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<nettime> Holman Jenkins Jr: Technology = Salvation (Wall Street Journal
Patrice Riemens on Mon, 11 Oct 2010 21:29:39 +0200 (CEST)

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<nettime> Holman Jenkins Jr: Technology = Salvation (Wall Street Journal)

original at: http://bit.ly/dkHmHw

Technology = Salvation
An early investor in Facebook and the founder of Clarium Capital on the
subprime crisis and why American ingenuity has hit a dead end.


The housing bubble blew up so catastrophically because science and
technology let us down. It blew up because our technocratic elite told us
to expect an ever-wealthier future, and science hasn't delivered. Except
for computers and the Internet, the idea that we're experiencing rapid
technological progress is a myth.

Such is the claim of Peter Thiel, who has either blundered into enough
money that his crackpot ideas are taken seriously, or who is actually on
to something. A cofounder of PayPal and an early investor in Facebook (his
stake was recently reported to be around 3%), Mr. Thiel is the unofficial
leader of a group known as the "PayPal mafia," perhaps the most fecund
informal network of entrepreneurs in the world, behind companies as
diverse as Tesla (electric cars) and YouTube.

Mr. Thiel, whose family moved from Germany when he was a toddler, studied
at Stanford and became a securities lawyer. After PayPal, he imparted a
second twist to his career by launching a global macro hedge fund, Clarium
Capital. He now matches wits with some of the great macro investors, such
as George Soros and Stanley Druckenmiller, by betting on the direction of
world markets.

Those two realms of investing?narrow technology and broad macro?are behind
his singular diagnosis of our economic crisis. "All sorts of things are
possible in a world where you have massive progress in technology and
related gains in productivity," he says. "In a world where wealth is
growing, you can get away with printing money. Doubling the debt over the
next 20 years is not a problem."

"This is where [today is] very different from the 1930s. In the '30s, the
Keynesian stuff worked at least in the sense that you could print money
without inflation because there was all this productivity growth
happening. That's not going to work today.

"The people who bought subprime houses in Miami were betting on
technological progress. They were betting on energy prices coming down and
living standards going up." They were betting, in short, on the
productivity gains to make our debts affordable.

We'll get back to what all this means. Mr. Thiel wants to meet me at a
noisy coffee shop near Union Square in Manhattan. Because a Fortune writer
invited to his condo wrote about his butler? "No," Mr. Thiel tells me.
"And I don't have a "butler."

His mundane thoughts these days include whether Facebook should go public.
Answer: Not anytime soon.

As a general principle, he says, "It's somewhat dangerous to be a public
company that's succeeding in a context where other things aren't."

On the specific question of a Facebook initial public offering, he harks
back to the Google IPO in 2004. Many at the time said Google's debut had
reopened the IPO window that had closed with the bursting of the tech
bubble, and a flood of new tech companies would come to market. It didn't

What Google showed, Mr. Thiel says, is that the "threshold" for going
public had ratcheted up in a Sarbanes-Oxley world. Even for a
well-established, profitable company?which Google was at the time?the
"cost-benefit trade-off" was firmly on the side of staying private for as
long as possible.

Mr. Thiel was early enough in the Facebook story to see himself portrayed
in the fictionalized movie about its birth, "The Social Network." (He's
the stocky venture capitalist who implicitly?very implicitly?sets the ball
rolling toward cutting out Facebook's allegedly victimized cofounder,
Eduardo Saverin.)

Today, Mr. Thiel (the real one) has no remit to discuss the company's many
controversies. Suffice it to say, though, he believes the right company
"won" the social media wars?the company that was "about meeting real
people at Harvard."

Its great rival, MySpace, founded in Los Angeles, "is about being someone
fake on the Internet; everyone could be a movie star," he says. He
considers it "very healthy," he adds, "that the real people have won out
over the fake people."

Only one thing troubles him: "I think it's a problem that we don't have
more companies like Facebook. It shouldn't be the only company that's
doing this well." Maybe this explains why he recently launched a $2
million fund to support college kids who drop out to pursue
entrepreneurial ventures.

Mr. Thiel is phlegmatic about his own hedge fund, which took a nasty hit
last year after being blindsided by the market's partial recovery from the
panic of 2008. Listening between the lines, one senses he faces an uphill
battle to convince others of his long-term view, which he insists is "not
hopelessly pessimistic."

"People don't want to believe that technology is broken. . . .
Pharmaceuticals, robotics, artificial intelligence, nanotechnology?all
these areas where the progress has been a lot more limited than people
think. And the question is why."

