It was Ben Bernanke who pointed out that economics isn't really all that much good at predicting the next recession (and the long-standing joke is that economists have predicted 11 out of the past three), but it is pretty good at working out why the world is the way it is.
Which brings us to the cutting edge of modern economic research and an explanation of why the tech bit of the tech industry is so hugely concentrated in Silicon Valley, and also why the nerds get paid so damn much.
Our starting point is, as always when looking at the structure of firms and industries, Ronald Coase and his paper Theory of the Firm ( http://lib.cufe.edu.cn/upload_files/other/4_20140516101548_13%20Coase.pdf ). Essentially, he asked why do we have firms? The answer being that sometimes it is more efficient to do so than to have a network of contractors dealing with each other.
Critical mass there is obviously akin to clustering. But they are taking it a stage further, in that they're not arguing that it's just more convenient or efficient, as in clustering, but that there's got to be some minimum amount for it all to work at all.
No economist is going to go around shouting that his model solves everything: economists have a name for people that do that and it's “non-economists”.
A model explains only those aspects of reality that the model was set up to explore. So the mapping of any one model over reality is never going to be one to one.
We do think that this model, where knowledge is a combination of good and also where the asset is really the knowledge holders themselves, explains some aspects of why the top end of the tech business is so concentrated in Silicon Valley and also why people get paid so blindingly much.
But nobody is arrogant enough to suggest that it explains all behaviour in the industry, nor that it even explains all about the clustering and the incomes. Only that it shines a light on some of it.
http://www.theregister.co.uk/2015/04/19/so_why_is_tech_all_in_silicon_valley/
[Related]: http://antidismal.blogspot.cz/2015/04/modelling-science-as-contribution-good-2.html
(Score: 5, Funny) by Ethanol-fueled on Monday April 20 2015, @01:26PM
California's tolerance for gay orgies, cocaine use, neckbeardism and basement-dwelling, and lots of cheap labor for gardening and housekeeping.
(Score: 5, Touché) by Anonymous Coward on Monday April 20 2015, @01:30PM
I didn't know that economists are familiar with binary.
(Score: 5, Interesting) by Phoenix666 on Monday April 20 2015, @02:19PM
As a Chicago School-trained economist, the absolutely most exasperating thing about models for me was that they only ever aspired to be explanatory. There was never talk of forming testable hypotheses and then going out and testing them, you know, like a scientist would do. Of course when you are dealing with human beings it is much more difficult, for reasons of ethics, to design reproducible experiments. But it is possible--Milgram showed us that. Despite his showing us that, however, the practice of peers mimicking his setup to try to reproduce his results never took in the social sciences. The Chicago economists behave like the Catholic Church of old, whose knowledge of the Truth was too sacred and pure to be entrusted to the laity. That is, they always blamed the failure of their models to *even* explain economic behavior on politicians and plebes not implementing their pronouncements perfectly enough.
Sure, early 20th century attempts at modernist-inspired social engineering left a bad taste in a lot of people's mouths, but with big data, computers, and network theory (among other things) it feels like we're starting to have the tools that will really give us insight into organic social systems and how to create conditions for them to form and re-form in positive ways. The problem is there's so much cruft enshrined in the halls of government, academia, and business that it's still a matter of serendipity as much as it ever was for "clusters" of talent to form.
Washington DC delenda est.
(Score: 2) by Thexalon on Monday April 20 2015, @04:42PM
Part of that was that you were trained in the Chicago School. By contrast, the neo-Keynesians mostly trained at MIT (Ben Bernanke, Joe Stiglitz, Mario Draghi, Paul Krugman, and quite a few others) absolutely test their ideas against reality and throw out or adjust the ones that don't match new data. This to me has significant bearing on whether to believe that a theory might accurately describe reality.
That is also why the Fed has basically ignored all the pronouncements of the Chicago School, which has spent most of the last 7 years yelling about hyperinflation risks (nothing remotely like that has turned up).
The only thing that stops a bad guy with a compiler is a good guy with a compiler.
(Score: 1) by khallow on Monday April 20 2015, @06:22PM
(Score: 2) by Thexalon on Monday April 20 2015, @07:16PM
What the neo-Keynesians did in response to the Japan failure was to study it very carefully [brookings.edu] and revise their models.
As far as those strategies not working for the US now, that's a pretty ridiculous accusation:
- The tactics being used by the Federal Reserve were not the same ones the Bank of Japan used.
- The US economic performance stacks up rather well against the EU, UK, and Canada [worldbank.org]. I used unemployment numbers, but you get similar results looking at other metrics.
- In the US, employment (including employment/working-age population) is up, unemployment is down, GDP is up. Those aren't the signs of a failure to recover.
How about that.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.
(Score: 1) by khallow on Tuesday April 21 2015, @09:52AM
As far as those strategies not working for the US now, that's a pretty ridiculous accusation
Backed by six years and counting of evidence.
