The U.S. Economy with Peter Thiel

Thank you.

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 has co-founded PayPal, become one of the principal 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 principal achievement was to go from a 30- to a 15-year mortgage. Peter argues that a book published in France in 1968 under the title Le Défi Américain—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?

Well, one of my friends told me I had to read the book a few years ago. And it was—it is 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 and compare with the way the future used to look?

Okay, so Jean-Jacques Servan-Schreiber 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, quote, 'In 1980, the United States will have entered another world.' By the year 2000, quote, 'Life will be as different from what it is today as our societies now are from Egypt or Nigeria. America will be a post-industrial society with a per capita income of $7,500. There will be only four work days a week of seven 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-Schreiber predicted. How come?

Well, I think that's a very interesting, very important question. The basic thing that Servan-Schreiber predicted was that you were going to 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, you know, we have obviously the big headline-type stuff. You have stories on Google and Apple and 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 of 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. Whereas if you have this exponential technological growth, you might have to compete less because we would be so much further ahead of the rest of the world. It goes to something very interesting that has gone wrong with the way people thought the future was going to look. If you were in the mid-1960s, people thought it was going to be *The Jetsons*; you were going to have vacation trips on the moon and flying cars and robots doing all your work, and it has not quite happened. It has been just much slower.

Right. The only robot that does any work that I'm aware of is the Roomba, little carpet sweeper. That's as far as we've gotten. Now, I should repeat or I should make note that The American Challenge, Le Défi américain, swept Western Europe. This is not a—it's 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 Schlesinger—in the American translation, there's a big, long foreword by Arthur Schlesinger, Jr. So the question, I guess, would be, was it just a hysterical Frenchman getting overexcited? Or was it a reasonable argument at the time and in some fundamental sense the American economy has underperformed?

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 '60s, 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 shocks, the resource constraints in the '70s. It got restarted sort of in the '80s and '90s, but we've really had 40 years of much slower growth than before.

All right, let me attempt to contradict you. Economist Art Laffer and Stephen Moore, in their new book, The End of Prosperity, quote, 'America's net worth climbed in real terms from 25 trillion in 1980 to 57 trillion in 2007. More wealth was created in the United States in the past 25 years than in the previous 200 years. In 1967, only one in 25 families earned $100,000 or more, whereas now, in constant dollars, almost one in four families do.' That is really a very, very impressive record, right? We may not be flying to the moon, but this is a substantial achievement. The American economy has been amazingly prosperous. Well, you have to drill down on a lot of the facts.

So I think the asset prices have gone up tremendously. And we have had an incredible bull market in equities from 1982 to 2007. I think if you updated it for the last year, you have probably had to take off about 14 or 15 trillion in terms of the loss in housing.

I Googled around last night and the number I came up with was 16 trillion—is the sort of rough estimate—stocks, housing values, and so forth.

So it has been calibrated down quite a bit in just the last year. And then if you make that adjustment on a per capita basis, you know, population has grown. We are probably about where we were in 1980 on a per capita basis today. Really? So if you make those two adjustments. And so it is, you know, and maybe it has grown some, but it has certainly grown less quickly than people would think. Okay. Family incomes are up some from the late '60s, but it is not clear that is the right metric because you have a lot of families where both spouses are working, and that is very different from the world of the late '60s. Okay.

Let me go on. Segment two: who is on vacation now? Servan-Schreiber 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 diverged. Western Europeans work less and Americans work more. Until the new president of France, Nicolas Sarkozy, changed the law earlier this very year, France had a workweek by law of 35 hours. No more than that, no paid overtime. The typical American workweek: 42 hours. In France, vacation guaranteed: five weeks plus 12 public holidays; typical American vacation time: two weeks.

So what's going on?

Well, people are working more in the U.S. than in France. And there are all sorts of crazy laws in the books in France that prevent people from working. You know, you've got police officers in Paris who ticket your cars if you're parked for more than 35 hours in 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 are nowhere near the 13 weeks that Servan-Schreiber was predicting in 67 or 68 for the U.S. And somehow things have fallen short. Now, you know, I think you can argue that people like working more, but I think at the margins there are a lot of people who actually would prefer to work somewhat less. You know, most people's jobs aren't as 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 part-time job on top of the 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 going on beneath the surface.

