities from '82 to 2007, I think if you updated it for the
last year you'd probably have to take off about 14 or 15,000,000,000 with the loss in
housing and --
Robinson: I Googled around last night and the number I came up with was 16,000,000,000
as sort of a rough estimate.
Thiel: So you can calibrate it down quite a bit in just the last year and then if you
make that adjustment on a per capita basis, ya know, population's grown we're probably
about where we were in 1980 on a per capita basis today.
Robinson: Really?
Thiel: So you make those two adjustments, and so it's, now, maybe it's grown some but
it's certainly grown less quickly than people would think.
Robinson: Okay
Thiel: Family incomes are up some from the late 60's but it's not clear that's the right
metric because you have a lot of families where both spouses are working and that's
very different from the world of the late 60's and --
Robinson: Okay, let me -- segment two, who's on vacation now? Servan Shriver made a lot
about all the vacation days Americans would have in the future more free days than working
days. Now, let me present to you a couple of arresting statistics, until 1970 western
Europeans and Americans worked about the same number of hours each year and after 1970 they
diverge. Western Europeans work less and Americans work more until the new President
of France Nicholas Sarkoze [assumed spelling] changed the law earlier; this very year
France had a work week, by law, of 35 hours, no more than that no paid overtime. The typical
American work week 42 hours, in France vacation guaranteed 5 weeks plus 12 public
holidays, typical American vacation time 2 weeks, so what's going on?
Thiel: Well, people are working more in the U.S. than in France and there are all sorts
of crazy laws on the books in France that prevent people from working. You know you
get police officers in Paris who ticket your cars if you're parked for more than 35 hours
at an office they measure all these things very, very methodically. But at the same time
I think the thing that is going on is we're nowhere near the 13 weeks that Servan Shriver
was predicting in '67 or '68 for the U.S. and somehow things have fallen short. Now,
ya know, I think you can argue that people like working more and but I think at the margins
though a lot of people who would actually prefer somewhat less. Ya know, most people's
jobs aren't as much fun as your job and they would like to have some sort of different
balance and so when you look at families where both spouses are working they might have to
have a third job or a part time job on top of their regular job to make ends meet. The
fact that people are working around the clock and running really hard just to stay in
place is telling you something about this incredible decline --
Robinson: You are sounding so bearish about America I'm not gonna let that stand, at least
not yet. Let me try a couple of economist's explanations of this diversion in working
patterns. Bruce Sasserdode [assumed spelling] of Dartmouth, "Europe has been friendly
to the politics of the left than the United States for the last half century. Unions in
Europe use their strength to bargain for more holidays, more vacation days, shorter regular
work weeks, and more unemployment insurance, it's clear he's correct about that, right?
Thiel: Yes, but the question, look, the question's not how many hours, the question's not how
many hours are people working or how many days they're working a year. On some
levels the question is, how much are people getting paid per hour?
Robinson: Ah, alright, then I present to you Edward Prescott [assumed spelling] of Arizona
State University winner of the 2004 Nobel Prize, I know you so well that I can
anticipate where you're about to go --
Thiel: This is very impressive.
Robinson: and Prescott says that Americans work harder because they get paid more after
taxes, "Marginal tax rates explain virtually all of the difference." Americans are working
harder because they get something for it; this is good news about the United States
not bad.
Thiel: It is -- it's definitely not the way people would have thought about in a naively
would have thought about it in the late 60's where people would have thought that
we're gonna have all this technology progress and you'd have a society where there would
actually be less pressure on people to be working around the clock. So, yes, I think
the marginal taxes are different there are all
sorts of regulations that are different.
Robinson: Right
Thiel: So, but I think the question is, how many women in 2 income households really would
choose to work if their husband was making more money? And --
Robinson: And the answer --
Thiel: So when you [inaudible] down on that question I think it's much more complicated
and then if you say, well, they're working just because the marginal tax rates; this
doesn't resonate as true with the social realities of what's going on in this country.
Robinson: Well we know the answer to the first question, right? Because in recent years of
the pattern -- there was a period, oh, I don't have the statistics on paper so I'll
probably flub it but roughly speaking, there was a period beginning in the 70's or so
when high status women worked; this was something --
Thiel: Yes
Robinson: and then but in the last decade or so the higher the income level the more
likely the woman was to stay home not to work suggesting that --
Thiel: And, yes, that is true.
Robinson: Right?
