Why Is Peter Thiel Pessimistic About Technological Innovation?

We’ve all heard this quote from Peter Thiel: “We wanted flying cars, instead we got 140 characters.” It’s the introduction of his VC’s manifesto entitled “What Happened to the Future?”, and it neatly sums up his argument that we’re economically stagnant and no longer living in a technologically-accelerating civilization.

Less well-known is a slightly longer quote from Thiel that also summarizes his views on the technological slowdown. This is from a recent debate with Marc Andreessen:

“You have as much computing power in your iPhone as was available at the time of the Apollo missions. But what is it being used for? It’s being used to throw angry birds at pigs; it’s being used to send pictures of your cat to people halfway around the world; it’s being used to check in as the virtual mayor of a virtual nowhere while you’re riding a subway from the nineteenth century.”

Why is Thiel pessimistic about the future of technology and of economic growth? Here’s a selection of his evidence that we’re no longer technologically accelerating, collected from his writings and public talks.

(Remarks from talks are lightly edited for clarity. Click here to see this article in slightly prettier formatting.)


Look at the Forbes list of the 92 people who are worth ten billion dollars or more in 2012. Where do they make money? 11 of them made it in technology, and all 11 were in computers. You’ve heard of all of them: It’s Bill Gates, it’s Larry Ellison, Jeff Bezos, Mark Zuckerberg, on and on. There are 25 people who made it in mining natural resources. You probably haven’t heard their names. And these are basically cases of technological failure, because commodities are inelastic goods, and farmers make a fortune when there’s a famine. People will pay way more for food if there’s not enough. 25 people in the last 40 years made their fortunes because of the lack of innovation; 11 people made them because of innovation. (Source: 39:30)

Real oil prices today exceed those of the Carter catastrophe of 1979–80. Nixon’s 1974 call for full energy independence by 1980 has given way to Obama’s 2011 call for one-third oil independence by 2020. (Source)

“Clean tech” has become a euphemism for “energy too expensive to afford,” and in Silicon Valley it has also become an increasingly toxic term for near-certain ways to lose money. (Source)

One of the smartest investors in the world is considered to be Warren Buffett. His single biggest investment is in the railroad industry, which I think is a bet against technological progress, both in transportation and energy. Most of what gets transported on railroads is coal, and Buffett is essentially betting that after the 21st century, we’ll look more like the 19th rather than the 20th century. We’ll go back to rail, and back to coal; we’re going to run out of oil, and clean-tech is going to fail. (Source: 10:00.)

There was a famous bet in the between Julian Simon, an economist, and Paul Ehrlich in 1980 about whether a basket of commodity prices will go down in price over the next decade. Simon famously won this bet and this was sort of taken as evidence that we have tremendous technological progress and things are steadily getting better. But if you had to re-run the Simon-Ehrlich bet on a rolling decade basis then Paul Ehrlich has been winning the bet every year since 1994 when the price of this basket of goods has been getting more expensive on a decade-by-decade basis. (Source: 8:30)


Consider the most literal instance of non-acceleration: We are no longer moving faster. The centuries-long acceleration of travel speeds — from ever-faster sailing ships in the 16th through 18th centuries, to the advent of ever-faster railroads in the 19th century, and ever-faster cars and airplanes in the 20th century — reversed with the decommissioning of the Concorde in 2003, to say nothing of the nightmarish delays caused by strikingly low-tech post-9/11 airport-security systems. (Source)


Today’s politicians would find it much harder to persuade a more skeptical public to start a comparably serious war on Alzheimer’s disease — even though nearly a third of America’s 85-year-olds suffer from some form of dementia. (Source)

The cruder measure of U.S. life expectancy continues to rise, but with some deceleration, from 67.1 years for men in 1970 to 71.8 years in 1990 to 75.6 years in 2010. (Source)

We have one-third of the patents approved by the FDA as we have 20 years ago. (Source: 7:35)


The reason that all the rocket scientists went to Wall Street was not only because they got paid more on Wall Street, but also because they were not allowed to build rockets and supersonic planes and so on down the line. (Source: 45:50.)

