Interview of the Week: Peter Thiel
“Hypnotic Mass Phenomena”
Peter Thiel is one of Silicon Valley’s bigger-than-life characters. Now he is leaving the epicenter of the tech industry. A conversation on human herd behavior, successful investment, Donald Trump’s genius, homosexuality and death.
The mentioning of his name sends shockwaves through Silicon Valley, the place where serial founder and venture capital investor Peter Thiel has been a driving force of the internet revolution for decades. In 1999, he co-founded Paypal with Elon Musk. Their aim: Reinventing the financial system and, indeed, money. That revolution stopped half-way, however Paypal achieved to make online payments radically easier, paving the way for e-commerce, which turned the internet into a goldmine. The founders drove the company to a market value of over 1 billion dollars, making it one of the first so-called unicorns. In 2002, Paypal was bought by Ebay for over 1 bn USD.
Peter Thiel’s marvelous wealth – estimates range from 2 to 3 billion USD – stems primarily from his investment in Facebook. As the first external investor, he bought 10 percent of the company for just 500 000 dollars. After Facebook’s IPO in 2012, he sold the bunch of his shares for over one billion. But also other investments were highly successful. Thiel’s Palantir is one of the “big data” pioneers.
As diverse as the man himself is his career. Before he became an internet revolutionary (and billionaire), Mr. Thiel, who was born to German immigrants, studied philosophy at Stanford, wrote a doctoral thesis in law and became a senior law clerk for a high-ranking judge.
In public, Peter Thiel is rather elusive. He does not give a lot of interviews. But when he raises his voice, he is likely to cause a hefty debate. At one occasion, he told that he was taking human growth hormones in order to extend his life expectancy. But his most explosive intervention so far has been his public support for Donald Trump for President of the United States. Silicon Valley was terrified. There were even made plans to remove him from the board of Facebook.
We are meeting the Silicon Valley’s oracle at the offices of his firm at one of the highest-ranked locations in the city of San Francisco. Located in the so-called Presidio, a former military garrison turned natural park with beautiful views over the Golden Gate Bridge, Thiel Capital Is occupying generous spaces in a prime business building. Pastel- and ocher-colored interiors, futuristic design. Some chessboards, the trademark of our host.
And there he is: Rather short for being an internet giant, Mr. Thiel has a strong, dynamic appearance and an extraordinary quickness in his thought. He begins the conversation in German with an American accent. For the interview, however, we switch to English. His German is, according to him, on the level of a 12-year-old.
Peter Thiel, six months back, you announced to move your company to Los Angeles, citing doubts about the future of Silicon Valley. And yet, here we are at the headquarters of Thiel Capital in San Francisco!
We are moving in August, keeping just one of the venture funds here in San Francisco. The judgement call that I am making is that in the next decade it will be less centralized where technology happens and that the incredible premium on this location will not be quite as big anymore.
At the moment, Silicon Valley still looks all-powerful.
The big question is: Will the future of the computer age be decentralized or centralized? Back in the 60s, you had this Star Trek idea of an IBM computer running a planet for thousands of years, where people were happy but unfree. Today, again we are thinking that it is going to be centralized: Big companies, big governments, surveillance states like China. When we started Paypal in 1999, it was exactly the opposite: This vision of a libertarian, anarchistic internet. History tells me that the pendulum has swung back and forth. So, today I would bet on decentralization and on more privacy. I don’t think we are at the end of history and it’s just going to end in the world surveillance state.
What has become the problem with Silicon Valley?
One of the paradoxes of Silicon Valley is that this internet technology revolution is supposed to get rid of the tyranny of place and geography. And yet, it was all happening in one place. There is, however, always a tipping point with network effects. At the beginning, they are very positive, but at some point they can become negative. In economic terms, they become negative when the costs get too high. If you have to pay 2000 dollars a month for a one-bedroom apartment in San Francisco, maybe that is a sign of the boom. But when it is 4000 dollars a month – with a city government where the police don’t work, the roads don’t work, the schools don’t work – 4000 dollars is just a very high tax, in effect. There is also a cultural component: At one point, the wisdom of crowds tips into the madness of crowds – and you end up with a sort of conformity, lemming-like behavior. It actually becomes a somewhat less creative place.
