Peter Thiel and Andy Kessler on the state of technology and innovation

Resolved: As a source of jobs and cultural renewal, technology has proven and is likely to continue to prove a terrible disappointment. Speaking for the resolution, more or less, Peter Thiel. Speaking against, Andy Kessler. Uncommon Knowledge now. Welcome to Uncommon Knowledge. I'm Peter Robinson. A graduate of Cornell University, Andy Kessler worked as an analyst in New York before moving to Northern California to found Velocity Capital Management, which during the 1990s turned investments of $100 million into more than $1 billion. Since leaving Velocity, Mr. Kessler has devoted himself to journalism. He appears often in publications such as Forbes, Wired, and The Wall Street Journal, and he is the author of more than half a dozen books, including Eat People and Other Unapologetic Rules for Game-Changing Entrepreneurs.

Although the founder of the Thiel Fellowships, which each year award college students $100,000 apiece to pursue business by quitting college, Peter Thiel holds both B.A. and J.D. degrees from Stanford University. A co-founder of PayPal and Palantir, Mr. Thiel was the first outside investor in Facebook. Among his other activities, he now serves as a partner in the Founders Fund and the president of Thiel Capital. Andy Kessler, Peter Thiel, welcome. Peter Thiel, in remarks to the International Students for Liberty, I quote you: 'How much technological progress is actually happening? Is it getting faster and faster or actually decelerating and in some ways slowing down a great deal? The basic conclusion that I've reached is that outside a few areas we've had very little innovation in 40 years.'

Peter, 40 years has taken us from the Ford Pinto to the Google driverless vehicle. Explain yourself.

Well, if you look at the last 40 years, we've had tremendous progress in computers and very little progress just about everywhere else. And so, if you look at the most straightforward way to measure how fast we're moving, is literally, how fast are we moving? And travel speeds had gotten faster century after century, decade after decade. We had faster sailboats, in the 19th century faster trains, then faster cars, faster airplanes. It culminated with the Concorde, was decommissioned in 2003, and today, if you include low-tech airport security systems, we're back to travel speeds circa 1960. In energy, there has been a massive failure of innovation, which is reflected by the fact that oil prices and energy costs still have not recovered from the oil shocks of the 1970s.

In inflation-adjusted dollars, it costs as much as it did at the end of the Carter years today.

Despite fracking? Despite fracking.

Without fracking, it would be even worse. But despite fracking, we're basically in a Carter-age energy crisis. You look at biotechnology, we probably have about a third as many drugs being approved by the FDA per year as were being approved 20 years ago. And so, you can go through sector after sector and say that technology has not lived up to its hopes. We certainly can hope that it's going to start to accelerate and that we're on the cusp of a new golden age, which is what we're constantly being promised.

Andy Kessler's about to make that promise, I think.

I think that after 40 years of hype and failed expectations, the burden of proof has shifted very much towards those who claim that we're about to see a lot more happen. And I think this slowdown is, of course, reflected in the economic data. We've had generally stagnant wages since 1973. Mean wages have been stagnant. Median wages have been stagnant. Mean wages are up maybe 22%. And so, there's sort of—it is reflected in the sense that things are not getting better for a lot of people. 80% of the people in the United States think this country's on the wrong track and the next generation will be less well-off than the current generation, which is radically at odds with this sort of cornucopian technology future that we're constantly being promised.

I want to get to the piece you wrote in the Wall Street Journal this past summer in which you mentioned specific segments of the economy that you think technology is about to reinvigorate. But first, a kind of opening statement from Andy Kessler: quote, 'History shows'—this is you in the Wall Street Journal as well—'history shows that better high-paying jobs are always created by technology.' History shows that. You just heard what Mr. Thiel here has to say. Has he shaken you?

