The Bubble Economy

This is where the easy credit goes. A slush fund for Wall St. and Silicon Valley…

Full article here.

Money, money, money: Silicon Valley speculation recalls dotcom mania

Venture capitalists and private equity investors keep the bubble going with their millions

by Rana Foroohar

Financial Times
July 17, 2017

…It’s a bubble that is different — but the same — as the last time. In 2000, start-ups like pets.com were able to go public and jack up share prices even as they were losing hundreds of millions of dollars. The digital ecosystem has since grown, changed and deepened. Today it is harder for companies to receive funding just by sticking “.com” behind their names.

But now, as then, you do not necessarily need profits or paying customers to draw investor interest but rather “users” in a hot market niche. Compelling narratives develop around these sectors (wearables, electric cars, the “sharing” economy). Companies send market signals about their own “value” with announcements that play off these narratives, for example, Uber’s $680m purchase of self-driving truck firm Otto).

Venture capitalists and private equity investors keep the bubble going by buying into it at higher and higher valuations. The smartest ones guarantee their own success by taking rich advisory fees along the way and exiting before disaster via the secondary market for private shares. And this is, as behavioural economist Peter Atwater recently pointed out to me, unusually liquid thanks in part to central bank-enabled easy money.

The virtual money, generated by valuations that are based as much on narrative as fact, is used to salaries: it can cost upward of $2m in cash and stock options to recruit a driverless-car engineer in the Valley. These then distort the price of property, services and labour. You’ll weep when you see the prices of depressing ranch-style homes off Highway 101, which runs through Silicon Valley. The whole cycle is straight-up “madness of crowds”, as described by Charles Mackay in 1841.

UBI, or Something Better?

What’s odd about this discussion on Universal Basic Income below is that nobody successful in Silicon Valley participates in a UBI scheme, nor would they. They rely on risk-taking, equity, and reward. Not sure why they don’t advocate this for everybody – after all, because of the way risk is assigned to asset ownership, labor ends up taking all kinds of risk, yet almost never participates in the rewards to that risk. Instead they get a one-time bonus or profit-sharing.

But Zuckerberg would never accept those terms, either now or before he made his first dollar. It looks to me that Silicon valley tech supports redistribution in order to make their outsized gains from network effects more politically palatable.

Unfortunately, this critic of Zuckerberg and Silicon Valley in general wants to double down on failed tax and redistribution schemes instead of empowering people to participate in the risks and rewards of capitalist entrepreneurial success.

“He (or She) who is without capital in a capitalist society is little more than a wage slave and a captive consumer.” 

Another truism about the future: In a world run by robots, he who owns and controls the robots is king. Make sure you own your robot!

Original article here.

What Mark Zuckerberg Gets Wrong About UBI

New Republic, July 7, 2017

By Clio Chang

It’s no secret that tech bros love universal basic income. Sam Altman of Y Combinator is funding a UBI pilot program in Oakland, California, in part because he was inspired by Star Trek. Tesla’s Elon Musk supports the policy because he realizes that the aggressive automation caused by the tech industry will make UBI “necessary.” This week, as part of his “I’m-not-running-for-president” tour around the country, Mark Zuckerberg visited Homer, Alaska, which resulted in him writing a Facebook post lauding the merits of the state’s Permanent Fund as a model for a national form of basic income.

UBI, a concept that dates back centuries, is the idea that every person should receive some amount of money so that no one dips beneath a basic standard of living. For those on the left, it’s seen as an alternative to our country’s woefully limited cash welfare system. For libertarians, a basic income is lauded as a slimmer, less intrusive way to deliver government benefits. It is the rare utopian idea that people of different political stripes can agree on—Zuckerberg himself made sure to note the “bipartisan” appeal of the policy in his post.

But Zuckerberg reveals exactly why the left should be alarmed that Silicon Valley is taking the lead on this issue.

