Tim Cavanaugh interviews Peter Thiel on Facebook, technology, and the higher-education bubble:
Sadly, Mencius Moldbug says, reason compels him to believe that seasteading is basically a crazy idea:
I mean this in the good sense of the word as well as the bad. Of all things that the endeavor reminds me of, it reminds me most of Shaw’s epigram that all progress depends on the unreasonable man.
I’m glad that smart people are crazy enough to do crazy things like this, and I’m glad that billionaires are crazy enough to put their money where their mouth is. What will come of it? We’ll see. Or our children will, at least.
But in the cold light of reason, let’s take a couple of sharp and serious looks at the project.
First, we need to look a little more closely at this word freedom. From my perspective, which is of course both reactionary and correct, freedom is not an abstraction. The extent of your freedom is the extent of your own practical control over your own mind, body, and property.
For example, I don’t think the conversion of Southern slaves into Southern sharecroppers made anyone much freer, because it created few practical options for the people involved. Before, you were an agricultural laborer who worked on the same farm for your entire life; after, ditto.
Defined in these terms, when you move onto a floating pole somewhere in the ocean, the first effect on your freedom is a massive decline. You have sworn fealty to King Neptune. Neptune accepts your service, as he has accepted so many before you. His court is glorious, his riches are infinite, his territory is vast. But Neptune is a stern and capricious lord.
To live at sea, you need not just love liberty. You need to love the sea. Spend a little time with Moitessier, Slocum, and the like; read this fine collection, and possibly this (pretty much all of Jonathan Raban’s books are good); etc, etc. Yes, I’m aware that seasteading is not yachting. I’m aware that no one intends to take their floating poles around Cape Horn. But you are still at sea, and a subject of Neptune you remain.
For example, until they can form a large enough seastead colony to support regular seaplane service (let alone floating runways, etc), the subjects of Neptune are isolated, in an way that no one on Earth now is. Perhaps the closest equivalents are the small spots of humanity dotted across Alaska. Would you move to Alaska? (Why New Hampshire? Why not Alaska?) Life at sea is likely to be no freer than life in the Alaskan bush. If this is the lifestyle you want, it is as free as anything. If not, it might as well be a jail.
As one fast-forwards to 2009, the prospects for a libertarian politics appear grim indeed. Exhibit A is a financial crisis caused by too much debt and leverage, facilitated by a government that insured against all sorts of moral hazards — and we know that the response to this crisis involves way more debt and leverage, and way more government. Those who have argued for free markets have been screaming into a hurricane. The events of recent months shatter any remaining hopes of politically minded libertarians. For those of us who are libertarian in 2009, our education culminates with the knowledge that the broader education of the body politic has become a fool’s errand.
Indeed, even more pessimistically, the trend has been going the wrong way for a long time. To return to finance, the last economic depression in the United States that did not result in massive government intervention was the collapse of 1920–21. It was sharp but short, and entailed the sort of Schumpeterian “creative destruction” that could lead to a real boom. The decade that followed — the roaring 1920s — was so strong that historians have forgotten the depression that started it. The 1920s were the last decade in American history during which one could be genuinely optimistic about politics. Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women — two constituencies that are notoriously tough for libertarians — have rendered the notion of “capitalist democracy” into an oxymoron.
In the face of these realities, one would despair if one limited one’s horizon to the world of politics. I do not despair because I no longer believe that politics encompasses all possible futures of our world. In our time, the great task for libertarians is to find an escape from politics in all its forms — from the totalitarian and fundamentalist catastrophes to the unthinking demos that guides so-called “social democracy.”
His suggested escapes from politics — cyberspace, outer space, and the sea — strike me as… daunting.
(Hat tip to Arnold Kling, who notes that a libertarian threat to exit is probably too costly to carry out.)
Wired has now written about seasteading. Peter Thiel Makes Down Payment on Libertarian Ocean Colonies:
Instead of starting with a grand scheme worthy of a James Bond villain, the Institute is bringing an entrepreneurial, DIY mentality to creating oceanic city-states.
“There’s a history of a lot of crazy people trying this sort of thing, and the idea is to do it in a way that’s not crazy,” said Joe Lonsdale, the institute’s chairman and a principal at Clarium Capital Management, a multibillion-dollar hedge fund.
