The narrative of the past few decades, really since the oil shocks of the 1970s, has been that of a desire to move past fossil fuels and onto newer, cleaner sources of energy. We’re all aware of the arguments for such a move so I won’t discuss those here.
We know that government has made efforts, serious or not, to encourage the development of new technologies. A myriad of subsidies and tax credits exist for just about any new technology out there.
My own feelings on the subject are that fossil fuels, through their relative abundance and energy density, still provide value that simply cannot be matched in the marketplace. In a price competitive market, emerging energies are simply not in a position to be competitive. I also take the position that fossil fuels will predominate in the coming decades because it will take much longer for newer sources of energy to compete. I think we are much farther away from a fossil fuel free society than we think.
However, over the weekend I had the opportunity to hear Peter Thiel speak. Thiel is the Silicon Valley tycoon who founded PayPal and was one of the first to invest in Facebook. Thiel, as evidenced by his estimated fortune of $1.5 billion, is a forward-thinking man but he has taken an increasingly dim view of future. He spent the majority of his fifteen presentation describing his view that innovation, the sort of large-scale, society-changing innovation of the past, has basically stagnated since the oil shocks of the 1970s. In a piece for National Review, Thiel wrote the following:
When tracked against the admittedly lofty hopes of the 1950s and 1960s, technological progress has fallen short in many domains. Consider the most literal instance of non-acceleration: We are no longer moving faster. The centuries-long acceleration of travel speeds — from ever-faster sailing ships in the 16th through 18th centuries, to the advent of ever-faster railroads in the 19th century, and ever-faster cars and airplanes in the 20th century — reversed with the decommissioning of the Concorde in 2003, to say nothing of the nightmarish delays caused by strikingly low-tech post-9/11 airport-security systems. Today’s advocates of space jets, lunar vacations, and the manned exploration of the solar system appear to hail from another planet. A faded 1964 Popular Science cover story — “Who’ll Fly You at 2,000 m.p.h.?” — barely recalls the dreams of a bygone age.
There are certainly arguments to be made in disagreement with Thiel, but it does open up the possibility, at least in my mind, that maybe we should have been a post-fossil fuel society by now. As society we like to think we’re always on the cutting edge with exciting breakthrough technologies, but who’s to say that is actually true?
For the sake of argument, let’s stipulate that Thiel is correct in saying innovation has slowed drastically in the energy and transportation sector. The logical question is then “why?” Because this is only intended as a thought experiment I won’t pretend these are empirical answers, but merely hypotheses.
First, is it possible that we as a society are looking at all the wrong ideas? We look to government as the source of funding for new innovations, but government works by earmarking funds specifically designated for certain ideas. How can government, or rather the politicians within government, possess any inclination towards what has potential or not? In his speech on Saturday, Thiel made the point that government is overwhelmingly staffed by lawyers, who have little to no background in science. If government is to be a source of technological innovation, the deficit of scientists in politics is a serious impediment.
Second, does government actually warp the incentives of innovators? Thiel spoke of a failure of imagination among society at all levels. He has concluded that too many scientists and investors are content to go after the “low-hanging fruit.” It’s my contention that this is the unintended consequence of government funding specific projects. When politicians are willing to hand out billion dollar grants to clean-tech startups, in effect these innovators have already made their money. The conditions attached to these grants sets expectations too low, in my opinion. Energy startups need to be subject to the cutthroat demands of the market. It also needs to be pointed out that every scientist who works under the auspices of a government grant is one less scientist available to work for a more ambitious, more demanding company in the private sector. Again, it’s the law of unintended consequences at play.
Lastly, I think society at all levels suffers to a large extent from a regulatory bottleneck. Reading about the mishmash of federal, state, and local regulation involved in building electrical infrastructure should give one a good idea of how slow society moves when regulated. In contrast, computers and the Internet have thus far largely escaped significant regulation and they are dynamic industries.
In closing, maybe Thiel is correct in saying that society is suffering from a lack of imagination. I’m a firm believe in the credo of letting markets work, but our issues probably extend far past simply letting markets work as currently configured. If we are to get back to the day of rapidly occurring innovation in all sectors of the economy, it will require an undoing of the bureaucratic sclerosis we find ourselves mired in and elimination of the perverse incentives we throw at scientists and innovators.
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