The tactics being used by the Federal Reserve were not the same ones the Bank of Japan used.
Japan both dropped central bank lending rates to 0% and a similar "quantitative easing" strategy with similar results. In case you forgot, Japan used to have a strong, growing economy. Suddenly, that stopped for more than two decades.
The US economic performance stacks up rather well against the EU, UK, and Canada. I used unemployment numbers, but you get similar results looking at other metrics.
And US economic performance is shit compared to the developing world. The EU and Canada have been playing the neo-Keynesian game too.
In the US, employment (including employment/working-age population) is up, unemployment is down, GDP is up. Those aren't the signs of a failure to recover.
Only if you don't care about what the US economy could have been doing instead. The problem here is that the US could have done absolutely nothing since 2007 and still have a positive sign to those various economic factors by now.
(Score: 1) by khallow on Tuesday April 21 2015, @01:24PM
A liquidity trap may be defined as a situation in which conventional monetary policies have become impotent, because nominal interest rates are at or near zero: injecting monetary base into the economy has no effect, because base and bonds are viewed by the private sector as perfect substitutes. By this definition, a liquidity trap could occur in a flexible price, full-employment economy; and although any reasonable model of the United States in the 1930s or Japan in the 1990s must invoke some form of price stickiness, one can think of the unemploy- ment and output slump that occurs under such circumstances as what happens when an economy is trying to have deflation-a deflationary tendency that monetary expansion is powerless to prevent
And he states that liquidity traps are a "credibility problem" (here the idea that everyone realizes the policy in question can't continue long enough to make a difference) for the monetary policy maker without discussing why they are. The key problem here is that the liquidity trap happens in the first place because the control problem, a typical monetary goal of increasing short term economic output by dropping the interest rate on loans, valued in the currency of the economy, is deeply flawed (and creates the "credibility problem" situation when the trick is pushed far enough to result in loss of control). While long term economic output is not necessarily all that great a measure either, it at least has the virtue of introducing a degree of long term planning into this problem and requires a far simpler and less active control system than the neo-Keynesian approach. Now, to forestall the accusation that I'm arguing a straw man, note that in the section, "The Hicksian Liquidity Trap", Krugman attempts to increase demand for a good via interest rate setting to match current productive capacity (which can't be done, if reaching that point on the model requires negative interest rates). That's optimizing for short term output rather than long term output.
A key thing ignored in this model is whether it's even a good idea to use that excess production capacity in the first place! After all, if you instead don't do that, then the resources put into that production capacity can then be redirected in the future to other production of other goods. A higher interest rate and a somewhat longer recession would encourage that transition.
(Score: 0) by Anonymous Coward on Monday April 20 2015, @02:27PM
Typical economists, wasting all that verbiage just to say "network effect" (physical/geographical in this case).
(Score: 0) by Anonymous Coward on Monday April 20 2015, @02:33PM
So you're saying that economists don't use the language economically?
(Score: 2) by bob_super on Monday April 20 2015, @05:43PM
Actually, I believe it's called "commons".
The same way that building cars away from Detroit used to be unfathomable, finding the right infrastructure to build hard tech away from Silicon Valley meant extra expenses and delays.
Interestingly, the internet should have put a hard stop to that, but then again, the weather is so goddamn nice...
(Score: 0) by Anonymous Coward on Monday April 20 2015, @06:50PM
Telecom making location irrelevant has been proven to be a myth. Telecommunication (and possible time difference) imposes costs often exhorbitant for timely, innovative work.
(Score: 1, Informative) by Anonymous Coward on Monday April 20 2015, @03:00PM
Theres a bolus of bio-tech around Boston. Houston has energy extraction technology. And Chicago materials technology.
(Score: 2, Insightful) by Ethanol-fueled on Monday April 20 2015, @03:05PM
Boston and Chicago are cold and Houston is humid and sucks. And in all three of those cases, the local populations are even more intolerable than that of the Californian Bay Area.
There are some things that even a super-awesome salary, cheap property, and job security just can't give you.
(Score: 2, Insightful) by Anonymous Coward on Monday April 20 2015, @03:08PM
The point is that not all "tech" is in California. Unless tech is just writing cell phone aps and farmville.
(Score: 4, Insightful) by Tork on Monday April 20 2015, @04:16PM
🏳️🌈 Proud Ally 🏳️🌈
(Score: 0) by Anonymous Coward on Monday April 20 2015, @04:37PM
Yes. It's a bit of parody.
(Score: 2) by Tork on Monday April 20 2015, @06:46PM
🏳️🌈 Proud Ally 🏳️🌈
(Score: 2) by Grishnakh on Monday April 20 2015, @09:19PM
Actually, there's a good bit of that kind of BS in NYC too. There's a lot of tech jobs in NYC, but almost all of them have to do either with finance (and big data related to finance) or to advertising.
