2016 February 07 Sunday
Cognitive Elite In California Support Rest Of State

Silicon Valley is carrying the rest of the state.

The San Francisco Bay Area has accounted for more than half of all job growth in California since 2007, though it accounts for less than one-fifth of the state’s population. Robust Silicon Valley earnings have also driven up income among the state’s elite and bolstered California’s budget. Last year, capital gains—profit from the sale of investments—accounted for nearly 10 percent of general fund revenues.

Bring in brains and thrive. Bring in people to do your manual labor, well then don't thrive.

Los Angeles is in with the losing parts of the state.

L.A.’s struggles predate the recession of 2008. In the past 20 years, greater Los Angeles has lost 3.1 percent of its jobs, according to a 2014 study by UCLA’s Anderson School of Management.

The pattern in California fits a larger national pattern. America is dividing up into tiers with big differences of income. Rural counties are going down along with some urban areas. Other urban areas have the brightest knowledge workers and they are thriving.

I expect this trend to become even more pronounced as more routine work gets automated. Already the employment prospects for the intellectually less able are dismal.

In a sane world we'd use knowledge of these patterns to set immigration policy and trade policy. But we don't live in a sane world. The great awakening is still some years off but probably less than 10 years.

Share |      By Randall Parker at 2016 February 07 09:47 AM 


Comments
jrackell said at February 7, 2016 3:38 PM:

Is it thriving to be paying $4000 a month for a 400 sq ft apartment in San Francisco or god forbid Oakland?

Is California really benefiting if those job gains represent new people moving into the State?

How much of this economic growth is just economic bubbles blown by central bankers when considering that the biggest advantage of being in the cognitive elite is knowing how to skim the cream for oneself?

Brett Bellmore said at February 7, 2016 4:36 PM:

Another way of interpreting this is that Silicon Valley has it's boot heel on the rest of the state, keeping it down.

Nick said at February 8, 2016 6:12 AM:

The geography of the Bay Area is going to create pressures on everyone else who isn't a tech worker making $150k+. In a normal market, housing would be built to meet the demand of new residents, but there the most desirable areas to live in are thoroughly maxed out and zoning laws and rent control prevents building more housing. Is it really that great that Silicon Valley is subsidizing California's bloated, socialist budget? I don't think so. Its distorting the entire area both economically and socially. I was born a few miles from Palo Alto and I see the massive influx of foreigners (both Mexican illegal's on the bottom end and Indians and Chinese at the top). It's a low-trust, balkanized chamber pot that isn't pleasant to live in unless you limit yourself to contact with close friends and family. Working at Stanford for $70k was manageable when I paid $1500/month in rent, the top end of my budget three years ago. Now with rents at $2500+ you need to make $100k to get by, otherwise you have to live with relatives or roommates.

Abelard Lindsey said at February 8, 2016 8:39 AM:

Randall,

This will continue only as long as Silicon Valley Bubble 2.0 continues. Signs are appearing that this bubble, which was driven by Federal Reserve "Quantitative Easing" largess, may be approaching its end. Once over, California is in for some hard times. Jerry Brown's term ends in 2018. My friend half-jokes about the next governor being a federal bankruptcy judge.

Linden Arden said at February 8, 2016 10:55 AM:

Slightly OT: Nick Said: "It's a low-trust, balkanized chamber pot that isn't pleasant to live in". Agreed 100%. On the east coast we have a high South East Indian population now in the public schools. They try to get involved in normal school functions like sports and clubs. However, you cannot rely on these people, they will ditch a soccer game and leave you in the lurch if it interferes with the Indian holidays or perhaps the 30 day trip back to India. I coach Basketball and Soccer and these kids do knot know the meaning of team. Same for working relationships, you cannot rely on them. They pick up and scram ultimately leaving you holding the bulk of the work. The general transience is disconcerting because it defeats any sense of community or common purpose. The diversity thing isn't working out. Anyone spending any time around it knows what I am talking about.