Space has always been the iconic vision of the future. But a lot has gone wrong over the past couple of decades. Costs escalated rapidly. The Space Shuttle program was oddly Pareto inferior. It cost more, did less, and was more dangerous than a Saturn V rocket. It’s recent decommissioning felt like a close of a frontier. (Source)


The fading of the true Green Revolution — which increased grain yields by 126 percent from 1950 to 1980, but has improved them by only 47 percent in the years since, barely keeping pace with global population growth — has encouraged another, more highly publicized “green revolution” of a more political and less certain character. We may embellish the 2011 Arab Spring as the hopeful by-product of the information age, but we should not downplay the primary role of runaway food prices and of the many desperate people who became more hungry than scared. (Source)


Think about what happens when someone in Silicon Valley builds a successful company and sells it. What do the founders do with that money? Under indefinite optimism, it unfolds like this:

  • Founder doesn’t know what to do with the money. Gives it to large bank.
  • Bank doesn’t know what to do with the money. Gives it to portfolio of institutional investors in order to diversify.
  • Institutional investors don’t know what to do with money. Give it to portfolio of stocks in order to diversify.
  • Companies are told that they are evaluated on whether they generate money. So they try to generate free cash flows. If and when they do, the money goes back to investor on the top. And so on.

What’s odd about this dynamic is that, at all stages, no one ever knows what to do with the money. (Source)

10-year bonds are yielding about 2%. The expected inflation over the next decade is 2.6%. So if you invest in bonds then in real terms you’re expecting to lose 0.6% a year for a decade. This shouldn’t be surprising, because there’s no one in the system who has any idea what to do with the money. (Source: 27:35)

Science and Engineering

We have 100 times as many scientists as we did in 1920. If there’s less rapid progress now than in 1920 then the productivity per scientist is perhaps less than 1% of what it was in 1920. (Source: 50:20)

The Empire State Building was built in 15 months in 1932. It’s taken 12 years and counting to rebuild the World Trade Center. (Source: 36:00)

The Golden Gate Bridge was built in three-and-a-half years in the 1930s. It’s taken seven years to build an access road that costs more than the original bridge in real dollars. (Source: 36:10)

When people say that we need more engineers in the U.S., you have to start by acknowledging the fact that almost everybody who went into engineering did very badly in the last few decades with the exception of computer engineers. When I went to Stanford in the 1980s, it was a very bad idea for people to enter into mechanical engineering, chemical engineering, bioengineering, to say nothing of nuclear engineering, petroleum engineering, civil engineering, and aero/astro engineering. (Source: 45:20)


Even if you look at the computer industry, there are some things that aren’t as healthy as you might think. On a number of measurements, you saw a deceleration in the last decade in the industry. If you look at labor employment: It went up 100% in the 1990s, and up 17% in the years since 2000. (If you ignore the recession, it’s gone up about 38% since 2003.) So it’s slower absolute growth, and much lower percentage growth. (Source: 8:40)

If you measured the market capitalizations of companies, Google and Amazon (the two big computer companies created in the late-nineties) are worth perhaps two or three times as all companies combined since the year 2000. If you look at it through labor or capital, there’s been some sort of strange deceleration. (Source: 9:10)

We have a large Computer Rust Belt that nobody likes to talk about. It’s companies like Cisco, Dell, Hewlett Packard, Oracle, and IBM. I think that the pattern will be to become commodities that no longer innovate. There are many companies that are on the cusp. Microsoft is probably close to the Computer Rust Belt. The company that’s shockingly and probably in the Computer Rust Belt is Apple. Is the iPhone 5, where you move the phone jack from the top of the phone to the bottom of the phone really something that should make us scream Hallelujah? (Source: 9:40)

The Technologically-Accelerating Civilization

I sort-of date the end of rapid technological progress to the late-60s or early-70s. At that point something more or less broke in this country and in the western world more generally which has put us into a zone where there’s much slower technological progress. (Source: 39:30)

If you look at 40-year periods: From 1932 to 1972 we saw average incomes in the United States go up by 350% after inflation, so we were making four-and-a-half times as much. And this was comparable to the progress in the forty years before that and so on going back in time. 1972 to 2012: It’s gone up by 22%. (Source: 14:50)

During the last quarter century, the world has seen more asset booms or bubbles than in all previous times put together: Japan; Asia (ex-Japan and ex-China) pre- 1997; the internet; real estate; China since 1997; Web 2.0; emerging markets more generally; private equity; and hedge funds, to name a few. Moreover, the magnitudes of the highs and lows have become greater than ever before: The Asia and Russia crisis, along with the collapse of Long-Term Capital Management, provoked an unprecedented 20-standard-deviation move in financial derivatives in 1998. (Source)

People are starting to expect less progress. Nixon declared the War on Cancer in 1970 and said that we would defeat cancer in 1976 by the bicentennial. Today, 42 years later we are by definition 42 years closer to the goal, but most people think that we’re further than six years away. (Source: 12:10)

How big is the tech industry? Is it enough to save all Western Civilization? Enough to save the United States? Enough to save the State of California? I think that it’s large enough to bail out the government workers’ unions in the city of San Francisco. (Source: 29:00)

The Conclusion

The first step is to understand where we are. We’ve spent 40 years wandering in the desert, and we think that it’s an enchanted forest. If we’re to find a way out of this desert and into the future, the first step is to see that we’ve been in a desert. (Source)

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What are hedge funds, and what social functions do they serve?