Thiel: And the part, however, that's problematic is that relatively few women are in households
where the income level is high enough that they can make that choice, so
that is the choice women would make. Most middle-class women are not able to actually
make that choice because they're not, their husband's
not able to make enough money. And so, one key metric along these lines would be,
how much are -- what's the hourly wage that the average male is earning and how do you
compare that today versus 1973, for example, and it's basically flat since '73? The hourly
Robinson: Even taking into account --
Thiel: income for men has not gone up in 35 years.
Robinson: Okay --
Thiel: And again, they made all sorts of complicated adjustments for inflation --
Robinson: Right
Thiel: and so on down the line.
Robinson: But there's one adjustment I'm trying to remember and, again, I'll flub it you'll
have it at soon as I begin to describe it you'll understand what I'm talking about
here. But isn't there also an adjustment for risk in the market place, that is to say
that in the old days you'd get such and such an income and tied to it would be such and
such a risk that you'd lose your job or that your income -- there's a variability of income
is what's going on. Hasn't that at least decreased?
Thiel: It's quite unclear; I think it has gone down some although it's not clear that's
a good thing or a bad thing. So when you have a heavy manufacturing economy there was
much more variability than in a services economy, but it may be that a services economy
has ultimately less growth. So, ya know, if you have a factory that's making widgets you
can imagine a factory that's making 10 times as many widgets if you get more automation
per worker.
Robinson: Right
Thiel: If you have a restaurant it's hard to imagine a waiter or waitress being 10 times
as efficient as a waiter or waitress was 100 years ago.
Robinson: The best Starbucks barista can only squeeze out so many espressos per hour.
Thiel: Only so much. And so there is -- there's less volatility as a result of the shift towards
a service economy but there's probably also less growth.
Robinson: Very quickly, I want to flush out the nature of your argument. You are not saying
that the United States has failed relative to Europe.
Thiel: No, they both have fallen way short of expectations.
Robinson: You're not saying the United States has failed relative to China.
Thiel: China is complicated but it's -- China's still extremely far behind the U.S. so --
Robinson: So what you're saying --
Thiel: it's much more relative to Japan or Western Europe but it has failed massively
relative to what people expected 40 years ago.
Robinson: Okay, segment 3, Peter Thiel on what is wrong. You gave a talk in October
as part of the Big Think Project, which, as I recall, is, people can
click on that and get the streaming video of you, people whose appetite is merely wetted
by this video today can get more of you. "There has not been enough real growth in the economy."
Here's what I'm trying to tease out, what I'd like you to explain about that,
are you saying simply, look, it is the nature of human existence that 2 or 3% growth
is really pretty good and we ought to be happy with that and strive toward that? Or are you
saying that the United States in these last 40 years has demonstrated chronic --
there's something wrong that needs to be addressed and fixed? There's something wrong
with expectations or there's something really wrong
with the real economy.
Thiel: Well, there's something really wrong with the real economy so it's there's not
enough progress. I'd say long-term rural growth in our world is driven by two things
one is, global trade and the other is technology.
Robinson: Okay
Thiel: I think we've had the easy gains from global trade so I think going forward the
main gains are gonna happen from technology. And I think that --
Robinson: Explain the easy gains from global trade.
Thiel: Trade with China, people in China make something more cheaply and therefore your
real standard of living goes up in the U.S.
Robinson: And all this accompanied by the post World War II regime of free trade, the
NAFTA and all that stuff.
Thiel: Especially starting in the late 60's and early 70's when globalization really took
Robinson: Okay
Thiel: And 1980's and so on. And then technology is more intensive growth where you replace
a typewriter with a word processor and that's more efficient. So it's one type of
growth where you have 10 typewriters, go from 1 to 10 typewriters, the other one is go from
a typewriter to a word processor.
Robinson: Got ya.
Thiel: And those are basically the two ways that you can improve growth or productivity,
extensive and intensive. I think we've had some of both but the combination is just not
as much as people think and that's why people are having to work harder, that's why
the wages have gone up some but not as much as people think, there's been some increase
in real wealth but not as much as people think. Now, when you ask why is this, that's, I think,
a very difficult question but I will throw out several --
Robinson: Yes
Thiel: answers and I think it's a combination of some of these things. So I think one is
we have an education system that's very broken in this country and so people, most
people do not have the skills to do these kinds of jobs.
