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

companies.

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

these benefits.

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.

HT: Alex