Death Valley? Peter Thiel and Steve Jobs on What Could Kill Silicon Valley

Peter Thiel speaking at Independent Institute event on January 27

Peter Thiel speaking at Independent Institute event on January 27

On January 27, legendary entrepreneur Peter Thiel told a packed house at the Olympic Club in San Francisco that to blaze new trails ask: “What important truth do very few people agree with me on?” One of mine is that California will not be the epicenter of the tech industry someday. But why would this happen and how long will it take?

Two tech titans, Peter Thiel and Steve Jobs have supplied answers. In a 1995 Wired article, Jobs said:

Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people.

Unfortunately, that’s too rare a commodity. A lot of people in our industry haven’t had very diverse experiences. . . . The broader one’s understanding of the human experience, the better design we will have.

Steve Jobs’ diverse experiences included tinkering with machinery as a boy, dropping out of college and attending calligraphy classes, exploring India and studying Buddhism, living on an apple farm, pursuing electronics in a home-based computer club, and being a pot-smoking lifelong Beatles and John Lennon aficionado.

Free-spirited product gurus like Steve Jobs, who are driven by experience, curiosity, exploration, and synthesis, are not drawn to insular and regimented environments. They are drawn to Silicon Valley because, in the words of Peter Thiel, it is the “center of the counterculture in our society today.” But this crucible of innovation could be destroyed.

In his talk for the Independent Institute, based on his bestselling book Zero to One, Thiel said that we have lived recently in “a period of globalization with somewhat more limited technological progress—a lot [of innovation] in computers and the world of bits, not so much in the world of atoms.”

The reason for this is government regulation: “[F]or the last 40 years, we’ve lived in a world where bits were relatively unregulated, atoms were more or less regulated to death. And that’s a political explanation for why we’ve had this strange dichotomy.”

But as bits and bytes become integrated into the world of atoms, i.e., into physical products such as smartphones, automobiles, and “the internet of things,” there will be growing pressure by threatened interests to regulate these physical things “to death,” thereby killing the creative environment that gives rise to tech innovations. We are already seeing this in California and elsewhere, and it threatens the long-term survival of Silicon Valley.

To protect taxi companies, California lawmakers are imposing ever-more expensive and clunky regulations on ride-sharing companies such as Lyft, Uber, and Sidecar. Home-sharing services, such as Airbnb and HomeAway, are also in the crosshairs. Many local governments, worried about losing hotel and tourism taxes, are imposing increasingly burdensome rules on home-sharing services, which threaten their business models and tie them up with expensive litigation. And the Federal Aviation Administration recently shut down the flight-sharing service Flytenow. Bits tied to atoms are now being regulated to death.

As this continues, Silicon Valley will eventually resemble K Street in Washington, D.C., where lobbyists and lawyers fight over how to divide industry profits. Company CEOs, with sales and marketing backgrounds not product backgrounds, will focus on increasing market shares by 1 percent, instead of inventing the next insanely great thing.

Nothing is revolutionary or countercultural about the K Street model, and thus it will drive away creative talent, leaving behind an insular and stagnant Silicon Valley and perhaps entire U.S. tech industry. Other nations can rush in to fill the void.

If you think this doomsday scenario cannot happen in Silicon Valley, all you have to do is look to Detroit. As Thiel noted:

General Motors was a technology company in the 1920s–the car companies were all super innovative–it probably was still sort of a tech company in the ‘50s, by the ‘80s investment in GM was a bet against German and Japanese innovation. So there is an arch were these things change.

Detroit was a booming, innovative city with a vast network of automobile manufacturers, parts suppliers, and shippers. Scale and network economies were the glue that held it together. But a combination of excessive costs, foreign competition, and bloated local government caused the car companies and the city of Detroit to collapse spectacularly.

Thiel noted that there is incredible value to being part of a heavily networked location such as Silicon Valley, but it comes with a huge risk:

Disturbingly, California is able to get away with putting quiet a significant regulatory burden on its industries. . . . [T]he state was able to dramatically increase marginal tax rates in 2012 and it did not actually lead to any exodus whatsoever. People are sort of stuck . . . stuck in these network-effect-like industries [tech in northern California and entertainment in southern California] where people can’t leave.

The part that is dangerous about the California dynamic: that when you have super networked industries it’s possible that policy can go incredibly far wrong before anybody notices [such as Detroit]. . . . The risk in California is not that we have some gradual decline, but that it gets pushed and it goes over the cliff completely. But I think we are still a ways away from that.

Perhaps, but the tipping point might be closer than anyone thinks as the policy attacks on applied technology escalate. It is not too late to reverse course with new policies so that California can continue “building the future” and hopefully prove my “truth” wrong.