Robinson: You surely want to distinguish between American universities where broadly speaking
everybody on the planet aged 18 or over is trying to get into a Stanford or a Grinnell
or -- that's pretty good, right? You want to talk about public schools and high schools,
Thiel: Well, the top universities are quite good on a relative basis it's very hard to
know on an absolute basis whether they could be better or worse than they are. So I think
even with the top universities if you take something like science research there are
very difficult questions about how efficient it
is, is there this complicated government procurement process where people say they're doing
research on something but it's really just some other different weird pet project they're
working on to get tenure, and the lack of transparency's extremely hard.
Robinson: What a suspicious cast of mind you have.
Thiel: Well, we're living in a very specialized world where the specialization has led to
a point where it's very difficult for people to understand things. If you think
about the recent housing crisis and the credit rating agencies the imprimatur they were giving
on these bonds was very critical because nobody could evaluate them, now, it turned out they
couldn't either. And we have this sort of deferral experts in many different areas.
Robinson: Okay, let me ask you, clearly, a question that I must ask you is, what went
wrong? Now, let me tell you my little mind molded as it was by the big mind of Milton
Friedman [assumed spelling] begins with the presumption that if you see a catastrophe
somewhere you're likely to find the government intervening in some hand-fisted way that messes
up the workings of the market place. And fundamentally my little mind sees two
things that went wrong one of them was the creation of the sub-prime market and there
you see it the government is pushing Fannie Mae
and Freddie Mac to give money to people to get into homes they can't really afford. The
government is creating this sub-prime market place and that's a catastrophe and it's sort
of a Miltonesque catastrophe, the government intrudes where it ought not. But the second
bit of it, as best I can understand, is that all kinds of highly paid very intelligent
sophisticated people who had a full array of incentives to do otherwise never the less
carried lousy assets on their books, didn't value them correctly and made systematically
bad choices in investments, and that bit there is not Miltonesque explanation for.
Thiel: Yes
Robinson: So I'm hoping that you will explain.
Thiel: Well, I think there's a history of the last 5 years and there's a history of
the last 40 so --
Robinson: Okay
Thiel: the time horizon's very important. So we had a housing and finance thing that
went really crazy in the last few years --
Robinson: Right
Thiel: and there was certain assumptions that were embedded in it that were probably just
wrong. So one was that house prices would always go up and that is probably a true assumption
in a world where you have massive growth when you don't have growth it's not true.
And I think that was just a mistake people made and the reason they made that mistake
was because you can't have growth if there's no
progress on the technology front. And so, I think if you want to sort of wind the clock
back a little bit further we had this tech bubble in the 90's that preceded the housing
bubble, parts of it were real but parts of it were fake and, ya know, you have to sort
of wonder how much technology and innovation
was there in the 100th on-line pet food company, for example. And when the technology --
Robinson: That's the one I invested in, incidentally.
Thiel: I'm sure you did.
Robinson: I missed PayPal but I certainly, yeah, alright, go ahead.
Thiel: And so, when the technology bubble of the 90's turned out to be more fake than
real then people had to somehow make returns elsewhere and you made it up with leverage
and leverage was housing for consumers, exotic financial products for banks and then it
was aided and abetted by the government racket that was Fannie Mae. So I think it's a sort
of complicated story but one of the reasons that a lot of the common sense views went
wrong were that people assumed and were too optimistic about the story of automatic relentless
progress that this is something that just happens automatically. For example, an alternate
history of the U.S. in the 20th century would be that the U.S., that you had these
totalitarian disasters and, ya know, communism, fascism where they basically destroyed all
their talented people and they all came to the U.S. in the 50's and 60's and so we had
this enormous boom. And that we made a big mistake to assume that this was just automatically
going to happen and that instead you had to, ya know, what is necessary is for you
to have a rigorous education system, you have to have a society that encourages people to
do this and it doesn't work if people think things are automatic. Just one last
Robinson: Go ahead, sure.
Thiel: So, your question about Fannie Mae.
Robinson: Yeah
Thiel: Ya know, the question is, why were not more people critical of Fannie Mae? Even
on the republican side it was a small minority --
Robinson: Right
Thiel: that was speaking out about this and it was because they didn't think it was that
bad and they didn't think it was that bad because they thought that no one would really
lose money it was all housing and housing was gonna go up because it was automatic progress.
Robinson: Okay, segment 4, the political economy of our day. What I want is the key note, the
theme music that plays in Peter Thiel's mind as he thinks about the economy today.