Just slightly. You know, I think Peter is onto something in the physical world, in the outside world, in that technology, both digital technology and the physical world technology, goes through these massive, long-run cycles. So, 1859, oil was first discovered in Titusville, Pennsylvania. In 1870, Rockefeller started drilling oil, and it took till 1973, when the OPEC oil shock sort of spiked prices, that we've never really recovered from. And so all of the physical world wants in terms of faster cars and planes and trains and the like are sort of stuck in this high-energy world, and it's sort of very difficult to break that barrier. Go 100 years after 1857—sorry, 1859—1959, Richard Feynman, down in Southern California, famous physicist, says, 'There's plenty of room at the bottom,' meaning go smaller and smaller and find your innovation, which

Remember, the integrated circuit was invented in 1958, the year before. And so that and Moore's Law sort of previewed. Moore's Law is? Moore's Law says that the transistors and electronics gets cheaper by half every 18 months. Gordon Moore is a founder of Intel—was the founder of Intel. And so we are... Geez, we're not even close, we're 50 years into that cycle, and I think that the beauty of the digital technology cycle is that it drives productivity, just like cheaper energy drove productivity of moving people around, moving goods around, set up globalization, and all the great labor-saving devices that we all enjoy today, whether it's our cars or dishwashers or whatever else, where we waste

To move things around, we waste technology, we waste transistors, we waste bandwidth to get all the productivity out of our computer systems, out of our iPhones and the like, and therefore spit out free capital to go invest in whatever that next wave of technology may be.

Let's get to a few of the specific segments of the economy you mentioned in your piece in the Wall Street Journal, Andy. Three-dimensional printing. First of all, what is 3D printing?

Well, think of a laser printer sitting on your desk that would scan a piece of paper and put little droplets of ink on it and you have a printed page. A 3D printer just does it in three dimensions, and instead of just ink, it can solidify various materials. And so you can use your Autodesk software on your PC and create a 3D object and hit print and perhaps print out little pieces of paper, plastic that broke off on the handle of your door, and rather than spend $1,000 to replace the door of your car, go to some shop and say, 'You know, I need this little thing. Here's the 3D model of it.'

Quote, 'Next year'—this is you—'next year, we will see the appearance of cheaper 3D printers and the growth of an industry.' Why is it that imminent all of a sudden?

There's a patent on one form of 3D printing—I forget the name of it, laser sintering, something along those lines, I forget the name of it—that once that patent is up, then you're gonna see 20 entrants who use this much cheaper form of 3D printing. And so, by the way, 3D printing, just like laser printer—the first one was $17,000, and now they're $200 or they give them away—it's gonna take a number of years for 3D printers to get cheaper. But like laser printers ushered in the era of 'anyone could be a publisher'—anyone can start a magazine, anyone can publish a book, more or less—I think 3D printers will drive increased jobs by small shops. You know, every little town will have these 3D printing.

Right, like an auto shop, there'll be a 3D printing shop. 'Hey, I need this. This broke off of my vacuum cleaner. This broke off of...' let alone people who are creating new objects that we can't even think of today. It's things that can do new things.

Are you feeling more cheerful? Well, I think, look, the claim is not that there's no innovation happening or that innovation is altogether dead. It's just that it's been slowed down. And so I think the thing that's very tricky with all of these innovations that are happening or that may be just around the corner is to have a handle on how big they are, really. So how many jobs will it create? How much will it add to the GDP? And the amazing thing about Moore's Law, which has been a phenomenal driver of the computer revolution for 40 years, is that it has barely moved the dial in terms of median or mean incomes. And so there is this—so it's significant from a perspective of computer science. There's been enormous progress, and it has certainly transformed certain industries, and it's transformed the culture in some ways, but it has not actually—it's not shown up in the economic numbers.

And what I would submit to you is that when we think of a world of stuff and a world of bits, atoms and bits, that atoms are somehow more important. I've been involved in the computer industry, the finance industry. For 40 years we've had a lot of innovation, computers and finance. We're probably going to have less in finance, by the way, since that's getting outlawed right now. But in the world of stuff, that has been outlawed by government regulation systematically for the last 40 years. It's been environmental rules. And so going into science or technology was generally a very bad idea for the last 40 years. If you went to nuclear engineering, that was a bad idea. Aero-astro engineering, bad idea.

Because? Because there were no jobs. Jobs disappeared.

They disappeared. So let's pursue this point about regulation. I've got a quotation—again, this is you, Peter, speaking last year: 'We've had incredible progress in areas where there was no regulation and extremely limited progress where there was regulation. It's not that we've run out of ideas; it really is a story of two different economies.' That's a slightly different argument from the argument I understood you to be making—maybe a failure of my understanding—at the beginning of the conversation. That is to say, technology isn't failing us; the government is getting in the way.

