Peter Thiel on bubbles and globalization

This Hoover piece is a fascinating view of Thiel's views on globalization and bubbles, and the importance of macro (that is, thinking about the world economy and what it is doing - not the bogus field of macroeconomics):

Because we find ourselves in a world of retail sanity and wholesale madness, the truly great opportunities exist in the wildly mispriced macro context -- rather than in the ever-diminishing spreads on esoteric financial markets or products. Indeed, one could go even further: What is truly frightening about the twenty-first century is not merely that there exists a dangerous dimension to our time, but rather the unwillingness of the best and brightest to try and make any sense of this larger dimension.

From a contrarian perspective, one could be more optimistic if others were not so naively "optimistic."

Here is a key passage, but you should really go and read the whole thing:

In recent years, the pace and amplitude of these booms has accelerated tremendously, in complete contradiction to the widespread notion that markets are becoming more smooth and efficient over time. During the last quarter century, the world has seen more asset booms or bubbles than in all previous times put together: Japan; Asia (ex-Japan and ex-China) pre- 1997; the internet; real estate; China since 1997; Web 2.0; emerging markets more generally; private equity; and hedge funds, to name a few. Moreover, the magnitudes of the highs and lows have become greater than ever before: The Asia and Russia crisis, along with the collapse of Long-Term Capital Management, provoked an unprecedented 20-standard-deviation move in financial derivatives in 199824 the Nasdaq at 5,000 in 2000 was farther from equilibrium than the Dow at 350 in 1929, perhaps the greatest previous distortion; no 10-year government bond yield ever fell to 0.44 percent in all of history, until this happened with jgbs in 2003; as measured by the buy/rent ratio (or any number of other indicators), U.S. real estate prices in 2005 were more distorted than in 1929<, 1979, or 1989, or at any other time in history; and no emerging market had ever reached a p/e of 62, as China’s Shanghai a Shares index did in 2007. It has not been a good time for those investors who are merely sane.

Consider the strangeness of the American context. One would not have thought it possible for the internet bubble of the late 1990s, the greatest boom in the history of the world, to be replaced within five years by a real estate bubble of even greater magnitude and worse stupidity. Under more normal circumstances, one would not have thought that the same mistake could happen twice in the lifetimes of the people involved. One might be tempted to invoke extraordinary psychosocial explanations — for example, that all of this was driven by baby boomers who destroyed their minds on drugs in the 1960s and therewith merit the dubious distinction of being America’s Dumbest Generation. But when one surveys the many other bubbles that have proliferated throughout the world, one realizes that this cannot be the whole truth.

The most straightforward explanation begins with the view that all of these bubbles are not truly separate, but instead represent different facets of a single Great Boom of unprecedented size and duration. As with the earlier bubbles of the modern age, the Great Boom has been based on a similar story of globalization, told and retold in different ways — and so we have seen a rotating series of local booms and bubbles as investors price a globally unified world through the prism of different markets.

Nevertheless, this Great Boom is also very different from all previous bubbles. This time around, globalization either will succeed and humanity will achieve a degree of freedom and prosperity that can scarcely be imagined, or globalization will fail and capitalism or even humanity itself may come to an end. The real alternative to good globalization is world war. And because of the nature of today ’s technology, such a war would be apocalyptic in the twenty-first century. Because there is not much time left, the Great Boom, taken as a whole, either is not a bubble at all, or it is the final and greatest bubble in history .

I have very mixed feelings about this viewpoint. On the one hand, predictions of extremes seem to always be wrong - the world, so far, has shown a very strong aversion to either utopia or apocalypse, despite numerous predictions of both. On the other hand, as a techno-optimist, I find a lot of plausibility in scenarios of both Singularity and Apocalypse. We have clearly nowhere near exhausted the limits of technological advancement, and enormous prosperity seems quite plausible. On the other hand, the flipside of technology is Murphy's Law of Mad Science - the IQ needed to destroy the world decreases by 1 point every cycle of Moore's Law. The probability of apocalypse temporarily decreased when the Cold War ended, but until we get off this rock, I don't see how anyone can deny that the long-term trend is up.

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Bogus?

Bogus?

like Arnold Kling says:

Remember that much of macroeconomics is anti-economics

In real economics, work is a "bad." There is no such thing as a
shortage of jobs. Instead, there are unlimited wants. We should be
rooting for high productivity that enables people to choose a mix of
consumption goods and leisure that they prefer.

In real
economics, saving does not hurt the economy. Saving allows individuals
to smooth their consumption. It allows businesses to accumulate
capital, raising worker productivity. We should be rooting for high
saving, rather than worrying about consumers being in the mood to spend.

In
real economics, government spending that is financed by borrowing is
typically not a good thing. We should be rooting against deficit
spending.

In real economics, borders and currencies do not
matter. We should not be rooting for a weak dollar to give us a "trade
surplus." Instead, we should be rooting for unimpeded trade, in order
to gain from specialization and comparative advantage.

I wonder how many real

I wonder how many real economists would agree.

It looks to me you are

It looks to me you are criticizing keynasianism and mercantilism here, not really macroeconomics. A criticism of macroeconism would have to be epistemological, which is what Hayek among others did.

The simple way to deny that

The simple way to deny that the trend in probability of apocalypse is up is to look at the best available market forecasts (such as long term bonds - see http://www.overcomingbias.com/2007/08/the-apocalypse-.html). I'm concerned about the risks of AI, but I'm careful to remain skeptical.

Thiel's rant involves a severe case of availability bias. If you had asked people a generation ago to come up with measures of financial volatility appropriate for measuring long-term changes in stability, I expect a majority of them would show the past 10 years have been more stable than normal.
The "unprecedented 20-standard-deviation move in financial derivatives in 1998" says more about the model LTCM used than about the effects on markets.
"Nasdaq at 5,000 in 2000 was farther from equilibrium than the Dow at 350 in 1929". But the Dow in 2000 was closer to equilibrium than in 1929. Was the subset of markets in 1929 that most resembles the Nasdaq in 2000 closer to equilibrium?
The idea that low 10 year bond yields signal instability seems perverse.
What measure of housing market distortion is he using to determine whether the recent distortion is unusual? I'm sure that with the benefit of hindsight, I could find such a measure. But it's not clear whether it would measure a bubble or the results of the massive increase in savings caused by Chinese prosperity.