(Interviewed by Louis James, Editor, International Speculator)
L: Doug, people have written in saying you’re a “doom-and-gloomer” and a “permabear” – but I know you’re an optimist. Why do you suppose that’s so?
Doug: Perhaps it’s because I’ve long said that the Greater Depression is going to be even worse than I think it will be. But looking forward with a long view, I think the future is not only going to be better than I imagine, it’s going to be better than I can imagine.
The coming Greater Depression will be serious, but I don’t think it’s going to change the fundamental long-term trend of human history. I believe Jacob Bronowski was right: the Ascent of Man will continue. Mankind started out grubbing for roots and berries in the mud, but our descendants – not so far in the future – will be colonizing the stars.
L: That was the guy who wrote the 1973 BBC series called The Ascent of Man? I didn’t remember his name, but I remember watching the series… even though I was only eight. So, when you talk about the long term, you’re not talking years, decades, or even centuries, but the grand sweep of human history, and beyond.
Doug: Yes, exactly. An interesting thing about investing, and life in general, is that there are long-term trends, medium-term trends, and short-term trends. You have to figure out which ones are important, and then if and how to capitalize on any of them. And it seems to me that one of the longest-term human trends in existence is the 5,000-year-long bear market in commodities.
In real terms, metals were extremely expensive and rare in Neolithic times.
L: Iron was so rare, it didn’t exist. And I’d guess that, say, a polished copper mirror would have taken the equivalent of many human lives to make.
Doug: Right. What metals there were came from what people could find in the metal’s native form. That meant primarily gold, for the reasons we talked about in our conversation on gold. There would have been some copper and some silver, but that would have been about it. And even the equivalent of kings back then would have had very little of it.
Then civilization developed in what is now the Middle East and we entered the Bronze Age, which gave way to the Iron Age – and now we’re in the Silicon Age. Each one of these things is progressively less rare. Silicon makes up the computer chips that drive modern life, but it’s basically just sand. On a scale of millennia, commodities have collapsed in price. Eventually, they’ll go to near zero in cost. Commodities will drop to no more than the royalties on the software that runs the nanotechnology that extracts them.
L: Let’s come back to nanotechnology in a moment. The overall trend you’re describing doesn’t depend on it. Even without nanotech, cheap and abundant energy would drop the prices of most commodities to near zero. Sea water is full of dissolved metals, for example; you could have all you wanted if you just had the energy to process all that water. Cheap enough energy makes the lowest-grade concentration of anything economical.
Doug: Yes, and even now we know how to extract those metals or make artificial oil; it’s strictly a matter of having enough energy to drive the engineering. And, of course, the economics. This is why I find it so frustrating when people talk about running out of natural resources. There’s no danger whatsoever of that. Not only are the resources of the world adequate, they are essentially infinite. It’s a question of technology – know-how – and capital, enough wealth to implement the know-how, that is, to build the machines.
Look, every material thing in the universe is constructed out of the 92 elements in the periodic table of the elements. Having anything we want, from a slice of bread, to an ounce of gold, to a new car, is simply a matter of rearranging atoms into the correct combinations at an acceptable cost.
L: My friend Jim Von Ehr, CEO of Zyvex, a nanotech instrument company, once told me that some of the most valuable land in the future would be the sites of old landfills, because they are basically mountains of purified materials. Once you can reduce matter into its component atoms and make new things with it, such places, packed with high concentrations of useful atoms, will command a premium. In the future, there will be no such thing as trash. So, this bearish trend on commodities you speak of isn’t really a bearish trend at all; it’s a bullish trend in technology.
Doug: And that includes nuclear waste. Greens, who generally have little background in science, are completely unaware that spent reactor fuel is a potentially valuable future resource – in addition to being a trivial storage problem in the interim. Technology – it’s the most bullish thing possible for the standard of living of the average human being. Many people living below the poverty line in the U.S. have televisions, refrigerators, medicines, and luxuries that even kings and queens of only a hundred years ago couldn’t have dreamed of. That trend is going to continue – and accelerate. It’d be hard for me to overstate how favorable this is.
Notwithstanding that being the megatrend, I think commodity prices are going to go higher over the next few years. They’re in a multi-decade bull cycle. That said, there are countertrends to most trends, and the Greater Depression could cause commodity prices to drop in the near term, in spite of the broad-based, secular bull market in commodities I think we’re in.
L: If the commodities bull that started in 2001 lasts as long as the 21-year commodities bear that started in 1980, we’d be just under halfway through it.