Well, I don't think they're—the claim is just we're having less technological progress. The question why that's happening could be because we've run out of ideas, it could be because the government's outlawing it. I tend to think a lot of it has to do with government regulation, but the fact remains that we have less technological progress. We have no energy innovation, you can't travel faster, things like that, because these things have been outlawed.

Gene therapy. You're right, the era of gene therapy is upon us. That's big, right?

Let's go back to what Peter said before that, you know, that energy, which is a highly regulated industry, and biotech, you know, there have been very few drugs that have been approved, which I agree.

$1.3 billion to the FDA. Per drug. $1.3 billion to get through the FDA process.

But the problem, I agree, are both—they're two over-regulated industries—but the problem specifically in the pharmaceutical and biotech business is that drugs that get developed tend to be one-size-fits-all. And, you know, there may be a disease that only 100,000 people have, but there's a drug that comes out and it has to have both safety and then efficacy, and very few things do. The beauty of—it's not so new, but it seems like the time has now come for something called gene therapy, where you basically hack a gene and you take, in effect, a virus, inject it with the correct DNA that you can then inject back into a human, and then that DNA will do the repair on a disease. So, you know, it's early. In dogs, for example, they've, you know, eliminated Type 1 diabetes.

Let's hope that that can be used in humans as well. But instead of a mass market like statins for heart disease, which I think is a lot of baloney—I don't think statins, which is a $10 billion-plus business, does a heck of a lot of good. However, with gene therapy, instead of a mass, it's mass customization. You have the tools, like 3D printers are tools for molding plastic. You have tools in every hospital in the United States, around the world, and when someone comes in for a disease, they go, "Ah, here's your specific disease. Now we can have—"

—gets treated.

Well, and with a specific gene therapy rather than, "Here's Herceptin," or, "Here's a statin," or, "Here's an aspirin," which is just as good as most other things. And so I think that's going to change. It's early. But the piece that I wrote about job creation, I think 3D printing is sooner, is over the next 10 years. I think gene therapy will become reality within the next decade, and I think will literally change how disease gets treated. You know, the jobs created out of it will begin towards the end of those 10 years, but I think it can be explosive. Peter?

Well, it's, you know, as a venture capitalist, I would say one of the enormous challenges is that there's almost nobody left investing in biotech companies. And if you look at the life science funds...

Even in gene therapy?

Well, it's generally life science funds, biotech funds have all gone out of business because they've made no money for the last 15 years. And so I do think you have this complicated combination of scientific progress, which may be there, but a regulatory context, which is really quite deadly. And I do think it no longer really captures the imagination of our broader public. So when Nixon declared War on Cancer in 1970 and said we'd defeat it by the Bicentennial by 1976, 43 years later,

you know, 43 years closer to the goal by definition, but perhaps... As opposed to John Kennedy saying that we would put a man on the moon by the end of the decade, and we did.

Right, within six or seven years, exactly. But you could not imagine Obama, for example, today declaring war on Alzheimer's, even though one-third of the people at age 85 are suffering from incipient dementia. And so I think we are living in a world in which people's expectations for science and technology have been dramatically reduced. And you can just contrast the way we think about Alzheimer's today versus the way Nixon could talk about cancer in 1970.

Except for one thing, which is, I want to go back to something you said before, that technology hasn't really affected the general population, whether it be household incomes have been stagnant and the like. I think technology, increasingly behind the scenes, we sort of take it for granted, has increased living standards, even in the physical world. You take an automobile and compare a 2014 shiny new Camaro and compare it with a 1969 RS/SS Camaro—I love them both—you rip it out and there are a hundred different microprocessors in the 2014 version. It's safer, it gets better fuel economy, it's more comfortable.

The music is better.

Right, the 5.1 Dolby, poor Ray Dolby just passed away. You know, there's all sorts of innovation that has increased living standards, even if on a real basis those two machines cost the same and therefore it doesn't really show up as, you know, increased living standards.

We make all sorts of hedonic adjustments, though, and this is—and if you look at... "You mean in measuring wages and living standards?" In measuring inflation. And I think the argument normally that I would make is the hedonic adjustment is actually too big. It's sort of a plug the government likes to put in to suggest that it's not printing as much money as it is. And so I think, you know, and I think if you look at things like the gold price, which, you know, I'm not necessarily, sort of, crazy about gold, but if you look at that, it suggests that there's been more inflation than people think, and that somehow these hedonic adjustments have consistently been overstated.

