Peter Thiel Speaks at Center on Capitalism and Society's 2015 conference

Good afternoon. It's my great pleasure to introduce our luncheon speaker, Peter Thiel. I first met Peter back in 2009 at a dinner arranged by our mutual friend Mark Berner, who is over there. I realized that he's a hugely impressive observer and thinker. So when I met him again early this year, I asked him whether he'd be willing to speak at the Center's annual conference so that the people in the Center could hear him talk and hear his views. And thankfully, he was able to do it. Who is Peter Thiel? Well, he was born in Frankfurt. He and his family eventually settled in the Bay Area. By 12 years of age, he was a nationally ranked chess master in his age group. He spent his undergraduate years at Stanford, where he studied philosophy and co-founded the Stanford Review, and then attended Stanford Law.

After a brief stint as a transactional lawyer, he became a derivatives trader before founding his own hedge fund. Today, he is known as an entrepreneur, hedge fund manager, angel investor, and venture capitalist, philanthropist, and intellectual. The companies he has founded and supported reach into our daily lives. You may be familiar with him as co-founder of both PayPal and Palantir. Or perhaps you know him as the first outside investor in Facebook. Peter and his Founders Fund have also invested in LinkedIn, Spotify, Airbnb, and SpaceX, to name just a few. His philanthropic work is wide-ranging and always focused on breakthrough innovation. The Thiel Foundation has supported radical research projects in anti-aging and artificial intelligence.

Its Breakout Labs offers grants for scientific research that may be too uncertain to attract traditional funding, research focused on hard tech, not computer science. The Thiel Fellowship funds students under the age of 22 to drop out of school and launch their own projects, or as their website puts it, build new things. Peter Thiel is an innovator who has shaped the way we live today and is shaping the technologies of the future. Thank you.

Professor Phelps, thank you so much for that incredibly gracious introduction. There's so many different interesting and very important topics that these questions of innovation touch on. And there's this all-important question of how healthy the state of innovation in our society is. Are we still living in a society that's technologically accelerating? Or is the risk, as I've in many cases come to believe, more one of sclerosis and stagnation? And then you get all these questions of what one can do about this sort of a problem. But what I would like to focus on today is a little bit more what I see as two very different perspectives that people bring to bear on this question of innovation.

And there is sort of a perspective that one might describe as the external perspective, which I think is very often the one that comes from academic researchers, policymakers, people who study innovation as a general phenomenon. And you end up with questions: How do you get more innovation to happen in our society? How do you change our society to make it possible? Things of that sort. And then I think there's a different perspective that I would like to speak to a little bit, which I would describe as the internal perspective of how does one actually think of innovation when you're starting a company or a business? And are there some ways in which the sort of external and internal perspectives are very different from one another?

And I think one thing that's interesting, that's a striking challenge, and when I've tried to teach about innovation or speak about it in general, is that it's extremely hard, I find, to draw sweeping general lessons. There's a sense in which... There's a sense in which every moment in the history of science, every moment in the history of technology, happens only once. The next Mark Zuckerberg will not be starting a social networking site. The next Larry Page will not be starting a search engine. The next Bill Gates will not be starting an operating system. And if you are sort of blindly copying these people, you're in some sense not learning from them at all. And then the sort of paradox this sets up is that I think that in some ways, science starts with a number two.

It starts with things you can repeat and observe and quantify over time. But what if the key thing in innovation is always, if not the miraculous, at least the singular, the one-time and only-one-time aspect that drives these kinds of things? And then what can one say about the subject at all? I end up trying to get at it with all these sort of indirect approaches. What great companies is nobody building? What truths do people believe that nobody agrees with you on? Just try to encourage people to sort of think more creatively about what might be done. But it ends up being a very difficult thing to generalize when the inner reality is one of a sort of always unique constellation of people and potentiality.

