One reason is that Al Gore was a rare politician with the vision to see the potential and he spent 20 years funding and building markets and legal basis for Internet as a technology and business.
For his troubles, he was transformed into a public joke by our moronic media, especially your former employers at the NYT.
He was also invited to be on Apple's Board shortly after SCOTUS decided he didn't win, with 5v4 decision. His value has been known by many for a long time, but I get your point.
All astute observations. Two more critical factors help explain why Silicon Valley is where it is. This area is home to both Stanford and UC Berkeley - two of the world's top science and engineering universities. Also, California has long banned non-compete agreements, so it was the rare place where employees who had a better idea, but were being held back by their employer, could walk across the street and start a competing company - great for innovation.
The irony is that if California had not banned non-competes, companies would have absolutely used them aggressively to their own detriment. It never ceases to amaze me how people who know how to build a business don’t really know much about economics or public policy. They believe that what is good for their company is good for the public in general.
Market-friendly politicians too often think that what’s good for incumbents is good for the markets themselves, not realizing that businesses hate competition.
It is fascinating how this massive wealth in Silicon Valley has not resulted in improved quality of life in the area. We don’t live in better homes compared to the rest of Americans or Europeans. We don’t have better transit or better public schools or better public swimming pools. Our refusal to build housing and other public infrastructure in CA has resulted in nearly all of this money simply diffusing away to the heat of higher costs.
The other advantage US tech has is military connection, something that’s always been present but has only increased with space X’s partnership with NASA. A country that spends more money on its military than anything else combined is incidentally paying for a lot of tech developments that inevitably wind up in the hands of military partners like Musk.
Actually the internet (fostered by DARPA ) ended up pretty quickly being used for civilian use.
I'd argue that the short-sightedness of Xerox, which started Palo Alto Research Center as a prestige thing to compete with Bell Labs, was a big factor in developing Silicoan Valley as well.
It ended up turned it into an idea factory thay they didn't know what to do with. The man who invented laser printing was essentially exiled there, and finished devloping the principle of the laser printer, was ignored by Xerox execs because it threatened their copier business. Ethernet was in vented ther. The GUI was invented there.
(and no Steve Jobs didn't steal it...Apple gave Xerox a large block of stock in exchange for the right to use the ideas...that in depressingly typical Xerox Fashion...was sold just before Apple did one of their early stock splits because of the success of the Apple II. )
So much of modern computing started at PARC and was essentially thrown away by Xerox that I remain astounded that it's still a going business concern.
Interesting ideas. I'd also add as factors weather/natural beauty of the Bay Area (extending northeast into the wine country) and proximity to a critical mass of universities. Basically, once you live there, if you can afford it, why would you ever leave?
I moved to San Francisco at age 21 with nothing more than a plan to get work as a programmer. On my second successful venture now. For me the move was easy because I already lived in the US so I could catch a redeye flight and stay in hostels. People from other countries have to get permission to come here. In the future things may be different. The cheapest accommodations in San Francisco are much more expensive than they were in the past, immigration, including work-based immigration, is much harder than it was back then, and an increasing share of new companies, including my current one, are all remote.
As far as what makes California different, the policy of noncompetes being unenforceable is far more important than anyone outside of the industry realizes. Hopefully that will spread elsewhere in the future.
"The growth of the Internet will slow drastically, as the flaw in 'Metcalfe's law' — which states that the number of potential connections in a network is proportional to the square of the number of participants — becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."
“Obviously, this was wrong when applied to the whole internet, since e-commerce, electronic business communication, and supply chaining have been hugely beneficial for economic growth all over the world. But if you just think about the social component of the internet — which is what Krugman appears to be talking about in that paragraph — there’s a real question as to whether it gave the economy a significant productivity boost. Around 2005 — the same year Krugman named in that piece — developed-country productivity growth slowed down dramatically and stayed low, even as the social media business was ramping up. Careful analyses show that the unmeasured consumer benefits of free internet services are unlikely to explain much or any of this puzzle. So Krugman ended up having the last laugh, even though his 1998 quote is often trotted out to make fun of him.”
