A Conversation with Peter Thiel and Niall Ferguson

Good evening, everybody. Welcome to the John F. Kennedy Jr. Forum. My name is Trey Grayson, and I'm the director of the Institute of Politics, and we're excited to have all of you here. We see a lot of faces we don't normally see in the forum, and we want to welcome everybody. You can come back to the more political stuff, to all of our tech friends in the audience. But we're excited to have everybody here. This project, this tonight's forum, wouldn't be possible without the partnership of the IOP and the Harvard Program on Constitutional Government under the direction of Harvard Professor Harvey Mansfield. We're glad to have Professor Mansfield here. We're going to bring him up to introduce our moderator and our speaker.

Professor Mansfield.

Thank you. Thanks very much. I first introduce Peter Thiel. Born in Germany, graduated from Stanford, Stanford Law School, clerked after law school, three years on Wall Street, left for Palo Alto, founded PayPal, founded a hedge fund, Clarium Capital, an early investor, a canny investor in Facebook, author of Diversity Myth: Multiculturalism and the Politics of Intolerance at Stanford, said to be an avowed libertarian, not your typical average billionaire, more interesting and reflective than Warren Buffett and Bill Gates with their lukewarm bromides and bad advice, perfect speakers for a Harvard commencement where probably Peter Thiel will never be seen. Unless, but let's not be obvious.

I also introduce Niall Ferguson, Lawrence A. Tisch Professor of History at Harvard, a senior research fellow at Jesus College, Oxford, a senior fellow at the Hoover Institution at Stanford. He comes very well credentialed, is the author of books in economic history: German Inflation, The House of Rothschild, The Cash Nexus, The Ascent of Money, The Life of Siegmund Warburg; books on war: The Pity of War, The War of the World; books on empire: How Britain Made the Modern World, Colossus: The Rise and Fall of the American Empire, all of which prepared him for his latest, which is called Civilization. He's been named one of the 100 most influential people in the world. But tonight, he will content himself with being moderator.

Professor Ferguson.

Thank you very much indeed. Well, Harvey is quite right. I'm playing the part of Charlie Rose tonight. And so please direct all your fire at my guest. And I'm going to use as little air time as possible. So Peter, let me cut straight to the chase. I know you're not allowed to talk about a fistful of dollars, Facebook, anything like that. But I can ask you a general question about Silicon Valley. Is this dot-com bubble 2.0? And are we going to see another crash around the corner? Or do you see something that's more sustainable going on in Silicon Valley right now?

Well, I don't think we have a second full-on bubble in technology at this point. It does seem that it's more sustainable. The businesses are being built more slowly, more incrementally. The valuations are nowhere, and the insanity level is nowhere like where it was in the late 1990s. At the same time, it is of course all happening on a much smaller scale. And even though there's definitely some optimism around Silicon Valley, especially around the computer and internet sectors, it has not been enough to move the dial on the whole economy, much less, say, not even, say, the state of California. So if you were to say that Silicon Valley is doing fantastic, therefore you would infer that California must be the best state in the United States.

And that's not quite true. So I think that there is no excessive optimism of the sort you had in the '90s. But at the same time, there are definitely pockets where there seems to be a lot of progress happening, especially around computers and the internet. But there are many other areas where it's not been enough to move the dial for California, and I believe not enough for the country or the world as a whole.

Well, it's certainly moved the dial for you, and one of the most impressive things about your resume, which Harvey just read us, is just how many winners you've picked. I'm guessing there are at least some people in this audience who are only here in the hope that you will tell them what the next Facebook will be. So, what is the thing we've never heard of that you've already invested in that we'll hear about sometime next year when it's too late?

Well, I'm not going to hype any of my companies here. I think that one of the things that's very different from technological progress versus globalization, if you say the two big themes of the 21st century are globalization, the developing world, copying the West, sort of horizontal growth, if you will, going from one to n, and vertical progress, technology, people doing new things, which is what the developed world needs to be doing, going from zero to one. The horizontal progress of the sort that you see in China is very straightforward, and you have a very mechanistic way of figuring it out. You can just look at what has been done, and there's a way to just mechanically turn the crank and copy things.

There may be some problems with China. It may or may not work as straightforwardly, but there's something you can say about what you need to do. On the other hand, in going from zero to one, by definition, every time there's a major innovation in technology, either in science or in a business context, there is something about it that has a non-repeatable character, and there's something about it that's very specific and unique. And so the most important aspects of it are things that are not easily repeatable. And so it involves some complex judgments around where technology is, what can be built, are these the right people who can build a particular thing? In many cases, it's globally competitive.

If you're starting a new technology company, you have to be the best in the world. And so much of it has the flavor of you get a gold medal if you're the best, but there is no silver and there's no bronze. There's often nothing in second or third place. And so by the time there's a trend or a theme and people talk about what is the next, you know, company in category X, that's often, it's already, you're already looking very much in the rearview mirror, and that tends not to be the right idea.

I want to shift now from your work as an investor to what strikes me as your equally interesting work as a thinker. Last year, you published what I thought was one of the most interesting think pieces of the year, National Review, a piece which deserved perhaps a little bit wider coverage than it got. It was entitled "The End of the Future." And in it, you made an argument that I found very striking, namely that there's a kind of two-speed world right now, and this has been true for some time. You've been a part of an incredible time of innovation in the technology sector, but that kind of innovation hasn't been going on elsewhere, and you mentioned in particular the energy sector as a place where there just hasn't been comparable innovation.

Tell us a bit about the argument you made in that piece, perhaps for those who didn't read it, give us a quick review, a quick summary.