Yeah, but again, so that's the automobile, so something in the physical world. I agree that for the most part, energy and pharmaceuticals have been left behind.

But let's take the automobile. I agree it's changed significantly in 40 years, but look at the 40 years before then. And if you compare a Camaro from the late '60s to a Model T in the 1920s, that was a bigger change 40 years before than what we've seen in the last 40 years. If you get self-driving cars, I can see that would be a big change. But that's, again, something that's in the future.

Well, okay, maybe in the future, but there was a piece in the Journal earlier this week. Mercedes says within five years they're going to have these...

We'll see if they're allowed.

The regulatory problem. It's all blended together.

Let me go back to healthcare. Just think of laparoscopic surgery and how much different. You had a gallbladder issue. You were in the hospital for two weeks. Now you're, you know, little chopsticks in a couple of little holes, it's fixed, and you're out the next day. Same thing with stents for heart attacks. Less and less people die of heart attacks. There's one big fear: you know, hard job, you have a lot of stress, you're going to die of a heart attack. It doesn't happen. You know, ulcers are long gone. And so I would argue—and you can't point to any government statistic, I don't believe, that can show this—but standards of living have increased from 10 years ago, from 20 years ago, let alone from 60, 80 years ago.

Whether the rate of increase—has the rate of increase—is it accelerating or is it decelerating? If you look at life expectancy, it's going up, but it's going up at a slower rate than it was in the early part of the 20th century.

I want to come back. One more big segment of the economy: robots. Andy Kessler: quote, 'Robots might bring back some mass manufacturing from offshore, but the real upside is that they can do things that haven't been done before.' There's a very—a formulation that appeals to the imagination, I'm hoping, of Mr. Thiel here. Can you fill that out?

Well, think of the 3D printer comment. It's the same thing. Robots have been used in the automobile industry for welding and things that are unsafe, but now you have devices that are $20,000 that, in effect, if they're run a couple of shifts, are $4-an-hour devices. So everyone's scared: 'Oh, this is going to get rid of workers.' And you go, 'No, no, no.' Everyone thinks of robots as the mass-market pick-and-place and move, as opposed to something that's programmable. And so instead of mass market, I think the world is moving towards mass customization. We have the tools so that we can create products and services that are customized for individuals, and robots—not in China, and not in Japan, and not in Korea, but sitting in our own country—that can be programmed to come up with devices and potentially services for people, I think, is a huge change and will lower the cost of these customizable devices.

A huge change.

It's again, it's certainly been over-promised for a long time. So the history of robotics, we had the Jetsons, we had, you know, Rosie the Robot in The Jetsons. It's still, I think, we're still probably, I was talking to people at the Columbia Robotics Lab a few years ago. When did they expect robots to be able to fold people's laundry? And, "Oh, not in our lifetimes." Now, it's possible they're too pessimistic, but certainly after 40 years of overhyped predictions, one has reasons to be skeptical.

I'll give you one example. I have teenage children who have that problem as well. Not in their lifetimes will they ever fold their laundry. But go ahead, one example.

You know, one does think of Japan as a country that's very advanced in robotics, and the Fukushima nuclear disaster, this would have been something where having a robot go into the nuclear plant and fix it would have seemed like the most straightforward application of robotic technology. Nothing like that exists. We always, we have this fantasy that this sort of technology exists, and it's just not there yet.

I don't know, our wars are fought with robots now, right? I mean, there are flying robots and there are crawling robots, which changes the lives of soldiers, et cetera.

Let's shift to one industry with which you are both dissatisfied: higher education, the Thiel Fellowships. Not only are you a Stanford BA and a Stanford Law School graduate, you teach at Stanford. And yet the Thiel Fellowships take kids and give them money to get out of college.

How come? Well, I think, well, first off, my claim has never been that nobody should go to college. The claim is that we need to thoroughly rethink education. And it has changed quite a bit in recent decades where when Peter, you, or I went to college, it already cost a lot. The costs have escalated dramatically in the last 20 years. And so the question of what the cost-benefit is is quite different when kids are ending up with $100,000, $200,000 in student debt, and it sort of attracts them into sort of careers that are perhaps they can't take much risk in their jobs or anything like that because they have to just basically pay off these debts, and we're turning the next generation into a class of indentured servants who are basically going to be paying off these college loans.

