Peter Thiel, co-founder of PayPal Inc. (David Paul Morris/Bloomberg)

Democracy in America is dead, according to  Silicon Valley investor Peter Thiel.

No, not in the anthropological, Alexander-de-Toqueville sense. The PayPal co-founder means it literally.

"It's not clear we're living in anything resembling a democracy," he told a crowd Tuesday at George Mason University. "We're living in a republic that's modified by a judicial system, that's been largely superseded by these agencies that drive the decision-making."

"Calling our society a democracy is very misleading," Thiel went on. "We're not a republic; we're not a constitutional republic. We live in a state that's dominated by these technocratic agencies."

For even the typically colorful Thiel, this is a surprisingly blunt critique of the American political system. It fits into a much larger brand of Washington skepticism that's become characteristic of Silicon Valley in recent years. And while much of it may ring true to the casual observer, it also draws its own critics. 

[Watch: Here's how entrepreneur and venture capitalist Peter Thiel thinks we should live each day]

Thiel says that organizations like the Federal Reserve have been allowed to roam too far. Calling government agencies "deeply sclerotic and deeply nonfunctioning," Thiel pointed to the Energy Department's failed investments in Solyndra as a case study in bureaucratic mismanagement and executive overreach.

"You could use ninth grade geometry to show this was never going to be commercially viable," he scoffed in reference to Solyndra's round solar panels, which he argued weren't as efficient as conventional solar collectors.

The bankrupt company aside, Thiel's bearish appraisal of the federal government is one that many share, particularly within the tech industry. Washington is slow, has a penchant for gridlock and is stuffed to the gills with old, white men. All of this creates a sense of stagnation that stands in stark contrast to the dynamism of the Valley, where ideas are constantly being developed, refined and rejected. Investors such as Chamath Palihapitiya, a former Facebook vice president and one of the founders of lobbying group FWD.us, have said that it's now "excruciatingly, obviously clear to everyone else that where value is created is no longer in New York, it's no longer in Washington, it's no longer in L.A. It's in San Francisco and the Bay Area."

For Thiel, this trend is tied to a much broader notion about globalization. Traditional power centers like New York and Washington did really well for themselves so long as nations rose and fell on the basis of international finance or geopolitics. The process of drawing the world closer through advanced communications and trade, said Thiel, reinforced that prosperity. But the housing bust and the financial crisis marked a turning point.

"I think with the benefit of hindsight, we will realize 2007 was the peak of globalization," he said.

As a result, the venture investor isn't all that confident about the future relevance of Washington and New York in world affairs, either. States like California and Texas — relatively "inward-looking" places, said Thiel — are stronger bets.

In Thiel's worldview, it makes sense to want to short the nation's capital. And his theory explains why Washington seems so deadlocked. It's just the wrong tool for the job, and the government is adapting in the only way it knows how: by becoming more assertive.

From the Environmental Protection Agency's new coal regulations to the Federal Communications Commission's historic net neutrality vote, it's hard to argue that federal agencies haven't become more assertive in recent years. But to say that they have hijacked U.S. decision-making gives them far, far too much credit. It also throws out decades of research and experience on how Washington actually works.

The real picture is much more complicated. Take the growing concentration of executive authority. As Vox's Dylan Matthews explains, it's a rational reaction to other institutions' chronic inability to govern. The White House couldn't allow the government to default on its debt in 2011, no matter what happened in Congress.

They knew that, if push came to shove, they had to have a way out … Obama would have shredded the debt ceiling. Republicans would have said it was an unprecedented executive power grab, and Democrats would have told them to calm down, it's not that bad. They're both right: Obama would have been claiming new powers, but that wouldn't have involved some kind of epic descent into tyranny.

The point is not that executive power grabs could never lead to tyranny but that executive power grabs rarely happen in a vacuum. Of course agencies have an incentive to expand their jurisdictions. But the idea that the entire dog of government (or the country, even) is being wagged by the tail of agencies is a little far-fetched when we know there are so many other factors that play a role in decision-making.

[Related: Obama promised to curb the influence of lobbyists. Has he succeeded?]

Take lobbying, for example. Some of the most powerful nongovernmental interests in the country are constantly seeking to shape how policy gets made in Washington. Lobbying doesn't just happen in Congress; it happens at the White House and at federal agencies, too. Corporations, nonprofits, trade groups — you name it — they're all pushing policymakers to take one course of action or another. You've heard of the military-industrial complex? Citizens United? If federal agencies were truly running the show, none of that would matter. But it does.

Even that glosses over another fundamental Washington dynamic you may be familiar with: The revolving door theory of politics, which describes what happens when a federal official leaves their job and becomes a lobbyist, or vice versa. OpenSecrets keeps a whole list of people who've done that. At the FCC, the agency I cover most closely, we've seen former commissioners become leading lobbyists for the cable industry and the wireless sector, and we've seen former industry lobbyists become full-fledged chairmen.

If Thiel is right and agencies are hijacking the country, then companies and business interests deserve part of the blame.

These are basic features of Washington that someone in Thiel's position should grasp. Their existence explains much of the behavior of federal agencies, and they help us understand why government can be so sclerotic and dysfunctional. It certainly does a much better job of explaining Washington than an abstract, contestable theory about whether globalization is increasing or decreasing, or whether Washington gains or loses importance because of it.

Researchers have been studying these political phenomena for decades. But Thiel discounts much of their work.

"I'm skeptical of people who invoke 'science' as an incantation," Thiel said. "We have political 'science,' we have social 'science,' but we don't have 'chemical science.' If you think of areas where people use [the term] 'science' excessively, those are areas we should be more skeptical of."

Social science can't explain everything. But even if you agree with Thiel on that point, it's impossible to ignore a tremendous irony in his argument: His idea that U.S. decision-making is the product of agency action was articulated nearly a half-century ago. By a political scientist. Only then, nobody claimed that federal agencies had overthrown the system.

Read more:

Mr. Thiel goes to Washington, vents about America’s government

Peter Thiel op-ed: Thinking too highly of higher ed

Vivek Wadhwa in defense of college: What Peter Thiel gets wrong, once again