And let me try a quotation on you and see if you'll go for it as sort of thematically
correct, the right mood; this comes from the perceptive economist and trenchant social
observer Tony Soprano. Episode one of the Sopranos, "It's good to be in on something
from the ground floor, I came too late for that I know but lately I'm getting the feeling
that I came in at the end, the best is over." What do you think?
Thiel: Well, I don't think the best is over at all, so I think on a 30, 40 year horizon
I'd be quite optimistic to think things are going to get better. But I think there is
this very crazy adjustment process and one of the problems from a political economy perspective
is that we're probably -- that the regulatory stuff is we let all these crazy things happen
and then we shut down all risk taking in response to that. And so, I think we have
this -- and so, the worry is what happens in the political system in the U.S. the next
5 to 10 years [inaudible] just break things altogether.
Robinson: Clearly I want to get to that but I also want to kind of establish your own
thinking as well. This is a quotation I don't have written down but I'll paraphrase it,
there's a fellow who blogged somewhere on Yahoo who goes by the name The Naked Economist,
that's enough for people to Google and find him if
they want to and he wrote, this is a pretty close paraphrase, "Even as in 1989 when the
Berlin Wall came down no serious person could any longer believe in communism." In the autumn
of 2008 no serious person could any longer continue to believe in the unfettered free
Thiel: Well, we haven't had a free market --
Robinson: What are the events of the recent months done to your views as a libertarian
and a free market man, shaken them?
Thiel: Not particularly, although, I mean it was eminently predictable that we had way
too much government entanglement in this. The part that I am more pessimistic about
is that people won't draw their own lessons from this. If you look at the early 1930's
there were a lot of reasons things blew up, it was
not necessarily an unfettered free market it was quite possibly the trade tariffs and
the protectionist stuff and various bad decisions the Federal Reserve was making on the governmental
side, so you can make an argument that it was the government that, ya know,
made a sort of garden variety recession turn into the depression and people did not think
of that in that way in the 30's, they didn't actually start talking about what the government's
role was until Friedman wrote his book in 1962 and they didn't start reversing the
bad decisions they made because of their misunderstanding of the history 'til Reagan came
along in the 80's. And so, the big worry is that people will misinterpret --
Robinson: Take entire decades to get it squared away.
Thiel: It'll take us 5 decades to get this straightened out. I'm not that pessimistic
but I think there's a very important question of exactly what went wrong here and I don't
think it had anything to do with free markets, I think it had to do with, ya know,
excessive government entanglement on the one hand and then on the other hand, these long-term
motors of growth working much less well for --
Robinson: Than was understood.
Thiel: than was understood. And part of it was, again, excess of government entanglement
and things like education.
Robinson: Okay, lay blame and then figure out what ought to be done; we're talking about
government policy. Art Laugher, [assumed spelling] "What this administration (and we're not talking
about Obama, we're talking about the last few years here) -- What this administration
and congress have done will be viewed in much the same light as what Herbert Hoover did
in the years 1929 to 1932 we are now witnessing the end of prosperity." And Art Laugher, who
was an advisor to Ronald Reagan and supply side economics and so forth, Art Laugher said
Bush and this past congress, past several congresses, largely republicans, republicans
messed it up.
Thiel: Well, they certainly were not -- certainly if you look at the way the spending spiraled
out of control the government sectored that, got a lot bigger, there's a
sense in which Bush was the worst president in the U.S. since L.B.J. and L.B.J. was --
Robinson: Do you subscribe to that --
Thiel: If you just look at the amount of increased government spending, absolutely.
Robinson: You do.
Thiel: Just if you -- that one metric. Now, I think the -- why I agree with Laugher that
lower taxes are very desirable and, ya know, a
very important component I think the mistake that he makes is to assume that this is just
gonna happen and, ya know, we're -- and for some reason it's not a popular issue anymore,
people want the government to take care of them. And you have, I think we have some,
ya know, the real problem is that if we have a down cycle does this actually make the regulatory
stuff even worse? The tech thing when it ended we, ya know, however real or
fake it was in the 90's, when it ended you got Sarbanes Oxley [phonetic] you got a whole
bunch of additional regulations and then it broke it even more for the next decade.
Robinson: Right
Thiel: And so, the question is, now that, ya know, there was this risk taking that was
done in bad ways, are we now gonna outlaw risk taking all together --
Robinson: Okay
Thiel: and break things even more in the next 5 to 10 years.