But the point of the Thiel Fellowship, surely you believe more than, you're trying to set an example of what?

I think people need to rethink what they're doing very hard. So there are cases where it's worth going to college, if you're getting an engineering major, if you're studying some of these areas where there actually are applications for it, it's perhaps still worth it. Most other areas, it needs to be rethought very, very hard. And one of the symptoms of the education bubble that we have is that we assume it's an absolute good. You don't need to worry about the specifics. It doesn't matter whether you're studying computer science or underwater basket weaving. They're all the same because they all lead to a diploma, a college degree, and that's the ticket to a better life. And I think when these bubbles unwind, you cut away at the abstractions and you start focusing on what's actually going on.

And when we are gonna focus on what's going on in the years ahead, I think we will find that most of it has not delivered the goods it promised.

Andy Kessler in The Weekly Standard, quote, "Over half of college graduates with bachelor's degrees who are the age of 25 or under don't have jobs or are unemployed." What's the problem? You continue, "The huge disconnect between what colleges are turning out and what employers want in new hires." We have over 4,500 colleges and universities in this country. How did an entire sector of the economy get so—why haven't there been adjustments? What's going on? Why is this so out of whack with economic usefulness?

Why isn't the market working? It's part of Peter's disconnect, which is, you know, we're stuck in an age-old education system where a degree is a degree when you graduate. And the problem is there's still a lot of art majors and even math majors. You know, you come out with a math major, there's not a math job. Now, maybe that applies to some engineering skill or programming skill, well, fine. But there's a big debate whether liberal education should, liberal arts should stay liberal arts, or whether something like engineering is considered vocational. Every time I say we should have more specific job training, job training, career training in schools, "Oh, you're talking about vocational schools, like engineering's a vocational school."

I go, "Well, when you're paying 250 grand over four years for school, and it's now more than that, you better come out with something that at least launches you towards some sort of career." So, I think that's one big problem with education. The other one is that technology always is about taking the best-of-breed. If you buy Oracle software, you get the best-of-breed of the service, and then it's multiplied. Everyone gets the same best-of-breed software. Where in education, it's the most unproductive business. Every college has a history professor and an economics professor. Some are good, some are bad. And so, I'm a big fan of online education where you really do can take the best-of-breed and digitally deliver it to students and, I think, have almost a better learning experience.

Yes, there's small-group discussions and things that need to be replicated with how universities take place, but so much of universities are big lecture halls where people fall asleep in the back—at least I did—and take notes, or one guy takes notes and everyone else copies. I think that can be eaten into with—

...online education. "You love Stanford. I happen to know that. You love Cornell. You have a boy there now?" "Yeah." "All right. Two kids there?" "No, one kid at Cornell."

What should Stanford do? Well, Stanford is positioned reasonably well because it has a heavy engineering focus. It's sort of well plugged into the new economy in Silicon Valley. And so they're probably under less pressure than any other university in the United States. The top universities function in many ways as a sort of tournament credential. And it's unclear how much—well, so if you went to a place like Stanford or Harvard, a question would be, how well would you do if you were smart enough to go there but didn't go? And you actually would still do pretty well. And then if you go there and people know you went there, you do really well. And if you separate out how much people learn, the learning's maybe 10%.

So if you're a high school graduate, let's say you make $40,000 a year as a high school graduate, $80,000 a year as a Stanford graduate. If you got into Stanford, you'd make $60,000. If you got the Stanford degree, you'd get $76,000. And if you actually—the learning's only $4,000. So I agree that the—it's a big sorting mechanism. So I agree that the online curriculum is an interesting part, but it's only the $4,000. It's only 10%. Most of it's not about learning. Most of it's about a zero-sum tournament. And the way you can see it's a zero-sum tournament is that these colleges never want to expand the number of people they let in. What sort of a business is it, which is a fantastic business for 1,600 students a year, but the 1,601st student, that's terrible.

Only business I can think of like that is maybe if you're operating a nightclub in which you limit the number of people you let in to make it exclusive.

So they are in the business of exclusivity.