You have always been very critical of herd-like behavior. Back in 1995, you wrote a book about the “diversity myth” at universities: People are selected in order to look different, but educated to think in the same way.
Yes, diversity should be more than a group of people that look different and think alike. Intellectual diversity is the kind of diversity we should really value, not just this superficial diversity with some extras such as seen in the Space Canteen in Star Wars.
Star Trek, Star Wars… You seem to like science fiction and movies.
I like science fiction because it's a way to think about the future. Star Wars might be more like fantasy; Star Trek might be more like a utopia. At the start of PayPal, we read Neal Stephenson's “Cryptonomicon”, not just because it was fun but because it presented concrete ways in which the future could be different from the present.
Several of your investment firms are named after the books of fantasy author J.R.R. Tolkien.
Those books were very powerful at the time I read them. I don’t want to overstate the way it maps onto my philosophical ideas, but there is a way in which it is very much the sort of the Lord Acton line that “power corrupts and absolute power corrupts absolutely”. Sort of the central motive in Tolkien is this problematic nature of power.
You have a house in New Zeeland. Is this a reflection of your admiration for Tolkien, given that many of the movies were made there?
I first visited New Zeeland back in 1995. This predated the Tolkien movies. I thought it was an incredibly beautiful country – and it is somehow the perfect place for the Tolkien films. It is, on some level, the most beautiful place in the world.
You label yourself a “contrarian”. How did you become one? How does one become a contrarian?
It is a label that has been given to me, not one that I give normally to myself. I don’t think a contrarian per se is the right thing to be. A pure contrarian just attaches a minus sign to whatever the crowd thinks. I don’t think it should be as simple as that. What I think is important for people is to try to think very hard for oneself. But yes, I do deeply mistrust all these kinds of almost hypnotic mass and crowd phenomena and I think they happen to a disturbing degree.
Why do they happen in a supposedly enlightened society?
The advanced technological civilization of the early 21st century is a complicated world where it is not possible for anybody to think through everything for themselves. You cannot be a polymath in quite the way people were in the 18th century enlightenments. You cannot be like Goethe. So there is some need to listen to experts, to defer to other people. And then, there is always the danger of that going too far and people not thinking critically. This happens in spades in Silicon Valley. There is certainly something about it that made it very prone to the dotcom bubble in the nineties or to the cleantech bubble in the last decade.
What’s at the root of this?
A lot of the businesses here take years to prove out. You don’t get very fast feedback on whether something works. So you often want to get feedback from other people. If you get a lot of social or cultural validation, then you don’t have to think as hard about whether it was really the right way to go about it.
You would expect a technological environment to be rational.
You think that engineering and tech is numbers and measurements and quantitative. It actually is often much more of a story, something in a work. It is hard to measure. And that makes it prone to mass phenomena.
Which can also be felt in the political sphere. Tell us about how your support for Donald Trump for president of the United States was received in the Silicon Valley.
That was quite striking. My support for Donald Trump was, on some level, the least contrarian thing I have ever done. If it is half the country, it cannot be that contrarian. And yet, in the Silicon Valley context it has felt extraordinarily contrarian. It is not that politics is the most important thing. I think there are many things that are much more important than politics: Science is more important, technology is more important, philosophy, religion... We normally think that political correctness is literally about politics. But politics is sort of a natural place to start. If you cannot even have differences of opinion in politics, that’s a sign that things are very unhealthy.
Because in a democracy, we believe that the average person should be able to make some judgements: Do you like the funny man with the strange hairdo or do you like the mean grandmother for president in the United States? These are some common sense things that people should be able to debate. And if you say that you are not allowed to think about that, then you probably should not be allowed to think about anything.
At some point, you described that the last presidential election felt like an apocalyptic battle. What exactly did you feel was at stake?