The seasteaders want to build their first prototype for a few million dollars, by scaling down
In essence, the seastead would consist of a reinforced concrete tube with external ballasts at the bottom that could be filled with air or water to raise or lower the living platform on top.
The spar design helps offshore platforms better withstand the onslaught of powerful ocean waves by minimizing the amount of structure that is exposed to their energy.
“You have very little cross-sectional interaction with waves [with] the spar design,” Gramlich said.
The primary living space, about 300 square feet per person, would be inside the tube, but the duo envisions the top platform holding buildings, gardens, solar panels, wind turbines and (of course) satellites for internet access.
To some extent, they believe the outfittings for the seastead will be dependent on the business model, say aquaculture or tourism, that will support it and the number of people aboard.
“We’re not trying to pick the one strategy because we think there will be multiple people who want one for multiple reasons,” Gramlich said.
Dan Donovan, a long-time spokesman for Dominion, an energy company that operated Gulf of Mexico-based gas rigs, including Devils Tower, the world’s deepest spar structure, said the group’s plan wasn’t too far-fetched. His company’s off-shore rigs, which are much larger than the institute’s planned seasteads, provided long-term housing for its workers.
“They were sort of like mobile homes. We could move them from one place to another,” Donovan said. “People did live on them.”
Friends May Be the Best Guide Through the Noise on the Net:
Following the feeds of people you like and admire, these companies say, allows the serendipitous discovery of needles in the information haystack. “Friends are likely to have some similar interests and tastes. Just the fact that your friends find it interesting should make it more interesting to you,” said Paul Buchheit, one of FriendFeed’s four founders, all of them former Google engineers.
Last week, for example, Mr. Buchheit’s followers on FriendFeed were treated to what he himself had discovered and found valuable online: links to interviews with the investor Peter Thiel in Reason magazine and the Google co-founder Larry Page in Fortune, an article about Justice Antonin Scalia’s views on torture on a political Web site, and a YouTube video of nine kittens moving their heads in rhythm to a song, among other Internet ephemera.
I must admit to a double-take when I read “links to interviews with the investor Peter Thiel in Reason magazine and the Google co-founder Larry Page in Fortune” — since I just cited each of those (here and here).
In The Optimistic Thought Experiment, Peter Thiel emphasizes the following points:
- Any investor who ignores the apocalyptic dimension of the modern world also will underestimate the strangeness of a twenty-first century in which there is no secular apocalypse.
- There are no good investments in a twenty-first century where globalization fails.
- Almost every financial bubble has involved nothing more nor less than a serious miscalculation about the true probability of successful globalization.
- Financial bubbles and exaggerated stories about globalization are nearly synonymous because the greatest uncertainties about the future of the world have involved questions about the rate and the nature of globalization.
- 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.
- There is no good scenario for the world in which China fails.
I’d consider myself more inclined than most to consider the catastrophic effects of low-proability disasters — but Thiel seems to find this thinking central to his “macro” view:
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 .
But because we do not know how our story of globalization will end, we do not yet know which it is. Let us return to our thought experiment. Let us assume that, in the event of successful globalization, a given business would be worth $ 100/share, but that there is only an intermediate chance (say 1:10) of successful globalization. The other case is too terrible to consider. Theoretically, the share should be worth $10, but in every world where investors survive, it will be worth $100. Would it make sense to pay more than $10, and indeed any price up to $100? Whether in hope or desperation, the perceived lack of alternatives may push valuations to much greater extremes than in nonapocalyptic times.
The reverse version of this sort of investment would involve the writing of insurance and reinsurance policies for catastrophic global risk. In any world where investors survive, the issuers of these policies are likely to retain a significant portion of the premium — regardless of whether or not the risks were priced correctly ex ante. In this context, it is striking that Warren Buffett, often described as the greatest investor of all time, has shifted the Berkshire Hathaway portfolio from “value” investments (no internet, no growth, often just businesses with stable cash flows) to the global insurance and reinsurance industries (perhaps one of the purest bets on the optimistic thought experiment).
