Thiel v. Schmidt

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.


interesting conversation , why not just post what he said at that point ?

ERIC SCHMIDT: Let me see if I can help Peter answer your question. The core problem we have going forward, since I think we're supposed to talk bout the future, is that you have two forces that are going to govern much of what's going to happen in the future. The first is globalization, which we're not going to repeal. And the second one is automation, which we're not going to repeal. And if you look, these problems are ultimately cast in political systems in the west, and I think eventually globally, as jobs problems. And the solution to jobs problems, in my view, is education, right, education at many levels, and many different ways, which we can discuss.

I don't see another solution to this. It's absolutely true, as Peter says, that these gems, if you will, and you were nice enough to call those companies ‑‑ describe them so well; they're not employing enough people.

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.

Thanks, I actually think that clipped paragraph about globalization and automation is one of the most important. If Google, sticking to its knitting, improves automation, self-driving cars, etc., does that give the end of stagnation you visualize? In Tyler's thread we have something on structural unemployment. These are not unrelated.

Peter Thiel's "knockout blow" is simply describing the ongoing failure of the financial sector.

Any saver, person or corporate (including one with $50 billion to play with) may find it individually optimal to keep their wealth in low risk, low duration, high liquidity instruments (a.k.a. cash and cash-line securities), but *that should not matter to the economy as a whole* if the financial sector is working correctly. The financial sector's entire purpose is to borrow short, risk-free and liquid and to lend long, risky and illiquid. Five million, five billion or even five trillion in cash shouldn't matter if maturity, risk and liquidity transformation were functioning correctly.


Cash-LIKE, not cash-line.

What the hell is cash-line, anyway? Need more coffee ...

"The financial sector’s entire purpose is to borrow short, risk-free and liquid and to lend long, risky and illiquid."

That is their current mode, not their purpose. That's why it is the cause of their failure.

Really? It sounds very much like the purpose rather than an aberration. And a good purpose it is, too.

Savings are calls-on-resources that are not used to actually call resources in the current period. From the saver's POV, this may have one of two purposes: 1) retain control of resources for future utilization (i.e. save half the grain I have today for eating during winter, save for retirement, etc), which is properly termed "saving" or 2) allocate resources towards capital improvements which will generate additional returns going forward (i.e. supply grain to engineer & workers in order to get the water mill/still/something-or-other up and running), which is properly termed "investing".

Neither function is possible without duration transformation, liquidity risk, credit risk or some combination thereof. _All loans create risk._ That is axiomatic. And there is no point in savings if they cannot be loaned out, with the trivial exception of "under the mattress" style savings I first mentioned above (keeping part.of your in-kind resources available for future use), though even there you are taking on risks that things can happen to your resources in the meantime.

Money isn't magic. It's an intermediary for resources. You can only "invest" in a non-zero sum fashion if actual production is increasing.

Really? Some people believe that investment leads to productivity gains. In other words, the discounted expected cash flows exceed the cost of the investment.

"some people" are obviously wrong.

If you have started a food cart at a cost of $10,000 and it is popular and profitable, you invest in a second food cart, not to increase productivity, but to increase revenue and thus profit. Economic theory tells us that the second food cart will be just as likely to be less productive - you put the first one where you get the maximum return, and the second one where you get the second highest return, the third one where you get the third highest return.

Why are the lesson of micro econ 101 so quickly ignored.

The big innovations always come from in investing in less productive solutions, as shown by Clayton Christiansen in The Innovator's Dilemma.

The breakthroughs in disk storage were the shifts from 8" to 5-1/4, then to 3-1/2, to 2-1/2 to 1.8. In each step, the cost per bit of storage increased and the performance decreased - less productive. The key was the lower price point which opened new markets which exploded the market for disk storage which then fueled rapid product turns which allowed the inferior product to overtake an pass the product that was more productive.

Google from the standpoint of the advertiser was less productive to the advertiser than the existing alternatives:
- the ads were very much smaller, no image - print had lots of detail, yahoo offered images in less detail than print
- the ads were less targeted with less control over placement and audience
- less information about the reader

But Google's innovation was presenting ads like pure information for very low prices in auctions, so the small operator could compete on an equal footing with big budgets in niches. Thousands of mom and pops bidding for keywords were able to overwhelm the global powerhouse in terms of getting their name in from of searchers. Google earned less per ad, per ad sale, was forced to charge less $$ per ad, but the explosion in ads placed and the fast display of search results plus ads led to higher clicks and thus much more revenue by being less productive.

Google then reinvested in refinements that at added cost provided more value to the ad buyer, but not necessarily higher prices per ad shown, but increased volumes of ads and increased clicks, exploded revenues and profits. Google operated "at a loss" for years which is contrary to the demands of Wall Street for immediate profits/revenue, because profits are the measure of productivity - Google had zero productivity for at least five years, much less increased productivity.

You have a bizarre definition of less productive. I usually definite productivity as output relative to inputs. Lower performance is not the same thing as less productive, I dispute your assertion of equivalence.

Lower performance but at much lower cost is more productive.

Read Innovator's Dilemma.

If an 8" disk drive costs $1000 a megabyte, then a 5-1/4" drive at $2000 a megabyte is less productive.

An 8" drive at 20 megabyte would cost $25,000, at 40 megabytes about $40,000, while the cheap 5-1/4" would be 1 megabyte at $2500 and a 5 megabyte would cost $10,000.

To the customer buying 8", and needing bigger capacity, the 5-1/4 is insane - to get 40 megabyte would cost $80,000 compared to the 8", but you need to buy 5 8" drives to get the 200 megabytes you need.

But the PC computer buyer can afford the $2500 1 mega drive, but not any 8" drive, and solve a lot of problems with just 1 megabyte of storage. Of course, a PC is less productive than an IBM 360 on a dollar per compute or per page printed or lime of data processed basis, but it opens new application potential.

Going to an inferior technology is a disruptive innovation - the 5-1/4 is inferior to the 8" because its cost performance and performance are lower in the existing market.

But a lower price and much worse performance can create a new market. Which in time over takes all other markets.