So when I started, when we started PayPal, 1998, '99, we eventually hit on this idea of linking payments and email. And this was an idea which the time was right in '99, 2000. There were 200 or 300 million people in the world who had email accounts. And if you could link money to those accounts, you could leverage it into building a new payment system. One could not have done this in 1985 when almost nobody had email. And you would not be able to do it today in 2015 because it was already done. And it would be very hard to actually get traction doing the same sorts of things. And so then if I sort of were to try to draw lessons from the PayPal experience, I could go into all these minutiae of how we linked email with money and how that sort of a product could be rolled out.

But the lessons would somehow only be relevant to someone who was trying to do that precise thing in 1999. And it would be very hard to generalize from them to the present. And so I think if I had to try to generalize, if you held a gun to my head and forced me to try to generalize a little bit in terms of what actually happens, it is that there is sort of this particular set of inventions, innovations for which the time is right. And it's not an entirely empirical process. It ends up being, I think, often a very analytical process where you think through why something makes sense, why it would work, and then you try to pull these things together. And you then work as an entrepreneur or innovator or founder of one of these companies to make them happen.

The great entrepreneurs will generally talk about what they're doing in definite future tense: 'It is when we have 20 million people on our system, then we will start offering this product.' And it is not described in this sort of very contingent sort of a way that I think one often would be tempted to describe it from a very high level, as something where, on a high level, we often like to say there's a shortage of risk-taking in our society, it would be good for people to take more risk. The inner truth in these companies is that you want to get rid of as much risk as you possibly can. At PayPal, we had a runaway fraud problem. There were all sorts of crazy dynamics at work. And years ago, I was thinking of doing a book on PayPal.

And the working title I had for it was 'Risky Business'. And the whole thing was how we had one frightening, insane risk after another. And the chapter title on Elon—at the time, Elon Musk, who was working with us very closely, we sort of combined two companies—was going to be entitled 'The Man Who Knew Nothing About Risk'. And we had sort of all sorts of anecdotes that at the time seemed really crazy. So we had this payment system, and then you're going to leverage it and add a credit card financial service. And we had decided to give credit cards to absolutely anybody who wanted them. You got up to $10,000 credit limit. Elon had told the woman who was rolling the service out that he wanted a million people to be using the new credit card by the end of the year.

Fortunately, it was about two levels down from the front page. And so not that many people were able to discover this. And some people did. They wrote us back and said, 'This is fantastic. I haven't had credit in years. I can't believe you're offering me credit. I haven't even had a checking account in 10 years.' So these were people who wrote so many bad checks, the banks wouldn't allow them to have checking accounts. And it turned out that we ended up with something like a 50% chargeback rate. The worst subprime companies are like 4% to 6%. And then happily, we sort of rolled that product back very quickly. And so there's sort of an external story that you could tell here: 'Okay, oh, they took all sorts of risks, and this is what happened.'

The internal version was we were certain everything was going to work. It may have been incorrect, or maybe it was delusional. And then you sort of adjusted very quickly. A version of this that I was partial to: early on, just before we started the service, I was talking to someone who had been a vice president at Visa for many, many years. He asked us, 'Well, how are you going to deal with chargebacks? Isn't there going to be a lot of fraud in the system?' And we said, 'He's such a negative person. He's probably worked in a big company for a long time. He's obsessed with risks. We're calling it PayPal. That's a friendly name. And we'll only have very decent people using the service. There's not going to be a fraud problem at all.'

And then it turned out there was an explosive one, and we had to come up with fast ways to deal with this. But I think the internal story in these businesses is one that's strikingly not one about, 'Oh, we're going to take crazy risks,' or anything like this. It's one where it's, 'It's destined to succeed. It's going to happen.' And if you try to reduce this to a pattern of recognizing entrepreneurs, as a venture capitalist, you always want to invest in the ones where they speak in definite future tense. You have to sometimes be careful they're not totally crazy people. But that's the sort of person you want to invest in. And you do not want to invest in people who are talking too much about probabilities or risks or things like that.