I see what you're suggesting, but Noah admits that it is wrong when applied to the whole "internet". I prefer Ben Franklin's approach - he said, “For having lived long, I have experienced many instances of being obliged by better information, or fuller consideration, to change opinions even on important subjects, which I once thought right, but found to be otherwise.”
I have not heard Dr. Krugman claim he was absolutely right.
No one has consistently gotten things wrong more than regime economists like Krugman and Reich. Their entire careers only exist to provide apologetics for wealthy coastal elites.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."
Metcalfe's Law is wrong in practice, because some nodes in a network have much more value than others (you're not here because of me) and some nodes even have negative value, such as assholes and spammers. The value of a communications network actually tends to be proportional to N log N, not N².
Yup. And he was right. The internet just changed the way we did things but it hasn’t improved the overall economy. Our productivity didn’t actually get better. By the way, the quality of phone service is worse, customer service after the sale is significantly worse, social interaction is worse…. So thanks for reminding me that if we didn’t have the internet, things would be less convenient but overall quality of life would be better. Oops, gotta go, it’s after hours but my boss just messaged me via three different platforms.
Dr Krugman, please turn on the paywall so people have to pay to comment. That will reduce the number of trolls who talk smack but never bring actual facts to the table. I would gladly pay $5/mth for the right to comment
Great video and lovely song. Also, in reply to Yuri, everyone gets something wrong from time to time, and prof. Krugman is one of the few I have read to admit mistakes...
No one has consistently gotten things wrong more than regime economists like Krugman and Reich. Their entire careers only exist to provide apologetics for wealthy coastal elites.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."
I would disagree with that. Krugman was right about the second Gulf War (no WMDs!) and also about the effects of monetary policy during the Great Recession (no inflation).
"U.S. voters seem to be more or less the only people in the world who believe that America has a bad economy. Other nations look at our performance with envy"
U.S. voters are right, and 'the economy' is booming, but not for them.
The dichotomy is merely who is viewing the economy.
For billionaires and multimillionaires, and even the top 5-10%, the US economy is pretty good.
For most other people, not. BLS removed 'long term unemployed>1yr' from U6 in 1994. If we add those back in, unemployment looks more like -ulp- 25%. Pretty grim.
"pointing to the underlying culprit behind all these trends: the corruption of the American economic system, which they argue looks “more like a racket for redistributing upward than an engine of general prosperity.” The skewing of wealth and income toward the richest Americans and educated elites over the past half-century — aided by government policies and legislation — has “slowly eaten away at the foundations of working-class life, high wages and good jobs,”
The uproar over the killing of the UHC CEO just reflects the reality that 90+% of US citizens are one serious illness away from homelessness, and they know it.
So billionaires and big corporations are doing GREAT!! But most other people, not so much.
As someone who worked in the San Francisco Bay Area biotech for years, I can support what Krugman is saying with respect to the American versus European venture capital culture. The Americans, at least the Silicon Valley Sand Hill Road variety, were always looking for “the next big thing” , even if that meant that 90% of them would be failures, whereas the Europeans seemed to be reluctant to take big chances for fear they might be seen as having made a poor judgment
As a Canadian in tech since the early 1980's, the US governments, corporations and consumers have always been far more willing to purchase tech services or products from new players than other countries. I had that conversation with a highly successful local hi-tech investor and serial startup creator in Ottawa, who stated that despite being a succes in selling globally, no level of government and few Canadian organizations buy products or services from his many companies. All his first sales were in the UK or EU.
I think the important question when it comes to productivity generated by tech and finance clusters, is whether the high productivity in these regional clusters improves the quality of life for the larger region.
I live in Toronto which has substantial tech and finance clusters but there simply isn't the public investment to ensure that the wealth generated by these clusters benefit the public at large.
From my trips to the Bay Area and New York City, that particular problem is even worse in those locales.
FWIW, Hewlett and Packard started their company in part because of Stanford -- one of their mentors was Stanford professor Fred Terman, who also helped start quite a lot of other businesses, in large part to help out the local defense industry. One reference on this stuff from a latter-day Silicon Valley denizen is here: https://steveblank.com/secret-history/
I wonder what the role of legacy engineering/scientific companies in the Bay Area and Seattle might have had on this development. Did having defense industries like Boeing encourage locals or students at the universities to consider going into tech rather than say business or finance? Did the needs of the companies affect the focus of the universities to supply engineers?