They're in the business of exclusivity, the top schools. And in that sense, education is actually not a positive-sum game about learning and information, but a zero-sum game where it's basic and it's basically pitched to the various parents to try and knock out the other kids from other parents and not let them get

But some of that is a regulatory issue as well because go to any HR department of a Fortune 500 company and say, "Okay, how do you hire people? Do you give aptitude tests to incoming hires?" And the answer is, "No, we're not allowed to give aptitude tests." Well, why not? Well, it's complicated. It goes back to the Civil Rights Act of 1964 and Griggs versus Duke Power. It's a long story, but they can't. But who does give aptitude tests? Universities. And so universities, I agree with Peter 100%, are a sorting mechanism. I like the tournament education. Zero-sum tournament. It's a sorting mechanism. Soon to appear in a column by Andy Kessler. And by the way, a needed sorting mechanism, but if corporations were allowed to give aptitude tests, universities would wither.

Yeah, a 15-minute IQ test would not cost you a quarter million dollars to administer. And four years of your life.

So not long ago I was talking to an executive about how he did his searches and why don't you, and you know the story. It was Stanford plus the Ivies and Cal and a few others. Why aren't you recruiting at Ohio State or little liberal arts institutions, which we all know are very fine institutions in the middle of the country, upper north? I said, "Look, I'm sure there are very bright people out there, but they're going to have to find me at Stanford and Cornell and so forth. I can find them." This is the sorting argument you're making. So what happens? We go from 4,600 universities as online education begins to unfold to Stanford and Cornell and nobody else? What happens?

I think the top elite universities are in the best shape because they have an advantage from the sorting mechanism that exists. I think all the others are going to be under pressure. It's unclear what replaces them.

The top universities are in the best shape because they're the top universities, not because they actually do a better job of education?

Because that's what people want to, they want to have a credential from a top university because it is an IQ test in disguise, yes. And you subscribe to that.

Well, yeah, but forget about colleges and universities. Let's go back, let's go to K through 12. You know, this is more, online education is about eighth grade. It's about getting the best of breed to, you know, seventh graders, eighth graders, 12th graders, or 11th graders, anyway, before they go off to college, and restructuring how that is done, because that is the most inefficient, unproductive, and, you know, so you get people who mail it in for decades as teachers in the K through 12 system. And you're optimistic

We have the same problem. Peter's energy and pharmaceutical, it's a regulatory issue.

Anything that touches the... Well, this is, of course, the challenge. Large sectors of our economy are government-run, quasi-government-run. And so, you know, if you define technology as doing more with less, Moore's law, more computing power with less, at less cost. Education, it's the opposite. We're doing less with more. We're spending more and more money. The quality of the public school teachers has steadily gone down. So you're getting less for more. So it's actually moved in the opposite of a, it's an anti-technological direction. If you had sort of a diagram that said the most technological things are the things where there's the most improvement, more for less, education is at the far opposite end.

It would be pretty close to the bottom, yeah.

So I'm not even sure how to formulate the question. You guys can help me formulate it. I'll stumble along a little bit and then you can tighten up the question for me. But you would expect online technology to overwhelm, online education to overwhelm the regulatory obstacles, the teachers' unions.

In five years, in ten years, ever?

I think at some point the system just collapses on the higher education side. It's not clear what will replace it, but...

So this is—you're waiting for Eastern Europe in 1989, you're waiting for the Soviet Union in 1991, just collapse.

I think the institutions are not open to reform internally. Oh, really? And so it is like, were the music companies open to working with Napster in '99, 2000? Was The New York Times interested in really going on the Internet in 2002, or were they just breathing a big sigh of relief that the '90s were over and the Internet was fake and nothing was going to happen? I think the universities, as well as the public junior high schools, high schools, are going to basically keep it going as long as they can.

But we need a crisis. So a year ago right now, the Chicago Public School teachers went on strike. And Rahm Emanuel, the mayor of Chicago, the rather new mayor of Chicago—I formulated something that I then published later saying, 'God, this is great. What he should do is pull a Ronald Reagan and fire all of the Chicago Public School teachers and issue every child an iPad and with the software on it, with all the curriculum that they need, and have them come to school and work on it.' And education would cost a fifth of what it was to pay for the teachers. You look at the salaries of the Chicago Public School teachers and they are enormous—$80,000, $90,000, let alone the pension cost. Of course, it didn't happen.