Because my experience has been that the people who think they're involved in some sort of lottery ticket-like dynamic are already setting themselves up to somehow get the probabilities wrong and invariably lose. And there's a similar version of this that I experience as an investor. I've sort of looked at investing as a venture capitalist in these ventures. There's always this very tricky question of what the role of luck and chance is in these things working. And there certainly is this external truth perspective that there is a certain amount of luck that's built into the nature of the universe. And you try to model it. You try to account for it. You try to get the probabilities right as you assess these things.

And so that when people say that luck is involved, this is a statement about the deep nature of our universe. And then there is sort of the internal truth version, where whenever we've thought that it's a matter of luck, psychologically, I can say this has often been a very bad sign, where you say, 'Well, we don't know if this is going to work. Maybe it works. Maybe it doesn't. So let's just invest a slightly smaller amount just for our lack of knowledge.' And as a pattern, I would say those are investments that have generally gone very badly wrong. And I'll sort of explain why. It's something like when you think you're multiplying a small probability by a big payoff, you sort of psych yourself into playing the lottery and you psych yourself into losing because you somehow are being sloppy and not doing that much work.

And so the external account of luck is that it's something about the nature of reality. The internal account of it is that you talk about luck when you're too lazy to think for yourself. And that you start talking about luck when you're too lazy to think through the various contingencies and try to make sense of what happens. And so that it's sort of a moral failing and not a metaphysical statement about reality. And I think that there certainly are a few companies in Silicon Valley that have emerged in recent years where it was sort of like a crazy A/B testing, and we're going to lock ourselves in a room, and we're going to try different random things until something works. That occasionally has worked.

It's not something I'm comfortable investing in. But I think the much larger narrative has been one where there were some very powerful, definite visions of the future that animated the founders. And the Facebook version—I think it's hard to sort of do this in retrospect, but even very early on, there were all these discussions of how unbelievably important this company was going to be. And they had to be very careful who would control it, because it was going to change the media landscape in all these sorts of ways. And there are ways in which this sort of internal view of the determination of human agency, of us being able to determine the future if we set our minds to it, gets you to a very different set of outcomes from the external view that it's all sort of a matter of contingencies and chance.

The most important single moment in the history of Facebook, in my mind, was in July of 2006. We were about two years into the company's history, and we received a $1 billion acquisition offer from Yahoo. The company had about $40 million in revenues, no profits. It was just a college site. I think the management team was a little bit nervous about the 22-year-old CEO they had generally. And there were three of us on the board: myself, another venture capitalist, and Mark Zuckerberg. And I think, in fairness, the two of us probably thought that we should take the billion dollars. Zuckerberg sort of started the board meeting, and it started with, 'Well, this is going to take 10 minutes. We need to just have a quick formal board meeting to turn this down.'

And the two of us said, 'Well, we should probably talk about it a little bit more.' And then we had sort of a six-hour-long discussion about the pros and cons of doing it. And it was like, 'Well, Mark, you're 22 years old. You would make a quarter—you own a quarter of the company, you'd make a quarter of a billion dollars. There are many things you could do with this money.' This is the indeterminate account of the future. In an indeterminate account, money is always the ultimate value because it's pure optionality. You have more options with money than with anything else. And so you should always take the cash on some level. And then Zuckerberg was, 'Well, I don't really know what I would do with a quarter of a billion dollars.'

I mean, I guess I would start another social networking site. But since I like the one I already have, why would I sell it? And it sort of went back and forth like this. But then I think the key point that Mark made that did, at the end of the day, convince us to not sell it was there were a whole series of specific products that the company was going to be launching in the next six months. They were clearly not being valued by the would-be acquirer. And we thought we probably were safe waiting, and they wouldn't go away that soon, and we could go ahead and do this. And I do think that there are many challenges with having the founders of these companies continue to manage them as CEOs in the years ahead.