Peter Robinson: You are sounding so bearish about America. I am not going to let that stand, at least not yet. Let me try a couple of economists' explanations of this divergence in working patterns. Bruce Sacerdote of Dartmouth, quote, 'Europe has been friendlier 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 is clear he is correct about that, right?

Yes, but the question is not how many hours are people working or how many days they are working a year. On some level, the question is how much are people getting paid per hour.

Ah, all right, then I present to you Edward Prescott 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. Nobel Prize in Economics. And Prescott says that Americans work harder because they get paid more after taxes. Quote, '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.

It is definitely not the way people naively would have thought about this in the late '60s when people would have thought that we are going to have all this technology progress and you would 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. But I think the question is, how many women in two-income households really would choose to work if their husband was making more money? And so when you drill down on that question, I think it is much more complicated. And then if you say, well, they are working just because of the marginal tax rates, this does not resonate as true with the social realities of what is going on in this country.

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 '70s or so when high-status women worked. This was something that—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...

Yes, that is true. And the part, however, that is 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 are not—their husband is not able to make enough money. And so one key metric along these lines would be: how much are—what is the hourly wage that the average male is earning, and how do you compare that today versus 1973, for example? And it is basically flat since 1973. The hourly income for men has not gone up in 35 years.

Okay.

Again, we have all sorts of complicated adjustments for inflation and so on down the line.

There is one adjustment I am trying to remember, and again, I will flub it. You will have it—as soon as I begin to describe it, you will understand what I am talking about here. But isn't there also an adjustment for risk in the marketplace? 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—this variability of income is really what's going on. Hasn't that at least decreased?

It is quite unclear. I think it has gone down some, although it is not clear that is a good thing or a bad thing. So when you had 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 if you have a factory that is making widgets, you can imagine a factory that is making ten times as many widgets if you get more automation per worker. If you have a restaurant, it is hard to imagine a waiter or waitress being ten times as efficient as a waiter or waitress was a hundred years ago.

Peter Robinson: The best Starbucks barista can only squeeze out so many espressos per hour.

Peter, only so much. And so there is less volatility as a result of the shift towards a service economy, but there is probably also less growth.

Peter Robinson: Very quickly, I want to flesh out the nature of your argument. You are not saying that the United States has failed relative to Europe.

No, they both have fallen way short of expectations.

You are not saying the United States has failed relative to China?

China is complicated, but China is still extremely far behind the U.S. Okay. So what you are saying... It has not failed relative to Japan or Western Europe, but it has failed massively relative to what people expected 40 years ago.

Okay. Segment three, Peter Thiel on what is wrong. You gave a talk in October as part of the Big Think project, which as I recall is www.bigthink.com. People can click on that and get the streaming video of you. People whose appetite is merely whetted by this video today can get more of you. Quote, 'There has not been enough real growth in the economy,' close quote. 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 two or three percent growth is really pretty good and—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 problem?

There is something wrong that needs to be addressed and fixed. There is something wrong with expectations, or there is something really wrong with the real economy?

Well, there is something really wrong with the real economy. So there is not enough progress. I would say long-term real growth in our world is driven by two things: one is global trade, and the other is technology.

Okay.

I think we have had the easy gains from global trade. So I think, going forward, the main gains are going to happen from technology. And I think that...

Explain the easy gains from global trade.

Trade with China: people in China make something more cheaply, and therefore your real standard of living goes up in the U.S. And all this accompanied by the post-World War II regime of free trade, the NAFTA and GATT and all that stuff, especially starting in the late '60s and early '70s when globalization really took off.

Okay.

In the 1980s 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 we have one type of growth where you have ten typewriters, go from one to ten typewriters. The other one is you go from a typewriter to a word processor. Gotcha. And those are basically the two ways that you can improve growth or productivity, extensive and intensive. I think we have had some of both, but the combination has just been not as much as people think, and that is why people are having to work harder. That is why the wages have gone up some, but not as much as people think. There has been some increase in real wealth, but not as much as people think.

Now, when you ask why, why is this? That is, I think, a very difficult question, but I will throw out several answers, and I think it is a combination of some of these things. So I think one is we have an education system that is very broken in this country, and so people, most people, do not have the skills to do these kinds of jobs.

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 American—that is pretty good, right? You want to talk about public schools and high schools, right?

Well, the top universities are quite good on a relative basis. It is 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 is extremely hard.

What a suspicious cast of mind you have, Mr. 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. It turned out they couldn't either. And we have this sort of deferral to experts in many different areas.