Doug: Yes, and there are good reasons for being bullish. Number one is the development of the Third World, primarily India and China. You know – Mrs. Wu wants a stainless steel wok to replace her cheap old aluminum wok, she wants a nice new refrigerator to keep her food in, and she – and everyone like her across China – wants a new car to go buy her food in. And Mrs. Singh in India is not far behind. All of these things add to the demand for commodities, especially metals.
On the other hand, a possible near-term negative countertrend is that there has been a lot of stockpiling of raw materials over the last year. With the trillions and trillions of dollars circulating outside the U.S., a lot of governments, corporations, and other entities are stockpiling commodities. They want to convert their paper dollars into something of real value that they might soon need – or, frankly, just about anything that isn’t crumbling dollars.
L: Wheels within wheels; countertrends to the countertrends.
Doug: That’s right. But the megatrend remains that advancing technology makes it cheaper and easier to extract, purify, and utilize commodities. As we’ve discussed before, in pre-industrial times, a gold mine needed to grade an ounce of gold or more per ton, in order to be worth bothering with. Now, you can make money mining deposits that grade a hundredth of that. Simultaneously, our use of these commodities has become more efficient. You can see that clearly in automobiles; the average car in the 1950s might have gotten 10 miles per gallon, now it gets closer to 30 miles per gallon – and goes much faster in the process.
L: And has safer glass, better headlights, movie screens to entertain children on long trips, anti-theft technology, and performs much better in collisions.
Doug: Yes, and that’s how it is with all technology. Just think about computers. Moore’s Law. They double in capacity every 18 months.
Incidentally, that’s the solution to one of the bugaboos of our age: pollution. The better the technology, the less pollution there is.
L: So, would you say you’re a techno-optimist as a matter of general principle – because that’s the way you’d bet on the multi-millennia trend – or because there are specific technologies you see developing that lead you to this conclusion?
A key fact my mind keeps returning to is that there are more engineers and scientists alive today than there have been in all of the rest of human history combined. And all of these people want to become the next Steve Jobs or Albert Einstein – they all want to become immensely wealthy or make major breakthroughs. The path to the former is by inventing better technologies, and the path to the latter adds to the understanding that allows us to do the same. These people are as motivated as any alive, and I expect a good number of them will succeed.
There is a countertrend, however: government. States all around the world are becoming increasingly virulent, both in terms of seizing capital and in terms of making capital accumulation more and more difficult. Further, they’re constantly creating new regulations on what can and can’t be done. And remember what I said before: technology isn’t enough – you have to have the wealth to implement the new technology. Whether it’s through power-hungry myopia, bureaucratic stupidity, or ideological insanity, governments are actively destroying the capital we need to advance, and slowing its accumulation.
Back on the positive side, I’m a huge believer in nanotechnology. I believe it is likely – even in the span of the next generation – to change the nature of life on this planet totally, unrecognizably, and irrevocably. It’s the single biggest thing on the horizon.
L: Want to take a moment to define the term, in case any readers are not familiar with it?
Doug: Sure, it’s the creation of computers and machines on the sub-microscopic level – the atomic level, really.
L: There are lots of definitions, but that’s as good as any I’ve heard. Why should anyone care about machines the size of a molecule? Well, for one thing – it carries what you said about better technology to the ultimate level. If you use molecular machines to build things one atom at a time, there is literally no waste. Zero. Every atom is used and put exactly where it is needed. No byproducts, no pollution.
Doug: Yes. And it enables you to build perfect machines – perfect in the sense of them having no mechanical imperfections – which vastly increases their efficiency and reduces the need for energy.
L: A good example of this I’ve read about is the creation of rocket engines that deliver perfectly linear thrust. Rocket motors now spew out all sorts of stuff, roughly in the right direction, but also including a lot of noise and light, which don’t really help them move. If you could build rocket motors that eject perfectly linear exhaust, you might be able to lift the same payload one of those monstrous Saturn V rockets lifted, with a motor the size of a toaster.
Doug: There are many applications. Medical applications are among the ones I’m most interested in. Once you have machines the size of an enzyme – which is really just a natural molecular machine – you can program them to spread through a patient like a “doctor virus,” one that repairs cellular damage from within each and every single cell in a human body. That doesn’t just mean fixing malfunctioning cells as in the case of cancer, though that would be trivial for such machines, but also fine-tuning all sorts of tissues for optimal health – which basically means preventing (and repairing) aging.