First, the idea that UBI has bipartisan appeal is disingenuous. The left would have a policy that redistributes wealth by funding UBI through a more progressive tax scheme or the diverting of capital income. But libertarians like Charles Murray argue for a UBI that completely scraps our existing welfare state, including programs like Medicare, Medicaid, and housing subsidies. This would be extremely regressive, since money currently directed towards the poor would instead be spread out for a basic income for all. And certain benefits like health insurance can’t effectively be replaced with cash.

Second, Zuckerberg asserts that Alaska’s Permanent Fund—which uses the state’s oil resources to pay a dividend to each Alaskan and is seen as one of the few examples of an actual UBI-like policy—is advantageous because it “comes from conservative principles of smaller government, rather than progressive principles of a larger safety net.” But a UBI policy can only reflect small government principles if one envisions it eating into the country’s existing welfare state, rather than coming on top of it. In this respect, Zuckerberg’s advocacy of UBI “bipartisanship” starts to look more like a veiled libertarian agenda.

This attitude echoes other pro-UBI tech lords like Altman, who sees basic income as providing a “floor” but not a ceiling. In his ideal scheme, no one will be very poor, but people like Altman will still be free to get “as rich as they fucking want.” The tech vision of the world is one where it can wash its hands of the rising joblessness it will generate through automation, but where those at the top can still wallow in extreme wealth. As Altman told Business Insider, “We need to be ready for a world with trillionaires in it, and that’s always going to feel deeply unfair. It feels unfair to me. But to drive society forward, you’ve got to let that happen.”

This is deeply telling of the tech UBI mentality: driving society forward doesn’t mean reducing inequality, but rather fostering more entrepreneurship. The former is viewed as unnecessary and the latter as an inherent good.

Zuckerberg also compares Alaska’s Permanent Fund to running a business—a very specific one:

Seeing how Alaska put this dividend in place reminded me of a lesson I learned early at Facebook: organizations think profoundly differently when they’re profitable than when they’re in debt. When you’re losing money, your mentality is largely about survival. But when you’re profitable, you’re confident about your future and you look for opportunities to invest and grow further. Alaska’s economy has historically created this winning mentality, which has led to this basic income. That may be a lesson for the rest of the country as well.

The idea that a “winning mentality” is what is going to lead to a basic income in the United States reveals how little Zuckerberg understands about politics. This is a pervasive ideology among tech leaders, who believe the lessons that they have gleaned from their own industry are applicable to all of the country’s problems. But remember the last time a disrupter said he was going to step into the political arena and run our country like a business?

For moguls like Zuckerberg, there is never any deep consideration of, say, the fact that racism, sexism, and classism are deeply intertwined with our country’s policies and are some of the biggest obstacles to implementing a highly redistributive policy like a UBI. Nor is there any attempt to consult with lifelong organizers and activists on the issue.

At the end of his post, Zuckerberg states that the “most effective safety net programs create an incentive or need to work rather than just giving a handout.” This echoes the “personal responsibility” rhetoric that drove workfare policies in the 1990s, which ended up kicking millions of people off of welfare rolls, leaving them in extreme poverty. The line also directly undermines the push for a UBI, which is quite literally a handout that can help liberate people from the “need to work.”

It would appear that Silicon Valley’s support for a basic income comes from self-interest. As Jathan Sadowski writes in the Guardian, “the trouble comes when UBI is used as a way of merely making techno-capitalism more tolerable for people, when it is administered like a painkiller that numbs the pain and masks the symptoms of economic injustice without addressing the root causes of exploitation and inequality.”

Tech moguls may seem like tempting allies for UBI advocates, but their vision of an ideal social safety net does not look anything like the left’s. If it did, they wouldn’t be pushing just for a basic income, but also for things like universal health care, free public education (not just for engineers!), and strong labor unions. For Silicon Valley, UBI is a sleek technological means to a very different end.

Why You Should Play Music

 

Following text excerpted from The Ultimate Killer App: The Power to Create and Connect   Chapter 3.

…Music is a bewitching art because it seems to engage areas of our brain that integrate emotions, memory, language/communication, and motor skills. Music not only stimulates more areas of the brain, it resonates to the very core of our physical being, especially when we dance and sing.