Great post about Silicon Valley. Reminded me of another industrial cluster: Hollywood. Also made me wonder about the failure of Boston to compete. I remember when the highway around Boston was in competition. Maybe it was the weather
It also _had_ the computer systems. Digital Equipment Corporation (remember Vaxes?) Data General. Everything got gradually acquired or outcompeted by West Coast companies.
DEC ruled the 80s, the cheaper and more nimble alternative to IBM 360. But it was too slow to shift to commodity processors and was so diminished by the time it pivoted to RISC that it was eaten by Compaq, which HP in turn swallowed in one of Carly Fiorina's great follies. Secondary tech clusters in NY and NJ (even Bell Labs where Unix was invented) eventually migrated towards the sunshine. Andreessen invented the modern Web browser at UIUC (also the birthplace of the Data General architecture and the first supercomputer) but went out west to make it real.
The cluster idea makes sense - so many relevant companies have been so close in the Bay Area that it has made a lot of sense to start a new enterprise there (not even counting the VC effect). But while you briefly mentioned Stanford, it has been the combination of Stanford and Berkeley (I retired from the latter so I am slightly biased) that has also been key to the continued dominance - students get ideas and grow them in the area - also the weather is nice (I recall getting some great emigrés from frigid MIT).
One reason is that Al Gore was a rare politician with the vision to see the potential and he spent 20 years funding and building markets and legal basis for Internet as a technology and business.
For his troubles, he was transformed into a public joke by our moronic media, especially your former employers at the NYT.
He was also invited to be on Apple's Board shortly after SCOTUS decided he didn't win, with 5v4 decision. His value has been known by many for a long time, but I get your point.
Aarghh, any mention of SCOTUS bums me out
There is that. The 3 of the 6v3 don't have the job satisfaction they deserve. Their legal expertise will be largely wasted, and that's a shame.
All astute observations. Two more critical factors help explain why Silicon Valley is where it is. This area is home to both Stanford and UC Berkeley - two of the world's top science and engineering universities. Also, California has long banned non-compete agreements, so it was the rare place where employees who had a better idea, but were being held back by their employer, could walk across the street and start a competing company - great for innovation.
The irony is that if California had not banned non-competes, companies would have absolutely used them aggressively to their own detriment. It never ceases to amaze me how people who know how to build a business don’t really know much about economics or public policy. They believe that what is good for their company is good for the public in general.
Market-friendly politicians too often think that what’s good for incumbents is good for the markets themselves, not realizing that businesses hate competition.
It is fascinating how this massive wealth in Silicon Valley has not resulted in improved quality of life in the area. We don’t live in better homes compared to the rest of Americans or Europeans. We don’t have better transit or better public schools or better public swimming pools. Our refusal to build housing and other public infrastructure in CA has resulted in nearly all of this money simply diffusing away to the heat of higher costs.
The other advantage US tech has is military connection, something that’s always been present but has only increased with space X’s partnership with NASA. A country that spends more money on its military than anything else combined is incidentally paying for a lot of tech developments that inevitably wind up in the hands of military partners like Musk.
Actually the internet (fostered by DARPA ) ended up pretty quickly being used for civilian use.
I'd argue that the short-sightedness of Xerox, which started Palo Alto Research Center as a prestige thing to compete with Bell Labs, was a big factor in developing Silicoan Valley as well.
It ended up turned it into an idea factory thay they didn't know what to do with. The man who invented laser printing was essentially exiled there, and finished devloping the principle of the laser printer, was ignored by Xerox execs because it threatened their copier business. Ethernet was in vented ther. The GUI was invented there.
(and no Steve Jobs didn't steal it...Apple gave Xerox a large block of stock in exchange for the right to use the ideas...that in depressingly typical Xerox Fashion...was sold just before Apple did one of their early stock splits because of the success of the Apple II. )
So much of modern computing started at PARC and was essentially thrown away by Xerox that I remain astounded that it's still a going business concern.
Interesting ideas. I'd also add as factors weather/natural beauty of the Bay Area (extending northeast into the wine country) and proximity to a critical mass of universities. Basically, once you live there, if you can afford it, why would you ever leave?
ETA: This must be the place -- perfect choice.