(Published in prettier formatting on Medium.)

J. Pierpont Morgan died in 1913 with a fortune of about $1.5 billion in today’s dollars. For his sway over Wall Street he was nicknamed “Jupiter,” after the Roman king of the gods.

In 2013, four hedge fund managers took home over $2 billion as income each, with the top manager pocketing $3.5 billion. How did a few asset managers earn more money in a single year than Pierpont Morgan did in his whole life?

It’s not always easy to tell. Hedge funds are secretive firms that have long invited suspicion. Their activities have provoked no less than Bill Clinton, who bemoaned the undue power of “a bunch of fucking bond traders” whose whims determined the success of his policy programs.

What should you know about the industry? This essay discusses how hedge funds are structured and the role they play in the financial system.

What are hedge funds?

Hedge funds are pooled-investment vehicles that are relatively unconstrained in their methods of generating returns. They can be thought of as small mutual funds which face fewer regulatory burdens and invest in less conventional ways.

The hedge fund industry has about $4 trillion in assets under management, which is significant, but not so large that it can dictate to the rest of Wall Street. Consider the fact that BlackRock, an asset management company, has about $4.3 trillion under management alone.

What makes a company a hedge fund?

Hedge funds are legally prohibited from advertising themselves to the public, and are allowed only to raise funds from government-approved “accredited investors.” These investors must prove a certain net worth and go through a restrictive application process to become accredited.

In exchange for this limitation on raising capital, hedge funds face relatively little regulatory scrutiny, with few restrictions on the assets they can trade and the leverage they can employ.

The very first hedge funds distinguished themselves by employing leverage and short-selling. That means that some of their trades were made with borrowed capital, which magnified their returns; and that instead of holding on to a stock and waiting for it to rise, they bet that the price would fall.

These two practices, though, have long stopped being sufficient to distinguish hedge funds from other investment vehicles. Modern hedge funds trade all sorts of securities more exotic than standard stocks and bonds. And aside from long/short strategies, their styles have become more sophisticated by orders of magnitude; that includes investing in distressed assets, mergers arbitrage, quantitative investing, and much more.

2-and-20: The very high fees of hedge funds

Hedge funds are pioneers in many ways, including in the very high compensation scheme they set up for themselves.

Claiming inspiration from the Phoenician merchants who took for themselves a fifth of the profits of a successful sea voyage, the very first hedge fund kept 20% of the profits of a trade, as well as 2% of the total assets under management. That’s terrifically expensive given that passive index funds may charge you something like 0.2% of your assets, with zero extra charge for profits.

This “2-and-20” model is remarkably persistent across hedge funds, so much so that a law professor has argued that instead of as specialized investment vehicles, hedge funds should be understood as “a compensation scheme masquerading as an asset class.”

In addition to high fees, investors in hedge funds must tolerate another cost. Hedge funds typically make it difficult for investors to withdraw money on short notice. So investors have to agree not to touch their capital, locking it up for a while after they invest, and sometimes over certain periods determined at the manager’s discretion. These contractual restrictions can have dramatic effects for managers and investors; depending on when these restrictions are exercised, investors may not pull out of a bad position, or they pull out too early and contribute to the failure of a good trade.

How well do hedge funds perform?

It’s important to note that the term “hedge fund” should not connote “investment firm of market-beating returns,” just as the term “hedge fund manager” does not necessarily mean “asset manager with extraordinary insight.” A hedge fund is mostly a legal class. Someone with little capital or experience in investing can incorporate as his very own hedge fund: All he needs is a business license. There’s no particular reason to believe that the mere act of incorporation turns a newbie into a skilled investor.

Though there are some very high-performing firms that have generated astonishing returns, hedge funds as a class do not seem to be able to consistently beat the market, especially when fees are accounted for. There are no guarantees that buying into just any hedge fund will earn you very high returns.

