“We think of capitalism as being locked in an ideological battle with socialism, but we never really saw that capitalism might be defeated by its own child — technology.”

This is how Eric Weinstein, a mathematician and a managing director of Peter Thiel’s investment firm, Thiel Capital, began a recent video for BigThink.com. In it he argues that technology has so transformed our world that “we may need a hybrid model in the future which is paradoxically more capitalistic than our capitalism today and perhaps even more socialistic than our communism of yesteryear.”

Which is another way of saying that socialist principles might be the only thing that can save capitalism.

Weinstein’s thinking reflects a growing awareness in Silicon Valley of the challenges faced by capitalist society. Technology will continue to upend careers, workers across fields will be increasingly displaced, and it’s likely that many jobs lost will not be replaced.

Hence many technologists and entrepreneurs in Silicon Valley are converging on ideas like universal basic income as a way to mitigate the adverse effects of technological innovation.

I reached out to Weinstein to talk about the crisis of capitalism — how we got here, what can be done, and why he thinks a failure to act might lead to a societal collapse. His primary concern is that the billionaire class — which he’s not a part of, but has access to through his job — has been too slow to recognize the need for radical change.

“The greatest danger,” he told me, is that, “the truly rich are increasingly separated from the lives of the rest of us so that they become largely insensitive to the concerns of those who still earn by the hour.” If that happens, he warns, “they will probably not anticipate many of the changes, and we will see the beginning stirrings of revolution as the cost for this insensitivity.”

You can read our lightly edited conversation below.

Why technology might destroy capitalism

Sean Illing

The phrase “late capitalism” is in vogue these days. Do you find it analytically useful?

Eric Weinstein

I find it linguistically accurate and politically provocative. I don't think that what is to follow is going to be an absence of markets. I don't think the implications are that capitalism is failing and will be replaced by anarchy or socialism. I think it's possible that this is merely the end of the beginning of capitalism, and that its next stage will continue many of its basic tenets, but in an almost unrecognizable form.

Sean Illing

I want to ask you about what that next stage might look like, but first I wonder if you think market capitalism has outlived its utility?

Eric Weinstein

I believe that market capitalism, as we've come to understand it, was actually tied to a particular period of time where certain coincidences were present. There's a coincidence between the marginal product of one's labor and one's marginal needs to consume at a socially appropriate level. There's also the match between an economy mostly consisting of private goods and services that can be taxed to pay for the minority of public goods and services, where the market price of those public goods would be far below the collective value of those goods.

Beyond that, there's also a coincidence between the ability to train briefly in one's youth so as to acquire a reliable skill that can be repeated consistently with small variance throughout a lifetime, leading to what we've typically called a career or profession, and I believe that many of those coincidences are now breaking, because they were actually never tied together by any fundamental law.

Sean Illing

A big part of this breakdown is technology, which you rightly describe as a child of capitalism. Is it possible the child of capitalism might also become its destroyer?

Eric Weinstein

It’s an important question. Since the Industrial Revolution, technology has been a helpful pursuer, chasing workers from the activities of lowest value into repetitive behaviors of far higher value. The problem with computer technology is that it would appear to target all repetitive behaviors. If you break up all human activity into behaviors that happen only once and do not reset themselves, together with those that cycle on a daily, weekly, monthly, or yearly basis, you see that technology is in danger of removing the cyclic behaviors rather than chasing us from cyclic behaviors of low importance to ones of high value.

Sean Illing

That trend seems objectively bad for most people, whose work consists largely of routinized actions.

Eric Weinstein

I think this means we have an advantage over the computers, specifically in the region of the economy which is based on one-off opportunities. Typically, this is the province of hedge fund managers, creatives, engineers, anyone who's actually trying to do something that they've never done before. What we've never considered is how to move an entire society, dominated by routine, on to a one-off economy in which we compete, where we have a specific advantage over the machines, and our ability to do what has never been done.

Sean Illing

This raises a thorny question: The kinds of skills this technological economy rewards are not skills that a majority of the population possesses. Perhaps a significant number of people simply can’t thrive in this space, no matter how much training or education we provide.

Eric Weinstein

I think that's an interesting question, and it depends a lot on your view of education. Buckminster Fuller (a prominent American author and architect who died in 1983) said something to the effect of, "We're all born geniuses, but something in the process of living de-geniuses us." I think with several years more hindsight, we can see that the thing that de-geniuses us is actually our education.