Perpetual good weather is sorely underrated by those who haven't experienced it's wonders.
I'd have like this comment but for its misuse of the word "its"
Correct - how embarrassing!
I moved to San Francisco at age 21 with nothing more than a plan to get work as a programmer. On my second successful venture now. For me the move was easy because I already lived in the US so I could catch a redeye flight and stay in hostels. People from other countries have to get permission to come here. In the future things may be different. The cheapest accommodations in San Francisco are much more expensive than they were in the past, immigration, including work-based immigration, is much harder than it was back then, and an increasing share of new companies, including my current one, are all remote.
As far as what makes California different, the policy of noncompetes being unenforceable is far more important than anyone outside of the industry realizes. Hopefully that will spread elsewhere in the future.
"The growth of the Internet will slow drastically, as the flaw in 'Metcalfe's law' — which states that the number of potential connections in a network is proportional to the square of the number of participants — becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."
-Paul Krugman, 1998
“Obviously, this was wrong when applied to the whole internet, since e-commerce, electronic business communication, and supply chaining have been hugely beneficial for economic growth all over the world. But if you just think about the social component of the internet — which is what Krugman appears to be talking about in that paragraph — there’s a real question as to whether it gave the economy a significant productivity boost. Around 2005 — the same year Krugman named in that piece — developed-country productivity growth slowed down dramatically and stayed low, even as the social media business was ramping up. Careful analyses show that the unmeasured consumer benefits of free internet services are unlikely to explain much or any of this puzzle. So Krugman ended up having the last laugh, even though his 1998 quote is often trotted out to make fun of him.”
Via Noahopinion (https://substack.com/home/post/p-152687870?source=queue)
When all else fails...
Move the goalpoasts!
I see what you're suggesting, but Noah admits that it is wrong when applied to the whole "internet". I prefer Ben Franklin's approach - he said, “For having lived long, I have experienced many instances of being obliged by better information, or fuller consideration, to change opinions even on important subjects, which I once thought right, but found to be otherwise.”
I have not heard Dr. Krugman claim he was absolutely right.
No one has consistently gotten things wrong more than regime economists like Krugman and Reich. Their entire careers only exist to provide apologetics for wealthy coastal elites.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."
-Upton Sinclair
No one who is here has a salary that depends on believing Krugman is correct.
Metcalfe's Law is wrong in practice, because some nodes in a network have much more value than others (you're not here because of me) and some nodes even have negative value, such as assholes and spammers. The value of a communications network actually tends to be proportional to N log N, not N².
https://spectrum.ieee.org/metcalfes-law-is-wrong
Yup. And he was right. The internet just changed the way we did things but it hasn’t improved the overall economy. Our productivity didn’t actually get better. By the way, the quality of phone service is worse, customer service after the sale is significantly worse, social interaction is worse…. So thanks for reminding me that if we didn’t have the internet, things would be less convenient but overall quality of life would be better. Oops, gotta go, it’s after hours but my boss just messaged me via three different platforms.
Dr Krugman, please turn on the paywall so people have to pay to comment. That will reduce the number of trolls who talk smack but never bring actual facts to the table. I would gladly pay $5/mth for the right to comment
Great video and lovely song. Also, in reply to Yuri, everyone gets something wrong from time to time, and prof. Krugman is one of the few I have read to admit mistakes...
"everyone gets something wrong from time to time"
No one has consistently gotten things wrong more than regime economists like Krugman and Reich. Their entire careers only exist to provide apologetics for wealthy coastal elites.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."
-Upton Sinclair
I would disagree with that. Krugman was right about the second Gulf War (no WMDs!) and also about the effects of monetary policy during the Great Recession (no inflation).
I regret to inform you…
https://contrakrugman.com/
…That a broken clock is right twice a day.
Coastal elites have just been explained.
As has London
"U.S. voters seem to be more or less the only people in the world who believe that America has a bad economy. Other nations look at our performance with envy"
U.S. voters are right, and 'the economy' is booming, but not for them.
The dichotomy is merely who is viewing the economy.
For billionaires and multimillionaires, and even the top 5-10%, the US economy is pretty good.