And on search, google is much lower performance than print ads because google won't display an auto dealer sale ad unless you search for cars while the newspaper 50-70% of the houses in a town reads can put your eyeballs on it fairly reliably, of the ads for the seasonal items - how does google deliver Halloween ads to you in September to trigger you to think about planing a party for all your adult friends?

You could buy the words "windows" and "release" to show an auto ad or Halloween ad around the time of a new release on the basis that 50% of searchers will use windows+release at least once the week of the ad run..

Also, note that we've ignored the possibility that Eric doesn't want to say what the cash is for. It could be that the cash was always as a poison pill; the cash always was as a way to maintain reigns of power when needing investment money for some unforeseen future project, and so on.

As a tech employee of one of these companies, I can say that ONE of the reasons we originally started hoarding cash was because we could not identify how to maintain our own vision for a two-to-four year experiment in tech if it cost a lot and NOT let the banks into our living room.

Assuming that some of this is still true, it's not the only remaining reason, of course. It is also true that all of these companies are not only technology companies anymore. But admitting that is bad PR in the tech world, so Eric can't say that. I must say, I find this conversation less interesting the more I think about it.

"unforeseen future project" - I think this is a big part of the answer to why tech companies hoard cash. The opportunity cost of investing the money today, which is to say the inability to invest in new ideas tomorrow, is perceived to be greater than the inflation cost. Returning cash doesn't just admit that you have no ideas today, but also admits that you don't anticipate any ideas tomorrow either.

Also, returning cash to investors usually means repatriating cash too, which can be expensive. Some companies are hoarding cash offshore waiting for the next tax holiday.

So, your model of how to start google is very different from the way google was actually started - instead of building slowly with incremental investment without any return because google had no revenue, then only limited revenue with no real growth in revenue possible for a few years, you would argue google should have put tens of million to work in the first year so it could be generating lots of revenue in year two and profits in year three. Like Yahoo and other search engines.

The path google followed of investing only to keep up with success was wrong, and thus google got beat by which IPO'd and rapidly put all the money to work creating the fantastically successful ecom powerhouse?

Both of these.

Both of rob's points. mulp, you aren't really understanding what rob is saying here. Apples and oranges.

Don't forget a lot of these firms have billions tied up in giant offshore Evado Tax schemes. Microsoft has billions tied up in Puerto Rico, which is where it officially makes all its North American profits (it has a disk pressing plant there). For some reason, Microsoft doesn't think the next big tech break is going to come out of Puerto Rico.

So then the answer to fix this problem is to remove corporate taxes?

It's also possible that Google is what's been called a bladder situation. It's too full of cash and if it's not paid out to stockholders, the execs will piss it away. There's no guarantee they'll always make good choices.

Also, everybody always offers as education as the solution to our problems (Tyler, Alex, Schmidt, etc.). That seems to indicate little thought. It's too easy of a solution. I'm not saying it's not part of the solution, even a large part, but it seems like the safe answer. It also seems like the answer for the educated, who got a lot out of the process.

Education works great for improving the skills of high IQ tech workers. As usual people can't see how it wouldn't work for others. But then again nobody cares about the left half of the bell curve.

Education is the modern let-them-eat-cake. If it works for the elite, it must work for everyone!

"But then again nobody cares about the left half of the bell curve."

Here's my long article from a dozen years ago "How to Help the Left Half of the Bell Curve."

We don't care.

@doctorpat: well said.

Yup. Thumbs up, and thumbs up to 'adsf' above as well.

The question-and-answer site Quora is largely made up of smart people from the California tech industry (exactly the type of people who would be interested in this debate), and look at their weak answers to this question.

Sorry to keep hammering on this point (and repeatedly linking that Quora thread), but seriously, this question of "In the face of globalization and automation, what jobs will low-intelligence people do in the future?" is probably the most important one facing the United States and the whole first world.

It's all well-and-good to talk about education, but I wish some of these people suggesting that as a solution would give some specific examples. What high-paying, honorable job are you going to train a 90-IQ person to do in the 21st century? Name some things that such a person could do that would have comparable benefits, pay, and honor to, say, an automotive assembly-line worker in 1971. And the job can't be one of the ones that are fast disappearing due to globalization and automation.

Name some things that such a person could do that would have comparable benefits, pay, and honor to, say, an automotive assembly-line worker in 1971.

I can't because they don't exist yet.

Automation will make things vastly cheaper and human wants are unlimited - those essential facts will solve the problem in ways we can't yet imagine.

So the widening gap in the workfroce is the lab at one end and the shovel at the other? Isn't there a possibility some precision math-centered operation might evolve, say in setting out and monitoring the etching of fine-tuned chips from some newly discovered material, maybe mined from asteroids? Is it always the assembly line versus the engineer? I imagine a split-level process where tomorrow is created today, right in your own home town.

Meanwhile, there is always the riverboat skipper with his pole in the water, afraid to bring it out for a new purchase upriver because he would lose his place in the stream. Sears was satisfied with catalog marketing, as was Xerox with paper copies, and Kodac with physical film slices. Then there's Microsoft, king of the ancient desktop, chasing all the gazelles in the jungle and catching none of them.

Almost all of our success stories today are success stories because they lay off 10 low IQs at $50k/year, hire one smart person plus a machine for $300k/year, and call the $200k/year profit. That is all well and good if the laid off low IQ people find something to do, but if they don't is the $200k/year really more wealth? I suppose that the same amount is being produced with less input (only the one smart person has to work, rather then the 10 low IQs), but what kind of an equilibrium is it where the only thing the low IQs can do with that extra time is sit at home and collect welfare?

"but what kind of an equilibrium is it where the only thing the low IQs can do with that extra time is sit at home and collect welfare?"

asdf, maybe that _is_ the equilibrium. The long-long-run ideal for us all is complete leisure to do as we please, no? We look down on welfare because the implication of being on it is that you are, in one form or another, a "loser". Defective in mind, a hyperbolic discounter, feckless, etc. But the real ideal, in theory, is for _everybody_ to be on what amounts to welfare, with machines doing all the nasty stuff we wouldn't voluntarily do and us doing whatever pleasant bits we actually like. Eschaton!