Well, the question I try to pose is, how much technological progress is happening? Are we still living in a time of accelerating technological change? And the answer was that we are seeing it in computers and the internet, and basically nowhere else. The most straightforward place where we're literally not moving faster is in transportation, where, if you looked at every decade from 1500 onwards, you had faster sailing boats, faster railroads in the 19th century, then faster cars, faster airplanes. And today, we're basically at the levels of 1970. If you include low-tech airport security systems, maybe we're back to 1960 levels. And Concorde was authorized in '76, decommissioned in 2003. And so that's one place where things have definitely not continued to accelerate.

If you broaden it from that to energy, things have basically been stagnant. If you define technology as doing more with less, energy's had the opposite aspect where so much of it has involved things that are ever more expensive. And so, even though oil prices are far above the levels of the early 1970s, alternate energies are costing even more. So we've had sort of a failure both on the conventional side and, to date, a very serious failure in alternatives, which are costing more, and there's sort of a lot of questions what's gone wrong in that area. As you go down many other areas, I think you see this pattern repeated. I think biomedical progress, which I'm also very interested in, has continued to go at a pretty good clip.

Life expectancy is going up about two and a half years a decade. That's been a uniform trend since 1840. But even there, I think there are a lot of reasons to be worried. Maybe one-third as many new drugs in the pipeline as there were 15 years ago. The large pharma companies have basically responded by simply firing all the scientists and researchers that did so little, have yielded so little progress in the last decade and a half. And so I think there are many areas where things have slowed down. If you want to frame it in one somewhat simplistic way, I think that we have seen progress in the world of bits, but not in the world of stuff. And so anything involving a virtual world has seen progress.

And this has been in computers as well as finance. So computer engineering and financial engineering were very good fields to go into, even though people are a lot more skeptical of how much real progress was in the latter at this point.

So why, can I ask, why do you think that is? Because it's something you said in the article, 'Well, we don't really have space to get into that here,' but it's actually a really interesting question for me as an economic historian. Why has the innovation been concentrated in the virtual world of bits, and why is it stagnated in the world of stuff?

Well, my basic premise would be that it's been—we aren't willing to take risk, and it's basically been regulated to death in all these other areas. And so, if you were an engineering student when I went to Stanford in the mid-'80s, you did quite well if you went into computer engineering. Electrical engineering was still a pretty good area. And all other engineering fields were actually quite bad: if you went into civil engineering, mechanical engineering, chemical engineering, to say nothing of nuclear engineering, petroleum engineering, aero-astro engineering. And I think, to a very first approximation, for a variety of reasons, it's been very heavily regulated, and it's been a lot harder to make progress.

So when you ask, "Why did all the rocket scientists go to work on Wall Street?" and people say, "Well, they were paid too much, and we need to punish the Wall Street people," the other side of that coin is they were maybe paid too little, or to be more precise, they were paid nothing at all as rocket scientists. And you have to also think about that end of it. So from a libertarian perspective, I tend to think that there was an enormous amount of regulation, and we became much more a risk-averse society. I think there certainly are other reasons that it's been deprioritized. There's probably a liberal argument that there was not enough money put into science and engineering and that it was somehow deprioritized.

There's a conservative argument that maybe progress requires sacrifice and sacrifice is motivated by war and that, you know, the Apollo program, the Manhattan Project, were motivated by military exigencies that people no longer quite believe in. Maybe the space program ended with the Apollo-Soyuz docking, where if we were going to all be friends, why should people be working 100 hours a week building new rockets? I think there's a conservative argument, there's a liberal argument. I'm biased towards the libertarian one, but it's possible they all have significant elements of truth.

By comparison with other people who theorize having made their billions in Silicon Valley, you seem on the pessimistic side. If I compare your piece with something like Eric Schmidt's Foreign Affairs piece saying Google is going to democratize the world, or if I think of Yuri Milner's vision of the entire world being networked into a superbrain that will solve all our problems, you seem like the party pooper in Silicon Valley. Do you show up to kind of make everybody feel slightly more pessimistic than they otherwise would? Is that temperamental? Is it ideological? Or do you think that you simply have a different take on how the historical process works?

Well, I think the question that's worth posing is how important and how valuable are computers and how valuable is everything else and how does one measure that? So I agree with... I agree with Schmidt and Milner that the computer revolution is continuing and will have major repercussions in various fields in the decades ahead. On the other hand, there are many other areas where there's a lot less progress. So we, for example, have had very little innovation in agriculture, which is again a biotech area where we had the Green Revolution that increased world food production by 125% from 1950 to 1980 and has stalled out very badly in the last 30 years. And so if you look at, say, something like the Middle East, you can look at it through an optimistic technological prism, which is that it's a shift from authoritarianism to democracy that's being mediated through information technology, Twitter, and

other companies, and that it's also a story of positive technological progress. Or you can look at it through the prism of that one of the triggers is that basically food prices went up 30 to 50 percent in the last year, and that the Green Revolution in the Middle East is really linked to the failure of what I would say was the true Green Revolution of the '50s and '60s, and that you have to say that in many ways these are hungry people who've become more desperate than scared, which gives you a very different cut on what's going on. I think there's a lot of truth to both, and it's important to understand both of these stories. So the people who speak about technology are almost all from inside the computer industry.

And I think it's worth asking how it fits with everything else. Certainly, the part that's very odd is when you look at wages in the U.S., living standards, when you take surveys of, 'Do people think that the next generation of Americans will be better off than the current generation?' and the surveys have steadily been moving in a northeasterly direction where more and more people think they'll be worse off. And so you have an extraordinary disconnect between the broad public opinion and the claims of these experts. And it's an important question: who is right?