In true macro sense, he sees that failure as central to our current fiscal
fix. Credit is about the future, he says, and a credit crisis is when the
future turns out not as expected. Our policy leaders, though, have yet to
see this bigger picture. "Bernanke, Geithner, Summers?you may not agree
with the them ideologically, but they're quite good as macroeconomists
go," Mr. Thiel says. "But the big variable that they're betting on is that
there's all this technological progress happening in the background. And
if that's wrong, it's just not going to work. You will not get this
incredible, self-sustaining recovery.

And President Obama? "I'm not sure I'd describe him as a socialist. I
might even say he has a naive and touching faith in capitalism. He
believes you can impose all sorts of burdens on the system and it will
still work."

The system is telling him otherwise. Mankind, says Mr. Thiel, has no
inalienable right to the progress that has characterized the last 200
years. Today's heightened political acrimony is but a foretaste of the
"grim Malthusian" politics ahead, with politicians increasingly trying to
redistribute the fruits of a stagnant economy, loosing even more forces of

Question: How can anyone know science and technology are under-performing
compared to potential? It's hard, he admits. Those who know?"university
professors, the entrepreneurs, the venture capitalists"?are "biased" in
favor of the idea that rapid progress is happening, he says, because
they're raising money. "The other 98%"?he means you and me, who in this
age of specialization treat science and technology as akin to magic?"don't
know anything."

But look, he says, at the future we once portrayed for ourselves in "The
Jetsons." We don't have flying cars. Space exploration is stalled. There
are no undersea cities. Household robots do not cater to our needs.
Nuclear power "we should be building like crazy," he says, but we're
sitting on our hands. Or look at today's science fiction compared to the
optimistic vision of the original "Star Trek": Contemporary science
fiction has become uniformly "dystopian," he says. "It's about technology
that doesn't work or that is bad."

The great exception is information technology, whose rapid advance is no
fluke: "So far computers and the Internet have been the one sector immune
from excessive regulation."

Mr. Thiel delivers his views with an extraordinary, almost physical effort
to put his thoughts in order and phrase them pithily. Somewhere in his 42
years, he obviously discovered the improbability of getting a bold,
unusual argument translated successfully into popular journalism.

Mr. Thiel sees truth in three different analyses of our dilemma. Liberals,
he says, blame our education system, but liberals are the last ones to fix
it, just wanting to throw money at what he calls a "higher education

"University administrators are the equivalent of subprime mortgage
brokers," he says, "selling you a story that you should go into debt
massively, that it's not a consumption decision, it's an investment
decision. Actually, no, it's a bad consumption decision. Most colleges are
four-year parties."

Libertarians blame too much regulation, a view he also shares ("Get rid of
the FDA," he says), but "libertarians seem incapable of winning elections.
. . . There are a lot of people you can't sell libertarian politics to."

A conservative diagnosis would emphasize an unwillingness to sacrifice,
necessary for great progress, and once motivated by war. "Technology has
made war so catastrophic," he says, "that it has unraveled the whole
desirability of it [as a spur to technology]."

Mr. Thiel has dabbled in activism to the minor extent of co-hosting in
Manhattan last month a fund raiser for gay Republicans, but he has little
taste for politics. Still, he considers it a duty to put on the table the
idea that technological progress has stalled and why. (To this end, he's
working on a book with Russian chess champion and democracy activist Garry

You don't have to agree with every jot to recognize that his view is
essentially undisputable: With faster innovation, it would be easier to
dig out of our hole. With enough robots, even Social Security and Medicare
become affordable.

Mr. Thiel has not found any straight line, however, between his macro
insight and macro-investing success. "It's hard to know how to play the
macro trend," he acknowledges. "I don't think it necessarily means you
should be short everything. But it does mean we're stuck in a period of
long-term stagnation."

Some companies and countries will do better than others. "In China and
India," he says, "there's no need for any innovation. Their business model
for the next 20 years is copy the West." The West, he says, needs to do
"new things." Innovation, he says, comes from a "frontier" culture, a
culture of "exceptionalism," where "people expect to do exceptional
things"?in our world, still an almost uniquely American characteristic,
and one we're losing.

"If the universities are dominated by politicians instead of scientists,
if there are ways the government is too inefficient to work, and we're
just throwing good money after bad, you end up with a nearly revolutionary
situation. That's why the idea that technology is broken is taboo. Really
taboo. You probably have to get rid of the welfare state. You have to
throw out Keynesian economics. All these things would not work in a world
where technology is broken," he says.

Perhaps it really does fall to some dystopian science fiction writer to
tell us what such a world will be like?when nations are unraveling even as
a cyber-nation called "Facebook" is becoming the most populous on the

Mr. Jenkins writes the Journal's Business World column.

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