The Unwinding: An Inner History of the New America (60 page)

SILICON VALLEY

The last time Peter Thiel went to the World Economic Forum was in January 2009. Davos
was a highly visible status marker for the global elite, but inclusion that year seemed
to designate you as part of the group of people who had messed up the world. Thiel
went away resolved that for the next decade he would be short status, long substance.
If a sort of unwinding was happening in America, status markers became weirdly problematic—in
a screwed-up society, they could not be the correct, real things. Almost nothing that
had high status was a good thing to invest in.

After the global financial crisis, Thiel developed a theory about the past and the
future.

It went back to 1973—“the last year of the fifties.” That was the year of the oil
shock, the year when median wages in America began to stagnate. The seventies was
the decade when things started going wrong. A lot of institutions stopped working.
Science and technology stopped progressing, the growth model broke down, government
no longer worked as well as in the past, middle-class life started to fray. Then came
the eighties—when Thiel graduated from high school in 1985, things had seemed very
optimistic, anything was possible. And the nineties—the Internet replaced heaven,
fortunes were made, everyday life with a mouse pad seemed kind of miraculous. After
the millennium and the dot-com crash, a down decade—Bush 43, violence and war, a weak
economy, except on Wall Street, leading to the seismic events of 2008 and a new depression.
Four decades—down, up, up, down. After forty years, you were flat.

That was harder to see during the middle years, when things seemed to be going up.
It was even harder to see from Silicon Valley, where the years after the dot-com crash
had still been pretty good ones—the Google IPO, Facebook, the rest of social media.
But thirty miles east of the Valley, people were not doing well, especially after
their only asset, their house, lost half its value. In effect, those middle decades
were a kind of Indian summer following the seventies, and it lasted such a long time—about
a quarter century, if you started with the end of the Reagan recession in 1982 and
ended with the housing collapse in 2007—that it would be almost impossible to go back
to where things stood before it all began and try to reset. Throughout the Indian
summer, the same key institutions continued to erode, with a lot of recession years
and financial panics along the way. One way to see the Indian summer was as a series
of bubbles: the bond bubble, the tech bubble, the stock bubble, the emerging markets
bubble, the housing bubble … One by one they had all burst, and their bursting showed
that they had been temporary solutions to long-term problems, maybe evasions of those
problems, distractions. With so many bubbles—so many people chasing such ephemera,
all at the same time—it was clear that things were fundamentally not working.

In the spring of 2011, Mitt Romney came through Silicon Valley looking for supporters,
and he stopped by Thiel’s house in San Francisco for breakfast. Romney said that his
campaign was going to focus on the economy, not social issues, and let the numbers
make his argument. Thiel found him extremely polished and impressive, and he offered
Romney a prediction: “I think the most pessimistic candidate is going to win, because
if you are too optimistic it suggests you are out of touch.” In other words, it would
be a mistake for Romney just to argue that Obama was incompetent, and that things
would automatically be much better with a different president. Reagan might have been
able to make that argument against Carter in 1980, but in 1980 only 50 percent of
the people thought that their children would be worse off than they were, while in
2011 it was closer to 80 percent. It would be smarter for Romney to say that things
could be much better, but getting there would be very hard and would take more than
changing presidents. But it was a point that Romney couldn’t grasp. He assumed that
the more optimistic candidate would always win. He assumed that things were still
fundamentally working.

For example, what about the information age? Wasn’t it working unbelievably well?
Thiel, whom it had made rich, no longer thought so.

At Café Venetia in downtown Palo Alto—the spot where Thiel and Elon Musk had decided
over coffee in 2001 to take PayPal public, five blocks up University Avenue from the
original offices of PayPal, which were across the street from the original offices
of Facebook and the current offices of Palantir, six miles from the Google campus
in Mountain View, less than a mile in one direction and half a block in the other
direction from that secular temple of the new economy known as an Apple Store, in
the heart of the heart of Silicon Valley, surrounded by tables full of trim, healthy,
downwardly dressed people using Apple devices while discussing idea creation and angel
investments—Thiel pulled an iPhone out of his jeans pocket and said, “I don’t consider
this to be a technological breakthrough.”

