The World According to Thiel

Welcome to Uncommon Knowledge. I'm Peter Robinson. My guest today, the investor and philanthropist and possessor of an unusually interesting mind, Peter Thiel. You'll notice that Peter Thiel and I are having our conversation in front of an audience. This is a meeting of the Mont Pelerin Society, the organization founded in 1947 that brings together Nobel laureates and government officials and investors such as Peter himself to discuss economics and the state of the world. And when it comes to the state of the world, as you will see, Peter Thiel has opinions. We discuss China and the United States under Donald Trump and his own world, Silicon Valley, which he talks about as—this is his word—'deranged.'

Uncommon Knowledge with Peter Thiel. Born in Germany, Peter Thiel moved to the United States with his family when he was a child. He graduated from Stanford and then from Stanford Law School. And after deciding not to practice law, he co-founded PayPal and Palantir, made the first outside investment in Facebook, funded companies such as SpaceX and LinkedIn, and started the Thiel Fellowship, which encourages young people to drop out of college to start their own businesses. Mr. Thiel remains a very active tech investor now based in Los Angeles. Ladies and gentlemen, Peter Thiel. China. The late economist and foreign policy analyst, Hoover Fellow Harry Rowan, writing in 1996, quote, 'When will China become a democracy?'

The answer is around the year 2015. This prediction is based on China's steady and impressive economic growth, which in turn fits the pattern of the way in which freedom has grown in Asia and elsewhere in the world. Worked in South Korea, worked in Taiwan—economic growth leads to democracy. In China, what went wrong?

Well, Peter, this is always a setup for me to start by both flattering you and criticizing you a little bit. Since there was that very famous Reagan speech you gave—that you wrote for Reagan—where it was, 'Tear down that wall, Mr. Gorbachev.' And it was very effective. But it was perhaps—it was not only in the West that we learned lessons from it. The Chinese communists also paid very careful attention to it. And they learned that you had to have—you had to have perestroika without glasnost. You had to get rid of the Marxism without getting rid of the Leninism. And they learned somehow the very opposite lessons of that fateful year in 1989. Tiananmen worked in China, and that is what continued to work.

So I think that's sort of a simple first cut. There is nothing about history that is automatic or predetermined. It's always a question of agency, of people. And unfortunately, China took the lesson very much to heart and has stayed on this trajectory. Its per capita GDP is close to $10,000, which was sort of the point where democracy was supposed to start taking over. And it seems to, if anything, been going the opposite direction. Or there's another sort of historical riff I have on this that I was thinking about the other day. There was this famous interview with Zhou Enlai in the early 1970s where they asked him about the French Revolution. And what did he think of the French Revolution?

And he said, 'It's too early to tell,' which was seen as sort of a funny diplomatic answer at the time. But I've come to think that there's sort of a very sinister way of thinking about that answer, which is that, in some sense, the French Revolution, it ended. It ended in 1794 when the insanity burned itself out and you had Thermidor. And then, of course, when you had the Russian Revolution, one of the promises Lenin had was that the Russian Revolution, the Communist Revolution, would never have a Thermidor. But it took a little bit longer than five years as it did in France. But I'd argue you had something like Thermidor, 1956, when Khrushchev gave the anti-Stalin speech, certainly by the time of Gorbachev.

China, what Zhou Enlai was saying in that speech was that China is the one country that is still true to the spirit of the French Revolution. It is the one country in the world in which there will never be a Thermidor. And that is—and then, of course, the way this manifests is that it will still continue in the sort of revolutionary communism that will have one genocidal thing after another, and that continues under Xi.

Still China, three quotations. Two of them from heroes of the Mont Pelerin Society. Friedrich Hayek in 1982: 'The mere idea that a planning authority could ever possess the information necessary to run the economy is a somewhat comic fiction. What prices ought to be can never be determined without competitive markets,' close quote. If you want economic growth, you must permit free markets. Quotation two, Milton Friedman, 1991: 'When the regime in China introduced a greater measure of economic freedom, that generated pressure for more political freedom, and that led to Tiananmen Square. If you permit free markets, sooner or later your people will demand political freedom, and they'll be hard to handle.'