Wolf-Dog said at February 8, 2016 9:10 PM:

In a few decades internet will be so advanced that the cognitive elite will be able to interact and collaborate to complete complex projects from home. This will be a game changer. For the same reason, attending even a prestigious university will also be very virtual. Thus a lot more tech workers will be employed by top Silicon Valley companies without the need to be in California, and people in Brazil will be able to attend Harvard without the need to travel.

Brett Bellmore said at February 9, 2016 3:34 AM:

Ah, but the cognitive elite don't just want to collaborate on projects, they also want to socialize with each other. Assortive mating happens for a reason, after all. Smart people find smart people more attractive.

So, even if the internet allows collaboration at a distance, the elite will want to live together.

I'm thinking there might be a market for a new state that consists entirely of cognitive elite, where they'd never have to encounter stupid people.

bob sykes said at February 10, 2016 4:54 AM:

The cognitive elite do not support California, they loot it. They have trashed what once was the most desirable and richest state in the Union to third world status: Mississippi Delta West.

william said at February 13, 2016 4:57 AM:

@Linda: Central Texas is the same.

Randall Parker said at February 13, 2016 6:45 PM:

Abelard,

The big public companies in Silicon Valley have big revenues and big profits. They do not need a stock market bubble in order to survive. They are doing great. We do not have good visibility into all the Unicorns that are still private. How many of them make a profit? I do not even try to follow them.

Brett,

It is just so much more efficient to communicate face-to-face. Emails, IM, VCs are not as good. So more brains keep pouring into Silicon Valley. Same for some other brain concentrations.

I keep saying to anyone who will listen that as various pieces of menial labor get automated the mind workers will live in even higher concentrations together. Look at stores. We do not need as many retail employees already. Once autonomous vehicles do deliveries we won't need all those people who do deliveries to be anywhere near us.

Look at car repair. Autonomous tow trucks will come and grab a car in need of repair and take it many miles to a repair facility. Local car repair will fade out along with local gas stations as cars go electric (and become more reliable as well).

So I expect we will see areas with heavy degrees of specialization with highly skilled workers and not much else.

Nick,

Yes, amazing how much and how fast it has changed. Gotta wonder what Stanford is going to do about the unaffordability of housing for its staff. Will it move some admin functions 20-30 miles south? I don't think a campus needs to have its IT department local.

jrackell,

Look at the start-ups in robotics, machine learning, and the like in Silicon Valley. They are doing many kinds of real stuff. The success is very real.

Wolf-Dog said at February 13, 2016 8:21 PM:

Until recently Silicon Valley was mostly known for regular computers and software, not so much for new materials, new kinds of mechanical engineering, new chemicals, etc. Now a new golden age of manufacturing might be launched. Totally new ideas will emerge. 3D printing is a major breakthrough, and it is just the beginning, it will evolve a lot.

And the new robots will not simply be janitors to clean buildings:on the contrary, giant automated mining bulldozers and excavation machines also count as robots, and powering such infrastructure will require a lot of nuclear reactors that were not necessary until recently. After all, solar and wind power will be enough for residential purposes, but for energy intensive industries nuclear reactors will be necessary. Imagine giant robots mining 75 miles below surface, even the sea bed under the oceans: fueling such industrial robots will require an energy research boom by necessity. Once new energy (safe and cheap nuclear energy like Thorium reactors or fusion) is developed, then robots will be cheap enough to operate to feed the unemployed, and unemployment caused by automation will not be a problem. Silicon Valley is not the only place though, as we speak, even New York is trying to become a Silicon Valley in it own right.

Check it out said at February 17, 2016 3:45 PM:

Do you know the price of love for a Silicon Valley man? That's what I thought Randall.

The price of love is more than just the dozen roses you need to buy after a fight. The price of love entails gifts, dates, trips, wedding ceremonies, homes, college tuition for your kids (if you make it this far), and the constant upkeep of making sure your significant other knows you still care.

According to the US Census Bureau, Americans spent $11.5 billion on chocolates and $8.4 billion on non-confectionary items in 2011. In the month of February alone, jewelry stores sold an estimated $2.8 billion worth of merchandise in 2013 compared to $1.5 billion during normal months. Forget about saving the children. Let’s save our marriages!