If the preceding line of analysis is correct, then the extreme valuations of recent times may be an indirect measure of the narrowness of the path set before us. Thus, to take but one recent example, in 1999 investors would not have risked as much on internet stocks if they still believed that there might be a future anywhere else. Employees of these companies (most of whom also were investors through stock option plans) took even greater risks, often leaving stable but unpromising jobs to gamble their life fortunes. It is often claimed that the mass delusion reached its peak in March 2000; but what if the opposite also were true, and this was in certain respects a peak of clarity? Perhaps with unprecedented clarity, at the market ’s peak investors and employees could see the farthest: They perceived that in the long run the Old Economy was surely doomed and believed that the New Economy, no matter what the risks, represented the only chance. Eventually, their hopes shifted elsewhere, to housing or China or hedge funds — but the unarticulated sense of anxiety has remained.
I like his take on China:
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?
At the very least, outsiders need to understand that China is controlled for the benefit of insiders. The insiders know when to sell, and so one would expect the businesses that have been made available to the outside world systematically to underperform those ventures still controlled by card-carrying members of the Chinese Communist Party. “China” will underperform China, and a “China” bubble exists to the extent that investors underestimate the degree of this underperformance.
Bringing this thought back to technology:
As with the distinction between China and “China,” 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.
A more subtle “technology” bubble may be occurring this time. A large number of large capitalization companies are effectively short innovation: companies such as Microsoft, Dell, IBM, Cisco, HP, and others. They benefit by modest changes to the status quo, but are threatened by massive innovation. This does not mean there are not massively innovative companies out there: Google and Intel, to name the two best-known brands, are. Merely, there is a difference between technology and “technology.” After all, even GM uses an impressive amount of electronics and computers.
And on to hedge funds:
Hedge funds (and “hedge funds”) seek high returns without the regulations that hamstring mutual funds and using leverage unavailable to mutual funds and even (except to a limited extent) to individual investors. The difference between a hedge fund and a “hedge fund” is this: a hedge fund seeks to allocate capital from less efficient uses to more efficient uses; a “hedge fund” seeks trading strategies. Mostly, “hedge funds” merely seek to replicate successful strategies of the past until they don’t work.
Ouch. Thiel clearly dislikes the “micro” view:
The retreat towards tactical cleverness hides a lazy agnosticism about the most fundamental questions of our age. Because we find ourselves in a world of retail sanity and wholesale madness, the truly great opportunities exist in the wildly mispriced macro context — rather than in the ever-diminishing spreads on esoteric financial markets or products. Indeed, one could go even further: What is truly frightening about the twenty-first century is not merely that there exists a dangerous dimension to our time, but rather the unwillingness of the best and brightest to try and make any sense of this larger dimension.
Reason Magazine Interviews Peter Thiel — and he’s even more impressive than I previously realized:
reason: You were a Stanford undergrad and law student. After you graduated, your career seemed to be taking a policy wonk direction.
Thiel: As an undergraduate at Stanford, I started The Stanford Review, which ended up being very engaged in the hot debates of the time: campus speech codes, questions about diversity on campus, all sorts of debates like that. I ended up writing a book on it, The Diversity Myth, the thesis of which was basically that there was no real diversity when you had a group of people who looked different but thought alike, and what really was needed was a diversity of ideas.
In parallel I was obviously on the law track. I worked at a law firm in New York very briefly. I’d always been good at math — I was a nationally ranked chess player as an undergraduate — and I shifted over into trading financial derivatives at Credit Suisse Financial Products in ’94.
reason: How did you make that transition?
Thiel: They gave me a math test, and I got all the questions right.
I moved back to California in ’96. I started a small fund and started investing in tech companies. In the course of that, I invested in PayPal in late ’98. I came on board as the interim CEO, and it evolved from four of us to a 900-person company. At this point, it’s up to about 7,000 people working for the PayPal division of eBay. Basically creating this new payment system from scratch, which was one of these Holy Grail type of things that a lot of people had been focused on. The basic thought was if you could lessen the control of government over money and somehow shift the ability of people to control the money that was in their wallets, this would be a truly revolutionary shift.
I suppose the actual topic of the interview is Thiel’s philanthropic support of the Singularity Institute.
