Peter Thiel’s advice on startups

It seems like a special case of the paradox of thrift: it's rational to save, but if everyone saves nobody can save because for one to save another must spend.

(Even if you don't like some of Keynes other ideas, this was one of his key insights. The other is the importance of the velocity of money in the wealth of societies. Superficially Saudi Arabia looks richer than the US because per capita it has more savings, but it's actually poorer because monetary velocity is lower. Wealth is a verb, not a noun.)

In this case you want to be a monopoly, but you want all your suppliers and anyone else you purchase from to be subject to brutal competition. Or as an employee, you want your employer to be a monopoly (and your own skills to be scarce in the labor market) but you want the rest of the market to be brutally competitive.

You can see this in the net neutrality debate. Those who run the Internet want to monopolize and differentiate. Those who use the Internet -- including most non-carrier Internet companies -- want them to be pure commodities subject to crushing competition. The ideal for you the user, or for Netflix or Google, would be to have free broadband Internet access everywhere.

Paradoxes are the norm not the exception in complex systems fields like economics, ecology, and evolutionary dynamics. Most things involve some sort of paradoxical catch-22, trade-off, trichotomy, or N-chotomy. Thiel is just showing us this paradox from a different perspective than we're normally accustomed to thinking about it. It is the proper perspective for an entrepreneur-- you want to find something that can be leveraged to create a monopoly so you can accumulate capital and income enough to move on to the next things before your monopoly status is challenged.

With all due respect, I think this is a poorly-conceived point by Thiel. Airlines create hundreds of billions of dollars of value each year precisely because they make 17 cents per passenger. If it cost a traveler $900 to fly from Dallas to New York, nobody would fly except for only the wealthiest passengers and those who had dire business needs.

Now suppose a company came along and developed a way for inexpensive planes to fly by themselves without pilots, airports, or flight attendants (forget the technicalities like FAA requirements for a second). Now suddenly people can fly from New York to LA for $30 round trip, twenty times a day. It ruins the airline industry. And yet in spite of destroying the current airline industry as we know it, now even more value is being created for the economy.

This is the same logic that people use to argue against unions- that just because you can charge a higher fee than market conditions would otherwise allow, doesn't mean that you are serving society well.

Clearly Thiel is on the side of the megacorp with his logic, and I realize that his advice is more of a game strategy targeted at entrepreneurs than a suggested means to a utopia for everyone, but to ignore the larger picture is somewhat delusional IMO.

Thiel's point is actually more nuanced.

Monopolies undeniably give customers worse service on the margin.

But, all that profit in one location lets you do things---important, good things---that you couldn't do without that obscene concentration of money. Bell Labs came from AT&T. Google X from Google. The moon landing from (double-ocean-protected) USA.

Japan and S. Korea have a few very large companies that have de facto monopolies protected by their governments, and they're not shitholes.

This is worth a read: http://www.paecon.net/PAEReview/issue23/Locke23.htm

I would argue that some limited monopolies like those provided by patents on a truly novel invention makes sense. Our current patent system implementation is pretty broken but I think some limited protection, and thus monopolies, for new inventions makes sense to encourage people to invest in new technologies. I certainly don't see Peter arguing for the more egregious types of government/legislative monopolies.