There's all sorts of things they do not understand that well. They're often young, immature. There are a lot of things that go wrong. But the one big difference is they actually do believe in the thing they're working on. And if we had hired a professional CEO at Facebook early on, they would have done, I think, maybe they would have done everything better except for this one thing. They would have sold the company for a billion dollars. And the conversation that Monday would have gone something like, 'I can't believe they're offering us a billion dollars. I'm going to have to make sure that we don't pretend to be too eager to take it.' But obviously, you know, we ended up in like a litany of discussions about all the risks the company had so as to scare the board and make it really certain that we would sell the business in one way or another.

I think one of my PayPal colleagues who's been extraordinarily successful in the years since is, of course, Elon Musk. I already alluded to him. The internal version in Silicon Valley of both Tesla and SpaceX as companies were that they could never succeed. People were very deeply skeptical of it. There were so many different pieces you had to get to work together in just the right way. If you multiplied all the probabilities, it was just going to fail. You could not build a new car company. There are too many different pieces you had to get to work. It couldn't work at all. And I had a conversation with Elon about this in the summer of 2008. And I asked him, 'When had the last successful new car company been created in the United States?'

And the answer was, it was Jeep in 1941, which is, again, sort of an unusual set of circumstances. That was the last time you'd been able to create a new successful brand for a car. And so there's sort of an empirical kind of an approach one could take. And you could say, 'There's been no new car company in 67 years. Therefore, it must be a very hard thing to do. And therefore, you should not do it.' And then there was the alternate version that Elon gave: 'Well, it's been 67 years, so it's about time for a new car company.' And it's not clear, the empirical fact there had not been one for so long, which way that argued. Although, at the end of the day, one of the tremendous advantages that Tesla had and that SpaceX had on the rocketry side was that you were competing with really sclerotic businesses in other contexts, in both the aerospace context...

...and the large car industry context. And so it turned out that the fact that people didn't think it was doable and no one had done it in a long time, paradoxically, actually created a big opening of sorts. But the conversations you'd have with people like Elon or people like Mark would always be these conversations about, 'These are the definite things we're going to do. If you talk about risk, let me tell you about why there's really no risk at all. That's just an illusion. There's no risk. We have all these very specific things we've thought about where we're going to get rid of every single risk.' And then on some level, the history is that in many cases, they succeeded in overcoming this. I have a whole theory that something like this was a very big part of what Steve Jobs succeeded at doing at Apple Computer, if you sort of give that as the paradigm example of innovation in the U.S., where there was sort of this complex coordination of many different pieces, getting them to work together in just the right way, envisioning a future...

...very different from the present, and sort of figuring out, how do you get the entire supply chain rebooted to make the iPhone? How do you sort of put all the pieces together to make a smartphone that actually just worked? And we live in a society where this is not the way we think about things. And so the authorized biographies on Steve Jobs don't talk about this sort of quality coordinating vision to reduce risk and eliminate risk. It's sort of more about the eccentricities of his personality. And so when you had the Isaacson biography come out shortly after Jobs' death and sort of showed he yelled at people a lot and mistreated all his employees, it was a sort of thing where you'd have mid-level managers in Silicon Valley buy the book and give it to all their employees.

And it was sort of a sign, 'I'm going to try to be more like Steve Jobs. I'm going to start yelling at all of you more and start being mean. I'm not being mean enough.' And it strikes me that that sort of analysis of what's going on begs the most important questions, where it begs this question of what was inspiring about it. Let's assume Steve Jobs was a really horrible human being who mistreated all his workers. It begs the question of, why did they work for him in spite of that? And what was it about him that was so inspiring that people would continue to work with him and help achieve all these new things in the future? Now, as one of the—I think this question of innovation is in many ways incredibly overdetermined.