(Score: 5, Insightful) by Grishnakh on Monday April 20 2015, @03:06PM
"Almost all" tech is NOT in Silicon Valley. Yes, there's a huge amount there, but by no means is it "almost all". Hell, Microsoft isn't even Silicon Valley, it's in the Seattle area! And they're one of the biggest and well-known tech companies (even if hated by many, including myself).
The truth is that there's quite a few tech hubs all over the US, in particular metro areas. Some that come to mind, in no particular order: NYC, Boston, RTP, Austin, SLC, Phoenix, Portland, Seattle, LA, San Diego.
(Score: 5, Insightful) by WillR on Monday April 20 2015, @03:21PM
So, you know, Google, Apple, Facebook, and ten thousand startups building platforms for young wealthy urbanites to have their household chores done by anonymous contractors without any inconvenient pangs of white upper-class liberal guilt about having "servants".
(Score: 0) by Anonymous Coward on Monday April 20 2015, @03:45PM
Yeah, as a non-Californian, I have to admit there's something about SV that makes it a mecca for tech startups staffed by twentysomethings, with "adult supervision" provided by real techies (not managers who gave up on being engineers when they found they couldn't keep up), usually in their thirties.
Now let's take a typical big tech company, let's say Oracle (which of course is still HQ'd in SV) - engineers wear casual clothes, there are probably foosball and pingpong tables set up, but it isn't the same mindset.
(Score: 0) by Anonymous Coward on Monday April 20 2015, @08:25PM
But that doesn't fit the narrative!
(Score: 3, Insightful) by Appalbarry on Monday April 20 2015, @10:45PM
The US? Try all over the world from Canada, to Europe, to China and India and beyond.
Only an American writer could ignore 95% of the global population to make such a claim.
If the author can substantiate a claim that even 50% +1 of all tech is located in Silicon Valley I'll take him seriously.
(Score: 2) by Grishnakh on Monday April 20 2015, @11:18PM
Try some context. This is an American site, with mostly American readers, and we're talking about an American place, Silicon Valley.
(Score: 1) by khallow on Tuesday April 21 2015, @06:23PM
Only an American writer could ignore 95% of the global population to make such a claim.
Given that the percent of non-high tech people is probably a bit over 99% with an inordinate number of the high tech people in Silicon Vally, the ignoring has good reason.
If the author can substantiate a claim that even 50% +1 of all tech is located in Silicon Valley I'll take him seriously.
I'd say it's an easy plurality with Silicon Valley being about a factor of ten greater concentration than the next largest metropolitan-scale concentrations elsewhere in the world.
(Score: 3, Insightful) by TheRaven on Tuesday April 21 2015, @07:24AM
sudo mod me up
(Score: 2) by VLM on Tuesday April 21 2015, @11:44AM
By "tech" they mean the "hacker news" style tech, "Daddy got me into Stanford and I graduated then Daddy's VC firm gave me $100M to wrap someone else's project in twitter bootstrap and now I'm entitled to my billion dollar buy out, thank you". Surrounded by a whole slew of "we're going to disrupt the dog poop cleanup marketplace by becoming the facebook of dog poop cleanup services" and the like.
They don't mean "real technology" like you'd learn in a textbook, "stuff thats hard", but more web frontend, marketing experiments that coincidentally happen to be online, startup scene in general. That is solely focused in SV.
(Score: 2) by Grishnakh on Tuesday April 21 2015, @03:24PM
They don't mean "real technology" like you'd learn in a textbook, "stuff thats hard", but more web frontend, marketing experiments that coincidentally happen to be online, startup scene in general. That is solely focused in SV.
Again, no, it's not. That's my whole point. Go to NYC; there's tons of that exact same shit there.
(Score: 2) by TK on Tuesday April 21 2015, @07:32PM
Come to Chicago, same deal.
The fleas have smaller fleas, upon their backs to bite them, and those fleas have lesser fleas, and so ad infinitum
(Score: 3, Touché) by wonkey_monkey on Monday April 20 2015, @05:01PM
So Why Exactly does Almost ALL Tech Live in Silicon Valley?
Because if it didn't, it wouldn't be called Silicon Valley.
systemd is Roko's Basilisk
(Score: 2) by kaszz on Tuesday April 21 2015, @11:25PM
Or because William Shockleys mother lived in Palo Alto, California and her son decided to start his company nearby. Then accidentally started the corporate forking tradition. Which just snowballed together with military contracts.
Want to break SV monopoly? provide the same circumstances somewhere else and seed it.
(Score: 3, Funny) by wonkey_monkey on Wednesday April 22 2015, @07:48AM
provide the same circumstances somewhere else
That seems an awful lot to ask of Mrs Shockley.
systemd is Roko's Basilisk