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, begins with the presumption that if you see a catastrophe, it's somewhere you're likely to find the government intervening in some ham-fisted way that messes up the workings of the marketplace. And fundamentally, my little mind sees two things that went wrong. One of them was the creation of the subprime 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 the subprime marketplace. 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 nevertheless carried lousy assets on their books, didn't value them correctly, and made systematically bad choices in investments. And that bit, there is no Miltonesque explanation for. So I am hoping that you will explain.

Well, I think there is a history of the last five years and there is a history of the last 40. So, you know, the time horizon is very important. So we had a housing and finance thing that went really crazy in the last few years. Right. And there were 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 '90s that preceded the housing bubble.

Parts of it were real, but parts of it were fake. And, you know, you have to sort of wonder how much technology innovation was there in the 100th online pet food company, for example.

And when the technology... That is the one I invested in, incidentally.

I am sure you did.

I missed PayPal, but I certainly—all right, go ahead.

And so when the technology bubble of the '90s 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 is sort of a 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, you know,

Communism and fascism, where they basically destroyed all their talented people and they all came to the U.S. in the '50s and '60s, and so we had this enormous boom, and that we made a big mistake to assume this was just automatically going to happen, and that instead you had to, you 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 you can't—it doesn't work if people think things are automatic. Just one last... Go ahead, sure, sure. So your question about Fannie Mae, you know, the question is, why were not more people critical of Fannie Mae? Even on the Republican side, it was a small minority 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 going to go up because it was automatic progress.

Okay. Segment four, the political economy of our day. What I want is the keynote, 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, quote, "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?

Well, I don't think the best is over at all. So, you know, I think on a 30-, 40-year horizon, I'd be quite optimistic that 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. in the next five to ten years.

Do we just break things altogether? 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 blogs 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 market.

Well, we haven't had a free market.

What have the events of the recent months done to your views as a libertarian and a free-market man? Shaken them?

Not particularly, although I mean it was all eminently predictable that we had way too much government entanglement in this. The part that I am more pessimistic about is that people will draw the wrong lessons from this. If you look at the early 1930s, 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 made sort of garden-variety recession turn into the Depression. And people did not think of that that way in the '30s. They didn't actually start talking about what the government's role was in it 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 until Reagan came along in the '80s. And so the big worry is that people will misinterpret this. It will take us five 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, you know, excessive government entanglement on the one hand, and then on the other hand, these long-term motors of growth working much less well than was understood. Than was understood. And part of it was, again, excessive government entanglement in things like education.

Okay. Lay blame and then figure out what ought to be done. We're talking about government policy. Art Laffer, quote, 'With this administration'—we're not talking about Obama and the, 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,' close quote. And Art Laffer, who was an advisor to Ronald Reagan on supply-side economics and so forth, Art Laffer said, Bush and this past Congress, largely, past several Congresses, largely Republicans, Republicans messed it up.

Well, they certainly were not. Certainly, if you look at the way the spending spiraled out of control, the government sector got a lot bigger. There was a sense in which Bush was the worst president in the U.S. since LBJ, and LBJ was pretty bad.

If you just look at the amount of increased government spending, absolutely. You do? Just that one metric. Now, I think I agree with Laffer that lower taxes are very desirable and a very important component. I think the mistake that he makes is to assume that this is just going to happen. For some reason, it is not a popular issue anymore. People want the government to take care of them. 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, however real or fake it was in the '90s, when it ended, you got Sarbanes-Oxley, you got a whole bunch of additional regulations, and then it broke it even more for the next decade.

Right. And so the question is, now that, you know, there was risk-taking that was done in bad ways, are we now going to outlaw risk-taking altogether and break things even more in the next five to ten years?

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, a minimum of $300 billion 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. We have the $750 billion bailout, and the President-elect and his economic team are already calling for an additional at least $300 billion.

Good? Bad? What should they be doing?

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 '90s, where you had one Keynesian 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 then the question is, is the government going to deploy that money better or worse than 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.

You can get a little Keynesian stimulus. In effect, you are fooling the market. Keynes does work to that extent.

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, you know, it is one of the places where the U.S. is at a massive disadvantage as we are constantly focused on, you know, the next six months, the next year, not thinking about the next 20 or 30 years. And this is, you know, we are better off than China in every way except that one way. China is better about thinking about the long run than the short run.