Which hedge funds are notable, and who manages them?

One of the first investors who resembled the modern macro trader was the economist John Maynard Keynes. Keynes used leverage and went both long and short on currencies, bonds, and stocks while he managed the endowment for King’s College, Cambridge.

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Michael Lewis on the difference between gambling and investing

The line between gambling and investing is artificial and thin. The soundest investment has the defining trait of a bet (you losing all of your money in hopes of making a bit more), and the wildest speculation has the salient characteristic of an investment (you might get your money back with interest). Maybe the best definition of “investing” is “gambling with the odds in your favor.”

Michael Lewis, The Big Short.

Thinking Differently: Tyler Cowen interviews Temple Grandin

Tyler Cowen has conducted excellent interviews with Peter Singer and Ralph Nader. Here’s a very short e-book that’s basically a raw transcript of his conversation with Temple Grandin, the slaughterhouse designer and autism researcher who is herself autistic.

Besides the overview on autism what really struck out was how Cowen kept trying to make more general observations about the neurodiverse, and Grandin’s general reluctance to venture into the abstract.

Here are some excerpts:

On what autistic people tend to be good and bad at:

Cowen: In academia, where both of us reside, there are a lot of autistics. And there are other places in our economy where autistics are more likely to flourish than others: library science, the appraisal of paintings, work that requires pattern recognition or fine attention to detail.

Grandin: There are two things that autistics tend to be really bad at. And the [first] thing is, high-level jobs do not require multitasking, having to do two different things at once. The other thing that we’re very bad at is following long strings of verbal instructions. Those seem to be two things that are really quite universal.

Cowen: This notion that the people who do well are the mild cases and the people who don’t do well are the severe cases, I tend not to agree with that.

On autistics and paternalism:

Cowen: Let’s say you want to smoke marijuana – and that affects only you – that’s against the law. I think an autistic person is more likely to be suspicious of paternalism… But is it possible that autistic people are, in some sense, too suspicious of paternalism – that there are examples, maybe, where paternalism would do the world some good, but autistic people, because of their history and, maybe, basic inclination will resist that paternalism because that resistance has become almost ingrained?

Grandin: I have to sell my work and not myself. I can remember early in my career, going to an agricultural engineering meeting and everybody thought I was really, really super weird. And then I whip out a copy of my drawings that I had done, of a cattle-handling facility and they go, “Wow, you drew that?” And as soon as they found that I had drawn that, they started to give me some respect. You know, people respect ability.

Cowen: Maybe ten years ago, I would have thought that over time we’ll tinker with the genes of the human race and this is likely to be a good thing.  But my attitude is changing and I fear if we tinker with genes or use selective abortion, that the result will be we’ll get a lot of kids who are easy to raise or, maybe they’re tall and blonde and captain of the football team, but we’ll lose a lot of diversity.

Cowen: As we go back to the Stone Age and ask, why did autism genes ever survive? That’s an unanswered question… I think one possibility is, during times of urbanization, these autistic people had fewer social contacts and maybe they were less prone to pandemics.

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A simple exercise to improve your writing

Try this out:

Re-type an article you really like.

Almost any article will do. Ideally it’s a good piece of writing, but really the only requirement is that you  like it.

Here’s how to start:

Find an article by someone whose writing skills you admire and whom perhaps you want to imitate. If it’s a magazine, lay it out in front of your laptop and re-type the article. If it’s online, open up a notepad or a Google Doc, put it beside the article, and start typing.

It’s a fun and simple way to improve as a writer.

Why? You notice things when you re-type. You get a sense of the choices a writer makes in diction and syntax; you see how they move between sentences and paragraphs; you figure out how to hyphenate, and the right way to use semicolons after all. You see all of the things that your eyes used to glide over. Even small things like where a comma is placed becomes incredibly important.

It doesn’t have to be a whole article. Just take your favorite few paragraphs and re-type them.

Don’t know where to look? Try out a long piece from the New Yorker. There are some terrifically gifted writers there. Plus, its archive of the last few years is free this summer.

Or, try re-typing the work of a reporter. They usually write clearly and matter-of-factly. Radley Balko is a master of clarity, on the level of both individual sentences and also in terms of structure.

Go for it. It’s fun. Not only will you enjoy re-reading your favorite passages again, you’ll have a better sense of how the magic came together.