Compared to the Apollo space program or the supersonic jet, a smartphone looked small.
In the forty years leading up to 1973, there had been huge technological advances,
and wages had increased sixfold. Since then, Americans beguiled by mere gadgetry had
forgotten how expansive progress could be.

One of Thiel’s favorite books was the French writer J. J. Servan-Schreiber’s
The American Challenge
, published in 1967, the year of Thiel’s birth. Servan-Schreiber argued that the dynamic
forces of technology and education in the United States were leaving the rest of the
world behind, and he foresaw a postindustrial utopia in America by the year 2000.
Time and space would no longer be barriers to communication, income inequality would
shrink, and computers would set people free: “There will be only four work days a
week of seven hours per day. The year will be comprised of 39 work weeks and 13 weeks
of vacation … All this within a single generation.” The information age arrived on
schedule, but without the utopia. Cars, trains, and planes were not much better than
they had been in 1973. The rising price of oil and food showed a complete failure
to develop energy and agriculture technology. Computers didn’t create enough jobs
to sustain the middle class, didn’t produce revolutionary improvements in manufacturing
and productivity, didn’t raise living standards across classes. Thiel had come to
think that the Internet was “a net plus, but not a big one.” Apple was “mostly a design
innovator.” Twitter would give job security to five hundred people for the next decade,
“but how much value does it create for the entire economy?” Facebook, which had made
Thiel a billionaire, was “on balance positive,” because it was radical enough to have
been banned in China. But that was all he would say for the celebrated era of social
media. All the companies he invested in probably employed fewer than fifteen thousand
people. “You have dizzying change where there’s no progress.”

Information itself was a sign of the problem. The creation of virtual worlds had taken
the place of advances in the physical world. “You can say the whole Internet has something
very escapist to it,” Thiel said. “You have all these Internet companies over the
past decade, and the people who run them seem sort of autistic, these mild cases of
Asperger’s seem to be quite rampant, there’s no need for sales, the companies themselves
are weirdly nonsocial in nature. Google is sort of the archetype. But in a society
where things are not great and a lot of stuff is fairly dysfunctional, that may actually
be where you can add the most value. We have this messy real world where things are
incredibly difficult and broken, and there are crazy politics, and it’s hard to get
good people elected, the system doesn’t quite work. And then there’s this alternate
virtual world in which there’s no stuff, it’s all zeros and ones on a computer, you
can reprogram it, you can make the computer do anything you want it to. Maybe that
is the best way you can actually help things in this country.”

The problem came down to this: Americans, who had invented the modern assembly line,
the skyscraper, the airplane, and the integrated circuit, no longer believed in the
future. The future had been in decline ever since 1973. Thiel called it a “tech slowdown.”

Here was one example: the sci-fi novels of the fifties and sixties, the ones he’d
grown up reading, with utopian visions of space travel and undersea cities, seemed
like artifacts from a distant age. Sci-fi was now about technology that didn’t work
or worked in bad ways. “The anthology of the top twenty-five sci-fi stories in 1970
was, like, ‘Me and my friend the robot went for a walk on the moon,’” Thiel said,
“and in 2008 it was, like, ‘The galaxy is run by a fundamentalist Islamic confederacy,
and there are people who are hunting planets and killing them for fun.’” Together
with Sean Parker and two other friends, Thiel had started an early-stage venture capital
firm called Founders Fund. It published an online manifesto about the future that
began with a complaint: “We wanted flying cars, instead we got 140 characters.”

