Thiel on productivity stagnation, skeptical of runaway automation

And why the price of services continues to rise

Peter Thiel recently spoke on whether a few things were good or bad for America:

  1. Big tech

  2. Free trade

  3. College

  4. War

While I don’t always agree with Thiel, I do always find his perspectives thought provoking. This is a talk worth watching in full, but if you prefer to read, here’s a tweet-storm summary.

Tldr, he argues that all four of these things are not good for America.

One concept I found particularly interesting was his argument against “runaway automation.” He doesn’t imagine a future society where robots do all the work and humans just make art, he imagines a future where most humans are still stuck doing low/mid-skill labor.

Runaway automation thesis:

  1. AI/ML continues to rapidly improve

  2. Expands its scope by automating function after function

  3. Eventually everything done by humans is done by machines

This would lead to:

  • High unemployment

  • High productivity gains (leading to low costs of goods and services)

  • Low wages (and on the very extreme, no wages)

Thiel argues that somewhere in step 2 and 3 things have sort of frozen for many sectors. And assuming he’s correct, we’ll see stagnation of productivity. So areas untouched by automation will yield the inverse:

  • Low unemployment

  • Low/ no productivty gains

  • High wages

And indeed we see this in the data. Helland and Tabarrok’s recent book “Why Are The Prices So Damn High” focuses precisely on productivity stagnation as a source of high prices. It’s a short book and well worth the read. They observe lower prices in goods and higher prices in services. Technology has driven large productivity gains in the creation of goods, but has mostly left services untouched.

In this figure, the price trend correlates with productivity gains. Price growth is negatively correlated with productivity growth. Overall, goods have enjoyed productivity gains but services have not.

I’m not sure what this has to do with crypto but there’s probably some observation to make about inflation. If Thiel is right, you’d expect the price of services to continue to rise independent of inflation. This means the purchasing power of the average household goes down. Combine that with a low savings rates and more money printing and you might see more demand for safe havens (e.g. gold, bitcoin).

Does that logic hold? What do you think happens if automation stalls out as Thiel predicts?