Thiel, Schmidt, and Consumption-Biased Technological Change
By Bryan Caplan
In a fascinating debate, Peter Thiel challenges Google’s Eric Schmidt:
Google is a great company. It has 30,000 people, or 20,000, whatever
the number is. They have pretty safe jobs. On the other hand, Google
also has 30, 40, 50 billion in cash. It has no idea how to invest that
money in technology effectively. So, it prefers getting zero percent
interest from Mr. Bernanke, effectively the cash sort of gets burned
away over time through inflation, because there are no ideas that Google
has how to spend money.
But, if we’re living in an accelerating technological world, and you
have zero percent interest rates in the background, you should be able
to invest all of your money in things that will return it many times
over, and the fact that you’re out of ideas…
Moderator Adam Lashinsky adds:
You have $50 billion at Google, why don’t you spend it on doing more in
tech, or are you out of ideas? And I think Google does more than most
Schmidt is pretty clearly stumped. Here’s what I would have said if I were in his shoes:
The reason we’re not investing more in new technology isn’t that we’re out of ideas. It’s that we’re out of ideas that we think will make money. Why are we out of ideas that make money? Because millions of people keep giving away incredible innovations to everyone for free!
Challenge for the audience: Think of something you want. Now use Google to locate whoever’s already providing it for free. I could do this all day.
Google’s “problem,” in short, is what I call consumption-biased technological change:
Sure, high-skilled workers’ incomes have risen a lot faster than
other people’s over the last forty years. But iPods, Google, Twitter,
and much of the Internet demand virtually zero workers of any skill
level. From this perspective, “skill-biased technological change” is a
major misnomer. A much more accurate description is consumption-biased
technological change. Firms are figuring out ways for small numbers of
workers to create tons of value – then give it away to consumers for
pennies or less. And as far as I can tell, the CPI totally ignores
CPI bias: Now worse than ever. Quality of life: Now better than ever.
Note to Google and all its actual and potential competitors: While I’d prefer to get a self-driving car for free, I would be delighted to pay cold hard cash to get one. Build them, and I will buy.