peter thiel

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Another Planet

The losers in elections often take the loss badly. Just as some Gore supporters in 2000 shouted about moving to Canada, some Romney supporters have taken the loss particularly badly too:

And perhaps the most poignant:

All the Republican rage made me think about the origins of America. So much emigration out of Europe to America came out of political and religious or ethnic friction and disagreement with the regimes in Europe (and later, the rest of the world). Many, many Americans are the descendants of Europeans who came to America to practise religion or politics the way they wanted to, and not the way that their nation, or the Catholic church, or a Feudal lord wanted them to.

That same independent-mindedness and the hunger for self-governance was the force that gave the Founding Fathers the chutzpah to finally sever ties with the British Empire in 1776 and strike out on their own as an independent nation.

For those who want to strike out into the unknown in the pursuit of self-governance, such options don’t exist anymore. There is no great sparsely inhabited continent spread out (except perhaps Antarctica which is already claimed-for) for those who want to strike out on their own. Those of a libertarian temperament and with a hunger for self-governance used to come to America. But in the modern, globalised world, where can they go?

Where is the next America? Where is the next land that people seeking self-governance can emigrate to?

One prospective answer has been seasteading — moving out onto floating cities in international waters. Perhaps that will satisfy the desires of a few in the coming years, but not everyone wants to live at sea. It is another frontier, but there are many challenges to overcome. For one thing, governments have navies, and may lay claim to successful floating cities near their waters, seeking new tax revenues. Pirates may pose a similar challenge.

In the much longer term, the answer will almost certainly be leaving the planet. The only uncolonised great new continents left are the ones up in space, on other planets.  There is no more effective or complete way to depart. So it is rather poetic that in the past couple of days a new Earthlike planet in a star’s habitable zone has been discovered.

Via the BBC:

Astronomers have spotted another candidate for a potentially habitable planet — and it is not too far away.

The star HD 40307 was known to host three planets, all of them too near to support liquid water.

But research to appear in Astronomy and Astrophysics has found three more – among them a “super-Earth” seven times our planet’s mass, in the habitable zone where liquid water can exist.

Many more observations will be needed to confirm any other similarities.

But the find joins an ever-larger catalogue of more than 800 known exoplanets, and it seems only a matter of time before astronomers spot an “Earth 2.0” — a rocky planet with an atmosphere circling a Sun-like star in the habitable zone.

The hunger for self-governance led to the birth of America. It seems highly likely, in the very long run, that the hunger for self-governance will be the force that leads not only to local space colonisation (near-earth asteroids, Mars, asteroid belt, the moons of the gas giants) but ultimately deep space colonisation. The private space industry today is already driven by libertarian-leaning individuals like Bert Rutan, Robert Zubrin and Peter Thiel.

Powerful central government drives nonconformists to find ways to escape it. If the only road to self-governance left is up into space, then that is the road that will be taken. In the end, fury over a lost election may be the thing that drives humanity to the stars.

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Explaining Wage Stagnation

Why?

Well, my intuition says one thing — the change in trajectory correlates very precisely with the end of the Bretton Woods system. My intuition says that that event was a seismic shift for wages, for gold, for oil, for trade. The data seems to support that — the end of the Bretton Woods system correlates beautifully to a rise in income inequality, a downward shift in total factor productivity, a huge upward swing in credit creation, the beginning of financialisation, the beginning of a new stage in globalisation, and a myriad of other things.

Some, including Peter Thiel and James Hamilton, have suggested that there is data to suggest that an oil shock may have been the catalyst that put us into a new trajectory.

Oil prices:

And that this spike may be related to a fall in oil prices discoveries:

I certainly think that the drop-off in oil discoveries was a huge psychological factor in the huge oil price spike we saw in 1980. But the reality is that although production did fall, it has recovered:

The point becomes clearer when we take the dollar out of the equation and just look at oil priced in wages:

Oil prices in terms of US wages ended up lower than they had been before the oil shock.

What happened in the late 70s and early 80s was a blip caused by the (very real) drop-off in American reserves, and the (in my view, psychological — considering that global proven oil reserves continue to rise to the present day) drop-off in global production.

But while oil production recovered and prices fell, wages continued to stagnate. This suggests very strongly to me that the long-term issue was not an oil shock, but the fundamental change in the nature of the global trade system and the nature of money that took place in 1971 when Richard Nixon ended Bretton Woods.

UPDATE: Commenters are pointing out that I should probably have concentrated a bit more on the trade and globalisation dimension, which I did mention in passing. However, I see this as an outgrowth of the end Bretton Woods, because it began just after Bretton Woods was ended and there is no way that America could afford to run the kind of trade balance it runs today with the world had America stayed in the Bretton Woods system.

I have covered this issue in quite some depth in the past.

https://azizonomics.com/2012/03/18/global-trade-fragility/
https://azizonomics.com/2012/07/09/the-real-fiscal-cliff/

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Education is a Bubble

A couple of days ago, Zero Hedge reported that a lot of student loans are delinquent:

As many as 27% of all student loan borrowers are more than 30 days past due. In other words at least $270 billion in student loans are no longer current (extrapolating the delinquency rate into the total loans outstanding). That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable.

The reality of this — like the housing bubble before it — is that a lot of people who borrowed a lot of money can’t repay. That could be down to weak economic conditions. As I wrote yesterday, an unprecedented number of young people are unemployed and underemployed. These circumstances will lead to delinquencies.

But I think that there is a key difference. Unlike housing — which will probably never be made obsolete — it feels like education is undergoing a generational shift, much like agriculture did prior to the Great Depression, and much like manufacturing did prior to the Great Recession.

Venture capitalist Peter Thiel suggests:

Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.

But earnings for graduates are stagnant, while costs continue to rise:

However, all this really shows is the (quite obvious) reality that colleges — subsidised by Federal student loans guarantees that act as a price floor — can keep raising tuition fees even while in the real world the economy is contracting.

But education is suffering from a much bigger problem: a lot of what it does is gradually (or quickly) being made obsolete by technology.

While college degrees for vocational subjects like medicine, law, architecture and so forth are still critically important (not least because access to such professions is restricted to those who have jumped through the proper hoops), non-vocational subjects have been cracked completely open by the internet.

Why would anyone realistically choose to pay huge amounts of money to go to university to learn mathematics, or English literature, or computer science or economics when course materials  — and much, much, much more including access to knowledgeable experts and professionals — is freely available online?

The answer is for a piece of paper to “qualify” the holder and “prove” their worth to prospective employers. But with earnings for degree holders at roughly 1997 levels, what’s the point? Plenty of people with good ideas, drive and perseverance are living fulfilling and successful lives without a college degree — including me. There are flashier examples like Zuckerberg, Jobs, and Gates, but that is just the tip of the iceberg.

A real estate agent trying to rent me a flat once said:

Why would people want to go to university? All it shows is that you are lazy, and can’t be bothered to find a proper job, and want to spend three or four years getting up late and getting drunk.

A useful (though not universally true) heuristic. “Education” has been turned inside out. To some employers, a degree (particularly one with a weak or mediocre grade) can in fact be a disadvantage. People without a degree can get ahead with three or four years of experience in industry.

So while we wait to see whether or not a student loan meltdown will lead to a wider financial meltdown (a la Lehman), I think we should consider that this industry may well be on the brink of a systemic meltdown itself. With severely decreased demand for education, a lot of schools and courses may be wiped off the map leaving behind a skeleton of only the most prestigious universities, and vocational and professional courses.