This gives us a very different read compared with, I don't know, economists like Paul Krugman or Jeffrey Sachs who say, well, inequality is a result of deregulation. What we shouldn't have done was deregulate the financial sector. And what we need to do is increase—you mentioned this point earlier—increase the role of the federal government in research and development, education, and that kind of thing. It seems to me you're saying something entirely opposite from that, which is that it was actually the regulation in these other sectors that prevented the innovation and trapped people in these underperforming sectors. Do you, in other words, have a broader critique of what might be called the liberal conventional wisdom believed by, I would guess, 99% of the people in this room?

Because it's actually quite a profound critique you're making, that everything should be deregulated.

Well, I certainly think technology should be heavily deregulated and that its regulation forced people to do other things. If you lived in the Soviet Union, everything was outlawed, and if you were a really smart, talented person who didn't want to compromise your integrity, you became a chess player or maybe a number theorist. And it produced great chess players and great number theorists. And the U.S. has produced a tremendous amount of innovation in computers and finance. And I think these things were, on the whole, good. I like chess. I like computers. I like finance. But I think we have to ask the question whether it implicitly distorted a lot of other things that have just sort of dropped from view.

I think the economists, like Krugman, are most wrong on the view that you can do aggressive printing of money and aggressive fiscal borrowing here. And so, if you think of the technology slowdown as both a fact and a problem, it's a problem we need to figure out what to do about. But you have to start with it as a fact. And the big question about the current debates on fiscal and monetary policy is whether you're digging yourself into a deeper and deeper hole, which would be the sort of the Tea Party austerity view of this, the Merkel view in a way, or are you digging yourself out of a hole, which would be the standard Keynesian view? And I think the Keynesian theory works well in a world of rapid progress.

So you can borrow lots of money, you can smooth things out, and we'll go back to this incredible trend-line growth rate. Whereas if you're in a world where there's no progress, that's a lot more problematic. And I think a lot of the debates about the current crisis involve a debate about history. And people are very fixated on the 1930s as a data point. And the conservatives and the Republicans were wrong in the '30s. They basically believed that there was not that much progress happening, and that you had to stay on the gold standard, you couldn't print money, you couldn't have this deficit spending, and sort of root-canal Republicanism was very much discredited. But I think it was not so much because Keynes's theories were

Profoundly correct as it was that you had incredible technological progress. So even in the '30s, you had the creation of the movie industry, of the aerospace industry, the plastics industry. Home appliances were sort of popularized. You had the development of the secondary oil recovery. And so, even though there was a major economic and financial crisis, there were incredibly powerful tailwinds of progress that helped a great deal. And even though I think a lot of the New Deal economic theories were not quite correct, in a world of incredible technological progress, you will have a tailwind that will power many delusional ideas.

Let me ask one more question, then go to the audience. It's an election year. You're a libertarian, so I guess you want Ron Paul to be president, right?

Well, I don't think that's going to happen at this point. No, I think that I would like there to be—I would like there most to be some serious discussion of these issues. And I would like there to be a serious discussion of how we get growth restarted as a society and how we deal with some of these topics that are not even being discussed. And what I think is most disheartening about the political process is that so few of the real issues can be discussed. And you sort of get the sense that people cannot talk about the growth challenges or the deficit challenges or any of these things because to do so is to automatically put yourself in a completely unelectable position. And this is sort of—you know, I think we are headed towards a time of austerity because I think it will be hard to get technology reaccelerated.

And I think it will be a chaotic austerity. It will not be—there'll be nothing planned about it—because people are not able politically in our system to talk about the various challenges we face.

Fascinating. Let me now turn this over to the audience. There are rules of engagement, which I have to remind you of in my capacity as Charlie Rose. All questioners must identify themselves, and if you identify yourself as a journalist, you will be stopped. You're not allowed to ask questions here if you're a journalist. That's what it says here. Your second rule, one brief question per person, no speeches, so don't do that thing I once heard a German man do and say, I have only nine points. And three, it is a question we want from you, and so it has to have a question mark at the end. You have to go up at the end of the sentence. And I'll be monitoring that very strictly. There are microphones dotted all around, I believe four in different places.

I'm going to start with this microphone here. Yes, sir.

Good evening. My name is Ari Cole, and I'm an alum of the Kennedy School class of 2008. Also, I'm a physician that does intensive care and primary care medicine. I want to thank Facebook for changing our world. You guys are brilliant, and thank you, Mark Zuckerberg. I'm sure you're watching somewhere in the world. Shaloha from Harvard. My question has to do with electronic medical records. As an intensive care doctor, sometimes our internal hospital systems of everything being put on the computer crashes. And I have a critical patient or patients that I have to see daily in the hospital and we don't have a backup system. Facebook has wonderful memory towards pictures for EKGs and chest X-rays and CT ability.

Also, ability to do notes between, you know, encrypted notes for patients if, you know, an encrypted kind of file between doctors and nurses about the patient. How could Facebook help us in this situation of saving lives and you guys making money by being a medical records backup system or a portal system for hospital systems that can't pay the $1 to $2 million to make those electronic medical record systems work? I'm not a guru with algorithms or encryptions, but we have a dire need to save lives in a critical situation. How can we do this possibly?

Splendidly long question. I'm going to give a splendidly short answer. I cannot answer anything related to Facebook because we've filed our S-1 and are in a quiet period.

