Sunday, February 12, 2012

We REALLY need a Peter Thiel conservatism!

Peter Thiel is a little bit of a nutcase. He's a brilliant nutcase, though. And brilliant nutcases are exactly the kind of people who change the political discourse. Reading this Peter Thiel interview, I am more and more convinced that Thiel is the brilliant nutcase we need to move the American conservative movement out of its current rut and turn it into something that has relevance for the future.

Here are some things I learned from the interview.

1. Peter Thiel believes that inequality can reduce economic efficiency by causing sudden, devastating collapses in institutions:
We’re now at an extreme comparable to 1913 or 1928; on a worldwide basis we’ve probably surpassed the 1913 highs and are closer to 1789 levels [of inequality].  
In the history of the modern world, inequality has only been ended through communist revolution, war or deflationary economic collapse.
If you endogenize the possibility of social collapse, equality of income and wealth becomes a public good (up to a point).

2. Peter Thiel seems to think that we should think about how to make government more efficient, instead of drowning it in a bathtub:
There are ways that the government is working far less well than it used to. Just outside my office is the Golden Gate Bridge. It was built under FDR’s Administration in the 1930s in about three and a half years. They’re currently building an access highway on one of the tunnels that feeds into the bridge, and it will take at least six years to complete... 
There’s an overall sense that in many different domains the government is working incredibly inefficiently and poorly. 

3. Peter Thiel thinks that the package of conservative ideas that emerged in the Reagan years, and which dominates conservative thinking even to this day, has outlived its usefulness and must be replaced:
[T]hough I identify with the libertarian Right, I do think it is incumbent on us to rethink the history of the past forty years. In particular, the Reagan history of the 1980s needs to be rethought thoroughly. One perspective is that the libertarian, small-government view is not a timeless truth but was a contingent response to the increasing failure of government, which was manifesting itself in the late 1960s and early 1970s. The response was that resources should be kept in the private sector. Then economic theories, like Laffer’s supply-side economics, provided political support for that response, even if they weren’t entirely accurate. We can say that the economic theories didn’t work as advertised... (emphasis mine)
I have been saying this for a long time. The idea that "government is the problem" may have had considerable truth and usefulness and relevance in 1980; today, it is more of a calming mantra than a feasible policy prescription. Conservatism needs something else.

4. Peter Thiel believes in a version of Tyler Cowen's "Great Stagnation" idea, but is more subtle than Cowen, because he doesn't try to argue that the IT revolution was a mirage; he simply believes that it wasn't enough to compensate for the slowdown in other areas:
I believe that the late 1960s was...when scientific and technological progress began to advance much more slowly. Of course, the computer age, with the internet and web 2.0 developments of the past 15 years, is an exception...  
There has been a tremendous slowdown everywhere else, however. Look at transportation, for example: Literally, we haven’t been moving any faster. The energy shock has broadened to a commodity crisis...I think the advanced economies of the world fundamentally grow through technological progress, and as their rate of progress slows, they will have less growth. This creates incredible pressures on our political systems. I think the political system at its core works when it crafts compromises in which most people benefit most of the time. When there’s no growth, politics becomes a zero-sum game in which there’s a loser for every winner. Most of the losers will come to suspect that the winners are involved in some kind of racket. So I think there’s a close link between technological deceleration and increasing cynicism and pessimism about politics and economics. 
I couldn't agree more. Energy is where the slowdown is, and that affects everything else (though IT is affected less). And yes, a technological slowdown will make politics more of a zero-sum game, with all kinds of awful consequences (example: all of human history before the mid-1700s).

(Interestingly, the interview reveals that Cowen's book was heavily inspired by Thiel's ideas. See? Brilliant nutcases moving the political discourse!)

5. Peter Thiel believes that much of our inequality is due to factor price equalization, caused by the massive dump of Chinese labor onto global markets:
As for why inequality has gone up...I would say globalization has played a much greater role [than other factors] because it has been the much greater trend...The question is, what is there about globalization that creates a winner-take-all world? There certainly has been a labor arbitrage with China that has been bad for the middle class, as well as for white-collar workers, in the past decade or two. 
I agree with this, though I think that our wage stagnation itself may also be worsened by the labor arbitrage,   as we replace expensive automation with cheap Chinese workers. Thiel hints at this idea in his interview, but doesn't go there.

6. Peter Thiel thinks that the government should be more hands-on about industrial and technology policy, not less:
[T]he unplanned statistical view of the future is that we don’t know what energy technology will work, so we’ll experiment with different things and see what takes off. The planned view says that two are most likely to be dominant, and so the government has a role to play in coordinating resources and making sure they work. So if it’s nuclear power, it has to free up space at Yucca Mountain, deal with zoning rules and get plants built, and it’s a complicated project at the regulatory level. The same is true of solar or wind power. If government wants high-speed rail, it must overcome local zoning rules...