Through the ages philosophers and artists have often argued over which of the arts is preeminent and most venerated.[i] The ancient Greeks lauded poetry, Leonardo da Vinci exalted painting, and Michelangelo favored sculpture as the most sublime art of all. I have to side with philosopher Arthur Schopenhauer’s judgment that music portrays the inner flow of life more directly than the other arts,[ii] and Friedrich Nietzsche, who famously said “Without music, life would be a mistake.” With music we dance, we sing, we communicate, we synchronize and coordinate, we contemplate, we remember. Sometimes we even fall into an otherworldly trance. Reggae icon Bob Marley perhaps puts it most simply when he sings, “One good thing about music, it gets you feeling okay…”

schopenhauer

Reflect, for a moment, on how we interact with music: how we remember and respond to certain melodies over time; how a particular song or melody can replay constantly in our mind’s ear, even to the point of distraction[iii]; how particular melodies and harmonies can make us feel joyful or sad, fearful or fearless; how some individuals can see musical pitches as colors; how a particular shuffle rhythm can make us relax with a resting heartbeat, or an up-tempo straight beat can make our hearts race. Interestingly, humans are unique among primates in being able to tap their feet in time to a rhythm, an activity that involves a process of meter extraction so complicated that most computers cannot do it.

E.O. Wilson argues from an evolutionary perspective that creating and performing music is instinctual, one of the true universals of our species. Anthropological studies of tribal cultures show the extent to which singing and dancing is a natural activity in various communities, seamlessly integrated and involving everyone.[iv] In many of the world’s languages, the verb for singing is the same as the one for dancing; there is no distinction, since it is assumed that singing involves bodily movement.

Functional brain imaging shows that playing and listening to music involves nearly every region of the brain and nearly every neural subsystem. Learning to play a musical instrument even alters the structure of our brains, from subcortical circuits that encode sound patterns to neural fibers that connect the two cerebral hemispheres and patterns of gray matter density in certain regions of the cerebral cortex. One neuroscientist [Harvard’s Gottfried Schlaug] has shown that the front portion of the corpus callosum—the mass of fibers connecting the two cerebral hemispheres—is significantly larger in musicians than in non-musicians.[v]

Music is also powerful in its impact on human feeling and on perception. This is why movie soundtracks have the sublime capacity to enhance our multisensory experience. Music is extraordinarily complex in the neural circuits it employs, appearing to elicit emotion in at least six different brain mechanisms. We have all experienced the pleasures of music and neuroscientists have found that music is strongly associated with the brain’s reward system through the release of dopamine.

The emotional power of music is also reflected in that most time-honored form, the romantic love song. One researcher who analyzed the lyrics of the year’s 10 most popular songs listed in Billboard for two eras, 2002-2005 and 1968-1971, found that 24 of the 40 songs in the modern era — 60 percent — and half the songs of the classic era were devoted to the subject of love and relationships.[vi]

In The Descent of Man Darwin surmised that “musical notes and rhythm were first acquired by the male or female progenitors of mankind for the sake of charming the opposite sex. Thus, musical tones became firmly associated with some of the strongest passions an animal is capable of feeling, and are consequently used instinctively.” Beyond love and sex, music in politics and revolution can become a national anthem, a rallying cry, or a military march. In a communal celebration, such as Mardi Gras, music becomes an expression of collective joy and celebration.

Music is a language, not only an aural language but a written one. Music invokes some of the same neural regions as language but, far more than language does, music taps into primitive brain structures involved with motivation, reward, and emotion. The mental structure in music requires both halves of the brain, while the mental structure of language only requires the left half. In this sense, music is even more powerful than spoken language and is its likely precursor. Music may have prepared our pre-human ancestors for speech communication and for the very cognitive, representational flexibility necessary to become human. Singing and instrumental activities might have helped our species to refine motor skills, paving the way for the development of the exquisitely fine muscle control required for vocal or signed speech.

