With Twitter’s high-profile IPO, the media and much of the pundit class are revisiting one of their favorite themes: the superiority of the brash, young urban tech elite, who don’t need to produce much in the way of profits to be showered with investor cash. Libertarians will celebrate the triumph of fast-paced greed and dismiss concerns over equity; progressives may dislike the easy money but will be comforted when much of it ends up supporting their candidates and causes.
Lost amid this discussion is any sense of reality about the economy for the rest of us. To be sure, in large part due to the Fed, the Bay Area and Manhattan are awash in money. But these places are barely typical of their regions, much less the nation, and are not attuned to creating a prosperity that will benefit more than a slight percentage of our population.
The focus on digital uber alles is endorsed by a new school of American economics that essentially cedes the future to information-based industries and considers tangible activities like fossil fuel production, manufacturing and construction passé. In the mind of its devotees, such as UC Berkeley’s Enrico Moretti, author of The New Georgaphy of Jobs, information industries, clustered in ultra-expensive, overwhelmingly white (and Asian) enclaves, are the lodestones of our economic future.
But what about those lacking degrees from elite colleges? The economist Tyler Cowen suggests that the 85% of the population without the proper cognitive pedigree will need to adopt the survival strategies of the poor in Latin America, including a diet heavy in beans.
Another suggestion is that they can cut hair, walk dogs, and work on the houses of the digerati; given the extraordinary housing prices in the places where the anointed live, how they will afford to live anywhere near them is a bit of mystery. Yet most now putative middle-class Americans are not likely to walk easily to go into that dark night of limited opportunity. There remain economies anchored to more mundane industries, such as energy, construction, manufacturing and logistics, that still offer paths of upward mobility to people who didn’t go to Harvard, MIT or Stanford. These industries also employ more engineers and scientists than the IT sector, and in the case of energy produce more economic benefit to local economies, according to a 2007 study by the Bureau of Economic Analysis.
In contrast celebrated social media firms, overwhelmingly concentrated close to the venture capital spigot, are both geographically constrained and and employ shockingly few workers. The darlings of the bubblicious tech boom — Twitter, Facebook, Zynga, LindedIn and Google — employ roughly 58,000 people combined; in contrast the old-line tech firm Intel employ 85,000 people, half in the U.S., while ExxonMobil provides livelihoods to 80,000.
In term of profits, the supposed holy grail of business, it’s not even close. In Exxon’s disappointing last quarter it racked up $6.9 billion. By contrast Google earned $3.1 billion, while Facebook made $333 million and LinkedIn $3.7 million. Yet what the new tech oligarchs lack on the balance sheet, they seem to make up for with a combination of presumed potential and PR panache.
The money that has flowed to tech companies in San Francisco has and the much more important Silicon V alley has transformed these geographies, peninsula into something resembling glorified gated communities, populated by those lucky enough to have bought earlier and, increasingly, by techno-coolies shipped in from abroad.
With the cost of housing soaring, the Bay Area has lost domestic migrants until very recently. Meanwhile, the strongest household growth is taking place in less glitzy metro areas like Houston and other Texas cities, Atlanta, Raleigh and Jacksonville. With the worst of the recession over, most new jobs, once again, according to Moody Analytics, are likely to be created largely in Sun Belt locations such as Texas, Arizona, Georgia and even Nevada as well as the Great Plains and Intermountain West.
The people who settle in these places are not, as often asserted dummies stuck at the low rung of the meritocracy; the cities with the fastest-growing college-educated populations are primarily in the Sun Belt and Intermountain West, such as Houston, Austin, San Antonio and Nashville.
Although many of the new economists believe these areas are generating mainly “crummy” jobs, employment is expanding in higher-wage areas such as energy and manufacturing as well as services and even high-tech. What these unfashionable regions offer are good business conditions, reasonable housing prices and usually lower taxes. Increasingly these seem like the remaining future bastions of middle-class jobs and lifestyles while the coasts mint the most billionaires, many in tech and finance.