Think how much simpler a hug and a kiss would be. Well, not if you want to hold on to your woman. Despite many women saying it's the thought that counts, no man should ever come up empty-handed during Valentine's Day, birthday, anniversary, or winter holiday.

Let’s go through an exercise on the growing price of love from the perspective of a 30 year old Silicon Valley man who lives in San Francisco. Mr. Engineer makes $120,000 at a tech startup, rents a $3,000 a month one bedroom apartment, has a net worth of about $200,000 and hopes to make a couple million dollars when his company goes public in an estimated three years.

Before you judge him, remember that love makes people do anything and everything.

DATES

Mr. Engineer meets Ms. Daisy, a middle school teacher who makes $45,000 a year. A typical date consists of going out to a mid-tier restaurant like Garcon in the Mission District for some clams in white wine sauce, steak frites, seared scallops, and a bottle of pinot grigio for $120 total. Afterward, it’s only right for him to take her to get some Butter Love pie and hot chocolate. Add another $15. By the time they reach the SF Jazz Center, they’re feeling a little sleepy thanks to all the food they’ve eaten. No matter, Esperanza Spalding promises to get them moving out of their seats. But those upper deck seats cost $90 for two. The night is a blast for $225. All he’s hoping is for her to call again, and she does.

Once you start strong, you can’t fade. $225 nights are now the norm as he takes her out on at least 12 more similar type of dates plus 20 $50 dollar cheaper dates until he realizes she is the one! It’s time to ring shop.

Total date cost for the year: $3,700.

RING

The engagement ring is another fantastically marketed item where all men are forced to buy a diamond ring, and hopefully a big one at that. Of course any educated man knows that carat size is not the only attribute of importance. He must also get a diamond of ideal cut, G or better color, and clarity no worse than VS1.

The reality is that only the carat size is what matters when your fiancee shows off the ring to her girlfriends. Let’s discuss some basic rules. First, there is the three month gross salary rule for how much to spend. Since our engineer friend makes $120,000 a year, he should consider spending $36,000. Another rule that is growing in popularity is the age equal to carat size rule. Let’s say the love of his life is 28, then a 2.8 carat engagement ring it is. Finally, there’s my absolute favorite rule which is the car rule for engagement ring buying. This rule states that the amount he should spend is roughly equal to the present value of his car. If he just bought a $60,000 BMW on lease yesterday, then he better go out and buy that 3 carat pillow top ring from Tiffany’s. If he’s driving in a frugal 2003 Honda Civic, then perhaps a nice $3,000 ruby ring would do.

Given engineers are practical people who tend to marry practical women, let’s go with a $10,000, 1.3 carat, G color, VVS2, princess cut engagement ring that was custom designed.

Total cost: $3,700 + $10,000 = $13,700.

WEDDING

The average wedding costs $28,000 in America compared to the median household income of just $51,000. Some of you may be shocked by such ostentation for one night, but don’t be because the average car sold is now $31,000. Is there really any wonder why the average American is struggling to accumulate wealth for healthier retirement?

Mr. Engineer and his fiancee would like to have a Napa wedding for 120 of their closest friends and relatives. But after discovering the massive booking costs at Auberge du Soleil and Calistoga Ranch, they decide to make the destination even farther by going to The Resort at Squaw Valley, Lake Tahoe instead. Perhaps this way, less than 100 people of the 120 people will come, thereby saving $550 per head. The end result was a $55,000 destination wedding plus another $3,000 for dinners and drinks for guests who came early for the rehearsal dinner and party.

Total Cost: $3,700 + $10,000 = $58,000 = $71,700.