It may well be that we eventually provide, Lind-like, a minimum guaranteed income of sorts. Low enough to keep people that can actually do things incentivized to actually do those things and supplement it, since we are in fact nowhere near said "eschaton". This is not a natural conclusion for me to come to, I go out of my way to avoid welfare types (seeing them as feckless, irresponsible, etc, as above), but it looks like the only place you can end up in if you believe in ever-improving productivity and capital deepening.

Bernard Guerrero,

The problem of course is why should the people producing care about the people who can't produce? Why have the guaranteed minimum income? I'm not sure democracy is even a good enough answer, something like this could break democracy.

Actually, that thread is full of some very good answers. I suspect that you find them weak because many of them simply don't buy into your point of view. Your whole vision of the future is based on simply extrapolating the trends of the past few decades into the future. That's almost never how it works. There will likely be some paradigm shift that makes you question not exactly moot, but mitigates the impact of automation and globalization. The comment, for instance, about de-linking production and consumption is very interesting. Maybe the future isn't about jobs at all.

There's a weird paternalism in what you're saying, as if low-IQ people are wards of the state who need to be steered in a certain direction. I'm not sure why people feel the need to talk about IQ as if it's some sort of categorical distinction that's stamped on your sole and is wholly determinate in what you can and cannot do in life. Our understanding of intelligence simply isn't at a level that justifies such ways of thinking.

And this brings me back to the question about Google. When the price of oil bottomed out, new exploration dried up. It made more economic sense for oil companies to buy new capacity that to drill new wells. Now you have things like tight oil that are sparking a new wave of investment in exploration. Maybe the tech companies are just waiting for that next thing to exploit. Maybe they even know what it is and that's why they're so tight-lipped about it.

This is a good response, thank you for taking it seriously. I do agree that the answer is probably a paradigm shift. Others have suggested it in this thread here on MR (e.g. see Bernard Guerrero July 19, 2012 at 11:11 am).

I worry about the corrosive effect on the soul - especially for males - of not having any honorable work to do. Maslow's Hierarchy of Needs suggests that, freed from the need to work drudging jobs to feed their families, people will expend their energy on creative endeavors. But I feel like for many people, it'll just be TV and alcohol instead. With predictable consequences for public order and for the children in such households.

And yeah, it all sounds pretty arrogant, but I think it's a justifiable thing to worry about. Pointing to similar prognostications from the '50s actually justifies the worry since there are today a huge class of low-IQ people who have no honorable work available, with exactly the kind of social problems that I talk about. (See: drug addiction and crime in ghettos. Meth in rural america. etc. etc. etc.)

Yes, bad for the soul. It also ignores the role of sexual/status competition.

And I'm sure there was a time when honorable work was defined as working a plow team on your family plot and people wondered about the corrosive effect on the soul of leaving small towns to move to cities and work in factories. There is a whole world of possibilities between our present conception of a job and just hanging out on the dole.

To be honest, I have fears that are similar to yours. Mostly, however, I fear that our regulatory regime and political process will hamper the ability of the economy to change and re-orient itself at the pace necessary to keep up with the very real structural economic changes we are now going through.

A masseuse for tech workers?

Masseuse for half the tech workers, masseur for the other half.

"what jobs will low-intelligence people do in the future?"

I'm sorry, are we are elitists now?

Kurt Vonnegut wrote Player Piano in 1952, sixty years ago. Even then, the idea about "what will all these 'surplus' people do?" was an old and tired one.

In 1952, the employed civilian labor force was 60.2 million in this country. In 2011, it was 139.9 million.


(partially reposted from my reply above)

It all sounds pretty arrogant, but I think it’s a justifiable thing to worry about. Pointing to similar prognostications from the ’50s actually justifies the worry since there are today a huge class of low-IQ people who have no honorable work available, with exactly the kind of social problems that I talk about. (See: drug addiction and crime in ghettos. Meth in rural america. etc. etc. etc.)

I'm worried that some of our citizens are failing to develop the skills they will need in order to be productive and useful to themselves and others. I just don't see low IQ as the centerpiece of the story.

Rewrite the question as "low motivation and ability to get off their ass and learn something".
Does this solve the problem? I think not.

The labor force participation rate has been stagnant or falling since the mid 1980s. If we isolate just the male participation rate we are looking at a decline since the 1950s.

Exactly. One look at the data and the questions from the 1950s suddenly need answers more than ever.

The cash came from the shareholders in the IPO, so why should the cash the shareholders put in be returned to the shareholders?

Shareholders were so desperate to get a piece of google they showered cash on google. The share holders were not concerned about the rate of return they would get. Wall Street totally condemned the future of google, rejecting the google founders' view the market should set the IPO price based on the Wall Street projection of return on investment justifying an IPO price of only $50 a share, and rejecting google management's $120 a share as insanely overpriced because google couldn't possibly put capital to work to generate a return justifying $120 a share. After months of battles, Wall Street agreed to manage an IPO at the overpriced $80 a share, and google founders met demand for the stock by putting out shares to generate operating cash, which Wall Street warned could not be well invested, which should have made investors be leery of google stock.

So, now the argument is Wall Street was correct that google should be priced at about a $100 based on its growth from $50 because the cash raised in the IPO could not be invested to generate high returns.

Is the market the best place to set prices rationally, or are elite MBA central planners in the private sector the best to set prices. Is the market the best judge of management, or are the Wall Street central planners. They are central planners because they had successfully defended controlling the market - google could IPO without the approval of the central planners and must defend itself against the central planner's MBA elites who dictate maximizing shareholder value by paying out all the cash instead of trusting the founders who were correct in saying $120 a share was a fairer price because that was the market price, not the price agreed to by the central planners under duress.

This is so wrong it's not even wrong. It's madness.

Not even one penny of the cash Google now has came from their IPO in 2004.

The share holders were not concerned about the rate of return they would get.
Wait. What?


