Peter Thiel (Facebook Board of Directors) – Remarks at Economic Club Of New York (Mar 2018)

Chapters

Abstract

The Evolution and Challenges of the Technology Landscape: Insights from Peter Thiel

Shifting Paradigms in Tech: Beyond Silicon Valley’s Echo Chamber

In a profound exploration of the current state of technology, Peter Thiel, a luminary in the tech world, offers a multifaceted critique spanning Silicon Valley’s narrowed focus on information technology, the dominance of the consumer internet, and the geographical concentration of innovation. Thiel highlights the potential of emerging technologies like AI and self-driving cars, while also delving into broader issues such as political uniformity in Silicon Valley, the repercussions of Trump’s presidency on trade and innovation, and the evolving dynamics of cryptocurrency. This article synthesizes Thiel’s perspectives into a comprehensive narrative, emphasizing the most significant aspects of his observations and predictions.

1. Narrowed Focus in Silicon Valley:

Thiel criticizes Silicon Valley for its limited focus on consumer internet and information technology, overlooking advancements in other engineering fields. This tunnel vision has led to remarkable businesses but has also left numerous other areas underexplored and underdeveloped.

2. Geographical Concentration of Innovation:

The heavy concentration of tech innovation in Silicon Valley, with its high cost of living and limited diversity of ideas, has been a double-edged sword. While it has created a hub of technological progress, it also risks becoming an echo chamber, stifling creativity and diversity in thought.

3. The Challenge of Finding the Next Google:

Thiel expresses skepticism about the likelihood of finding the next major tech success within the Silicon Valley vicinity, suggesting that future breakthroughs might emerge from less conventional locations due to the region’s high costs and herd-like thinking.

4. Economic Implications and Venture Capital:

Thiel raises concerns about the economic implications of the high cost of living in tech megacities, questioning whether this fosters or hinders creativity. He also points out that a significant portion of venture capital ends up funding real estate rather than directly supporting innovation.

China’s Progress and Model:

Thiel acknowledges China’s progress and innovation, evidenced by the success of his book “Zero to One” in China compared to India. He sees China’s aggressive approach to entrepreneurship and innovation as a model for the United States to consider.

Trade Restrictions and Tariffs:

Thiel supports the current trade restrictions and tariffs on China, believing they are necessary to achieve fair trade and protect American interests.

Predicting China’s Response:

Thiel acknowledges the difficulty in predicting China’s response to tariffs, given the limited US exports to China.

Asymmetry in Trade:

Thiel highlights the asymmetry in trade between China and the US, as well as between Germany and the US.

Germany’s Trade Surplus:

Thiel suggests that Germany, like China, may struggle to retaliate against US tariffs without harming its own economy.

Consumption-Oriented Economy:

Thiel attributes the trade surpluses of China and Germany to their focus on investment and value-added taxes, in contrast to the US’s consumption-oriented economy.

5. Geographic Arbitrage and Innovation Distribution:

Thiel suggests that innovation might become more geographically distributed, driven by the rising costs in traditional tech hubs and the opportunities presented in locations with lower living expenses. Thiel’s thoughts on the geographic arbitrage of innovation and the importance of lower living expenses to encourage creativity align with his idea that the next Google might not be found in Silicon Valley.

6. Housing Market Paradox in London:

Thiel notes the paradox in London’s housing market, where increasing housing supply paradoxically decreases its collective worth due to inelasticity.

7. Silicon Valley at a Tipping Point:

There’s a growing concern that Silicon Valley might be reaching a tipping point, where high costs and taxation could negatively impact its efficiency and innovation drive. The high cost of living in megacities like San Francisco and New York is becoming a concern for tech companies, with a disproportionate amount of venture capital funding going towards rent and real estate. Thiel believes this trend cannot continue indefinitely and that there may be a point where the high cost of living outweighs the benefits of network effects and access to capital.

8. Stoking Innovation and Political Uniformity:

Thiel underscores the importance of a critical mass of talent and creative thinking for fostering innovation. However, he criticizes the political uniformity in Silicon Valley, which he views as almost totalitarian and stifling to diverse thought.

