Peter Thiel says tech innovation is outpacing everything else for one very simple reason

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peter thiel

Tristan Fewings / Getty

Peter Thiel is worth a reported $2.2 billion.

He made his money in software, mainly through founding PayPal and investing in Facebook.

Notably, he hasn't done much business in the physical world - only in the virtual space.

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There's a reason for that.

In a recent conversation with economist Tyler Cowen at the Mercatus Center at George Mason University, Thiel gave a very simple, and very libertarian, explanation for why innovation is happening only behind screens.

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We're in a "two-track" era of innovation, he said, with lots of breakthroughs happening in the world of bits, between information technology, mobile, and that thing called the internet. Yet the world of atoms is slow - with space travel, high-speed transit, and new medical devices still largely remaining the stuff of science fiction.

As Thiel has said elsewhere, we were promised flying cars; instead we got 140 characters.

The reason?

"I would say that we lived in a world in which bits were unregulated and atoms were regulated," Thiel said.

"If you are starting a computer-software company, that costs maybe $100,000," he said. But "to get a new drug through the FDA, maybe on the order of a billion dollars or so."

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Thus the lack of startups making drugs - the barriers of entry are way too high.

Imagine if the same legislation were applied to software.

"If the FDA were regulating video game technologies, and you had to do a double-blind study to make sure that the video games weren't addictive, damaging to your brain, et cetera," he said.

To Thiel, things like drugs are "very overdetermined" by regulation, making innovation prohibitively expensive.

But here's the thing: Unlike a new messaging app, drugs change the chemical composition of your body.

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If Silicon Valley companies were free to "iterate" with cancer treatments, people would die in the process.

"Move fast and break things" works when you're tweaking the algorithm of a newsfeed, not human lives.

Read the full transcript of Thiel's interview here and watch the video below.