Peter Thiel - Developing the Developed World

Good afternoon, ladies and gentlemen. I'm Pamela Thomas-Graham. I'm the Chief Talent, Branding, and Communications Officer at Credit Suisse and a member of the Executive Board. And it's my privilege to welcome all of you to today's lunch. And on behalf of the Executive Board, thank you for being part of the AIC. And I'd like to offer a special welcome to our guest speaker today, Peter Thiel. Peter's a legendary entrepreneur, investor, and philanthropist, and I might add, a former employee of Credit Suisse. He's the co-founder of the online payment system PayPal, and he was the first outside investor in Facebook in 2004. Peter has proven himself to be an extremely astute investor and he's made early-stage investments in numerous startups, many of which are now household names in the business community, such as LinkedIn and Yammer.

Peter has always been focused on the forces that determine progress and change in his work as well as in his charitable endeavors. He concentrates his philanthropic efforts on potential breakthrough technologies, such as the emergence of superintelligence through technological means, or longevity science, and outer space exploration, and on projects and organizations that defend and promote freedom in all of its dimensions, political, personal, and economic. Peter has established himself as a forward-thinker, as someone who's not afraid to challenge current thinking or to propose bold solutions, and he's not afraid of being controversial. He's gonna talk to us today about the development of the developed world, about progress in the 21st century and the many forces that are reshaping our world and the world economy.

It's a great pleasure to have him here with us today. Please join me in welcoming Peter Thiel to the AIC.

Thank you very much. Pamela, thank you very much for that introduction. I always feel that it goes downhill from there, so you're making my job a lot harder. And it's always a great privilege to come back and speak at a Credit Suisse conference. I started my career there on the currency trading side in the years before I started PayPal. And of course, currency was sort of a—there's a part of it which is about the story of globalization and how we exchange money with different countries. And then, of course, there's also a technology question about how money will take on new forms in the decades and years ahead. And I think that when we ask these questions about the future, there is always this question about globalization and technology.

I want to talk a little bit more about technology today. I want to talk about the future of progress. You know, how much technological progress are we going to see? How is that working? I want to then talk a little bit about whether there is actually as much as is often advertised or whether we perhaps should have more progress or if more progress is needed in the area of technology. And then I want to end with some thoughts on the relation between globalization and technology in the decades ahead. I think one of the basic frameworks that I always like to stress in these discussions is that technology and globalization, even though they're often used as almost interchangeable words, are actually radically different concepts, and they involve very different approaches to how one thinks about the world.

And it is probably the case that a good 21st century, in which this century turns out to be the greatest century in the history of the world, will be one in which there is both a lot more globalization and a lot more technology. And we can differentiate the two where you can sort of say that globalization is about copying things that work, and technology is about doing new things. Or you can describe globalization in terms of horizontal or extensive progress, and technology as vertical or intensive progress. And so globalization is you take a typewriter and you have a thousand more typewriters for people all over the world. Technology is you turn a typewriter into a word processor. And so they are—they're sort of very different kinds of, kinds of activities we can think of. You know, a great deal of the focus has been on globalization recent decades, but I want to—I want to sort of think a little bit about how—how technology can progress now. Now, I think on—on a very high level, there are

There are several different ways you can think of the technological curve in the decades ahead. And I've left this sort of extremely simple and schematic so you can actually use anything you want on the axis. The x-axis is time, the y-axis is progress. And you can measure progress in any way you care to measure progress. Use any metric you like. And time is over years, decades, maybe the next century. So one version of technological progress is that we have continued acceleration. And so this would be computers continue to double in speed every 18 months. This is sort of Moore's Law continues. And you have accelerating technological progress. And this is the sort of utopian future of science fiction writers in which we have radically cheaper energy sources, we have super-intelligent computers, we have artificial intelligence, we have robotics, androids all over the place, you have a space program that goes back to the moon, to the planets and beyond, you have nanotechnology,

you have cures for all diseases, you have radical life extension, and that these are the kinds of things that happen in the decades and century ahead in this sort of world of accelerating technological progress. The issue I will flag is that most people no longer believe in that sort of a science fiction view of the future. And while we don't believe any of the science fiction writers, we do almost all believe the economists who have a chart that looks exactly like this as well. And it's basically a chart of compounding returns on investment. And so the question that I will flag at the opening is, can the economists be right if the science fiction writers are wrong? And can you get eight or 10% annualized returns indefinitely after inflation if you don't have this accelerating progress?