L: A fountain of youth – sounds like science fiction.
Doug: It does, but it isn’t. This is hard science. One person I have great respect for is Ray Kurzweil, an inventor and thinker about the future who’s written about a coming “technology singularity” – a point at which technology doesn’t just get better, it all but instantly leaps to its full potential. Everything that is possible to do, we’ll know how to do. After this happens, people will look at this event as the single most important thing to ever happen – to ever happen. As we date things now BC and AD, in the future everything will be pre- and post-singularity. And this could happen within the next 20 or 30 years.
L: Sounds even more like science fiction.
Doug: Well, if you look at a graph of the rate of change in technology, it’s basically flat for a long, long time, then slopes upward gently until about the 1750s. Then the Great Enlightenment and the Industrial Revolution hit, and the curve rises more and more steeply. If you look at it now, it looks poised to basically go vertical. Short of a global catastrophe that knocks us back to the Stone Age, or wipes our species clean off the planet, there’s no stopping it. The rate of change is accelerating. If it’s not stopped, you get to the point at which the lifespan of your body – or a better one you make – has no natural limit, and your control over everything in the universe that can be controlled is complete.
L: Do you really believe that’s possible? Can atomic-scale machines really be built by human beings? Dick Feynman first introduced the concept we now call nanotechnology in his mind-bending paper, “There’s Plenty of Room at the Bottom” back in 1959. He opened with the idea of recording the entire (then) 24 volumes of the Encyclopedia Britannica on the head of a pin. But then nothing much happened with the idea, or so it seemed, until the 1980s, when K. Eric Drexler started promoting and popularizing nanotech, particularly in his seminal book, Engines of Creation: The Coming Era of Nanotechnology. Now there’s a lot of talk about it, and the non-profit Foresight Institute continues Drexler’s promotional work, but nobody has built an atomic-scale assembler robot, nor knows how to build one.
Doug: The way Drexler explained it, if you extend Moore’s Law, not only are computers getting twice as powerful every 18 months, their components are getting twice as small at the same time. Don’t forget that Moore’s Law describes an exponential curve. So, we’re approaching the point at which we’ll have molecular-scale super-computers. And there’s no reason not to suppose those computers couldn’t give instructions to molecular robots, which he called assemblers. Assemblers could take apart anything at all, one atom at a time, and reassemble those atoms into anything you like. That’s where I think we’re headed.
But even without getting to that level, there are so many other technologies I see advancing, I think great optimism is warranted. Great optimism in everything except politics and ethics, which continue to be very degraded.
L: What other technologies, besides nanotech, do you see ripening?
Doug: I’m very bullish on space flight – as long as it’s not left to the likes of NASA. I’d draw your attention in particular to what Burt Rutan is doing at Scaled Composites. Scaled Composites’ Spaceship One was the first private spacecraft to carry people into space. Innovative entrepreneurs like Rutan will soon be able to go to the Moon, Mars, the asteroids, and beyond, and establish colonies there.
L: Why should anyone who isn’t nuts about space, or a science fiction fan, care about that?
Doug: Where’s your sense of adventure?
L: It’s right here in my space-loving heart. But most people don’t want to claim an asteroid and head out into deep space in it the way I do.
Doug: Well, it’s human to want to sail across the ocean, just to see if you can, or to climb a mountain, for the same reason. But on a more practical level, if the nanotechnology revolution or the general technology singularity is delayed, there are immense benefits to economical space travel. There are practically infinite resources to be mined in the asteroid belt. There are other planets too, that can be mined, or terraformed so humans can live on them.
One of my favorite aphorisms is: “EARTH FIRST – We’ll mine the other planets later!” With more power pouring out from the sun than we can use and all those raw materials, there’s enormous wealth out there waiting for us to mobilize. There’s also the importance, if you care about the human race, of getting some of our eggs out of this one puny little planetary basket.
But maybe the biggest reason is to open a new frontier, a place political malcontents and “rugged individuals” can once again flee to from stifling old societies. There will eventually be thousands of new political entities, greatly accelerating the rate of experimentation and learning regarding social organization.
Doug: Exactly. Being limited to this one little backwater of a planet with its 200 squabbling nation-states spread over it like a scabrous disease is not very appealing to me. It’s time to get off the damned planet.