Maybe I could broaden it out away from Facebook and ask: Why is it that when you encounter the U.S. healthcare system, which is the most expensive in the world, it appears to have the worst technology that you could possibly have? I mean, I still get handed a clipboard with a badly photocopied form every time I go to see a doctor, no matter how many times I've been there. It's amazing. It's actually worse than the British National Health Service. It really is, and yet it costs three times as much in relation to GDP. Why is that? Is that a good example of your story of stagnation? I mean, the technology is surely there. Why is it not in healthcare?

Well, our healthcare system, like that in many other countries, involves significant elements of both the public and private sector. And there probably is a role for some sort of technocratic solution. Our government is not oriented towards finding technocratic solutions—that if you're really going to reform healthcare in the U.S., you should appoint someone as the Secretary of HHS who has an engineering degree or has run an engineering company and would figure out how to go about implementing these things of the sort the questioner asks. And that's not the mindset we have. The mindset we have is that all of these technology issues are just minor secondary problems. And that is probably the way, unfairly, that a lot of people in the audience would respond to that question is, 'What an annoying, stupid question this is.'

And that on a policy level, we should be talking about, how do we provide money to uninsured people? How do we do this? How do we do that? Those are the ideas we should be talking about. And the engineering questions of how we build these are ones people generally are not focused on. And if you look at the Obama Administration or the Bush Administration—I don't think it's really a partisan issue—there are very few scientists and engineers because we don't think of these as the problems that need to be solved.

So, a question from this microphone here, not about Facebook.

Good evening. My name is Alexander Rosolimo. I'm chairman of the think tank, the Center for Security and Social Progress. Now, your great success as a technology entrepreneur and investor is undoubtedly a reflection of your talents, education, and thinking abilities, among other factors. My question is: How much of your success might you attribute to blind luck? And could you give us some examples?

Well, I think...

I should explain. I once invested in a dot-com company, and I just wasn't very lucky. That's why I'm asking the question.

People always say that they're either brilliant or unlucky. There tends to be a very large number of unlucky people and a very large number of brilliant people. I think I've been quite fortunate. I was certainly in the right place and the right time. It's hard to really evaluate how much luck played because I can't run the experiment a thousand different times and figure that out. I do think it's—I do have a bias that it's not the best way to approach these things. So when I've looked at investing in technology ventures, whenever I've thought about it that I can't really figure out what's going on and this is just a flyer and it'll just have to—you know, it might work, it might not work—I'll put some money in.

That's almost always been a formula for things not working. And so, you know, once you think of the world as consisting of lottery tickets, you have set yourself up to lose. And what you have to do is to move beyond thinking of the world as just a lottery ticket. And even though there may be certain things involved, irreducible elements of luck, I think that in many cases, an excessive emphasis on this, you know, is sort of... is not this intellectual truth about the world, but is... is really a kind of laziness where people don't want to think as hard about things as they, as they should. And so, in my investing, where we've done our homework and thought the hardest about things, that's where we've done the best.

Where we've thought that it's just a lottery ticket, that's where it's tended to go the most wrong.

Peter, presumably you've invested in a hell of a lot of companies. We only get to hear about the ones that are super successful. But have most of the things you've invested in, by your standards, actually failed?

I would say the binary standard would just be, as an investor, has the valuation of a given business gone up? We've looked back on it. There have probably been about 140 businesses I've invested in over the last 12 years. Something like somewhere slightly north of 50% have actually worked, which is not as high a rate as one would like, but is certainly higher than the 1-in-20 lottery ticket-type thing people tend to think.

Great.

Let me go up to the gentleman at that microphone. Yes, sir. Hi, my name is Matthew Della Fuente. I'm a student here at the Kennedy School studying social entrepreneurship. I was wondering, what would you practically do to save Europe's current lost generation?

Well, I think that there's no straightforward answer, but I would say the first step is you have to somehow understand what the nature of the problems are. And the critical question in Europe, as in the U.S., is this question of how you get growth restarted. And I think without growth, you're going to have just this zero-sum game where it's just a question of who takes stuff from whom. Does Germany take stuff from Greece, or does Greece take stuff from Germany? And you have to figure out a way to get growth restarted. That's what the debate needs to be about. And I think that, in a way, it's not a problem that's really limited to Europe. I think you have the same problem in the U.S., where I think you have the very serious risk of a lost generation as well.

And the growth rate's slightly higher, but the deficits are much crazier in the U.S. And so if you assume it's not entirely sustainable, I think we really are in the same boat. And of course, Japan is also the country people don't mention that often. And so I think, in some ways, the entire developed world is in this boat where people don't believe in growth. One of the things that I think has become sort of problematic is the way in which globalization has—the emphasis on globalization has displaced an emphasis on technology. We used to speak of the world as the First World and the Third World, which maybe had some problems, but today we speak of it in terms of the developed and developing world.

The developing world are the countries that are copying the developed countries and are going to converge to those, and this is a very pro-globalization story. So it's very straightforward: what you tell young people in China or Brazil or India is they should just copy things that are working. But when we talk of Western Europe and Japan and the U.S. as the developed countries, we've already implicitly thrown in the towel because we are saying implicitly that these are the countries where nothing new will happen because they are developed. And the question that needs to be asked is, how would you go about developing the developed world? And how do you get back to the growth question? And that's a question that needs to be flagged.

Again, I think there's probably a deregulatory piece that's very important. There's a realism piece that's very important. There's certain kinds of problems that need to be tackled. I think the energy problem is a very critical one that needs to be tackled because the super-high energy prices act as a barrier to all sorts of—a lot of forms of growth. So I think there are some very specific problems that one would need to address.

I'm really tempted to ask a follow-up question, but I'm going to go to this microphone instead. Yes, sir.