And I'm focusing this on the developed, on the developed nations because the emerging markets presumably can get quite a bit through globalization. We'll come back to that later. But in the developed world, can you get super high returns? Can the economists be right if the science fiction writers are wrong or are incredible? Now, I think there are several other charts one can draw out. There's the apocalyptic chart where somehow technology collapses and maybe, you know, it ends up self-destructing. This is where science and technology are a giant trap that humanity has created for itself and it will all end quite terribly. There is a cyclical view where it's sort of like the rise and fall of various civilizations and that maybe it's like the Roman Empire.

At the end, you go into the Dark Ages; eventually, you have a Renaissance, and it goes back and forth in various cycles. I personally find this one quite unlikely because I think it's hard to imagine that knowledge actually gets lost in our world today in a way that's non-catastrophic and non-apocalyptic. And then there's sort of a more prosaic one, which is that it continues but at a sort of decelerating rate. And this is sort of the thesis that we have stagnation. Now, the very striking thing, and I will just mention, is that if you actually try to draw these four charts, these are the only four charts I think you can draw. And you can either have acceleration, collapse, cycles, or deceleration.

And given that those are the only four possibilities, it's worth thinking really hard which one it is going to be. And so you can draw combinations of them in one form or another, but thematically, when we look at the world from the point of view of the year 2100, looking back on the century, it will broadly have been one of these four charts. So let me ask the question whether we are still living in an accelerating technological civilization or whether, has something already changed in this? And sort of the different versions. This is the future as envisioned in 1968. Space was the final frontier. Voyages: Captain James T. Kirk on the Starship Enterprise. This is the future as it turned out.

A slightly washed up actor with a bad toupee selling cheap vacations to the Caribbean. And so, of course, there are different versions of this that one can point to in many different areas where the future hasn't quite lived up to what people expected. And I think if we were to go through all the different areas of technology, uh... uh... my claim is that outside of computers it's actually been pretty disappointing since the late sixties almost everywhere so uh... the sort of utopian thoughts people had about energy in terms of nuclear power electricity that would be too cheap to meter in the words of Eisenhower and his Atoms for Peace speech in 1953 have not been realized. Or even in the last decade, the hopes of the clean tech revolution in Silicon Valley were in many ways quite disappointing.

Food technology has improved tremendously in the '50s and '60s with the Green Revolution, but that has also decelerated in the last 30 or 40 years. And so one can describe the Arab Spring as, for example, this tremendous success of the Information Age, but you could also interpret it as a failure of the true Green Revolution, which was an agricultural technology revolution, and that it was the product of desperate people who finally became more hungry than scared. In biomedical areas, we are still seeing a steady expansion in lifespans. It's going up by about two and a half years a decade in the most advanced nations. But there's a big lag in these things. And if you look at the Food and Drug Administration in the United States, there are about one-third as many drugs that are being approved each year as there were 20 years ago.

And so if you look sort of forward in the pipeline, you might worry that in medicine, we have less to expect, and we are certainly expecting less. In 1970, Congress could declare war on cancer and declare that we would defeat cancer in six years' time. And by the time of the US Bicentennial in 1976—43 years later, we are by definition 43 years closer to the goal of curing cancer. But few people expect us to have a comprehensive cure within six years. So sort of the failure in many of these domains in the last 40 years has also resulted in radically reduced expectations. The one that I think is a scandal that not more is being done on is something like Alzheimer's, where roughly one-third of the people at age 85 will suffer from something like dementia, and it's not even on the radar of something people are massively trying to cure because, to some extent, I think people just no longer believe that it is even possible.