You bring fascinating tidings from some parallel universe. Over here, Google is a company that makes money from its operations; it's not a hedge fund. Google's revenues in the last quarter alone were almost $37 per share, with net income of $8.42 per share. The current share price is around $600.

No, the top shareholders are the executives, so the principal-agent problem is pretty small. They have no better idea what to do with their billions than to keep in shares of the company.

This. The more I think about it the more it seems like a problem for the strong-founder model of corporate structure (see Google, Facebook, and apparently anyone funded by Andreesen Horowitz) over the long term.

Thank God we just spent decades taking in tens of millions of illegal immigrants and their children, mostly with IQs in the 80s and 90s.

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

Seems to me the most depressing arbgument for the failure of the Fed to maintain ngdp growth.


"Hm, we disinflate and suddenly everyone has a revealed preference to hoard cash. I cannot possibly explain why these two things would co-occur."

This is supposed to be the hottest sector of the economy with the highest ROI that will drive the future. At worst we have lower then typical inflation (not even deflation). Are you telling me that is enough to shut down tech innovation (outside of better ad placement on facebook).

Well, it certainly lowers the opportunity cost of just sitting on it - that's for sure.

In theory it should make them less risk averse. Why *are* these companies sitting around and dumping this cash outlay into M&A/acquihires?

Economic growth in not entirely, or even mostly, about government finance policy, vast amounts of academic and non-academic economists focus to the contrary notwithstanding.

Schumpeter had it right is seeing economic development as primarily being about technology and not finance.

How relevant is this to the hypothesis of TGS?

In a way the article promotes the idea of higher taxes on corporations since these companies aren't making effective use of their extensive cash reserves. We should tax them and rebuild the country for the 21st century.

Most of the stimulus money was pissed away, not "invested in our future". If government were actually capable of investing in the right things and the right way, then the world would be a better place. But thats not what it does.

Well then, what are the right investments done the right way?

When an individual takes his resources and invests into something he considers worthwhile. In a corporate setting, it is individuals as a group deciding.

They lose if it goes bad, they gain if it goes well.

So, the 21st century investments for the retirement savings were best put into Wall Street innovation in how to make loans to people without income or assets based on creating market demand for housing that would allow a house that cost $100K to be sold for $150K, the $200K, then $250K? And since prices are set at the margins, innovation involved investing in 10 and 20 year old houses at the $250K price even though the depreciated constant dollar $100K cost was $90K-$80K based on their price going to $300K and $350K, even as new houses could be built for $100K?

Clearly the idea of investing in a high speed rail that would be of greater value in a century was a bad idea because financial innovation allows a depreciating house to increase in value even as more houses are built at a far lower cost. Somehow the investment of the government in railroads to create jobs post WWII was wasted because those railroads are still generating lots of revenue over rights of way that would cost trillions to acquire today, but houses built 150 years ago are great investments because they can be refinanced by someone with no income or assets at $250K thanks to Wall Street innovation.

But damn those Democrats who just refused to have faith in Wall Street innovation being reality, so it doomed Wall Street's never never land. "you only need to believe..."

I think Thiel's most interesting argument is that government regulation has made it too difficult to innovate in certain sectors, so the nation's best & brightest focus on information services (Google, Twitter) and finance. They bypass flying cars and curing cancer because there's too much government entanglement.

On one hand I agree. On the other, has he been to China? It's a pollution-ridden hellhole. So is every other high-growth country save perhaps Singapore.

Yes, there's a middle ground between over-regulation and a laissez faire, but I'm not convinced the general welfare would be better if we rolled the government to pre-1932 levels.

Assuming that the government would have any better ideas than Google. That's quite an assumption!

Another potential issue: Google doesn't want to saddle its money to something that has a lower profit margin than Search/knowlege redistribution, which happened to be an intensely profitable opportunity. There are plenty of other profitable opportunities out there, but they would all make Google look less profitable from a return on investment standpoint; while nobody penalizes them for holding a pile of cash, people would penalize them for running a massive chain of casual dining franchises or somesuch. In short, they get trapped in a 'best is the enemy of the good' situation.

But the argument was that they should invest in innovation, not restaurants or some other mature sector. The former is high-return, though it is also high-risk.

The problem seems a bit different that Thiel describes. Google has developed many 'class leading' technologies other than search (Android, Chrome, Google Translate ... not to mention the autonomous cars) -- but they just don't seem to really know how to monetize anything other than search.

I agree that the claim that Google is no longer innovative is unfair. The core search technology is constantly evolving, too; the pace just slows as the technology matures, as it does in any field.

For at least five years, people outside google were overwhelmingly saying google didn't understand how to monetize search.

At the time, they were competing with DEC's Altavista, and the same attack was leveled against DEC - DEC has the best and most popular search engine, but DEC can't understand how to monetize search. The wiser outsiders then were arguing that DEC should spin out Altavista in an IPO to unlock value and create wealth, the same advice given google. Altavista Inc was created from search plus a number of other internet properties including micropayments, security of data and comm and validation as a separate subsidiary to establish the financial record for an IPO. In the separate unit, revenue and profit became the top priority, so Altavista became a "home" "portal" with lots of ads with graphics which slowed loading, and the search results were loaded with ads with graphics. Search was a lower priority because Altavista was the best.

So, I as a DEC employee and shareholder found that google was more productive because it was faster. Especially after Compaq sold Altavista inc to the other internet leader next to Yahoo, whose name slips me. After the Compaq acquisition of DEC, the CEO defended it by saying DEC's cash plus the market cap of the shares Compaq got in this forgotten giant made buying DEC cost zero. The DEC service organization is a major part of HP which bought Compaq.

Meanwhile, google defied the wiser outsiders to set Altavista on its road to global domination and did all the wrong things in monetizing search, leaving billions in revenue on the table for all the eyeballs it got by Altavista going on to global domination in search.

So, who was right about google not knowing how to monetize its technology.