The problem is that we have an educational system that's based on taking our natural penchant for exploration and fashioning it into a willingness to take on mind-numbing routine. This is because our educational system was designed to produce employable products suitable for jobs, but it is jobs that are precisely going to give way to an economy increasingly based on one-off opportunities.

Sean Illing

That’s a problem with a definable but immensely complicated solution.

Eric Weinstein

Part of the question is, how do we disable an educational system that is uniformizing people across the socioeconomic spectrum in order to remind ourselves that the hotel maid who makes up our bed may in fact be an amateur painter? The accountant who does our taxes may well have a screenplay that he works on after the midnight hour? I think what is less clear to many of our bureaucrats in Washington is just how much talent and creativity exists through all walks of life.

What we don't know yet is how to pay people for those behaviors, because many of those screenplays and books and inventions will not be able to command a sufficiently high market price, but this is where the issue of some kind of hybridization of hypercapitalism and hypersocialism must enter the discussion.

“We will see the beginning stirrings of revolution as the cost for this continuing insensitivity”

Why capitalism needs socialism

Sean Illing

Let's talk about that. What does a hybrid of capitalism and socialism look like?

Eric Weinstein

I don't think we know what it looks like. I believe capitalism will need to be much more unfettered. Certain fields will need to undergo a process of radical deregulation in order to give the minority of minds that are capable of our greatest feats of creation the leeway to experiment and to play, as they deliver us the wonders on which our future economy will be based.

By the same token, we have to understand that our population is not a collection of workers to be input to the machine of capitalism, but rather a nation of souls whose dignity, well-being, and health must be considered on independent, humanitarian terms. Now, that does not mean we can afford to indulge in national welfare of a kind that would rob our most vulnerable of a dignity that has previously been supplied by the workplace.

People will have to be engaged in socially positive activities, but not all of those socially positive activities may be able to command a sufficient share of the market to consume at an appropriate level, and so I think we're going to have to augment the hypercapitalism which will provide the growth of the hypersocialism based on both dignity and need.

Sean Illing

I agree with most of that, but I’m not sure we’re prepared to adapt to these new circumstances quickly enough to matter. What you’re describing is a near-revolutionary shift in politics and culture, and that’s not something we can do on command.

Eric Weinstein

I believe that once our top creative class is unshackled from those impediments which are socially negative, they will be able to choose whether capitalism proceeds by evolution or revolution, and I am hopeful that the enlightened self-interest of the billionaire class will cause them to take the enlightened path toward finding a rethinking of work that honors the vast majority of fellow citizens and humans on which their country depends.

Sean Illing

Are you confident that the billionaire class is so enlightened? Because I'm not. All of these changes were perceptible years ago, and yet the billionaire class failed to take any of this seriously enough. The impulse to innovate and profit subsumes all other concerns as far as I can tell.

Eric Weinstein

That's curious. There was a quiet shift several years ago where the smoke-filled rooms stopped laughing about inequality concerns and started taking them on as their own even in private. I wish I could say that change was mediated out of the goodness of the hearts of the most successful, but I think it was actually a recognition that we had gone from a world in which people were complaining about inequality that should be present based on differential success to an economy which cannot possibly defend the level of inequality based on human souls and their needs.

I think it's a combination of both embarrassment and enlightened self-interest that this class — several rungs above my own — is trying to make sure it does not sow the seeds of a highly destructive societal collapse, and I believe I have seen an actual personal transformation in many of the leading thinkers among the technologists, where they have come to care deeply about the effects of their work. Few of them want to be remembered as job killers who destroyed the gains that have accumulated since the Industrial Revolution.

So I think that in terms of wanting to leave a socially positive legacy, many of them are motivated to innovate through concepts like universal basic income, finding that Washington is as bereft of new ideas in social terms as it is of new technological ones.

Sean Illing

But how did we allow things to get so bad? We’ve known for a long time that political systems tend to collapse without a robust middle class acting as a buffer between the poor and the rich, and yet we’ve rushed headlong into this unsustainable climate.

Eric Weinstein

I reached a bizarre stage of my life in which I am equally likely to fly either economy or private. As such, I have a unique lens on this question. A friend of mine said to me, "The modern airport is the perfect metaphor for the class warfare to come." And I asked, "How do you see it that way?" He said, "The rich in first and business class are seated first so that the poor may be paraded past them into economy to note their privilege." I said, "I think the metaphor is better than you give it credit for, because those people in first and business are actually the fake rich. The real rich are in another terminal or in another airport altogether."