The most naive version of this that I always like mentioning at conferences where people had to travel is that we're not literally moving faster, and travel speeds have decelerated with the decommissioning of the Concorde in 2003. And at least in the United States, extremely low-tech airport security systems have taken travel speeds back to something like 1960. Now, the one extraordinarily important exception to this has been the ongoing computer revolution, which in the last 40 years has continued. And it's gone through semiconductor phases; it went through personal computers, Internet, Web 2.0, mobile Internet, smartphones, and that has certainly been a driver of continued gains and continued technological progress in the last 40 years.

It's an open question whether this is enough to really enable our civilization to radically progress, or whether these changes are, while very significant on the level of individual companies and the people involved in creating them, may not be enough on the level of our whole society and may not be enough to promise a radically better future for most of the people living in the developed nations of the world. And I think that's sort of an important question we need to ask about the computer revolution. One way to try to describe these two very different perspectives is by looking at different time horizons. I realize this may not show up precisely, so I'll just walk through this. The upper right-hand quadrant is a slide of average incomes in the world

in the developed world from the year 1 to 2000. And that has a nice hockey-stick acceleration look to it. It's stagnant at sort of under $1,000 in real terms till about 1750. And then with the onset of the Enlightenment, Industrial Revolution, you had this incredible acceleration for the last 250 years. And that looks like all is well on a horizon of 2,000 years. But if you were to telescope in on it and look at the chart in the bottom right-hand corner, which starts in 1970, it looks like it is decelerating. And you could imagine that you're in the box where you're trending not in an accelerating world, but you're in a decelerating world. Maybe it will lead to collapse. Maybe it will just sort of decelerate to zero.

You sort of debate whether wages are the right measure. I like them because they're such a broad measure of well-being in society. The data on this are, if you had two time snapshots, 1933 to 1973, 1973 to 2013, two 40-year periods. The first 40-year period, average wages in the United States went up 350% after inflation, which represented dramatic progress year after year, and led to a world that was extremely optimistic about the future by the '50s and '60s. 1973 to 2013, real wages, average wages, went up 22% after inflation. It's a little bit more if you include medical benefits, various other things, but you probably get to 40 or 50% if you sort of lump in everything imaginable you can. Tremendous deceleration on the wage side.

And again, I think people always say, "Well, what about places like China? What about places like the emerging world?" That's the globalization story. Those places are not the places where people desperately need to invent new things. They will do fine, or they have done fine just by copying things that work. And the place you want to really look at the health of technology is in the developed world. And the United States is not even the least well-off of the developed nations. You have challenges in Western Europe, maybe in Japan, maybe in a number of other places where there's been a similar deceleration in real wages, which I would argue is sort of an economic measure that we're no longer living in this accelerating age and that something has gone wrong.

Now, there has been a history of concern about technological progress and about the limits of what can be done. There was a famous version in the 1970s with the Club of Rome. You can go back to Malthus, who sort of got it very wrong when he wrote, when he wrote his book in 1798 because it was at the beginning of this age of technological acceleration. So Malthus might have been right looking back 1,800 years from the year 1800. But for the next 170 years, Malthus was quite wrong. It had a bit of a comeback in the 1970s with Ehrlich, the population biologist at Stanford. But this sort of went out of fashion. There was a very famous bet between Julian Simon, the Cornucopian economist, and Paul Ehrlich, the pessimistic ecologist, about whether commodity prices would rise or fall on a basket of five commodities, chromium, copper, nickel, tin, tungsten, between 1980 and 1990.