By the way, Amazon was also damned as not knowing how to make money, and it was clear to everyone it would be the biggest bust in history when the biggest internet retailer finally went bankrupt because investors would stop shoveling money into the Amazon money pit where Bezos just wasted money on stupid ideas because he just had access to cash to squander. As an example of Bezos total stupidity was letting competitor put ads on his product pages with lower prices, so people used Amazon to find product they would buy from the more successful retailers who were focused on profits.

I'm aware of the history. And, yes, trying to 'monetize prematurely' in the internet space has been a disaster for some companies (MySpace as well as Altavista). On the other hand...there are too many tech products and companies to count that were born and died before anybody figured out how to make any money (or even generate any revenue). Which will turn out to be the case for Google's autonomous car research?

ISTR AltaVista was nothing more than a showcase for how awesome the Alpha processor was.
DEC's investment was paid off (or not) when companies bought VMS or *cough* Alpha/NT servers.

That's a good point. Their monetization of search via AdWords was not even a home-grown innovation. They ripped it off from Overture.

Ha. Glenn, your comment really makes sense! No sarcasm either.

I would say this is evidence that internet-based technology is unlikely to be that profitable in the future. But so what? I think many people had an inkling that this was the case at least as far back as the popping of the dot-com bubble.

There probably are profitable investments out there in microprocessor technology, resource mining, and medical technology. But none of these are in Google's area of expertise so their choice is to either start buying up companies in these sectors or else sit on cash.

Nokia used to have billions in reserve too. The mighty can fall pretty hard, especially if they are a one trick pony. Perhaps Google is just being cautious in case someone else gets in the search race seriously.

gee, now how could anyone come to that conclusion, after the financial sector has so elegantly shown us that corporations don't need lots of money "just lying around"? What would JPmorgan have needed 15bn in additional equity for up until, say, last week?

Absolutely fascinating article about Nokia. They had it all figured out 10 years ago and totally and completely blew it.

You could look at this as a revealed preference for believing the future will be very good indeed. Google thinks the option value of the cash is very high. Presumably this would be because they expect a wave of innovation to be coming down the road that they will need massive resources to capitalize on.

Not saying this is the case, but this seems to be a reasonable interpretation.

Completely agree with this.

Having money in the piggy bank gives the astute the ability to take opportunities when presented.

Maybe if we taxed Google more they wouldn't have to buy so many Treasuries. If faced with the options of investing it or giving it to Uncle Sam Google might choose to look a little harder for investment opportunities.


A corporate wealth tax now? I can't see how that might go wrong.

Not sure I see the distiction between buying Treasuries and giving money to Uncle Sam.

In theory, if you buy Treasuries, Uncle Sam will pay you back.

In theory.

Nope. In dollars.

But then what happens when the Treasuries mature? The company can buy more Treasuries (giving it back to Uncle Sam) or can they invest the money somewhere else.

Look at it this way - google founders know their success is a fruit of government, just like Obama said, so they are funding big government and lobbying to get government to do things to help them, but they get to fund government by giving the government money which they can get back from the government in the future when they need it.

Without government picking the winner in the competition for computer networking - AOL, Microsoft, IBM, AT&T, MCI, Sprint, and others were all fighting to be the one that defined how every computer talked to every other computer.

Then thanks to the Atari Congressmen, Congress and Clinton administration picked the winner - the government invented and government run Internet. I find it interesting that conservatives are the ones who are most determined to keep the Internet US government run, and block the Internet from being run by the users as presented by the corporations and the people of the world.

Google uses lots of electricity and it needs lots of reliability which means local power generation that is competitive with the utility power. As the Amazon complex going down in a power outage because the diesel generator didn't start correctly, you want all your power alternatives to be hot all the time providing power all the time so a failure shifts the load and allows immediate repair, instead of finding out repair is required when you switch to the backup.

But competitive electric power alternatives have not resulted from industry competition in the utility industry because their scale gives them a cost advantage. But with government policy and spending on alternatives, the government can ensure competition increases even over the objections and advantages of the existing utilities. Obama has had creating alternative local power alternatives as a major priority, a policy that matches google's needs.

Note conservatives have been pushing central planned centralized utility power to maintain the existing utility power structure which is not able to serve google or Amazon's needs. They have pushed to have billions of government money poured into nuclear power - I see no one attacking Obama for putting an equal amount of DOE money into nuclear as into wind, solar, batteries, ... Isn't government picking nuclear as a winner 50 years after nuclear power became a commercial product worse that pushing local power generation alternatives which are lacking, and google wants?

And google is willing to fund the loans the government is making by loaning the government money at zero interest.

Interesting discussion. S, the main (but not sole) binding constraint involved hiring additional skilled (highly specialized) labor. This seems to be a recurring theme (STEM education etc.) in all discussions on stagnation and growth.

It's a recurring theme which isn't entirely accurate;

The tax system discourages corporations from paying dividends (partly by discouraging shareholders from wanting them), and since managers don't like them anyway, we don't see them much. If you think things are bad now, wait until the tax rates on dividends go back up to the usual rates.

See, it's this that makes me wonder why Americans invest in stocks. The initial idea of owning stocks was still that you ended up getting a chunk of the profit.

Nowadays, from most companies no one gets a chunk of the profit which makes it what - a gigantic ponzi scheme? From overseas it just doesn't make sense.

It's not as though anyone is going to buy them out (unless and until they eventually fail like say Yahoo).

Profits are owned by the owners of companies (stockholders) whether they are distributed or not.

When tax rates were much higher, dividends were paid by most corporations, but as dividend tax rates were cut and cut and cut, the new corporation created supposedly by cutting taxes on dividend did not pay any dividends, and when they began paying them they were absurd.

When I was a kid, dividends were given special treatment and lower rates up to a limit because widows had to live off the dividends of the stocks/bonds her husband bought for their retirement or if he died. Then it was expected stocks paid dividends of about 10% because of the risk when banks were paying 5% with zero risk. But then, that was back in the 1950s-60 Depression and Decline of America decades when government stole all your money and dictated how you thought about money and morality by dictating honesty.

If capital gains rates are lower than dividend rates (like they will be next year, maybe) share repurchases are a more tax-effective way for companies to "return" money to shareholders than dividends.