I'm—I'm an undergraduate student at Brown University. And your thoughts on the higher education bubble have led me to research on it. And I think you're right. My question is, in practical terms as well, how do you think a solution in the educational paradigm will manifest itself?

Just to be clear, you've been quite critical about higher education, mainstream higher education, and have even encouraged students to get out of the classroom and innovate beyond the campus. Tell us a bit about why you became a skeptic.

We've had a series of bubbles in this country. And so I think, in a world where there has not been a lot of growth, but in which people have this cornucopian theory that growth automatically happens, what's happened instead has been a lot of misinvestment in stories of growth. So the tech bubble in the '90s was, unfortunately, more fraudulent than real. But people bought into it because they believed we lived in an age of miraculous progress. The housing bubble of the last decade similarly had this element where people assumed that things would relentlessly get better in our society, therefore housing prices had to go up. And so again, a belief in progress in a world which was not progressing—that combination helped, sort of, create these bubbles.

So I think one of the questions one has to ask is, why have there been so many bubbles? One diagnosis I have on it is that people have believed in a very rapid progress, even though not as much has been happening as advertised, and that combination has led to all this malinvestment. I think we have, at this point, a very—a very serious bubble in education, where people are told this is a great thing to invest in, that human capital is the best thing one can invest in. And of course, we are immediately forbidden to ask what the returns on these investments are, how to measure it. That sounds like an incredibly crass sort of a thing to do. And I think, very much like the housing bubble, it probably has many similar parallels.

Probably the subprime part of education is the worst. I'm sure none of this applies to Harvard or Stanford. There's surely not a bubble here. Well, it's... then I think how it all ends is quite hard to say. How these bubbles normally end is there's less that goes into a sector and people start thinking for themselves. The education bubble is driven by something that's overvalued and intensely socially believed as the be-all and end-all, as the magic solution to all of our problems. It probably will end when people start thinking for themselves. My somewhat abstract advice is that you should think for yourself. I think, when I look back on my own trajectory, the mistake that I... It's hard to know whether I would do it differently.

I might still go to college and law school. But a mistake I made was never thinking about what the purpose of it was or why I was doing it. It was just this automatic thing that you did, because you were told if you did it, you'd have all these options that would get created, and it would all sort of automatically work out on its own. And in retrospect, I would have tried to think harder about why I was doing it and where I saw it going.

Because this would be a familiar story. If you had dropped out of Stanford and become a billionaire, but you kind of played it much straighter than Steve Jobs educationally, was there a moment when you sort of accumulated two or however many degrees when you thought, this is all completely pointless? Did you have a moment of doubt about the education that you had excelled at?

Well, I think there was a moment of doubt at the point when I got onto Wall Street and you realize that it was basically like this never-ending tournament. And the tournament just keeps going on and on. And once you realize that the tournament's not over in high school and it's not over in college and it's not over after that, you start... It forced me to ask more questions about, was this the correct tournament? Was there time to do something different? And I do think that's one of the misconceptions. So, one of the big questions about education is, what sort of a good is it? Is it an investment decision, a consumption decision? I think most people think of it as an insurance product, where it's, you're buying insurance to protect yourself from falling through the cracks in our society.

And I think even that's problematic, because we should be asking why there's so many big cracks rather than how do I protect myself from it. But the reality is that it's mostly just a tournament. And you have to win the tournament. You have to be realistic about winning the tournament. And the kind of speech that people probably do not give at Harvard—and this is where I think even Harvard is probably wrong—would be, or at Brown or any other university, would be, you know, freshman orientation, you know, "Congratulations, you won the last round of the tournament, and now it's going to just get much harder. And you better redouble the effort because there are a lot of people who are ahead of you, and if you can't see them, they're so far ahead of you that you can't even see them."

And if you were to try to give a version of that speech, I don't think you would last very long as president of any university. Even a much lesser version of that would probably get you booted.

I want to hear that speech in full, but let me take another question from the floor. Good evening.

Tony Wagner, the first Innovation Education Fellow at the Technology and Entrepreneurship Center at Harvard. As a follow-up to the last conversation, I've just finished researching and writing my fifth book, called Creating Innovators: The Making of Young People Who Will Change the World. So, I want to press you for a little more depth in response to that last question. What are the most important things we can do as parents, as teachers, as mentors, and as employers to encourage and incent young innovators?

Well, I would say, let me just... The educational question, I would say, is that people, you know, the most, the best reason to learn is because you're interested in the subject matter and there's some value in it. And so—

Intrinsic motivation. So, I think one of the very interesting things with this program we started, the 20 Under 20, was that a number of them had actually already finished college, and they'd actually skipped a number of grades. And so, I think the test for parents who have talented students is whether they would encourage their students to skip as many grades as possible. And if you think of education as a tournament, then you're not going to have your kids skip grades, because you want your kids to knock out the other kids on the Harvard application process. If you think of it as learning, you will encourage your student to skip as many grades as possible. So, that would be educational advice, would be, to the extent you're able to skip grades, you should skip as many as possible.

And encourage them to play chess? There's you, there's Ken Rogoff. I'm kind of intimidated by all these great chess players. I really always was bad at chess.

Chess is dangerous. There are all these things that are dangerous. People aren't good at them. Sure, I like chess. Do you still play chess? I still play some. Probably too much. Not enough and too much at the same time.

Well, let me take another question from this microphone here. Yes, sir.

Hi, my name is Jeff Engler from Harvard Business School. Many libertarians would believe that government agencies like the Environmental Protection Agency should be abolished. Number one, is this your view? And if yes, whose job is it to steward the environment, if anybody, if any, for the next generation?