There are these essays by a person called Michael Anton. They are all written pseudonymously because he felt it was too dangerous to write names. One of them was titled “The Flight 93 Election”. Flight 93 was one of the four flights that was hijacked after 9/11 but it was the one where the passengers took over, they charged the cockpit – plane still crashed. And it was like that it felt that the country had been taken over and it was on a catastrophic trajectory, that people were going to try to charge the cockpit. It didn’t mean that they would be able to ride the plane or the ship or whatever the metaphor is, but “we’re gonna try”. So I do think that “The Flight 93 Election” is a powerful metaphor and, emotionally, that certainly resonated with me.
What is the explanatory power of this metaphor?
It is this very deep sense that the United States – the western world as a whole – are not progressing in the direction they should. We have a center-left establishment in both Western Europe and the US that mainly glosses over all the short- and long-term problems in our societies. And if something is not done, at some point it becomes too late to fix things. And the hour was very late.
What was unique about the Trump campaign?
Republican candidates have always been way too glibly optimistic about everything. I’ve thought for many years that it was critical for the Republicans to somehow run a more pessimistic candidate just because that was a more honest description of what was going on. It is very hard to know how to do that because if you are too pessimistic, you demotivate people: If everything is just going down the drain, no point even voting for me. Somehow, the genius of Trump was that it was extraordinarily pessimistic, and yet still extraordinarily motivational. The slogan “Make America Great Again”, the most pessimistic slogan of any presidential candidate in a hundred years: The country used to be great, it is no longer great. That is a shocking, shocking statement!
Which offended some people.
I can understand why it is extremely offensive and why it is maybe uniquely offensive in Silicon Valley. It is the substance of reason why Silicon Valley had some justification to be upset with Trump. Since Silicon Valley tells itself a story that it is making the world dramatically better, in a way that Wall Street does not, there was something about that slogan that was uniquely offensive. But I think the question that Silicon Valley and the country would do well to ask, is: Is it true? How much real progress have we had?
And the answer is?
My judgement certainly is that there is a lot more truth on the Trump side than on the, let’s call it Google Propaganda, the alternative where everything is just automatically getting better. Certainly, one of the experiences throughout the western world is that the younger generation, for the most part, does not expect to have lives as good as those of their parents. We can say they are wrong, they don’t understand anything about their lives. But, again, the common-sense, anti “political correctness” intuition is that you trust people’s common sense, you trust their judgements and that judgement is an incredible indictment of our elites.
You are friends with Elon Musk with whom you co-founded Paypal. Which philosophical ideas do you share?
We share a bit of practical philosophy: things get done by small groups — by startups.
What is Elon Musk’s most remarkable quality?
Elon Musk has an extraordinary ability to inspire people. To do what he wants to do, he needs a lot of help. He has to be extraordinary precisely because he can't do it all himself.
In 2016, you switched your party affiliation from Libertarian to Republican…
You should not believe everything on Wikipedia. I have always been a registered Republican. But I still think of myself as philosophically quite libertarian: I do believe in a smaller government, free markets, socially moderate positions, less interventionist foreign policy… I would actually strongly defend president Trump on libertarian grounds. I know lots of libertarians would not agree with this. The dimension that is always very important is the foreign-policy one from a libertarian point of view. Trump represents a major break from the super-aggressive foreign policy of the Bush administrations or even the Clinton and Obama administrations. If the US goes into another major war like Libya or Syria, I will have misgivings about it. But so far, we are a year and a half, and I feel very good about it.
As we are talking, Trump is in Brussels shaking up the NATO summit. Did you read his comments on the German defense budget?
I have. He has been making those comments for a while.
Don’t you still have a German passport?
I don’t have a German passport. I was born in Germany, but by the time I took up the US passport you couldn’t have both.
How do you read Trump’s stance on NATO? Does he tell the Europeans to grow up? Or has he given up on Europe?
The real issue here is the decline in defense spending in Western Europe over the last 20 years. The odd thing is that the main parts of the NATO alliance seem to be in Europe, not in America. We are not exactly expecting Germany to help protect the southern border of the United States. That doesn’t seem to be what NATO is about.