It seems to me that the greatest danger is that the truly rich, I’m talking nine and 10 figures rich, are increasingly separated from the lives of the rest of us so that they become largely insensitive to the concerns of those who still earn by the hour. As such, they will probably not anticipate many of the changes, and we will see the beginning stirrings of revolution as the cost for this insensitivity.

However, I am hopeful that as social unrest grows, the current political system of throwing the upper middle class and lower rungs of the rich to the resentful lower middle class and poor will come to an end if only for the desire of the truly well-off to avoid a genuine threat to the stability on which they depend, and the social stability on which they depend.

Sean Illing

I suppose that’s my point. If the people with the power to change things are sufficiently cocooned that they fail to realize the emergency while there’s still time to act, where does that leave us?

Eric Weinstein

Well, the claim there is that there will be no warning shots across the bow. I guarantee you that when the Occupy Wall Street demonstrators left the confines of Zuccotti Park and came to visit the Upper East Side homes of Manhattan, it had an immediate focusing on the mind of those who could deploy a great deal of capital. Thankfully, those protesters were smart enough to realize that a peaceful demonstration is the best way to advertise the potential for instability to those who have yet to do the computation.

“We have a system-wide problem with embedded growth hypotheses that is turning us all into scoundrels and liars”

Why the economy is a giant house of cards

Sean Illing

But if you're one of those Occupy Wall Street protesters who fired off that peaceful warning shot across the bow six years ago, and you reflect on what’s happened since, do have any reason to think the message was received? Do you not look around and say, “Nothing much has changed”? The casino economy on Wall Street is still humming along. What lesson is to be drawn in that case?

Eric Weinstein

Well, that's putting too much blame on the bankers. I mean, the problem is that the Occupy Wall Street protesters and the bankers share a common delusion. Both of them believe the bankers are more powerful in the story than they actually are. The real problem, which our society has yet to face up to, is that sometime around 1970, we ended several periods of legitimate exponential growth in science, technology, and economics. Since that time, we have struggled with the fact that almost all of our institutions that thrived during the post-World War II period of growth have embedded growth hypotheses into their very foundation.

Sean Illing

What does that mean, exactly?

Eric Weinstein

That means that all of those institutions, whether they're law firms or universities or the military, have to reckon with steady state [meaning an economy with mild fluctuations in growth and productivity] by admitting that growth cannot be sustained, by running a Ponzi scheme, or by attempting to cannibalize others to achieve a kind of fake growth to keep those particular institutions running. This is the big story that nobody reports. We have a system-wide problem with embedded growth hypotheses that is turning us all into scoundrels and liars.

Sean Illing

Could you expound on that, because this is a foundational problem and I want to make sure the reader knows exactly what you mean when you say “embedded growth hypotheses” are turning us into “scoundrels and liars.”

Eric Weinstein

Sure. Let's say, for example, that I have a growing law firm in which there are five associates at any given time supporting every partner, and those associates hope to become partners so that they can hire five associates in turn. That formula of hierarchical labor works well while the law firm is growing, but as soon as the law firm hits steady state, each partner can really only have one associate, who must wait many years before becoming partner for that partner to retire. That economic model doesn't work, because the long hours and decreased pay that one is willing to accept at an entry-level position is predicated on taking over a higher-lever position in short order. That's repeated with professors and their graduate students. It's often repeated in military hierarchies.

It takes place just about everywhere, and when exponential growth ran out, each of these institutions had to find some way of either owning up to a new business model or continuing the old one with smoke mirrors and the cannibalization of someone else's source of income.

Sean Illing

So our entire economy is essentially a house of cards, built on outdated assumptions and pushed along with gimmicks like quantitative easing. It seems we’ve gotten quite good at avoiding facing up to the contradictions of our civilization.

Eric Weinstein

Well, this is the problem. I sometimes call this the Wile E. Coyote effect because as long as Wile E. Coyote doesn't look down, he's suspended in air, even if he has just run off a cliff. But the great danger is understanding that everything is flipped. During the 2008 crisis, many commentators said the markets have suddenly gone crazy, and it was exactly the reverse. The so-called great moderation that was pushed by Alan Greenspan, Timothy Geithner, and others was in fact a kind of madness, and the 2008 crisis represented a rare break in the insanity, where the market suddenly woke up to see what was actually going on. So the acute danger is not madness but sanity.

The problem is that prolonged madness simply compounds the disaster to come when sanity finally sets in.