(2012-02-16) Fukuyama Interviews Thiel

Francis Fukuyama interviews Peter Thiel.

So you have these two different blind spots on the Left and Right, but I’ve been more interested in their common blind spot, which we’re less likely to discuss as a society: technological deceleration and the question of whether we’re still living in a technologically advancing (Progress) society at all. I believe that the late 1960s was not only a time when government stopped working well and various aspects of our social contract began to fray, but also when scientific and technological progress began to advance much more slowly.

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... The middle-way Goldilocks version, where commodity prices and consumer goods go down and wages go up, seems very farfetched. I don’t see how that sort of outcome can be crafted in a world with no growth... There has been this increase in Income Inequality, but it’s a secondary truth. The primary truth is this truth of stagnation. (Great Stagnation, which Cowen dedicated to Thiel) (Steady State Economy)

As for why inequality has gone up, you could point to the technology, as you just have. You could also point to financialization of the economy, but I would say Globalization has played a much greater role because it has been the much greater trend.

We tend to think the future is indeterminate. But it used to be seen as a much more determinate thing and subject to rational planning. If it’s fundamentally unknowable, it doesn’t make sense to say anything about it. To put it in mathematical terms, we’ve had a shift from thinking of the world in terms of calculus to statistics. So, where we once tracked the motions of the heavenly bodies and could send Voyager to Jupiter over a multiyear trajectory, now we tend to think nature is fundamentally driven by the random movements of atoms or the Black-Scholes mathematical model of financial markets—the random walk down Wall Street. You can’t know where things are going; you only know they’re going to be random. I think some things are true about this statistical view of the future, but it’s extremely toxic for any kind of rational Planning. It’s probably linked in part to the failure of state communist central planning, though I would argue that there is something to be said for some planning over no planning. We should debate whether it should be decentralized or centralized, but what the United States has today is an extremely big government, a quasi-socialist government, but without a five-year plan, with no plan whatsoever. If you were to telescope this now down to a single issue like Clean Energy, the 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. My guess is that at best we can push on just a handful of these major things (Big Projects), but that sort of determinate push requires a view of the future that is very specific, and that’s not now the kind of view people have... 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.

It’s not like it has been defunded, so why has DARPA been doing so much less for the economy than it did forty or fifty years ago? Parts of it have become politicized. You can’t just write checks to the thirty smartest scientists in the United States. Instead there are bureaucratic processes, and I think the politicization of science—where a lot of scientists have to write grant applications, be subject to peer review, and have to get all these people to buy in—all this has been toxic, because the skills that make a great scientist and the skills that make a great politician are radically different. (R And D)

There are some very out-of-the-box solutions we could explore, such as a more Protectionist Trade Policy, which would effectively raise taxes through Tariff-s and protect a range of domestic jobs. Even though that’s an inefficient move from a certain economic perspective, perhaps it’s a better way to raise taxes than a variety of other means. The argument has been that hampering free trade distorts markets, but every tax distorts markets, so you need to make a relative argument, not an absolute one.

There’s an education bubble, which is, like the others, psychosocial. There’s a wide public buy-in that leads to a product being overvalued because it’s linked to future expectations that are unrealistic... The bias I had five years ago was that my foundation should start a new university and just do everything better. I looked into it in great detail, examining all the new universities that have been started throughout the world in the past ten years, and found that very little has worked. It has been a huge misallocation of capital, and donor intent got lost on all sorts of levels. I started out wondering how you could allocate money for the improvement of education and concluded that there was no way to do it... I suspect the for-profit schools are like the subprime brokers. (College Education)