And so if you ask a question from my perspective, 'Why is not enough innovation happening?' I always think this is a very difficult question to answer. I think anything that starts with the word 'why' is always hard. And it's often overdetermined. There are many different things that are going on. I think there's definitely a hysteresis where when things haven't worked for a while, you end up with a lot of learned helplessness. I think there are regulatory issues I always like to point to where we've lived in a world where computers were relatively unregulated, and other areas were regulated. And therefore, we've had less innovation in nuclear engineering or aerospace or almost any other engineering field.

And we've had a world where bits were unregulated, atoms were regulated. And so we've had this sort of two-track innovation between those two. So I think it's a regulatory story. But then I also think there is this very strange question about risk, where we've somehow become a more risk-averse society. And the paradox that I will leave you in, now we're sort of in the super speculative zone, is whether the external discussion of risk, including by people who really would like us to take more risk, whether that actually paradoxically is what's leading to a world where less risk is being taken or contributing to it. So if everyone's aware, everyone's constantly talking about how risky things are, how risky it is to start a business, how much can go wrong, how we need to take more crazy risks as a society.

It's possible that that actually gets heard by people as, "You should just take fewer risks." And certainly, if you transpose the context, so you have an eight-year-old child, and if your child is unaccompanied by you as a parent, there's a risk your child will be kidnapped any moment in the United States. And so if you aren't with your child at all times, we may have to arrest you because you are taking too many unnecessary risks. Or in the hedge fund sort of a context, whenever you hear the terms "risk management," these are like these code words that you need to take even less risk and get even fewer returns and have even fewer convictions of any sort. And I think there are so many contexts where this sort of probabilistic modality of thinking has had this paradoxically disabling effect.

And the challenge is that it is, of course, not untrue. There's an aspect of reality that has a probabilistic character. There's a way in which this external description can be powerfully correct. But at the same time, it can really screw you up on the inside. If you're a politician running for office, what you would have done 50 or 60 years ago—you would have tried to have ideas. You'd have tried to convince people of ideas. And it was about leadership and inspiration and convincing people around things. Today, it would be dominated by taking polls and trying to calibrate exactly what you need to say to appeal to 51 or 52 or maybe 53% of the voters, and all the very fine-tuned probabilistic measurement devices that we have, even though the net result of it is perhaps that our politics becomes emptier and emptier and more and more devoid of content in one way or another.

And I have the suspicion that one could map out a lot of these areas where the turn to probabilistic thinking is what has—is what has been counterproductive. The software industries, of course, and I'll just give two areas of innovation where I think this contrast is very dramatic: software and biotech. Software's been working quite well for a long time. Biotech, much less so. And the basic narrative inside a software business is deterministic. I'm going to butcher this, but there was a line from Bill Gates early on that he loved dealing with computers because they always did exactly what they were told. You say, "Well, that's kind of like an authoritarian dictator, sort of not necessarily the best personality you might want to have."

But that's why he loved working with computers, because they always did exactly what they were told. And certainly, if you're building a business, that is the sort of business where it feels there's more human agency, more control, less is left to the gods of chance. And then on the other extreme end of the spectrum, the way people think about biology, in many cases, involves these sort of complex systems approaches, where our biological systems are these very complicated systems with many confounding cross-reactions and variables. And it's almost impossible to sort out what's going to happen. And so if you're starting a biotech company, it ends up being, "Well, it might work. It might not."

Who knows? Nobody knows. The drug development companies often internally have the feeling of a cult where people are worshiping a particular molecule. They're hoping that it works, but it's just sort of like this purely chance-like thing. Nobody would, of course, ever give up a tenured position to work on a biotech company. None of the other people end up being that motivated. And the cultures of these companies is far more screwed up than the culture of a software company. And then we've seen almost no life science venture capital funds left in the United States today. The returns have just been too low. They've basically gotten defunded at this point. And that's, again, a very striking contrast with the software thing.