Quotation number three, Peter Thiel, speaking last November: 'Artificial intelligence is the big Eye of Sauron, watching you at all times in all places,' close quote. Will artificial intelligence overturn Hayek and Friedman? Will it enable China to achieve sustained economic growth without economic or political freedom?

Well, let's not be too dogmatic in answering this. So I certainly... I certainly think that it's possible that the form that totalitarianism has in China will exhaust itself, that it will hit some kind of crisis at some point. China does have some very serious demographic challenges. Maybe you could say it's a revealed preference that people don't want to have children because it would be very cruel to allow a child to be born into such a horrible society. So I think there are ways that we can speculate on how it might ultimately exhaust itself. But I think we should not be dogmatic on the other side and assume that it automatically will, and that perhaps it can sort of develop. Perhaps it can sort of catch up.

You can sort of get things to work. And there are probably certain parts of the economy where you don't need to be that free or that creative or that innovative. There is just sort of copying things that work, just copying the West. And maybe you can't get quite to our standard of living, but maybe you can get to half of our standard of living or something like that.

But you're not singling out AI as a game changer here. You tend to pooh-pooh the notion that AI will change things.

Well, I think if it's unclear, I think there's always a lot of propaganda around all these buzzwords. And so I think it's somewhat exaggerated. But yes, of course, there's sort of a continuation of the computer revolution where you'll have more powerful Leninist controls. And you can have certain, maybe the farmers can sell the cabbages in the market. And you can still have, you know, face-recognition software that tracks people at all times and all places. And so there's sort of a hybrid thing that might work for longer than we'd like. Okay.

So you touched on this a moment ago, but let's zero in on it. Two competing narratives. One is that President Xi is centralizing power more tightly and, with the help of technology, more successfully than any other central authority has ever been able to do in all of human history. He is the most successful dictator the world has seen. The other narrative is that the Chinese population is growing old, its economy is slowing, its one-child policy has produced 40 million more men than women, and that the freedom movements in Hong Kong and Taiwan have placed Beijing seriously on the defensive. So you're going to choose one or the other? How close are we to a Brezhnev moment?

I'm going to give you my speculative conspiracy theory on how China, the Chinese communists, are trying to psychologically undermine the West. And I believe they are inducing two perspectives on China in the West. One perspective is that China is very far behind us, that it's still a very poor, backward country. Even in 2049, even on the 100-year anniversary, it will still only be a middle-income country. And it's so far behind that we don't need to worry about it. And we can be in denial about China. And the other one is that it's so far ahead of us that there is no way that we can ever catch up. It works better. There's certain things where it can build skyscrapers super fast. There's certain things where it works so much better that we have to just accept that we are really far behind.

Denial is extreme optimism. Acceptance is extreme pessimism. But extreme optimism and extreme pessimism converge to doing nothing. For example, I think there was this question about Taiwan and how protected Taiwan was. And I believe it was in a single month in the year 2005 where the U.S. strategic assessment shifted from Taiwan would be safe for decades because of our aircraft carriers and whatnot to no, Taiwan was already lost because China had all these missiles that they could knock all our defenses out overnight. And so it's somehow... It's always, so the fact that it gets framed in these two extreme terms, I'm wondering if you're sort of a mouthpiece of the Chinese Communist Party, and it's always extreme acceptance and extreme denial, and the reality's actually, no, it's close, and there are strengths the U.S. has, and there are strengths they have, and it's a fight, and it's gonna be a fight for a very long time, and even if China in some ways gains ground in that fight, it will be strategically close for a long time, because as China gains ground,

Other countries will get more scared of China and they will work more closely with the U.S. Japan was toying with the idea of shifting its alliance from the U.S. to China. This is always the DPJ line in Japan in the late '90s, early 2000s. Under Abe, that's definitively over. Japan is back firmly on the side of the U.S. Vietnam, much more on the U.S. side than the China side. This is very different from Vietnam of 40 years ago. And so even if China, you know, sort of gains ground in certain things, I think the strategic picture will stay, you know, very even for a really long time. It's the exact, so somehow the in-between is probably the truth and it will be the truth for a long time.