For most other people, not. BLS removed 'long term unemployed>1yr' from U6 in 1994. If we add those back in, unemployment looks more like -ulp- 25%. Pretty grim.
Two different folks track this.
https://www.lisep.org/tru
https://www.shadowstats.com/alternate_data/unemployment-charts
The US has siphoned $50 TRILLION from the working class to the top 1%,
https://time.com/5888024/50-trillion-income-inequality-america/
and this has led to epidemics in alcoholism, suicide and drug use. (Case & Deaton)
tinyurl.com/NYT2020DeathsOfDespair
https://wapo.st/4gaS89S
"pointing to the underlying culprit behind all these trends: the corruption of the American economic system, which they argue looks “more like a racket for redistributing upward than an engine of general prosperity.” The skewing of wealth and income toward the richest Americans and educated elites over the past half-century — aided by government policies and legislation — has “slowly eaten away at the foundations of working-class life, high wages and good jobs,”
The uproar over the killing of the UHC CEO just reflects the reality that 90+% of US citizens are one serious illness away from homelessness, and they know it.
So billionaires and big corporations are doing GREAT!! But most other people, not so much.
Billionaires have increased their share of wealth from 14 to 21% of GDP since 2020.
As someone who worked in the San Francisco Bay Area biotech for years, I can support what Krugman is saying with respect to the American versus European venture capital culture. The Americans, at least the Silicon Valley Sand Hill Road variety, were always looking for “the next big thing” , even if that meant that 90% of them would be failures, whereas the Europeans seemed to be reluctant to take big chances for fear they might be seen as having made a poor judgment
As a Canadian in tech since the early 1980's, the US governments, corporations and consumers have always been far more willing to purchase tech services or products from new players than other countries. I had that conversation with a highly successful local hi-tech investor and serial startup creator in Ottawa, who stated that despite being a succes in selling globally, no level of government and few Canadian organizations buy products or services from his many companies. All his first sales were in the UK or EU.
I think the important question when it comes to productivity generated by tech and finance clusters, is whether the high productivity in these regional clusters improves the quality of life for the larger region.
I live in Toronto which has substantial tech and finance clusters but there simply isn't the public investment to ensure that the wealth generated by these clusters benefit the public at large.
From my trips to the Bay Area and New York City, that particular problem is even worse in those locales.
FWIW, Hewlett and Packard started their company in part because of Stanford -- one of their mentors was Stanford professor Fred Terman, who also helped start quite a lot of other businesses, in large part to help out the local defense industry. One reference on this stuff from a latter-day Silicon Valley denizen is here: https://steveblank.com/secret-history/
I wonder what the role of legacy engineering/scientific companies in the Bay Area and Seattle might have had on this development. Did having defense industries like Boeing encourage locals or students at the universities to consider going into tech rather than say business or finance? Did the needs of the companies affect the focus of the universities to supply engineers?
Kel Feind
Kel’s Substack
just now
Great post about Silicon Valley. Reminded me of another industrial cluster: Hollywood. Also made me wonder about the failure of Boston to compete. I remember when the highway around Boston was in competition. Maybe it was the weather
Boston has its own cluster tho... its got all the biotechs
It also _had_ the computer systems. Digital Equipment Corporation (remember Vaxes?) Data General. Everything got gradually acquired or outcompeted by West Coast companies.
DEC ruled the 80s, the cheaper and more nimble alternative to IBM 360. But it was too slow to shift to commodity processors and was so diminished by the time it pivoted to RISC that it was eaten by Compaq, which HP in turn swallowed in one of Carly Fiorina's great follies. Secondary tech clusters in NY and NJ (even Bell Labs where Unix was invented) eventually migrated towards the sunshine. Andreessen invented the modern Web browser at UIUC (also the birthplace of the Data General architecture and the first supercomputer) but went out west to make it real.
The cluster idea makes sense - so many relevant companies have been so close in the Bay Area that it has made a lot of sense to start a new enterprise there (not even counting the VC effect). But while you briefly mentioned Stanford, it has been the combination of Stanford and Berkeley (I retired from the latter so I am slightly biased) that has also been key to the continued dominance - students get ideas and grow them in the area - also the weather is nice (I recall getting some great emigrés from frigid MIT).
Geographic clusters explains why cities have been the economic and social drivers of every country.