Simon famously won the bet, which suggested that all was well. and that cornucopian growth was possible. But interestingly, if you had sort of repeated the Simon Ehrlich bet on a decade, on a rolling decade basis, in subsequent decades, Ehrlich's been winning every decade since 1994. The recent ones are just sort of six, seven years at a time, but Ehrlich has been winning for something like the last 12 decades in a row. And so we do have this question whether whether there's something that's not quite working about technology anymore and whether it's going to be enough to deliver the returns people are expecting. Now, I think the standard sort of thought people have on this is always, well, we can always, you know, we don't really need that much more technological progress here.

It's good enough for globalization to work. And so, you know, the way, the way one of the European bureaucrats once put it to me years ago was that you had six billion people in the emerging nations, and they needed to get better off. And you had a billion people in the developed world, and they were pretty much fine. And so it was OK for there to be no progress in the developed world. The main thing was just to get the emerging nations to develop. And this has sort of been the story of recent decades. It's worth noting that this has not always been the story. And so if we think about should you be bullish on globalization and bullish on intensive technological growth, you could say that the period from 1815 to 1913, it was a century when you could be bullish on both.

We had enormous gains from globalization and enormous gains from technology. Globalization took sort of a bad turn in 1914, and I would sort of say it continued to go wrong until maybe its nadir was the Cultural Revolution in China in the late '60s. And you sort of wanted to be very short globalization for probably a period of something like 56, 57 years, even though this was also a period in which there was continued technological progress, even in decades that were very bad. 1930s was a terrible decade from a geopolitical worldwide basis, but you had enormous technological developments. You had the development of the aerospace industry. You had the development of the movie industry. You had the development of the plastics industry, the secondary oil recovery industry.

And so consumer products became, you know, washing machines, dryers, things like these became widespread appliances. Air conditioning was widespread. This was just in the 1930s. And so these were decades where globalization did not work and technology worked. If we look at the period from 1971 to 2007, I would argue globalization worked fantastically. And technology, again, with the one very important exception of computers, generally failed. And if you decided to pursue a career in technology, this was a big mistake. If you decided to become a rocket scientist in 1971, that was a dumb idea. And almost all engineering things that you could pursue were bad. It was bad to become a chemical engineer.

It was bad to become a biomechanical engineer. It was bad to become a... It was bad to become a... It was really bad to become, say, a nuclear engineer or something like that. Aerospace engineering was bad. You, you know, electrical engineering sort of worked. I think that stopped working by the mid-80s. Computer science was the one engineering field that actually worked. And so people always say that, that, you know, we to produce more engineers in the United States. But an honest accounting of the last 40 years was, was actually a really bad idea for most people who became engineers. It was, it did not actually work for them. In some ways, I think I'm not telling you anything that you, on some level, don't already know.

It's encapsulated in the way that we talk about our world. In 1968, people would have talked about the First World and the Third World. The First World was a world of accelerating progress. The Third World was sort of stuck and broken in all these ways. This was a pro-tech, but skeptical of globalization, story, which made sense given the experience of the preceding decades. In 2007, people spoke of the developing and developed world. And that's a dichotomy that's implicitly very long globalization, because the developing world is the world that's copying the developed world and is converging. So it's a convergence theory of history. It's bullish on globalization. But the developed world is implicitly a category that's anti-technology because it's basically saying that the developed world is the part of the world where nothing new will be done.

And so, this sort of thesis of deceleration and stagnation is already there in the very language we use to describe things. And even though people in Silicon Valley and many other contexts are always extremely optimistic about technology, it's not reflected in what people in these nations actually believe. And so, if you ask people in the United States today, something like 80% believe that the next generation will be less well-off than the current generation. I would submit to you that's a preposterous answer if we're living in a technologically accelerating age. And so again, there's this extraordinary disconnect between what people see happening in their own lives and what we are constantly being told.