But we're going to need something along those lines where there's a trigger to say, 'You know what, here's a group that did use online education and actually their outcomes are better than those in the public school system.' Maybe it will happen in inner cities where education is so bad and iPads and whatever else gets so cheap that that is how education's done. I think it's going to happen outside the U.S. and be successful and then come and invade the U.S.

Are we in an internationally, nation-to-nation competitive environment? That is to say, what happens in—who knows about China, but let's say Singapore, which has a squared-away tax base and low taxes and good education system. Does this at some point—what is the possible mechanism here?

Do you believe we have to have some sort of terrible collapse? I don't know. It's possible that global competition will push the U.S. to become less sclerotic. But if you sort of divide the world into sort of developing and developed nations, the developing nations are still really far behind the U.S. And so for a country like China or Vietnam, you basically just have to copy stuff in the U.S. There's so much low-hanging fruit. And then in the developed world, you have sclerosis in most other countries too. So it's a problem in Western Europe. It's a problem in Japan. Maybe Israel is a little different. Maybe Singapore is a little bit different. But the U.S. is, after all, the place where people normally did new things.

This is the business model of this country. The United States is the country where people do new things. People in Italy do fashion. People in France become good chefs. The U.S. is the country where people try to do new things.

If we stopped with just making cars and TVs, we'd be Japan right now. But instead, you have venture capitalists like Peter Thiel and entrepreneurs that flock here from around the world to implement their ideas. Everyone has ideas. We wanna do this, we wanna do that, they come here. And the reason they come here is there's property rights, the markets are freer, there's access to capital, and also there's an experience base within 10 miles in every direction of the room we're sitting in, that you can have a higher probability that your idea is gonna come to fruition.

So for that reason, it's really critical for us to get rid of the regulatory roadblocks in the United States, because if we don't fix them here, the rest of the world is still pretty far behind and they won't get fixed elsewhere. Couple of closing questions, then.

The politics, I sense—I'm actually the wrong generation because I—but I sense among the young, well, say, the people you're, the people you're funding, let's say, the Thiel Fellows, the kids in their 20s, you're dealing with these people, that the interest in politics is close to zero. The system is what it is. It doesn't work very well. There are large sectors, just as the two of you have described, such as education, which are essentially hopeless. I am just going to look for openings and drive myself into it, and politics—that is to say, commercial openings, technological openings, I'll go where there's a profit to be made, which tends to mean some unregulated industry, and politics just be damned.

Do you sense that as well?

On a bigger-picture politics, yes. I think there's an interest, but I think this generation has been brainwashed and just thinks life is what it is and we should all recycle three times a day and move on. But what the best entrepreneurs do is they find something that annoys them. And maybe it's the banking system, which is highly regulated. And they go, 'We're going to take that down.' Maybe it was the phone companies, like the guys at Skype. Of course, it was in Estonia, but there's plenty of things that happen in this country. You know, 'It's way too expensive to call from Eastern Europe to the United States. Let's take that sucker down.' And, you know, you put servers all around and you just bypass it until it collapses.

I think the cable industry, it's going to happen. You know, people are unhooking and delivering video over the Internet rather than subscribing to... at the cable companies. Those are the greatest entrepreneurs. Those are the ones that—it's not politics saying, 'That's wrong, I'm gonna run for office and change the law about how cable operates.' It's, 'No, no, no, we're gonna go around them until we squeeze them and strangle them and then move on and leave them in the dust.'

That's possible in some industries, not in ones where, say, the FDA will charge you infinite amounts of money to get your drug approved. So it does depend a lot on the regulatory context. What I would say is I don't think it's the job of an entrepreneur to try to change our entire political-legal system. That's like an impossibly high burden. And so you do have this dual-type thing that goes on where, as an entrepreneur or as someone who joins one of these businesses, you will try to find something where you can do something, and it may be one of the relatively small spaces that are left that are relatively unregulated. But it is up to the rest of us, up to our entire society, to really try to fix this background regulatory context that has become, I think, so toxic, and we underestimate

how expensive it is because, even though Andy's done a very good job painting a bright future of 3D printing and next-generation genomics, most people cannot fully visualize that, and so they don't think, 'Okay, it's really important for us to get rid of all the roadblocks that are in the way.' And so this great potential future never is quite strong enough to overcome all the inertia in our system. Mostly, it's not quite strong enough.