Not surprisingly, studies have found that children who take music lessons for two years also process language better. Music therapy using listening and instrument playing has been shown to help people overcome a broad range of psychological and neurological problems. Patients suffering from Parkinson’s disease, in whom movements tend to be incontinently fast or slow, or sometimes frozen, can overcome these disorders of timing when they are exposed to the regular tempo and rhythm of music.

In This is Your Brain on Music: The Science of a Human Obsession, neuroscientist Daniel J. Levitin offers evidence to support the view that musical ability served as an indicator of cognitive, emotional and physical health, and was evolutionarily advantageous as a force that led to social bonding and increased fitness. Levitin writes:

The story of your brain on music is the story of an exquisite orchestration of brain regions, involving both the oldest and newest parts of the human brain, and regions as far apart as the cerebellum in the back of the head and the frontal lobes just behind your eyes. It involves a precision choreography of neurochemical release and uptake between logical prediction systems and emotional reward systems. When we love a piece of music, it reminds us of other music we have heard, and it activates memory traces of emotional times in our lives. Your brain on music is all about…connections.[vii] (emphasis added)

Medical research into two specific neuro-developmental disorders reveals an interesting neurological link between music and social development. Williams Syndrome (WS) is a rare genetic disorder that causes physical and cognitive deficits, such as heart defects, stunted physical development, brain abnormalities, low IQs, high levels of emotional anxiety and various learning disabilities. However, WS individuals also exhibit high levels of sociability, gregariousness, and an affinity and talent for music. In contrast to WS are the family of Autism Spectrum Disorders (ASD), such as Asperger’s syndrome. Individuals with ASD exhibit deficits in sociability and an inability to empathize. In general, they also display no emotional affinity for music. As Levitin explains, complementary syndromes such as these, which neuroscientists call a double dissociation, strengthen the putative link between music and social bonding.

Historically and anthropologically, music has been involved with social activities. People sing and dance together in every culture, and one can imagine them doing so around the first fires a hundred thousand years ago. This observation dovetails with E.O. Wilson’s narrative of the campfire as the focus of social and community development cited in Chapter 1.

In Music and the Mind, psychologist Anthony Storr stresses that in all societies, a primary function of music is collective and communal, to bring and bind people together. As Storr explains, in modern culture the choice of music has important social consequences. People listen to the music their friends listen to and people who listen to the same music form friendships. Particularly when we are young, and in search of our identity, we form bonds or social groups with people whom we want to be like, or with whom we believe we have something in common. As a way of externalizing the bond, we dress alike, share activities, and listen to the same music. It becomes a mark of our chosen identity. This ties in with the evolutionary idea of music as a vehicle for social bonding and societal cohesion. Music and musical preferences become a mark of personal and group identity and of distinction.

As a powerful biological, psychological, emotional, and communicative medium, music reinforces the ties that bring us together and then bind us. Think of two musicians playing together, jamming, or playing a structured piece – the music is heard as one indivisible expression. A duet can become a trio, then a quartet, a quintet, and finally a full orchestra or big band. The possibilities for creative variation multiply with collaborative input. There is nothing more enjoyable to jazz aficionados – players and audiences alike – than an artful improvisation on a theme that becomes a new musical exploration of the unknown. Philharmonic audiences, likewise, are thrilled by the grandeur of an orchestra that plays as one.

I have deliberately highlighted the role of creativity in music because it provides strong evidence for the synergistic power of creating and sharing (connecting). The power of creative art is that it connects us to one another, and to larger truths about what it means to be alive and what it means to be human.

music

[i] Granted, this judgment may be largely influenced by the era in which the art is technically applied. Certainly film has been a dominant art form of the 20th century, while others claim that virtual gaming will be the preeminent creative art form of the near future. Nevertheless, I will stick with the universality and simplicity of music.

[ii] See Schopenhauer on the “Hierarchy among the fine arts.”

[iii] For some inexplicable reason as I write this, the song “Winchester Cathedral” keeps repeating in my head. A song I most certainly have not heard replayed for at least 50 years, and yet, there it is playing back in my memory. Not my first choice!