Robinson: As we sit here today we're still some weeks from Barack Obama's taking the
oath of office as the 44th president but he's announced his economic team, Tim Geithner,
Chairman of the New York Fed, Larry Summers, former President of Harvard, former Treasury
Secretary in the Clinton administration, they're talking about a massive -- I'll let you, I
don't know whether massive is the right term, anyway -- minimum of $300,000,000,000
in public works projects and some sort of unemployment security, some sort of -- I haven't
read the details I don't know that the details exist. You have the $750,000,000,000 bailout
and the President Elect and his economic team are already calling for an additional,
at least, 300,000,000,000. Good, bad, what should they be doing?
Thiel: I don't know if it makes much -- I don't think it's particularly good but I don't
know if it makes that much of a difference. I mean long-term you want to fix things that
enable long-term productivity growth to happen and the road we're going down is the road
that Japan went down in the 90's where you had one kanesian stimulus after another. The
government borrows money if the government borrows another trillion dollars it means
there's one trillion less in the private sector. And the question is, is the government
going to deploy that money better or worse than in the private sector? In the short run
maybe it helps a little bit because the money gets spent more quickly and you can sort of
get a short-term stimulus.
Robinson: You can get a little kanesian stimulus in affect you're fooling the market, right?
Thiel: Yes, kane's does work to that extent.
Robinson: Yeah
Thiel: But in the long run it probably means just a lot less long-term productivity growth
and this short-term long-term trade off is, ya know, it is one of the places where
the U.S. is at a massive disadvantage as we are constantly focused on, ya know, the next
6 months, the next year, not thinking about the next 20 or 30 years. And this is, ya know,
we're better off than China in every way except that one way, China's better about
looking at the long run --
Robinson: They do think in terms of decades don't they?
Thiel: than the short run.
Robinson: Okay, segment 5, our final segment, fine minds, let me read you a few quotations
from very bright people and then ask you my very bright friend how you'd respond.
Let's begin with Jean Jacque Servan Shriver writing 40 years ago in the American Challenge,
"During the past 10 years (so he's talking about '58 to '68) -- During the past 10 years
American power has made an unprecedented leap forward there is a real danger that Europe
may forever be confined to second place." Is the United States now in the position that
Europe was then and is China now in the position that the United States was in then?
Thiel: The U.S. is definitely at risk of seeing several decades of slow growth or stagnation.
It is not clear that China may catch up to the U.S., it's unclear they'd be able
to overtake the U.S. because it's unclear there's any innovation happening in China.
China is not a frontier country it's not pushing
the frontiers. It can copy the west like Japan copied the west, they can catch up but I don't
think they can overtake us.
Robinson: So the Chinese, even as you look to the next decade or somewhat longer, the
main Chinese game is still moving people from the countryside where they're growing rice
into factories where they're more productive? But they're still making toys designed in
the United States or tires --
Thiel: They get to be more productive doing things that are already being done in the
Robinson: Got it.
Thiel: But geopolitically it's significant because China has 4 times as many people as
the U.S. does and so if China merely catches up to the U.S. it will become the world's
leading power and that change is -- that can change things in important geopolitical ways.
Robinson: So do you expect that to happen?
Thiel: Yes, on current trajectories I would expect China's GDP to surpass the U.S. within
5 years even though the per capita GDP may never catch up.
Robinson: Oh, I see, I see, I see, okay, alright, alright. Hendrick Hertzberg [assumed spelling]
in The New Yorker magazine writing about the election, "Emphatically comprehensively
the public is turned against conservatism, the faith that unfettered markets and
minimal taxes on the rich will solve every domestic problem is dead for a generation
or more."
Thiel: We'll see, these political predictions tend to be very off and I think a lot of it
will come down to how the Obama administration performs in the next few years. And it is
-- I think the timing is not as good as F.D.R's was in the 1930's, ya know, Roosevelt came
in in March 1933, which was also the point when unemployment happened to peak, he was
lucky he got the timing exactly right and he got
all the credit whether or not his policies did any good.
Robinson: Everything got gradually better from the moment he took office.
Thiel: He happened to get the timing exactly right.
Robinson: I see.
Thiel: They were gonna get better anyway, maybe he slowed it down maybe he accelerated
we have a long debate about that but it was --
Robinson: You and I, I hope you and I wouldn't have a debate about it.