9. Thiel’s Views on Trump’s Presidency:

Thiel appreciates Trump for challenging political correctness and reframing debates. He commends Trump’s tax reform but also acknowledges areas of disappointment, suggesting Trump is a better alternative than others.

10. Trade Relations and China’s Role:

Thiel urges a reevaluation of trade relations, especially with China. He points out the unusual flow of capital and the need for a more nuanced approach to trade policies. Thiel also raises concerns about China’s role in venture capital and intellectual property issues.

Bitcoin as a Store of Value:

Thiel compares Bitcoin to gold as a store of value, highlighting their similarities in terms of scarcity and lack of government backing. He suggests that Bitcoin has the potential to replace gold as a store of value, given its limited supply and increasing adoption.

Stability of Bitcoin’s Value:

Thiel acknowledges the volatility of Bitcoin’s value, comparing it to a bubble that may or may not burst. However, he argues that the social acceptance and network effect of money can provide stability to its value, even in the face of speculative bubbles.

Similarities to the Dot-Com Bubble:

Thiel draws parallels between the current cryptocurrency landscape and the dot-com bubble of the late 1990s, citing similarities such as the presence of fast-talking promoters and exaggerated claims.

Contrarian Nature of Cryptocurrency:

Despite the similarities to the dot-com bubble, Thiel emphasizes the contrarian nature of cryptocurrency, noting the lack of support from Wall Street analysts and banks. He views this as a positive sign, suggesting that the technology has the potential to disrupt established financial systems.

Decentralized Development:

Thiel highlights the distributed nature of cryptocurrency development, with major projects like Ethereum being developed outside of traditional financial centers. He sees this decentralized approach as a key differentiator from the dot-com bubble, where development was concentrated in Silicon Valley.

11. Europe’s Economic Dynamics:

12. Privacy, Regulation, and Technology:

Privacy in the Digital Era:

Thiel believes that privacy in the digital era deserves rethinking. He rejects the idea that technological determinism makes privacy obsolete. He argues that privacy is a legal, cultural, social, and political issue, and we should strive for a balance that protects more privacy in the future.

Regulation of Tech Companies:

Thiel dislikes regulation but worries that tech companies’ failure to take privacy issues seriously could lead to regulation. He sees the threat of regulation being greater in Europe due to privacy concerns and resentment towards the success of US tech companies.

Voluntary vs. Illegal Data Sharing:

Thiel distinguishes between voluntary data sharing and illegally obtained data that violates privacy. He believes that these issues are always open to reconsideration.

13. Bitcoin and Cryptocurrency:

AI:

Thiel believes the term “AI” is overused and poorly defined, often referring to incremental automation rather than the transformative changes portrayed in science fiction. He cautions against Silicon Valley’s overly optimistic view of AI and emphasizes the need for realistic productivity numbers.

Amazon:

Thiel considers Amazon the most ferocious company in the U.S. due to its relentless expansion and willingness to enter new markets. He highlights Amazon’s low-margin core business and aggressive approach to competition, seeing it as a formidable competitor in various industries.

Politics:

Thiel predicts President Trump’s reelection if he runs in 2020. He criticizes the Democrats’ current strategy of resisting Trump without offering a clear message or addressing the underlying problems. Thiel suggests that the Democrats should adopt a “steel man” approach, considering and addressing the underlying issues behind Trump’s arguments.

Media:

Thiel questions the media’s motivations, suggesting that some liberal outlets may benefit financially from President Trump’s administration due to increased ratings. He draws a parallel to the Clinton era, where conservative media outlets saw a surge in circulation due to their coverage of Clinton scandals. Thiel implies that certain media entities may have a vested interest in Trump’s presidency due to the financial benefits it brings.

Media’s Dependence on Trump:

Thiel suggests that certain media outlets and personalities, such as the Washington Post, late-night comics, and celebrities, may benefit financially and professionally from Donald Trump’s presidency. He argues that these entities may be hoping for Trump’s re-election, even though they may not publicly express this desire to their audiences.

In conclusion, Thiel’s insights offer a comprehensive overview of the current challenges and potential shifts in the technology landscape. His emphasis on diversification, both in terms of innovation focus and geographic distribution, along with his critiques of political and economic dynamics, present a compelling narrative for the future of technology and innovation.

Notes by: Hephaestus