So I'll end with sort of one very large-picture thought on this, is that I often think of the history of modernity as somehow early modernity—17th, 18th century—it was about these deterministic processes that would overcome chance, and that somehow the idea of chance has seeped back in. And it's sort of this Lucretian, Epicurean atomism, where the universe consists of atoms moving in the void, and they move at random. And in that sort of a world, Lucretian atomism, Lucretian physics, leads to Epicurean hedonism, because in that sort of a world, who knows what's going to happen in the future? You have no control over it. There's nothing you can do. You might get hit by a car. If not a car, maybe you'll be hit by a meteor at some point, and the whole world will end.

And so there are different random events of small, medium, or large size that dominate the future. And so you should just eat, drink, and be merry, because tomorrow you might die. And I think there's this intellectual history of the modern West I would offer in which somehow the indeterminate part has gradually, gradually replaced the determinate part. And my apologies if I had to give this a very specifically political riff to sort of try to concretize this idea. It would be that if you were... You know, it would be that if you said, what would Marx or Lenin or Engels think of President Obama? And I think there's a sort of conservative account of Obama as being sort of this very left-wing, communistic-type person.

I think nothing could be further from the truth. And what those three people would say—Lenin would say, "Where is your five-year plan?" For surely socialism with a five-year plan is better than socialism without a five-year plan. Engels would say, "Dialectical materialism means a world of never-ending progress." And what sort of a progressive replaces the word "progress" with the word "change"? Does that not represent a decline from progress itself? And this, again, is a shift from determinism to indeterminate versions of the future. And for Marx, I think you'd have to simply go to Marx's PhD thesis, which was on the difference between Democritean and Epicurean physics in ancient Greece. And the thesis was that if you shifted towards this Epicurean world, it would be very demotivating.

And this was always the specter that haunted Marx, was the specter of Epicurus, that the workers would not work on the revolution because they thought ultimately it'll all fall apart anyway, so there's no point in the revolution, and they would just sort of enjoy their lives. And even though I'm very far from a Marxist, and I don't think it applies on the level—works on the level of countries or states or societies—I think that, I actually think that what we have today is in some ways significantly worse than Marxism. And I think that when you think of this on the level of individuals and companies that people start, I am a very big fan of some sort of a return to human agency where the question is not about how you'll be buffeted by these larger external forces, but how you will master chance and build a better world for tomorrow.

Thank you very much.

First question. Who has a question? Eric.

I hope not to sound rude with this, but in a way, we heard in the introduction about all the successful companies you invested in.

And you've talked about chance not really playing a role. It means this deterministic future and going for it. Still, there are many other places that you invested in that I assume were being run by people who were very sure that their future would end up being right. And it didn't. Can you say a bit about them? And maybe even tell us what percentage of your

ventures didn't make it through. I know you don't want to talk about the probabilities, but yeah, I'm actually curious. Well, um, let's see. Uh, it's, so certainly there are, um, all sorts of contexts where, where things, uh, where things have gone, gone wrong. Uh, you know, on the venture capital side, the track record's been, been fairly good. It's been about, um, about 60 to 70 percent of the companies of the 150 or so have, you know, have, have survived. On a dollar basis, and again, you have to always qualify this by saying that there's a decent number where the jury's still out, but on a dollar basis, it's been about 18 to one, where $18 have gone into the companies that have worked for every dollar that went into ones that haven't.

And so now when we looked at the mistakes, they've tended to skew towards our smaller investments. So the pattern has been what's worked is we've got really high conviction on a few things. We put a lot of capital to work in those. And then those actually worked. And then the pattern that was the less good one, was we don't have a very high conviction on this. We'll put smaller dollar amounts in. And then that's where we sort of ended up playing the lottery. Now, I think one of the reasons, again, this doesn't mean that my theory is right, by the way. But I think one of the reasons this sort of approach would work is that almost every single venture capitalist we're competing against has a probabilistic model.

And so they think they're running some kind of a portfolio. And that may be true on some ultimate level, but it always, in practice, becomes this incredible excuse for laziness. So even if the theory's wrong, even if you cannot overcome chance, if you think the chance dominates things, it will lead you to be lazy.