Thiel: One could have a long debate --
Robinson: Alright, alright.
Thiel: But I think -- I do not think unemployment will peak in January 2009 and so, I think
that Obama will not -- it would be like F.D.R. getting elected, ya know, in the fall
of 1930 and we would have had a very different post mortem. And that's, by the way,
something like that is what happened in the U.K. where basically the labor party won in
late '29, it was thrown out in mid '31 and then
the conservatives ran the U.K. for the next 15 years.
Robinson: So, could I ask you to make a -- just a nice tight political prediction, do
republicans pick up an additional -- you wouldn't expect republicans to take control
of -- take back either chamber 2 years from now, would you?
Thiel: No, but I think they'll make very big gains and most likely we'll win in 2012.
Robinson: Okay, now, this show, there's quite a lot of darkness here in this show, we're
in a plane that's going down so I'm gonna hand you the joystick and I'm looking for
a way to -- do something to lift my spirits if you can. If you can't don't feel obligated
but if you can do something to -- Milton Friedman, perhaps the most consequential economist of
the 20th century, certainly the second half I'd argue and also our friend who died
just 2 years ago this month. At dinner with Milton about 5 years ago I tried to pay him
a complement and argued that he had won the intellectual battle that on economics departments
of major universities across the country free markets were now embraced. And Milton
wouldn't have it he said that yes, I, Milton and Meces [assumed spelling] and Hiack [assumed
spelling] and George Stigler [assumed spelling] and
others may have won an intellectual battle but if you look at practical politics there's
no evidence we've had any effect what so ever government spending continues, regulations
continue to proliferate. And then he was quiet for a moment and he looked at me and
said, the challenge from my generation, Milton's generation, was to provide an intellectual
defense for liberty the challenge for your generation is whether you can keep it. Will
you accept that framing?
Thiel: Yeah, well, I think that on a more optimistic note even if we have a move against
capitalism and against freedom in the next few years I think --
Robinson: Which is we have to take it for granted now, don't you --
Thiel: It's unclear what's gonna happen?
Robinson: Oh really.
Thiel: It's always unclear, ya know, because Obama wants to get re-elected, the people
in his administration want to get re-elected so it's unclear what they're gonna do. Ya
know, they're already talking about not increasing taxes at all, which would be a very good
first step. But I think one of the constraints on it is that we're in a far more competitive
world, so in the 1930's when you have the new deal or the 1960's when you had the
great society there was no other country in the world --
Robinson: China was in a deep freeze.
Thiel: even remotely competing with the U.S. And so, ya know, if you didn't like paying
a 90% marginal tax rate in the 30's, ya know, you weren't gonna move to Stalness [phonetic]
Russia where the marginal tax rates were 100% and you would get shot. And so,
I think the fact that we are living in a more competitive world while it's in some ways
a symptom of America not staying ahead technology wise. In practice it means that really bad
decisions are much harder to make and you can't unilaterally aleve it. Where the only
way it would is if globalization itself breaks cataclysmically barring anything cataclysmic
I think there will be surprisingly big constraints on political action.
Robinson: Alright, last question, you've said a number of times during this interview, technology,
technology, technology, improving schools is really the thing that must be done?
If I said to you, "Peter you've got to give me 2 sentences on what we must do to
accelerate technological growth," how would you reply?
Thiel: Well, there are probably regulatory things that need to be, ya know, there needs
to be less regulation, there needs to be better education system in both primary and
secondary schooling, there are probably ways in which it should be culturally valued
to the point where people going into the engineering scene is as valuable as going into say, ya
know, being a rock star or something like that. So, I think there sort of are a
number of levels that are financial, political, cultural that all intersect. Ya know, one
of the things that's very odd about this whole technology debate is if you think about the
whole broader debate, is the west in cultural decline. Basically the left says
we're not because we have science and technology and the right says we are and science and
technology don't matter and both the liberals and conservatives in our so called cultural
wars silently agree that we have this incredible science technology thing going on and they
just disagree about its importance. And what I'm saying is that, ya know, if that's not
going on or if it's not going on as much as people think then there'd be no question that
we are in incredible decline as a society and it would sort of -- it's a very important
way that I think we need to reframe some of these issues.
Robinson: Peter Thiel of Clarium Capital, thank you very much. I'm Peter Robinson for
Uncommon Knowledge, thanks for joining us.