[iv] This points out the modern travesty of dividing communal music performance between virtuosi and the rest of us listening in the audience. The communal drum circle is much more in tune with our nature.

[v] Gottfried Schlaug, “Musicians and music making as a model for the study of brain plasticity.” Prog Brain Res. 2015; 217: 37–55.

[vi] http://news.ufl.edu/archive/2007/05/love-still-dominates-pop-song-lyrics-but-with-raunchier-language.html

[vii] Daniel J. Levitin, This is Your Brain on Music, p. 188. For a lovely graphic illustrating the myriad brain functions that music engages, which I cannot print here due to copyright issues, go to http://www.fastcompany.com/3022942/work-smart/the-surprising-science-behind-what-music-does-to-our-brains?

Finite and Infinite Games: the Internet and Politics

About two decades ago James Carse, a religious scholar and historian, wrote a philosophical text titled Finite and Infinite Games. As he explained, there are two kinds of games. One could be called finite, the other infinite. A finite game is played for the purpose of winning, an infinite game for the purpose of continuing the play.

This simple distinction invites some profound thought. War is a finite game, as is the Superbowl. Peace is an infinite game, as is the game of love. Finite games end with a winner(s) and loser(s), while infinite games seek perpetual play. Politics is a finite game; democracy, liberty, and justice are infinite games.

Life itself, then, could be considered a finite or infinite game depending on which perspective one takes. If ‘he who dies with the most toys wins,’ one is living in a finite game that ends with death. If one chooses to create an entity that lives beyond the grave, a legacy that perpetuates through time, then one is playing an infinite game.

One can imagine that we often play a number of finite games within an infinite game. This supports the idea of waging war in order to attain peace (though I wouldn’t go so far as saying it validates destroying the village in order to save it). The taxonomy also relates to the time horizon of one’s perspective in engaging in the game. In other words, are we playing for the short term gain or the long term payoff?

I find Carse’s arguments compelling when I relate them to the new digital economy and how the digital world is transforming how we play certain games, especially those of social interaction and the monetization of value. That sounds a bit hard to follow, but what I’m referring to is the value of the information network (the Internet) as an infinite game.

I would value the internet according to its power to help people connect and share ideas. (I recently wrote a short book on this power called The Ultimate Killer App: The Power to Create and Connect.) The more an idea is shared, the more powerful and valuable it can be. In this sense, the internet is far more valuable than the sum of its various parts, and for it to end as the victim of a finite game would be a tragedy for all. So, I see playing on the information network as an infinite game.

The paradox is that most of the big players on the internet – the Googles, Facebooks, Amazons, etc – are playing finite games on and with the network. In fact, they are using the natural monopoly of network dynamics to win finite games for themselves, reaping enormous value in the process. But while they are winning, many others are losing. Yes, we do gain in certain ways, but the redistribution of information data power is leading to the redistribution of monetary gains and losses across the population of users. In many cases those gains and losses are redistributed quite arbitrarily.

For instance, let us take the disruption of the music industry, or the travel industry, or the publishing industry. One need not lament the fate of obsolete business models to recognize that for play to continue, players must have the possibility of adapting to change in order to keep the infinite game on course. Most musicians and authors believe their professions are DOA. What does that say for the future of culture?

Unfortunately, this disruption across the global economy wrought by digitization is being reflected in the chaotic politics of our times, mostly across previously stable developed democracies.

These economic and political developments don’t seem particularly farsighted and one can only speculate how the game plays out. But to relate it to current events, many of us are playing electoral politics in a finite game that has profound implications for the more important infinite game we should be playing.

 

Winner-Take-All Technology

The real chasm dividing the US is economic, with one economy for industry and one for tech, and the friction between them is getting fierce.