[N]o one at a senior level in the Administration even thinks about the question of technology. It’s assumed to be a statistical, probabilistic thing...This is a radically different position than, say, that of John F. Kennedy, who could talk about the nuts and bolts of the Apollo space program and all the details of what was needed to make it happen... 
If there is going to be a government role in getting innovation started, people have to believe philosophically that it’s possible to plan. That’s not the world we’re living in. A letter from Einstein to the White House would get lost in the mail room today. (emphasis mine)
It strikes me that there is a huge opening for conservatives here. Ever since the success of the Clinton years, many liberals have come out against industrial policy (possibly to burnish their "seriousness" credentials in a policy world dominated by neoclassical economics). This gives conservatives an opportunity to be the ones to champion a new era of technology policy: to say "Look, the government's role should not be to throw more money at health care, it should be to do the kind of planning and coordination of technological progress that companies are unable or unwilling to do." This will require conservatives to throw off a lot of the "libertarian" dogma that became canon after the Reagan years. But far-sighted libertarians like Alex Tabarrok are already making this argument, so I see a lot of reason for hope.

Anyway, I agree with and endorse all six of the Peter Thiel positions listed above. That's right - I am saying "ditto" to the man who created the Stanford Review. Well, not "ditto," since Thiel also has a number of opinions with which I strongly disagree (and others about which I'm highly skeptical). An example would be his idea that environmental regulation has played a large role in the technological slowdown. (And yes, we shouldn't forget that Thiel thinks women's sufferage was a disaster, and wants to live on a floating libertarian utopia out of trash...Like I said, he's a brilliant nutcase.)

But the basic thrust of Thiel's worldview is sound: We need a conservative movement that is focused on progress. Reagan and Clinton may have succeeded in burning some institutional deadwood, but by the time the Bush years rolled around, we were down to burning the furniture. Proceeding further down the path of deregulation, spending cuts, and intentional government shutdowns is unlikely to do anything except to convert us to a neo-feudal backwater. Additionally, telling people to shut up about inequality is not likely to be effective in the long term.

The United States cannot succeed if public policy goes off the rails every time Republicans win an election. I am a liberal, but I believe we desperately need a relevant, functioning conservative movement. We need a conservative movement that is focused on making the government more effective, not smaller. Arguing for cutting the heath-care welfare state are sound; crusades against trains are ridiculous. The conservatism of the future - if conservatism is to have a productive future - is one that acknowledges the existence of public goods, and tries to steer government away from redistribution and waste and toward provision of those public goods. Progress must be the name of the game. 

I hereby nominate Peter Thiel as the official thought leader of the new conservatism.


  1. Well, my brain is not working well nowadays so take this with a grain of salt. I don't think technological progress is slowing down but even if it were that doesn't go to the heart of the problem. For proof just consider that real per capita GDP now is one and a half times what it was in 1960, back in the good old days of the American Dream. If we held population constant we could (in theory) do just fine with no economic growth whatsoever. I know that is heresy but the facts speak for themselves. The problem is distributional not [a fancy word for the size of the pie].

    On the China trade and factor-price equalization: a simpler way to approach the problem (simpler than HO theory) is just to remember this is about more than trade. It is about free capital mobility. Free capital mobility means we can think "holistically" in terms of capital-population ratios.

    Let me show what I mean. Before GATT we had a capital/population ratio in America of, say, 1 over 300 million in appropriate capital units. After Gatt (and we'll pretend China is the only other country in the world) we added essentially nothing to the numerator because China had essentially no capital goods, at least as a first approximation. But we more than quadrupled the number of people in the numerator. Thus the capital/population ratio fell by a factor of four.

    That gives you some idea of the magnitude of the disequilibrium that was introduced into the system. (You can do the same calculation including Europe together with all the other under-developed countries and you get the same story more or less: two units of capital in the numerator and even more than twice the number of people in the denominator. But let's keep it simple.)

    The image I have is of dynamiting the Hoover Damn. That would be one way to restore the natural ecology to the area. But maybe not the best way. Better to gradually draw down the level of the lake before removing the damn.

    So what do we do now? Well, for one thing, the damn is not completely gone even if all the locks are wide open. We could still close down a few of them to better protect the people living downstream. They may have already been washed out of their homes but they don't have to drown. That's lesson one.