So the notion is the Chinese want us to believe two statements. One is there's nothing to worry about. The other is resistance is futile. And both are frauds.

China is super weak and China is super strong. And I've been in meetings in China where in some sense you heard, you got both messages within 20 minutes of one another. And it's like logically inconsistent, but psychologically it doubles up.

All right. The United States is the center of the resistance. Let's take a moment or two considering what we need to resist right here. Zombie socialism. Socialism rising from the dead. Again, a couple of quotations. The first from a history of the Mont Pelerin Society. In the 1980s and '90s, members of the society had the exhilarating feeling that things were at last going their way. Several countries, starting with Margaret Thatcher's government in Britain, were privatizing their state industries. Governments from China to India to America to France were liberalizing, retrenching, or cutting taxes. And then in 1989, with astonishing speed, the Iron Curtain fell. Here's quotation number two.

This is Bernie Sanders. He's speaking in 1989, the year the Berlin Wall came down. Quote, 'In Vermont, everybody knows I'm a socialist and that many people in our movement are socialists. And I think there's been too much of a reluctance on the part of progressives and radicals to use the word socialism,' close quote. As we sit here this evening, the self-avowed socialist Bernie Sanders is tipped by many to win the Democratic caucuses in Iowa on February 3rd. From the triumph of democratic capitalism and all that the Mont Pelerin Society stands for to the re-emergence of socialism, how did this happen?

Well, these are like sweeping questions. There are all these different answers one could give, but let's just challenge a little bit the premise of that question. I don't think he's really a socialist in the sense—I mean, there's no five-year plan. He doesn't actually claim that he's gonna make the post office or the DMV work better. If he was promising things like this, it would just be completely ridiculous. And the way in which socialism works is it's just this thing that's really different, and it's different, and it's meant in opposition to the zombie institutions in our society. And there is a problem that we have: we don't have very well-functioning capitalist society. There's a generational problem where it is difficult for young people to acquire capital.

And I'd say there's sort of two, if I had to give sort of—and that's the young people that are supporting Bernie Sanders. And the sort of the two simple, political things that one should really think about are the runaway student debt in colleges. It was $300 billion in student debt in 2000. It's up to $1.7 trillion today. And if you start your life in debt that can never be discharged in bankruptcy, it'll be much harder to accumulate capital, and you might be less friendly to capitalism. So that is a big problem. And I don't think we should socialize the student debt, but we should deal with it in a non-socialist way. We should internalize the costs onto the universities. We should redo the bankruptcy laws.

Yes, you can discharge the student debt. And when you discharge it, it's the college that gave you a bad education that gets stuck with a bill. That's a non-socialist alternative. And then I think the other basic problem of a lack of capital or inequality is that it's very hard for people to get onto the housing ladder. The main way that the people in the middle class in this country accumulate capital is through owning real estate, through owning your house. And if, through a series of urban zoning laws and bad planning and impossibility of building things, it has become impossible for people to get onto that. And if you could find ways for people to own more houses, you would have much less of the sort of millennial-crazed socialism.

So I think we should try to understand where it's coming from. We need to try to solve it. But at the end of the day, I think it will be pretty weak because it's mainly a critique. It's a critique of bad institutions. If Sanders becomes serious, I think it'll be as scary as Corbyn was in the UK. And obviously, we'll be talking about the post office and the DMV, and it'll just be ridiculous.

Bernie Sanders cannot get elected. He can't get elected. He cannot. All right. The universities. You touched on this a moment ago. Again, a couple of quotations. Michelle Obama: 'The one thing I've been telling my daughters is that I don't want them to choose a name university. There are thousands of amazing universities in this country.' Quotation number two, Peter Thiel: 'Of course, we knew she was lying.'

Yeah, this was an interview they gave just before their eldest daughter, Molly, was thinking about what university to go to. And I sort of raised this. It was sort of in the context of always the sort of question of fact-checking and politicians lying. And I think the facts we need to check the most and the lies we need to call people out on the most are the really big lies that everybody tells. And so I added that it was actually very reassuring. I mean, it would have been disturbing if they weren't lying. I mean, like if they actually believed that nonsense, that would have been really disturbing. And where did Molly end up going? She went to Harvard. But look, it's always, you know, this is a theme that, you know, I can go on all these critiques of the universities, but basically, you know, the basic problem is if you think of it as an economic good, you know, is it a consumption good?