HONEYMOON

No perfect wedding would be complete without the perfect honeymoon. After careful consideration, Mr. and Mrs. Engineer decide on a relaxing stay in one of those fancy huts over the emerald blue waters in Bora Bora for 10 days. The cost at the all-inclusive Four Seasons Bora Bora is $1,200 a night. Add on $2,500 for roundtrip tickets in economy for each and the couple is now at $17,000. Let’s budget in another $2,000 for random expenses such as taxis, souvenirs, and excursions. Considering the wedding cost $58,000 for the weekend, $19,000 is a steal for 10 nights.

Total Cost: $3,700 + $10,000 + $58,000 + $19,000 = $90,700.

HOUSE

Unfortunately for new home buyers in San Francisco, the median price for a single family house is roughly $1 million. Sadly, $1 million doesn’t buy you much unless you’re willing to live out in the Richmond, Sunset, or Bernal Heights districts. There you’ll find a healthy 1,800 square foot, three bedroom, two bathroom Edwardian that needs $50,000 of work if you don’t get outbid by the hundreds of real estate starved buyers.

Mr. and Mrs. Engineer don’t want to live that far away from work, so instead they opt for a one bedroom, one bathroom condominium in a high rise downtown. The cost for such modern living is $950,000 and $840 a month in HOA dues for a place at One Hawthorne Place. Mr. Engineer decides to pay the entire down payment like a good husband.

Total Cost: $3,700 + $10,000 + $58,00 + $19,000 + $200,000 (downpayment + closing) = $290,700.

DIVORCE

After three years of marriage, Mr. Engineer begins to hate life because his startup, which paid him $30,000 a year below market rate is dying a quick death due to intense competition. Half of his department was let go last quarter and he knows he’s next. Thanks to his fancy one bedroom condo, he was only able to save about $16,000 a year. With the thought of paying a $3,600 /month mortgage + a $840/month HOA fee and no job, Mr. Engineer is stressed out of his mind.

Before buying the one bedroom condo his friend warned him, “No matter how much you guys get along, get a two bedroom so you can have your own space when times are tough!” Mrs. Engineer is the loveliest, kindest woman in the world, but Mr. Engineer starts getting incredibly annoyed at always bumping into her in their 800 sqft apartment. To make matters worse, they’ve been trying to have a baby for the past year to no avail.

Mr. Engineer feels like a failure largely because the company on which he spent 12 hours a day for three years is now going bankrupt. He feels ashamed he can no longer provide the ideal life he promised his wife. One day, Mr. Engineer comes home early to find Mrs. Engineer swimming with Mr. Engineer’s old boss in the pool downstairs. He hated his old boss and seeing them together made his temper flare. Although nothing happened, Mr. Engineer began yelling at Mrs. Engineer and breaking everything in the apartment. It turns out his old boss was just there to offer Mr. Engineer a job at his new company. That’s not happening anymore.

Mrs. Engineer files for divorce, and takes all of Mr. Engineer’s $50,000 in savings. They decide to sell the property for $1 million because neither of them can afford to live in such luxury. The proceeds net them only $930,000 after commissions and transfer taxes. After paying off the $750,000 remaining mortgage, they are left with $180,000 which they divide equally even though he ponied up 100% of the downpayment. Both realize things could have been much worse if they had to sell years earlier in 2008-2009.

Total Cost: $290,700 – $90,000 + $115,000 for the divorce = -$315,700

Check it out said at February 17, 2016 3:52 PM:

The suicide rate in the Silicon Valley is four times higher than the national average over the last 10 years. This reffers mainly to kids born of economically thriving parents. Very convenient, specially for the parents of those kids.

But hey, let's keep talking about monetary profits; it's beyond most American to be able to grasp the difference between success and monetary wealth. For most of them pancakes, ham, eggs, bacon, and syrup go all together; partying means getting wasted or stoned; genital hygene -and porno starring- can only be achieved by circumcision; and pussy licking for them is the same as butt-hole licking, just because they are both very close. Some syrup to go along with your Silicon Valley??

It's your simple mental inability -noticed by the rest of the world- to separate concepts in an orderly fashion. It is that very mental rusticity that makes so many Americans envy a "Silicon Valley" life. High income does not mean thriving, and it's sad that I have to make it clear. Sorry.


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