Now, the question I do want to pose is whether this long-globalization and short-technology world can actually continue, or how stable this is in the decades ahead. And I think this is one of the—one of the challenges that it's worth thinking through really hard as investors and as thought leaders in all these different contexts, or whether the crisis of '07-'08 somehow represents a breakpoint in this. I found sort of a quote from Mr. Bernanke for, for my thesis. This was from a speech he gave in March of 2007, so this was a while back. He hasn't given speeches like this since then, but it may nevertheless be sort of accurate. And so, 'when the offsetting effects of globalization, the prices of manufactured imports, and

on energy and commodity prices are considered together, there seems to be little basis for concluding that globalization overall has significantly reduced inflation in the United States in recent years. Indeed, the opposite may be true.' I still consider this to have been the most shocking speech Bernanke ever gave. He's basically saying globalization is no longer a good thing for the United States, by extension, for the developed world. The more globalization we have, the more competition we have from other countries for resources, the more prices go up. And so, if globalization keeps going, it's bad for the United States. If globalization stops, this will perversely be good for the United States.

And that the gains from trade, which is what people always talk about in globalization, are offset by the increased competition for resources in a world where people are not innovating and not figuring out how to do more with less, which is the definition of intensive technological growth. I think one perspective that one can have on recent decades, on the last six, seven years, is that something like this dynamic has been playing out, where, where the various globalization themes are not quite working. And there's been this strange zero-sum nature to things. So we had a crash in energy prices in '07, '08. They then rebounded very sharply. But you had sort of various other parts of the globalization story that blew up.

The dramatic one that's blown up over the last three years was Southern Europe. This was sort of an intra-European globalization story where people in Germany should invest money in Italy and Spain and Greece and Southern Europe. And as that sort of globalization story blew up, you destroy demand, and this was perversely good for the countries that were outside of that zone. And so in a world where globalization is inflationary, that is a world that's potentially much more Malthusian, where things are much more zero-sum. The politics end up being incredibly nasty and divided. In a world where there's not that much growth over time, you have basically a loser for every winner, and people start suspecting that everyone who makes money has done it only by stealing it from other people.

And this is certainly a dynamic that many of us in the financial industry are quite aware of. So I think that when one looks forward, I would suggest there are basically, you can sort of imagine in the decades ahead, what are the different possibilities of long globalization or short, long technology or short. You could, and I'll just, I would say that I believe you have basically three possibilities. I think the long globalization, short technology mode that worked for 40 years is no longer going to work. It will just lead to the sort of zero-sum rolling crisis dynamic that we've had in recent years. It's possible that nothing works. This is the minus-minus version. This is the apocalyptic one.

It's not really profitable to spend any time thinking about it because that's a world in which no one makes any money. And so we can just sort of bracket that one in this context. You have the one at the bottom where both can work, which is sort of a return to the 19th century. And we get intensive innovation in technology and continuation of globalization. It's probably the most hopeful one. And one always hopes that we can somehow get back to this. But I think one of the challenges in getting back to the long globalization and long technology piece is that we're in a world where everyone still believes in the long globalization, short technology piece. And so for globalization to continue, we need to develop new technologies.

We need to develop new energy sources. We need to develop new ways to produce food more cheaply. We need to sort of figure out entirely new modes for people to live. Because 6 billion people cannot be brought to the level of the 1 billion people in the developed world, much less the 1 billion people in the developed world taken up a higher level without massive technological innovation. There's something about it that's run its course. And so I think it's very hard for us to go directly to the long globalization, long technology scenario, because everyone's still betting on long globalization, but no one's doing intensive technology. And so, sort of by system of elimination, I end up with something like a skeptical of globalization and bullish on technology as this transitional thing that we're in over the next decade.

It may or may not work. But hopefully we get enough intensive technological progress going again that we can go back to globalization. I think there's a lot more that one can say on this. I would end on one thought: the terminology here is always extremely confusing because I've used technology in this sort of very expansive, scientific, technological sense. It has, in practice, been redefined as meaning simply computers. And because we've redefined it in narrower and narrower ways, we think that everything tends to be fine. And so when we define technology as computers, and then there's a lot of change in computers, we think everything is actually good. And of course, there are questions about what you can use the computers to do.