This article highlights the greatest immediate political and economic challenge we face in the 21st century. (No, it’s not climate change.) Digital technology has created two bifurcating worlds: the analog and the digital. They are diverging because digital technology expands exponentially while analog expands linearly. The most obvious example is the economic divergence between brick-and-mortar businesses and digital technology companies like Google, Apple, Amazon, Facebook, etc. The world’s five largest firms valued by market cap today are Apple, Microsoft, Exxon, Berkshire Hathaway, and Google.

With exponential growth and returns, the digital world is creating serious winner-take-all markets, despite the intense competition in the industry. Tech centers like Silicon Valley are exploding, while manufacturing regions are imploding. Both trends create a serious challenge to the distribution of economic success that traditionally has applied through employment income. Manufacturing and service productivity often led to wage increases enjoyed by expanding labor forces, flattening the distribution of capitalist business success. In the winner-take-all digital world, exponential growth and productivity becomes ever more concentrated in smaller groups of employees and shareholder insiders. In tech centers, slack labor demand is soaked up by innovative start-ups – in Silicon Valley, nobody is unemployed – they are merely early stage entrepreneurs. In the manufacturing industries, labor demand is not only falling, the expanding supply from globalization is driving wage incomes down.

The great challenge for the future will be to find ways to share the successes of technology more broadly by finding ways to include more of the population in its production. Merely imposing new programs of tax and redistribution will not work. I’m not sure any national politicians on the stage really have a clear idea on how to adapt to this future, so, unlike Mr. Kotkin, I’m not convinced the growing split between the digital and analog worlds really favors either political party. As wealth concentrates, so do disenfranchised voters grow in power.

Are We Heading for An Economic Civil War?

by Joel Kotkin, The Daily Beast

Forget that red state-blue state stuff. The real chasm dividing the US is economic, with one economy for industry and one for tech, and the friction between them is getting fierce. When we speak about the ever-expanding chasm that defines modern American politics, we usually focus on cultural issues such as gay marriage, race, or religion. But as often has been the case throughout our history, the biggest source of division may be largely economic.Today we see a growing conflict between the economy that produces consumable, tangible goods and another economy, now ascendant, that deals largely in the intangible world of media, software, and entertainment. Like the old divide between the agrarian South and the industrial North before the Civil War, this threatens to become what President Lincoln’s Secretary of State, William Seward, defined as an “irrepressible conflict.”Other major economic divides—between capital and labor, Wall Street versus Main Street—defined politics for much of the 20th century. But today’s tangible-intangible divide is particularly tragic because it undermines America’s peculiar advantage in being a powerhouse in both the material and non-material worlds. No other large country can say that, certainly not China, Japan, or Germany, industrial powerhouses short on resources, while our closest cousins, such as Canada, Australia, and New Zealand, remain, for the most part, dependent on commodity trade.

The China syndrome and the shape of the next slowdown

Over the past decade, the United States has enjoyed two parallel booms that combined to propel the economy out of recession. One was centered in places like Houston, Dallas-Ft. Worth, Oklahoma City, and across much of the Great Plains. These areas were all located in the first states to emerge from the recession, and benefited massively from a gusher in energy jobs due largely to fracking.At the same time, another part of the economy, centered in Silicon Valley as well as Seattle, Austin, and Raleigh/Durham, has also been booming. Though far more restricted than their counterparts in the “tangible” economy in terms of both geography and jobs, the tech/digital economy did not lag when it came to minting fortunes. By 2014, the media-tech sector accounted for six of the nation’s wealthiest people. Perhaps more important, 12 of the nation’s 17 billionaires under 40 also hail from the tech sector.

Until China’s economy hit a wall this fall, these two sectors were humming along, maybe not enough to restore the economy to its ’90s trim robustly enough to improve conditions in many parts of the country. But as China begins to cut back on commodity purchases, many key raw material prices—copper and iron to oil and gas as well as food stuffs—have fallen precipitously, devastating many developing economies in South America, Africa, the Middle East, and Southeast Asia.

Plunging prices are also beginning to hurt many local economies in the U.S., particularly in the “oil patch” that spreads from west Texas to North Dakota. This is one reason why overall economic growth has fallen, and is unlikely to revive strongly in the months ahead. Overall, according to the most recent numbers, job growth remains slow and long-term unemployment stubbornly high while labor participation is stuck at historically low levels. Much of this loss is felt by the kind of middle and working class people who tend to work in tangible industries.