L: You’re singing my song. One idea I’ve tried to communicate for some time is that if, as you say, the technology singularity or nanotech revolution is delayed, getting heavy industry off the planet would be a very good thing. Out there, resources are abundant, and all sorts of manufacturing would be cheaper and better because you could make things in zero gravity. And if heavy industry is in space, it would not pollute the Earth.
Further, our population requires modern civilization. If you don’t want to kill off 99 out of 100 people living on the Earth, trying to force everyone to return to a pre-historic lifestyle, you have no choice but to reach for space – or see the planet paved over. Even if you were one of those extremists who see people as a disease on Mother Earth, you’ve got to realize that people won’t go quietly – and war would trash the planet even more. You’ve got to be pro-space development, and you should be an advocate of the fastest technological advance possible.
Doug: Yes, you’re absolutely right about that. And I think it will happen. The only thing that can stop it, of course, is politics. Politics always raises the cost and slows the development of technology. It’s nothing but a circus show where the worst among us dramatize their psychological aberrations. If we didn’t have so much government “help” from glacially paced bureaucracies like NASA, we’d already be living in a world as technologically advanced as that of the Star Trek movies.
L: There are people who might say that it was government science that put a man on the Moon…
Doug: Government doesn’t create anything. All it does is take resources from those who have discovered or created them, and, sometimes, focus some of them in a given area. I’m of the opinion that private space travel would have happened sooner and at lower cost if the government hadn’t first given itself a monopoly in the field. I can’t prove that, but that’s what I think.
L: I can believe it. And we have seen very blatant efforts by government to stop technological progress, such as the previous U.S. administration’s effort to stop stem-cell research.
Doug: Yes, and government imposes up to a billion dollars in unnecessary costs on developers of every new drug. All that money goes to pay lawyers and compliance experts, not scientists.
L: On the other hand, I’ve heard it argued by some technologists that while what you say about government is true, and that even though you can’t expect a sudden flowering of rationality to overcome everyone in Washington DC, you can count on self-interest. So, if, for example, neo-luddites in Congress were to ban research in nanotechnology because they fear it’s too dangerous, that won’t stop people in other countries. And since there are military applications, no government can afford to be left behind. So you end up with an arms race no country would dare be left out of – and the technology is developed, whether people want it or fear it, or not.
Doug: That’s exactly why this is a field that should not, and cannot, be regulated.
L: You know they’ll try.
Doug: Yes, and in trying, they’ll throw up barriers and increase costs. Which will drive entrepreneurs to the freest jurisdictions. That’s one reason why the U.S. is losing its lead in technology. There are now plenty of places that are not just a lot cheaper but a lot friendlier to science, technology, and business in general.
L: Interesting times indeed. Are there any investment opportunities here? Are you long any nanotech companies?
Doug: I do have a significant investment in one nanotechnology company, but it’s not something I recommend to others, yet. It’s all in the R&D stage, and I hate to invest in such science projects. It’s exactly the opposite from the type of thing Graham and Dodd recommend as a proper securities investment.
On the space front – not to say, the final frontier – there’s Scaled Composites and its joint venture with Virgin Galactic. They are working on a commercial vehicle to take tourists to space but that’s not a stock pick. There are several private rocket companies, but this, too, is a field that’s still mostly in the R&D phase.
But their time will come, and one thing I am willing to bet on is that Alex Daley, editor of our new technology letter, will be among the first to spot new investment opportunities.
As an aside, I have to say that I think the space cat is out of the bag. NASA may not like private space companies, but that won’t stop other countries from hiring those companies to build them space vehicles.
Ever since my friend Erwin Straus wrote a book called Basement Nukes in the 1970s, in which he argued that the average upper-middle-class American family could build a small nuclear device, I’ve been optimistic that government will not be able to stop progress. And that’s a good thing, because technological advances have always been to the greater benefit of the average man over those in power.
The greatest example of this is the invention of gunpowder, which made it possible for the average peasant to kill the heavily armored thugs – knights – who were dominating them.
L: The great equalizer.
Doug: Exactly. And the state did try to appropriate that technology for itself, but it didn’t work. Just as the gunpowder cat got out of the bag, newer technologies will as well. That’s especially true as there are many more new technologies in development now than there were at the time gunpowder and the printing press were being developed. By the time government committees are done drafting proposals to study possible frameworks for regulating new technologies, the bureaucrats’ plans will be obsolete.
So, yes, I’m an optimist – and the greatest single reason for that is technology.
L: Well, I’m feeling upbeat. Thanks for your insights, Doug.
Doug: You’re welcome. Talk to you next week.