How important is regulation? Yes, Thiel's eye-opening criticisms support the Great Stagnation thesis, but we have lost a lot of stability in our regulatory environment recently. Even if I had a great idea, I might wait until the rules of the settle down before investing.

Stop using the idiotic word "instability" the word you are looking for is terrible. The problem isn't that regulation is "hard to predict." The problem is that you have a risk that regulation will put you out of business.

Are these the sorts of back-and-forth that occur at Google shareholder meetings? Does the Google management catch flak from its shareholders for sitting on a mountain of cash? If they actually had a real problem with it, would Google's stock price be so ridiculously high?

Thiel is on point here, Google should just admit they are a mousetrap company that makes the best mousetrap in the world and makes tons of money off of it and should just generate cash off that niche for the forseeable future. It's the Phillip Morris model. Though this is probably how the conversation should have gone:

PETER THIEL: 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.

ERIC SCHMIDT: Well, some people can't even get zero percent on their investments, isn't that right?

For example, investments Microsoft has made leading to their first ever quarterly loss....

I do hope Eric Schmidt is referencing Peter Thiel's abortion of a career as a hedge fund manager.

Schmidt is right that there are "limits" on investment opportunities, whether internally (e.g., lack of capability, or a desire to build defenses against competition) or externally (e.g., no more "obvious" or low-risk investments in Google's core competencies, which is Thiel's point). No one company or individual can possibly see or take advantage of all possible investments. Which begs the question: isn't it in society's best interest to "redistribute" such inactive hoards of wealth, either through coercion (e.g., taxation) or incentives to return the money to share owners?

First, that's not begging the question, it may be raising a question.

Second, no, it's not in society's best interest to do either. That would replace incentives to innovate, which produces wealth and improves standard of living, with incentives to lay low, which is what makes third world countries third world countries.

this couldn't possibly be an indication that a corporation can be too big, right?

I don't want to put words in Schmidt's mouth, but I think another way of saying "there are limits that are not cash" is that innovation is fundamentally cheap, but there are very rapidly diminishing returns on investment. How do you 'produce' innovation? You pay one really smart guy 200k a year. That's it. And the returns from that innovation are so large that you can't hire enough other smart people to use up the money. Nothing is stopping you from spending all that money of more people, but you've basically reached the ZMP of money in relationship to innovation.

I'm shocked Schmidt didn't mention the driverless car and what it says about affordable innovation. It's as important as anything developed between 1930 and 1970. It will do the work that currently occupies something like 3% of our workforce full time AND save driving time for the rest of us AND reduce transport costs by eliminating the need for individual cars AND reduce need for parking lots. And it won't take many of Google's billions to develop.

I'm reluctant to ALWAYS be tooting the horn of driverless cars but this innovation is really something else.

Mobile payment/NFC is another thing Google could well be looking at as its next springboard. It's in the box seat with Android and continues to gain.

Driverless cars do not exist for purchase and, until they do, the "product" is vaporware.

Will you give up your Segway when you get your driverless car, or will you keep it until google provides a segway dock for the google car.

Driverless cars will eventually pay off but not until the freeways are made driverless only, which will allow quintupling the density without loss of speed (as long as the cars share data among themselves so that they can instantly react to a problem).

I wish Google would take 10% of their cash and invest in the liquid fluoride thorium reactor; that's probably about what it would take to mature the technology to commercial viability (the science was proven at Oak Ridge National Laboratory in the '50s and '60s). They would own the technology that gives us essentially limitless energy with almost no waste indefinitely. Talk about your moneymaking opportunity...

Google investing in LFTR technology? Now, that would be interesting.

But, for once, Thiel has it right. Regulatory burdens are insane. Developing a safe, clean, functional reactor would cost a few billions dollars. But getting it to meet NRC and IAEA regulations and getting over lawsuits from 'concerned people' would 10x or 100x that much money.

I probably spend about an hour per work day commuting. That is 11% of my total (work plus commuting) time that could be put to other uses.
A ~10% productivity boost in one step, for most workers? That is HUGE.

At first, I agreed with Prof. Tabarrok here. But the more I think about it, the more I realize how weak Thiel's position is.

Thiel is effectively telling Schmidt that Google must either issue a dividend and admit it is out of ideas or invest all of its surplus cash in something Thiel himself has not yet thought of. Just because we can all dream up a million hypothetical revolutions in our heads doesn't mean the economy is stagnating because they don't already exist.

It sort of reminds me of when people complain that pharmaceutical companies haven't cured cancer yet.

Schmidt shouldn't say what they will invest in because it will drive up the purchase price where some of their investments will be external. There's a limit to what Google can invest in and still be perceived as a well focused company. If their focus is web tech and massively parallel processing then driverless cars is already quite a stretch beyond what some will perceive to be their expertise. I'm not saying that driverless cars are outside their natural domain but many will perceive it that way. Internet search is quite different from machine vision, signal processing and the AI that goes into driving. Tech companies do not have revenue streams among the safest and the cash might be needed to better secure their future. Sugary drinks will probably still taste good in 100 years and so Coca-Cola can issue 100 year bonds but who would buy a 100 year Google bond?

The rate of ground breaking technological innovation as a driver of growth is definitely changing. As TGS outlines much of the growth in earlier decades has been in physical sciences. The automation focus of late has been more on business and consumer interaction, hence innovation in "social science" rather than the natural world. The virtual world has a lot less inertia when it comes to making new change.

So, the iPhone and iPad are not innovative? Aren't they innovation in materials and manufacturing? Or are they just more glass and titanium commodities you toss in your toy box? Is the 21st generation of the Saturn V/Shuttle engine manufactured entirely in a small factory by the startup SpaceX not manufacturing innovation and system design innovation. And are batteries still stuck in the 1960s, or do they represent coevolved materials and manufacturing process innovation?

I bet you think software evolves faster than hardware, like Microsoft has released at least two new generation of Windows to incorporate innovation for every generation of hardware innovation?