But it’s not just the much maligned energy economy that is in danger. The recovery of manufacturing was one of the most heartening “feel good” stories of the recession. Every Great Lakes state except Illinois now enjoys an unemployment rate below the national average, and several, led by the Dakotas, Minnesota, Nebraska, and Iowa, boast unemployment that is among the lowest in the nation. Now a combination of a too-strong dollar, declining demand for heavy equipment, and falling food prices threaten economies throughout the Great Lakes and the Great Plains.

Waging war on the tangible economy

President Obama’s emphasis on battling climate change—aimed largely at the energy and manufacturing sectors—in his last year in office will only exacerbate these conflicts. For one thing, the administration’s directive to all but ban coal could prove problematic for many Midwest states, including several—Iowa, Kansas, Ohio, Illinois, Minnesota, and Indiana—that rely the most on coal for electricity. Not surprisingly, much of the opposition to the Environmental Protection Agency’s decrees come from heartland states such as Oklahoma, Indiana, and Michigan. The President’s belated rejection of the Keystone Pipeline is also intensely unpopular, including among traditionally Democratic-leaning construction unions.

These policies have also succeeded to pushing the energy industry, in particular, to the right. In 1990 energy firms contributed almost as much to Democrats as to Republicans; last year they gave more than three times as much to the GOP.

This underlying economic conflict is redefining our politics less along lines of ideology and more in terms of interests.

In contrast, the tech oligarchs and their media allies largely embrace the campaign against fossil fuels. Environmental icon Bill McKibben, for example, has won strong backing in Silicon Valley for his drive to marginalize oil much like the tobacco industry was ostracized earlier. Meanwhile the onetime pragmatic interest in natural gas as a cleaner replacement for coal is fading, as the green lobby demands not just the reduction of fossil fuel but its rapid extermination.

Embracing the green agenda costs Silicon Valley little. High electricity prices may take away blue collar jobs, but they don’t bother the affluent, well-educated, Telsa-driving denizens of the Bay Area, who also pay less for power. But those rates are devastating to the less glamorous people who live in California interior. As one recent study found, the average summer electrical bill in rich, liberal and temperate Marin County was $250 a month, while in impoverished , hotter Madera, the average bill was twice as high.

Many Silicon Valley and Wall Street supporters also see business opportunities in the assault on fossil fuels. Cash-rich firms like Google and Apple, along with many high-tech financiers and venture capitalist, have invested in subsidized green energy firms. Some of these tech oligarchs, like Elon Musk, exist largely as creatures of subsidies. Neither SolarCity nor Tesla would be so attractive—might not even exist—without generous handouts.

In this way California already shows us something of what an economy dominated by the intangible sectors might look like. Driven by the “brains” of the tech culture, the ingenuity of the “creative class,” and, most of all, by piles of cash from Wall Street, hedge funds, and venture capitalists, the tech oligarchs have shaped a new kind of post-industrial political economy.It is really now a state of two realities, one the glamorous software and media-based economy concentrated in certain coastal areas, surrounded by a rotting, and increasingly impoverished, interior. Far from the glamour zones of San Francisco, the detritus of the fading tangible economy is shockingly evident. Overall nearly a quarter of Californians live in poverty, the highest percentage of any state. According to a recent United Way study, almost one in three Californians is barely able to pay his or her bills.