Ian Golden?

Thanks, Peter, for that wonderfully stimulating and cogent... There are two questions in my mind that sort of puzzling around innovation I very much appreciate your thoughts on. The one is that within a system like the US, say, or different places, some places become incredibly effective innovation machines and others don't. Compare Detroit and Palo Alto, or compare within Europe different cities, or even within... The thing I'm very familiar is the difference in innovation between Oxford and Cambridge, for example. How do you get a sense of why that happens and why some places are much more effective at generating innovation than others? The regulatory, political, and other environment is identical across these two different places.

And the second, which perhaps relates to the way I would understand the answer, is the role of migration. Internal migration within a country, the ability of people to move where things happen, but particularly international migration. I'm very struck by the fact that you're a migrant, Elon's a migrant, and when you look at Silicon Valley, it has this extraordinary disproportion. I think well over half the startups in Silicon Valley are migrants. Something like 40% of the patents in the US are immigrant. Where does immigration fit into your model of innovation? Thank you.

Well, I don't know if I have a, you know, "why" questions are always hard to answer. And so, "Why does Silicon Valley work?" is a question many people are asking. There have been many sort of attempts to replicate it that have, you know, had, you know, maybe it's a combination, whole bunch of different factors. Maybe it's like the weather, maybe makes people slightly more optimistic. And then maybe it's the newness of the place in California where there aren't large established things that people are already doing. Maybe it's the hysteresis where there's been a lot of success and that sort of encourages more people to succeed. Maybe it's the network effects. Maybe it's the research universities, especially Stanford, that have somehow

where they somehow are well integrated into the surrounding community. So there's sort of a litany of these things you can give. If you held a gun to my head again, I'd be somewhat partial to the network effects being very powerful and being sort of a very critical component. And then once you get them to work, there are a lot of good things that happen. And then it's very hard to engineer network effects de novo. It's been very hard to build cities from scratch. Even the attempts to do that, like Brasília or whatever, have not worked terribly well. And then if you try to engineer an innovation system from scratch, maybe that's even harder than building a completely new city from nothing. But I suspect these network effects are very pronounced.

And then certainly migration towards Silicon Valley was very important. The question, of course, if I had to look ahead for the next decade is whether that will continue, or is it possible that the communications revolution in some ways means that you can tap into those network effects, even if you're not as well plugged into Silicon Valley. I gave a talk at Stanford in 2005. There were three people on the panel, myself and two of the other early Facebook people. And it was entitled, "Where Will We Find the Next Google?" It was sort of a search problem. It was both a search question framed as an investment problem and an entrepreneurial challenge. And my answer was, it's hard to know. It's an incredibly difficult search problem.

Where's the next Google? I think there's a 50% chance it's within five miles of this room. It turned out the next one was Facebook. It was within about a mile of the place where the talk was held. If I was giving that talk today in 2015, I would probably assess the probabilities as maybe well less than 50% within a 50-mile radius. And so I think it's likely the innovation will be more diffuse, more distributed in the decades ahead, because I think the nature of these network effects may change as people are, in fact, able to communicate better, assuming the technology works halfway as well as advertised.

We can take only two more questions, and it must be very short. I'm going to call on Charles Kolb and then on Philip Howard.

...that relate to higher education. We have $1.3 trillion of student loan debt. Is that going to affect, possibly, how our young people look at risk and innovation? And then second, what do you see in terms of the horizon of disruptive innovation in terms of higher education, post-secondary education? Thank you.

Well, I could spend a long time on this. So yes, it certainly would be my thesis that if you graduate with large amounts of debt, you will take a conventional, better-paying job that may, however, get you on a—maybe much less innovative in terms of where it directs you. And so the debt itself becomes another deadweight barrier to the sorts of innovations our society desperately needs more of. Innovation in education is, I think, always—there's definitely a lot of different businesses that look at this in Silicon Valley. I'm somewhat skeptical of a lot of the business models, and I think, I think the challenge comes down to correctly defining what sort of a good education is. And it often gets talked about as education as learning.