So if you have an iPhone, a smartphone, it has about the same amount of computing power as we used to send the Apollo mission to the moon in 1969. And there's a question whether you use the computer resources to send people to the moon or do you use them to sort of throw birds at pigs or something like that. And there is this very basic... And so I do think that even if the computer revolution continues, it's probably the application of computers that matter and that the place to really look at is the intersection of computers and the real world. One way to think of it is that we have a world of bits and a world of stuff. We've had incredible progress in the world of bits, which is computers—finance as well—in the last 40 years.

The world of stuff is all these other things where progress has been much slower. And perhaps the intersection place to look at is this intersection between the two, where we translate the virtual world back into the real world. We can't escape into the virtual world. The real world is the main world we live in. We are physical beings who live in a fundamentally material world. But there are ways to sort of bring that to bear and somehow improve it. And that's why I think the things you want to look at are our next generation. Can we use computers to turn biology into information science? Can we use computers to sort of radically increase efficiencies in our economy in one sort or another? Can you use computer technology to program robots that do more and more work and thereby improve living standards for people in one form or another?

And it's sort of this divergence between bits and stuff being brought back together. And so that's sort of where I find myself spending a lot of my time thinking about. Thank you very much.

Well, thank you, Peter. That was fascinating. And I'm sure that our audience has some questions for you. I'm going to prime the pump by asking you a couple first. And those of you in the audience can be thinking about what you'd like to hear more about from Peter. So, Peter, just to start, you laid out a pretty compelling case for not a lot of innovation in areas outside of computers, but just to push back on a few areas where there actually has been some technological progress. You talked, for example, about the lack of innovation in the energy sector, but what about hydraulic fracking technology? Doesn't that promise growth through technology in the years and decades ahead?

Yes, it's worth saying a few things about the fracking revolution. I think it's a very important thing for us to talk a little bit about. Fracking, I think, I think it is a valuable technology. I am pro-fracking. There are some environmental concerns, but I personally am very much in favor of us pushing it as hard as we possibly can. There are certainly open questions as to how much it will get us. And it certainly is very good for North Dakota. It may even be relatively good for the United States. It still is an open question whether it is enough to solve problems on the level of the whole world. And the sort of naive economic measure that I would give is, my definition of technology is that you do more with less, and that means that something gets cheaper.

Moore's Law means that computers are getting cheaper. Doubling speed of every 18 months means the average computer goes down in price 1% a week. Some argue Moore's Law has decelerated a little bit, but that's what technology looks like. You do the same for less. And so the energy question with respect to fracking is, does the oil cost less than it did in the days before fracking? And oil was at $25 a barrel at the beginning of the last decade. It's now at around $100 a barrel. It looks like fracking works down to about $70 a barrel oil. But so, as a first approximation, it's best thought of as this very inferior stopgap measure, which is preventing even more rapid inflation. But it's hardly an improvement.

The minimum criterion for an improvement is that the price actually is lower. And prices were, in real dollars, were something like $10 or $15 a barrel in 1972 before the last oil shock—the first of the oil shocks, sorry. So could we even get back to the 1972 levels with something like fracking? If you take natural gas, the forward contracts are still at $6 a BTU on the North American continent. Natural gas was at $2 a BTU in the 1990s. And so I'm way too dogmatically focused on price as a measure of technological progress. There are all these stories people tell, but I'd like people to focus on price, not on the bullish story. The thing that we would like to see are things that maybe an order of magnitude is too much to ask for.

Could we ask for something costing half as much? And that would be electricity too cheap to meter, à la Eisenhower. It would be some sort of very futuristic energy technology of the sort people pursued in cleantech and alternative energy in the last decade. And of course, there were a series of dramatic failures, where cleantech at this point is sort of just a toxic word in Silicon Valley for ways to lose money.