Swann’s Way, Marcel Proust

There isn’t a great deal of plot in the first volume of In Search of Lost Time. At first you feel that there’s nothing going on. But pretty soon you have a daily craving for the minor epiphanies of the narrator, who tells stories from his childhood (in particular his views of the adults in his life), and how Charles Swann agonizes about his relationship with Odette de Crécy.

There are two settings: Combray, the rural town where the narrator grew up; and Paris, where M. Swann’s story is told. The first makes you think of the fuzzy, saccharine paintings by Renoir; the second makes you think of the salons painted by Manet.

Proust is astonishingly gifted at observation. Tyler Cowen calls this the best book on interiority. If you’re not an introvert, perhaps you’ll benefit from reading the thought process of a pretty intense introvert, who must make so many considerations before he can make a move.

A lot of the stories are really funny, especially the parts about M. Vinteuil and M. Legrandin. There are many good insights into vanity, insecurity, pride, and jealousy.

Here are my favorite passages: (from the Lydia Davis translation)

My mother, on hearing that he ‘composed,’ told him by way of a compliment that, when she came to see him, he must play her something of his own. M. Vinteuil would have liked nothing better, but he carried politeness and consideration for others to so fine a point, always putting himself in their place, that he was afraid of boring them, or of appearing egotistical, if he carried out, or even allowed them to suspect what were his own desires.

When a servant came in to tell him that my parents had arrived, I had seen M. Vinteuil run to the piano and lay out a sheet of music so as to catch the eye. But as soon as they entered the room he had snatched it away and hidden it in a corner. He was afraid, no doubt, of letting them suppose that he was glad to see them only because it gave him a chance of playing them some of his compositions. And every time that my mother, in the course of her visit, had returned to the subject of his playing, he had hurriedly protested: “I cannot think who put that on the piano; it is not the proper place for it at all,” and had turned the conversation aside to other topics, simply because those were of less interest to himself.

If his daughter said, in her thick, comfortable voice, how glad she had been to see us, immediately it would seem as though some elder and more sensitive sister, latent in her, had blushed at this thoughtless, schoolboyish utterance, which had, perhaps, made us think that she was angling for an invitation to the house.

Swann would endeavour not to find charm and beauty in the women with whom he must pass time, but to pass his time among women whom he had already found to be beautiful and charming.

M. Legrandin, had we insisted further, would in the end have constructed a whole system of ethics, and a celestial geography of Lower Normandy, sooner than admit to us that, within a mile of Balbec, his own sister was living in her own house; sooner than find himself obliged to offer us a letter of introduction, the prospect of which would never have inspired him with such terror.

In my cowardice I became at once a man, and did what all we grown men do when face to face with suffering and injustice; I preferred not to see them.

Whenever my great-aunt saw in others an advantage, however trivial, which she herself lacked, she would persuade herself that it was no advantage at all, but a drawback, and would pity so as not to have to envy them.

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Civil Asset Forfeiture: When the Law Confiscates from the Poor

Here’s an essay on some of the basics of forfeiture. It’s published with prettier formatting here.

Civil Asset Forfeiture: When the Law Confiscates from the Poor

If the police suspect that your property has been connected with criminal activity then it can seize that property without a warrant and without a trial.

That’s called civil asset forfeiture, or just civil forfeiture. It’s based on the legal fiction that property can be criminally guilty: Cash, cars, and even houses are seized because they may have been connected in any way to criminal activity.

The police don’t need to wait for a conviction to initiate forfeiture. Officers can seize the assets if the owner was never charged with a crime in the first place, and keep the assets even if the owner is acquitted of any crimes.

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Clauses that are constitutionally off-limits, according to Randy Barnett

In a video interview with SCOTUSblog, Randy Barnett lists clauses in the Constitution that have effectively been insulated from litigation:

Ask any constitutional litigators whether they can go into court and litigate the Ninth Amendment, the Privileges or Immunities Clause, or the Origination Clause, which states that revenue bills must originate from the House. Can they litigate the Contract Clause, in any but a small number of areas? Until recently they couldn’t litigate the Second Amendment. Can they litigate the Commerce Clause and the Necessary and Proper Clause? Yeah, only if Congress does something way, way out, and only until the Rehnquist Court in 1995.

And I haven’t even got to most of them.

One clause after another has been interpreted by the Supreme Court out of existence. When I read what the Supreme Court had done to what I consider to be the “good” parts of the Constitution, I decided that if the Supreme Court isn’t going to take the Constitution seriously then why should I? … In contracts, writings are taken more seriously, as is the doctrine. That’s the reason I became a contracts professor.