Last question for the two of you. I sometimes have the feeling that the young entrepreneurs around here—to the extent, I say "around here," I'm talking about Northern California, but of course much of the same you'd encounter in Silicon Alley in New York and Route 128 around Boston and so forth—I sometimes have the feeling that to the extent that they think political thoughts, they come to the conclusions that both of you have articulated today, but they have the feeling that it's something new. Look at this clip, and then I'll ask a question. I'd just like the both of you to respond to this.

If we look to the answer as to why for so many years we achieved so much, prospered as no other people on Earth, it was because here in this land we unleashed the energy and individual genius of man to a greater extent than has ever been done before. Freedom and the dignity of the individual have been more available and assured here than in any other place on Earth.

So the question is, is that—that's Ronald Reagan's first inaugural address—is that somehow so old-fashioned and uncool that it's not accessible in some way, culturally accessible to young entrepreneurs, or do they feel at ease with the history of the country? Do they recognize that the notion of taking that sucker down goes all the way back to Sam Adams and the original Tea Party? I guess another way of—I'm going on and on about the question, but the final formulation would be: we know that Cameron, David Cameron, the Prime Minister of Britain, engaged in a long and, I think, in some ways still continuing campaign to rebrand the Conservative Party because Mrs. Thatcher was just permanently uncool.

Kids just couldn't accept—the younger generations just couldn't somehow relate to it. So what do you think?

Well, I do think there's always this strange generational history where things that happened before you were born feel prehistoric. "Right, yes." And you can't quite... and so, you know, kids are graduating from college today, were born after the Berlin Wall came down.

Right.

And so, you know, you're—I feel a crick in my back when you say that, but yes, true enough. And so you have—you have to always—and so I think there is a context people don't really know anything other than the context that we have. And most of the system seems pretty stable. Not much has changed in the U.S. in 20, 25 years internally. It's been an extremely stable system. And so people don't really ask too many questions about it. I think it could obviously be much better. It could potentially be much worse. There's sort of a lot of important political choices and questions that are always at least implicit. But they're generally not surfaced.

Andy? So, you know, couple thoughts. First of all, I think this generation is much more individual-driven, sometimes to the point of, you know, self-ego and narcissism and whatever else. But there's an individualism about it. A lot of it is the tools that they have, whether it's Facebook and Twitter, allow them to express themselves and be individual and make decisions in smaller groups. You know, when I grew up, you turned on, in the New York area, Channel 2, and there was Walter Cronkite. And whatever he said during the broadcast, I remember what he said at the end of every broadcast. He said, "That's the way it is." And I took it as, "And you can't do anything about it. That's just the way it is."

Now, who even watches network news, except people who are 75 and laying in bed? It's, you know, the news is gathered on social media and through many other means. And no one is telling this generation or any of us anymore, 'That's the way it is.' I think there's a feeling that people can change. Maybe the bigger picture things in terms of what's going on in Syria and the realpolitik of how the chess pieces move around the world, it's, I don't know, there's someone that does that for me. Almost everything else, how people live their lives. I think there's a feeling, perhaps false, because they don't understand all the regulatory pulls and they can't use the dishwasher detergent that they'd like to get their dishes clean.

It's something that's phosphate-free now and everything else that goes along with it. And so, back to Peter's point, I wish there was more transparency in the regulatory choking that is going on because I think that, more than our generation, this current generation really is more individualistic and will drive change.

Absolutely. The last question, and Peter just gave me a way to set aside questions of statistics, standards of living, median income, and so put that aside. Peter said a moment ago the system could get better or it could get much worse. Five years from now, better or worse? Andy?

In what way? In terms of standards of living?

In your gut, in your gut. Would you, is America a better place to live, and let's say, more technologically? I'm going to say better.

I'm gonna say roughly the same. It's gonna be remarkably stagnant. Really? With cross-currents. Some things will be much better, some things will be much worse. So I think we'll see continued progress in computers, continued stagnation, and going backwards on energy.

Five years from this day, let's reconvene. Andy Kessler, the author most recently of Eat People and Other Unapologetic Rules for Game-Changing Entrepreneurs, and Peter Thiel, who is working on a book called, already titled, called Zero to One, which will be published next spring. Andy and Peter, thank you. For the Hoover Institution and the Wall Street Journal, I'm Peter Robinson. Thanks for joining us.