Milton Friedman on “Free” College

MiltonFriedmanSixty years ago Milton Friedman made the case in “The Role of Government in Education” that since individuals reap the benefits of college degrees, whether personally, professionally, or both, they should pay for them.

By 1979 Friedman noted that higher education subsidies had become such an Ivory Tower boondoggle, higher education should be taxed to help offset the negative effects. Were Friedman alive today, he’d likely be more convinced than ever. Consider a recent example from Arizona.

This month the Grand Canyon State became the first state to require that high school students must pass the same citizenship test immigrants must pass to become naturalized. Meanwhile over at Arizona State University’s Tempe campus, the English department is offering such classes as “the problem of whiteness.” As Campus Reform’s Lauren Clark reports:

At Arizona State University (ASU), students can now learn about the “problem of whiteness” in America.

The public university is offering an English class to its students this semester called “Studies in American Literature/Culture: U.S. Race Theory & the Problem of Whiteness.”

According to the class description on ASU’s website, students will be reading The Possessive Investment in WhitenessCritical Race TheoryEveryday Language of White RacismPlaying in the Dark, and The Alchemy of Race and Rights. ...

The course, first reported by the Pundit Press, is taught by Lee Bebout, an assistant professor of English at ASU. According to his faculty page, critical race theory is one of his research interests.

Bebout, who is white, has previously taught classes titled “Transborder Chicano Literature,” “Adv Studies Theory/Criticism,” and “American Ethnic Literature,” among others.

Keep in mind that as of fiscal year 2013, ASU (Tempe) received more than $24,000 in core revenue per full-time student—largely subsidized by taxpayers in the form of government appropriations, grants, and financial aid. Rather than use those funds to enrich undergraduates’ understanding of our core Founding principles, we have what one ASU student aptly describes as:

“... the significant double standard of higher education institutions,” James Malone, a junior economics major, told Campus Reform. “They would never allow a class talking about the problem of ‘blackness.’ And if they did, there would be uproar about it. But you can certainly harass people for their apparent whiteness.”

Our colleges and universities should be places of higher learning that help prepare graduates for life outside of the Ivory Tower—not taxpayer subsidized incubators of narrow, partisan agendas.

But if President Obama’s America’s College Promise of “free” college takes hold (thankfully, at this point it’s unlikely—here and here), that’s exactly what we’re likely to get.

About That CBO Report Claiming Obamacare’s Costs Are Down 20 Percent...


In the January 2015 Budget and Economic Outlook, the Congressional Budget Office (CBO) pronounced that Obamacare’s future costs will be one-fifth lower than had been originally estimated:

In March 2010, CBO and JCT projected that the provisions of the ACA related to health insurance coverage would cost the federal government $710 billion during fiscal years 2015 through 2019 (the last year of the 10-year projection period used in that estimate). The newest projections indicate that those provisions will cost $571 billion over that same period, a reduction of 20 percent (p. 129).

What explains this windfall?


Humala’s Hatchet Man May Be Key Figure in Peruvian Spy Scandal

OllantaHumalaThe Peruvian government is spying on its critics, real or imagined.

The first revelations came out a year and a half ago but were summarily dismissed by President Ollanta Humala. Now a profusion of videos, documents, and other evidence has been leaked out by insiders at the National Intelligence Directorate (DINI), an organization headed by a former soldier from the same graduating class as the President, also a retired officer, at the military academy.

President Humala repeatedly attacked and even mocked the new revelations—until evidence came out that his vice president, a dissident who was pushed aside by the president’s wife when she tried to become head of the Congress, was being spied on. Fearing a major crisis once she tweeted her disgust at the news that she was a target (many believe the vice president found out she was under surveillance and leaked the information), Humala has promised to “open” the DINI to a parliamentary committee . . . controlled by the ruling party.


Arkansas: Caving In or Standing Up to Obamacare?

Healthcare_costs_small1The new governor of Arkansas, Asa Hutchinson, appears to have confused a lot of people in a recent speech about Medicaid, the joint state-federal welfare program for poor people’s health coverage.

According to the Washington Post’s Jason Millman, “Republicans are finally learning they can’t undo Obamacare,” because the governor wants to do something different to Medicaid than what his Democratic predecessor wanted. Politicio’s Sarah Wheaton, on the other hand, reports that the new governor wants to “end his state’s Obamacare Medicaid experiment.”


National School Choice Week Starts Today!

school-choice-300x199This week more than 11,000 events will be held nationwide in celebration of school choice.

Also, for the first time ever, the U.S. Senate unanimously passed a resolution recognizing January 25-30, 2015, as National School Choice Week to help improve awareness of the benefits of greater opportunities in education. More than 100 governors, mayors, and county leaders are also expected to pass similar resolutions.