Now Katherine Mangu-Ward of Reason looks at Homesteading on the High Seas:
If Peter Thiel funds something, it’s bound to be cutting-edge awesome.
He is a supporter of the Methuselah Mouse Prize, which seeks to slow, stop, and eventually reverse aging. He was a producer of the film Thank You for Smoking, based on Christopher Buckley’s charmingly ambiguous novel about a pro-tobacco lobbyist. An early investor in social networking, he was involved with Linked In and was the first investor in Facebook. He’s big at the Singularity Institute (reason‘s Ronald Bailey caught up with him at the Singularity Summit earlier this year, check out the interview in the May print edition), which ponders and pushes artificial intelligence in preparation for a Vernor Vingeian “intelligence explosion.” His first success was PayPal, which he originally hoped “would grow to become an extra-governmental system of currency, something reminiscent of the world described in Neal Stephenson’s novel Cryptonomicon, in which programmers use encryption to create an offshore data haven free from government control.”
And last week, Thiel announced a $500,000 investment—the same amount he put into Facebook in June 2004—in the Seasteading Institute. Seasteading, or “homesteading on the high seas,” is an idea that has long attracted libertarians and others who would like to see a little more competition between forms of government. The idea is to get out into international waters and set up a floating outpost (or 12, or 1,200) from which people can come and go, experimenting with different types of legal, social, and contractual arrangements.
Thiel’s co-conspirator and resident big thinker is none other than the impeccably credentialed Patri Friedman, son of David “Machinery of Freedom” Friedman, grandson of Milton “Capitalism and Freedom” Friedman. Patri, 31, has been beating the drums for various floating autonomous entities for several years, whenever he can steal time from his work as a software engineer at Google and from his now 2-year-old son, Tovar.
Despite the seemingly radical idea he’s championing, Patri sees himself as a practical guy: “Starting a new country is actually a much less hard problem than, say, a libertarian winning a U.S. election,” he says. He says that most of his competitors in the libertarian/anarchist autonomous entity business have been too ambitious, citing efforts from Sealand (the abandoned offshore fort-turned-free-state “which sort of worked” until it was devastated by fire in 2006) to more dramatic failures like Freedom Ship (current estimated cost >$11 billion, construction not yet begun) and the Aquarius phase of the Millennial Project (“colonizing the galaxy in eight easy steps!“) to Minerva Reef (an uninhabited dredged island “invaded” by neighboring Tonga and eventually more or less reclaimed by the sea).
Learning a valuable lesson from his predecessors, Friedman is an incrementalist. “I want to talk about what to do this year, not how to colonize the galaxy.” One way to start small, he says, is to hold a kind of floating Burning Man, called Ephemerisle, an idea inspired by childhood pilgrimages with his father to Pennsic, a Society for Creative Anachronism medieval reenactment held outside Pittsburgh, and college stints at Burning Man.
“There aren’t that many people who are wiling to drop their lives and move to the ocean.” Instead, he says, “it could start as a one week vacation, but then unlike Burning Man it could grow and eventually become permanent.” Friedman hopes to hold the first Ephemerisle next summer, inviting many types of floating vessels to join him in international waters. Even an ordinary cruise ship might be enough to get started, since the cruise industry has proven that “providing power, water, food, and internet on the ocean is not only possible but can be profitable.” But some of Thiel’s grant is going toward figuring out the best way to throw up some small, cheap seasteads to provide a little non-state infrastructure and get things rolling (or floating, as the case may be).
A small but passionate minority is deeply dissatisfied with current political systems. These people seek the autonomy to live under and experiment with different political, social, and economic systems than currently exist. It is this search for sovereignty, for the freedom of self-government, which is the fundamental motivation for seasteading.
Why is this coming up?
In interesting news, The Seasteading Institute has secured funding of $500,000 from PayPal founder Peter Thiel to help make the idea a reality.
Long-term trends are somewhat favorable for seasteading because with a cell phone and internet access more and more people could live on a seastead and make a living. Cruise ships are already floating cities with few regulations or taxes. Harold Berman argues that the rise of the West was due to competitive law. Homeowner’s organizations, hotels and condos are private governments (for more see my edited book The Voluntary City.).