    Lesson two is about throwing them lifesavers. We know an open global economy is more Pareto efficient. I am speaking from the point of view of the economy as a whole. And we can see that in the growth of our real per capital GDP since the passage of GATT. In fact that was the case for GATT, the whole case, as made by people like Samuelson and Krugman. GATT had the potential to make everyone better off than before. That was game, set, and match in so far as economists were concerned.

    But of course having the potential to make everyone better off than before and actually doing so are two different things. If you read deeper in the literature you'll see the missing ingredient, the one extra policy requirement that both Samuelson and Krugman failed to mention: the need to tax capital and subsidize labor.

    It's not too late. Well, it almost is. Or maybe it already is. Either we tax capital and subsidize labor or we're all going to drown.

  2. One perspective is that the libertarian, small-government view is not a timeless truth but was a contingent response to the increasing failure of government, which was manifesting itself in the late 1960s and early 1970s.

    Supposing this to be true, a generation of academics and their political acolytes have nevertheless built their careers on the basis of it. A Kuhnian paradigm shift therefore seems unlikely while they retain control of the ideological apparatus (not any time soon). It will be small comfort to us, huddling in our freezing huts, to hear a broadside ballad proclaim that the economic establishment of the 2010s was sociopathic, however true it may be.

    I'm afraid, with all due respect, I shall continue to regard conservatives as my enemies until further notice.

  3. Technology is slowing down because we have already picked the low hanging fruit. We can achieve some further gains by continuing the build out of existing technologies.

    It takes decades for a technological innovation to be fully exploited. The jet engine was invented in the 1930s but it took until 1970 to realize the Boeing 747. The microprocessor was invented in 1970 and the major potential gains from it have now been realized. The current patent system has probably slowed down the rate of improvements from microprocessors.

    In terms of energy, it is doubtful how much lower the cost of energy could reasonably go even with new technology or how much effect that drop would even have on our lives. On the flip side of higher energy prices, plan B is nuclear and we all know it is there as a fall back position if other energy sources fail to deliver.

    If we wanted to put research money into improving lives (and I certainly do) then research into degenerative diseases, addiction and mental illness could all pay worthwhile dividends.

    (The problem with Luke Lea's analysis is that China is exporting capital and the price of capital is low by the standards of the last 100 years.)

  4. Hey Noah,

    Great post--I don't always agree with you, but I'm an avid follower of your twitter, and your blog posts are always thought provoking.

    One small correction: Thiel is not trying to create libertarian islands, and he's certainly not trying to do it on a floating pile of garbage. I recently graduated from UC Berkeley's undergrad economics program (wrote my thesis under Professor DeLong), and I now work full-time for The Seasteading Institute, a nonprofit generously funded by Thiel, which aims to enable the establishment of permanent, autonomous communities in international waters. We're not doing this to create "libertopia," but rather to accelerate experimentation and innovation in our political and social systems. The Seasteading Institute hopes to see competition among many different models of governance, and we don't endorse any particular policies for the communities--our unofficial motto is "let 1,000 nations bloom."

    I became interested in seasteading and other new country projects through the libertarian ideas of Milton Friedman, as did his grandson Patri Friedman, the Institute's founder and chairman of the board. However, I now see myself as a sort of Thiel/Cowen "post libertarian" (I'm also a market monetarist, and the Ron Paul End the Fed types are really too much for me to handle), and I'm a lot less interested in arguing about the minimum wage than I am in ending our stagnation woes. The great battle, as Cowen notes, is not between freedom-fighters and authoritarians, but between technological advances and predation by strong men with spears, or guns or whatever.

    Instead of promoting specific policies, The Seasteading Institute is conducting generalizable research into the legal, political and engineering obstacles facing would-be seasteading entrepreneurs and investors, and we're recruiting serious experts in academia and industry to our movement in order to make our admittedly audacious vision a reality. For example, our director of engineering will soon be submitting designs to various shipyards to get cost estimates for the construction of a semi-submersible platform that could support a community of around 1,000 people in the open ocean--no garbage patch required. We also take an incremental approach that seeks to first enable business ventures on retrofitted ships just beyond territorial waters (see as a stepping stone to larger communities.

    One of our biggest challenges is correcting the misconceptions and PR problems stemming from a handful of sloppy pieces of journalism, like the one you picked up. I'm really happy to see you praising Thiel's new conservative agenda, and I hope this budding alliance spreads to the rest of the left-leaning blogosphere without perpetuating any more false notions about seasteading. I'd be happy to tell you more about the Institute if you're curious. Otherwise, a simple removal of the link to that news piece would be greatly appreciated.

    Keep up the good work!


    Charlie Deist |

  5. Reagan and Clinton may have succeeded in burning some institutional deadwood, but by the time the Bush years rolled around, we were down to burning the furniture.