Peter Thiel’s Contrarian Manifesto

zero_to_one_180x270[Editor’s Note: The Independent Institute is hosting a sold-out event, “Developing the Developed World: Entrepreneurship, Liberty, and the Future,” with Peter Thiel on Tuesday, January 27, 2015.]

Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.” —Peter Thiel

With this opening paragraph, legendary investor and entrepreneur Peter Thiel immediately launches into the central lesson of his new book Zero to One. Creating new things in the form of truly “fresh and strange” technology is what will propel the economies of the future, not minute tinkering or copying of existing practices. This is what he describes as going from 0 to 1. To get to the future, startups are the key.

Having launched or played critical roles in supporting multiple successful companies including PayPal, Facebook, Palantir, SpaceX, and LinkedIn, Mr. Thiel’s views on technology, innovation and entrepreneurship were of particular interest to me. Zero to One has proven to be a delightful read full of insights for students, young professionals, and as well as seasoned industry insiders. Each chapter contains ideas that are provocative and original.


Are Falling Prices a Bad Thing?

Falling PricesPopular opinion seems to be that falling prices—or even stable prices—are bad for the economy, but I’ve never seen any good arguments about why. I’ve just read another article about this, that gives six clearly numbered reasons, so let’s look at what the article says to see if they hold up.


No U.S. Weapons for Countries with Child Soldiers (Oh, You Have a Waiver?)

As the world observes conflicts in Iraq, Syria, the Ukraine, and elsewhere, the impact on human life is undeniably tragic. Nowhere is this tragedy more pronounced than in the impact of these conflicts have on children.

According to the Syrian Observatory for Human Rights director Rami Abdel, more than 10,000 children have died in the Syrian conflict. In addition to these immediate threats against life and limb, war has other consequences for children. Conflict disrupts a child’s education and grinds economic activity around the conflict zone to a halt. This delay in education and stunted economic activity perversely impacts young lives both now and in the future. It is estimated that some 40 million children are out of school in conflict-affected countries throughout the world.

As if this damage were not enough, some children bear an even greater burden. They are soldiers.

There are an estimated 250,000 child soldiers in world today. These children, often abducted from their homes by armed forces, are desirable as soldiers because they are easier to control than adults, have an underdeveloped sense of danger, and use fewer resources than a comparable adult. Children are often sent into battle as infantry in order to draw fire away from adult combatants.

child soldiers

In response to this problem, members of the international community have taken steps to curtail the practice throughout the globe. In the United States, the Child Soldiers Prevention Act of 2008 (CSPA) was meant to assist the goal of ending child soldiering by banning the U.S. from sending military assistance to countries with “governmental armed forces or government–supported armed groups, including paramilitaries, militias, or civil defense forces, that recruit and use child soldiers.”

In 2010, President Obama signed into law an additional bill, the Lord’s Resistance Disarmament and Northern Uganda Recovery Act, and pledged the U.S. would help end the “killing, raping...and brutalizing [of] children” in Joseph Kony’s army of “Invisible Children.”

So did the U.S. government fulfill its supposed goal of snuffing out child soldiering by withholding aid? Not by a long shot. Just five months after his 2010 pledge, Obama granted several waivers to the Child Soldier Prevention Act, allowing funding to continue to four countries known to use child soldiers. Chad, Congo, Sudan, and Yemen each received a reprieve for a variety of reasons including their assistance in fighting terrorism. Congo was exempted because of American programs in the country aimed at training the military to “be more professional.” During the Obama administration, Congo, Yemen, and Chad would each receive millions in weapons despite their humanitarian records and the known use of child soldiers.

The consequences of such actions are tragic. As I’ve discussed in other posts, there are a variety of problems with using weapons as aid. Even if we assume that the military equipment given to these countries is initially sent for legitimate purposes, it is practically impossible to control the flow of these weapons after they reach foreign soil. These weapons allow conflicts to grow, perpetuate, and provide the arsenal for future conflicts. These arms fuel the very humanitarian crises the U.S. government supposedly wants to combat. Those who pay the highest price for these policies may be the most innocent.

Employers Who Dump Workers onto Medicaid: The New Corporate Welfare Queens?

medicare 230There have been a lot of predictions about the future of employer-based health benefits under Obamacare. Reports suggest that increasing numbers of small businesses are dropping health benefits and sending their employees to Obamacare’s insurance exchanges, where they are partially subsidized.

Other businesses have found a bigger cost-shifting approach. BeneStream, a new benefits advisor, advises employers how to make their workers dependent on Medicaid, a welfare program fully funded by taxpayers. And businesses are taking advantage of its advice.

So: Are these employers corporate welfare queens?