Is it an investment good? So is it an investment where you're investing for your future? Is it a four-year party? Okay, that hybrid is pretty weird, but I think it's actually a hybrid of an insurance policy that people buy to avoid falling through the big cracks in our society and a tournament, a zero-sum tournament where the elite universities like Harvard and Stanford are basically sort of a Studio 54 nightclub with a long line and a big velvet rope. And if you were the president of Stanford or of Harvard, and if you had some kind of crazed martyr complex where you wanted a mob of students, faculty, and alumni to come after you, you should give a speech saying, 'This university is offering a great education, and Harvard—'

It used to just educate the 200 million people who live in the U.S. Today, it's educating the 8 billion people in the world. And so we should increase the enrollment, not by a factor of 40, but let's say two or three over the next 20 years. And you would just get lynched because you're running a Studio 54 nightclub and you shouldn't forget it.

Political correctness at the universities. This is you. I'm quoting you once again: 'If you have a majority of the vote, that's good. If you get 70%, that's even better. And if you get 99.99% of the vote, you're in North Korea.' In 2016, how many professors at the top five law schools endorsed Donald Trump?

Zero. And the law school example's interesting because you would think it's one where if you took the—a lot of academic fields are more internal to academia, but law is one that sort of cashes out in a governmental political context. And taking a contrarian position, in theory, is quite valuable. If you're a tenured law professor at Harvard and you're the only law professor at a top law school to endorse Trump, I think there would be like a 50% chance you would have gotten nominated to the Supreme Court or something like that. And it seems like it's the sort of thing where the contrarian thing would be quite valuable. And then if nobody takes that bet, I mean, wow, there must be some unbelievable enforcement mechanisms.

And it's sort of like a gentle version of North Korea, but it's like... You know, even though you have tenure, it's like, wow, they can relegate you to some broom closet and play loud music or something. I mean, they'll figure out something, some way to punish you.

Silicon Valley. We've discussed this a number of times. When you were starting PayPal, you have said many times, 'The whole valley felt as if it was truly dedicated to free markets and entrepreneurship. And if you talked about politics, you were wasting your time.' Today, it feels woke—more than woke. And I'm going to quote you again: 'In recent years, Silicon Valley has become completely deranged.' What is the nature of that derangement, and how did that happen?

Well, this one's actually hard for me to explain because it's quite—it's a remarkable shift, certainly, from 20 years ago. I would say that there is a question, how much, how much innovation is actually happening. And that, I always come back to where I'm somewhat on the sort of side that we've had generally sort of limited progress in technology and science the last 50 years. There was a very big exception in computer software, internet, mobile internet the last quarter century. This was sort of this narrow cone of progress in the world of bits that really drove things. And I sort of wonder if there's actually less innovation possible even in those areas at this point. So if you look back over the last five years, let's say, there have been fewer new consumer internet companies that have come out.

And sort of maybe the easy ideas have been picked. Maybe we need to move on to other areas. But the other areas are regulated and difficult. So biotech or all kinds of futuristic science areas are deceptively hard, and we're in a zone where the returns accrue to the larger companies. So if you say, if you're sort of an early innovative boom phase, like the dot-com boom in the '90s, it's all startups. It's in small companies that you start new things. When I started PayPal in '99, one of the questions I was always asked was, 'Why can't a big bank just do this?' And I never really had a good answer to it. I now think the answer is roughly that most big corporate institutions are very political, they're very slow, they're not actually good at innovating, and that's why you have startups, that's why you have small companies, that's why you're able to emerge, and the big banks are too political to do anything new.

And so if you can do something new and you can do it reasonably quickly, there's space to do this. And I think the ratio of these bigger to smaller ones has shifted a lot. And it is probably just a less innovative place. And then this cashes out in all sorts of ways politically. These things are always overdetermined. You can say it's linked to California, a 50-50 Republican-Democrat state 40 years ago. Now it's a D-plus-30; it's the second most Democratic state in this country. And so there's sort of a way in which the environment pushes it. There's probably a degree to which Silicon Valley—the workforce in Silicon Valley is the most educated in the country, has the most advanced degrees, college degrees and advanced degrees, and from the elite universities—and maybe the more education you have, the more brainwashed you are.