Silicon Valley’s political agenda

For the time being, with the rest of the economy limping along, the tech oligarchs seem, if anything, ever more arrogant and sure that they will define the future of the country’s politics. At a time when most small business owners hold Obama in low regard, the Democratic Party can consider the tech sector as an intrinsic part of its core political coalition. In 2000 the communications and electronics sector was basically even in its donations; by 2012 it was better than two to one democratic.Once largely apolitical or non-partisan in their approach, firms like Microsoft, Apple and Google now overwhelmingly lean to the Democrats. President Obama has even enlisted several tech giants—including venture capitalist John Doerr, Linked In billionaire Reid Hoffman, and Sun cofounder Vinod Khosla—to help plan his no doubt lavish and highly political retirement.The love-fest between Obama and Silicon Valley grows from a common belief in being extraordinary. The same media that has marveled at Obama’s celebrated brilliance also hails Silicon Valley’s ascendency as a triumph of brains over brawn.Yet in reality many traditional industries such as energy and manufacturing still depend on skilled engineers. Indeed, after Silicon Valley, the biggest concentration of engineers per capita (PDF) can be found in brawny metros like Houston and Detroit. New York and Los Angeles, which like to parade as tech hotbeds, rank far behind.

In contrast to engineers laboring in Houston or Detroit, those who work in Silicon Valley focus largely on the intangible economy based on media and software. The denizens of the various social media, and big data firms have little appreciation of the difficulties faced by those who build their products, create their energy, and grow their food. Unlike the factory or port economies of the past, those with jobs in the new “creative” economy also have little meaningful interaction with working class labor, even as they finance politicians who claim to speak for those blue collar voters.

This may explain the extraordinary gap between the economies—and the expectations—of coastal and interior California. The higher energy prices and often draconian regulations that prevented California from participating in the industrial renaissance are hardly issues to companies that keep their servers in cheap energy areas of the Southwest or Pacific Northwest and (think Apple) manufacture most if not all of their products in Asia.

In the process the Democrats, once closely allied with industry, are morphing into a post-industrial party. Manufacturing in strongholds like Los Angeles, long the industrial center of the country, continues to erode. In a slide that started with the end of the Cold War, Southern California’s once-diverse industrial base has eroded rapidly, from 900,000 jobs just a decade ago to 364,000 today. New York City, which in 1950 boasted 1 million manufacturing jobs, now has fewer than 100,000. Overall, manufacturing accounts for barely 5 percent of state domestic product in New York and 8 percent in California, compared to 30 percent in Indiana and 19 percent in Michigan.

This divide could become decisive in the election. In contrast to advances in energy, autos, and homebuilding, which produced good blue collar and middle-skilled jobs, the benefits of the current tech boom have been limited, both in terms of job creation (outside of the Bay Area) and increased productivity, for the vast majority of voters.

This underlying economic conflict is redefining our politics less along lines of ideology and more in terms of interests. Increasingly states that follow the Obama line on energy, such as New York and California, are not contestable for Republicans. But elsewhere—beyond the coasts—there may be greater resistance.

Among those who are likely to revolt are those workers and entrepreneurs in the oil patch, those who build heavy machinery, and those who grow large quantities of food. The recent Republican win in Kentucky was in part based on opposition to anti-coal regulations coming from the Obama administration. As the EPA ramps up its regulatory onslaught, one can expect energy-dependent industries and regions to recoil, particularly at a time when their industries are headed into a recession. Republicans claims that regulatory policies hurt the tangible economies will gain traction if car factories and steel mills start shutting down again, while farmers plant fewer soybeans and developers build fewer suburban homes.

The emergence of an economic civil war?

Hillary Clinton may praise the economic progress under President Obama, and win the nods of those in the tech, media, and financial community who have done very well on his watch. There’s enough momentum from these industries to guarantee that the entire West Coast and the Northeast will fold comfortably, and predictably, into the Clinton column, despite rising concern about crime, homelessness, and loss of middle class jobs. But the very same policies that attract the tech world voter to Clinton will just as certainly alienate many working class and middle class Democrats in places like Appalachia, the Gulf Coast, and particularly the politically pivotal Great Lakes.

The stakes could be huge. If the Republicans can convince most voters in the middle of the country that the coastal-driven policy agenda is a direct threat to their interests, the GOP will likely carry the day. But if the Democrats can convince the country that coastal California and New York City represent the best future for us all, then get ready for Hillary, because nothing else—certainly not the old social issues—will stop her.

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