Thiel v. Schmidt

by on July 19, 2012 at 5:30 am in Books, Economics, Science | Permalink

Peter Thiel, taking the pessimistic view, and Eric Schmidt of Google, taking the optimistic view, both made good points in their debate over technology but Thiel had the knockout punch:

PETER THIEL: …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.

ERIC SCHMIDT: [talks about globalization]

The moderator repeats Thiel’s point:

ADAM LASHINSKY:  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 companies.  You’re trying to do things with self-driving cars and supposedly with asteroid mining, although maybe that’s just part of the propaganda ministry.  And you’re doing more than Microsoft, or Apple, or a lot of these other companies.  Amazon is the only one, in my mind, of the big tech companies that’s actually reinvesting all its money, that has enough of a vision of the future that they’re actually able to reinvest all their profits.

ERIC SCHMIDT:  They make less profit than Google does.

PETER THIEL:  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, maybe it’s a political problem, the government has outlawed things.  But, it still is a problem.

ADAM LASHINSKY:  I’m going to go to the audience very soon, but I want you to have the opportunity to address your quality of investments, Eric.

ERIC SCHMIDT:  I think I’ll just let his statement stand.

ADAM LASHINSKY:  You don’t want to address the cash horde that your company does not have the creativity to spend, to invest?

ERIC SCHMIDT:  What you discover in running these companies is that there are limits that are not cash.  There are limits of recruiting, limits of real estate, regulatory limits as Peter points out.  There are many, many such limits.  And anything that we can do to reduce those limits is a good idea.

PETER THIEL:  But, then the intellectually honest thing to do would be to say that Google is no longer a technology company, that it’s basically ‑‑ it’s a search engine.  The search technology was developed a decade ago.  It’s a bet that there will be no one else who will come up with a better search technology.  So, you invest in Google, because you’re betting against technological innovation in search.  And it’s like a bank that generates enormous cash flows every year, but you can’t issue a dividend, because the day you take that $30 billion and send it back to people you’re admitting that you’re no longer a technology company.  That’s why Microsoft can’t return its money.  That’s why all these companies are building up hordes of cash, because they don’t know what to do with it, but they don’t want to admit they’re no longer tech companies.

ADAM LASHINSKY:  Briefly, and then we’re going to go to the audience.

ERIC SCHMIDT:  So, the brief rebuttal is, Chrome is now the number one browser in the world.

In my mind, the revealed preference of our technological leaders is the best and most depressing argument for the great stagnation.

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