And so there's sort of—there's sort of a version of that. So I think it's sort of—but I think there are parts of it that just seem completely unhinged. Elizabeth Warren has taken out these banners saying that she would, and Silicon Valley's billboards saying that she would break up Facebook, Google, Amazon for antitrust. And I believe—maybe it's shifted a little bit, but the first two, three quarters of 2019 among Google employees, and I think Google's the craziest of the big tech companies—Elizabeth Warren got a plurality of the donations. She got more donations than anybody else. And so if she were by some miracle to get elected, I think she would be able to argue that even the people at the big tech companies think they should be destroyed.

And so there are parts of it that seem just completely deranged in ways I can't fully explain.

Visions of the future: during a trip to Europe last year, you realize that at least in Western Europe, there are really only three visions of the future on offer. Vision one: accommodation, more or less, in one way or another, with Sharia. Explain.

Well, I would say that I think in politics or culture, for the future to have power over the present—let me start with the general point—it has to be different from the present. The future has power because it's a time that will look different from the present. It can't just be an endless Groundhog Day. It's just always the same. It's just always repetition. Then the future does not have any appeal. And that's not part of a political agenda. And so if we look at Europe and we say, well, how will Europe be different from the way it is today in the future? I think there's sort of three pictures of a very different future. And sort of behind door number one is Islamic Sharia law, and if you're a woman, you'll be wearing a burqa.

So that's a very different picture of the future. It's very concrete. Behind door number two is the Chinese Communist AI, and it's the big Eye of Sauron that will be watching you at all times and all places. That's door number two for the future. And door number three is the Green Movement, and you will be puttering around in an e-scooter, and you'll be separating out your garbage and recycling can. And then I think the challenge is that there are no other doors. Those are the three options. And even though I'm not a crazy environmentalist, this would be my argument for why the green stuff has so much traction in Europe. If those are the only three options, I'll go with Greta.

But there are two places maybe, I'm putting this to you to see what you think of it, where there is a fourth vision of the future that involves economic growth, a reassertion of economic growth, a reassertion of national sovereignty, and a reassertion of cultural self-confidence, and those two places would be the United Kingdom of Boris Johnson and the United States of Donald Trump. You gonna go for that?

I would go with much more the, you know, well, the U.K. is sort of, the U.S. is much more than the U.K., but I'll go with completely. I'm trying to work a deal out here. I'm trying to see what you're going for. I'd go with Israel over the U.K. if you force me to list two. But sure, let's say U.S., U.K., Israel. I'll go with those three.

Okay, okay. That's...

That's—usually I try to ask questions to which I already know the answer. UK is sort of halfway between the US and Europe. So it's better than Europe. It's worse than the US. All right.

Peter, quoting you again last November: "I would encourage us"—and you were talking to a conservative crowd like this crowd—"I would encourage us to rethink the doctrine of American exceptionalism." What did you mean by that?

Well, it's... It's again, it's this question of how we're stacking up as a country. And I think the analogy that I have made to exceptionalism is that it's like the radically monotheistic God of Islam and Judaism, where it's so one of a kind, and so radically different that it can't be compared or measured in any way. And so when we say that we are exceptional, we are often saying that we're so different that we can't even make sense of how we're doing. And then one gets the suspicion that there's a way that exceptionalism can degenerate into a cover for all sorts of things that are exceptionally out of kilter. And so we have a society in which people are exceptionally addicted to opioids. We have a society in which people are exceptionally overweight.

Or we have a society in which people are exceptionally unself-aware. And the alternative that I would pose is something more like greatness, where it's a comparative function. And we would ask questions: How are we stacking up? How are we stacking up compared to our past? How are we stacking up compared to other countries? And that's where there are all sorts of questions that would come to the fore. I think, coming back to the stagnation one, you know, one of the things that I would want to quantify more is, you know, in the world of science, we can quantify things to an incredible degree. You have Avogadro's number, the fine-structure constant in physics. All these things are precise to many significant figures.