Ideally America’s economy should benefit from both Twitter and wildcatters. But increasingly Silicon Valley, led by Google, has chosen to wage an economic war on competing sectors, notably the fossil fuel industry, including producers of relatively clean, abundant and cheap natural gas. By doing this they also threaten America’s nascent industrial renaissance, and particularly the country’s heartland. These jobs may not replace all those lost in past decades, but they tend to be higher paying and offer communities, particularly in the Midwest and Southeast, opportunities that few previously thought possible.
Tech boosters like Moretti tend to claim that jobs created by social media and software firms are more solid, and permanent, than those in more traditional sectors. This is absurd. Tech employment has become, if anything, more unstable than energy. Indeed between 2000 and 2008, Valley tech companies lost well over 100,000 jobs; even with the current bubble, Silicon Valley’s STEM employment, according to estimates by Economic Modeling Specialists Inc., has only now started to make up for what was lost in the last recession.
Of course, energy, as well as manufacturing, suffer through cycles, although the opening of the developing world economies has created a vast, and likely permanent, long-term market. New technologies, including fracking and horizontal drilling, also suggest that resources may not erode as quickly as in the past.
Rather than celebrate or at least coexist with the tangible economy’s power, the tech oligarchs , along with their allies on Wall Street and within the political-media class, seem intent on stamping them out. One manifestation of this alliance could be seen in the recent pronunciamento against the Keystone Pipeline signed by three prominent oligarchs: Bay Area hedge fund manager Tom Steyer, retiring New York Mayor Michael Bloomberg and former Treasury Secretary Hank Paulson, the designer of the TARP bailouts and first rescuer of Wall Street’s worst miscreants.
But for some, like the politically connected billionaire Steyer, there’s more to this more than just misguided idealism. Steyer and his allies, such as Google and associated venture firms, have sought to profit mightily by backing renewable energy ventures dependent on regulations mandating their use and guaranteeing high prices.
The price of this enlightened progressive profit-taking largely falls on working class Californians, and traditional industries, which get stuck with exorbitant energy prices. We can see similar phenomena in New York State, where grandees now finance much of the anti-fracking movement, joined by academics, Manhattan glitterati and gentry landowners. In contrast to Pennsylvania and Ohio, where new energy development is sparking manufacturing and opportunities in formerly destitute communities, the anti-fracking band seems destined to keep upstaters the economic equivalent of fat, dumb and pregnant.
Perhaps we should call the new concert of tech, media and finance “Billionaires for Poverty.” Their approach — backed by the new economists – leaves most Americans only the prospect of a dim future envisioned, with people huddled together, like our grandparents in small apartments, working at low wages with little hope of advancement. Perhaps some will be satisfied with a higher minimum wage, more digital gadgetry, and an expanded welfare state in lieu of a middle-class existence.
Instead of waging a senseless economic war that is sure to expand class divisions perhaps the best economic model would be to encourage growth of both the tangible and digital economies. According to my colleague Mark Schill of the Praxis Strategy Group, the tech and energy sectors employ roughly the same number of people, 2.4 million, and pay around the same average wages, slightly above $100,000.
Texas has benefited by going after both sectors, something California as well as New York have disdained to do. Indeed even in tech, Texas is gaining ground, since 2001 adding tech jobs at a much faster pace than than California. The Lone Star state could, at the current rate, equal the Golden State in this critical field within a decade or two.
But there’s no real competition in the energy sweepstakes. Since 2001 Texas has added some 208,000 jobs in this field, and now employs over 580,000. In contrast California, whose fossil fuel resources may match or even exceed Texas’, has created barely 20,000, for a total of 185,000. Critically, IT work generally employs only college graduates, while the energy industry employs, often at high wages, not only geologists and other highly trained workers but blue-collar workers on rigs, driving trucks, or monitoring equipment.
Providing broad opportunities for the mass of Americans — not enriching the few, even if they happen to be hip and cool — should be the primary objective in an economy in a democracy. The supremacy of the emerging digital economy may be OK for people at Twitter or Facebook, but how many of the rest of us want our children to grow up with little chance of reaping much from the economy except an updated app that allows them to stay in touch with their largely unemployed or underemployed “friends.”