I do think environmentalism has played an incredibly important role in regulating a number of these sectors. I think the challenge is that there obviously are some very real environmental issues. There are some ways in which things have gotten meaningfully better. The air pollution in the U.S. is much less than it was 40 years ago and was probably on a trajectory where it was going to become, become intolerable. On the other hand, I do think there is something about a lot of the regulations where they just sort of build up, they build up, and the cost-benefits are never thought about, and they're never quite evaluated. And the cost is this very high cost. There are many kinds of careers that are no longer options for people to pursue.

And so I think a great deal more honesty about that would be desirable. And more honesty about what the real alternatives in many of these areas are. So for example, I believe that the U.S. should be encouraging a crash program to build a lot more nuclear power. And there is an environmental justification for this because if you take the climate change issue seriously, this may be the most likely way that you could produce power that has no carbon footprint. But you have to make some trade-offs and debate about how likely that is versus how likely some technologies that may still be a lot more fictitious are that could be developed. And so I think a lot more realism on the part of environmentalism would be good.

And I think a lot of it has become the sort of politically correct posturing where everyone tries to be more environmental than the next person, which is not necessarily the right way to get to the best answers.

So Peter, just to be clear, you prefer nuclear power to the renewables, the fashionable green technologies, wind and hydro and biomass and so forth?

Well, I prefer things that work. And I think the test for all these things is, can you get it to work at a lower cost than existing technologies? And there is a very serious—people have badly underestimated the challenge of creating alternatives. And so I'm somewhat pessimistic about the prospects for the science and the technology, and that's why I think we should put a significant amount of resources towards things that may not be perfect, but can probably work quite well, versus all of our hope on something that may not work at all.

Can I press you a bit on this and ask a thought experiment question? In a totally deregulated energy market, in an energy market without any government agencies, let's just imagine, would there be a host of new nuclear power stations built, as opposed to coal burning?

I don't think nuclear power can be completely deregulated. You obviously have issues of nuclear waste. You have even thornier questions about military uses of nuclear power. So there's a global regulatory framework you need for nuclear power. So it is something that requires at least some level of regulation. But there are very important questions about how heavily it gets regulated and if you can have a single senator in Nevada stop the creation of any nuclear waste disposal site, that effectively can block it in very powerful ways. If it takes 20 years to build a plant instead of four years, that's a regulatory thing that makes an extremely big difference and you end up with nothing getting built.

And that's why we're on a trajectory where the alternative to expensive oil is even more expensive oil. And the alternative to that would be even more expensive oil. And maybe a miracle will happen, and maybe not.

Let me take a question from up here. Hi.

Vedant Mishra. I'm a researcher at the New England Complex Systems Institute. You invested in Palantir personally and in Quid through the Founders Fund, and both companies focus on extracting insight from open information. My question is, where do you think there's room for innovation in open intelligence? And in particular, do you think it can be directed towards making things for the populace at large instead of for just enterprise consumers?

Let's see. This is sort of a very broad question. I think that one of the areas of the computer revolution that we've spent a lot of time looking at in recent years is what's been sort of relabeled as the Big Data problem. And so there are enormous amounts of data. People are overwhelmed with information. They do not know what to do with it. And there are questions whether you can bring computers to bear on, on helping solve a number of these Big Data problems. There probably are consumer versions of this. There may be a lot of enterprise solutions. A lot of it comes up in an enterprise context where companies or governments do not actually know what's going on. And it would help to have something where you know what is going on.

The consumer version would be, could you tell somebody—could you tell somebody things about, you know, maybe it's a product they'd like to buy that they don't already know. And so if you had a computer that knew more about what someone wanted than they do, that would be a powerful consumer application.

Tell us a bit about Palantir, which is a name not everybody will have heard, but is one of your current focuses.

It is a software company which, you know, it's had its genesis in trying to bring some of the technology we developed with PayPal on solving the fraud problem into a national security context. And the question was, were there ways to look at the large amounts of data that you have to do something on the high-tech side to prevent terrorism, conspiracies, various other forms of criminal activity. And so it has both a governmental side and a large company side, fraud against banks, things of that sort. And it turns out there is, in fact, a great deal that one can do with the data that we have. And people do not know what to do with the data. If you think about the picture of the world, it's like if you have maybe a million books in the main library at Harvard, it's really more like a trillion books.

And there's a book in every building in Boston, and Cambridge is full of books. And there's no card catalog. And there are buildings where you just have envelopes with papers. And there are buildings where you have papers strewn all over the floor, and there are buildings with locked doors nobody can get into, and there are very powerful things that can be done if you are able to combine some of this information and data in different ways, and, and we think that's—we do think this is going to be a critical problem to solve in the decades ahead.

Do you, as a libertarian, worry that you might inadvertently empower governments with tools of this sort? In other words, if you can solve the problem of how to manage all this data, and please, could you do my email inbox while you're at it? If you solve this problem, but the wrong people have the tool, this is Big Brother, isn't it? An omniscient state could be the accidental byproduct of your innovation.

Well, I think the alternative is that you will have another terrorist attack on the U.S., and then you'll get a draconian response à la Big Brother. And I think, to some extent, the absence of a technological solution means that you will get much cruder and non-technological solutions. So to the extent you think that the security problem is a serious problem and you outlaw technological solutions and you have a Luddite approach and say we're just going to break all the computers and turn them off, you will probably end up with a much more draconian type of a situation. And I think that from a libertarian perspective, I would say that the aftermath of 9/11, in terms of reduction in civil liberties, was much greater than had you had some software that would have been able to connect some of the dots and help prevent those attacks.