And you can think, is it an investment good, where you invest in education and then you get a better-paying job or you learn things? So, is it an investment good? Is it a consumption good, where college is a four-year party? When I first started talking about this, I thought it was a combination of an investment and a consumption good, like the housing bubble. You bought a big house with a swimming pool: 'See how much I'm saving for my retirement.' So, when people conflate investment and consumption, you make some big mistakes. I now think that it's actually a conflation of two somewhat different goods. I think it's a conflation of insurance, where people are spending a lot of money so they don't fall through the cracks in our society.

So, it's driven more by fear than by hope. So, it's not an investment good, but an insurance good. That's what people think they're getting. And then the reality is that it's a tournament. And so, if you were the president of Stanford or Harvard or Columbia, and if you wanted to get a lynch mob of students, alumni, and faculty to come after you, what you would do is give a speech that would say something like the following: 'We have this great educational institution, people are learning so much from it, the world's gotten to be a bigger place, there's more globalization, and so we're gonna triple our students gradually over the next 20 years, triple enrollment.' People would revolt because so much of the value of their good comes from exclusion.

And what you're really running is a Studio 54 nightclub with a big velvet rope and very few people allowed in. And the more exclusionary it becomes, the more valuable it becomes to the people who get in. And the big fraud—it's worse than the housing bubble where you conflated investment and consumption—you're conflating insurance and tournament. If we thought of an inner-city context: 'Okay, you should practice to become a basketball player. That's the way you will be insured against falling through the cracks in our society.' It's crazy in an inner-city context. And that sort of a conflation leads to a fraud of the highest order. Philip Howard.

Yes, Peter. As you noted at the beginning of your talk, the culture is going in the opposite direction, toward risk aversion, toward correctness. Speaking of Yale—I mean, of lynch mobs who just go to Yale—and political correctness. So, what are your ideas on how to create a new narrative, a new public narrative that's more focused on human agency, on people making a difference, inventing themselves, a world in which there's conflict and competition leading toward progress, rather than one about safety and avoidance of all conflict and competition?

Well, I don't have a good answer for the political or public version of this question. I always have a schizophrenic view on politics, where I both think it's incredibly important and incredibly hard to change. And so I would go crazy if I spent all my time on it, even though I think it's important enough that I, I do spend some time thinking about it. And that's why I'm more focused on venture capital, startup companies, because that's where I think there's room to create such a narrative. It's very hard in a political system. I think if you were a politician in the U.S. and you gave speeches on entrepreneurship and the need to take risks and so on, these would poll-test incredibly badly. And the polls in this case would be right, that you shouldn't give speeches like that because people in the audience say, 'I can't take risk.'

I have a family to support. I can't move across the country because I have a big mortgage. I can't do this. I can't do that. And so, on a political level, hopefully not more damage gets done. Very, very hard to correct. And that's why I'm always focused on the much more local narrative. I'll end with one of the striking things, I think, in Silicon Valley. There's always this question of socialization. How do you socialize people into entrepreneurship, into doing these things? And then, of course, there's a problem with over-socialization where it leads to political correctness and all sorts of things like that with excess socialization. And I think that one of the striking things in Silicon Valley that I've noted is that so many of the great entrepreneurs seem to be suffering from a mild case of Asperger's.

And I think that we need to always flip this around into an indictment of our society. What does it tell you about our society where all of us who do not have Asperger's are at a disadvantage because the social pressures are so extreme and we're talked out of all of our interesting, original, creative, heterodox ideas before they're even fully formed? And again, I think these things would be almost impossible to measure. But I suspect this was not as much the case 50 or 60 years ago. I think suffering from Asperger's was much less of a precondition for starting a business 60 years ago than it is today.