    I like that.

    It's our expectations that need modifying. My 2 cents: we should cultivate an income expectation of 2/3 is mine, 1/3 is the gov'ts. Gov't spending should be transparent. And gov't should sponsor 2 major media outlets, one left-leaning and one right-leaning. Let leaders and innovators of the left & right decide on their own programming.

    A major brake on the development of decent society is the perverse incentives facing for-profit media. Educating citizens not really in their interest.

  6. Having read the New Yorker profile, I dissent. Thiel et al aren't exactly Bloomsbury, are they? Love your blog.

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  8. A few things:

    1. In regards to Thiel's point about the delays in working on the Golden Gate bridge, I am more than willing to believe there are potential improvements to be made in the process of building and maintaining of it and things like it, but has anybody bothered to check the more specific claims to if they are right or why they might be right? On the surface, they seem reasonable enough, but you can say that about lots of things. Does the access tunnel really take six years to complete? If so, why? Is there any other way around it? I'm no engineer, but I imagine that a lot of people use the bridge and that working on a bridge that a lot of people use is a big nightmare.

    Theil appears to be a thoughtful person, but this doesn't necessarily mean he's right about everything.

    2. Noah, you said arguments for cutting the welfare state are "sound." Perhaps that is true, but I am not sure that Times article is the best support for such an argument. Jared Bernstein makes a number of good points here:

    I'd also like to draw a distinction between something like Medicare and the EITC. One is a program, while the other is basically a system of redistribution (and I don't mean that in a bad way).

    But yeah, if the Republicans were more like Peter Thiel, this country would be in much better shape.

  9. dilbert dogbert11:59 AM

    "It was built under FDR’s Administration in the 1930s in about three and a half years."
    Just my picky picky but the GG Bridge was built with City of SF bonds. The Bay bridge was built with State of California bonds and maybe some Fed Gov help. This is according to "High Steel", a book in my library that photo documents the building of these bridges. Thiel should have referred to the replacement of the cantilever section of the Bay Bridge as an example of project delays due to opening up decision making to all of the different organized interests.

  10. To paraphrase that profound philosopher GW Bush: "rarely is the question asked: is our [glibertarian idiot leaders] learning?"

    Thanks for highlighting Thiel's gradual process of beginning to grasp the obvious. In a few decades the movement conservatives might see the light.

  11. The Golden Gate bridge was private financed (a bank bought the entire bond issuance) and was not a federal project.

  12. Be sure to thank Professor Mankiw for introducing me to your blog, but I think you've earned a spot in my massive bookmark bar!

    As for Thiel, I've liked him for a number of reasons over the years (he essentially embodies what us "libertarians", depending on how you define one, love to see in an entrepreneur: A little crazy, with a lot of genius). However, I was a bit confused by his remarks regarding the Reagan years. Yes, there was a conservative backlash against the Great Society/Vietnam/Nixon-Ford-Carter years, but to say that Reagan's presidency represented the "libertarian's" moment in government sounds more like buying the hype than looking at what happened. Yes, he cut taxes (although even the tax reform had to wait till his second term), but he also increased government spending exponentially while in office, not to mention one can look at the Reagan administration as the point where the "War on Drugs" went from potentially winding down (there were definite cracks in the armor during Carter's administration, at least briefly) to being ramped up like Tommy Lee at a cocaine giveaway. The Reagan years also seemed to open up the doorway for the disastrous policy sensation known as "compassionate conservatism", where state-sponsored solutions to society's ills are just re-packaged as "sensible, well-intentioned, mostly inoffensive (to the average voter anyways) solutions to all of our most pressing needs". Unfortunately, good intentions only go so far, and if I were being paid to write I'm sure I could craft a lengthy tome about how the Reagan years gave the Republican party all the leverage it needed for things like Part D expansion and NCLB (among other things, those being the most egregious examples). I'm not going to wax rhapsodic about the virtues of the "Voluntary City" or anything, but when I look at the Reagan years I don't see the moment where the Libertarian right took over; rather, I see the point where conservatives felt justified in becoming the other party of big government (as long as it helps their vote counts, of course...not to imply the Dems are any better)! *end rant*

    Anyways, glad I found your blog! Look forward to it becoming a proud addition to my morning reading.

  13. Were Republicans to adopt Thiel this would be wonderful, but there is a reason he remains on the fringe on the Republican party and instead is the big money behind Ron Paul:

    1) Thiel's not so secret closeted homosexuality makes him a non-starter for many conservatives.

    2) Thiel is fundamentally a philosopher at heart, more interested in libertarian intellectual consistency than pragmatic policymaking.