So I think that seems to me to be not just morally the right thing to have this sort of software, but also the right utilitarian cost-benefit calculus.

Somebody has been very patiently waiting at that microphone up there, and I've been worried about the gender balance issue ever since this Q&A began, so please help us. Thank you.

Hello, I'm Corinne Kersey. I'm a freshman at Harvard College. So earlier you mentioned the need to have unique businesses and unique investments created, that that was the only choice of, for people who have had such homogenized thought because of their education. And you really need these unique businesses for important innovations. But then you also mentioned how, in terms of health care, you could have someone who is an engineer, for example, be appointed as a government head to solve the problems in the healthcare forum. So where do you see the balance in that kind of—is there any strain between where you would have a government, more tournament side to these issues, or where you would have the private and innovative, unique kind of thought?

Where do you see that strain and how would you balance that?

Well, as a libertarian, I prefer private sector solutions. But fundamentally, we prefer more technological progress. And so if we had a government that was aggressively pushing science and technology and prioritizing that over other things, I think there would be a number of things that could be said for that. The reality is we have no such government at this time in this country, and we haven't had such a government in a long time. If Einstein were to send a letter to the White House, it would just be treated as a joke and would get lost in the mailroom. The New York Times op-ed the day after Hiroshima, basically, it was sort of like, well, the people who believe in the private sector—paraphrasing this part—they have a lot of explaining to do because, you know, the Army organizing and directing scientists was able to achieve something the private sector could not have done. Almost verbatim quote now would be, 'And the result, question mark,'

An invention, the nuclear bomb, was given to the world in three short years that it would have perhaps taken prima donna scientists half a century left to their own. Now, that is the scientific pro-government perspective, and that is one that no one believes in anymore. And so while I think it's an interesting theoretical question whether that can be reclaimed or how you would go about reclaiming it, I think it simply is nowhere near the set of priorities you have today. If you were to say within the John F. Kennedy School, where Kennedy pushed the space program in the early '60s but didn't really care about health care, could you imagine anyone setting the opposite priorities where you say, 'Well, we're going to cut this much money from health care to revitalize the space program,' or any kind of trade-off of this sort away from the welfare state and towards technological innovation?

Everything is horizontal. It's all global. It's copying. It's taking things that work and sort of giving them to people who don't have them. And there's very little that's vertical that involves doing new things. And the government bias is incredibly powerful in that respect. And this is both Democrat and Republican. Republicans want to basically cut the spending. Democrats want to do more. But it's all about the horizontal piece, not about any horizontal versus vertical trade-off.

To go back to the man after whom this institution is named, you said earlier that it took a Cold War, just as it had taken World War II to produce the Manhattan Project, it took a Cold War to produce the Space Race. Are you saying that without that kind of conflict, there just isn't a way for the federal government to be truly innovative, to encourage technological innovation? Is it just that peace produces welfare and that you need warfare for innovation? Because that's a pretty pessimistic thought.

That is a pessimistic thought, and I certainly hope that we can find a way to motivate technological progress where it does not require war. In some ways, given where technology is today, war has become so unthinkable that it may not really act as a motivator. You know, can you build bigger nuclear bombs? Not clear this would still really motivate people. But I do think the question of how to motivate this is a very important question that's not been tackled.

We do have threats. They may not be threats from totalitarian states, but you mentioned earlier the terrorist threat, and there's also the threat of extreme climate change. Why do you think the federal government isn't able, or indeed any major government, isn't able to respond to those challenges with the kind of really extraordinary path-breaking innovations that governments produced in the face of Nazism or Soviet communism? Is it government that's changed rather than the threats?

Well, the why questions are always much harder to answer than what. And so I would observe that they have not been able to. My first cut on it would be that these are not seen as the priorities. It's not seen as a problem. Technology is seen as something that works on its own. These problems will solve themselves. If you look at the climate change and the clean energy investments, which—it seemed like maybe there's a public good and there's a role for government to subsidize clean tech—the approach has been that we simply invest in many different companies and don't pay too much attention to the details. It's been very much of a financial portfolio theory approach and not one where you substantively think about what might actually work or what might not work.

When Obama's been criticized for the Solyndra disaster, it seems to me that the response Obama should give should be, 'Here are three clean tech companies that are doing great, and let me tell you about them. And this is—and if you get, if these, because I think these will work, it makes it all worthwhile.' That response never gets made. There's a bad reason for this, which is that no such companies exist. And there's a worse reason, which is that nobody in the government actually even thinks about what's going on. It's not interested in substantive issues. And this is not just a Democratic thing. The Republican critique of Solyndra was not that the technology didn't work. It was that there were various ethics violations in how the money was apportioned.

And so again, the substantive question of what worked is too hard a question to tangle with. You're a lawyer if you're an average congressman, and so you much prefer focusing on some procedural violation rather than a substantive issue. And the ethics problems, while unpleasant, wouldn't be decisive if the technology worked. Transcontinental Railroad—there were lots of ethical violations when that got built, but at least it got built.

All right, let me take a question from this microphone here.

Manuel Lopez. I have a question. The slowdown you talk about, taking the long-run picture, is that just a blip? Since looking at it from this point of view, we know the true source of wealth. I mean, you mentioned it in passing: Einstein. You know, one Einstein pushes science and technology by such leaps and bounds that outweighs almost any other consideration. But we have—so we know that, Einstein, we know that intelligence is genetic, we know more and more about that. We have, and we're starting to be at the very cusp, at the very beginning, of the possibility of manipulating the genome in whatever way we want. And if we imagine using that to boost IQ, generation after generation, wouldn't that mean that over the long run, a thousand years,

a thousand, thousand years, we're talking about a species where the lowest level of intelligence would be someone like Einstein, or in fact that the lowest level of intelligence might be many levels higher than Einstein. Wouldn't that mean that we would be able to unlock all the wealth of the universe? We would have everything at our disposal. Don't we see ourselves at the very beginning of a huge boom, looking at it from that point of view?