But the question about the rate of progress of science, of innovation, is incredibly unquantified, and it's just sort of hand-waving. And if you sort of have sort of this Panglossian hand-waving where everything's exceptional and we're accelerating at the fastest pace possible, and it's not measurable, my sort of suspicion is that these are sort of the ever-narrower communities of sub-experts—the string theorists, the cancer researchers—telling us how great the string theorists and the cancer researchers respectively are. It's a place where there's no outside check, no reality check, no ability to really keep score. And you are certainly not exceptional, and you're not even great.

Once again from the history of the Mont Pelerin Society, quote, 'the original members shared a common sense of crisis, a conviction that freedom was being threatened and that something should be done about it. They concluded that the threat arose from erroneous theories, so they committed themselves not to political action, but to winning the intellectual battle of ideas,' close quote. Here are some members of the Mont Pelerin Society over the years: Milton Friedman, Friedrich Hayek, George Stigler, Gary Becker, James Buchanan, and others have won Nobel Prizes. Has the intellectual battle been won such that we should all shift our attention to political action?

Well, I don't think the intellectual battle is ever fully over because I don't think history is over. And I would say, if anything, if I had to sort of characterize the intellectual landscape, you know, we've been in a world for a very long time in which somehow the range of intellectual debate has gotten more and more narrow. And you sort of have the Overton window shifted to the left, but generally in an ever-narrower way. And you could sort of say that we've been in a bear market for ideas, I think for something like the last 50 years. And so a lot of the people you cited, I think it was pre- the late 1960s. And that in the last 50 years, if you had crazy ideas, if you had ideas that were outside the box, those were always bad and you got clobbered and you couldn't get tenure, you couldn't get funding because everything was peer-reviewed up the wazoo.

And I think we're now at a point where we've been in such a long bear market for ideas and the Overton window is so uncomfortably narrow that I would be long ideas more than at any other point in the last 50 years. I think we're not going to find solutions inside the intellectual straitjacket in which our universities and our society put us. And I think there will be positive returns to ideas greater than there have been in the last 50 years.

Last couple of questions. This one begins, again, by quoting Milton Friedman: 'I believe a relatively free economy is a necessary condition for a democratic society, but I also believe there is evidence that a democratic society, once established, destroys a free economy,' close quote. Do we really have any reason at all for optimism, or is the whole magnificent project...

I just, you know, I'm not sure. Like, I think always extreme optimism, extreme pessimism are both equally wrong. It's always, as a libertarian we should always, libertarians we should always come back to the question of individual agency, and it's not these large historic forces. And there are libertarian or pseudo-libertarian narratives in which there were these large historic forces and we sort of definitively won these battles, but that's not even true to the spirit of free markets or belief in individuals. There's always room for history. There's always room for new ideas. And these things are never definitively decided one way or the other.

All right, last question. And this touches on the notion of greatness that you were discussing a moment ago. George Kennan: "The issue of Soviet-American relations is in essence a test of the overall worth of the United States. To avoid destruction, the United States need only measure up to its own best traditions and prove itself worthy of preservation as a great nation." Kennan writes that in 1951. If we replace the reference to the Soviet Union with a reference to China, would you subscribe to that statement today?

Yes. I don't know, I'm always uncomfortable with saying it's a simple template, though. So if we just go with a simple template, it's too automatic. And then if it's too automatic, we're back in your Berlin "Tear Down This Wall" speech. And then we've replaced the reference and we know China's the Soviet Union. And because we say it's the Soviet Union, we don't need to do anything else because we knew that just all happened on its own. And in practice, the Cold War was won in very specific ways. There was sort of a whole series of concrete situations that you had to deal with. And the rivalry with China, it's somewhat different. It's happening in an information age, not an industrial age. There's sort of a global competition question.

There's sort of a way in which the two economies are very deeply connected. We weren't deeply connected to the Soviet Union. So there are sort of a lot of things about it that are very different. And I think, yeah, we have to, it's not like 2020 is like 1951 or like, you know, 1989. 2020 is like 2020, which is much less helpful, but much more accurate. Peter Thiel, thank you.