So my second question, and then we'll open it up to the audience, is I think most people in Silicon Valley would probably point to the continuation of the computer revolution as the key to a better future. So they would say Web 2.0, the mobile internet, big data, Enterprise 2.0, all of those things. But do you think that that's enough for progress in the future of the world, or will that not get the job done?

Well, it's always a question of how much value these technologies are actually producing. It's very good for the people who invent them. It's very good for the businesses that create them. It's even pretty good for the regions they happen in. But again, the computer revolution to date has not been enough to save the state of California, now that we have this great technology revolution going on. There was a finance problem in New York, but the technology revolution is happening in California. You'd say, well, the most bullish state in the United States you should be most bullish on is the state of California. Everybody should just move to California. But if you sort of—and this was what happened in the 1930s, by the way—

You had a financial crisis, and you had incredible technological progress in California, which is where a lot of innovation was happening, even in the 1930s. And, in something like Steinbeck's Grapes of Wrath, you got in the car in Oklahoma and they drove to California. And today the demographic trends would be that people are moving from California to Oklahoma. And so the fact that people are driving the wrong way suggests that there's something a little bit odd about this. And so we need to sort of get these magnitudes right of how large these things are that are actually going on. I don't think the tech revolution that's happening to date has been enough for the Western world. It's not been enough for the state of California.

Maybe in the city of San Francisco, it is enough to pay off the pensions of government union workers. And so that's roughly the magnitude that we're having. And so I think maybe the city of San Francisco is not actuarially bankrupt, and it was close to that five years ago. So we have to sort of get these magnitudes approximately correct. I think one of the other equity perspectives that I always like to stress in this is that when you look at something like the Nasdaq, most of the companies in it are described as technology companies, but they are really bets against technology. And you are investing in companies, and if you invest in these stocks, you are fundamentally betting that there will be no technological progress and no technological disruption.

So for example, Oracle is a bet against new databases being created. Microsoft is a bet against new operating systems. Google is a bet against new search technology. IBM is a bet that we will never move beyond the kludge software of the 1970s. And on and on down the line. Say nothing of, say, the Big Pharma companies, which are probably just rackets, where you're betting that they will figure out some way to extend their patents beyond the life that they are entitled to, or something like that. You're not betting on their scientists discovering new things. And so the pharma companies, for example, have learned that their stock goes up when they fire all the scientists, because the scientists are a negative ROI center.

And that's what they've started to do. And most of these tech companies are basically like banks. You're fundamentally short gamma. You're short a banking crisis. A banking crisis means that there is disruption, that someone does something new. As recently as the 1980s, people thought very differently about this. In the 1980s, the Nasdaq, the P/E on the Nasdaq was lower than on the S&P because people thought tech companies were subject to enormous disruption. They would change. They'd be replaced by other companies. And so therefore, you should have a lower price-earnings ratio for a tech company because it was subject to all this disruption. Today, the Nasdaq has a higher P/E than the rest of the stock market because people think these businesses are unusually stable because they're really pricing in this extraordinary amount of stagnation and this lack of innovation precisely.

Another sort of financial cut on this that one can give is if you look at all of the very large tech companies, Apple, Microsoft, Google, one of the striking things is that they have enormous amounts of cash. And so if we were living in a period of accelerating technological change, they would be able to invest this cash into things that would have a positive return on investment. Bernanke has set interest rates at 0%. Real rates are minus 2%, minus 2.5% in the US. You're losing 2.5% every year that you're sitting on the cash. He's begging these companies, "Come up with some new things, get all the stuff to actually work." And the cash keeps building because they have literally no ideas of what to do with the money.