So can we genetically engineer a perfect human race? Why does that sound familiar?

I'm not sure, Neil, you'd be a big fan of that.

I don't think that idea would be a very popular one. I'm not sure it's a good one either, but I think that, you know, I would say that the history of most of the world has not been a history of relentless progress. You know, most people in most times and places have lived in societies that were essentially static. You know, when Malthus wrote his book in 1798, looking back, the reality was that he was more right than wrong. And he was wrong the next 170 years because you had this incredible—and maybe he had already been wrong with the start of the Industrial Revolution in 1750—but the sort of exponential technological progress we've had in recent centuries has been the real exception. And so if it is coming to an end or if it's decelerating, this is a serious problem to think about.

It doesn't automatically default to something else.

Well, I was told to wrap all of this up at 7 o'clock. It's past 7 o'clock now, but I don't detect an enormous desire to flee to the nearest pub. So I'm going to take a couple more questions. This has been a fascinating discussion. I want more of it. If you agree with me, stay in your seats. Yes, sir.

Hi, I'm Joe McCleary. I'm the head of a large charter school here in Boston. You mentioned that there's been a lot of progress in the world of bits, not much in the world of stuff. I would add to that that there hasn't been much progress in the world of innovation in the provision of K-12 education in 50, 60 years. What do you think of the current trend in terms of charter public schools, school choice, tax credits, all the things, all the ferment there to bring more of an entrepreneurial spirit—I think a much-needed entrepreneurial spirit—to the world of K-12, the foundational education?

You have a whole discussion on education, on all these college versions and the K-12 version. Just the narrow technological prism, if you define technology as doing more with less, the educational direction would be: how do we get a few talented teachers to teach a much larger number of students than before? And that problem has not been solved. If anything, the direction has been towards smaller class sizes, not larger ones. Maybe that's the right way to go, but there's been very little technological innovation in that area. And it's definitely worth thinking very hard about what one can do.

Do you think technology can be a part of the answer? I mean, there's clearly a massive discrepancy between what goes on in higher education, where we have the world's best universities, as well as some pretty bad ones, and what goes on at the high school level, where it seems to me the United States has a major problem right across the board in terms of the quality, certainly measured in terms of teenage educational achievement. Is there a technology solution to teaching people in public schools?

Well, there probably are a lot of areas of government which could run better. So probably the lowest-hanging fruit in the US is, in general, to get the government to be more efficient. And the political debates we have in government are all, "Do we do more with more, or less with less?" And we don't ask very often, "How do we do more with less?" which is the technocratic version. I think Clinton at least paid some lip service to it with sort of the reinventing government idea. We have no such idea at all. So I think it definitely seems like a very worthwhile question to ask. There's a healthcare version of it. There's an educational version. There probably are questions of the military and many other areas.

Let me take this question up here. I think this will be our last question. With apologies to those who were at the microphones looking forlorn. Yes, madam.

Hello. My name is Vera Lam. I am an HBS alum. I'm here for the Alumni Leadership Conference. I am from Palo Alto, California, and also a co-founder of a small technology company based in Sunnyvale, and it seems to me that the most difficult part of being an entrepreneur is when to relinquish control and to decide to sell your company, because it's something that you work with love, passion for so many years, and I would like you to share that experience at the point you sold PayPal. Were you advised or recommended by VCs? And why did you decide to sell at that point?

Well, we were up against a monopoly competitor in the form of eBay and a monopoly competitor in the form of Visa and MasterCard. And there was a worry that they only needed to figure this technology out once and we would be out of business. And so there was a lot of debate around these things. I tend to think it was the right decision in PayPal's case to sell, but I do think that whenever a decision gets made to sell a business, you are often making the decision to stop the innovation cycle in it. And one of the questions that I spend a lot of time thinking about as a venture capitalist is how these companies get founded. How long does the founding period last? And I think the founding period is the period when you have innovation.

And once that's over, it sort of becomes a normal business that runs in a bureaucratic, mechanistic sort of a way. And it's a very important question of how long can one enable the founding in these companies to last. The classic example where people sort of cut the founding off too early, I would argue, would be Apple, where the judgment call the board at Apple in 1985 made was that computers were like Pepsi. It was just a marketing thing. There was going to be no more innovation in the computer industry. You could get rid of the founder, and you could replace the founder with sort of a—someone who'd run the business in a much more predictable, mechanistic sort of a way. And that turned out to be a bit of a mistake.

It's unusual for the founder ever to come back once these mistakes are made. Sort of miraculously, Jobs came back, and then we saw another 14 years of innovation, at least through 2011, in the case of Apple. And so I do think the businesses that are led by founders are the ones that are able to innovate. The ones that are not led by founders are generally not able to innovate. And if you are in favor of innovation, you have to figure out ways for founders to stay in control as long as possible and to avoid selling a business or substituting someone other than the founder and the CEO.

Well, founders need to know when to sell, and moderators need to know when to wind up a conversation. And although I could happily carry on talking to Peter, and I'm sure you could happily carry on asking questions, I think he's done plenty of work tonight. And I'd like you to join me in thanking Peter Thiel very much indeed. Thank you, Peter.