There was no single cause of the tech slowdown. Perhaps there were no more easy technological
problems, those had all been solved a generation ago and the big problems left were
really hard ones, like making artificial intelligence work. Perhaps science and engineering
were losing their prestige along with their federal funding. The libertarian in him
pointed to overregulation of things like energy, food, and drugs—it wasn’t a coincidence
that the fastest growth had come in one of the least regulated industries, computers—and
the kind of narrow environmentalism that wanted all the solutions to look like nature,
so that hundreds of new nuclear reactors were not on the radar. Maybe (and this thought
particularly disturbed Thiel, who had a deep aversion to violence) the loss of an
enemy in the Soviet Union had taken away the incentive to work on military innovations
and the larger willingness to make sacrifices—maybe an extended peace left people
with less reason to work hard, and the decline of the future had actually begun in
1975 with the joint Apollo-Soyuz flight, which ended the space race. Maybe education,
especially higher education, was part of the problem. A younger friend of Thiel’s
described his freshman orientation at Yale, where a dean had told the incoming students,
“Congratulations—you’re set for life.” People should never think they’re set for life.

Thiel was an elite among elites, but he directed his intellectual fire at his own
class, or people a couple of rungs down—professionals making two or three hundred
thousand a year. Elites had become complacent. If they couldn’t grasp the reality
of a tech slowdown, it was because their own success skewed them in an optimistic
direction, and wealth inequality kept them from seeing what was happening in places
like Ohio. “If you were born in 1950 and were in the top ten percent, everything got
better for twenty years automatically. Then, after the late sixties, you went to a
good grad school, and you got a good job on Wall Street in the late seventies, and
then you hit the boom. Your story has been one of incredible, unrelenting progress
for sixty years. Most people who are sixty years old in the U.S.—not their story at
all.” The establishment had been coasting for a long time and was out of answers.
Its failure pointed to new directions, maybe Marxist, maybe libertarian, along a volatile
trajectory that it could no longer control.

Thiel’s argument ran into resistance across the political spectrum. On the right,
market fundamentalism took the place of serious thinking about innovation (that was
why Romney hadn’t understood Thiel’s point at their breakfast meeting). On the left,
there was an official smugness about innovation—just spend more money—while deep down
lurked an unspoken pessimism. President Obama probably believed that there wasn’t
much to be done about decline except manage it, but he couldn’t give another “malaise”
speech (after what happened to Jimmy Carter, no one ever would again), so his picture
of the future remained strangely empty. Both Obama and Romney ended up in the wrong
place: the former thought American exceptionalism was no longer true and should be
given up, while the latter thought it was still true. Neither was willing to tell
Americans that they were no longer exceptional but should try to be again.

Thiel was no longer a hedge fund titan, but as he began to air his ideas, in published
essays and at the kind of elite discussion/networking sessions that proliferated across
America, he was becoming the intellectual provocateur he had dreamed of being at Stanford.
In the summer of 2012 he was invited to the Fortune Brainstorm Tech conference in
Aspen, Colorado, where he debated the chairman of Google, Eric Schmidt, on the future
of technology. Schmidt, just the kind of sanguine liberal who brought out Thiel’s
cerebral malice, told the audience that transistors, fiber optics, and data analytics
were making the world a better and better place, and that Moore’s Law, which held
that computing power would double every two years, still had at least another decade
left.

“Eric, I think you do a fantastic job as Google’s minister of propaganda,” Thiel began.

The moderator broke in. “You said you were going to be nice.”

“Well, he does a fantastic job.” Thiel, his blue blazer buttoned at the middle and
his white shirt open several buttons down, laid out his argument about the tech slowdown.
As a libertarian, he placed most of the blame on regulation. “We’ve basically outlawed
everything having to do with the world of stuff,” he said, “and the only thing you’re
allowed to do is in the world of bits. And that’s why we’ve had a lot of progress
in computers and finance. Those were the two areas where there was enormous innovation
in the last forty years. It looks like finance is in the process of getting outlawed,
so the only thing left at this point will be computers, and if you’re a computer that’s
good. And that’s the perspective Google takes.”