Of course, seasteading is only necessary because there’s no established way to perform a leveraged buyout of a sovereign state.
Mr. Thiel, the former CEO of online-payment company PayPal, is making waves in Silicon Valley with an investment strategy that differs significantly from the traditional approach. His company invests only modest amounts of money, sometimes just a few hundred thousand dollars, and focuses on entrepreneurs Mr. Thiel and his partners often know personally. He also takes an uncharacteristically hands-off approach to company management.
Mr. Thiel, who based Founders Fund in San Francisco rather than the traditional VC hotspot of Sand Hill Road in suburban Menlo Park, Calif., is structuring deals differently from how traditional venture capitalists do. Significantly, the fund often buys only a 5% or 10% stake in a company and sets up a special class of stock that start-up founders can sell while they are building their companies — and before venture-capital investors see profits. That way, the thinking goes, the company founders can reap some financial reward and stay motivated to build the company before an IPO or company sale, which can take years.
Some traditional investors don’t think founders should make money before backers do, since early paydays might distract them from the task at hand.
All of this is causing traditional VC firms to re-examine the way they invest in tiny tech start-ups. VC concerns including Trinity Ventures, for example, are now letting a few of their entrepreneurs “take money off the table” early on by selling stock.
Many big venture firms have also started looking at much smaller deals. Accel did six deals less than $1 million this year, although the company says that was in response to increasing valuations for larger-sized investments.
About a year ago, Charles River Ventures announced a program to offer $250,000 loans to fledgling Internet start-ups, far smaller than its usual investment size. Charles River is now also making equity investments in companies through its QuickStart program.
Partner George Zachary said his company launched the program because it was encountering many companies that didn’t need a traditional, multimillion-dollar VC investment and the attendant hand-holding.
Just how successful Mr. Thiel’s investing tactics are remains to be seen; Founders Fund hasn’t yet seen any payout from the Facebook stake. However, it recently collected a big return when one of its investments, computer-security and antispam concern IronPort Systems Inc., was sold to Cisco Systems Inc. for $830 million.
Jeffrey O’Brien describes the PayPal mafia, “the hyperintelligent, superconnected pack of serial entrepreneurs who left the payment service and are turning Silicon Valley upside down”:
During the past five years they’ve been furiously building things — investment firms, philanthropies, solar-power companies, an electric-car maker, a firm that aims to colonize Mars, and of course a slew of Internet companies. It’s amazing how many hot web properties can trace their ancestries to PayPal.
Besides Facebook and Slide, there’s Yelp, Digg, and YouTube. Thiel and Levchin, the don and consigliere of the mafia, figure that all told, there are dozens of enterprises worth a total of roughly $30 billion — and that value is growing rapidly, as evidenced by Thiel’s good fortune with Facebook.
This group of serial entrepreneurs and investors represents a new generation of wealth and power. In some ways they’re classic characters of Silicon Valley, where success and easy access to capital breed ambition and further success. It’s the reason people come to the area from all over the world. But even by that standard, PayPal was a petri dish for entrepreneurs. The obvious question is, Why?
Maybe it comes back to the early hires. After their first breakfast, Thiel and Levchin began recruiting everyone they knew at their alma maters. “It basically started by hiring all these people in concentric circles,” Thiel remembers. “I hired friends from Stanford, and Max brought in people from the University of Illinois.”
They were looking for a specific type of candidate. They wanted competitive, well-read, multilingual individuals who, above all else, had a proficiency in math. Levchin’s original idea for PayPal was to beam money between PalmPilots, but Thiel has a way of seeing the bigger picture.
A staunch libertarian, Thiel figured a web-based currency would undermine government tax structures. Getting there, however, would mean taking on established industries — commercial banking, for instance — which would require financial acumen and engineering expertise.
Thiel and Levchin also wanted workaholics who were not MBAs, consultants, frat boys, or, God forbid, jocks. “This guy came in, and I asked what he liked to do for fun,” Levchin recalls. “He said, ‘I really enjoy playing hoops.’ I said, ‘We can’t hire the guy. Everyone I knew in college who liked to play hoops was an idiot.’”
They wanted competitive, well-read, multilingual individuals who, above all else, had a proficiency in math. Hmm…