Another issue that is debated very controversially is Trump’s trade policy. People are shocked by his imposition of tariffs.
At the center of this is the question with China. The US exports something like 100 bn a year to China, we import 475 bn. What’s extraordinary, is that if we had a globalizing world, we would actually expect the reverse to hold: you would expect the US to have trade surpluses with China and current account surpluses because we would expect that there is a higher return in China because it is a faster growing country than the US. This is what it looked, let’s say, in 1900, when Great Britain had a trade surplus of 2 percent and a current account surplus of 4 percent of GDP. And the extra capital was invested in Argentinean railroads or Russian bonds.
Clearly, today things are different.
The fact that the US does not have a surplus, that actually it has a massive deficit, tells you that something is completely wrong with the standard globalization picture that we have. It is sort of like: Chinese peasants are saving money and it is flowing uphill into low-return investments in the US and bonds in Europe with negative interest rates. There is something completely crazy about that dynamic.
What’s the problem with China?
It is certainly massive tariffs in China, trade barriers, informal controls, intellectual property theft, incredible restrictions on capital investments – it’s extremely hard to invest in China in any way whatsoever.
Still, free trade is a good thing.
In theory you always want to have free trade. I think it was Adam Smith who said that any country endowed with harbors would never throw rocks to them to make them not functioning. That is certainly the common sense dynamic. However, we are incredibly far from that world. And even if you are a doctrinaire, pro free-trade person, there is also an argument: How do you get from an unfair, partial free-trade to more free-trade? Maybe, there is a game theory and if you want to reduce barriers everywhere, you first need to impose tariffs, you have to escalate to de-escalate.
Trump does also seem to take on Europe, not just China.
Maybe that’s a distraction, maybe not. But I would say that the US is much more free-trade than Western Europe with their large VAT taxes. Every VAT tax is almost the same thing as a tariff because it does not apply when you export things, but it applies to your domestic population. In a way you could think of the VAT taxes as tariffs that are taxes on consumers, but relatively good for workers. And I would make the point that this might not be necessarily a bad thing in the context of a welfare state.
You have to explain this thought…
If you didn’t have a welfare state and someone wants to stay at home and play video games all day, maybe we should not make judgements about that. But if you have a big welfare state and people do that, maybe you have to do something to correct that. We live in a world where there is too much welfare and where work is undervalued. On some level, you can think of the European VAT as a corrective to the welfare state. Even if nothing gets resolved on trade and the US end up with tariffs that function like the European VAT tax, this will shift things from welfare to work. In my judgement this would be a very healthy shift in the United States
You were on Donald Trump’s transition team. In which respect is he different than everybody else you’ve met before?
I think it is his extraordinary ability to understand people. If he interviewed you for a job, he would right go to the essence. In the Western world, we are behind layers and layers and layers of political correctness, where we cannot say things, we cannot make judgements about people, we cannot evaluate people, we can’t say this person is better than this person because this or this reason. If you can just cut through this political correctness, that is tremendously valuable and it is hard to understate how much it distorts things.
You have been called “Trump’s Shadow President in the Silicon Valley” by a newssite.
That’s totally unfair.
Why is it unfair?
It's not even unfair. It's ridiculous. There is no shadow anything; there is just Donald Trump.
Have you been offered a formal position in his government? We could read about possibilities in the oversight of the intelligence community, or US ambassador to Berlin…
We looked at some things. But in practice it is almost impossible for a person like myself to take a government position. You would have to divest. But if you have a lot of investments in private companies, you cannot sell them. Then, all the things you are conflicted... It is almost practically impossible.
How happy are you with his performance so far?
I think it is impressive how much President Trump has achieved in the first year and a half. And it has been very rocky, more polarized than I would have thought. I am struck by how much the debate has shifted on topics…
Even in the Silicon Valley?