Peter Robinson: They do think in terms of decades, don't they? Right. Okay. Segment five, 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-Jacques Servan-Schreiber, writing 40 years ago in The American Challenge, quote, '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,' close quote. 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?

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 is unclear they will be able to overtake the U.S. because it is unclear there is any innovation happening in China. China is not a frontier country. It is not pushing the frontiers. It can copy the West like Japan copied the West. They can catch up, but I do not think they can overtake us.

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 can... where they're more productive. But they're still... they're still making toys designed in the United States or tires... Peter Robinson: Yes.

They get to be more productive doing things that are already being done in the West. Peter Robinson: Got it. Peter Robinson: Geopolitically, it's significant because China has four 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 changes... that can change things in important geopolitical ways.

Yes, on current trajectories, I would expect China's GDP to surpass the U.S. within five years, even though the per capita GDP may never catch up.

Oh, I see. I see. I see. Okay. All right. All right. Hendrik Hertzberg in The New Yorker magazine, writing about the election: 'Emphatically, comprehensively, the public has 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.'

We will 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. I think the timing is not as good as FDR's was in the 1930s. You 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 then he got all the credit whether or not his policies did any good.

Everything got gradually better from the moment he took office.

He happened to get the timing exactly right. I see. They were going to get better anyway. Maybe he slowed it down. Maybe he accelerated it. We can have a long debate about that.

But he was mainly... You and I, I would hope you and I would not have a debate about it.

One can have a long debate with various people. One can. All right, all right. 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 FDR getting elected, you know, in the fall of 1930, and we would have had a very different postmortem. And that is, by the way, something like that is what happened in the UK where basically the Labour Party won in late '29, it was thrown out in mid-'31, and then the Conservatives ran the UK for the next 15 years.

So could I ask you to make just a nice tight political prediction? Do Republicans pick up an additional... You wouldn't expect Republicans to take control of and take back either chamber two years from now, would you?

No, but I think they will make very big gains and most likely will win in 2012. Okay.

This show, there's quite a lot of darkness here in this show. In fact, we're in a plane that's going down, so I'm going to hand you the joystick and I'm looking for a way to give, do something to lift my spirits if you can. That's just, 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 two years ago this month. At dinner with Milton about five years ago, I tried to pay him a compliment and argue 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, 'Yes, I, Milton, and Mises and Hayek and George Stigler and others may have won an intellectual battle, but if you look at practical politics, there's no evidence we've had any effect whatsoever. Government spending continues, regulations continue to proliferate.' And then he was quiet for a moment and he looked at me and said, 'The challenge for 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?

Yeah. Well, I think on a more optimistic note, even if we have a move against capitalism and against freedom in the next few years...

Which we have to take it for granted now, don't you? It is unclear what is going to happen.

It is always unclear because Obama wants to get reelected, the people in his administration want to get reelected, so it is unclear what they are going to do. They are 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 are in a far more competitive world. So in the 1930s when you had the New Deal or the 1960s when you had the Great Society, there was no other country in the world that was even remotely competing with the U.S. And so if you didn't like paying a 90 percent marginal tax rate in the '30s, you weren't going to move to Stalinist Russia where the marginal tax rates were 100 percent and you would get shot. And so I think the fact that we are living in a more competitive world, while it is 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 cannot unilaterally make them.

Or the only way it would is if globalization itself breaks cataclysmically. And barring anything cataclysmic, I think there will be surprisingly big constraints on political action.

All right, 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 two sentences on what we must do to accelerate technological growth," how would you reply?

Well, there probably are regulatory things that need to be—you know, there needs to be less regulation, there needs to be a better education system both in primary and secondary schooling. There are probably ways in which it should be culturally valued to the point where people going into engineering is seen as valuable as going into, say, 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. You know, one of the things that's very odd about this whole technology debate is if you think about the whole broader debate about, "Is the West in cultural decline?" Basically, the left says we are not because we have science and technology.

And the right says we are and science and technology do not matter. And both the liberals and conservatives in our so-called culture wars silently agree that we have this incredible science-technology thing going on. And they just disagree about its importance. And what I am saying is that if that is not going on, if it is not going on as much as people think, then there would be no question that we are in incredible decline as a society. And it would sort of—it is a very important way that I think we need to reframe some of these issues.

Peter Thiel of Clarium Capital, thank you very much. I am Peter Robinson for Uncommon Knowledge. Thanks for joining us.