Peter Thiel is one of the most successful start-up entrepreneurs in recent time (PayPal), start-up investor (Facebook), and hedge fund manager (Clarium). Needless to say, it’s worth following his thinking.
I’ve now twice-read his 10,000 word essay in the latest Hoover Policy Review entitled The Optimistic Thought Experiment: In the Long Run, There are No Good Bets Against Globalization. I still can’t get my head around all his points, including his proposed connection between financial bubbles and the level of globalization. Hopefully you, dear reader, can help me. Until then I thought I’d excerpt some of the more interesting paragraphs that jumped out at me.
He frames his essay thusly:
For macro investors, it would be an abdication not to wrestle with the central question of our age: How should the risk of a comprehensive collapse of the world economic and political system factor into one’s decisions?
From the point of view of an investor, one may define such a “secular apocalypse” as a world where capitalism fails. Therefore, the secular apocalypse would encompass not only catastrophic futures in which humanity completely self-destructs (most likely through a runaway technological disaster), but also include a range of other scenarios in which free markets cease to function, such as a series of wars and crises so disruptive as to drive the developed world towards fascism, anarchy, or both.
Are all past bubbles part of The Great Boom?
It is beyond the scope of this essay either to enumerate all drivers of these trends or to determine whether the pro- or anti-globalization forces will gain the upper hand in the longer term. Still, the following conclusion seems safe: Since we are very far from any stable equilibrium, the future is likely to be much more or much less globalist than the present.
Nevertheless, this Great Boom is also very different from all previous bubbles. This time around, globalization either will succeed and humanity will achieve a degree of freedom and prosperity that can scarcely be imagined, or globalization will fail and capitalism or even humanity itself may come to an end. The real alternative to good globalization is world war. And because of the nature of today’s technology, such a war would be apocalyptic in the twenty-first century. Because there is not much time left, the Great Boom, taken as a whole, either is not a bubble at all, or it is the final and greatest bubble in history.
On technology vs. “technology”:
…There also exists a critical distinction between technology and investments called “technology.” To take a particularly easy case from the prior technology bubble, a “technology” company that sells pet food online by purchasing Super Bowl advertisements offline may not be a technology company at all. The solutions to hard engineering problems are not necessarily valuable, but it is unusual for the solutions to easy engineering problems to have much value in the long term.
On the China bubble:
To say the least, there are many eerie parallels between the Chinese stock market of early 2007 and the Nasdaq of early 2000: an abstract story of long-term, exponential growth; rampant speculation; and unprofitable or overvalued companies.
One intermediate possibility is that the China of 2014 will be like the internet of 2007 — much larger, but with winners very different from the ones that investors today expect. The largest New Economy business is Google, a company that scarcely registered in early 2000. Might it also turn out that the greatest Chinese companies of 2014 will be concerns that are private and tightly controlled businesses today, rather than the high-profile and money-losing companies that have been floated by the Chinese state?
By the way, here are some video interviews with Thiel on the BigThink, a wonderful collection of stimulating, brief interviews with smart people.