And so the fact that the most cash-rich companies in the developed world are the so-called tech companies, again, suggests that there's something very strange going on in terms of the real dynamics. I would say that, of course, all these businesses have to say that they're technology companies. That's their public narrative. So a business like IBM says, "Look at Watson, look at the super-duper computer that we've created here," and we're not going to talk about the fact that we're just computer service consultants holding the 1970s software together. And even that's where all the money is getting made. And so the narrative is always super pro-tech. But I think as an investor, it's extremely important to realize that when you're investing in many of these so-called tech companies, you're fundamentally betting against technology.

It may be a good bet. And it may be that there will be no disruption, there will be no innovation, and even though this is bad as a citizen of the United States, it's bad for the future of the, of the world in many ways, it may perversely be relatively good for many of these companies. We can assume that in the next few years, a number of them will finally throw in the towel. They will admit we're no longer tech companies. They'll start buying back their shares. And you're basically front-running them. You're not giving them money to invest. You're giving them money because you're hoping they will take their money and buy back their own shares. So when you're investing these stocks, you are effectively front-running the management team, which has been too slow to buy back their own shares because they have to tell the public that they're tech companies.

And the day they start buying back their shares, they admit they're out of ideas.

I'm sure that someone somewhere in the audience has something more that they'd like to hear about. Right here, we have mics moving around. Yes, tell us who you are and then ask your question.

Hi.

Could you just discuss the role of capitalism and governments in technological innovation?

You know, I always am very nervous to answer the "why has the slowdown happened" question because that gets you immediately into sort of a lot of sort of policy, political types of debates. And so I think we should always try to very sharply demarcate the "what" and the "why." My claim about the "what" is that there's been a fact that there's been this deceleration, and the "why" question is, why has this happened? And you could imagine there's a liberal answer, there's a conservative answer, there's a libertarian answer. I'm more on the libertarian side, so I think a lot of it is because we've regulated areas of technology. It costs too much to invent new things, so I think there's a regulatory problem.

You know, there's a liberal answer, which is that we need to invest more in education and in training scientists and engineers. There's a conservative answer, which is maybe that it was the military arms race that drove a lot of this in the past. And maybe there's some truth to all of these. And maybe it's not even a cultural thing. Maybe it's just a natural thing. It's actually, in fact, gotten harder, and we're just out of ideas. I don't actually think it's natural. And I don't mean the speech to sound overly pessimistic. In some ways, this was supposed to be an optimistic speech, because the fundamental premise I have is that we could be doing a lot better, and that the problems are not natural.

And that it is not actually acceptable, that it's as slow as it is, and that it's fundamentally a cultural problem, and that we could somehow be doing a lot better.

Great, we have time for one more question, maybe just here. Hi, my name is [Name] from Credit Suisse.

Question: in your role as a philanthropist, what can you do to get the world into that plus-plus mode that you outlined? I'm thinking in particular about your un-university sort of program. Do you think something like that could be applicable in Asia, traditionally been mostly focused on horizontal, that horizontal kind of dynamic?

Well, I think that in all these areas, there's a question: what's the role for governments, what's the role for large corporations, startup companies, nonprofits? There is probably an aspect of intensive technological innovation that is in the nature of a public good. This is certainly true of basic science, where if you discover some new law of physics, it's not reasonable for you to be able to expect to monetize this all that well. And so there is, in a sense, if you counted on only for-profit businesses to discover new laws of physics, you would not get very many, and there would be some sort of a market failure. And I think something like this is potentially true of a lot of these intensive technologies.

I tend to think that the way we have to push it is by focusing on very talented people and encouraging very talented people to do different things. And so again, the globalization versus technology metric. Globalization on the nonprofit side means sort of redistribution, copying things that work to a variety of different people. It's fundamentally somewhat egalitarian in nature. Technology is fundamentally not egalitarian. We want to find the small number of very talented scientists and engineers and inventors that will really invent these breakthroughs. And so I think it's again a mindset that is very, very different. And that's one that I think we need to try to explore some more.

Well, Peter, thank you very much for the time you've given us today. You gave us a lot of great things to think about. Thank you very much.