The trade debate has shifted. There is nobody in Silicon Valley who defends China. They won’t officially agree with Trump. I think the immigration debate has shifted a decent amount in the US, and even more so in Europe. Nobody wants to give President Trump credit for that, but when I talk to people in Europe, well they dislike President Trump, but there has been a sea change on that. I think he shifted the debate quite significantly on NATO and China – even in Germany, everybody agrees that they are not paying enough. That’s important. It’s not: Can you overwhelm the other side? It’s when you get the other side to change their mind. That’s where policy really shifts. And it’s striking how much this has happened given how polarized things are.
If you would have to bet on the Midterm elections, what is your best bet?
I think they will keep the Senate, House will be hard. But I would say that there is a better-than-50-percent-chance that President Trump gets reelected. I think if he runs, he will get reelected.
What’s your view on Switzerland?
Switzerland is an extraordinarily well functioning country. I don’t like the neighborhood it is in, but it is really remarkable. If you compare Switzerland with Austria or Scandinavia, human capital is equally good but the per capita income in Switzerland is 50 to 100 percent higher. It does tell you that there is something that people are doing that is dramatically better. The question is whether its cities are big enough. If you are a talented young person: Do you move to Geneva or do you move to London? It was good if Switzerland had a somewhat better answer to that sort of question. But as I stated at the beginning, I think the technology will be more decentralized and so I think what has been a limitation for Switzerland will be much less going forward.
Have you been to Zug to look at this crypto valley?
I have not been there in a long time.
How do you see Europe? Shrinking demographics, no tech giants, and oversized Welfare states.
Those are all true.
And yet you have some investments in Europe.
Over the years, we have invested a decent amount in Europe. The question is: Why is it so lame? People are well educated, at least the northern part of Europe is quite honest, it is sort of a high-trust society, it is a large market. But it is amazing how much it has underperformed the US, especially if you look at the number of unicorns that there are in Europe. Maybe it’s 200 in the US and 10 in Europe.
What’s your explanation for that?
I don’t want to over-index on a single explanation, but on the tech-side, what’s always super important, is that companies, other than humans, are not created equal. Politicians always like to say we want people to start businesses and you sort of pretend that every small business is the same and there is no difference between Google and a hot-dog stand. The kinds of businesses we want to actually create are growth companies that will create very well-paying jobs because they are doing something so valuable that they can afford to pay for high salaries for people.
Where Europe fares poorly.
One of the self-descriptions we always have in Europe is that it’s the fear of failure which makes people too risk averse. I wonder if it is actually the opposite, maybe it’s a fear of success. The most important decision in the history of Facebook was that we were offered a billion of dollars in the summer of 2006, and we turned it down. I think if we did it in the European context it would have gotten sold every time. There is something about the social-democratic sensibilities of Western Europe where it is incredibly uncomfortable for people to do too well. In Germany, you have this idea of the Mittelstand companies and then you have the tech start-ups. I am always struck how these things don’t map onto one another at all. The real question should be: How do we get the kind of Mittelstand companies for the 21st century? But somehow, the culture around tech there is more transactional. It’s not the sense of building long-term, permanent businesses. It has more of a cargo-cult-feel, you have the appearance of a company but it is not a real business.
You are trying to become 100-120 years old…
Well, it is not totally up to me, but yes…
Why do you want to get that old?
I always find it odd that people find it odd. I keep thinking that death and mortality are terrible things. The dominate modalities we have are denial – I am not going to think about it because I am too young –, acceptance – it’s too late, noting I can do. We should be somewhere in between and fight it more aggressively. And off course, it is always in concrete ways. Should we have a cure for cancer? Yes. Should we have a cure for dementia? Yes. I think accumulatively, this will change the world. Life expectances have been going up by 2 to 2,5 years a decade for 150 years. I think that trend can keep going for a very long time.
You don’t fear that at some point life is getting boring?
A couple of years ago, I was talking to a former math professor in his early 70s. He said “I don’t know if there is an afterlife, but I hope not because I don’t want to run into my exwife.” The mentality we should have instead: We want to treat the people around us, we want to be doing things, so that every day is such that you want it to go on forever. If you have a 5 year old kid around you who is bored, you don’t say: Hopefully you will die soon. You say: There are a lot of things to do. So there is no reason to be bored.
If you had to advise financially not so literate people about investment – what would you tell them?