Maybe the Internet just changes in a year or two to reflect new innovations. Like,going to a new addressing scheme to solve the limited number of IP addresses identified in the late 80s as a must solve for the Internet have global domination must have gone into effect in the mid-90s because it is easy to change software because there is so little inertia??

I think the ref's callhere is premature.

We don't know what Google has invested in - maybe they have lots of ideas that are inexpensive to explore now, but will need lots of cash later. It's easier to write a check than to go raise money.

Also, this smacks a little of telling someone, "You have $100,000 in cash? What's the matter, can't you find any investments?" without knowing anything about their non-cash holdings.

Maybe, just maybe, they are considering their survival. Maybe they see what Europe is doing, the fiscal situation in the US, and figure that having operating capital kicking around that could keep them alive for a better part of a decade is just a good idea. Maybe they have a bunch of Taleb aficionados and see savings as a means of building resilience.

It isn't as if the industry they are in is not subject to dramatic shifts.

"We have savings! What can we spend it on quickly" are words of a child.

Thiel has no idea what he is talking about. Many of the great Silicon Valley businesses require almost no invested capital to run; they are effectively machines that print out money. As such, their future growth has almost nothing to do with their capital allocation, as they produce vastly more cash than they could ever possibly hope to reinvest. Thiel argues that Google returning cash to shareholders will be bad because it will somehow break the spirit of investors and employees because it will mean that Google is no longer a "tech" company. What does this even mean? It is drawing an artificial and nonsensical distinction and has nothing to do with how the world actually operates.

For instance, Thiel says, "Microsoft can't return its money." Microsoft has returned $175b in cash to shareholders since 2004 via dividends and share repurchases. The only reason that Microsoft currently holds $60b in cash is that almost all of this cash is held offshore and if the company wanted to return it it would have to pay taxes on this amount, something to the tune of $20b. Microsoft is waiting for a redo of the 2004 tax repatriation holiday where companies were allowed to repatriate international cash and pay a one-time 5% rate. This is the reason that all of these companies hold on to a ton of cash.

Yes, good points; all tech companies are cash rich. Why? That is the question. Regulations as Schmidt points out is one reason (your offshore tax argument). But to the Stagnationists: it's suspicious that the trigger for stagnation was a financial crisis in 2008 (stagnation implies gradual decline not abrupt decline), which argues we are in a lack of demand situation, further, if technology is exogenous and more or less random (I personally think government can 'engineer' innovation by offering incentives, but that's an aside) then sooner or later we'll get the equivalent of the airplane, atom bomb, automobile, medical breakthroughs soon, as 'we are due' just like a spat of unlucky or lucky numbers.

I've been a shareholder of Cisco, Microsoft, Intel, and Apple at various times (and I still hold the latter three). All of them pay dividends now, and all of them basically generate more cash than they can use for investments that won't substantially reduce their margins. The reason they don't pay bigger dividends and return their cash hoard to investors is well known in the investing world - it's almost completely due to US taxes on repatriation. Their cash hoards vary between 50% to 80%+ foreign cash holdings that they would have to pay 35% on to repatriate. Why would they do that, when they can keep investing .001% of that cash on lobbying to either eliminate that tax long term or at least get a repatriation holiday like we did in the 1990s? When the repatriation holiday happened in the 90s, Microsoft paid out a special dividend that was something like 20% of their stock price. In the meantime, the only thing they can do with that cash that won't trigger the tax is buy foreign firms, like HP buying Autonomy and Microsoft buying Skype, both for valuations that otherwise seem unrealistic if you don't consider the tax opportunity cost.

One of the things Cowen and Tabbarrok remind us of all the time on this blog is that incentives matter. If these companies are keeping these funds in cash and not investing them in even 3% ROI opportunities, there are likely incentives causing that. And I think it's very, very likely that Google, Intel, Microsoft, Apple, Cisco, etc. are all waiting for the repatriation holiday to do something with that foreign cash, which is give a big portion back. That's what most of the people on the Street seem to believe. Schmidt can't say that - it might not be politically advantageous since they are trying to sell it as a jobs creating measure - but that's the most likely truth.

So, you don't understand the difference between a loan and a payment? In that case, I wonder if you could lend me some money...

This was obviously meant for some comment above. Smart phone fail (yes, it is an Android).

Who cares if Google is a technology company according to Peter Thiel's definition?

Maybe further investment opportunities in IT don't appeal, but what about other areas? And if Google is looking there it makes sense to be cautious.

Google spends over $3,000,000,000 per year on research and development. That can buy them 10,000 really, really bright people to do *only* R&D. (Maintaining and expanding existing operations is presumably a separate budget.) There's a limit to how many people can actually do the sort of research and development which would advance the technological frontier *in a way in which Google could capitalize*. It probably wouldn't help Google a whole lot to develop a room-temperature superconductor, or a cure for cancer, or net-power-generating fusion. Even if they could do it, they're not set up to capitalize on it - some other company would have to do the work of actually producing those things. (The same is true of driverless cars, probably.)

Schmidt missed his answer - Google is spending lots of money to innovate in search, so Thiel's conclusion "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." is false. Investing in Google may be a bet that *nobody else* will come up with better search, but it's not a bet against innovation in search, or in a number of other fields.

Do people still use google for search because it is superior to other search engines? Indeed, with all the SEO crap and content farms larding up its search results, google has arguably gotten less useful over time. Nevertheless, it appears that there is something -- perhaps network effects -- that keeps google in the dominant position in search in spite of its inability to advance search. Google is able to print money, because, like Microsoft and other pure play software companies, it can extend its signature product to cover everyone on earth at essentially zero marginal cost, and, because it is entrenched in its dominant position, competition from imitators is not something it needs to worry about. When life is this good, it is difficult to come up with another idea that will measure up to what you have already done. Google's problem is that it is too successful in its core business.

Every time I try someone else's search engine, I find the results less useful than Google's, even with the SEO crap. Perhaps Google spends more on figuring out how to defeat that crap while its competitors are still trying to figure out better search?

Anyway, my main point is that despite Google having a $50 billion war chest, it's *still* spending $3+ billion per year on "innovation", and that Schmidt missed pointing that out in his answer to Thiel.