It is always very difficult to give general advice. It strikes me that we are in a world where it is pretty hard to invest well. That is what the super-low or negative interest rates tell us.
What’s your personal investment strategy?
My two-part investment thesis with respect to private companies is always: First, is it a good investment? And second, what is my advantage, what do I understand about this investment that other people do not? If there is no real advantage, then in a world of negative rates it is a pretty challenging thing. We are in a world where it is going to be hard to even preserve the value of your capital.
Do you think it is wise to buy gold or bitcoin in order to prepare for an eventual blowup of the financial system?
I am generally always quite confused about that. I think apocalyptic investing seems to be somewhat oxymoronic because even if the system blows up – how well will these alternatives actually do? In the 1930s, when you really wanted to have gold, the government confiscated all at the end of the day. I think of bitcoin in some ways as a better alternative to gold. It is harder for the government to take at the end of the day.
You own bitcoin.
Yes. It is still no more than 1 percent of my net worth. I do think there is something very strange about this world of fiat money and exactly about the way it ends. There is something very odd about the raising debts in the Western world and it is very unclear how that ultimately gets resolved. But I think the thing is to stress us more to think in concrete terms of things that are actually going to be valuable. That’s why probably 80 percent of my capital is tied up in private tech companies. Maybe that’s a very unbalanced portfolio. If you have it parked as cash, definitely bitcoin is an alternative to fiat cash. But the question you should really ask: How can you actually do better than bonds and cash and all these low-return assets?
When you founded Paypal, one starting idea was to generate a type of private money. Paypal didn’t succeed where bitcoin seems to do much better. Are you jealous that you didn’t invent Bitcoin?
It is hard to be jealous of something that you weren’t remotely capable of doing. I have to acknowledge I would never come up with anything like that. So I can’t even be jealous. I was very interested in all these virtual currencies in the late 90s. We started Paypal thinking about that, but at the end it was a payment system for existing fiat money. Somehow, that experience weirdly primed me to underestimate Bitcoin early on. It was on the radar in 2011 and there were people telling me I should buy it, and we didn’t really get involved until 2014. When you have experiences and you learn things, it is often very dangerous and my experience in the late 90s was that cryptocurrencies didn’t work. And it was largely correct, but you always have to be open to think about it.
Paypal is a tremendous success story. It is the only major tech company that managed to defy the regulatory borders of financial markets somehow.
In 1999/2000, we were able to start it in a way that you would not be able to start it today. After 9/11, there was much more regulation. There was this revolutionary element, we were going to change the financial system and the rules didn’t matter because we would have so many people using it that the rules would have to change. That was sort of my view. This was maybe a little bit risky but it kind of worked.
We also see a regulatory crackdown on cryptocurrencies.
It’s not quite there. The hope is still that there is enough of an opening there. I am amazed that there has not been more.
You’re a chess player. On what level?
My top US chess rating was 2344. That’s sort of a master level. But I haven’t played tournament chess since 2003. I still play too much blitz chess on the internet but I think that’s not good on any level whatsoever. But you have some downtime.
What’s your IQ?
You know, I was sort of in a gifted or talented program as a kid. But IQ tests are basically not considered legal in the US anymore, at least not for employment or things like that.
You are openly gay since about 10 years. Why did you wait so long to make this public?
Well, people knew it well before. But there is always this question what’s private and what’s public, and there is a lot that is somewhere in between.
Was it also because you did not want to go down the path of identity politics?
Identity is a very strange concept. It can mean two opposite things. It can mean that which makes you unique and it can mean that which makes you identical. I think there are all these different experiences people have. There is an African American experience, there is a women’s experience, there is a gay experience… You don’t want to pretend that it does not exist and you don’t want to make it all-important. It is very hard for us to find the right way to talk about this. As a gay person I don’t want to be in the closet, but I also don’t want to be in the ghetto. The closet and the ghetto are exclusive – those are two different possibilities – but I hope they are not exhaustive, those are not the only two.
This interview was first published in a slightly condensed and translated version in the print edition of Die Weltwoche.