No one mentions the extraction industry? Incredible, world-changing innovation, high-paying jobs for non-professional fields, jobs & assets that can't be off-shored to erode the tax base and so on. North Dakota and Western New York are this century's Silicon Valley.

When TGS was first offered, I predicted the extraction/energy industry would be the next revolution and I'm feeling more confident now then I did then. Of course, innovation is innovative because who really knows from when and from whence it arrives, and I'm often wrong.

Next revolution?
You are behind the times. For the last four years its been THE revolution.

As always, commentators, government, and experts are way behind.

Oh but there is so much work to be done, starting with a way to connect data.

Several points.
(1) precautionary saving -- Google is now at the point where acquisitions are the tens of billions. $50b in cash isn't outlandish. They don't know when the opportunity will come and there's a big return to being ready to take it.
(2) tech R&D is cheap -- payer 100 coders an average of $150-100K plus an equity option and you can do a lot on the cheap. That GOOG has $50b in cash and cash equivalents isn't proof that they aren't investing.
(3) secrecy -- Why would Schmidt go on stage and reveal any plans? Please don't compare Amazon's app store and delivery center optimization with driverless cars, project glass, and wiring towns with fiber.
(4) conflict of interest -- Where does Peter Thiel invest?

A CEO of one of the most wealthy companies in the world is not going to start spouting off that company's future investment strategy in a public broadcast just because somebody in a debate challenged him. Given his role as CEO and his fiduciary duties to the company, it was smart of him not to reveal any private information about the company's future investment plans. Maybe it's true that Google is out of ideas. But simply because he didn't respond by no means validates Thiel's point.

"...Thiel had the knockout punch:" Well, maybe if you consider it a talent rather than a deep putzitude the ability to tell other people when to reach for their wallets.

Several comments have pointed out that high tech companies along with other large American corporations are accumulating profits off shore and lobbying for a tax holiday to allow them to bring the money to the US at low tax rates. If you couple that with the fact that corporations use various dodges so that they can claim that profits from business actually done in the United States was "earned" in a tax haven and you get a significant fiscal drain on the United States.

You want to find a barrier to innovation - look no further than the patent system and litigation like Apple v. Samsung or Oracle v. Google.

When I bring up the points that Peter Thiel brings up, my friends with a leftist bent claim that these companies are building up cash hordes because there is insufficient demand. We need to stimulate demand so that there will then be additional profitable investments for these companies. Anyone have a good rebuttal to this argument?

For one major tech company (Microsoft), access to capital was never a reason to go after a new market that was attractive. Most of the passes on new ventures were because opportunity cost. There were other more attractive investments to make. The bounding factor on growth was talent / leadership development. There was only such we talent we could bring in and have the right amount of leadership focus.

Source: I worked at Microsoft in a product strategy / product planning role 8 years ago.

Demand for what?
Food? (Hello, obesity epidemic?)
Housing? (Been there done that)
Clothing? (er, no)

Problem is most peoples basic needs are actually being satisfied. Demand for those basic things isn't going to increase much.
What they want is new products better quality, and to give them that you have to innovate, and to innovate you have to invest in new technologies.

But nobody has any idea what to invest in. The internet seems played out, and so you have money chasing things like commodities and bonds. There's some interest in medical devices and biotech, but those are almost as overpriced as internet stocks. There doesn't seem to be any next technological revolution on the horizon.

asdf: Because a fair amount of the things that are being produced only make sense to sell to a mass market; one that's orders of magnitude larger than the number of people required to run our hypothetical automated society of leisure? (Or can't adequately get enough feedback to meaningfully improve themselves without selling to a mass market.)

Also, there's the personal service industry. Hiring household help (or even things like waitstaff; I doubt any automated holder of that job that could possibly eclipse the standard human model wouldn't be sufficiently AI to have a strong claim on citizenship) would be a lot more difficult and expensive if there aren't hundreds of alternative people who want to buy a few more circus tickets than the GMI covers, or if the entire underclass is comprised of barely-surviving, sullen morlocks who despise their would-be employers.

Hey, is there any way for market participants to express a "view" on the "right" amount of cash for Google to hold? I don't mean holding a shareholder vote to force management to distribute a dividend, for example. I mean through trading shares, i.e., can one infer from Google stock price and any other public information (cash assets per share, book value, earnings per share, etc.) anything regarding the market's "view" on Google's cash holdings: either that they are too low or too high in absolute terms or relative to some other company, etc.?

I don't know of any method, but it would be nice to understand the market's opinion on Google's or any other company's cash holdings rather than listening to the barb's of two panelists, even if one of the panelists is the company chairman.

"I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong. I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this."

"I don't want your money. If you offer me $5 billion, I won't want it. I've got plenty of money. I want you to stop using our ideas in Android, that's all I want."

Now, if you were the maker of Android, would you disarm yourself by getting rid of your cash hoard in the face of that threat? Or would you keep roughly the same amount of money in reserve as Apple has, so that you could match Apple dollar-for-dollar, as a deterrent to "thermonuclear war"?

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

I have to disagree, Bill Gates missed the Internet, Google missed social media... lots of very smart people are probably missing The Next Big Thing right now.

I'm no longer as confident that "low-hanging fruit" beats "ever-increasing synergistic growth." TGS might be best explained as the combination of welfare state incentives, increased regulation, and bad monetary policy.

Google, like many of the cash-rich tech companies, is sitting on their cash hoards mostly as unrepatriated money post-washing it through tax dodges such as the Double Irish. They are making a reasonably medium-term bet that they can convince either this or the next US administration to give them another tax holiday, as it has in the past, and get their hands on the cash without paying US corporate income tax.

A little late to the game here, but could it be that they are hoarding cash for inevitable future lawsuits they do not believe they can win?

Thiel's being a bit unfair on Schmidt and Google. The question of what to do with excess cash has plagued firms in industry after industry for almost a century, with few correct answers.

Besides, the money doesn't dissipate against inflation, that money is usually invested in complex instruments like marketable securities which usually provide an at-market or above-market rate-of-return.

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